Chip Blankenship: Yeah. We just — if you take on-highway down to really not contributing, let’s say, because in past times we’ve seen on-highway be negative when volume is really, really low. But if you take it down to not contributing to sort of a breakeven, then you might believe the numbers that you’re seeing.
Michael Ciarmoli: Okay. Yeah, no, that makes sense. Maybe just shifting gears, can you give us any more color on that 45% growth in defense aftermarket and anything — I think I’ve heard you call out vehicles, but anything else and how to maybe think about the trajectory going forward there? I know in the slide, you kind of pointed to I think supply chain and some other items.
Chip Blankenship: Yeah. So, it really is an execution story. We’ve had a lot of demand and we’ve disappointed customers for quite a long time by very long turn times in our defense, repair and overhaul portfolio. The really good news — well, good news that our execution has improved substantially and we’ve got flow going there and we’re planning repair and overhaul just like we plan OEM production with a rigorous process now and we’ve got good focus on it. The even better news is that the growth is across literally all of the programs that we’re involved in. So, there is no one program outlier to lean on or be concerned about. And so, as we continue to put an operational excellence focus on defense, repair and overhaul, I believe that’s a good growth lever for us and a margin improvement lever for us for that part of the business.
I talked about our value stream transformation efforts and that defense, repair and overhaul value stream is on the list for 2024 to further enhance the performance there and serve those very important customers better.
Michael Ciarmoli: Got it. Helpful. Thanks, guys.
Chip Blankenship: You bet.
Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Please state your question. Sheila, please state your question.
Sheila Kahyaoglu: Yeah. Sorry about that. Chip, I wanted to follow-up on your prepared remarks in terms of — in your script, you mentioned you went to Zeeland last week and it really focused on the GTF fuel nozzle and how it might come to market even though it is unexpected. I was wondering if you could just comment on what that means? Does this mean additional content, if you could elaborate?
Chip Blankenship: Yeah. So, our assumption and working with the engine OEM on this was that the early shaft business would be more like a clean, check and repair activity, which is fairly low content for us and sort of supporting a quick turn philosophy. But there is some indication that perhaps the build standard might want to focus on ensuring a longer next run of the engine, in which case, we might see more scope and more overhaul type procedures to ensure a longer second run. But a lot of that’s going to be airline specific and customer specific and what they want for work scope. We’re just trying to make sure we stay ahead of that demand and if that’s the direction they want to go with their strategy that we’re ready to support it.
Sheila Kahyaoglu: Got it. Thank you.
Chip Blankenship: You’re welcome.
Operator: Your next question comes from the line of Louis Raffetto from Wolfe Research. Please state your question.
Louis Raffetto: Hi. Thanks for the follow-up. So, Chip, I appreciate you, Bill, the sort of openness on China natural gas given where things have been sort of in the past. Maybe just to sort of put a finer point on this, you said the full guidance increase is from China natural gas and you’re talking 40% margins on that business. If we assume there’s $50 million of sales in 2Q, I mean, it looks like the margins in Industrial in the back half the year kind of step down to low double-digits. Is that kind of what you were just referring to?
Chip Blankenship: Yes, that’s what we are discussing.
Bill Lacey: Yeah.
Louis Raffetto: Okay. Just wanted — thank you.
Chip Blankenship: Yeah. I know it’s a lot of moving parts here. I appreciate your inquisitiveness.
Louis Raffetto: Thank you.
Operator: Mr. Blankenship, there are no further questions at this time. I will now turn the conference back to you.
Chip Blankenship: Okay. Thank you all for joining us. Have a great day.
Operator: Ladies and gentlemen, that concludes our conference call today. If you would like to listen to a replay of this conference call, it will be available today at 7:30 p.m. Eastern Time by dialing 1-888-440-4531 for a U.S. call or 1-646-960-0808 for a non-U.S. call and by entering the access code 4278216. A rebroadcast will also be available at the company’s website, www.woodward.com, for 14 days. We thank you for your participation on today’s conference call. And with that, please disconnect your lines.
