Applied Industrial Technologies Inc (AIT) 2023 Q4 法說會逐字稿

Welcome to the fiscal 2023 Fourth Quarter Earnings Call for Applied Industrial Technologies. My name is Frank, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded. I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

歡迎參加 2023 財年第四季度應用工業技術收益電話會議。我叫弗蘭克，我將擔任您今天通話的接線員。 （操作員說明）請注意，本次會議正在錄製中。我現在將把電話轉給投資者關係和財務總監 Ryan Cieslak。瑞安，你可以開始了。

Okay. Thanks, Frank, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our fourth quarter results. Both of these documents are available in the Investor Relations section of applied.com. Before we begin, just a reminder, we'll discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations subject to certain risks and uncertainties and including those that are detailed in our SEC filings. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement.

好的。謝謝弗蘭克，祝所有參加電話會議的人早上好。今天早上，我們發布了收益報告和補充投資者資料，詳細介紹了我們第四季度的業績。這兩份文件均可在 Applied.com 的投資者關係部分獲取。在開始之前，謹提醒您，我們將討論我們的業務前景並做出前瞻性陳述。所有前瞻性陳述均基於當前預期，但存在一定的風險和不確定性，包括我們向 SEC 文件中詳細說明的風險和不確定性。實際結果可能與前瞻性陳述中表達的結果存在重大差異。該公司不承擔公開更新或修改任何前瞻性聲明的義務。

In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents. Our speakers today include Neil Schrimsher, Applied's President and Chief Executive Officer; and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neil.

此外，電話會議將使用非公認會計原則財務衡量標準，這些衡量標準須遵守這些文件中引用的資格。今天的演講者包括應用材料公司總裁兼首席執行官 Neil Schrimsher；以及我們的首席財務官戴夫·威爾斯 (Dave Wells)。有了這個，我會把它交給尼爾。

Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I'll start today with some perspective on our fourth quarter results, current industry conditions and our expectations going forward. Dave will follow with more specific detail on the quarter's performance and our forward outlook, including fiscal 2024 guidance. I'll then close with some final thoughts. So first, I'd like to start by acknowledging and thanking our Applied team for their hard work in delivering a record and pivotal year. We continue to exemplify best execution and commitment to consistently serving our customers with industry-leading technical expertise from our core legacy operations to our expanding engineered solutions. Our customer focus and operational execution are evident as the evolution at Applied continues to unfold.

謝謝瑞安，大家早上好。我們感謝您加入我們。我將從今天開始對我們第四季度的業績、當前的行業狀況以及我們未來的預期進行一些展望。 Dave 隨後將詳細介紹本季度的業績和我們的前瞻性展望，包括 2024 財年的指導。然後我將以一些最後的想法作為結束。首先，我要感謝我們的應用團隊為實現創紀錄的關鍵一年所做的辛勤工作。我們繼續體現最佳執行力和承諾，從我們的核心遺留業務到不斷擴展的工程解決方案，始終以行業領先的技術專業知識為客戶提供服務。隨著應用材料公司不斷發展，我們的客戶關注點和運營執行力顯而易見。

This is apparent when considering the strong finish to fiscal 2023 with fourth quarter sales, EBITDA, EPS and cash flow growing nicely and exceeding our expectations. EBITDA grew 17% on 9% sales growth driving full year fiscal 2023 EBITDA growth to 28% on 16% sales growth. This is on top of significant growth achieved last year and against normalizing end market demand during the quarter. So really solid performance that is top tier within our core markets. We're achieving this growth while continuing to expand gross margin and EBITDA margins with both reaching new record highs in fiscal 2023 despite meaningful LIFO headwinds.

考慮到 2023 財年第四季度銷售額、息稅折舊攤銷前利潤 (EBITDA)、每股收益 (EPS) 和現金流的強勁增長並超出我們的預期，這一點顯而易見。 EBITDA 增長 17%，銷售額增長 9%，推動 2023 財年全年 EBITDA 增長至 28%，銷售額增長 16%。這是在去年實現顯著增長以及本季度終端市場需求正常化的基礎上實現的。如此穩定的性能在我們的核心市場中處於頂級水平。我們在實現這一增長的同時，繼續擴大毛利率和 EBITDA 利潤率，儘管存在嚴重的後進先出逆風，但兩者均在 2023 財年創下新高。

Another point to highlight is the strong cash generation in the fourth quarter, bringing our full year fiscal 2023 free cash to a record level of approximately $320 million. This is nearly twofold increase over the prior year and inclusive of working capital investment and higher CapEx. Very encouraging progress and a strong indication of the enhanced cash flow power of Applied as we scale and optimize our operations and margins as well as drive various internal initiatives. Furthermore, our competitive position and operational rigor had never been stronger. This is evident by the significant improvement in our return on capital metrics throughout the year which are the highest in over 10 years.

另一點需要強調的是第四季度強勁的現金生成，使我們的 2023 財年全年自由現金達到約 3.2 億美元的創紀錄水平。這比上一年增長了近兩倍，其中包括營運資本投資和更高的資本支出。隨著我們擴大和優化我們的運營和利潤以及推動各種內部計劃，應用材料公司的現金流能力得到了增強，這是非常令人鼓舞的進展。此外，我們的競爭地位和運營嚴謹性從未如此強大。我們全年資本回報率指標的顯著改善就證明了這一點，這是十多年來的最高水平。

Overall, in a year that faced ongoing headwinds from supply chain constraints and persistent inflation to a mixed macro and demand backdrop, we exceeded our commitments and created meaningful value for our customers, suppliers and all stakeholders. Once again, thanks to the entire Applied team for driving this performance.

總體而言，在面臨供應鏈限制、持續通脹以及宏觀和需求混合背景等持續不利因素的一年中，我們超越了承諾，為我們的客戶、供應商和所有利益相關者創造了有意義的價值。再次感謝整個應用材料公司團隊推動這一業績。

So several key points to highlight in more detail. First, in terms of underlying demand, we saw generally firm trends through the quarter, including a solid finish during June. Average daily sales increased 3% sequentially, largely in line with normal seasonal trends, while organic growth was strong on a 2-year and 3-year stack basis at 27% and 47%, respectively, which compares favorably relative to prior quarters.

因此需要更詳細地強調幾個關鍵點。首先，就潛在需求而言，我們看到整個季度的趨勢總體穩固，包括 6 月份的強勁收尾。日均銷售額環比增長 3%，基本符合正常的季節性趨勢，而 2 年和 3 年的有機增長強勁，分別為 27% 和 47%，與前幾個季度相比表現良好。

Growth was strongest in many of our top industry verticals and across our larger national account base. We saw particular strength across food and beverage, pulp and paper, energy, utilities, lumber and wood and mining verticals during the quarter. Ongoing backlog conversion across our Engineered Solutions segment provided further support. In addition, we believe we're capturing incremental growth opportunities from our industry position and service capabilities as well as building momentum from our cross-selling initiatives.

我們許多頂級垂直行業和更大的國民賬戶基數的增長最為強勁。本季度，我們看到食品和飲料、紙漿和造紙、能源、公用事業、木材和採礦垂直行業尤其強勁。我們的工程解決方案部門正在進行的積壓工作轉換提供了進一步的支持。此外，我們相信我們正在從我們的行業地位和服務能力中抓住增量增長機會，並從我們的交叉銷售計劃中建立動力。

Of note, growth contribution from cross-selling actions continue to build during fiscal 2023 with related sales growth accelerating at a notable level compared to the prior year. While still in the early innings, we see solid potential from cross-selling going forward, with business unit alignment and sales effectiveness, gaining traction across our legacy service center customer base. From fluid power and process systems to advanced automation solutions and indirect consumable support, the breadth of our solutions and application expertise provides our customers coverage across all areas of their operations, a compelling value proposition that is driving a strong funnel of new business opportunities entering fiscal 2024.

值得注意的是，交叉銷售行動對增長的貢獻在 2023 財年繼續增加，相關銷售增長與上一年相比顯著加速。雖然仍處於早期階段，但我們看到交叉銷售未來的巨大潛力，隨著業務部門的調整和銷售效率的提高，在我們的傳統服務中心客戶群中獲得了吸引力。從流體動力和過程系統到先進的自動化解決方案和間接消耗品支持，我們廣泛的解決方案和應用專業知識為我們的客戶提供了覆蓋其運營的所有領域的服務，這是一個引人注目的價值主張，正在推動進入財政年度的新商機的強大渠道2024 年。

It's great to see the sustained growth momentum within our business, particularly when considering broader macro market activity continued to normalize as we expected. Of note, we saw some incremental softening within metals, technology and chemical end markets during the quarter as well as delayed capital spending across certain pockets of our customer base.

很高興看到我們業務的持續增長勢頭，特別是考慮到更廣泛的宏觀市場活動如我們預期的那樣繼續正常化。值得注意的是，我們看到本季度金屬、技術和化學品終端市場出現一些增量疲軟，以及我們某些客戶群的資本支出延遲。

Into early fiscal 2024, organic sales were up by a low single-digit percent. While early trends in the quarter are always difficult to gauge given typical seasonality in the summer and some normalization following our year-end close, we remain mindful of ongoing macro headwinds and easing customer production activity that is presenting a more modest near-term end market backdrop. That said, we have yet to see any meaningful signs of a broad material slowing to date and customer feedback remains generally optimistic.

到 2024 財年初，有機銷售額增長了較低的個位數百分比。儘管考慮到夏季的典型季節性以及年底收盤後的一些正常化，本季度的早期趨勢總是很難衡量，但我們仍然關注持續的宏觀阻力和寬鬆的客戶生產活動，這使得近期終端市場更加溫和背景。也就是說，迄今為止，我們尚未看到任何有意義的跡象表明廣泛的材料放緩，並且客戶反饋總體上仍然樂觀。

Additionally, we believe emerging reshoring activity and investments in U.S. industrial infrastructure are creating incremental demand layers for our technical MRO and Engineered Solutions, both directly and indirectly. All these considerations suggest to us that current market easing is more reflective of a modest cooling in customer activity rather than a retrenchment or contraction in our core end markets, but we're keeping a close eye on the environment and will adjust if required.

此外，我們認為，新興的回流活動和對美國工業基礎設施的投資正在直接和間接地為我們的技術 MRO 和工程解決方案創造增量需求層。所有這些考慮因素都表明，當前的市場寬鬆更多地反映了客戶活動的適度降溫，而不是我們核心終端市場的緊縮或收縮，但我們正在密切關注環境，並將在需要時進行調整。

Digging a little more into each of our segments. Sales growth within our Service Center network remains encouraging with Service Center segment sales up over 9% organically over prior year levels during the fourth quarter and on top of 21% growth last year.

進一步深入研究我們的每個細分市場。我們的服務中心網絡內的銷售增長仍然令人鼓舞，第四季度服務中心部門的銷售額比去年同期有機增長了 9% 以上，去年增長了 21%。

Into early fiscal 2024, we're seeing relatively firm sales trends across our U.S. Service Center network, which is an encouraging sign for general demand as well as the ongoing outgrowth we see in this core area of Applied. In particular, growth remained solid during the fourth quarter across larger national accounts and fluid power aftermarket sales. Transactions through our digital channels, including EDI and applied.com are also growing nicely with related sales up over 30% during fiscal 2023.

進入 2024 財年初，我們看到美國服務中心網絡的銷售趨勢相對穩定，這對於總體需求以及我們在應用材料公司這一核心領域看到的持續增長來說是一個令人鼓舞的跡象。特別是，第四季度國民賬戶和流體動力售後市場銷售的增長依然強勁。通過我們的數字渠道（包括 EDI 和 Applied.com）進行的交易也增長良好，2023 財年相關銷售額增長了 30% 以上。

Our digital channels are benefiting from systems and process tool investments in recent years, which are helping drive new customer growth. In addition, we see greater sales force effectiveness as we continue to deploy and utilize prescriptive analytics to drive more robust benchmarking, wallet share gains, product penetration and geographic coverage. Combined with ongoing talent initiatives and our local service capabilities, we are capturing new growth opportunities across both legacy and emerging end markets.

我們的數字渠道受益於近年來的系統和流程工具投資，這有助於推動新客戶的增長。此外，隨著我​​們繼續部署和利用規範性分析來推動更強大的基準測試、錢包份額的增長、產品滲透率和地理覆蓋範圍，我們看到銷售隊伍的效率更高。結合持續的人才計劃和我們的本地服務能力，我們正在傳統和新興終端市場中抓住新的增長機會。

Within our Engineered Solutions segment, which includes fluid power, flow control and automation offerings, we saw underlying growth moderate slightly from prior quarters. Those sales were still up by a high single-digit percent over the prior year. Component delays and supply bottlenecks remain hurdles within this system build and assembly focused area of our business, albeit at a lesser degree compared to prior quarters. Within Fluid Power, we saw strong backlog conversion as the quarter progressed and solid growth within our core off-highway mobile and industrial verticals, where sales were up in the low teens year-over-year, and orders continued to grow during the quarter. This helped offset softer demand we continue to see across technology-related end markets.

在我們的工程解決方案領域，包括流體動力、流量控制和自動化產品，我們發現基本增長較前幾個季度略有放緩。這些銷售額仍比上一年高個位數增長。組件延遲和供應瓶頸仍然是我們業務的系統構建和組裝重點領域的障礙，儘管與前幾個季度相比程度較輕。在流體動力領域，隨著本季度的進展，我們看到了強勁的積壓訂單轉換，以及我們的核心非公路移動和工業垂直領域的穩健增長，銷售額同比增長了十幾歲，訂單在本季度繼續增長。這有助於抵消我們在技術相關終端市場中持續看到的需求疲軟的影響。

Our Fluid Power backlog exited fiscal 2023 still well above normalized levels and we expect a reacceleration in orders across the technology-related vertical as fiscal 2024 plays out given structural growth tailwinds underpinning this market and our channel position. In addition, our design, engineering and software coding expertise are in greater demand as customers focus on reducing power consumption and CO2 emissions, navigate a tight labor market and integrate more autonomous features into their equipment.

我們的流體動力積壓訂單在2023 財年結束時仍遠高於正常水平，鑑於支撐該市場和我們渠道地位的結構性增長順風，我們預計隨著2024 財年的結束，技術相關垂直領域的訂單將重新加速。此外，隨著客戶專注於降低功耗和二氧化碳排放、應對緊張的勞動力市場以及將更多自主功能集成到他們的設備中，我們對設計、工程和軟件編碼專業知識的需求也越來越大。

Demand also remains positive for our higher-margin process flow control products and solutions. During the quarter, MRO activity and capital spending on process infrastructure remains solid in core end markets, such as chemicals, food and beverage, utilities, energy and pulp and paper.

對我們利潤率較高的過程流程控制產品和解決方案的需求也仍然積極。本季度，化學品、食品和飲料、公用事業、能源以及紙漿和造紙等核心終端市場的 MRO 活動和流程基礎設施資本支出保持穩定。

As noted in prior quarters, our flow control solutions are increasingly used in applications tied to our customer decarbonization efforts and other required infrastructure investments as end markets transition around new energy requirements. This includes providing technical support for the configuration, assembly and testing of process systems. We see further momentum building into fiscal 2024 as we execute on this meaningful opportunity.

正如前幾個季度所指出的，隨著終端市場圍繞新能源需求進行轉型，我們的流量控制解決方案越來越多地用於與客戶脫碳工作和其他所需基礎設施投資相關的應用中。這包括為工藝系統的配置、組裝和測試提供技術支持。隨著我們抓住這一有意義的機遇，我們看到 2024 財年將出現進一步的勢頭。

As it relates to our expanding automation platform focused on next-generation robotics, machine vision and digital solutions, we continue to see positive demand backdrop. Year-over-year organic sales growth improved to 9% in the quarter against ongoing supply chain constraints and slightly longer sales cycles across certain verticals.

由於它與我們專注於下一代機器人、機器視覺和數字解決方案的不斷擴展的自動化平台有關，因此我們繼續看到積極的需求背景。儘管持續的供應鏈限制以及某些垂直行業的銷售週期稍長，但本季度的有機銷售同比增長率提高至 9%。

Demand remains strong across biotech, life sciences, data centers and consumer packaging, partially offset by slower trends across semiconductor and electronic markets. Importantly, customer interest in new business opportunities remain elevated with our sales funnel and presales engineering activity at record highs. We also have more than 100 open projects tied to our joint cross-selling efforts, which is up meaningfully from prior year and represents a notable sales contribution opportunity heading into fiscal 2024.

生物技術、生命科學、數據中心和消費包裝領域的需求依然強勁，但部分被半導體和電子市場放緩的趨勢所抵消。重要的是，隨著我們的銷售渠道和售前工程活動創下歷史新高，客戶對新商機的興趣仍然很高。我們還有 100 多個與我們的聯合交叉銷售工作相關的開放項目，這些項目比上一年大幅增加，代表著進入 2024 財年的一個顯著的銷售貢獻機會。

So overall, underlying growth momentum remains resilient and promising as we continue to navigate an uncertain macro environment. And then lastly, we ended fiscal 2023 with a healthy balance sheet and over $300 million cash on hand, net leverage below 1x and over $1.5 billion in balance sheet capacity. We deployed over $180 million in fiscal 2023 on capital allocation actions, including 2 automation acquisitions, a greater level of CapEx investment supporting organic growth initiatives, ongoing debt reduction and growth in our dividend.

因此，總體而言，隨著我們繼續應對不確定的宏觀環境，潛在的增長勢頭仍然充滿活力且充滿希望。最後，我們在 2023 財年結束時擁有健康的資產負債表，手頭現金超過 3 億美元，淨槓桿率低於 1 倍，資產負債表容量超過 15 億美元。我們在 2023 財年部署了超過 1.8 億美元用於資本配置行動，包括兩項自動化收購、支持有機增長計劃的更高水平的資本支出投資、持續的債務削減和股息增長。

Looking ahead, we expect favorable cash generation to sustain as our working capital requirements moderate following heavy investment in recent years. This provides significant firepower to drive ongoing organic investment as well as potentially accelerate M&A. On top -- our top M&A priorities remain focused on automation, fluid power and flow control markets. We also continue to evaluate select M&A opportunities across our service center network aimed at optimizing our market coverage, talent and service capabilities as we look to fully leverage and capture the significant growth potential continuing to develop in our core service center business.

展望未來，由於近年來大量投資後我們的營運資金需求有所放緩，我們預計有利的現金生成將持續下去。這為推動持續的有機投資以及可能加速併購提供了強大的火力。最重要的是，我們的首要併購重點仍然集中在自動化、流體動力和流量控制市場。我們還繼續評估整個服務中心網絡的精選併購機會，旨在優化我們的市場覆蓋範圍、人才和服務能力，因為我們希望充分利用和捕捉我們核心服務中心業務持續發展的巨大增長潛力。

This includes tailwinds tied to reshoring, customer CapEx investments and technical supply chain requirements. In addition, we remain flexible to return capital through other avenues if necessary, including a potentially more active approach to share buybacks given our long-term earnings potential and the intrinsic value we see across the company.

這包括與回流、客戶資本支出投資和技術供應鏈要求相關的有利因素。此外，如有必要，我們仍然靈活地通過其他途徑返還資本，包括考慮到我們的長期盈利潛力和我們在整個公司看到的內在價值，可能採取更積極的股票回購方式。

At this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.

此時，我會將電話轉給戴夫，了解有關我們財務業績和前景的更多詳細信息。

Thanks, Neil. Another reminder before I begin, as in prior quarters, we have posted a supplemental quarter recap deck to our investor site for additional reference. Turning now to details of our financial performance in the quarter, consolidated sales increased 9.1% over the prior year quarter. Acquisitions contributed 70 basis points of growth which was partially offset by a 20 basis point headwind from foreign currency translation. The number of selling days in the quarter was consistent year-over-year.

謝謝，尼爾。在開始之前，再次提醒您，與前幾個季度一樣，我們已在投資者網站上發布了補充季度回顧，以供更多參考。現在來看我們本季度財務業績的詳細信息，綜合銷售額比去年同期增長了 9.1%。收購貢獻了 70 個基點的增長，但部分被外幣換算帶來的 20 個基點的阻力所抵消。本季度的銷售天數與去年同期持平。

Netting these factors, sales increased 8.6% on an organic basis. Average daily sales rates increased over 3% sequentially versus the prior quarter and were largely in line with normal seasonal patterns. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was in the low single digits in the quarter, moderating as expected, from mid-single digits in prior quarters.

扣除這些因素後，銷售額有機增長了 8.6%。平均日銷售額比上一季度連續增長超過 3%，與正常的季節性模式基本一致。由於與定價相關，我們估計本季度產品定價對同比銷售增長的貢獻為低個位數，與前幾個季度的中個位數相比，如預期有所放緩。

Turning now to sales performance by segment. As highlighted on Slide 7 and 8 of the presentation, sales in our Service Center segment increased 9.1% year-over-year on an organic basis when excluding the impact of foreign currency. Growth was strongest across our U.S. Service Center network as well as within MSS or Maintenance Supplies & Solutions, our indirect consumables business focused on vendor-managed inventory and vending solutions. This was partially offset by more modest growth across our international operations.

現在轉向按細分市場劃分的銷售業績。正如演示文稿幻燈片 7 和幻燈片 8 所強調的那樣，在排除外匯影響的情況下，我們服務中心部門的銷售額同比有機增長 9.1%。我們的美國服務中心網絡以及 MSS 或維護用品和解決方案（我們的間接消耗品業務專注於供應商管理的庫存和自動售貨解決方案）的增長最為強勁。這部分被我們國際業務的溫和增長所抵消。

On a full year basis, segment operating income increased a solid 24% in fiscal 2023, while segment operating margin of 12.6% was up 80 basis points. Within our Engineered Solutions segment, sales increased 9.7% over the prior year quarter with acquisitions contributing 220 basis points of growth.

從全年來看，2023 財年部門營業收入穩定增長 24%，部門營業利潤率增長 80 個基點，達到 12.6%。在我們的工程解決方案部門，銷售額比去年同期增長 9.7%，其中收購貢獻了 220 個基點的增長。

On an organic basis, segment sales increased 7.5% year-over-year. Growth in this segment continues to be supported by strong performance and backlog conversion tied to our industrial and off-highway mobile fluid power solutions as well as sustained customer MRO and CapEx spending into process flow infrastructure. Organic sales growth within our automation operations was also ahead of the segment average at over 9%. This was partially offset by slower activity within fluid power technology verticals and ongoing inbound component delays impacting the timing of some system shipments.

從有機角度來看，分部銷售額同比增長 7.5%。該細分市場的增長繼續受到與我們的工業和非公路移動流體動力解決方案相關的強勁業績和積壓轉換以及持續的客戶 MRO 和流程基礎設施資本支出的支持。我們的自動化業務的有機銷售增長也超過 9%，高於行業平均水平。這被流體動力技術垂直領域的活動放緩以及持續的入庫組件延遲影響了某些系統的發貨時間所部分抵消。

On a full year basis, Engineered Solutions segment operating income increased a strong 30% in fiscal 2023, while segment operating margin of 14.1% was up approximately 150 basis points from the prior year as well as over 300 basis points from fiscal 2019 levels.

從全年來看，工程解決方案部門的營業收入在2023 財年強勁增長了30%，而部門營業利潤率為14.1%，比上一年增長了約150 個基點，比2019 財年的水平增長了300 多個基點。

Moving now to our consolidated gross margin performance on Page 9 of the deck, gross margin of 29.2% increased 35 basis points as compared to the prior year level of 28.9%. During the quarter, we recognized LIFO expense of $8.1 million compared to $10.8 million in the prior year quarter. This net LIFO tailwind had a favorable 24 basis point year-over-year impact on gross margins during the quarter.

現在來看我們在第 9 頁上的綜合毛利率表現，毛利率為 29.2%，比上一年的 28.9% 水平增加了 35 個基點。本季度，我們確認後進先出費用為 810 萬美元，而去年同期為 1,080 萬美元。這種淨後進先出的順風對該季度的毛利率產生了同比 24 個基點的有利影響。

This is the first quarter in 2 years where LIFO expense was lower year-over-year, which is directionally in line with our expectation of easing LIFO expense near term as broader inflation normalizes, and we take a more balanced approach to inventory growth. Our underlying gross margin performance continues to showcase strong execution and our margin expansion potential. During fiscal 2023, we expanded gross margins 12 basis points to 29.2%, inclusive of an 18 basis point headwind from higher LIFO expense.

這是兩年來第一個季度後進先出費用同比下降的情況，這與我們隨著整體通脹正常化而在短期內減少後進先出費用的預期一致，而且我們對庫存增長採取了更加平衡的方法。我們的基本毛利率表現繼續展現出強大的執行力和利潤率擴張潛力。 2023 財年，我們的毛利率提高了 12 個基點，達到 29.2%，其中包括後進先出費用增加帶來的 18 個基點阻力。

In addition, gross margins were up more than 80 basis points over the past 2 years when excluding LIFO expense. Our team continues to manage broader inflationary dynamics well, delivering on our gross margin initiatives, including the application of enhanced analytics, freight recovery and channel execution.

此外，如果不計後進先出費用，過去兩年的毛利率增長了 80 個基點以上。我們的團隊繼續良好地管理更廣泛的通脹動態，實現我們的毛利率計劃，包括應用增強的分析、貨運回收和渠道執行。

As it relates to our operating cost, selling, distribution and administrative expenses increased 7.3% compared to prior year levels. SG&A expense was 18.3% of sales during the quarter down from 18.6% during the prior year quarter. Prior year SG&A benefited from slight favorability tied to our self-insurance performance as well as lower deferred compensation expense. When excluding these favorable prior year items, SG&A expense was up approximately 4% over the prior year period.

由於與我們的運營成本相關，銷售、分銷和管理費用比去年水平增加了 7.3%。 SG&A 費用佔本季度銷售額的 18.3%，低於去年同期的 18.6%。上一年的銷售及管理費用受益於與我們的自我保險業績相關的輕微優惠以及較低的遞延補償費用。排除上年這些有利的項目後，SG&A 費用比上年同期增長約 4%。

We continue to leverage labor costs well, a reflection of talent and systems investments as well as benefits from shared services deployment and operational excellence initiatives. For full year fiscal 2023, SG&A expense as a percent of sales was 18.4% representing a 130-basis-point improvement over the prior year and a 290-basis-point improvement of fiscal 2019 levels. These results are evidence of our team's operational rigor and the structural improvements we have realized in recent years from our ongoing evolution and business enhancements.

我們繼續充分利用勞動力成本，這反映了人才和系統投資以及共享服務部署和卓越運營計劃帶來的好處。 2023 財年全年，SG&A 費用佔銷售額的百分比為 18.4%，比上一年提高 130 個基點，比 2019 財年水平提高 290 個基點。這些結果證明了我們團隊的嚴謹運營以及我們近年來通過不斷發展和業務增強所實現的結構改進。

Our solid sales growth, gross margin management and cost leverage combined to drive a 16.7% increase in EBITDA over prior year levels during the quarter, while EBITDA margin of 12.1% increased 79 basis points compared to prior year levels. This includes a favorable 24-basis-point year-over-year impact due to lower LIFO expense. Including reduced interest expense and a slightly higher tax rate relative to prior year levels, reported earnings per share of $2.35 was up over 16% from prior year earnings per share levels.

我們穩健的銷售增長、毛利率管理和成本槓桿相結合，推動本季度 EBITDA 較上年同期水平增長 16.7%，而 12.1% 的 EBITDA 利潤率較上年同期增長 79 個基點。這包括由於後進先出費用降低而產生的同比 24 個基點的有利影響。考慮到利息費用的減少和相對於上年水平略高的稅率，報告的每股收益為 2.35 美元，比上年每股收益水平增長了 16% 以上。

Moving now to our cash flow performance. Cash generated from operating activities during the fourth quarter was $179.9 million, while free cash flow totaled $174.3 million representing strong conversion at 189% of net income. For the full year, we generated free cash of $317 million which was up 87% from the prior year and a record high despite greater working capital investment and CapEx over the past year. We ended June with approximately $344 million of cash on hand and net leverage at 0.5x EBITDA, which is below the prior year level of 1.2x EBITDA.

現在轉向我們的現金流表現。第四季度經營活動產生的現金為 1.799 億美元，自由現金流總計 1.743 億美元，轉換強勁，占淨利潤的 189%。儘管去年營運資本投資和資本支出有所增加，但全年我們產生了 3.17 億美元的自由現金，比上年增長 87%，創下歷史新高。截至 6 月份，我們手頭現金約為 3.44 億美元，淨槓桿率為 0.5 倍 EBITDA，低於去年 1.2 倍 EBITDA 的水平。

Our leverage remains below our normalized target range up to 2.5x, partially reflecting the significant EBITDA growth we have experienced in recent years. We also remain disciplined with our M&A approach focused on targets and valuations, supporting our return requirements and strategic priorities.

我們的槓桿率仍低於我們的正常目標範圍（最高 2.5 倍），部分反映了我們近年來經歷的 EBITDA 顯著增長。我們還堅持以目標和估值為重點的併購方法，支持我們的回報要求和戰略優先事項。

Turning now to our outlook, which is detailed on Page 11 of our presentation, we are establishing full year fiscal 2024 guidance, including EPS in the range of $8.80 to $9.55 per share based on sales of flat to up 4% year-over-year and EBITDA margins of 11.9% to 12.1%. Our outlook takes into consideration sales trends through early August, ongoing economic uncertainty, strategic growth investments and easy price contribution as the year plays out.

現在轉向我們的展望（在演示文稿第 11 頁中有詳細介紹），我們正在製定 2024 財年全年指導，其中每股收益在 8.80 美元至 9.55 美元之間，基於銷售額同比增長 4% EBITDA 利潤率為11.9% 至12.1%。我們的展望考慮了截至 8 月初的銷售趨勢、持續的經濟不確定性、戰略增長投資以及今年的輕鬆價格貢獻。

We also are assuming additional moderation in broader market activity near term as customers continue to normalize production levels and manage through a higher interest rate environment. While we have not seen any meaningful signs of the broad material slowdown to date and remain constructive on our company-specific growth opportunities, we believe it is prudent to take a balanced approach to our initial outlook.

我們還假設，隨著客戶繼續使生產水平正常化並應對更高的利率環境，短期內更廣泛的市場活動將進一步放緩。雖然迄今為止我們還沒有看到任何重大經濟放緩的有意義的跡象，並且對我們公司特定的增長機會仍然持建設性態度，但我們認為對我們的初步前景採取平衡的態度是謹慎的。

The midpoint of our guidance assumes lower year-over-year sales growth trends in the first half of the year relative to the second half, partially reflecting more difficult comparisons prior in the year. In addition, based on quarter-to-date sales trends through early August, we currently project fiscal first quarter organic sales to grow by a low single-digit percent over the prior year quarter.

我們的指導中值假設上半年的同比銷售增長趨勢低於下半年，部分反映了今年早些時候更困難的比較。此外，根據截至 8 月初的季度至今的銷售趨勢，我們目前預計第一財季的有機銷售額將比去年同期低個位數增長。

From a margin and cost perspective, we assume ongoing inflationary pressures, albeit at a more modest level than in fiscal 2023, partially offset by slightly lower LIFO expense year-over-year. As usual, the year will include the impact of our annual merit pay increase, January 1. Combined with lower top line growth and lingering supply chain constraints, guidance assumes more modest operating leverage relative to fiscal 2023, pending further transparency on broader economic conditions and our near-term growth trajectory.

從利潤和成本的角度來看，我們假設持續的通脹壓力，儘管其水平比 2023 財年更為溫和，但後進先出費用同比略有下降部分抵消。與往常一樣，今年將包括我們1 月1 日年度績效工資增長的影響。結合較低的收入增長和揮之不去的供應鏈限制，指導假設相對於2023 財年而言，運營槓桿更為溫和，有待更廣泛的經濟狀況和透明度進一步提高。我們的近期增長軌跡。

Lastly, from a cash generation perspective, we expect another solid year of free cash flow performance, given easing working capital investment into the front half of the year as well as some benefit from the release of working process and additional progress on our working capital initiatives.

最後，從現金生成的角度來看，鑑於今年上半年營運資本投資有所放鬆，以及工作流程的發布和我們營運資本計劃的進一步進展，我們預計自由現金流表現將再次穩健。 。

In addition, we expect ongoing organic investment supporting our growth strategy and value proposition as well as further investments in technology and supply chain with capital expenditures targeted in $27 million to $29 million range for fiscal 2024. With that, I'll now turn the call back over to Neil for some final comments.

此外，我們預計持續的有機投資將支持我們的增長戰略和價值主張，以及對技術和供應鏈的進一步投資，2024 財年的資本支出目標為2700 萬至2900 萬美元。有了這個，我現在將轉而呼籲返回尼爾尋求一些最終評論。

Thanks, Dave. So to wrap up our performance in fiscal 2023 provides strong evidence of our favorable industry position and the operational execution potential of the Applied team. This is partially the result of strategic investments and initiatives that have positioned Applied for stronger growth relative to our legacy trends and improved returns on capital.

謝謝，戴夫。因此，總結我們 2023 財年的業績，有力地證明了我們有利的行業地位和應用材料公司團隊的運營執行潛力。這在一定程度上是戰略投資和舉措的結果，這些投資和舉措使應用材料公司相對於我們的傳統趨勢實現了更強勁的增長，並提高了資本回報率。

From our financial results to the feedback we receive from customers, suppliers and other stakeholders, our value proposition and evolution is resonating at a high level across our core marketplace. Similar to a year ago, when we began fiscal 2023, the current macro backdrop is driving uncertainty as how industrial activity will track into fiscal 2024.

從我們的財務業績到我們從客戶、供應商和其他利益相關者那裡收到的反饋，我們的價值主張和演變在我們的核心市場的高層引起了共鳴。與一年前類似，當我們開始 2023 財年時，當前的宏觀背景正在帶來工業活動將如何進入 2024 財年的不確定性。

Higher capital costs, tighter credit conditions and ongoing labor and supply chain constraints will likely remain drags on end market spending and customer budgets in the near term. Combined with difficult comparisons following significant growth in recent years, our initial outlook for fiscal 2024 incorporates moderating sales growth into the first half of the year, which we believe is prudent in the current environment.

較高的資本成本、收緊的信貸條件以及持續的勞動力和供應鏈限制可能會在短期內繼續拖累終端市場支出和客戶預算。結合近年來顯著增長後的艱難比較，我們對 2024 財年的初步展望將上半年銷售增長放緩，我們認為在當前環境下這是謹慎的。

That said, we remain constructive that our industry position and self-help opportunities can sustain above-market performance and continue to drive a robust business funnel that presents many new and diverse growth catalyst, both near and long term. In addition, regardless of the trajectory of cycle dynamics, we are focused on continuing to enhance our underlying operational strength in scaling our business as we progress towards our next strategic objectives.

儘管如此，我們仍然樂觀地認為，我們的行業地位和自助機會可以維持高於市場的業績，並繼續推動強勁的業務渠道，提供許多新的、多樣化的近期和長期增長催化劑。此外，無論周期動態軌跡如何，隨著我們朝著下一個戰略目標邁進，我們都致力於繼續增強我們在擴展業務方面的基礎運營實力。

Our team and alignment are strong as the underlying flywheel effect embedded in our strategy is building momentum, which at its core is centered around optimizing and leveraging our legacy Service Center operations as secular tailwinds gain speed while expanding across higher-margin Engineered Solutions tied to advanced automation, industrial power and process technologies.

我們的團隊和聯盟非常強大，因為我們戰略中嵌入的潛在飛輪效應正在積聚動力，其核心是優化和利用我們的傳統服務中心運營，因為長期順風加速，同時擴展到與先進技術相關的更高利潤的工程解決方案自動化、工業電力和過程技術。

Our multifaceted strategy of presenting many new growth catalysts within our Service Center network, we are expanding into new vertical markets tied to electric vehicle production, semiconductors, renewable energy, life science, logistics and wastewater. We're also engaging supplier partners and developing solutions for the adoption of IoT and smart systems. Our domain expertise and technical sales knowledge are invaluable assets in the channel as these emerging business opportunities accelerate.

我們的多方面戰略是在我們的服務中心網絡中提供許多新的增長催化劑，我們正在擴展到與電動汽車生產、半導體、可再生能源、生命科學、物流和廢水相關的新垂直市場。我們還與供應商合作夥伴合作，開發採用物聯網和智能係統的解決方案。隨著這些新興商機的加速發展，我們的領域專業知識和技術銷售知識是渠道中的寶貴資產。

In fluid power operations, we're leading the way in developing and integrating solutions supporting the acceleration of digital control technologies as well as autonomous and electrified equipment. Our engineering capabilities set us in a strong competitive position to secure this fluid power growth tailwind.

在流體動力操作領域，我們在開發和集成解決方案方面處於領先地位，支持數字控制技術以及自主和電氣化設備的加速發展。我們的工程能力使我們處於強大的競爭地位，以確保流體動力增長的順風車。

We're also adding capacity in regions supporting the technology end market, including further strengthening our Fluid Power Systems growth potential across the semiconductor sector for years to come. We also see notable growth potential in expanding our solutions tied to sustainable initiatives in the energy transition. Of note, our Flow Control business is engaging strategic suppliers and identifying opportunities around biogas and carbon capture as well as hydrogen and lithium production.

我們還增加了支持技術終端市場的地區的產能，包括進一步增強我們的流體動力系統在未來幾年在半導體領域的增長潛力。我們還看到了擴展與能源轉型可持續舉措相關的解決方案的顯著增長潛力。值得注意的是，我們的流量控制業務正在與戰略供應商合作，並尋找沼氣和碳捕獲以及氫和鋰生產方面的機會。

Our broad flow control product portfolio, combined with our engineering capabilities are integral to the ongoing build-out of various flow systems and processes utilized in these emerging green market opportunities. And lastly, we remain excited about the ongoing expansion of our next-generation automation platform. Now representing close to 15% of our Engineered Solutions segment sales, we expect greater organic growth contribution from this advanced area of our business in fiscal 2024 particularly as we accelerate our cross-selling efforts.

我們廣泛的流量控制產品組合與我們的工程能力相結合，對於在這些新興綠色市場機會中不斷構建的各種流量系統和流程來說是不可或缺的。最後，我們對下一代自動化平台的持續擴展仍然感到興奮。目前占我們工程解決方案部門銷售額的近 15%，我們預計這一先進業務領域在 2024 財年將做出更大的有機增長貢獻，特別是在我們加快交叉銷售努力的情況下。

We're making traction with our greenfield expansion initiatives and continue to develop new approaches to best serve our embedded customer base and further enhance our market position, including through proprietary turnkey solutions and leading application expertise.

我們正在大力推進綠地擴張計劃，並繼續開發新方法，以最好地服務於我們的嵌入式客戶群，並進一步增強我們的市場地位，包括通過專有的交鑰匙解決方案和領先的應用專業知識。

We see significant potential to further scale this platform into fiscal 2024 and beyond with both M&A and organic initiatives. Given these dynamics, and the strong performance in fiscal 2023, we're increasing our intermediate financial targets with our sales objective now over $5.5 billion and EBITDA margins over 13%. We believe these objectives are well within the company's capability and can be achieved within the next 5 years or sooner depending on broader macro conditions, the cadence of M&A and other factors.

我們看到通過併購和有機舉措進一步擴展該平台到 2024 財年及以後的巨大潛力。鑑於這些動態以及 2023 財年的強勁表現，我們正在提高中期財務目標，目前的銷售目標超過 55 億美元，EBITDA 利潤率超過 13%。我們相信這些目標完全在公司的能力範圍內，並且可以在未來5年或更短時間內實現，具體取決於更廣泛的宏觀條件、併購節奏和其他因素。

Overall, our team is engaged and ready to execute on these next milestones, which we believe provide the framework for significant value creation for all stakeholders. Once again, we thank you for your continued support. And with that, we'll open up the lines for your questions.

總體而言，我們的團隊已投入並準備好執行這些下一個里程碑，我們相信這為所有利益相關者創造重大價值提供了框架。我們再次感謝您一直以來的支持。至此，我們將開放您的提問熱線。

(Operator Instructions) Our first question comes from David Manthey with Baird.

（操作員說明）我們的第一個問題來自 David Manthey 和 Baird。

First question is related to capital allocation. So I believe you still have 1.5 million shares available under the current authorization. And maybe more broadly, could you talk philosophically about share repurchase, just given the state of the economy, your leverage ratios and the state of your acquisition pipeline?

第一個問題與資本配置有關。所以我相信在目前的授權下你還有150萬股可供使用。也許更廣泛地說，考慮到經濟狀況、槓桿率和收購渠道的狀況，您能否從哲學角度討論股票回購？

In terms of rank order, we've talked about it before. Certainly, our first priority is going to be organic investment. You saw more significant organic investment in the business in the past year in fiscal '23, anticipating that in '24 as well, really focused around continuing to build out capabilities on the Engineered Solutions side of the business.

至於排名順序，我們之前已經討論過。當然，我們的首要任務是有機投資。在過去的一年中，您在 23 財年看到了更重要的業務有機投資，預計在 24 財年也將真正專注於繼續增強業務工程解決方案方面的能力。

Certainly, still active M&A pipeline, you would like to continue to see us drive significant shareholder value with the bolt-on acquisitions still very much in line of sight for fiscal '24. As we made reference in the earnings release and the script, I think in addition to kind of could it be a dividend payer with the track record of 14 years of increases, we would expect to be a bit more active in terms of share buyback, just given cash position, low leverage levels and kind of that near-term view on the cash generation characteristics of the business.

當然，由於併購管道仍然活躍，您希望繼續看到我們通過 24 財年的補強收購來推動顯著的股東價值。正如我們在財報發布和腳本中提到的那樣，我認為除了可能成為具有 14 年增長記錄的股息支付者之外，我們預計在股票回購方面會更加積極，只是考慮到現金狀況、低杠桿水平以及對企業現金生成特徵的近期看法。

We're well set up to drive continued significant cash flow as you think about moving through '24, bleeding off some of these still slightly elevated work in process inventory levels and continue to see the improvement in the profitability of the business. So expect us to be a bit more active there in terms of share buyback as we move through '24.

當您考慮進入 24 世紀時，我們已做好充分準備，可以推動持續的大量現金流，消除其中一些仍略有上升的在製品庫存水平，並繼續看到業務盈利能力的改善。因此，隨著 24 年的到來，預計我們在股票回購方面會更加積極。

Yes. It seems like a big opportunity. Your debt levels are down, what, almost 1.5 turns over the past 2 years, and it really hasn't constrained as it relates to acquisitions. It seems like with $1.5 billion of availability, you may as well shuffle a couple of hundred million towards repurchase in addition to everything else you're doing. But is it -- am I right in assuming that your guidance currently, I think you said it does not include any unannounced acquisitions, but are we also right to assume it doesn't include any other form of capital redeployment outside of just investments in operations and CapEx.

是的。這似乎是一個很大的機會。在過去的兩年裡，你的債務水平下降了近 1.5 倍，而且它實際上並沒有因為收購而受到限制。看起來，有了 15 億美元的可用資金，除了你正在做的其他事情之外，你還可以將幾億美元用於回購。但是，我是否正確地假設您目前的指導，我認為您說它不包括任何未經宣布的收購，但我們也可以正確地假設它不包括除了投資之外的任何其他形式的資本重新部署運營和資本支出。

That's correct. The guidance would be a normal course of business for the existing operations. So I would exclude the incremental M&A, that would be upside opportunity or anything unusual in terms of capital allocation.

這是正確的。該指導意見將是現有業務的正常業務流程。因此，我會排除增量併購，這將是上行機會或資本配置方面的任何異常情況。

Yes. Okay. And then second, maybe you could give us an update on customer receptivity towards your discrete automation applications. And more specifically, maybe you could give us some examples of some of the top sort of replicable solutions that you're seeing success with today?

是的。好的。其次，也許您可​​以向我們提供有關客戶對您的離散自動化應用程序的接受程度的最新信息。更具體地說，也許您可​​以給我們一些您今天看到的成功的頂級可複制解決方案的例子？

Yes. So Dave, I can start. I think from the numbers in the quarter, we were pleased. The teams are active, both our sales engineers and application specialists engaging with customers and a real focus is understanding their operations and how we help solve their problems. And think about applications that can be replicated, we would see interest in projects and conversion around collaborative robots and machine tending, which can help customers with labor.

是的。戴夫，我可以開始了。我認為從本季度的數字來看，我們很高興。我們的團隊非常活躍，我們的銷售工程師和應用專家都在與客戶互動，真正的重點是了解他們的運營情況以及我們如何幫助他們解決問題。考慮到可以復制的應用程序，我們會看到人們對圍繞協作機器人和機器護理的項目和轉換感興趣，這可以幫助客戶解決勞動力問題。

We would see applications and use of vision systems where customers would apply them for quality control. Enhancements or perhaps also address some labor challenges or constraints when those previously were perhaps manual inspection versus using technology. We can see trends in consumer packaging, right? There's high standards on consumer packaging, on accuracy and labeling and of course, barcoding as those go through more retail environments. And so there's a high requirement there, and so we see vision systems that can get applied into that.

我們將看到視覺系統的應用和使用，客戶將其用於質量控制。增強功能或可能還解決了一些勞動力挑戰或限制，而以前這些挑戰或限制可能是手動檢查而不是使用技術。我們可以看到消費包裝的趨勢，對嗎？消費者包裝、準確性和標籤，當然還有條形碼，因為這些產品要經過更多的零售環境，因此有很高的標準。因此，那裡的要求很高，因此我們看到可以應用於其中的視覺系統。

So they continue to grow. We look at how we can set up some of these productized solutions, which we think helps our Service Center teams identify those opportunities and then connect with our application resources to increase that conversion rate. We made reference to there's more projects in the pipeline there, but I'm also encouraged by our automation team continuing to grow in their targeted vertical segments and with current customers as well as prospects and targets they have.

所以他們繼續成長。我們研究如何建立其中一些產品化解決方案，我們認為這有助於我們的服務中心團隊識別這些機會，然後與我們的應用程序資源連接以提高轉化率。我們提到那裡有更多的項目正在醞釀中，但我也對我們的自動化團隊在目標垂直領域以及當前客戶以及他們的潛在客戶和目標中繼續發展感到鼓舞。

Our next question comes from Ken Newman with KeyBanc Capital Markets.

我們的下一個問題來自 KeyBanc Capital Markets 的 Ken Newman。

Curious, can you just talk a little bit more about the confidence in the organic sales guide, particularly for the back half. Neil, obviously, we've heard a bit more about customers destocking across a lot of industrial distributors this quarter as the supply chains normalize. But obviously, you're a bit more break/fix relative to a lot of your peers. Any way you can kind of quantify what you've seen from a destock perspective this quarter and how do you expect that plays out into the back half of '24.

很好奇，您能否多談談對有機銷售指南的信心，特別是對後半部分的信心。尼爾，顯然，隨著供應鏈正常化，我們本季度聽到了更多關於許多工業分銷商的客戶去庫存的消息。但顯然，與許多同齡人相比，你更容易打破/修復。您可以通過任何方式量化您從本季度去庫存的角度看到的情況，以及您預計這將如何影響到 24 年下半年。

Yes. So again, we've talked about it. I think at times, I think given the technical nature of our products, the random break/fix demand. Oftentimes, many of those -- a little more customized solutions, we do not get a favorable lift from stocking. And then therefore, I think we get some natural resistance to destocking trends.

是的。我們再次討論過這個問題。我有時認為，考慮到我們產品的技術性質，隨機的中斷/修復需求。通常，其中許多——更多定制的解決方案，我們無法從庫存中獲得有利的提升。因此，我認為我們對去庫存趨勢存在一些自然的阻力。

Our customers are really counting on us given those break/fix requirements around those products and solutions. So I won't say it's 0 as it goes, but it's much lower than other forms of products and consumables in that front. So as we think about the environment and the guide, right, our focus is pay will be prudent to some of the cross currents or the trends or publications, but we also have a strong focus on our customers and those opportunities and our sales effectiveness that we can operate to continue to perform in any environment.

考慮到這些產品和解決方案的中斷/修復要求，我們的客戶確實非常依賴我們。所以我不會說它是0，但它比這方面的其他形式的產品和消耗品要低得多。因此，當我們考慮環境和指南時，對吧，我們的重點是薪酬將對某些逆流、趨勢或出版物持謹慎態度，但我們也非常關注我們的客戶以及那些機會和我們的銷售效率，我們可以在任何環境下繼續運作。

And then in the past, I think you've talked a little bit more about your macro assumptions that underlie the full year outlook. And I'm curious can you just share what you're assuming for industrial production or capacity utilization at the midpoint of the guide for this year?

然後在過去，我認為您已經更多地談論了作為全年前景基礎的宏觀假設。我很好奇您能否分享一下您對今年指南中點的工業生產或產能利用率的假設？

Yes. So I'd start and say right, we're not perfect economist as we think we'd like to say we're more focused on or hope to be better operators than economists. But if I think about guidance, I would say, to your question then around the midpoint, we'd assume kind of a low single-digit year-over-year declines in the first half and then perhaps in the second half, more muted or just a slight contraction to the market in the second half.

是的。所以我首先要說的是，我們不是完美的經濟學家，因為我們認為我們更關注或希望成為比經濟學家更好的運營商。但如果我考慮指導，我會說，對於你的問題，那麼在中點附近，我們會假設上半年出現較低的個位數同比下降，然後可能在下半年，更加溫和或者只是下半年市場小幅收縮。

Understood. Maybe just please, one more in. I wanted to talk about the low end of the guide. Obviously, it assumes higher margin and EPS of flat sales. Maybe just talk a little bit more about bucketing the various drivers of that margin expansion in that scenario, how much of that is going to be from a mix shift versus cost-out initiatives? Any help there would be appreciated.

明白了。也許請再進來一次。我想談談指南的低端內容。顯然，它假設銷售利潤率和每股收益持平。也許只是多談談在這種情況下利潤擴張的各種驅動因素，其中有多少將來自混合轉變與成本削減計劃？任何幫助將不勝感激。

Sure. So as we think about it, and we've touched on, we believe we continue to have gross margin opportunities and the multiple initiatives or focused area that we have there. And so we'll continue -- appropriate actions are in focus around an execution point of sale. As we think about customer mix, that in the slowing environment could be perhaps a little bit of a headwind, right? We'll continue to work and serve local accounts, but they may be the ones that impact -- or feel that softness a little bit more than more large national accounts.

當然。因此，當我們思考並談到這一點時，我們相信我們仍然擁有毛利率機會以及我們在那裡擁有的多項舉措或重點領域。因此，我們將繼續 - 圍繞銷售執行點採取適當的行動。當我們考慮客戶組合時，在經濟放緩的環境中，這可能會有點逆風，對嗎？我們將繼續努力並為本地賬戶提供服務，但他們可能會受到影響，或者比更大型的國民賬戶更容易感受到這種疲軟。

We will continue to sell technical solutions, which help positive on the mix side and then we will work the other levers as well on the gross margins. I think we've demonstrated ongoing cost accountability in the business. There's some natural shock absorbers that would go in if there is softness that go into play and so those would help or benefit.

我們將繼續銷售技術解決方案，這有助於在混合方面發揮積極作用，然後我們還將利用其他槓桿來提高毛利率。我認為我們已經在業務中展示了持續的成本責任。如果有柔軟性發揮作用，就會有一些天然減震器起作用，因此這些會有所幫助或受益。

And then as I think about the business overall and LIFO as we think about perhaps LIFO in the first half, but potentially that could get to at or slightly below $8 million a quarter, at least for the first half. For the second half, we'll see to be determined, but that could be a slight contributor as well.

然後，當我考慮整體業務和後進先出法時，我們可能會考慮上半年的後進先出法，但有可能達到或略低於每季度 800 萬美元，至少在上半年是這樣。對於下半年，我們將看到確定的情況，但這也可能是一個小小的貢獻。

(Operator Instructions)

（操作員說明）

Our next question comes from Chris Dankert with Loop Capital.

我們的下一個問題來自 Loop Capital 的 Chris Dankert。

I guess thinking about the guide for fiscal '24, are we assuming kind of a return to a much more typical pricing dynamic where it's modest to maybe like a 1% contributor? Or is it something in that ballpark?

我想考慮一下 24 財年的指南，我們是否假設會回歸到更典型的定價動態，即貢獻率可能適度到 1%？或者是那個球場裡的什麼東西？

Yes. I mean certainly, we saw kind of some of that subside that mid-single-digit go to low double -- low single digits here in the most recent quarter. So yes, I mean, especially as we work through the year, again some of the comps, I'd expect that to be low single digit. Very modest inflationary assumptions continuing across the year that we'd react to in the form of price as well as other kind of margin expansion initiatives. So not a big contributor, at least as on a year-over-year basis compared to what we saw in '23.

是的。我的意思是，我們確實看到了最近一個季度中個位數下降到低個位數的情況有所減弱。所以是的，我的意思是，特別是當我們全年工作時，再次進行一些比較，我預計這將是低個位數。全年持續的非常溫和的通脹假設，我們將以價格以及其他類型的利潤擴張舉措的形式做出反應。因此，至少與我們在 23 年看到的相比，這並不是一個很大的貢獻者。

Got it. Yes. No, it's good to kind of return to something more normal, I guess. And then maybe just on the backlog side of things, how should we be thinking about the impact of backlog growth in the near term? Are we assuming Engineered Solutions benefits from that in '24 kind of outgrows the Service Center business, kind of we're looking at the guide overall?

知道了。是的。不，我想回到正常的狀態是件好事。然後也許只是在積壓方面，我們應該如何考慮近期積壓增長的影響？我們是否假設工程解決方案受益於 24 世紀超過服務中心業務的增長，我們是否正在整體考慮該指南？

Yes, I would say that start, we would think about in the first half that the Service Center business will continue to do well. Our U.S. Service Center business having strong performance right now. I think some of the overall -- a little bit of a slower start in perhaps Canada and Mexico in that, that could blend the overall number down a little bit.

是的，我想說的是，從上半年開始，我們會考慮服務中心業務將繼續表現良好。我們的美國服務中心業務目前表現強勁。我認為，總體而言，加拿大和墨西哥的起步速度可能會稍慢一些，這可能會使總數有所下降。

But I would say in the 2, and we'll have expectations for performance that Service Centers could be a little stronger. As I think about the backlog, that's predominantly in our Fluid Power segment within that Engineered Solutions and while flow control and automation have and we did see a little bit of growth in that in the quarter, the biggest area that we care backlog is around fluid power, a nice conversion in the quarter, and we're still operating at good levels on backlog, I would say, really at 2x normalized level.

但我想說的是，在 2 中，我們對服務中心的表現會有更強的期望。當我想到積壓時，這主要集中在工程解決方案中的流體動力部分，雖然流量控制和自動化在本季度確實看到了一點增長，但我們關心積壓的最大領域是流體電力，本季度實現了良好的轉換，而且我們在積壓訂單方面仍保持良好水平，我想說，實際上是標準化水平的兩倍。

So we view that as positive and can provide us some underlying strength as we go forward in really the first half of this fiscal year.

因此，我們認為這是積極的，並且可以為我們在本財年上半年的前進提供一些潛在的力量。

At this time, I'm showing we have no further questions. I will now turn the call back to Mr. Schrimsher for any closing remarks.

此時，我表明我們沒有其他問題了。我現在將把電話轉回給施里姆舍先生，請他發表結束語。

I just want to thank everyone for joining us today, and we look forward to talking with many of you throughout the quarter. Thanks.

我只想感謝大家今天加入我們，我們期待在整個季度與你們中的許多人交談。謝謝。

Ladies and gentlemen, this does conclude today's conference. You may now disconnect your lines. Have a great day, everyone.

女士們、先生們，今天的會議到此結束。您現在可以斷開線路。祝大家有個美好的一天。