Welcome to The Middleby Second Quarter Conference Call. My name is Jenny. I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to Tim FitzGerald. You may begin.

Thank you for joining us today on our second quarter earnings call. As we begin, please note, there are slides to accompany the call on our Investor page of the website. We continue to execute on our financial plans and strategic initiatives, building upon our positive momentum. During the quarter, the already existing inflationary pressures further accelerated as we saw a spike in costs following the war in Ukraine. Supply chain disruption also became increasingly challenging to our operations following the COVID shutdowns in China. But our teams continue to react quickly, making adjustments to minimize disruption to our business and our customers. And despite the operating disruptions and cost increases, we posted another quarter of record sales and earnings. And we also were able to advance our profitability with realized margin improvement at all 3 of our business segments. Our focus on the sale of our latest technologies and product innovations is favorably impacting the profitability of our sales mix. And pricing actions enacted earlier this year have partially offset the most recent wave of material cost increases with greater benefits still expected to be realized in the second half of 2022. Operationally, we continue to invest in our manufacturing footprint with facility expansions to support growth of new product launches. And in the past 18 months, we’ve also committed over $75 million of investments in automated fabrication equipment, which will increase throughput and efficiencies across our businesses. And in the first half of 2022, we have added over 700 production team members at our factories as we increase production capacity to support higher order rates and ship record backlogs. While inflationary pressures are impacting the overall economy, we continue to be positioned to capture favorable underlying trends driving demand across all 3 of our business segments. At our…

Thanks, Tim. And for this discussion, please refer to Slides 9, 10, and 11. I’m excited to talk about Middleby’s new products. Over the next several quarters, we will be discussing automation and what we will be bringing to restaurants, food processing facilities and homes. Last quarter, we featured the Synesso ES1, a single group espresso machine. Today, I’m going to continue within Middleby’s Coffee Group by talking about Concordia’s Ascent Touch bean-to-cup brewer. The Ascent Touch has all the makings of a fully automatic espresso machine, but it isn’t. It’s a true bean-to-cup brewer. The AT holds 4 different roasts and brings your favorite drip coffee per order through Concordia’s proprietary accelerated low pressure extraction process. Through this, we control the coffee’s particle size, water temperature, pressure, dwell time, flow and turbulence during the brewing cycle. In all, the Ascent Touch allows the operator to precisely control 10 discrete variables via its controller. When optimized, the Ascent Touch delivers a gold standard brew as determined by the Specialty Coffee Association, which means we extract 18% to 22% of the coffee bean solids into the water, any more or any less results in a weak or bitter cup of coffee. This brewing process rapidly automates the French press technique of extraction, while allowing us the ability to rapidly brew at a rate of 1 ounce per second for a 32-ounce cup of coffee, making the AT one of the fastest, if not the fastest bean-to-cup on the market when the coffee enthusiast matters. The Ascent Touch is on Open Kitchen, our IoT platform Open Kitchen provides real time alerts via our app, e-mail and/or text as to the machine status, errors and number of brew cycles, while also allowing the user the ability to push new recipes via the cloud.…

Thanks, James. For the second quarter, I get to repeat a phrase that I am not tired of saying, we again generated record results. Our quarterly revenues exceeded $1 billion for the first time, and our adjusted EBITDA exceeded $200 million. GAAP earnings per share were $2.07, adjusted EPS, which excludes amortization expense and non-operating pension income as well as other items noted in the reconciliation at the back of our press release was $2.23. FX impacts are included in these results and were a headwind of $0.08. Our revenues of a little over $1 billion grew over 25% compared to the prior year and over 13% organically. Adjusted EBITDA of $210 million reflects growth of nearly 13% compared to the prior year or 7% on an organic basis. FX rates negatively impacted EBITDA by $5 million. Our margin was nearly 21% of revenues. Commercial Foodservice revenues globally were up 18% organically over the prior year. The adjusted EBITDA margin was 25.2%. All the margin values, I will discuss, are on an organic basis as well, meaning excluding any acquisitions and FX impacts. In residential, we saw organic revenue growth of 11% versus 2021. The record adjusted EBITDA margin exceeded 23%. In Food Processing, organic revenues were down a very modest 1% and the adjusted EBITDA margin was 19.6%. We continue to face challenging conditions across the world, which are impacting all parts of the company. Nonetheless, while our ability to produce at even higher levels has been constrained, I’m very excited about what we have delivered this past quarter. COVID restrictions in China ended up having a bigger impact than we anticipated 1 quarter ago, specifically on the grilling products within the resi segment. Despite the challenges, sequentially, we were able to expand our organic EBITDA margins across all…

Thank you. [Operator Instructions] And our first question comes from John Joyner from BMO Capital Markets. Please go ahead.

Hey, good morning, and thank you for taking my questions.

Hi, John.

Hi. So, I guess, the market doesn’t appreciate solid results. But anyway, so Tim and Bryan, you both kind of commented on this and with price cost getting better, and Bryan, I appreciate the commentary on the back half, but is there anything that – if we go back 3 months, right, has your perception of the back half changed at all today versus where it was then with regards to the 3 segments?

Well, 3 months is a long time ago in today’s world with a crisis hitting us each day. I think, by and large, no, I mean, certainly, supply chain disruption changes week to week. I think we’ve had things soften in some areas and accelerate in others. But, I mean, in terms of the comments that Bryan just made, we expect to do – continue to drive the profitability as we got ahead of the cost, so that’s kind of one of the big underlying themes, so that remains intact. Certainly, market backdrop, and I’m talking about the world as a whole has become a bit more uncertain. But, as I said in our comments, Food Processing remains very robust. The restaurant industry is very resilient, and we really see a lot of activity with us. And, I think, with residential, we have a lot of positive things going on despite the housing market getting a little bit softer. So, I mean, I would say that the housing market is a bit softer, obviously, than it was a quarter plus ago. But, overall, I think all the strategic themes and the things that we’re executing on, we remain very excited about and feel like we’re well positioned for the second half and certainly going into 2023.

Okay. I appreciate that. And then – and maybe you mentioned this, but I know processing can be lumpy, I get it, and it does sound like the underlying fundamentals there are strong for that business. But the results were lighter than I expected, which I know it probably doesn’t mean much, but is there any additional color that you can provide on the quarter itself for processing?

Yeah. So, I mean, our orders have outpaced revenues. I mean I think as you kind of dig through a lot of the things that are affecting our results and ability to ship is we continue to add labor, right? There’s not enough labor, otherwise we’d get more out the door. Supply chain challenges also hamper us, right? So, certainly, we could ship at higher levels and be more efficient if we add more parts and if we had more labor. Certainly, Food Processing also felt the impacts of costs as well. There was a spike, as I said, right after the Ukraine war, a lot of what we’re shipping in the second quarter or projects that were priced last year, right? So as we kind of move through backlog, the higher prices, that benefits food pricing as well. As you kind of go dig into it a little bit more. I mean, we’ve also made some – there’s a lot of great strategic things that are going out in our packaging group. We moved into a new facility. The team there has done an unbelievable job of relocating through brands during the second quarter. As we’re doing things like that you ship less and you get disruption that was done in a pretty accelerated way and kind of moved to the back half of the year and going into next year, we’ll get the benefits of that move to a larger facility to support growth and realize some of the synergies across the packaging group when we continue to invest in packaging. We’ve also had a lot of new product launches. One that James has talked about in the past, we’ve had in slides is the TurboChef oven from Alkar. We’ve had tremendous market interest and orders there. It is a new product line. So as we are shipping for the first time that the product there’s a kind of learning curve. And so it will be one of the faster-growing products in the portfolio, and we think also will be a favorable sales mix, but we’re kind of at the early stages where we’re, I’ll say, investing as we’re getting out of the gates. So some of the things that you’re seeing in the second quarter are disruptions, some of it is investments that will kind of flip as we reap the benefits of new products and investments in manufacturing.

Okay. Excellent. And if I could just squeeze one more in. I think this is a quick one. But on the recent acquisitions, particularly, Colussi Ermes, which is a decently sized business in terms of what you’ve added to the Food Processing segment. I get that it’s focused on food processing, but is there an appetite to move maybe, this is like a throwaway question, I don’t know, but is there an appetite to move into warewashing on the commercial side? And then, maybe if you could offer some color on Icetro’s and Colussi’s like geographic sales footprint. And what the opportunities are there to build out their geographic reach?

Yeah. So, Colussi is phenomenal in terms of the products, the technologies and the solutions offering the customers, which are pretty broad kind of as you’re alluding to. Certainly, we acquired it for their expertise in food processing. As we put in the release, they are in a lot of projects that we’re involved in already. So we have been working alongside the team prior to becoming part of the same team altogether. So definitely together, that will accelerate some of the market expansion. It is a global brand. I mean much like many of our food processing customers, so I mean you will find them in a lot of markets. And certainly, the U.S. is a strong market for them. But, I mean, I think as we have continued to focus on integrated full-line solutions and leveraging our structure in international, we would anticipate that we would pull them into more projects. They certainly do some great automated washing systems that are outside of food processing as well. As it relates to bringing that into commercial, I mean the machines are substantially larger, more automated. So you would not see them in a restaurant application, but we also have more and more customers that are bridging into central commissaries, ghost kitchens, et cetera. So we have, with food processing unlocked some opportunities there over the last year or so. There potentially could be something there, but certainly, that’s kind of a more tangent than down the fairway of the opportunities. On Icetro, I’m not sure I’m capturing the question there, but I mean Icetro has a really great product portfolio of ice. I mean, we are a leader in nugget ice. And that business has been growing very nice over the last handful of years, both in terms of top-line and profitability. The nugget eyes category is expanding just because of the consumer kind of preference for nugget ice, but also there’s a lot of efficiencies to how we can transport ice. Well, we’re not in cube and we’re not in flaked, and that is one of the things that Icetro brings to us. And they’ve got very robust and kind of advanced products. So that was one of the things that really attracted us to Icetro and the synergies really across the platform with Follett and also some of our residential companies as well, such as Marvel and U-Line that are in the ice business. They’re located in South Korea. The entry into the U.S. market is more recent for them, but they’ve had some success. And certainly, with Middleby, that will – that opportunity expands dramatically. So, I mean, I think we’ll be working with the team there closely to introduce their solutions into the market. So, I mean, I think ice is a large market. So now we’ve got really a very complete portfolio. So that’s all very exciting.

Okay. Excellent. I really appreciate the time. Yes, the stock should be up on these results. So I really appreciate it. Thanks.

We agree with that comment.

And our next question comes from Saree Boroditsky from Jefferies. Please go ahead.

Thanks for taking the question. And I also agree with that last comment. Given some of the supply chain commentary could you just talk about the lead times in the various businesses? If I’d put in an order for a commercial or residential oven today, when could I expect this? And does this give you more visibility into 2023?

Well, for you, Saree, we’ll get it to really quick. So I’ll – Steve, why don’t you hit that one?

Yeah, I think in commercial, Saree, if you look across the portfolio, one of our biggest goals throughout the company this year has been to try get lead times kind of back to, I’ll call it, pre-COVID levels. And that stuff, obviously, we’re trying to still navigate supply chain, we’re trying to find people, et cetera, et cetera. So I would say, actually, at the majority of our commercial divisions. We’re actually sneaking up on kind of pre-COVID levels. It’s not 100% across the board. But I think as we continue to, as Tim alluded to earlier, make investments, in manufacturing through new automation. We’ve done okay in hiring new people into manufacturing. Yeah, we do believe that we can be back to kind of pre-pandemic lead times in commercial, I would say, the vast majority of our manufacturing companies. So it’s a great credit to your supply chain teams and our manufacturing teams to getting things back on track, still navigating a pretty uncertain backdrop. So that’s where I would say. So I’d say lead times today compared to a year ago, even at the beginning of the year, I would say, for the most part, are trending exponentially better, and we continue to, as I said, have that as the main goal to be back to kind of pre-pandemic lead times by the end of this year in commercial.

Great. And then, you talked about investing in your manufacturing facilities. Could you help us understand the potential margin benefit from these actions?

Yeah. This is Bryan. I’m not going to obviously specifically quantify it. But you can see what we delivered this quarter, and we remain committed to those medium-term goals that we’ve put out there. So we’re seeing short-term paybacks in some of the projects that we’re investing on are ones that cover a period of quarters. So I just think it is part of what you’re seeing in the remainder of this year and that we’ll still be able to drive further improvements in 2023.

Great. Thanks for taking my questions. Thanks.

Yeah. You bet.

Our next question comes from Mig Dobre from R.W. Baird. Please go ahead.

Hey, good morning, guys. This is Joe Grabowski on for Mig this morning.

Hi, Joe. Good morning.

Hey, good morning. So, I guess my first question is, there’s obviously a lot of discussion about a pending recession, perhaps we’re already in a recession. Consumer confidence is at multiyear lows. A lot of uncertainty going forward as to where the consumer is going to – the health of the consumer is going to trend. Is any of that – are you sensing any of that in your discussions with large and small customers as far as commercial food equipment CapEx? Is there kind of some cautiousness seeping in? It’s kind of hard to see it in the organic sales numbers, because your backlog is so healthy. But just kind of a sense of how people are thinking about CapEx spending now and going forward?

Yeah. This is Steve. Good morning. Great question. I would say, by and large, we have not really seen that kind of pullback that you’re alluding to. So I’d say, kind of think about 3 different areas of where we’re seeing, our engagement with customers right now. Obviously, we’ve talked about on prior quarters, your new store openings continue to be a pretty big focus of the larger chains and they’ve been as transparent as ever through this period and going into next year with their new store opening plans. And I would say for most of those customers, those remain in place. I mean that’s a discussion we have with them every day. Secondly, we’ve talked about before as they focused on new store openings over the last 12 to 18 months, you still do have some pent-up replacement, I think, that is coming over the next couple of years. So I think that continues be a way we engage with customers. And the third and the biggest thing that I still think is why we’re so excited about the next couple of years in commercial is no matter the backdrop from macro standpoint, they still have to figure out how they’re going to solve issues like labor, food costs, et cetera, both in – how do you solve for the increased labor costs? How do you solve for you can’t find people? And how do you make an easy place to work in your restaurants. So it’s kind of a long answer to your question. So in commercial, we do not see a pullback from our customers at this point, both from a new store opening standpoint and an investment in technologies to solve for labor, food cost and speed service.

Got it. It’s good to hear. And then my follow-up question, kind of along the similar lines, we don’t have all the numbers to kind of calculate this exactly, but it looks like in the second quarter, organic growth domestically was above 20% and organic growth internationally was kind of single digits. And that’s actually kind of a flip of where it was in the first quarter. So a similar question, but specifically in commercial on international demand trends, obviously, a lot of different crosscurrents internationally, what you see in the different regions?

Yeah. This is Bryan. A couple of things. Asia is certainly impacted by the environment in China. Europe is still seeing good things and growth, but overhang of war and the impact on economies and economic situation there, but again, it was still positive. And Latin America actually was extremely positive. It’s the smallest of the regions, but that was very good. But again, I think some of the macro global things that were happening in Europe, being more modest than we had seen prior to the last quarter. And then, again, I think China impacts are fairly self-evident.

Yeah. Okay. Great. Thanks for taking my questions. Good luck in the third quarter.

Great. Thank you, Joe.

[Operator Instructions] Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys.

Good morning, Jeff.

Good morning.

So, I guess, interesting comments on lead times. We’re hearing they’re still pretty stretched. But I’m just curious, if you can talk about – you talked about some of the manufacturing improvements and adding people. Just volume throughput as we look through 2Q and into the back half versus 1Q would seem like largely a price quarter?

I mean, I think to answer the question, just as we think about volume going through our manufacturing facilities in the back half of the year, I’ll say, compared to the first half of the year, I will say, I think a number of divisions, the volume going through the plants will be increasing over the first half of the year. Again, going back to investments, unmade capital in manufacturing, finding new great employees in manufacturing – in a large number of facilities. That said, supply chain, even though in many areas that has gotten better, there’s many areas where it still continues to be very stretched. And it is still a daily, I’ll call it, firefight, making sure we have components, et cetera, across our brands. So there’s still a lot of headwind, I would say, in navigating supply chain, which obviously has a direct impact on getting units out of the door. So I still think, by and large, Jeff, that from a volume standpoint, we will be ahead in most of our manufacturing facilities in the back half of the year compared to the front half.

Okay. Great.

I think we’re expecting and it’s kind of tied to Bryan’s comment. I mean, I think a lot of the investments that we’re talking about, I mean, we’ve been making them through the year, but it takes a while to kind of – to kind of realize the benefits of a lot of the manufacturing equipment that we’ve talked about that’s been even installed as we speak. One of the other things also that we didn’t comment on, but it’s – if we’ve seen as of late surging COVID cases as well. And it’s different than before, because we’re not talking about people going to hospitals and kind of the life-threatening situation, but it’s affecting manufacturing, and we can have – wake up and have 20 to 30 people out of the factory and they’re out for a week, right? So those are the things that are happening. It impacts lead times unexpectedly, right, because you can’t plan for when somebody is going to get COVID and it’s such a behind. And it also dose drag on the profitability. I mean, I think there’s a lot of headwinds that we are navigating as we’re kind of posting the results and trying to get to the high level. So that’s where you could – another factor that’s continued to drag out the lead times a bit. And I think with Steve’s comments of getting lead times back to pre-COVID levels, it’s really talking about where we want to be at the end of the year. And I think we’ve got a path there. Certainly, some of these other overhangs can still be there, but we are in a better position with our supply chain than before. We tend to – some of the areas have improved, whether it’s like compressors or foaming or availability of steel, areas that we have tightness, we’ve increased the throughput from our suppliers by 25%, 25%, et cetera. However, your production is only as good as kind of that last component, and that will continue to be a challenge. There’s no doubt as we go through the rest of the year, particularly in the areas like controls and electronics.

Okay. Good color there. Just on these deals, it looks like you did [$5 million and $127 million] [ph] in annual sales. Just wondering how to think about the profitability of these businesses collectively or if you want to go into a couple coming in are these at fleet average already? Or are these businesses like others, where they come in lower and you have an opportunity to drive the margins up? Thanks.

That was a question on acquisitions.

Yes, on the acquisition, EBITDA level.

Yeah. I mean, it’s pretty difficult, Jeff. I mean, obviously, we’ve done quite a few here in a short period of time, although we always tend to happen with us. They are lower than the platform average, I would say, if you kind of go across the portfolio, by and large, they’re all very respectable healthy margins, but they’re certainly similar to the past. We’ll work on synergies and commercial opportunities together to bring them up to the platform average over the next several years.

Okay. Thanks so much, guys.

Thanks, Jeff.

Our next question comes from Tim Thein from Citigroup. Please go ahead.

Yeah, great. Thank you. Good morning. The first question I have is just on the business ended at the commercial business. It’s just kind of first half versus second half. You just outlined that the volume – expectations on volume. How should we think about incremental pricing just given the actions that you’ve taken in the past months that kind of the pickup that you get there as you begin to flow that through the P&L? Is there a way to help just think about first half versus second half from a pricing standpoint?

Yeah. As I noted, our profitability is going to go up each quarter. We’ve continued to face increased costs as well, right? And – but on the balance will still be ahead, right? So we just sequentially posted a 110 basis point improvement in commercial. I think things will continue to grow again sequentially. I think it may be a little bit of a challenge to exceed that growth amount sequentially. Again, a lot has to do with mix and supply chain levels. But it still could be around that level, high, I’ll call it, high double-digit basis points in the next quarter or 2. Again, I’m not going to be extremely precise with it. But we still expect to get what I would consider meaningful margin expansion in the back half.

Okay. All right. That’s helpful, Bryan. Thank you. And then maybe one, I don’t know, James or Steve, the question is again also in the commercial. Just the discussion of digital and, I guess, connected equipment or smart iron, it’s nebulous that is as that is. But how do you think about what’s kind of in the backlog and from a mix perspective? Again, just – I know it’s not that easy to slice it. But as these products continue to gain traction, is there a way to think about – maybe it’s 23% or maybe further out. What kind of impact these higher technology solutions can potentially have from a margin standpoint?

Well, I think as we look at the – towards the back of 2022 with the adoption of The Middleby 1 UX and control platform these are going to go on to our higher technology, higher margin products, which, by and large, are what our customers are seeking day-to-day when they look for labor, food waste solutions there driving to these products. And all these products are also then tied to our Open Kitchen IoT automation platform for the restaurant. So we believe we’ll feel very strongly that coupling the connectivity platform offering with The Middleby One Touch control and a SaaS model that we are offering along with these products will help drive the technology sale with our products and also really making additional Middleby products more sticky as restaurants kind of one by one or 1 fryer or 1 of it at a time adopt our Open Kitchen platform.

Okay. I guess, I didn’t ask it well effectively, okay. To fill that into, what percentage of the backlog or what percentage of portfolio could this impact or could this apply to? Just to get a sense for, is it 3% of the business? Or is it in the – this is the quarter of the company.

No, I think it’s substantially – and I’m not sure – I mean, we’ve got a lot of technology solutions. But, I mean, as it relates to what I think we’re interpreting, which is – the strategy is launching a control, which James has got going on to 50 products by the end of the year, but it’s going on to Pitco fryers, TurboChef ovens, Middleby Marshall conveyors, CTX automated conveyor systems, Nieco, Concordia, coffee, Taylor, grills and frozen, et cetera, right? So these are higher-end technology products, right? So now you’ve got a 1 user experience, and there’s a lot of automation in there because it’s simple to use, intuitive. Training is a big issue in the restaurant. So having that user experience, it’s going to be on a lot of products, right? Like I don’t know that we have a percentage, but it’s not 3%. That’s a large percentage of our portfolio. Will it be on a 6% [ph] range, perhaps not. But it’s going to be a lot of our portfolio fits into kind of this higher-end technology, and that is where the mix is going. And then I think one of the things that’s very exciting for us is it’s kind of an out-of-the-box solution. So when you have that Middleby controller, its Wi-Fi enabled, which means as a user, would you like to have it now Open Kitchen connected. The answer is, yes or no, and then you have the ability to say, yes, I would like to have kind of an online experience, then you can monitor, manage the equipment and then you’re talking about improving performance, increasing uptime, reducing service costs. So it’s got a high ROI to our customers. So as we go into next year, kind of this out-of-the-box experience with the Middleby Control Open Kitchen enabled, 2023 is really an inflection. We’ve got, right now, Open Kitchen has over 10,000 installs, but it really is going to be – we continue to add chain accounts and larger customers, but this will really be bringing IoT to the masses. So it’s going to be – I don’t think we’re at a point where we’re going to say what that percentage is, but it’s kind of early chapter. And I think we’re going to be having a lot of penetration over the next few years.

Yeah. Good start. Thanks for the time.

And our next question comes from Larry De Maria from William Blair. Please go ahead.

Hey, thanks. You guys touched on this, but you gave – obviously, you have backlog and a good plan for rest of the year, and you called out incredibly strong food processing orders and shortened lead times, which is good. Can you give us some color on month-to-month inquiries? Order rates? Or just color, not necessarily real numbers if you don’t want to provide them for CFS and resi, which are obviously more sensitive to inflation and interest rates. Logically, there should be some near-term concerns and choppiness in an otherwise positive long-term backdrop for the reasons you mentioned, but also logical that order would be coming down as lead times shortened. So just can you get us comfortable that the fundamentals are still there in the near-term given the economic backdrop?

Well, I hope that my guide on what we’re going to deliver on revenue ensures that we still have plenty of business in the backlog and coming in. And I would say that conviction continues. You talk about economic backdrop and such. And I think as Steve noted, as I kind of speak broadly or in generalities, right, that isn’t impacting how our CSG customers are investing, right, because they’re investing for the long-term here, and we haven’t seen impacts there. And as I look across residential, we continue to have healthy backlog levels, healthy levels of – healthy margins. And again, we expect to continue to improve what we’ve delivered on currently.

Sure. I mean I get that you have backlog because you’ve had the long lead times and demand has been strong. But on a month-to-month basis, has there been any delineation from the trends in resi or commercial? It sounds like not in commercial, but are there any incremental concerns on the resi side and recognize you have backlog, but obviously, that gives visibility for a certain period of time.

Yeah. So Larry, I mean, a couple of things. We’re not going to get into month-to-month trends. And I think in the world we live in, there’s a lot of dynamics, and I’m not sure what you take out of it anyways. I think there’s no question that residential is the piece that’s closest to the consumer in a market like this. That’s the one that’s going to have the backdrop that’s kind of the most "at risk." And, I mean, I think certainly, we – if the housing market and consumers are spending less there, will we see some effect absolutely. I mean I think – that being said, I think a couple of things. One, we do believe that we’re positioned in the better part of the segment, kind of premium housing, et cetera, even if you look at more recent statistics of like home sales, as I mentioned, it’s been up – remains up while the lower end of the market is down. So, I think, we’re in the – intentionally, that’s why we’re in the premium part of the segment. So I think it will perform better. I think, secondly, I mean, we’re – we do believe we’ve got a lot of long-term market share opportunities, right? I mean, so we’ve got phenomenal brands, new product pipeline. A lot of those products are being brought to the market for the first time. We’re increasing awareness. That’s why we’ve invested in our showrooms. That is why we’ve created a designer team, which did not exist a year ago, and we’re exposing a lot of these designs, brands, product offerings, innovations to part of the residential market that frankly had not seen them several years ago. So we’re kind of like a new entrant in a lot of…

Okay. Thanks very much. That’s really helpful.

And our next question comes from Tami Zakaria from JPMorgan. Please go ahead.

Hi, good morning. Thank you so much for taking my questions. I have a quick couple of questions. The first one on China. Are you able to quantify how much of sales headwind you think you faced in the quarter due to China’s lockdowns and which segment got hurt the most?

So China really had the most impact on residential. And we had discussions a quarter ago about where we thought residential might come in this quarter. And certainly, the top line was below what we’d expected. I put it at the kind of mid- to- high-single-digits percentage of revenue for this segment that we felt we’ve lost beyond what we thought might have been the impacts.

Got it. That is super helpful. And do you see like this headwind partially being recovered in the back half? Or it’s kind of lost sales?

Yeah. I mean, I think it is, unfortunately, largely lost sales. What’s a little bit hard – what makes it hard to answer that question, though, is a couple of things, right? The overall dynamics in the grill market as well as the seasonality of the business, right, where Q3 tends to be the lowest quarter of the business anyway. And then things pick up in Q4 with some seasonal opportunities that actually exist then as well as, I’ll call it the buildup that’s happening in Q4 and Q1 for the grill season as you enter the next year. So again, I think that if it didn’t – if it wasn’t a business that had such a seasonal pattern, it would be a little easier to see. But that’s why I did comment that Q3 is weaker than Q2. I don’t want that takeaway to be that was from China. It’s much more from, again, the seasonality, the patterns of that business – of that area of our business.

Got it. If I can squeeze in one quick one, please. Can you quantify – and I’m sorry if I missed it, but can you quantify how much price cut headwind you’ve had in the quarter? And what progression of that you see in 3Q and 4Q?

I think, what you’re seeing is that we’re moving to the other side of it, right, where we had been talking about we were behind on price cost. I think Q2, we actually made more improvement than we were anticipating in the quarter. So pleased where we are with it. The cost side is continuing to go up for us. But nonetheless, as I noted, we are going to continue, we believe, at this point to stay ahead of it.

Got it. So the price cost should be a tailwind in the back half, if things stay where they are?

Yes. Correct.

Got it. Thank you so much.

You bet.

That concludes our questions for today. Now, I’d like to turn the call back over to management for final comments.

Well, thank you, everybody, for joining us on the call today. We are excited about the remainder of the year and all the great things that we have going on at the company, hopefully, that came through today in today’s call, and we look forward to speaking to you at the end of the third quarter. Thanks. Bye.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.