安朗杰 (ALLE) 2014 Q1 法說會逐字稿

Good lay, ladies and gentlemen and welcome to Allegion first quarter 2014 earnings call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's call is being recorded.

I would now like to turn the conference over to Tom Martineau, Director of Investor Relations. Sir, you may begin.

Thanks, Shannon, and good morning. Welcome to the first quarter 2014 Allegion earnings call. With me today is Dave Petratis, Chairman, President and Chief Executive Officer; and Patrick Shannon, Senior Vice President and Chief Financial Officer of Allegion.

We released earnings last night at 5 PM. The release and presentation that we will refer to in today's call have been posted on our website. If you would like to view this presentation, please go to the Investor Relations section of our website at Allegion.com. This call will be recorded and archived on our website.

Statements made -- please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our SEC files for description of some of the factors that may cause actual results to vary materially from anticipated results. The company assumes no obligation to update these forward-looking statements.

Our release and today's commentary includes non-GAAP financial measures, which excludes an [orderful] change with a joint venture in Asia, restructuring costs and spin costs related to our separation from Ingersoll Rand. We believe these adjustments reflect the underlying performance of the business when discussing operational results in comparing to the prior year periods. Please reference our news release and tables which provide the reconciliation of reported to adjusted results.

With that, please go to slide three, and I'll turn the call over to Dave.

Thanks, Tom. Good morning, everyone, and thank you for joining us today. This marks our first full quarter as a standalone publicly traded company, and we're excited to share our progress as we unlock our potential at Allegion.

In the first quarter, we delivered reported earnings per share of $0.37, which includes $0.07 of restructuring and one-time separation costs, resulting in adjusted earning per share of $0.44.

Revenues were $472 million, up 3.7% on an adjusted basis versus last year, and up 3% on an organic basis. All regions delivered positive growth in the quarter.

Adjusted operating income of $76 million increased 3.8%versus the prior year, and adjusted operating margins remained flat at 16.1%.

We were pleased with the results in the first quarter, and similar to most industrials operating in the US,we had to navigate tough weather conditions early in the quarter.

March performance in our non-residential Americas business was markedly better than the beginning of the quarter, which we feel is a better indicator of the long-term health of the non-residential construction markets. This view is also supported by our specification and quote trends, which increased in the mid to high teens as compared to the prior year, a good leading indicator of performance, typically nine to 18 months in the future.

We are making good progress on our EMEIA actions and continue to see market growth in Asia Pacific region. We are also affirming our full-year guidance.

Please go to slide four. By now you will recognize our key strategies which we will use to deliver profitable growth and achievement of our long-term objectives. We continue to see great progress on our electronic offerings, both in the residential and non-residential space.

As an example, we recently announced the launch of our new Connected touchscreen residential lock, which will add to our already strong growth profile in the electronic locking categories in the Americas. Through our open architecture connected platform, users have the capability to manage their home security from anywhere in the world from an internet connected device,regardless of their selected home automation platform. Our line of keyless electronic locks offers the strength, peace and mind and ease of installation and retrofit that our customers desire.

I've had an opportunity to drill down on our innovation pipeline this past quarter and I'm convinced our investment in R&D to drive new, innovative products will continue to position us as an industry leader in technology development. I am truly excited about our future prospects, in both the commercial and residential markets.

On the M&A front, the overall pipeline is starting to progress nicely. We've been active in the first quarter, and although relatively small transactions, they are aligned with the areas of focus that we previously discussed;emerging markets, emerging technologies, and product portfolio expansion.

Yesterday, we announced the acquisition of Fire & Security Hardware, a leading electro-mechanical locking provider in Australia. This transaction strengthens Allegion's presence in the Australian security market with a strong brand name and product portfolio, while bringing innovative technologies that can be applied globally.

I'd like to take a moment to provide an early update on our EMEIA progress. As was previously announced, Lucia Moretti was appointed as our leader of EMEIA Business, located in Italy. Lucia has wasted no time in adding significant value to EMEIA improvement plans, leveraging her past knowledge and experience in similar situations. In early April, initial actions were unveiled to streamline deployment of assets and resources to improve profitability and customer focus.

We continue to strengthen our execution in markets where we have the right products to be successful and have made changes to streamline operating divisions, provide better focus on the customer, and strengthen our leading positions. We've also made decisions to exit certain markets that are less profitable, dilute resources and are not scalable. We continue to identify in which areas we can reduce our overhead costs. We remain on tract with respect to the work required, and we'll continue to see operational improvement with a step up in the second half of 2014 after full implementation of these actions.

Patrick will now walk you through the financial results, and I'll be back to update our 2014 outlook.

Thanks, Dave, and good morning, everyone. Please go to slide number five. Reported net revenues for the quarter were $472.5 million, reflecting a decrease of 0.2% versus the prior year.

In the fourth quarter of 2013, a change was made to the order flow with our consolidated joint venture in Asia. As previously reported, the joint venture acted as a pass-through of products to the end customer. Beginning in the fourth quarter of 2013, products are shipped direct from the supplier to the end customer with the joint venture receiving a royalty in an amount that approximates the loss margin on revenue. Accordingly, the joint venture will no longer recognize the revenue in cost of goods sold on these products.

This impacts the revenue comparisons but does not materially impact income or cash flows in future periods. For the first quarter, the revenue impact was $17.7 million, for the second quarter, $17.4 million, and for the third quarter, $16.9 million, resulting in a full year impact of $52 million.

Adjusting prior periods for the order flow change, net revenues for the quarter increased by 3.7%. Organic growth, which excludes the impact of our Colombia acquisition and foreign exchange rate fluctuations, was up 3%. All regions reported adjusted revenue growth in the quarter compared to the prior-year period.

We were pleased with the quarterly performance of the business, given the weather-induced headwinds experienced early in the quarter. Adjusted operating income increased by 3.8% compared to the prior year. Adjusted operating margins were 16.1% in the quarter, flat to the first quarter of 2013.

The company effectively managed and implemented price increases and productivity gains to offset inflation, incremental investments and unfavorable business mix. The operational improvements provided the funding for new product development and channel investments.

Please go to slide number six. Now I'd like to discuss our earnings per share performance. This slide shows our EPS walk for the first quarter. For the first quarter of 2013, reported EPS was $0.41 per share. Adjusting for prior year restructuring expenses of $0.04, the 2013 adjusted EPS was $0.45.

Operational results increased EPS by $0.05 as pricing and productivity more than offset inflation. Note that pricing actions were taken in the quarter to offset increased inflation, as discussed in our fourth quarter 2013 earnings call, particularly in Venezuela.

The next item on the reconciliation relates to the $0.05 year-over-year benefit related to the foreign currency loss recorded in the first quarter of 2013, from the devaluation of the bolivar. We will speak more to the risk of the a future bolivar devaluation later in our presentation.

The effective tax rate of 30.3% drove $0.01 EPS improvement versus the prior year. The 2014 quarterly rate was slightly better than full-year guidance, driven by net favorable discrete tax items.

The comparative effective tax rate in the first quarter of 2013 of 32.3% was better than the 2013 full year effective rate, as it also reflected one-time discrete tax items in the quarter. As Dave will discuss later, the discrete tax items are not considered material on a full year basis, and our full year tax rate guidance still approximates 31%.

The next item reflects incremental investment and on going growth initiatives, which was a $0.03 reduction. Lastly, a reduction of $0.09 related to the incremental interest expense incurred as a result of the additional indebtedness associated with the spin-off from Ingersoll Rand. This results in adjusted first quarter 2014 EPS of $0.44 per share.

Continuing on, we have a $0.07 EPS reduction for restructuring and spin-related expenses to arrive at the first quarter 2014 reported EPS of $0.37. The reduction is predominantly driven by one-time separation costs, but also includes a small amount related to EMEIA restructuring.

Please go to slide number seven. First quarter revenues for the Americas region were up 3.5% on an adjusted basis, and up 3.7% on an organic basis. Improved pricing, higher volumes and the acquisition of Schlage in Colombia in January 2014 offset unfavorable currency movement in Canada. Residential revenue growth reflected strength in the retail, builder and e-commerce channels.

Commercial revenues were up slightly in the quarter, and essentially flat, excluding the previously mentioned acquisition. And although non-residential revenue showed growth in March, it did not fully compensate for weather-driven construction impacts early in the quarter. Adjusted operating margins for the quarter were up 30 basis points, as pricing and productivity more than offset higher inflation, incremental investment and unfavorable business mix related to the higher growth of residential revenue compared to commercial revenue.

Please go to slide number eight. We were pleased with the ongoing progress in EMEIA, as reflected in the first quarter results. First quarter revenues for the EMEIA region were up 4.4%, and up 0.3% on an organic basis.

We see continued indicators of a moderate economic recovery in the region but improvement remains gradual. The organic revenue growth was driven by moderate price improvements, offsetting slightly negative volume, reflecting ongoing actions to selectively exit unprofitable markets.

Adjusted operating margin for the quarter was 0.5%, up 150 basis points compared to the prior-year period. The favorable improvement is driven by price, cost containment, productivity, and 2013 restructuring benefits.

As we did in the prior quarter, we continued to realize the efforts of our focused plan to improve profitability. With the additional actions planned and beginning to be executed, we remain on target to reflect a 300 basis point improvement in operating margin for the full year.

Please go to slide number nine. First quarter revenues for the Asia Pacific region were up 3.3%, and up 4.5% on an organic basis.

Volume improvements in commercial hardware and emerging markets more than compensated for unfavorable currency movements in declines in the system integration business, mostly timing driven. First quarter tends to be the softest revenue quarter in the region reflecting the holiday seasonality and variability in our system integration business, as project awards and order flows are typically completed in the second half of the year.

Adjusted operating income for the quarter was down $1.8 million, driven by non-recurring favorable adjustment recorded in the first quarter of 2013. Excluding this impact, the region would have seen a slight increase in income, reflecting favorable volume and productivity, offsetting inflation and investment. Operating margins are scheduled to improve sequentially, as revenue increases with the seasonality of the business.

Please go to slide number ten. Turning our attention to available cash flow, you will see that we used $10.1 million of net cash in the first quarter. This is typical of our historical cash flow and reflects seasonal use of working capital.

The decrease in available cash versus 2013 reflects incremental capital expenditures for new systems, new product development, and productivity investments. We continue to manage our working capital effectively, as our cash conversion cycle has been reduced by 12% compared to the prior-year period, reflecting improvements in both receivable and inventory turnover.

I will now hand it back over to Dave for an update on our 2014 guidance.

Thanks, Patrick. Please go to slide 11. We are affirming our previous guidance for 2014. Our full year adjusted year-over-year revenue forecast remains up, 3.5%to 4.5%.

We still see opportunity in North America for full year non-residential growth in the low to mid single digits, weighted to the second half of the year. Of note, market growth continues to be led by traditional commercial segments, with institutional segments lagging.

Adjusted earnings per share are forecasted to be in the range of $2.25 to $2.40, an increase of 6% to 13% from 2013 adjusted earnings per share. We anticipate earnings growth will accelerate in the second half of this year, due to higher volumes,2014 European actions and a wider spread in the effective tax rate.

Restructuring and spin costs are still expected to be $0.25 to $0.30 of impact during the year, resulting in a reported EPS range of $1.95 to $2.15.

The effective tax rate in the guidance remains at approximately 31%, reflecting the result of the new structure and tax pricing strategies executed in construction with the spin-off.

Finally, the guidance does not reflect the potential risks of devaluation of the Venezuelan bolivar. Currently, there are three exchange mechanisms administrated by the Venezuelan government, each with a different exchange rate. Given the uncertainty to predict at what rate would be accepted under any supplement exchange rates, we believe the fixed official rate of 6.3 bolivars per USdollar remains the most appropriate.

Aligned with this decision, it is important to note that our Venezuelan business requires minimal imports to operate successfully,which minimizes the exposure that has challenged other companies that have a high dependence on imports. For more information on this topic, please refer to our Form 10-Q filed with the Securities Exchange Commission for the period ended March 31, 2014.

Please go to slide 12. We completed our first quarter as a standalone company and I'm especially proud of our 8,000 plus employees who continue to put into place all the things that are necessary to operate independently while staying focused on satisfying our loyal customer base. We strive to create peace of mind by pioneering safety and security, and we continue to unlock the potential of Allegion.

We delivered solid Q1 performance while investing in the future. We remain committed to executing our long-term strategy of driving organic growth, adding bolt-on acquisitions, executing on operational excellence, EMEIA margin improvement, and leveraging our tax structure. Last, we continue to execute a balanced capital allocation strategy to deliver shareholder value.

Now Patrick and I will be happy to take your questions.

(Operator Instructions). Our first question is from Jeff Kessler of Imperial Capital. You may begin.

Thank you. First, with regard to Europe, could you get a little more specific as to what types of businesses are you looking for -- the characteristics of the businesses that you're looking to acquire in Europe, and the characteristics of the businesses you're looking to -- the areas you're looking to get out of?I know you described a little bit before but I'm wondering if you can get a little more granular on the type of things you're looking to go into and to get out of?

Our number one focus in Europe is executing our restructuring plan. We think that's 24 months to get this business at the profitability levels that we think are appropriate with the -- really the six markets that I described at Analyst Day that we can be successful with.

Second, as we look at our portfolio, we believe there's areas in those markets where we can win, and there's areas in those markets where we do not have the scale or market positions to be successful over the long term. And we will exit those markets. In terms of acquisitions, the region is not a high priority, but if there's a technology move that will complement the balance of our portfolio globally, we will go down those paths.

Okay. And that would include paying up for companies that have that technology?

We will always be mindful of the returns that we can get on an investment like that,that compliments our portfolio. But sometimes, in my history, when we see technology that can complement, you pay up for it.

The second question, my follow-up question is, your US resi business, you described it as one of the drivers in the first quarter. And one of the things that has been out there, particularly in the market, and in terms of some of the -- let's say the buzz going on in the industry, is this new Schlage electronic wireless lock. Is this a big driver of what you consider to be -- I'll just put it out there -- a residential drive that you're trying to make in the US? I know it's a fairly substantial portion of Schlage to begin with. But is this going to increase -- does this lock have the potential to increase the percentage of resi business within Schlage?

I believe that we have the strongest portfolio of electronic locks in the North America market, and that's reflected with almost a 50% market share. I'm very pleased with the profitability of this. I think what we're moving to with our new e-lock is a very strong position in open platforms. We were a bit handcuffed with potential buyers because of our lead with, what I would call closed platforms. And I believe we've got the best mechanical security, a Class One lock with open technology that is purely keyless. And I think it positions us nicely for future growth.

Okay. And I'm sorry, just one quick update on Venezuela. Realizing that many companies have gone to Sicad I, which is at 11, Sicad II, which is a 50 to one. I'm curious about your decision to remain at the official government rate.

Yes, so Jeff, let me tackle that a little bit. And just a little bit of background information as we previously disclosed the -- our Venezuela business, in total from a revenue perspective, is about $60 million to $70 million per annum. So it's a small piece of our overall portfolio. As Dave mentioned earlier, most of the business down there is source manufactured, distributed and sold in the local markets. So we don't have a lot of imports. As a matter of fact, it's like $1 million per annum. We're not really -- highly dependent upon exchanging local currency for USdollars.

If you kind of look at the decisions relative to this -- the other thing I would add is that from a dividend perspective, we don't have the capability or ability to dividend money out. So that's one of the factors. The Sicad I rate currently is not available to us. It does come intermittently, but currently is not available to us. The Sicad II rate, as we understand it, is a very illiquid market, one of which we would not advocate exchanging local currency for US dollars, given that exchange rate.

If you kind of look at all the factors; one, we don't have a need to exchange local currency to dollars, nor do we have an intent to do so. Third, it's not available. So our conclusion was, it's best, at this point, to continue with the official rate. We'll continue to monitor the situation. I think it would be a little bit disingenuous not knowing perhaps what the devaluation would be at in the future to go forward with a devaluation.

Okay. Great. Thank you very much.

Thank you. Our next question is from Josh Pokrzywinski of MKM Partners. You may begin.

Hi. Good morning, guys.

Good morning, Josh.

Just first on European margins, nice profit there in what is typically a pretty big loss quarter. If you could help us maybe on the cadence as we go through the year. I was surprised just given how much you were able to narrow that gap early on why you're still able to -- why you're still committed to the 4% target and why that may not move higher. Any understanding of maybe -- particularly the 2Q to 3Q dynamic with some of the shut downs later in the summer there, of how we should think about the margin cadence in the next two quarters.

As we mentioned, I think we made some really good progress there in margin improvement. And what you're seeing there is a combination of things. But primarily you're seeing the benefits of some restructuring effortswe took in 2013, as well as some cost containment. Going forward, we will continue to be profitable in all the quarters. And the step-up improvement really begins to accelerate in both the second and third quarters. You may recall last year, 2013, the losses were actually accelerating in Q2, Q3. So the comparisons get easier for us. But we would continue to see margin improvements. And the biggest change you would see would be in Q3, particularly as we begin to implement some of the actions we talked about that will be executed in 2014, in terms of exiting unprofitable markets, and pruning some of our cost structure further this year.

Got you. So in 2Q then, is there another big step up, just with seasonality? Or how should we think about 2Q?

It's not a significant step up. It is a margin improvement both sequentially, as well as year-over-year. The step ups really, from a significant perspective, occur in Q3, Q4. We're still on target for the 300 basis point margin improvement for the full year. And we would be looking to exit the year on a full year run rate basis in the mid single digits, from an OI perspective.

Got you. That's helpful. And then just moving on to the North American business, obviously a lot of disruption for weather. Can you give us a sense of how -- maybe March and April, as you've seen it, maybe haven't closed yet -- trended on commercial versus resi, to give us a better sense on how those are doing on an underlying basis?

I've got no perspective on April. Clearly better than what -- in terms of business volumes, activity -- better than we were seeing in January and February. We're going into the heart of the construction season. And a lot of our activity here is driven by institutional activities that go on on college campuses and schools. So I feel positive about that.

We were out at the IOC West show. That was the best vibe that I've got at a trade show in the last five years. So no factual view on April, but we continue to be positive on the direction of the business.

Excellent. And then if I can just squeeze one more in. Obviously a lot of price support in the Americas segment from what you've had to do in Venezuela. Can you give us a sense of what that would maybe look like ex-Venezuela -- more the USbusiness?

Yes. You're exactly right. A lot of that increase there was related to Venezuela, we're offsetting the inflation in the market. We were successful, by the way, in doing that. If you look at the price increase for Americas, it's really carry over from the prior year. And I would call it -- around one-half of 1% would be the realization year-over-year. And that stepping up a little bit in the back half of the year.

Got you. Appreciate it. Thanks, guys.

Thank you. Our next question is from Charles Clarke of Credit Suisse. You may begin.

Hi, guys.

Good morning, Charles.

How are you? Just a question, at the Analyst Day, we had talked about Europe kind of flattish market for the year, Asia up high single digits. First quarter just kind of looked a little bit the opposite; Asia, slow growth in the beginning and Europe, showing some nice growth with revenues up four or so. So just as a question, relative to then, is there just visibility in the Asia business? Or is that a little weaker? Does Europe feel a little bit stronger?

Couple drivers in Asia in Q1. The Chinese New Year takes a lot of wind out of our sails. I felt positive about activity coming out of South Asia, our mechanical business had some decent traction. If we look at the historical trends on Asia Pac, this is clearly -- we build momentum as we go through the year. And we'll see that. Our [BOCOM] business that we talked about at Analyst Day tends to be more project-driven. And those projects gain momentum as we go through the year.

Europe, we label it as stabilization, but I was, again, energized. We're seeing some light in the markets that we participate. I'm really pleased with Lucia Moretti's aggressiveness in the first month. The actions that we're taking, I think, are sending a strong message to our team and our customers that we're going to be focused on where we can win. And we will make investments and productivity improvements to complement that. So it's still -- we're a long ways from recovery in Europe, in terms of the overall economic. And I think we have a little bit bigger challenge with our Southern European exposure, but we're going to focus on those opportunities and execute.

And Charles, I would just add in terms of the revenue growth that you see year-over-year in Europe, the majority of that, on a reported basis, was exchange-related in the strength in the Euro and the British pound relative to the dollar. If you exclude that, it was basically flat year-over-year.

Okay. Thanks. And just one housekeeping question, just because most of the other stuff was answered; interest expense looked a little high to me in the first quarter, just looking to what I was expecting. Is 2013 a good run rate going forward?

2013 is a good run rate. People sometimes forget some of the debt issuance costs that are amortized over the life of the debt, and that is the other component that's working in there.

Great. Thanks.

Thank you. Our next question is from Steven Winoker of Sanford Bernstein. You may begin.

Good morning, guys.

Good morning.

Just a few clarification questions on Venezuela. I know it's only 3% of sales, but still want to try to understand this. The pricing actions you took, were they just enough to offset the official exchange rate that you are talking about or a little bit more? Should we think about that as something that is actually capable of covering some of those other potential outcomes that are described in the Q?

So the pricing action predominantly was taken to offset the inflationary pressures that we're seeing in the market there. It's not really tied to the exchange rate per se. But in the event there was a -- or will be a devaluation, we do believe we could perhaps be a little bit more aggressive in the pricing front to offset some of that impact on a going forward basis, relative to the translation of those results.

You didn't get ahead of that? That's something that would be to come?

That's correct.

Okay. And then in the event that the risk that you called out in the Q were to play out at those -- at other devaluation levels, just so we understand it; would there be two effects here between an asset write-down and a translation effect or just one that you called out?

There would be -- there's a non-recurring charge, and those numbers are reported in the 10-Q at both the Sicad I and Sicad II rate. But there would also be an ongoing impact on the translation of those results back to USdollars.

And you did not explicitly call that out, as I recall, right?

No, because again, we're not going to be sitting on our hands doing nothing. We would help mitigate that with what we just discussed in terms of pricing actions and those types things.

Great. On Asia Pacific, you talked about a sequential improvement. But year-on-year it was down 2.5% -- your margins Q2 of 2013 were minus 2.5%, so even if -- it was minus 5% right before that. Given the minus 13.5% -- 13% adjusted now, even a slight improvement could still mean a significantly lower than the prior year. Is that what we should be thinking about, or what kind of incrementals? How should we be thinking about that for Q2?

No, not really. The comparisons do get easier, beginning in Q2. As we kind of laid out this is an unusual business, where roughly one-third of the revenues in the first half of the year, two-thirds in the second half of the year. We don't have a lot of variable cost structure in this business. But relative to what we're seeing in the marketplace, we would expect the margins to be somewhat close to last year in Q2. And then really starting to expand in the back half of the year.

Okay. And then just one last one, on productivity you called out $0.08 for the quarter. Does that include the volume leverage on the 3.5% growth, ex-pricing? And regardless, where are you getting -- maybe a little more color on where you're getting that? How much of that is in the Americas?

So we're seeing productivity improvements throughout the globe. We're seeing it primarily through many things, but the value stream analysis that continues in our operations, the VAVE work that's being done by the engineering group, we're getting really good traction with that. So we're also seeing the benefits of the improvement in the margins in Europe, associated with the 2013 restructuring activities. So that's lumped in there, in terms of productivity benefits. And all of that is exceeding both our material, as well as labor inflation.

Okay. Great. Thank you.

Thank you. (Operator Instructions). Our next question comes from [Jeremy Kepron] of CLSA. You may begin.

Good morning. A question on the -- on volumes. If I look at your EPS walk on slide number six, do I understand correctly that, essentially, your volumes were flat year-over-year ?

Yes, so up slightly -- a lot of the movement in revenue was driven from price.

Okay. And then you mentioned a few times that the electronics business, obviously, was seeing positive growth. I wonder if you could give us a sense of that growth rate for the electronics? And obviously, the mechanical business must be down then year-over-year?

Our electronics business is growing at low double-digits. We believe we got a nice market leading position there. And with our new products, we're going to continue to look at the opportunities to enhance that globally.

Okay. And on pricing, are you seeing any change, in terms of the pricing environment, be it in North America or Europe?

I would say it's steady. We're in competitive markets, but the market appears to be disciplined. Typically we're competing on advantages in our product portfolio that allow us to be rewarded for the quality and engineering that we're putting in our products.

Okay. And then a final one from me, can you give us a sense of the size of the acquisitions that you've announced so far this year, in terms of the revenue contribution we could expect in 2014?

We have not disclosed that. Collectively, they're smaller transactions, each one a ten to lower type of revenue number. So not a significant impact on a full year basis .

All right. Thanks very much.

Thank you. Our next question is from [Steve Pavlik] of Gates Capital Management. You may begin.

Hi, guys. I'm just curious what the potential restructuring cost estimate will be for EMEIA and over what time period?

Yes, so we would be looking to move forward in booking a charge. Most of that would be in Q2. And still working on the number. What we've kind of indicated, in terms of both spend and restructuring costs, $0.25 to $0.30 per share. So the restructuring would be included in that. But not a significant charge.

Got it. Thank you.

Thank you. Our next question is a follow-up from Josh Pokrzywinski of MKM Partners. You may begin.

Hi, just a couple quick follow-ups here. First, on the tax rate. You guys look like you're running a little bit ahead of the 31, and I would imagine there is still some levers to pull as we move through the year. Any sense of timing of when you'll have the critical mass or have the pipeline of actions to give us an update on that?

Yes, I would just say nothing is really changed to date from our last guidance. What you may recall is that we're looking to move our effective tax rate, it's currently at 31%, down to the mid 20s in the next couple of years. As we look at the landscape of opportunities, I'm getting better clarity, in terms of what those opportunities are. There's still a lot of work to be done, too early obviously to declare victory. But I'm feeling pretty good in terms of the opportunities. And as we continue to work on those, we'll provide more clarity as we go forward, in terms of timing, magnitude, et cetera.

I would add, in terms of Patrick and I and leadership of the business, this would be one of the key priorities for us. And we -- Patrick in particular, Shelly Meador have dedicated significant time and we got our eye on it. And we'll continue to make sure that we've got a competitive tax rate.

Great. And then just on the spec quote comments you made, being up in the -- I think you said mid teens, and that tends to be a nine-month plus forward indicator; any change in cadence as that moves through 2013 that could signal an inflection in 2014 that we should be aware of? Or was that just kind of a steady grind last year?

In terms of quotes?

Yes, you mentioned the spec quote is a forward indicator so I'm trying to use it as a forward indicator more near-term.

I would use that as a positive view on our survey of the landscape that we continue to go through a recovery. It's going to be gradual. This is not a bounce back, but I like the indicators. We're sharply focused on the markets where we see there's opportunity.

I think there is also areas of the geographical landscape that we can do a better job of getting our share or better. And we're investing to go after that. We are drilling down deeply to understand the market segment opportunities where we're performing well. And if there's gaps, what do we have to do to fill that? And I like our opportunity there, in a softer market. If it gets stronger, we're going to do even better.

And could you just remind us what percentage of that commercial business -- or I guess non-residential business in the Americas is keyed off of some of those early indicators on spec and quotation activity?

I would say 60% of our business is heavily driven by spec writers and quotation activity. These are projects, these are construction retrofits. And it's a clear driver.

Got you. So that comment is a pretty decent analog for your visibility into next year at this point?

I like what I see. And I think that's been a consistent message over the last six months.

Got you. Appreciate it, guys.

Thank you. Our next question is a follow-up from Jeff Kessler of Imperial Capital. You may begin.

Yes, I want to get some clarification on what you said a little bit earlier about Europe and the way Europe looked in the first quarter. And that the gains came -- the margin gains, but that the revenue gains and specifically were more related to flex and not actually the unifying. Am I mistaken in hearing that?

No, that's correct.

Okay. Fine. That's just what I wanted to ascertain.

Thanks, Jeff.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Tom Martineau for closing remarks.

We would like to thank everybody for joining today's call. Have a safe day.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.