艾默生電氣 (EMR) 2008 Q2 法說會逐字稿

Welcome to the Emerson second quarter 2008 conference call.

During today's presentation all parties will be in a listen-only mode.

Following the presentation the conference will be open for questions.

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today, on Tuesday the 6th of May 2008.

Before beginning, we'd like to remind you that Emerson's commentary and responses to your questions may contain forward-looking statements, including the company's outlook for the remainder of the year.

Information on factors that could cause actual results to vary materially from those discussed today is available in Emerson's most recent annual report on Form 10-K as filed with the SEC.

In this call, Emerson Management will discuss some nonGAAP measures in talking about the Company's performance and the reconciliation of those measures to the most comparable GAAP measures is contained within the presentation posted in the investor relations area of Emerson's website at www.emerson.com.

And I'll now turn the conference over to Mrs.

Lynn Maxiner, Emerson's Director of Investor Relations.

Please go ahead, ma'am.

Thank you, Michael.

I'm joined today by David Farr, Chairman, Chief Executive Officer and President, of Emerson and Walter Galvin, Senior Executive Vice President and Chief Financial Officer.

Today's call will summarize Emerson's second quarter 2008 results.

A conference call slide presentation will accompany my comments and is available in the investor relations section of Emerson's corporate website.

A replay of the conference call and five presentation will be available on the website after the call for the next three months.

I will start with the highlights of the quarter as shown on Page 2 of the conference call slide presentation.

Second quarter sales were up 12% to $6 billion with underlying sales growth of 6% led by strong international growth.

Results for the second quarter '08 and the comparative quarter second quarter '07 both exclude the European appliance motor and pump business.

Operating profit margin improved 100 basis points to 16.4% and earnings per share from continuing operations was $0.75, up 23% compared to $0.61 in the prior year quarter.

Operating cash flow was $748 million and free cash flow was $569 million, an increase of 37% and 45% respectively.

We made progress on operational efficiency measures in the quarter with average days in the cash cycle decreasing to 66 days from 68 days.

Trade working capital as a percent of sales improving from 18.8% to 18.7% and operating cash flow to total debt remains strong at 67%.

It was another strong quarter and a great first half of 2008.

Moving to the next chart, the second quarter P&L.

Sales in the quarter were $6.023 billion, again, an increase of 12%.

Underlying sales growth was 6% with currency adding four points of growth and acquisitions netted divestitures adding two points of growth.

As mentioned earlier, the results for 2/2/08 and the comparative 2/2/07 exclude the European appliance motors and pump business.

Operating profit was $990 million or 16.4% of sales.

The 100 basis point improvement was driven by cost containment programs, volume leverage and a $30 million mark-to-market benefit relating to commodity hedging.

Net earnings from continuing operations for the quarter were $598 million, up 21%.

Diluted average shares in the quarter were $792 million.

Which leaves you with an EPS from continuing operations of $0.75, again, up 23%.

A $52 million impairment charge relating to the European appliance motor and pump business was recorded in the quarter, which resulted in a negative $0.06 impact, bringing the reported EPS to $0.69.

The next slide, the underlying sales by geography.

First in the United States, we had growth of 1%.

Europe was up 2%, Asia and Latin-America both up 18% and Middle East/Africa up 19%.

Total international for the quarter was up 10%, which gets you to a total underlying sales of 6%.

Again, currency adding just over 4 points and acquisitions net of divestitures adding two points.

Getting you to a consolidated sales growth of 12%.

Going to the next slide, more income statement detail.

Gross profit dollars of $2.242 billion or 37.2% of sales.

The improvement was driven by leverage on higher sales volume and cost containment actions and includes a mark-to-market benefit relating to commodity hedging.

SG&A was 20.8% which brings you to an operating profit of $990 million or 16.4% of sales.

Other deductions net were $67 million in the quarter.

There were also $24 million in gains in Q2 of '07.

Interest expense of $51 million in the quarter which brings you to a pretax of $872 million or 14.5% of sales.

Taxes in the quarter were $274 million, a tax rate of 31.4%.

The tax rate is still expected to be approximately 32% for the fiscal year.

Slide 6, the cash flow and balance sheet.

Operating cash flow in the quarter increased 37% to $748 million.

This strong performance was driven by higher earnings and good working capital improvement.

CapEx in the quarter was $179 million, bringing you to a free cash flow of $569 million, up 45%.

Cash flow to total debt ratio remains strong at 67%.

The trade working capital balances are noted at the bottom of the slide which were 18.7% of sales.

A nice sequential improvement from 19.7% in the first quarter.

The next slide is the business segment P&L.

Business segment EBIT was $925 million or 14.9% of sales.

The improvement was driven by our volume leverage and cost containment programs with price increases offset by material and other inflation.

Differences in accounting methods up $5 million to $57 million.

Corporate and other was $59 million down $13 million noting the $30 million mark-to-market gain related to commodity hedging in Q2 '08 and the $24 million of one-time gains that was recorded in Q2 of '07.

Interest expense again, $51 million down $7 million.

Which gets you to the pretax line of $872 million up 19%.

On slide 8, we'll start going through the individual businesses.

First, a strong quarter for Process Management with sales in the quarter of $1.597 billion, up 19%.

Strong underlying growth of 16% with currency adding five points and acquisitions netted divestiture subtracting two points.

By geography, the U.S.

was up 13%, Asia up 20%, Europe up 12%, Middle East and Africa up 20%.

Good growth across all regions as the energy sectors remain vary favorable.

EBIT dollars were $286 million or 17.9% of sales.

Margins increased 20 basis points as we leveraged the higher sales volume.

Continued investments were made for global growth and increasing new product efforts.

Orders growth continued to accelerate during the quarter and project wins and penetration gains continued globally.

Next slide, Industrial Automation.

Sales in the quarter up 11% to $1.176 billion.

Underlying sales were up 5% with currency adding 6 points of growth.

By geography, the U.S.

was up 4%, Asia up 16% and Europe up 3%.

EBIT in the quarter was $171 million or 14.5% of sales, the 20 basis point margin expansion was driven primarily by volume leverage.

There was increased sales for all business in Industrial Automation resulting from continued demand from the global capital goods market.

The power generating alternator business continued to experience strong growth.

Next chart, Network Power.

Sales in the quarter of $1.52 billion, up 27% with underlying sales up 11%, acquisitions adding another 12 points and currency adding 4 points.

Geographically, the U.S.

was up 10%, Asia up 22% and Europe down 1%.

EBIT was $187 million remained at 12.3% of sales.

The core business margin performance was good but negatively impacted by the dilutive impact from Motorola's imbedded communications computing acquisition.

Telcom infrastructure demand remains robust in China and global communication needs continue to drive the growth for Network Power.

The next slide, Climate Technologies.

Sales here in the quarter of $956 million up 1%.

Underlying sales were down 2% and currency added 3 points of growth.

By geography, the U.S.

was down 3% driven by the weakness in the residential market.

Europe was down 14% driven by the decline of heat pump compressor sales and Asia was up 10% with continued penetration gains.

EBIT dollars in the quarter of $142 million or 14.9% of sales.

Margin declined slightly by 10 basis points, positive pricing actions in the quarter were offset by material inflation pressures.

Energy efficiency regulation and continued market penetration drive strong growth prospects in China for Climate Technologies.

The next page, the Appliance & Tools segment.

Sales were $956 million, down 6% for the quarter.

Underlying sales were down 6% with currency adding 1 point and acquisitions net of divestitures subtracting 1 point.

By region, we had the U.S.

down 8%, Europe up 3%, Asia up 25%.

As communicated earlier, the results exclude the European appliance motor and pump sales.

EBIT dollars were $139 million or 14.6% of sales, a solid increase of 140 basis points resolving from the restructuring benefits, cost containment programs and effective management of the price cost exposure.

More details regarding the European appliance motor and pump business are located on the next slide.

We are actively pursuing the sale of this business.

This action follows our strategic initiative to divest certain forward growth businesses.

The annual sales for this business are approximately $450 million and it has low single-digit profitability.

Results for this business have been reclassified from the Appliance & Tools business segment into discontinued operations.

Dilution to earnings per share of $0.06 resulting from the $52 million impairment change has been recorded in this quarter.

Sale of this business is expected in the next 12 months.

Moving to the last chart, we had a strong second quarter with underlying sales growth of 6%.

Operating profit margin improved 100 basis points.

Order trends are in line with expectations.

We finished a solid first half of 2008.

We expect full year underlying sales growth of 5% to 7% and reported sales of approximately $25 billion, up 11% to 13% from $22.1 billion in '07.

The $22.1 billion for fiscal year '07 excludes the European appliance motor and pump business.

We have increased our expectation for full year earnings for share from continuing operations to the range of $3 to $3.10, a 13% to 17% increase over 2007.

We expect full year operating cash flow of $3.2 billion, capital expenditures of $0.8 billion and free cash flow of $2.4 billion.

All which drive our expected 2008 return on total capital of approximately 21%.

So with that, I will turn it over to David Farr.

Thank you very much, Lynn.

First of all, I want to thank everybody for joining us this morning.

We appreciate your time.

I know we have a lot of things going on, but we appreciate it.

I also want to thank all the business leaders, the operational heads, the Presidents, in particular, Ed Monser and Walt Galvin for what I consider executing very nicely in a more challenging environment and as we talked about in the February analyst meeting.

The delivery of strong underlying sales, operating margins leveraging our cost structure and really beneficial, benefiting from the restructuring we've been undertaking the last couple years and dealing with a, what I call, a tough increasing material inflation environment, which is accelerating.

On top of that, the operations really did a great job in managing their asset utilization and generating very strong operating cash flow of $748 million up 37% and around $1.2 billion in the first half up 34%.

So very strong cash generation performance, very strong asset utilization performance.

At the same time, we're growing sales on average over 6% in the first half.

Underlying sales and also really improving the profitability, the business, underlying profit margins of the business.

The restructuring and repositioning of the businesses, the increased presence in the key emerging markets which now represent close to 30% of our sales, increasing international presence, which represent this quarter around 53% of our sales and most importantly, the continued aggressive investment in technology and new product programs that we'll be launching throughout the remaining part of 2008, 2009 and 2010.

Fundamentally, our core belief here in the marketplace as challenging as this is right now is, now is the time to invest, aggressively invest in key technologies and change the game technologies in new products that we can launch in these tougher markets to allow ourselves to really widen the gap between Emerson and our global competitors.

It's a core part of our philosophy, it's a core part of our strategy, and I believe based on the performance of the Company the last 12 months and a rolling 12-month period, you've seen that differentiation between us and our competitors.

As we discussed in the February analyst meeting in St.

Louis, we anticipated a tougher global market.

And if you look at what we're seeing today, it's not totally different from what we anticipated.

I would say the U.S.

is definitely weaker.

However, it's held up because of our strong export business, our customers are exporting more, therefore, we're selling more into them.

It's weakened our European business somewhat because the European companies are less competitive with the Euro sitting around the $1.55 to $1.60 level.

But net/net as we've looked at the U.S., we still believe our sales will probably grow, underlying sales grow up in the 2% range, Europe in the 2% to 3% range, growth fixed investment in both locations will be positive, somewhere in that 2.5% to 4% range.

So, it's still a reasonable environment but weaker than we saw last year.

Yet Asia-Pacific will still grow, in my opinion, 12% to 16% good, strong GFI investment.

Latin America growing somewhere in the 12% to 15% with strong growth fixed investment in Latin-America.

Middle East growing 20% to 30% and with good fixed investment.

And Canada growing somewhere in the 3% to 5%, based on some of the large oil and gas projects underway up there.

Net/net, as we look at the marketplace that we serve today, definitely more challenging in the second half than the first half.

However, still good from the standpoint of driving underlying sales growth.

As we communicated, I still believe the underlying sales growth will be in the 5% to 7% range, a 6% number that we've been looking at for this year is still pretty solid for us right now.

We're close from I look at it as I communicated to the Board today, be somewhere between 5.8% to 6.2%.

That's tight right now as we look at the second half and the full year.

The big issues for us in North America and the U.S.

is driven around the growth fixed investment for residential, which has been very negative the last couple years and I do not believe we'll bottom out in the until late 2008, and will be a slow recovery well into 2009 until probably the end of 2009 before we start seeing any positive type of growth.

The non-res, which has continued to hold up, though in my opinion, will weaken as the year progresses, will be positive and I think will be more challenging as we get into 2009 and slightly unclear at this point in time.

As we look at the emerging markets, the international markets are really giving us the strength.

We've been very aggressive over the years investing in the markets and it's paying off.

And yet, our U.S.

and European markets are still giving us growth, albeit at much lower levels than they did last year.

As Lynn mentioned, we did put European appliance motors and pumps business in discontinued ops, we are in the process of selling this business, it's no longer strategic to the Company.

We will be moving forward with that sales process here the next couple months and within the next six to 12 months it will be completed.

And it does help our business as you look at it from the standpoint of underlying sales growth and profitability as in both cases, it was dilutive.

But net/net as we look at what operations have done in the first half of this year, they have delivered in a tough environment.

We've got solid underlying growth, we've had strong improvement and profitability.

We had excellent trade working capital and asset utilization generating good solid cash flow.

And we feel good about where we sit right now for the whole year.

Hence, our sales are around $25 billion, earnings per share we raised the range to $3 to $3.10.

We look at operating cash flow around the $3.2 billion as we look at some of the investments that we have coming at us in the second half of the year, including some repatriation of some earnings and some cash from overseas which will cost us some money.

And we're looking at a return on total capital around 21%.

As you can tell from the numbers, we have continued to buy back our stock.

We have generated-- we generated a cash flow and we are returning this money back to our shareholders.

At this point in time, it looks to us like we'll be returning around 60% back to our shareholders for 2008, both in dividends and share repurchase.

Those numbers can change based on any acquisitions that may happen in the second half of this year.

But as we look at it right now, we're generating the cash flow and the returns and we will return that money back to the shareholders if we no longer need it for this year or early 2009.

Net/net, the Board as we review these numbers today are pleased with the performance of the Company.

I'm pleased, the OCs very pleased.

The operating heads out there around the world are executing in a challenging environment and we are delivering underlying growth, profitability, cash and returns.

And we look forward to finishing this year at record levels at all areas.

So with that, I'm going to open the lines.

I'll remind people that we will take two questions from individuals.

So while individuals-- all individuals have a shot at asking questions and taking a shot at Walter and myself.

So if you have more than two questions, you will need to leave and go back and the end of the queue.

And I think you all understand that, we can't have one or two people hogging the phone lines here.

And with that, Michael let's go open the lines up and let's take our first question.

Certainly.

Thank you, sir.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Deane Dray with Goldman Sachs.

Please go ahead, sir.

Yes, thank you, good afternoon.

Good afternoon, Deane.

David, I'm not going to say it was in your prepared remarks, but when you just finished speaking there, you talked about the accelerating tough materials inflation environment.

So you talk about the point about that it's accelerating and what the offsets are, price and the our productivity and so forth.

And then I have a question for Walter on the hedging.

Okay fair enough.

From the standpoint it-- this is not anything unique to Emerson, as we all know we're out there dealing with a very challenging environment relative to steel.

The steel companies have continued to raise prices.

We have contracts for some x percent of our steel and then we have to go out and negotiate and have spot buys for the rest.

This is -- we've seen spots steel go from $800 a ton up to over approaching $1,200 at times.

We've had a lot of our suppliers try to add surcharges, around $250 a ton.

We've been able to maintain our agreements with these suppliers.

They've honored that and we're working aggressively to make sure we mitigate that.

But it's pretty clear to us between steel, copper, nickle, aluminum that we're looking at a pricing cost environment that it's going to be substantially higher than it is this year, going back to what we saw in 2007.

And hence as we reviewed with our operating people in the last couple months and reviewed with the Board today, we're looking at a price increase environment that's going to be greater in 2009 as we move into it and we have to start taking those actions now than we saw in 2008, going back to where we were in 2007.

So we've been able to stay green as we look at it from our price cost.

We work very close with our customers.

We do have some contracts and hedging and everyone has been honoring those.

But it's a much more challenging environment.

So as we look at it going forward, it's going to drive much higher costs for us as we leave 2008 and go into 2009, hence the pricing environment.

We-- from our standpoint, our productivity allows us to get the margin expansion.

We're not getting margin expansion through price.

Our goal is to basically offset our material costs through price and then through our productivity, our facility, and obviously job moves and productivity programs, we get the margin improvement.

Our margin improvement's not coming from price action.

So it's going to be an interesting environment here.

Not unlike what we've seen in the last two or three years.

So we're being very aggressive right now and we know what the issues are and we're moving forward.

But just to clarify in total that you believe you'd be able to offset costs for the balance of 2008?

Yes we-- our current plan shows that we're slightly green that our underlying, what we would say our net material inflation right now is going to probably be, I'd say it's going to be around the 2% to 2.5% range.

That's where we are right now.

It's going to be higher than that next year approaching 3%, and so therefore right now we do have enough price across the Company on average to stay green.

Great, and then for Walter.

Just it's a little bit surprising to see mark-to-market hedging charge or game coming through in the quarter.

I mean typically your manufacturers are using the supplier agreements.

Dave just mentioned some supplier agreements.

So what is it about these derivative instruments?

Are you factoring in other games or potential losses in your guidance for the balance of '08?

Well that's a multitude of questions, Deane.

Sorry.

But on your first question, we have been hedging copper, aluminum for at least 25 years.

You had the issue of a significant movement in the quarter.

Most of it is deferred because of FAS 133.

But you do have a significant movement in round numbers you can look it up.

The price of copper probably went from approximately $3 a pound to $4 a pound.

Aluminum also moved as did some other commodities.

We follow very straightforward FAS 133 and where you had a correlation factor but all squared, which is less than 80%, you need to market-to-market, you also have to factor to look at is the slope between your actual cost increases and your price cost count hedging that you've done is it between 0.8 and 1.2.

If you don't meet those two criteria, you're required by FAS 133 to mar the contracts to market in the period.

Generally speaking it's been a much smaller number this quarter.

It was a larger number.

We felt it was appropriate with the rules to disclose that number to you and break it out so you knew what was driving the margin change in the quarter.

And for information, we actually had a negative number in the first quarter when copper went from high to low to about $25 million?

Somewhere around there.

Yeah.

So, it's -- and the net/net for the six months it wasn't much change but --

It moves around.

It moves around and the new rules will make us do this now unlike what it used to be.

Great, thank you.

You're welcome.

All right, thank you.

Bob Cornell with Lehman Brothers, please go ahead with your questions.

Mr.

Cornell, how are you doing?

Hey David, how are you doing, you look-- it looks like you're hiding some earnings there.

We had a good Board meeting today.

Absolutely.

You mentioned the investments you made and the comments around changing the game I mean, may you could just give us some color with regard to what you're doing in what businesses and maybe sort of quantify help us just to understand a little bit more what you're doing?

Yes, from my standpoint, Bob, a lot of these are what I consider pretty proprietory areas that we're not going to talk about until we're ready to launch.

But it's from the standpoint, if we look what's going on the process business right now and we talked about wireless and we talked about the increase investment and expansion there.

But the same time, we're doing a lot of significant investments in next generation-type of product and capabilities, which will unfold in the next few years.

Emerson's not going to stand still.

We changed the game back in the '97 time period with our Delta V implant web.

It's now been 10 years.

And so you can imagine that we're working around that same type of area.

In the area of Network Power, we have the large UPS product, we're doing a major redesign from energy efficiency standpoint both from the (inaudible) power supply and also the precision cooling units that will be coming out starting later this year into 2009.

I'm not going to-- I won't get anymore specific than that.

But needless to say that both process, Network Power and Industrial Automation we have significant investments and technologies that will continue to drive our leadership and participation gains that we have set for ourselves.

Okay.

That sounds good.

I mean-- on the last conference call, Dave, you mentioned that the one business that could surprise in the second half would be Climate and I think off the prospective increase in Asia.

I mean how does that look now?

And I think the regulation changes in China are still not firmed up, maybe sort of give us a view on the rate changes of China and whether you still think Climate could be a second half surprise?

Let's put it this way.

I'm not quite anticipating that second half surprise on this conference call as I did in February.

I think that the residential U.S.

market has-- is clearly continuing to weaken.

And so therefore as I look at it right now and you look at the consumer, you look at the price of gasoline-- you know you've been reading the paper and watching TV and all of that stuff.

I just don't see that being a situation right now that we will see it happen.

So I would back down from that, it was my feeling in February.

And now I would say, it won't be a surprise in my opinion.

The Asia situation in China, I still believe will have a very strong year.

The government continued to negotiate and deal with the change.

They have not finalized yet, there's a lot of open switches.

We will continue to move forward with our investment because China will move to the more energy efficient units, they're actually-- the OEM's are starting to build the units.

It will take longer but it will happen.

So we're not backing off on that I just don't think we'll have that second half upside surprise that we talked about.

I think you're going to see this is capital driven.

The capital business as you can tell from the orders are still staying pretty good for us right now.

The global businesses are still staying pretty good.

The residential, the consumer-related businesses will continue to be weaker throughout the rest of this year and my bet right now for Climate 2009, will be a good year for Climate.

Got it.

Thanks, Dave.

Your welcome, all the best to you, Bob.

All right, thank you.

Our next question is from the line of Michael Schneider with Robert W.

Baird.

Please go ahead.

Hi, Dave.

Michael, you didn't call me back on those brews.

Still hanging my head.

That's okay.

The-- I guess sticking with the margins I guess and process, if you look at a reasonable flow through in that business, Dave, it presumably should have did about $75 million more in operating income.

What you call reasonable flow through in profitability, Michael?

30% in process.

Okay.

And you put about $45 million extra year-over-year.

That $30 million, is there anything unusual in there or is the mix change changing within process?

Or is it indeed that's the type of magnitude you're spending on R&D and new project deployments?

There's a couple of things going on.

There's some very large projects going on underway out there around the world.

So the mix from a project standpoint is up right now, which will create a larger, I would say a lower margin.

We are having to add capacity as this is the fourth or fifth year of this expansion and process, so we're now having to add incremental capacity.

So that will -- the incremental margin will be a little less.

We are seeing some of this acceleration of price, cost issues relative to the materials that-- and so we can get the price in that business but it takes little longer especially on a project.

And we have increased our investment and very strategic areas as we talked about.

You're in a mode right now in process.

As you look at it, we will continue to improve our profitability at a slower rate because of the mix, because of the long-term investments we're having to make relative to capacity, and repositioning our global infrastructure and also with some of the technology.

So I think that you are correct normally but I think you're going to see it at a normal level at this while we continue to invest in this business.

And are these investments that will be dialed back as the cycle slows down?

In other words, is it opportunistic spending or is this necessary spending?

Emerson doesn't waste any money, Michael.

Just sort of like the cardinals.

We don't waste money.

So I would say that at this point in time, we are-- we have made strategic decisions to go after some technology investments and capacity investments and some global project investments that are fundamentally there to allow us to continue to grow our business and take advantage of this strong global growth in the process market place.

You make hay during this upturn.

So we will dial it back.

But I won't dial back innovation investments that will allow us to change the game.

So we may slow down some of our expansion and capacity but I don't think we'll be slowing it down too much.

Okay, thank you.

Thank you.

And our next questions coming from Christopher Glynn with Oppenheimer.

Please go ahead.

Thanks, hello.

How are you doing, Chris?

Good.

Network Power margins were pretty interesting.

Looks like the underlying was probably quite a bit ahead of plan.

I'm just wondering where the Motorola margins came in roughly at break even, negative?

And if the plan is-- with them being well above plan really, we are looking at tougher margins comps in the second half when you had inverse read all the prior acquisitions.

Exactly right.

Right now what we see is the Motorola business, a better computing business, is why they have a plan from profitability standpoint.

Integration is going extremely well.

Jay Geldmacher and his team both within the [Aztec Arsen] organization and the Motorola organization have really done a great job and my hats off to them.

It's going to get tougher as the year goes on.

We probably had about a point impact from the acquisition in this quarter and the whole program is to get this done before the year is out.

So we-- as we get into 2009, we start seeing some of that improved profitability.

But the business within the Network Power business right now, improved profitability is good, we're leveraging it nicely, we have a lot of new product programs, the underlying growth is good and we are getting the integration done in Motorola.

And I would say that we're slightly ahead of plan and I feel good about where we going into the second half of this year.

Great, thanks a lot.

You're welcome.

All right, thank you.

Our next question is coming from the line of Stephen Whittaker with Sanford Bernstein.

Please go ahead.

Hello, Stephen.

Hello, good morning.

Just a question around expanding your comments on market-- on the market position.

Could you talk a little bit about market share changes in the up markets and the down markets?

So a little bit more on process management and wireless and the success that you've had in the last quarter?

And then also maybe Climate control, Europe for example and giving us a sense for where the markets are tough what's going on with share?

Relative, I mean relative to talking about quarterly changes and market participations is to be honest with you is a joke, you can't do it.

I mean you cannot sit there and tell you what is going in quarter-to-quarter.

What I can tell you over the last couple years we have been gaining an average one or two points in our Process Management business.

And I see no reason why we won't have that again this year.

It doesn't mean you have it each quarter.

But as I look at the underlying growth trends of our business and Iook at the underlying growth trends in the market, the market's strong, all boats are rising in this market right now.

But I believe that we have done extremely well across the board and have for many years.

So as I look as our Process Management business right now, we continue to expand our participation on a global basis.

Wireless is launched and will continue to launch.

It's not significant enough at this point in time to have any impact at all on the market share.

From our standpoint, it is a significant program as we move out over several years.

We expect this to have about $0.5 billion of sales as we go through that over the last five or six years.

And that is significant in any major new product and innovation.

But that's going to take some time.

Because that's just coming forward and you have to get all the product approved and everything underway.

So it's moving forward and I'm pleased about-- pleased where it happens right now, what's going on right now.

And I'm pleased with the Process Management.

I think if you look at the orders, the underlying sales and you look at how it continues to deliver sales, not just orders but sales and profits.

We continue to win and win nicely here.

In the Climate Technology in Europe, we had a very strong two and a half year time period, in particular with the expansion of the European heat pump market which was using the scroll technology in electronics.

We look at that market right now as being very weak in Europe.

Historically Climate Technology's end customers who do some exporting, quite a bit of exporting in Europe, are hurt by the stronger Euro and we usually see those customers get impacted first across all of our Emerson customers and Europe.

And that's been the case here again this time as the Euro went from 135 to 160.

We saw many of the Climate Technology customers really dial back and that's what we're seeing now.

I don't anticipate this to return until well into late this year and into the calendar year 2008 for Europe Climate Technology.

Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS)

While people are thinking about it, I want to again thank everybody for joining us today.

I'm looking forward to seeing people down in EPG later this month in May.

I will be present.

I -- the calendar is set so I can make it this year.

Looking forward to talking to everybody seeing everybody.

And again, I want to thank the operating heads and the business leaders across Emerson for the performance in the first half of the year, which I think is outstanding in a very challenging environment as we continue to grow sales nicely, underlying profitability, cash and return.

They've executed and I look forward to continue executing in the second half this year.

Since we have no more questions, we'll call it a day.

Okay, there are no further questions at this time.

So thank you, ladies and gentlemen, this does conclude the Emerson second quarter 2008 conference call.

If you would like to listen to a replay of today's conference, you can do so by dialing 1-800-405-2236 or 303-590-3000 and put the access code 11112378.

Those numbers again, 800-405-2236 or 303-590-3000 and put the access code 11112378.

(Inaudible) would like to thank you very much for your participation.

You may now disconnect.

Have a very pleasant rest of your day.