艾默生電氣 (EMR) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to Emerson's investor conference call.

(Operator Instructions) This conference is being recorded today, February 4, 2014.

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 at Emerson's most recent annual report on Form 10-K as filed with the SEC.

I would now like to turn the conference over to our host, Patrick Fitzgerald, Director of Investor Relations at Emerson.

Go ahead.

Thank you, Ron.

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

Today's call will summarize Emerson's first-quarter 2014 results.

Conference call slide presentation will accompany my comments and is available on Emerson's website at Emerson.com.

A replay of this conference call and slide 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 two of the conference call slide presentation.

Sales increased 1% in to $5.6 billion with underlying sales up 3% as the economic environment reflected slowly improving market conditions.

Demand among industries and geographies was mixed, but favorable overall with a better business climate in Europe and emerging markets growth of 7%.

Gross profit and business segment margin reflected solid improvement.

One-time corporate items related to accelerated charitable contributions and acquisition costs increased expenses by about $50 million.

Earnings per share of $0.65 increased 5%, or up 8% to $0.67 excluding the acquisition costs.

Cash generation was strong with operating cash flow up 8%, supporting the repurchase of 4.6 million shares.

It was a solid start to 2014 with execution on several strategic priorities.

Next slide, P&L summary.

As I noted, reported sales increased 1% and underlying sales decreased 3%.

Gross profit margin expanded 20 basis points, (technical difficulty) basis points excluding one-time acquisition costs related to the previously announced Virgo and Enardo transactions.

Higher SG&A expense reflects a $30 million accelerated charitable contribution that was offset by related tax benefits such that earnings per share was essentially neutral.

Acquisition costs and charitable contributions impacted EBIT margin about 90 basis points.

Tax rate was lower from the contribution benefit and final items from the embedded computing and power transaction.

EPS of $0.65, up 5%, reflects the repurchase of [4.6] million shares or about $300 million.

Next slide, sales by geography.

The underlying sales increase of 3% was led by 10% growth in Asia, which includes a 14% increase in China.

In other geographies the US was up 3%, Europe was flat, Latin America declined 1%, Canada declined 5%, and Middle East and Africa grew 9%.

Emerging markets were strong across the business segments, up 7%.

Moving to slide five, segment earnings and cash flow.

Profitability remained strong across the business segments [with] 40 basis points of margin improvement.

Corporate expense was elevated due to the previously mentioned accelerated charitable contribution of $30 million and the acquisition costs of $21 million.

Operating cash flow grew 8%, reflecting earnings growth and lower working capital investment.

[Trade] working capital as a percent of sales improved 90 basis points led by strong inventory performance.

Moving to slide six, process management.

Process management underlying sales increased 5% with North America up 4%, Asia up 14%, Europe up 3%, Latin America down 10%, and Middle East and Africa up 4%.

Acquisitions contributed 3%, resulting in net sales up 8%.

The sustained strength in the oil, gas, power, and chemical industries continued to drive growth, which was led by a near double-digit increase in the systems and solutions business which was particularly strong in China.

North America accelerated, with the US up 6%, while project timing caused the decline in Latin America sales where orders increased at a double-digit rate.

Process automation markets continued to support elevated investment levels with a robust project pipeline, particularly in North America.

Next slide, industrial automation.

Industrial automation underlying sales were flat with North America unchanged, Asia up 9%, Europe down 5%, Latin America up 3%, and Middle East and Africa up 18%.

Industrial goods markets reflected mixed trends with strength in Asia, improvement in North America, and softness in Europe.

Emerging markets were up high single digits.

Growth in the fluid automation, motors and drives, electrical distribution, and material joining businesses was offset by weakness in mechanical power transmission markets.

Sales in the power generating alternators business were flat with stable but sluggish markets.

Market conditions are expected to slowly improve as demand recovery and favorable comparisons support a modest growth outlook.

Moving to slide eight, network power.

Network power underlying sales increased 2% with North America up 1%, Asia up 2%, Europe up 1%, Latin America up 8%, and Middle East and Africa up 27%.

The embedded computing and power divestiture and currency translation deducted 13% for reported sales down 11%.

Strong demand for global telecommunications infrastructure and steady data center market conditions drove the growth.

Emerging markets were up double digits lead by Latin America and Middle East and Africa.

Telecommunications end markets were supported by 4G network investments globally.

Data center investment growth in Asia and Europe was offset by slower demand in the Americas.

Profit margin declined primarily due to a $13 million one-time research and development credit in the prior year.

Market conditions are expected to be favorable and reoccurring, supported by recovery in Europe and momentum in Asia.

Next slide, climate technologies.

Climate technologies underlying sales increased 5% with North America down 1%, Asia up 13%, Europe up 5%, Latin America up 9%, and Middle East and Africa up 6%.

Growth was supported by the global refrigeration market recovery and stable air conditioning markets.

US sales were mixed with double-digit growth in temperature controls, weakness in service, and flat demand in air conditioning after mid-teens growth in the prior year.

Growth in China exceeded 20% with strength in the air conditioning and refrigeration businesses.

Europe improved as well.

Orders accelerated to 8% growth in the quarter led by Asia and Europe.

Growth momentum is expected to be led by global refrigeration markets, along with continued strength in the air conditioning business.

Moving to slide 10, commercial and residential solutions.

Commercial and residential solutions net and underlying sales increased 3% with North America up 2%, Asia up 11%, Europe up 6%, Latin America up 6%, and Middle East and Africa up 4%.

Residential investment in North America continues to increase steadily, which drove growth in the professional tools, food and waste disposers, and storage businesses.

The wet/dry vacuums business declined in large part due to high demand in the prior year from Hurricane Sandy.

Market conditions are expected to remain solid in the near term [with] support from continued North America residential momentum.

Next slide, 2014 outlook.

Economic indicators remain maxed, but trending slightly favorable as reflected in our underlying orders which have been trending in the 3% to 4% range for several months.

We are expecting global macroeconomic trends to remain favorable, supported by improved conditions in Europe.

Based on current market conditions, our 2014 outlook is unchanged with underlying sales growth of 3% to 5%.

Reported sales are expected to change minus 1% to 1%, which reflects the embedded computing and power divestiture, completed acquisitions, and currency translation.

Margins are expected to expand approximately 0.5% with the benefits from portfolio changes and the volume leverage partially offset by accelerated strategic investments.

Earnings per share, excluding goodwill and tax charges, are expected to grow 4% to 7%.

Business segment and other financial metric forecasts will be provided at our annual investor conference next week in Boston.

With that summary of results I will turn it over to David Farr.

Thank you very much, Pat.

First of all, I want to thank everyone for joining us today.

Hopefully, you guys won't get too much snow.

I'm looking out my conference room right now; we have got plenty of snow falling here in St.

Louis, a nice cold winter.

Good for the oil and gas industry.

First quarter unfolded as we expected.

From the standpoint of our financial forecast that we presented in November and will update in details at the investor's conference next week in Boston, it happened just like we believed it would happen.

We will talk about the incremental investments next week and where they are going and why this is important.

And what you will see and feel, why this was pretty strategic to us, and why the timing is right now.

I also intend to have five business leaders with me next week in addition to my talk.

So we will have the five business leaders give a brief update on the key issues they are seeing, both from a business standpoint and the investment profile, give you a chance to give a broader perspective of what's going across this company.

I want to thank all the operational leaders for delivering in the first quarter.

A good first quarter with underlying sales actually a little bit over 3%, in the 3.4% range.

Order trends should continue to drive sequentially better sales, better earnings, better margins, and growth in the next two quarters.

From my perspective, we have a good start and things are lining up for a very solid year as we talked about back in November and will talk about next week.

New acquisitions are starting off well and will contribute EPS this year, even with the normal balance sheet accounting actions we had to take in the first quarter, which is typical of this type of acquisition, nothing unusual there.

We've done $1.2 billion.

We're still targeting $1.5 billion for the year and with one small divestiture, which we hope to get done in the proceeding second half of our fiscal year.

Operating cash flow and free cash flow was very good in the first quarter on top of last year's extremely strong first quarter.

As I look at it right now, we are targeting somewhere around $3.4 billion, $3.5 billion in operating cash flow.

And we will continue to pay back money to our shareholders, most likely in the 50% to 60% range this year, a little bit under 60% given the fact that we're doing more acquisitions than we have in the last three years.

But, overall, very good cash flow performance.

The balance sheet is in very good shape and we had the flexibility and the need -- or the flexibility and the ability to do what we needed to do from acquisitions or investments internally or pay money back to our shareholders.

As usual, I will give you a lot more details on the economic expectations, what we see both for the world in 2014 and over the next couple of years and what that means to our various businesses as I go in great detail on those lines.

But just to give you a little perspective right now, after taking a long trip around the world with Ed and a couple of the OC members, as we look at the USA right now, it is getting slightly better.

We see the USA trends improving and we expect pretty good growth in USA this year versus last year.

Canada getting a little bit better, a very slow start.

Weather has not been very good, but we do expect Canada to have a reasonable growth this year both as the oil and gas monies happen.

And if we can figure out how to get that pipeline going at some point in time it would really help all of our investments up and down Canada and the Midwest.

Europe, European trends continue to improve.

Europe was flat in the quarter, but all businesses were up except for one, which was industrial automation.

And that's primarily driven because of the Caterpillar, but everybody else was up and we had a good quarter in Europe.

I expect that will continue to gain momentum.

I do not expect that to be superfast growth, but improvement growth, which will help us in the United States and also help China.

We'll talk further about that next week.

Coming back from to the Middle East; also see the Middle East doing well for us right now, both in orders and sales.

And expect the Middle East potentially to be the strongest growth segment that we have (inaudible) area this year coming out of the Middle East.

China had a great start across all businesses.

The order pace was good.

Yes, the news coming out of China things are slowing.

That's nothing new.

We do expect China to still have good growth here this year as we see right now.

We will see how that goes in the next couple months, but right now everything looks pretty good for us.

In total Asia Pacific looks pretty good driven by China and parts of Southeast Asia, and hopefully India will hold in their right now as it did -- as the orders show right now.

Latin America will be okay growth this year.

It won't be as good as last year, in my opinion, but still be positive.

It's probably high single digits.

Hopefully that will continue to strengthen.

But, overall, as I unfold the year, I like the pace; I like where things are right now.

We're making the investments.

In my opinion, all the operational performance was delivered in the first quarter.

Basically we talked about -- we laid out in our targets and our financial plans, so I felt good about it.

I'm looking forward to seeing everyone next week in Boston.

To help Pat's job a lot easier, we decided not to give any charts out this year, so it will be really not to decide which ones we are going to be able to put in and not put in.

So we will have no charts and so that will be a lot easier for everybody.

Pat is dying right now because he's looking forward to that conversation.

So I look forward to seeing everybody next week and hopefully you guys will have reasonable weather for the next couple days and not get snowed in.

So with that, let's open the floor for questions and we will see what's on your guys' minds.

Thank you.

(Operator Instructions) John Inch, Deutsche Bank.

Thank you.

Good morning, David.

Dave, could you talk a little bit about your emerging market exposures, what you are seeing and maybe exclude China?

The question is sort of how the cadence of emerging market trends played out over the quarter and kind of how you are thinking about it this year?

Sure, I went through it a little bit there.

From my perspective right now in the emerging markets the Middle East looks still pretty good.

I was just there; the order pace is good.

I expect them to have a good year.

I wouldn't be surprised if they are not the strongest, fastest in growth rate.

High single digits, maybe even getting close to 10%.

India is a market I'm concerned about and I'm factoring in the -- let's say, I think I'm looking at Asia being somewhere in the 6% to 8%, I'm factoring in basically a challenging year in India.

We will see how that performs.

I'm a little bit concerned about India.

Southeast Asia looks pretty good.

Obviously the Thailand thing bothers me a little bit.

From this perspective our business has not been disrupted yet, but there is a potential chance that it could be disruptive if it gets a little bit more widespread.

Coming back into Latin America, the order pace looks pretty good.

We have some delays relative to what is going on in Mexico because the law changes, which are going to be very good relative -- for the energy marketplace, they will be good for us, that slowed us down relative to sales.

But, overall, I'm pretty confident that our Mexican and our Latin America business will be high single-digit for the year.

Africa is doing okay.

Eastern Europe, right now it's starting to improve.

I would say if Europe continues to trend upward then we will see Eastern Europe doing okay this year.

So my biggest concern right now in emerging markets would be probably down deep into Latin America and Brazil, Brazil region, Venezuela region.

And then I'm also concerned about India at this point in time, but that's my perspective.

China is -- I think China, from the way our businesses will line up, I think we will do okay in China this year.

That makes a ton of sense.

David, if we would look at network tower, how were margins, ex embedded computing?

And I'm really sort of -- is there a way to kind of parse out the margins year over year?

Like, how did the margins perform ex embedded?

Because I think you still had embedded as part of that.

They were still slightly down based on some of the investments and restructuring things we are doing right now, but we see -- they were where we thought they would be for the start of this year.

We have a lot going on relative to network power relative to the new products and changing and things like that.

So from the margin performance standpoint I'm pleased the way network power is unfolding, but they were still slightly down even if you take out the embedded piece.

But they are in good shape.

They had -- orders were positive.

Sales were positive.

Europe was positive.

Asia was very positive.

So right now I think network power is on track to have a much better year than they did last year, which is important for us.

The fact that you don't have embedded in the business, and you once did low teens margins, is there some dynamic given the fact that -- I agree that the business is getting better, but there's still a lot of sort of mix questions, right?

Some reason why you don't think this business over time, so obviously not 2014, couldn't get back to kind of a low teens margin?

Our plan is to get it back in that low teens margin, that 12%, 13%, 14%, 15%.

Yes, we are.

We expect that that is where it will go.

The fundamentals are there.

Right now we have significant investments as we are rebuilding in the technologies, rebuilding some global sales positions and technology positions, so we expect that to [steer] back up into that range.

That business fundamentally should be there.

Got it.

Okay, thank you.

Deane Dray, Citi Research.

Thank you.

Good afternoon, everyone.

Dave, I'm hoping you could expand on your comment on process and the robust pipeline.

I know you choose your words carefully and that sounds pretty positive and you highlighted North America; maybe you could just take us in.

What are the end markets?

What are the customers telling you?

And when did these turn into revenue?

From our perspective right now, in North America we are starting to see some of the downstream investments from all the strength -- the oil, the real oil, and the gas coming out of North America.

We are starting to see the investments happening across the southern part of this America and the product is being let go right now.

We will start getting some sales late this year.

If you remember I said all along our process would be -- the growth would be a little bit more rear-end loaded because of some of these projects.

So from my perspective right now our project business, both here in the Americas is looking pretty good.

Also Asia is still looking very, very good.

I think we're going to have another record-setting year both in bookings and sales in Asia.

I'm pleasantly surprised at the investment profile even coming out of the Middle East in the oil and gas area.

I would expect -- based on the pipeline we are seeing right now, based on the level of activity from the bidding standpoint that we should have a very good process year again this year.

Obviously we're coming off of very high levels.

I don't -- right now I do not anticipate getting double-digit top-line sales, but I expect to have high single-digit type of gross sales out of these guys.

But it's setting up very nicely.

Obviously, we continue to make very good money and profitability and invest a lot in this business, too.

Okay, that's real helpful.

Just given all the headlines on some of the Latin American currencies, you all are one of the very few that engages in hedging practices.

So this might be a good opportunity just to refresh everyone on the hedging and how perhaps any of the major currency swings affect it.

The only hedging we do right now is at the operational level from the standpoint of buying and selling goods.

That's the sort of transactional that flows in and out, there's not much going on.

We don't hedge a whole lot.

Obviously, the currency right now and the weakness in the real, the Brazilian real is not a good thing.

But sometimes we have swings in a quarter because what happens is a lot of our global contracts in the process in particular are done in dollars.

They go back and forth.

They true-up by year-end, but we're not doing a whole lot of hedging right now.

Clearly, the weakening in southern currencies are also very disturbing from the standpoint of overall business and what's going to happen down there.

So that's why I am more cautious about Latin America than my internal people would be, let's put it that way.

I think, to your point, there is going to be a concern there.

Understood.

All right, we will hear more about that in Boston.

Julian Mitchell, Credit Suisse.

Thanks.

Hi, Julian.

Are you guys seeing a lot of snow?

Yesterday some, but it's pretty much gone now.

Good, good.

In terms of the -- you talked about the accelerated investments back in November.

I guess did you see kind of the normal run rate for the year in Q1?

Because I guess your clean gross margin was up 60 bps.

Your SG&A to sales ex-the charitable stuff was flattish.

So from the outside, it wasn't obvious that you had stepped up investments.

I just wondered if that was something that you had done and you just absorbed it in the operational leverage.

I would say we did it and we absorbed it in operational leverage, but we also -- it will grow bigger as the year goes on, but we still did a pretty good job of actually absorbing some of the start of this investment.

Clearly we got very close to 3.5% underlying sales growth for the quarter.

That's a good number for us.

Once we get in that 3.5% range, we do leverage a little bit better.

As we move towards 4%, it's even better.

So clearly, the investment dollars will ramp up as the year goes on, Julian, and I'm hoping that hopefully we will have pretty good leverage the year goes on, too, so maybe a little bit slightly better profitability.

But we've got to get the sales.

That's key for us right now.

Thanks.

And then within industrial automation, you've done a lot of restructuring there the last four years or so.

The margins were down slightly, I guess, even with revenues being up.

Was there anything -- was that because of decremental margins within power transmission, or was there anything kind of special going on there?

Nothing special, just some tough mix for the quarter and some of the investments going forward.

It's a little bit of mix noise.

From quarter to quarter that will move around, but overall the profitability of that business should be pretty good again this year as it was last year.

Thanks.

Then just lastly within your US process business, you reiterated the fact that sales should pick up later in the year from downstream projects.

I guess was the 6% growth in the US you saw in the December quarter, was that a surprise?

Just the base was very, very difficult, but you still grew 6%, I guess even without these projects coming through.

I was pleasantly surprised at how the US did.

The US did a little bit better than I thought they would.

I actually thought we would grow a little bit in the quarter in Europe, but we didn't.

But as I look at the first quarter, I was pleasantly surprised in the US.

I was hoping a little bit of growth out of Europe.

I was disappointed in Latin America, which did not grow in that.

So we saw better growth in the US and not as much growth in Latin America -- no growth in Latin America.

So I think those are the three surprises I saw in the quarter.

Great, thanks a lot.

Josh Pokrzywinski, MKM Partners.

Good afternoon, guys.

Dave, could you just walk us around the portfolio and give us a sense for how pricing is looking, where you guys are green and where maybe it's been a little bit tougher?

On the portfolio right now, everyone would be green except for, I would say, network power.

Network power with some of the -- we are going after some telecom business.

You know, the China mobile buildout is happening right now and we are aggressively going after that business.

We want to make sure we protect our installed base there, and that is one of the biggest telecom investments you're going to see in China for the next couple of years and we want to make sure we have our adequate fair share of that.

So I would say that's the place that we have had to sharpen our pencil the most around the world.

And other than that, pricing is holding in there pretty well right now.

We might see a little bit of squeeze if some of the commodity pressure keeps dropping down, but right now from a price/cost standpoint we're in pretty good shape.

Would you say so, Frank?

Yes, we were positive for the quarter and I think we are pretty much on our plan for the year right now.

Yes, we will get an update here in February as the guys come in for President's Council.

But nothing surprises -- I don't think you're going to see much overall movement, positive or negative, around -- we might be, like I said I think in November, slightly positive or slightly negative.

We are going to be pretty tight at this one.

There's not a lot of movement right now.

Got you.

So the pressure or I guess design pressure on your end on embedded -- not embedded, network power in China right now plan for the rest of the year is as you see it today?

I would say that we are going to close that a little bit.

We will probably end up being a little bit red there by the end of the year, but it will be less red than it is today.

Got you.

Thank you.

Shannon O'Callaghan, Nomura.

Good afternoon, guys.

Dave, you clearly sound more positive on Europe.

I know it was only flat in the quarter, but things seemed to be getting better there.

How positive does the turn kind of in capital investment plans feel there?

And how much do you think Europe could actually grow?

I'm going to talk about that next week, but right now my gut tells me that we are not looking for a big turn.

I'm looking probably for Europe in the 1% to 2% type of growth range for us.

I look at the GFI probably growing 2% to 3% next year.

Every -- the trend line continued to improve.

Clearly we needed to get it towards that 2% range or the 3% range in GFI to help us a little bit more.

But I was pleasantly surprised at what I am hearing in Europe from our customer base and also from our own guys internally.

And that's going to be very important from my perspective.

The way I see the world is China -- if Europe starts growing again in output, you're going to see China be helped and then you'll see us be helped.

And so -- the US helped.

I think that's a key thing in the world doing well next year.

If Europe stalls, then I think you'll see the global economy stall again.

I think Europe is going to be the key driver of this thing.

Okay.

On process in terms of this pipeline, the pickup in the second half of 2014 that you have been talking about, what is the tail like on that accelerated growth once it starts going?

How long is this pipeline going to run when we start to think into 2015-plus?

If the pipeline actually gets built and they start actually flowing the oil down into the southern part of the United States, then you could see for many years -- many years being like two, three, four years -- a pretty significant buildout of what I would call downstream type of businesses across Louisiana and the Texas and Oklahoma regions.

People talk about there's only 50 new jobs because of the pipeline, but that isn't taking into consideration that if you build that pipeline and you have that steady stream of oil coming, just like the gas pipelines that are being built right now, the manufacturing and downstream production will happen in that region.

And we will have a lot more high-paying jobs, first of all, to build those factories and, secondly, to operate those factories.

And those are skilled jobs when you're looking at, be it, refining or chemical.

Whatever type of process you are looking at those are pretty good jobs and those are ones that will come down the road.

That would be more in the 2015, 2016 time range, so it would be very positive.

Okay, great.

Thanks.

See you next week.

Steve Tusa, JPMorgan.

Good afternoon, Steve.

Did you make the show in New York, the HVAC, or was it more too cold so you couldn't call it HVAC (multiple speakers) [the heating phone]?

I made it.

I saw your guys there.

Some good technology, good technology.

Was it a heating show or an air conditioning show?

Well, when I walked across town about five blocks in the snow, I was hoping -- I was wishing it was a heating show, but it was pretty cold.

But back to business.

On network power, could you give us the embedded -- the actual embedded sales and profit you booked in the quarter?

I'm having a hard time understanding what you mean by the margin was still down a little bit ex-embedded.

Does that mean down a little bit ex-embedded, stripping it out of the first quarter of 2013 as well?

Or down from the 7.2%?

Just wondering what the run rate is in the second quarter here.

We are going to give it to you right now.

Hold still, hold still.

Steve, this is Frank.

Hang on one second here.

This is because I'm not going to give anybody any charts, so I'm going to give you actual numbers.

This is the trade off, because no one gets charts.

You get this information is -- because you get this information, no one gets charts.

It raises the margin for both 2013 and 2014 when you strip it out of both years, but the delta actually gets a little bit worse, a little bit worse.

What were sales last year in the first quarter?

It was essentially breakeven sales last year; we booked about $315 million.

This year closer to $150 million.

Okay, so $150 million at breakeven.

Yes.

Basically, yes.

Okay, so it's like a low like mid-7%, low to mid 7% margin?

Am I doing that math right?

When you strip it out, no, it's a little higher than that.

Yes, approximately what?

It's about 8%.

8%.

Okay.

Now the seasonality here, Dave, as we move through the year historically, at least in the last several years it has been kind of like first and second quarter even and then you kind of see a little bit of a ramp in the second half.

Is that how we think about the second-quarter margin for these guys, kind of in that similar range?

Across all of the Emerson our seasonal pattern is pretty similar.

The first quarter is our weakest, then second gets a little bit better, and then third, and then fourth.

Sometimes third is even better than fourth, but third and fourth -- clearly we are always the second -- just the way our customer base is, the way and the type of the channel we have here that's the way it is.

So it's going to be first, second, third, fourth.

I would say that's how it's going to go -- improvement.

Okay.

Then sequentially, on the total sales for next quarter, I guess last several years you've been kind of a high single-digit sales number.

Obviously have some headwind from embedded, so just for total Emerson, kind of mid single-digit sequential sales increase first to second quarter.

Is that the right seasonality?

No, I think right now what we're looking at more would be if we did about -- we are going to be in the fours I would say.

I think right now -- the order pattern is pretty important to us.

January was not a great month for anybody, as you've been hearing everywhere.

We lost so many -- we lost a lot of days.

How bad was January?

Was it down?

We lost several days.

I don't know the exact numbers right now.

It's just anecdotal from me, but it was we lost two or three days in a lot of businesses.

So I would expect -- and our customers did, too.

So I would expect that, if this weather stays up like this, there's a lot of people losing today again, too.

(multiple speakers) I would expect we are going to be -- I mean the numbers I'm looking at right now for the quarter I would be looking in the 4%, 4.5% range for underlying sales growth.

For underlying year-over-year sales growth for the total company?

Correct, correct.

One last quick one just on China.

I know you've got some dynamics around process and network power, but I guess in just kind of the general industrial you're seeing in China there has been a bit of an uptick for a couple of peers.

I think Siemens and Rockwell talked about it.

It doesn't appear that that economy is getting materially better.

Is that -- are there some stocking dynamics going on there do you think?

Is there -- how do you think about just kind of general industrial demand in China?

Our general industrial business was very strong in the quarter, both in sales -- we are strong across the board in China in sales and orders in the first quarter.

It was very weak -- it had been very weak for about 18 months.

The climate guys started leading out, if you remember correctly, last year late and so we are starting to see -- it's not a channel building here because it's not a channel business that much of a business for us.

We are seeing pretty much a lot of the people starting to invest -- continue to invest in the productivity.

They've got the capacity rightsized and so right now -- I just came back from meeting with all my Asian leaders.

We saw a very good first quarter.

We still [feel fairly] good about the second quarter, so if we see orders -- we see a good quarter in the second quarter out of China then I might feel very good about the year there.

Okay, great.

Thanks.

Rich Kwas, Wells Fargo Securities.

Good afternoon.

Two quick ones.

On process, the margin was pretty good this quarter and last quarter, Dave, you talked about MRO potentially picking up in North America.

Did that come through maybe earlier than expected?

We did see some good MRO in the quarter.

Yes, we did.

I don't have the full analyzing, I don't ask them to do it every quarter, but I would say that also tells me we didn't have a lot of big projects flowing through there either at this point in time.

So we had a lot of MRO.

It was just overall -- ash it was a good mix.

It was the right mix for us.

Sometimes you get lucky, but I would say MRO came, especially since we saw North America do well too.

All right, so the way to think about it going forward is the mix probably gets a little less favorable.

I would say so.

As we go into the second half this year we're going to start seeing some more margin squeeze.

We will still do okay for the year.

We will still do very well for the margin for the year, but I would say that we could see some squeeze.

The other thing going for us, too, is we are going to have some good growth from the acquisitions we've made, too, which are pretty good helpers there, too.

It's going to be an interesting dynamic.

I expect pretty good things in our process this year.

Okay.

Then in a network with UPS, North America has been pretty tepid for a while now based on your order commentary and the results.

What are the dynamics there?

What are you seeing out there competitively?

It doesn't sound like anybody is knocking the cover off the ball, but how do you think this plays out over the course of the next 12 to 18 months in terms of growth?

I think we and our competitors are going to start seeing a better market dynamic in the UPS here.

We are actually seeing the orders now.

As you know, the UPS is a little bit longer lead time because of the big systems.

So I was in Italy; I saw the pipeline there and I've heard what the pipeline here is in North America, so I think you're going to see a UPS which had been weak for, you're right, the last 18 months for all of us.

You are going to start seeing better investment.

We are actually seeing better UPS business outside United States right now because there is a lot -- some big projects being done outside the United States by some of the big data centers, the cloud data centers.

But right now based on the pipeline and based on the order pace I think you are going to start seeing North American UPS do better.

Okay, great.

See you next week.

Steven Winoker, Sanford Bernstein.

Good afternoon.

Nice to hear you speaking positively about manufacturing in the US resurgence, whether it's the pipeline or anything else.

You know I'm a very pro-America guy.

I'm from the Midwest; we are very positive people out here.

Excellent, so --.

Just can't win the World Series.

There's always next year, right?

Thank you very much.

I appreciate that opportunity.

Can you talk a little bit about acquisitions and your strategy?

You did Virgo, Enardo; those obviously give you quite a lot of additional capability.

Should we be thinking about this on a more aggressive basis going forward?

As I said, we are going to probably do another $300 million this year.

We would like to do -- we would like to stay focused on this $1 billion to $1.5 billion type of bolt-on type of acquisitions here for the next couple years.

As I talk about next week, that's what I'm going to talk about.

We are going to be looking at that level and type of acquisitions.

These are ones that we are courting.

These are ones we are working.

The timing is not always -- we don't drive the timing and we work it hard, but that's the type of acquisition we are going to do.

We're going to do -- we did one in network power, a nice solutions service type of business there.

We did a couple acquisitions in the process in the first quarter, so you're going to see us do those in process, some of the network power, some in industrial automation, and some in climate along those type of things.

Nothing real big, maybe ranging anywhere from $30 million up to the $500 million range.

That's our focus point right now.

Okay, great.

I know you talked about January before a little bit on weather, but if you think about the PMIs that you are actually staring at coming out recently, obvious for the US but elsewhere, too.

Are you as confident -- is there anything that sort of impacted your confidence level on that?

Or you are just saying, you know what, we are seeing what we are seeing in our portfolio so it has got to be weather and move on?

And it will get better in a couple months.

How are you thinking about that, Dave?

Well, the numbers that came out yesterday didn't surprise me because we had all the business leaders in last week and we all -- we had heard -- we run a 4-4-5 type of company or a 4-4-5.5.

That means we close after four weeks in a month, so we already knew what January was going to be like from the business there.

We lost days in North America; we lost days around the world because of the weather.

The numbers didn't surprise me and our customers are still optimistic.

What we are seeing is still very positive, so I think that they will come back.

If the weather stays like this for the next couple of months, you will lose some more sloppiness and obviously it will make February and March much harder.

But right now I feel pretty good.

The China numbers didn't surprise me at all.

Given where the Chinese New Year fell and what's going on with the government is trying to play around with the shadow banking a little bit, trying to play that a little bit.

But overall my customer base in China is still pretty positive, so nothing surprising there.

Maybe just before I go, could you just address quickly what you are seeing in terms of non-res momentum?

And you mentioned the power transmission side as well.

The non-res -- the inquiries, the things we are hearing in the United States relative to non-res construction are positive.

We haven't seen a lot of order pace yet on it.

We are seeing a lot of inquiries.

We are seeing a lot of planning around it.

And so, even from our perspective today, we went to our board on two North America non-res constructions that will unfold as the year unfolds and goes into next year.

So I think that all of us have kept our capacity real low.

We have worked it down -- in fact, we had taken it down after the 2008 crash and now we are starting to work it back up again.

So I think it's going to unfold here.

I think non-res will start picking up.

It's not going to be an explosion, but I think it's going to pick up as the year goes on.

All right, I will see you next week.

Thanks, Dave.

Scott Davis, Barclays.

Good afternoon, guys.

Dave, is this the portfolio you have that you are going to ride for the year?

Is this -- are you fairly committed to what you have?

Just reading your annual report it seems like this is the game plan.

Is that accurate?

That's accurate.

Except for one small divestiture this year that's where we're going to ride this year right now.

I am in particular interested in getting North America, in particular the US, to strengthen improvement.

And I think we will talk about next week that I have -- we have plans that in the next couple of years we would most likely see $1 billion to $1.5 billion type of divestitures.

So you will see that -- talk about that next week.

Okay, fair enough.

Then on the strategic investments.

Are these long -- what's the mix of kind of long-term, short-term projects?

When I think about ERP systems and things like that they tend to last three or four years, but are a lot of the strategic investments you made things that we could be fairly confident will be over with in 2014?

I think you're going to see us -- some of these things are going to last about two to three years; that is the type of investment period we are seeing here.

We will talk -- I will talk about it how you're going to see little bit of tweaking up in a couple of areas.

You will see the numbers; we will talk about those, but all of them will start paying back, in my opinion, as we leave this year and start getting into next year.

In particular the ones in the -- some of the service side that we are investing and some on the technology side we are investing.

Those will pay back much faster than, say, the Oracle type of investments or a customer-facing type stuff.

So the majority of the investments we are talking about are going to -- one thing, we will start paying back late this year and start feeding this next year a little bit, too.

So it will be self-funding here as it goes on.

Okay, great.

Then just a quick follow-up, and sorry if you already answered this question.

But in the alternator business we have had several quarters of inventory destock.

Is that pretty much done at this point?

They are going sideways right now, yes.

Okay, see you next week.

Brian Langenberg, Langenberg and Company.

Thank you.

Dave, I just wanted to ask the same question a slightly a different way.

It's an analyst thing.

With Europe --

I'll see if I can answer it the same way.

No, you can't.

You have to answer (multiple speakers) differently.

With Europe, obviously it's a big place.

Dive a little bit deep here; talk about the short cycle versus maybe capital spending driven.

And then the second part of this is there is somebody doing something in Europe for Europe and there is in Europe for someplace else.

So the best that you can maybe talk about what you have been seeing in Europe in that way and color the commentary that way, if you would.

Okay, the first question is on short cycle, long cycle.

The short cycle business is -- I would say right now is what's really driving us at this point in time.

The longer cycle business is just starting to unfold as I see it.

It's early days.

We are starting to -- just the order pace we see it, we see it coming as the activity.

People talking about it; it's coming at us.

So right now what's been driving this shorter cycle type of stuff, MRO business, or some of the consumer or light industrial stuff, and that has been driving us here a little bit.

I expect the longer cycle stuff, in order for our year to unfold -- and I'm talking 3% to 5% with 3.5% in the first quarter underlying growth and I'm talking over 4% in the second quarter -- we are expecting some of that longer cycle stuff to start kicking in for us.

In Europe right now we've actually seen some of the Europe or outside Europe improving.

Europe for Europe has not improved as much, but Europe for outside Europe is starting to improve and that's a good sign.

And so from my perspective, if the economic numbers and underlying GDP or gross fixed investment continue to improve, you are going to see -- then you will start seeing investments in Europe for Europe.

Italy is still a concern for us.

The southern part of the country -- Europe is still a concern.

France, we haven't seen much recovery in France yet.

But there's enough going on in Europe right now that for the exporting kind of businesses that's a good sign.

And if China continues to improve, then you will see that will help us too.

Got it.

Thank you.

Mike Wood, Macquarie.

This is Adam in for Mike.

Just a quick one here.

Are you seeing any --

You change your name, Mike, to Adam.

You got me.

Just a quick one, are you seeing any impact from credit issues for kind of the small or medium-size customers in China?

I know it's something that has come up before and seemed to be resolved fairly quickly.

You know, we haven't seen it yet.

I was talking to the guys about it; they are definitely -- even though we had a very good month and quarter on receivables, the receivable issue in China is still there.

They are very slow paying, but they are getting access to money.

It got a little tighter a couple quarters ago, but it seems to unfold a little bit right now.

And I think the government is trying very carefully to figure out how to rein this down slowly without totally crushing things.

But right now it's okay, but the receivable is deftly spread out a little bit and that is something we will be working pretty hard.

We don't have much -- in a Company the size of our bad debt in any year is, what, $7 million?

$10 million?

We don't have much, but it's something I'm going to watch very closely here.

Got you.

Thanks a lot, guys.

[Jeremy Capron], CLSA.

Good afternoon.

A question on pricing.

Could you talk about pricing across your businesses?

Industrial automation and network power margins are down.

I'm wondering if there's anything related to pricing here and then more generally across the other business platforms as well.

As I mentioned earlier, Jeremy, the pricing across our businesses right now in this quarter was pretty good.

Everyone was slightly positive.

When we look at the price cost it was green across the whole company.

And then if you look at network power, it's more of a mix issue.

We've gone after -- strategically we want to make sure we play in the rollout of China Mobile with the 4G.

The other thing is that we have some new product coming out in North America on our precision cooling platform, a much broader platform that is a newer product, which from a cost standpoint is a little bit high.

And we don't have our costs quite in line yet with what the selling price is.

So there's a little bit of squeeze there, but it's more of a mix thing in network power at this point in time.

And that's where it is.

It's pretty good and I expect it to be decent for the year for us.

Great.

Then could we go back to the alternators business?

You're talking about a stabilization here.

I'm wondering could you comment on the extent of the decline that you've experienced here over the past year or so.

We have not given those numbers out, the magnitude, but it is quite significant of the numbers.

And I'm sure we will pull something together.

If you are going to be there next week we will try to talk about a little bit.

I don't want to give you a number of the top of my head right here, but it's not something I won't go talk about either.

We can give you a general feel.

It's quite significant.

Let's put it this way, it's got a 2 in front of it.

Great, thank you.

John Quealy, Canaccord Genuity.

Good afternoon.

Two quick questions.

First, in network power can you talk about how demand was in the sort of office LAN environment?

I know you've talked about data center pretty well, but can you talk about that LAN opportunity?

Then, secondly, within climate technologies in the US, if you could, just talk about the dynamics of that field services business and when we should see that rebound, thanks.

On the LAN side, I don't have that type of detail.

What we will do is I will talk to Scott Barber, who will be there next week, and we will be webcasting so why don't we find out little bit, give a little color on that, on the LAN?

Because I don't want to make something up, John.

Some people accuse me of making things up, but I don't want to do it.

Now relative to climate technology, on the service side I think the key issue there is we have seen just an unbelievably weak replacement type of marketplace right now.

People are either putting whole new systems in or they are working on the heating system because we have just not seen much.

It's been over a year that we've seen a very weak replacement.

And so I would expect we would see an improvement when the spring comes that people, they are going to evaluate: do we put a whole new system in or do you repair it?

If your heating when out, which we saw a lot of people here in St.

Louis in the early heat wave, a lot of heaters went out.

They replaced the whole system there wasn't repair going on.

So I'm hoping that what we will see in the spring, we will see a recovery in that repair side because it's a very nice part of our business which has been down for almost a year-and-a-half, maybe two years now.

And it's a profitable side of our business there, too.

That's our current deal.

We don't have anything better than that at this point in time.

Great, thank you.

Jamie Sullivan, RBC Capital Markets.

Good afternoon, thanks.

So maybe just a follow-on to that question, just more generally about climate in the US with some of those puts and takes.

How are you kind of thinking about those dynamics for the year with -- you mentioned AC flat.

Field service was feeling some pressure.

It sounds look you might improve in the spring.

Maybe just more broadly in the US how you are thinking about climate?

Broadly in climate US I feel we are going to have a good year.

On the AC side just look at the AC side, the housing -- I think housing continues to be okay.

I think it has been several years now that we have not seen a strong HVAC marketplace in North America.

I am feeling there's going to be a better one this year.

Inventories are extremely, extremely low right now.

On the refrigeration side we have seen the marine business pop back, which is a good sign.

If we actually are correct about non-res picking back up as the year progresses, you will start seeing some of our non-res business improve too.

And the refrigeration side will improve.

The only call on the replacement market will be is if people have the money to spend and they feel like spending the money, they will.

The replacement market will soon come back up.

I feel pretty good about climate technology in North America this year.

I feel good about it in Asia.

I feel good about it in Europe.

We've had a couple, two flat years in climate.

They are due to have, what I would call, a solid breakout year because there's still -- we will talk a little bit about this.

Through the cycle there's still, I believe, a 5% to 7% underlying growth company globally and they need to be at the high end of that cycle this year.

That's where it is.

That's helpful, thanks.

Could I squeeze in one last one before we go?

If it's a decent question, yes, Jamie, I will take it.

If it's not decent, I am just going to hang up, okay?

All right, fair enough.

No pressure on you, no pressure.

No pressure.

Just on the network power margins I think you said for the full year pro forma they were around 10.5% in 2013.

Is that right?

I think you said that last quarter.

I was just wondering how you are thinking about this year relative to that.

It sounds like some pressure relative to that.

What we are trying to do is I would expect —- we are not trying to get much margin improvement this year out of network power.

What I am trying to do right now is we are making some strategic investments.

We are trying to get the business moving on a positive top-line basis and I hope a slight improvement in margins, but that is not my focus in this business.

We've gone through -- we have torn this business apart.

We've been making some significant investments.

We want this business to have a positive top line and then I expect if that happens you will start seeing the margin improvement.

And so we are looking at margins, slight margin improvement; that's the game plan this year.

But the game for me is growth.

I want some positive growth like we saw in the first quarter.

That's important for me and the new products are coming out, so that's where our focus is in that business this year.

Thanks very much.

We will see you next week then.

See you next week, Jamie.

You didn't get the X button.

You are lucky.

You didn't ask about Obamacare or something like that.

Did you get your healthcare plan yet?

I got mine.

That's good.

Everyone in this company has got one, too.

All right, thanks a lot.

That's it; I want to thank everybody.

I am looking forward to seeing everybody next week.

Again, the first quarter unfolded like we thought it would.

We still feel good about the year.

We still feel good about the recovery and I'm looking, obviously feeling a little bit better about a stronger second quarter as a normal progression.

Look forward to talking to people next week.

I'm looking forward for Pat to talk about why we are not handing any charts out next week.

That should be an interesting conversation.

This will be a good sendoff for Pat to figure out how to explain to you guys you get no charts.

Just give them a booklet of blank pages.

That's what I think I would do.

Take care, have a great one.

Be safe.

Ladies and gentlemen, that does conclude the conference call for today.

Thank you for participating.

You may now disconnect your lines.