艾默生電氣 (EMR) 2017 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 7, 2017. 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 the to our host, Craig Rossman, Director of Investor Relations at Emerson. Pleases go ahead.

Thank you, Andrea. Today I'm joined by David Farr, Chairman and Chief Executive Officer of Emerson; and Frank Dellaquila, Executive VP and Chief Financial Officer. Today's call will summarize Emerson's FY17 first-quarter results. A conference call slide presentation will accompany my comments and is available on Emerson's website. A replay of this conference call and slide presentation will be available on the website for the next 90 days.

I will start with the first-quarter summary as shown on page 2 of the slide presentation. Sales in the first quarter decreased 4% to $3.2 billion, with underlying sales down 3%. The first-quarter results reflected mixed but generally improving global economic conditions. In the quarter, HVAC, refrigeration, US and Asian construction markets were favorable, while the low price of oil continued to pressure spending in energy-related and some industrial markets.

Solid margin performance and an income tax benefit of $0.07 per share resulted in earnings per share from continuing operations of $0.56, which reflects an increase of 22% versus the prior year. Overall, the first-quarter results represent a solid start to the year.

Improving demand conditions were evident across many of our served markets, particularly automation markets. We expect these trends to continue as evidenced by our January estimated trailing three-month order rate of 0% to 5% positive.

Turning to slide 3. Gross profit margin of 42.4% was flat to the prior year, benefiting from cost reduction and containment actions across our businesses. EBIT margin was up 140 basis points, primarily due to savings from restructuring actions enacted over the past two years to align our cost structure to the economic conditions.

Turning to slide 4. From a geographical perspective, generally improving conditions were evident with most notable improvements in the US, Asia and in Western Europe.

Turning to slide 5. Total segment margin was up 120 basis points, primarily driven by benefits from prior-year restructuring actions. Corporate and other was down largely due to favorable comparisons on stock compensation of $26 million.

Operating cash flow from continuing operations of $410 million was up 6% versus the prior year, and we continue to expect full-year cash flow to be approximately $2.5 billion, flat to 2016. Capital spending remains at appropriate levels, given the current business environment, while trade working capital management remains a key focus, resulting in a slight improvement versus the prior year.

Turning to slide 6. Automation Solutions sales decreased 9% as spending in energy-related and general industrial markets remained at low levels in the quarter, but the pace of business improved during the quarter, as reflected in our recent order trends, including the January estimated trailing three-month figure which is basically flat. Power, chemical and life sciences markets continue to provide growth, while improving MRO spending by oil and gas customers will provide a benefit for at least the next two quarters.

Margin increased 80 basis points to 16.6%, primarily due to savings from prior-year restructuring actions. We expect the Automation Solutions platform to remain under pressure in the second quarter, with a continuation of improving market conditions during the remainder of the fiscal year.

Turning to slide 7. Commercial & Residential Solutions platform sales increased 6%, driven by strong demand in global air conditioning and refrigeration markets and favorable conditions in US and Asian construction markets. North American growth was led by strong growth in US residential and commercial air conditioning. Asia was up 26% on broad strength in air conditioning and refrigeration across most of the region, while China, up 40%, reflected a continuation of significant demand acceleration and the adoption of energy-efficient solutions.

Margin improved 140 basis points to 19.9% from volume leverage and savings from restructuring actions, as well as leverage benefits from the new platform structure. We expect favorable conditions in HVAC and refrigeration and US construction markets to support our outlook for low to mid single-digit growth in 2017.

Turning to slide 8. Taking into account the first-quarter results and improving order trends, we are raising our 2017 outlook. Full-year sales will remain at down 1% to 3% but underlying sales are increasing to flat to down 2%, an improvement of 1% versus prior guidance. Unfavorable currency translation will be approximately 1%.

Within this guidance, Automation Solutions platform sales will be down 5% to 7%, with underlying sales down 3% to 5%, excluding unfavorable currency translation of approximately 2%. And Commercial & Residential Solutions platform net and underlying sales will be up 3% to 5%.

Earnings per share from continuing operations has been raised to $2.47 to $2.62, from the previous range of $2.35 to $2.50. This includes the $0.07 income tax benefit from the first quarter and continues to exclude any potential impact from the pending Valves and Controls acquisition. And now I'll turn it over to Mr. David Farr.

Thank you very much, Craig. I want to welcome everybody for joining us this afternoon. I appreciate it. We just finished a 24-hour Board meeting starting yesterday afternoon and going through this morning and just ending. Also having our shareholders meeting. Fortunately all the propositions, proposals passed the way the Board recommended. That's a good situation.

For all you shareholders, I did get reelected as a member of the Board, thank you very much. For the members out there that don't like me being Chairman and CEO, fortunately the vote was a low pattern of 40% so I still will be the Chairman and CEO for a while here. I appreciate that.

I want to also thank the whole organization across Emerson, around the world. As you all know, we've gone through a major transformation, repositioned the Company, we've shaken up the organization. We've sold off the businesses. We've now finished the pure divestiture of Network Power and LSCT. We have received the cash and we're cleaning up all the final points there. We will finish that in the second quarter just like we did in the first quarter.

And now we're focusing on the two core businesses. And as you saw, this is the first quarter reported by themselves, executing around the new approach, the new strategy, the new organization. We are executing well within that, and I want to thank the organization and the new people involved in this.

I also want to thank all the hard work that was done in the restructuring and the repositioning, and you can see in the profitability it's flowing through and we saw that in the quarter. And in good time we're having the wind shift a little bit to our back and we're starting to see momentum change. Those are all the good things that are under way.

Clearly, from our perspective, right now we're still waiting for the final approval from the US, from the FTC on Pentair. We're hoping to get that sometime in the next couple weeks, so we'll be able to close sometime by the end of March. We've already got approval from the EU. They're approved. We're in good shape there and in most places around the world we have approval. We're waiting for the US government to finalize their review of this situation.

As I look at the Automation Solutions business, as I talked openly, as I traveled and met with shareholders and I've had conferences, we could see the trend start turning with the stability of the price of oil. With the stability of our main customer base, we're starting to see it increase, slowly but surely, increase demand around the world in key marketplaces in key sectors. That's a good thing. And we're starting to see that orders really turn into an improved pace of business, which should continue to happen as we go forward here for the rest of this year, going into the second half and then into early 2018.

On Bob Sharp's business, the commercial residential, they really started seeing improvement late last year, in our fiscal quarter 2016. They had a very, very good start to this year with sales and profitability and cash, and they have pretty good order pace still. So we expect that business will continue to have good growth around the world. We're seeing pretty broad growth around the world which is good. But in particular, I see the US, I see Asia and then also Europe really driving that.

I think a really good start for both businesses. One has already turned to growth. One is slowly getting their orders on pace and the lineup is, I would say, a quarter ahead of what we thought originally. So we're liking that. And we'll have a lot of discussion around this at the investor conference, which I believe is next week.

Next week.

Next week in New York. I haven't decided which charts we're going to show, which charts we're going to exclude and which cameras will work and won't work in the auditorium. But those are all things that are flexible and based upon CEO discretion. So we'll see how that goes. We'll make that call when I get there in New York later next week.

Cash flow, it is a good quarter for cash flow, though it's always the lowest quarter for us. First quarter is our lowest quarter in sales, lowest quarter in profits and lowest quarter in cash flow. But really, we've got a good start to cash flow and we feel good about still being able to reach the $2.5 billion operating cash flow for the year. Very important as we look at our -- what we want to get done internally, both through acquisitions, and also in dividends and investments.

Really good execution. The organization's set right now with the new organization. You'll be exposed to some of those in the discussions we have in New York next week. We're seeing the right markets move for us right now and it's a good sign. But overall, great start to the year.

I believe that if the markets continue to move the right way, then we'll continue to see good progress as we go through this year. And that's why we've increased the year a little bit based on the first-quarter performance. And we'll move it as we go along here, but right now we're going to take one quarter at a time. We just had a good quarter. Now we move to that second quarter and see where we are.

As you saw on the charts, we gave you an estimate for the January. We did get the January orders, which were slightly better on a three-month roll than we did last month, and a little bit improvement in the automation side. A little bit slowdown in the commercial residential, but that's not unusual month to month in that business. Some of the orders are sometimes lumpy versus the prior year. So overall, good start and we're looking forward to having a strong second quarter.

We have a lot of questions I want to get to. We have probably a record number of questions. I may not get to all of them. We're going to start it here and I'm going to cut off my comments.

I just want to thank the employees, I want to thank the organization for all they did here in the last three months. They just delivered a very strong quarter to shareholders. I know I appreciate what they've done on behalf of the whole OOC and the Board. With that, I'm turning it over. First question.

(Operator Instructions)

Andrew Kaplowitz, Citi.

Hey, Dave, how you doing?

Good afternoon, Andrew.

So Dave, maybe you could step back and give us your view on the overall state of the world. You said maybe a year ago that we usually don't have more than five quarters of industrial recession, but then we proceeded to have two years of weakness. Given that it does seem like we came out of it a bit in your fiscal first quarter, do you think we should see a pretty decent snap-back here over the next year, given the length and duration of the downturn? Or do you thinker there's enough uncertainty out there to ultimately make this a slow recovery as we've seen?

That's a lot to ask. Since I've been pretty bad at forecasting the last couple years, Andrew, you remember I did call that we'd turn last year at this time but -- so keep that in mind. From my perspective right now, I think that what we're seeing is the increased investments going on from -- just from pent-up -- a situation for many years. We're starting to see some of that flow out, both in the automation space but even also in the commercial space.

So I see a pretty steady recovery here. I don't see a snap. As I've said, I've always felt that 2017 will be a good year of building that foundation and see improvement. I see a much stronger 2018 than I see 2017. But I see right now, based on what I'm seeing from the customer base, based on what I'm hearing from some of our customers and what they're saying they're going to spend on capital next year, overall I think the pressure is upward, as I say. I see a pretty steady improvement for the trend line. I do not see a strong snap. I do see pretty good momentum going into 2018 as I look at it right now.

Clearly what goes on in Washington could have a big impact of major shift in the sentiment around tax policies or trade policies. Those things all could have a big impact. Right now I think momentum is going the right way and we're seeing that and I don't see it slowing down at this point in time. But I don't see a snap, as you said.

That's helpful. Then you mentioned you're seeing increase in MRO activity within Automation Solutions. Give us a little more perspective on what kind of activity in MRO. Is it across the board, including oil and gas? Did oil and gas pick up more or less than the rest of the end markets? Then have you seen any indication that larger oil and gas projects are starting to at least get dusted off and you're having conversations on those yet?

Okay, two things going on. I think we've started seeing the MRO, as I -- when I went out and talked and the shareholders and I think in December, we started -- November, December, we started seeing this pick back up. The oil and gas companies, some are key oil and gas companies, some are chemical companies, some are pharmaceutical companies, started to increase their spending. They had kept it really, really tight.

And I think they saw there's going to be better favorable policies to spend, encourage it and to really encourage people to spend money, they started spending. It's a slow -- okay, here's a little bit more money. You can go ahead and spend it. I've seen the budgets being set the same way. So we're seeing a slow recovery at MRO around the world and pretty much across all segments, except for a couple things like marine and segments like that. But it's pretty broad-based.

And on projects, what we're going to see first, and we're hearing discussed right now with customers, are first, the phase of okay, let's make some investments on the quick turnaround, the quick hitters, the productivity ones, some of the safety ones, some of the areas that maybe we curtailed spending for a while. Those are going to come back first. Those are what we call, in our business, KOB-3, quick cycle businesses.

And then KOB-2 is where they're going to look at brownfield typically expansions, where maybe they cut the budget in half and only did half the project or they've always had an expansion but now they're going to look to that. That's the discussion we're seeing right now.

I personally don't believe we'll see the big projects, because our customer base probably got burned a little bit the last time in this, for at least 18 to 24 months. They have their hands full, in my opinion, on executing what's still left out there. They're working on the MRO which is starting to happen. And they're going to work on, what I call, the small, minor expansions to get a little bit of capacity here and there. What we refer to as KOB-2. A good mix for us and that's what we're seeing in our funnel at this point in time and that's the type of orders we're seeing at this point in time.

Thanks, Dave. That's helpful.

Andrew, you take care. Hopefully I'm a better forecaster this year than I was last year. Next.

Gautam Khanna, Cowen and Company.

Good afternoon.

Good afternoon, Gautam.

Great stuff. I wanted to -- you've never been shy about making a call and (multiple speakers).

Me? I'm a very shy person.

When do you anticipate, in which quarter -- right. In which quarter do you anticipate you'll see firm-wide organic growth turn positive? Is it as early as Q3 or do you think it's more of like a Q4, Q1 of next year phenomenon?

Based on the trend lines right now, Gautam, I'd say Q3.

Q3, okay. And you may have hesitated to say this but I thought what you were about to say was that there is some pent-up demand in the MRO space. Is that fair? And if so, how does that actually convert? Are we going to start to see a month or two here with much stronger orders and perhaps conversion at some point in the next couple quarters?

I would hesitate to say. I don't think any customer from our space would ever say they didn't spend on safety or key programs relative to environment. But my opinion there, from our perspective, there is a pent-up investment going in the core facilities today around the productivity, around maybe efficiency and the facilities running better. So I think there will be.

I don't see a surge. I don't see what I would say, a strong -- I thinks as Andrew asked me in the first question, I see a steady, okay, here's your capital budget this year and this is where I want to spend the money up front and I want you to start spending the money right off the bat. And that's what we've been seeing.

So I think what we're going to see is, okay, we haven't spent as much money on keeping the facilities productive, safe, efficient, environmentally friendly, all the different things you normally see with our industry. I think that's where they're going to go first. I don't think it's going to be a surge. I think they're going to say, here, you have this much money to spend. But they're going to let them spend it rather than last year at this time they were starting to pull it back. So that's what I see right now, Gautam.

Okay. And one last one, on M&A. Obviously you have a target to add maybe $1 billion to $2 billion of sales over the next couple years. What are you seeing in the pipeline? And relatedly, would you ever consider splitting the Company, getting rid of C&RS, and isolating around the automation business? Thanks.

The answer to the second question is no. We're going to talk about -- I think there's a lot of logic to having the two pieces together. They're unique and there's a lot of sharing of technologies. From my standpoint, I've gone through major repositioning of this Company.

I've torn the Company apart with the management team here and I feel very comfortable we have the right two pieces. They help each other from a standpoint of cash flow and earnings and technology sharing, things we can do back and forth. There's a lot of good things there in my opinion. Under my tenureship, now maybe I'll get voted out and off the ship and somebody else will have to look at this, but under my tenureship as CEO, we will stay within these two pieces at this point in time.

On acquisitions, there are opportunities out there. Our focus right now, Gautam, is totally on getting FTC approval on our Pentair Valves and Controls business. I would expect us to continue to do smaller type of transactions this year. We're clearly looking hopefully to get somewhere between $500 million to $1 billion of additional transactions this year, maybe not totally closed, but get them locked.

So those are being worked right now. So we are actually working transactions and we just want to make sure right now our focus is get FTC approval so we can close Pentair Valves and Controls.

Congrats on the heavy lifting.

Thank you, Gautam.

Julian Mitchell, Credit Suisse.

Hi, good afternoon.

Good afternoon, Julian.

My first question would be around the incremental margins that you would expect to see in Automation Solutions. Classically they've been very strong in prior recoveries. Should we assume the same this time? And related to that, price material, you've had tailwinds really since 2011. Do you think you'll still have a tailwind in automation over the next 12 months?

Let's talk about incremental margins. From our perspective, we've been forecasting all year long that we'll have up margins at the Automation Solutions business. So we would expect that the incremental margin on this business will be pretty good. We will clearly keep driving, trying to get the profitability back up. Clearly we're going to, over the next couple years, get it back up to that 20% level. This is excluding the Pentair Valves and Controls, but getting it back up to the level we were in 20%-plus.

Right now what we're going to -- we're going to have pretty -- I would say good leverage points like we've had historically in the past. It really is a function of how fast North America becomes engages. North America is getting engaged from an order of sales standpoint, so that's a better mix for us. I would expect us to have good incremental margin at Automation Solutions as we come out of this cycle and well into 2018.

The game plan, as you'll see, is we want to get back to historical margins well within this five-year planning period, excluding the Pentair Valves and Controls, which will obviously dilute it somewhat. So we'll have to start working on that. That's the game plan, so that's where we are right now.

Relative to price-cost, as I've been talking for the last two quarters, we've seen the shift. So our net material inflation is less negative, i.e., we're not getting as much commodity benefits from the cost benefits from the material, as there's been a slight inflating of the economy, which is a good thing in reality. And from a pricing standpoint, we are still probably, as we usually are, six months behind.

So we, this year, we said the last four, five years we've been green. Our price-costs have been both slightly negative, from a negative price, negative net material inflation, and we're green and offsetting it. This year I think we're going to be plus or minus $25 million on the price cost. It could be $25 million green. It could be $25 million red. If that, we're in a transition period right now. We see it happening.

That's the game plan you're going to see relative to all of us, trying to figure out how to get the net material inflation down, how to start getting some incremental pricing. But if you've been in a period here for a while that pricing has been somewhat pressure on the down side, now reversing that trend, takes a little longer.

But price-cost will be one of those issues this year that we'll be managing heavily. I'll be talking about it next week because you're exactly right. We've had a good run here and now it's shifting, but it's good. I like inflation a little bit from this perspective because we've had negative inflation for a while. So the commodity standpoint will help us from our end market standpoint too.

Thank you. And then my follow-up question would be on China. Your sales were down, I think, 8% in the September quarter, up 17% in December. Clearly the boost you had in commercial and resi looks extreme. But what's your overall sense of the demand picture for the rest of this fiscal year in China?

I've always felt -- you go back and look at all the transcripts, I always felt we would be somewhere around the 5% range for the total year. Right now with the start, it may be 5% to 6% or 5% to 7%. So the recovery started last -- it actually started in the fourth quarter for us. We had a positive fourth quarter in China. And we had a very strong quarter and we had a good order pace from our automation business too. That's starting to recover.

I think that we're going to be somewhere in that 5%, 6%, 7% growth for China this year after some very difficult years. But our position from a cost standpoint and our position from a competitive standpoint in the markets that are starting to invest, we're in a good position right now. I think you China will be a good run here for several quarters. And so I'm looking at 5%, 6%, 7% for the year in underlying growth for China.

Great. Thank you.

You're welcome, Julian. See you next week, I hope.

Joe Ritchie, Goldman Sachs.

Hey, good afternoon, guys.

Good afternoon, Joe.

Dave, congratulations on getting your current--.

Thank you very much. I actually read your report this morning. I sent it around and I said, I saw Joe said something nice about me.

Well, it was deserved after the quarter.

I actually do read the stuff, the truth in lending stuff practice, things like that.

So my first question, I think, following up on Julian's question on China and specifically on your comments on HVAC efficiency regulations. We saw a couple other companies report really strong HVAC growth out of China this quarter. And so I'm curious, do you guys expect this to be a tailwind for the rest of the year or does that start to subside? A little more color there would be helpful.

Joe, it's what's in the past, what I've seen is you probably get three or four good quarters of that. So we started seeing some of that in the fourth quarter of last year and again this year. So historically what I've seen is they run a little too heavy, they get too excited and they over-build. I would say this is going to run at least three or four quarters, so I would say well into our third quarter.

The good part of this, though, is we're seeing a broad base across Asia-Pacific for us. So China, yes, we had a very good two quarters here. We're starting to see the rest of our commercial residential business going across all of Asia-Pacific. That hopefully will come in and kick into play and help us pick up, trying to slow us down.

Right now, looks pretty good for the whole year. My gut always tells me, I watch these guys running three or four quarters, they over-build and they scale it back down. The efficiency thing is changing. The environment stuff is changing. We'll see. That's what I feel right now. I'm really encouraged by the fact that all of Asia-Pacific is really starting to invest in some of the -- I would say the retail stuff, also the food chain stuff and some of the refrigeration stuff, which is all good business for us.

Okay, got it. And then as my follow-up here, I wanted to touch on cash flow for a second. Your operating cash flow this year is expected to be flat versus last year. As I start to think out to 2018, now that you're seeing a turn, would you expect your cash flow to outpace earnings growth? Or do you think you're going to have to build inventories and maybe have like a working capital drag? Like what would your expectation be post the turn?

Historically, your statement is a true statement. We would have two or three quarters where our cash flow would fall behind a little bit from earnings. The one thing that might happen that we could do, depending how fast we get our hands around Pentair, the Valves and Controls piece, is they have -- as I talk to them -- they have close to 50% trade working capital. So they have a lot of things we want to get our hands on but that may take me maybe the end of the cycle.

If we get engaged in the end of March, early April, and I have a chance to work on this for two or three or four quarters, then I think then we could have cash flow actually outrun earnings because of what we have opportunities there. But historically, if 2018 takes off like I think 2018 could take off, then we would do exactly what I said. My working capital would build up a little bit, my receivables would go up a little bit. We run a very good shop here from working capital.

The benefit I'm going to have is we will very much go after the Pentair Valves and Controls acquisition working capital. And hopefully we can get some of that off to make up for what we go in and maybe we could cash flow grow a little faster earnings. You're exactly right, what you said, two or three quarters most likely that will happen.

Got it. That's helpful. Thanks, guys.

Take care, Joe. Thank you very much.

John Inch, Deutsche Bank.

David, good afternoon.

Hey, John. Good afternoon, John.

How are you?

Not too bad. How about yourself?

Can't complain. Can't complain.

You're getting around, that's good.

Exactly. Hey, Dave, you called out in the K exports of $888 million. Are you a net exporter or importer in terms of the US? Is there any way you could quantify your import position?

Right now we're working this issue and we're about neutral, both in and ex, thing.

You're a huge Company in Mexico which has served you very well. Given what's going on, how would you like us to think about your Mexican operations? And perhaps if required, how readily some of that stuff could be repurposed back to the US or elsewhere? Is that even part of your thinking right now or are you just going to wait and see? Any kind of commentary would be helpful.

Well, it's for me to know and you not to know, but that's okay. What I'd tell you is this, that we're studying a lot. We're looking at the trade flows. We have a very strong presence. As you know, we have a very global, regional manufacturing strategy which we'll talk about next week.

From our perspective right now, we're looking at trade flows. We're looking at different analysis, what would happen relative to the different approaches coming out of Washington relative to tax policies, tariff policies, whatever. There are some products that we could move within 6 to 12 months, some will take longer if we need to be. Hopefully there will be some rational thought process out of Washington around this issue.

We are studying it really hard and as you well know, we know how to execute around that. We did the same thing in Asia many years ago in China, as we redirected where our China-for-China manufacturing. At this point in time we're looking at where we have imbalances. We're looking at the timing of what we would have to do if we had to make a change, or if it's just a minor change because of the cost structure.

So we're getting ready and dealing and getting our inputs. But as you look at it right now is that what you have to understand is Emerson will be ready. Emerson will make the adjustments as necessary and we'll stay competitive in this situation to make sure that we do not be penalized from a cost and a competitive standpoint. But it's going to be -- we're going to be very fluid and we're getting ready. Let's put it that way.

That's absolutely fair. Can I ask you, you guys have done a lot of advanced restructuring over the past couple years. You called out the profit margin benefit associated with the restructuring in Automation Solutions. As business comes back, and it's not so much an Emerson question but I'd be interested in your thoughts, how much do you think you have to layer back some of these costs because companies, including perhaps Emerson, were aggressively keeping a very tight fist around, say, lack of compensation and other discretionary costs?

It's really a question of -- it's almost really a margin question. Like how much cost has to get let back into the business, assuming we go back to normative levels, however you describe that, based on you experience of keeping costs under wraps?

John, I think that from our perspective we see no indication that we can't set record levels of profitability in these two businesses as we come out of the cycle and get into a normal cycle. The commercial and residential solutions we're running at high levels. They are working on a platform level, how they can get additional costs out and do the right integration that gives them the flexibility to both have margin improvement and incremental investments.

On the automation side, historically we've been able to, even in a recovery time period we can get back to historical levels. There is a level of profitability that we find that we start to under-invest in the Company. But there's nothing in our cost structure that says that we cut corners to not invest in or spend money on, that we're going to have to rush right back in.

I think costs will go back in when we believe that the growth is happening. And we'll continue to march up to get our profitability back in the Automation Solutions business because it did get hit quite hard from the low 20%s all the way down into the 16% range. So we're looking to get that back up there and I don't think there's anything extraordinary here. We'll get better leverage in the first part. And then it'll slow down as we start putting some costs back in.

In other words, you don't have to buy a bunch of people, though, as the business comes back.

No, no, no. We'll bring people on in certain marketplaces if we're going to expand our technology. It will be a very systematic approach as we look at the growth in the business and the leverage of the business. And we'll start making sure we make the right investments at the right time.

We always plan ahead. We know where we took them out. We'll start thinking about where we want to put them in differently because there's always a chance to put them in differently. And that's what we're looking at right now.

Thanks very much.

You're welcome, John.

Deane Dray, RBC.

Thank you. Good afternoon, everyone.

Good afternoon, Deane.

Hey, I'd like to circle back on Valves and Controls, if we could. Dave, give us a sense of how ready the organization is for the integration process. You talked about interest and focusing on working capital, but what preparation, you're still thinking a few cents of dilution in the first year. Any updates from there would be helpful.

We'll give a lot more updates of the numbers, what we see for the 2017 and 2018 for Valves ands Controls, next week. But it really hasn't changed much. There will probably be a little less restructuring, probably around only $25 million the first year, that means more in the second year. It will still be slightly dilutive on an earnings per share standpoint. Cash flow accretion still there.

Relative to getting ready, is I want to thank Randy Hogan and his team, and Ed Monser, within the right scope of the government rules, we've been working on this for the last two months or two quarters, not two months, two quarters, and so the integration team is ready. The organization is -- its structure is known. We've already set that. We have people know what they're going be doing from day one.

Our plans have been refined and ready to go and as soon as we get approval and we get close, we'll be running. We plan to run out of the block here. We've of used every extra day and every extra week and every extra month here to get further and further down the planning route. And Randy Hogan and his team has allowed his guys to work with us. That's been very appreciated. That way we can get a much faster running start and get them integrated in. Which is a benefit to them too because they get integrated into a very large global automation solutions Company too, which helps them.

But we're ready. We're just waiting to get FTC approval and we've got everywhere else done. You now we've got to get those arduous government approvals and we're going, period. Running.

Related to that, how are you feeling about the prospects for revenue synergies?

Very good. I think that the revenue synergies will take a couple years, we've always said that. But not only just from a management of the business, but we've also been working on an integration of the sales channels on a global basis so we know how we're going to manage that by world area and the key customer accounts. And where we need to make investments and where maybe we need to beef up things.

I would say that maybe we've shaved off six months on getting to the sales synergies because we've had more time here. Our focus really is the first couple years to get the cost integration done and some of the sales synergies will start happening, probably as we get into early 2018. I think we're ready both on the cost integration side and the sales side and the leadership side of ready to go. We've been managing and setting it and my compensation committee has allowed me to get things approved, even though we don't own it, so we're ready to go. And that's what we're doing.

Great. See you next week.

Thank you very much.

Joshua Pokrzywinski, Buckingham Research Group.

Hey, good afternoon, Dave.

Good afternoon, Josh. She did a good job on her name there.

Yes, pretty close. I think we had a few extra consonants in there, but I'm used to it.

Closer than I could get, Josh.

Fair enough.

Okay.

On seasonality and the cadence on Automation Solutions from here, I think the normal cadence would suggest that we grow sales and margins sequentially as we move through the year. Given that this is an inflection point, at least feels like it, it seems like that should be the case, maybe eve more so. Anything that we should be aware of or anything you want to flag that would fly in the face of that, especially with a good margin to start out?

To be honest, I don't think that there's any change in the seasonality and the pace. I can't remember the first question I had on this. I don't see this being a surge. I see this being a steady mountain climb as we're seeing our customer base actually incrementally increasing on the spend. I think what we're seeing right now is a pretty marginal -- I mean the typical seasonal pattern here.

The one issue will be is that I'm sure you heard a lot of the companies in our space that serve this industry saw a slower amount of what I would say service, take the business down. I'm trying to think of what the name of that word is.

Commissioning?

Change-over.

Change-over. Strike-down. I think you're going to see -- we didn't see as much the last 18 months of that. It's usually in the fall. So we might see more of that where some of these facilities that really weren't shut down that much last year and rehabbed and upgraded, I think we might see more of that in the fall this year, which would mean probably a stronger first quarter going into next fiscal year.

Because a lot of the facilities really cut back -- the turnarounds, I'm thinking of turnarounds. I think we had less turnarounds, the lowest number of turnarounds I've seen in a long, long time. And so I think that could be the only change to your point, Josh. I think we'll be steady as we go on seasonality. We could see a bigger turnaround in our fourth quarter and then the first fiscal quarter of next year. That will be the only thing I see changing right now based on my knowledge base, which as you know, is limited in this market. I don't know that much.

Fair enough. A follow-up on a couple of the questions on China. I think a few of your competitors, or I guess adjacent peers, called out a budget flush or some bigger project activity, both in China and in the US, to some extent. Anything that you saw that suggested it felt more like a flush than a normal expansion off the bottom?

I don't agree with that statement. I think this is a normal where they've held back from an efficiency standpoint or capital standpoint. And I think these are things they needed to do from an environmental expansion and stuff like that. I do not have that flush.

Again, I'm talking about our businesses, Josh. I don't -- maybe some of these guys have different businesses. But our orders in automation, our orders in commercial residential do not say flush. They say this is a long-term project investment they're doing and these are planned. And it's not a flush. So that's my read on it.

Got you. Thanks, Dave. See you next week.

Don't know China all that well.

Nigel Coe, Morgan Stanley.

Afternoon, Dave.

Good afternoon, Nigel.

What a difference three months makes, huh?

Yes. Like I said, I'm never as dumb as I thought I was and I'm never as smart as I thought I am, too. So here we are.

Want to go back to the MRO pick-up and ICM process, mainly. Are we seeing anything interesting in terms of instrumentation versus dials versus maybe controls? Obviously there's different margin structures there. And given that MRO will almost exclusively go through distribution channels, any comments on sell-in to sell-out from distribution?

I think that what we've seen so far, obviously in the early cycle of MRO recovery you're going to get more instrumentation, more flow, which we typically would see, and that's what's happening. You do get some valve upgrades and replacements, but you typically will see the early cycle which we're starting to see, is the instrumentation and the flow side. That's the first places they get the biggest bang for their buck on the quick investment. That's what we're seeing right now and I would expect that to continue.

Even though the valves business has been good, I would still say that underlying declines still in line where I expect it to be. We're really seeing the instrumentation side and the flow side come back up on the MRO. I think that's going to be normal and I don't see that changing for the cycle here at all. And so the turnaround for the valves will be more relevant when I get out into the late 2017, going into early 2018. That's where the valves will see a little bit more MRO from my perspective.

Okay. And then you mentioned that Randy's being very generous with the process with valves and controls. Any changes, even at the fringes, in terms of you how you're thinking about the synergies? You mentioned obviously revenue synergies are a little bit further out. Cost synergies, EPS accretion, anything like that?

No changes right now. I think that we still have reconfirmed. We probably -- as we've spent more time together, we've probably seen some of the expansion of the plants, integration of plants and some of the organizations that we've tweaked it here and there. But nothing changed from our initial strategy what we see at this point in time.

So we've been reconfirming. The key thing for us extra time is really to get the organization structure and to get the names in the boxes to the right leadership which Randy has been important there. He's allowed me to talk to his people relative to opportunities and things like that which is important so we can hit the ground running.

When we do get closer from a final approval from the government, we can tell everybody this is your job and they already know it and they can go from day one, which means a lot in a structure like this on a global Company. This is a very global Company. That's why I really want to commend Randy for letting me do that.

Okay. Just one more, Dave, if I may. Automation orders turned positive in December, organic orders in the month of December. Is the backlog now up year over year for automation?

I don't know the number. Frank? We'll have to look. I would I say it would have to be up a tad. I know it is. I heard Mike say it to the Board. We've built a little backlog, yes.

Okay, great, thanks, Dave.

Thank you very much.

Robert McCarthy, Stifel.

Good afternoon, Dave.

Good afternoon, Mr. Stifel Robbie.

Let's see, the first question on the cost side, obviously there was some commentary that suggested that some costs need to come back. In the context of the overall structure of this Company, you've taken a lot of costs out, structural costs, over the last couple of years. so maybe you could talk about where margins could be at A&S, excluding Pentair and then commercial and resi. What do you think are the sign posts going out the next couple of years? Where do you think margins structurally to get to?

We're going to show that to you next week. I think structurally, we're looking at commercial residential through the work that Bob's doing, both with investments and then also getting rid of working on his organization. I think we're going to get to a -- that margin's going to run around 24%, 25%. That's where it's going to run. If the pace of business goes well and the mix right, you should easily get to 25%.

On the Automation Solutions business, our goal is to get that back up into that 20%, 21% where it was before. That's a sweet spot for us from the standpoint of our mix and what we can try to do that with. Maybe even get to 22%, this is about Pentair, based on if the US stays well and strong in the oil and gas area.

But structurally we've taken a lot of costs out. We can take those businesses back up to that level in this planning cycle. So I feel pretty good about that from that standpoint. We're going to make pretty good money on the margins of this business as we get back up there. We'll be setting record levels of profit margins as a total Company based on what we've done to the cost structure for this repositioning effort.

So to be clear, you've taken structural cost out?

Correct. I have to.

Dave, sometimes questions can be statements and drag. Anyway, moving on. With respect to Trump, maybe you could talk about in the broad scheme of things -- obviously a lot of red meat in terms of de-reg, tax benefits. But then you border adjustability and you have some concern over trade. So it's a bit of a mixed bag here.

Obviously we don't see what's going to happen with every one of these policies. How do you manage the Company through this? And what are you scrutinizing in terms of the agenda going forward as key signposts for you, to how to better manage the Company?

Going back to -- I can't remember who asked this question to me about Mexico. I don't know if it was John Inch or someone like that. But the question for me is right now we're getting ready for any changes to the NAFTA agreement. We have to understand where we are today because we've been running our NAFTA for 25 years. So we're looking at the flows and things like that, what our position is today, how much rigidity the timing to move stuff.

So we're looking -- that is a very important work going on at the Company right now. Because based on what comes out of Washington tells me that okay, either we're going to have to slow our expansion or reverse and bring some stuff back north of the border. So we're going to have to look at all those different things based on what comes out of Washington.

Generally right now the people are looking at more investments in the US versus less investments, so they're hedging their bet. People are investing right now. Spending's happening. The other issue, as you well know, they're looking at giving you 100% first year amortization and depreciation which also will have a big positive impact on spending and productivity.

My mile posts right now are, okay, which way do they think they're going to go relative to the tax rate? Which way they're going to go relative to any type of taxing on imports, exports? Is there going to be a slap on duties just because he's getting impatient?

Right now I'm looking at all these different things and we're getting our options prepared so we can start moving. As you well know, we're really, really good at managing once we know the playing field relative to our manufacturing structure and where we're going to move things. We're getting ready and we're creating options, as I told the Board. And we're prioritizing based on the competitive situations which, if I don't do it fast, I'll be at a competitive disadvantage. If I don't have a competitive issue, I don't need to do it as fast. So we're getting ready.

The last question is on January order trends. Anything you'd call out positive or negative in terms of complexion there in terms of what you're seeing?

The good thing that I saw, as I traveled the United States in the second half of the calendar year of 2016, is I could isn't there was going to be a pick-up in spending in the last couple months. I could see the price of oil firming. I could see the budgets hadn't been spent based on what I felt out there.

That has flowed through again on the same curve as we saw in December. That tells me our customers are allocating capital at least equal to or slightly higher to the capital that they went out the year with. That's a good sign for me. That's the one thing I saw and I want to see again in February, does that continue. That tells me that the capital is being allocated and freed up for people to spend. And that's a he key sign to me relative to my automation side.

Thanks. I'll see you next week.

See you next week. Thank you very much.

Shannon O'Callaghan, UBS.

Afternoon, Dave.

Good afternoon, Shannon.

Some of these areas that have already been good, power, chemical, life sciences, are there any projects that complete there that cause any moderation there? Or do these also cyclically pick up with all this increased MRO spending, et cetera?

I don't see any slow-down in those businesses. I think that the pharma side of the business marketplace should be good for the rest of this year, probably early into 2018. It runs in cycles. But it looks pretty good right now with a lot of the new drugs, a lot of the repositioning of things going on. I think it looks good. Some of the new regulations, I think that looks good, pharmaceutical, for well into 2018. We had a big surge and I think it will just get steady improvement now.

Relative to the power side, I think you're still seeing people their upgrading facilities. I do not see power being back down. They're still taking old coal power plants off, putting gas power plants in. We have some nuclear investments around the world. The power looks to me like, I would say through 2018, looks pretty good to us at this point in time.

On chemical, I think a lot of that has to do with the -- I'm looking to what our customer base is going to be, allocated relative to capital and relative to where they want to locate some of their new capacity. There's been a push to get into North America. If that continues with the low price of gas, then that's a good sign for us and so we should still see pretty good chemical spending. Right now, those three markets are, I think, will trend well for us with power probably being one of the better ones for us for at least the next 18 months.

Okay, thanks. And then on commercial and resi solutions, in addition to all the restructuring savings benefit, you called out the benefit of platform leverage. Could you fill that out a little bit more? And how big is that of a benefit versus the old structure?

Well, it's really what we're changing, someone keeps asking the question how much, you just take out like costs, sales and salespeople and engineering people. The platform structure is actually is a permanent structure as we change the way we do business, where we're starting to integrate procurement, you're integrating some of the manufacturing, integrating engineering. You're actually taking some, what I call real structural changes so it really lowers the cost.

What we've been able to do through this integration platform, if you look at the margins of this business since we announced the commercial residential solutions business integration under Bob Sharp, you've seen a steady improvement in the of profitability of this business. We had a very good improvement last year in the second half. We saw a pretty good first quarter here.

So those are things that we see happening that will stay there and also allows Bob to have money to invest incrementally. So Bob's been already starting to invest in some of the key areas relative to the food safety, some of the transportation stuff. The reason I said the platform, this one if particular gives us a chance to reinvest in the business and pass some higher margin on, which I think you have been seeing for the last couple quarters in our commercial residential business, and should see for the rest of this year.

Great. Thanks a lot.

You're welcome.

Christopher Glynn, Oppenheimer.

Thanks. Dave, is it time to bring out your rally monkey in the off season of baseball?

Yes, now am I supposed to call you Christopher or you want he me to call you Chris?

Call me a happy Patriots fan.

That was a great game, you know. That was a good game.

It was. Interesting that I made some --.

Rally monkey is definitely out, Chris. I got the rally monkey, the rally monkey sleeps on my bed at night. It sits right there, it's ready to go at all times. You never know, at my age you need a rally, you know.

Yes, yes. Not quite time to go out to pasture. Interesting to see the Automation Solutions profitability improvement, really leading the end market underlying recovery there. Was that all sustainable structural improvement or was there some favorable mix in the quarter?

We had some favorable mix. The business did do better, Chris. I'll be very honest, the business did better. They're on a good path. I think one of the guys asked earlier about this. They're on a good path. They're on a curve that you normally see recovery.

The cost reductions really have taken hold. We've got a bigger bump relative to uplift in the profitability. They had a good mix, obviously with a shift coming towards the instrumentation, some of the flow, some of the MRO that does help us.

Secondly, we also saw some currency help in the quarter, which we could have for a couple quarters and we have to pay some of that back. But overall I want to tell you that team has done a phenomenal job taking costs out through the last 18 months. When they start seeing some, what I would say, uplift in the trend lines, you're starting to see that improved profitability. Some things did go for their way for the first quarter and hopefully that will continue the second quarter.

Overall, profitability was very good in that business. They did get benefit from mix. They did get benefit from a little bit of currency. But hats off to those guys. You're talking about how far down they are from where they were. They're running those levels of profitability is darn good.

Okay. And on the corporate spend, what are we expecting for this year? And then is this year consistent with longer term, now that you're settling into a much different overall enterprise structure?

Chris, it will still be probably a little less than 500 because we beat the first quarter. But I would say longer term that's still pretty much in gravy.

Yes, I think from a run rate standpoint that's about right. We continue to work on corporate spend. It's come down dramatically over the last couple of years. But I think that's -- there are some items in there that move around like incentive comp. But I think that's probably right for our run rate for this year.

I don't see -- we're almost done with a corporate restructuring, the down-sizing based on the smaller Company. We're also still tweaking a little bit about what is done at the two platform levels, what's done at corporate. There's always that discussion. We brought Mike and Bob on to the LC so they can participate in this.

But there's a level of governance, as you well know, that I'm, and Frank, are responsible to the Board. So I think we're getting to the point that I feel comfortable with. And then when we bring Pentair on and we have to figure out how to get them incorporated on to some of our controls and stuff like that, we're going to have to add a few there. Right now I think we've got it where we want it. Again, I want to -- that's a lot of hard work to do what these guys did, take that structure out like we did.

Okay. Good color. And then seeing anything on the strong dollar from a global competitive dynamic?

No, no, I don't think the global competitive dynamic's changed much right now. The euro's been bouncing pretty tight between $1.06, $1.08. It goes to $1.10, that would be a real nice wind at my back.

We've got our European structure right now pretty good. We went through this process when the euro really weakened. Right now the dynamic world is pretty set. We haven't had a lot of changes. It's been more of a, I would say, what's coming out of the political arena more than anything else is creating some changes. We'll see what happens here.

I'm watching very clearly what the Washington folks decide to do relative to trade, what they do to tax. We are in a situation in pretty good from the standpoint of cost structure and so we're going to have to adjust and figure out where we go from there.

We've about as competitive as we've been in a long, long time, running where we are right now. Frank just told me on the backlog, we're slightly down year over year. Up sequentially, which is what these guys look at. We're up sequentially but down year over year. So from fourth to first we're up but from first to first we're down, which makes sense. So the trend is going up. Somebody asked that question.

All set, thanks.

Anything else, Chris?

No, Chris or Christopher is fine. Just don't call me Oppenheimer Chrissy.

Oh, I like that one. I'm always looking for nicknames. Chris, you take care and look forward to seeing you next week, okay?

Thanks, I'll be in India. Bye.

Steve Winoker, Bernstein.

Hey, thanks for fitting me in. Appreciate it.

I just gave them the authority to do two more after you.

Okay. I'm in Germany, so I appreciate it. I stayed up for you, Dave.

Sort of like the Patriots game. I stayed up. In fact, I was going to bed and my son called me and said dad, you need to turn the TV back on. I said, what?

You got to watch Tom and Bill and see how it's done. Listen, I wanted to ask you, just circle back on restructuring, just a quick point. You mentioned the Pentair restructuring Valves and Controls might be $25 million instead of the, I think it was $50 million to $70 million that you quoted originally or talked about originally. You also talked about like $50 million in the core business, sorry, the current pro forma business. Do you still see that playing out?

Yes, I'll show a chart next week. I'll give you quarter by quarter. It looks to be like about $50 million for our core business, plus or minus, in that number. You know I can't call it within $10 million. Looks to me right now around $25 million for Pentair. Again, I'll show you quarter by quarter. I'll show you how we think it's going to unfold here, what our saving is going to be.

Given the fact that we're going to be, as I say next week, late in the cycle getting Pentair on board, we probably won't get much savings help for the first -- but we're getting some of the restructuring done that will help us early on in 2018. That's what we see right now.

We'll give you sizing relative to what we see from the other charges we have to do from an inventory standpoint, the valuation of inventory, the valuation of backlog. We have some estimates right now but we're still working on that. But we're ready to go.

Okay, look forward to that. Also, I was at Ashford last week, spent a lot of time in the Emerson booth.

Who's in there? You had a pass, you get in there?

I didn't even have to wear my fake mustache. It was all good. It was the busiest show I think in 14 years, Dave, which is either a quite good thing or a bit of a concern around peak. As you look at that -- and by the way, some of the growth in VRF for example, most of the OEMs were talking about 15% to 20% growth in VRF also. How do you see that sustainability? And by the way, how are you guys currently seeing your positioning on the VRF side? Are you taking advantage of that?

We're definitely taking advantage of it. I'm going to have Bob talk about that next week for you guys. There's a lot going on around the technology area right now relative to the efficiencies, relative to the refrigerants, relative to some people have not been investing for some time, the energy stuff.

I think that's why the show was so strong. I think people for a change are going to have some money to spend and I think these guys are looking at where they can spend. That's why I think there was so much energy around that.

And so you think about North America refrigeration, these guys are going through some of the biggest transformations they're going to have to ever do in efficiency. And so I think efficiency and refrigerants, I think these guys are all gearing up. That's why people are so energized. I think we could have a good run here in North America through 2017 and 2018, which would be a good thing to have which we've been waiting for, as you know.

Okay, great. I look forward to seeing how it all fits together next week.

We'll try. Don't get too excited about it. We might not do a very good job, you know.

Dave, you always do a good job. It will be fun.

Don't bring your camera.

Hey, that's not me. Dave, that's a different guy.

Okay. Next.

Rich Kwas, Wells Fargo Securities.

Hello, Rich.

Good afternoon. How are you?

Not too bad. You're my next to last one. You got underneath the net. You got your nose underneath the finishing line there.

I appreciate it. Quick one on C&RS. In terms of rigid tools, that piece of the business got a fair amount of energy exposure. What are you seeing in terms of demand trends there? And how do you think some of the stabilization in oil and energy is going to help out on the Commercial & Residential Solutions side as we think about the rest of the year?

Rich, I mean, the question -- and I forgot, someone asked me the question about distribution earlier and I forgot to answer, my fault. But that question is one of the early signs, when we know that the incremental spending on MRO, the incremental spending on upgrading at facilities, both in oil and gas or any type of facilities, it goes through the channel, the industrial channel which is the rigid.

We started seeing that channel pick back up in October. And so what that tells me is that they're seeing activity within their core marketplaces relative to industrial, relative to oil and gas, the chemical world. And they're bringing in the tools and equipment ahead of time and they're starting to spend.

So we've seen that channel improve. We've seen our orders improve, our sales improve. So that's a good sign to me. So I want to watch that, going pack to my earlier comment, for the next couple months. Because if they continue to do that, that means it's selling through and then their customers are actually doing the ongoing MRO, they're actually doing some of the incremental facility rehabbing or upgrading.

Right now the trend is good. I have a lot of inter cares with Emerson and that is one of them. And that one is on par where I think it should be relative to the cycle and given the fact I run it, I understand it pretty well. That tells me they should do pretty well here for the next couple quarters.

How far down is the business relative to peak? Roughly?

Oh, goodness gracious. 20%?

Similar to process?

That sounds about right.

20%, yes, 20%.

Okay. All right. Can I bring my Polaroid next week?

You bring your Polaroid and we'll see where it goes. (laughter)

See you next week.

See you later. It's good talking to you, Rich. Okay, who's last? Who is it?

Steve Tusa, JPMorgan.

Steve Tusa's last. If I knew it was Tusa I would have cut him off.

Yes, well, if you're not first. I'm doing okay, thanks for fitting me in. I appreciate it.

I know because you never use cameras. You've never done that to me.

Absolutely not.

I know you're very good at that because you're an honest person.

I expect now that things are turning the corner that there are going to be less slides omitted? Is that what we should expect for next week?

You didn't hear my opening comments, Steve? I talked about them slide into position. I had the guys and gals right across, I have five planners working with me, and I haves these red dots everywhere. Craig walked in there and starts looking like he's got the measles because he's all -- you can't omit all those charts. So we're in strategy right now. This is the way I think. I'm thinking about omitting like 20 charts and have them stuck somewhere, like a hide and seek type of thing.

(Laughter) Way to blame Craig. That's real leadership.

No, he's going to get the charts. He's going to have them. I just do it -- I don't know. I always have some elimination. And I think over the years we've been -- people have never abused it so we've been more careful about it, so I give more out. There are probably, I would say, less omitted this year, less omitted this year than I have in the past, Steve. I got one I made just for the fun of it, have it rolled up inside somewhere.

Got it. On Pentair, what exactly has been the delay? Has it been election at all related? And would you say that once you get this clearance from the US that this thing can close in a pretty like expeditious manner, that this is basically the last major hurdle that you have to go through?

Yes, the biggest delay's been, we've had -- first of all, we have a presence in the process world, as you know. We're pretty broad across the various technologies. We have had a presence in the control side. I think a lot of -- both from a competitive standpoint, customer standpoint and a channel standpoint around the world, I think they all want to understand, okay, what would this be, the impact to the industry?

The US was far more inquisitive on this than anybody else. They're the last of the basic approvals. Really not been government. The FTC has a lot on their plate. They've been expeditiously working with us on this thing. They've got a lot of mergers and acquisitions they're working on. So I don't blame this on the government. I just blame it on the fact that they're doing a very thorough review.

They're looking at a significant sized acquisition that will change the profile of our business and what that means from our customers' standpoint. And I think they're checking the boxes like they should be checking the boxes. It's taking them longer than I thought, only because you've got a lot of information that once they start getting into it, they had to go through it.

But we're hoping here later this week we'll get everything signed off on and know where we go and what we have to deal with. And then we'll close as quickly as possible as we can in March. We've got everything ready to go from the standpoint where cash has got to be, what the organization. So we're ready to go and hit the ground running. It's a lot of work for the FTC to understand the marketplace which they probably would normally not look at. You know, valves.

Dave, you're generally a guy with a view. And I think there's a lot of people out there who have opinions and a lot of guys that are not giving their opinions. But you're not one to shy away from that.

What do you think is the ultimate outcome of the major buckets around tax reform? And in your opinion, when do you think that you get clarity on this? You're obviously creating all these plans and scenarios which you should be doing. What does your gut tell you on how far this is actually going to go from an execution perspective?

I think we will get clarity as a nation by late summer, early fall. I think it will take time to get it rolled out and so that means we'll -- that's why we're getting ready from the standpoint. I believe we will get some kind of tax reform, which will include probably some trade renegotiations around that and what that means relative to how we bring products in and out of the country, back and forth. But I think it's going to be tied around tax approaches to try to come up with a more equal tax policy and structure for the US companies, which will be good for us.

But I think it's going to take a while for them to get that done because there's a lot of gives and takes. It will obviously include a repatriation-type approach on an ongoing basis around the world, so we pay no matter where we make the money and get the money back. I'm looking for clarity by late summer, early fall. And that gives me time as I get into execution later this year, early in 2018. If I have to change anything.

And then one last question. Remind us why your tax rate is so high. And given you guys are a pretty global Company, if the US moved to a somewhere in the 15% to 20% range, how much downside -- I would think your tax rate would already be lower than it already is, so I'm just not sure how much of a benefit that would actually be for you guys if you said, hey, today you wake up and the US is 15% to 20%. Where does that bring your consolidated tax rate to?

The reason we have a high tax rate is because we're very strong and powerful and we manufacture a lot in the United States. We sell a lot in the United States. We make a lot of money in the United States. We manufacture a lot in the United States. We have always paid our taxes on the US tax structure. Our effective tax rate in the United States is 37%.

Based on if you really had true tax legislation coming through, Steve, where there's some changes, maybe some of the cross-border movements around and some taxes here and there and try to rebalance that, our tax rate should move down into the 20%s based on what happens to the final. It really makes a difference of what they do with all the different ins and outs relative to the imports, the exports, what they do relative to some of the treaties. But we fundamentally pay in the US, that type of tax rate.

So if they lower the US tax rate down to 20%, or 15%, say 20%, we will move down towards that. But I expect that some of the other things will go against us. Overall our tax rate should come down with true tax reform and tax policy, rather than tax edicts. It should come down.

Great, thanks a lot, guys. Good quarter.

Thank you, all the best. I want to thank everybody for joining me today. I really appreciate it. I want to thank my organization for the great job they did the last three months. Look forward to another strong second quarter. Look forward to seeing everybody in New York next week, as always, enjoy it. Look forward to taking Q&A and hear what everyone thinks about. Take care now. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.