伊頓 (ETN) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the 2010 Cooper Industries conference call.

At this time all participants are in listen-only mode.

We will be facilitating a question session toward the end of this conference.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today, to Mark Doheny, Director of Investor Relations, please proceed.

Thank you, Frances.

Welcome to the Cooper Industries first quarter 2010 earnings conference call.

With me today is Kirk Hachigan, Chairman and Chief Executive Officer, and Terry Klebe, Senior Vice President and Chief Financial Officer.

We have posted a presentation on our website that we will refer to throughout this call.

If you would like to view this presentation, please go to the investor section of our website, www.cooperindustries.com.

As a reminder comments made during this call may include forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These statements are subject to various risks and uncertainties, many of which are outside the control of the Company and therefore actual results may differ materially from those anticipated by Cooper.

A discussion of these factors may be found in the Company's annual report on Form 10-K and other recent SEC filings.

In addition, comments made here made include non-GAAP financial measures, to the extent they have been anticipated, reconciliations of those measures to the most directly comparable reconciliations of those measures to the most directly comparable GAAP measures are included in the Press Release, and the web presentation.

Now let me turn the call over to Kirk.

Thanks, Mark.

Good morning.

We are very pleased to report that our businesses are showing signs that the world is getting back to some level of normality with half of our businesses posting positive growth year-over-year in the first quarter.

Our results demonstrate the quick and decisive actions we took over a year ago, position us to have a solid 2009, and have given us the confidence to raise our guidance for the full year.

But before we go into the detailed results, due to our recent announcement regarding our EVP structure, and the tools joint venture with Danaher, we are changing our segment reporting structure.

If you turn to page two of our web exhibits, as you know we have historically reported two segments electrical and tools.

Today we will start reporting three segments, electrical will be divided into two parts, energy and safety solutions which will directly reports to me and comprises Cooper Power Systems, Cooper Crouse-Hinds and Cooper Safety.

These businesses have a heavy utility and, with 50% of the sales outside the US.

The second electrical segment reports to Neil Schrimsher who is recently appointed to Executive Vice President, and is called the Electrical Products Group.

This group is more focused on commercial and residential construction, but will start have strong exposure to the industrial markets, via Cooper Bussmann, Cooper B-Line and Cooper wiring devices, Arrow Hart and inner connect businesses.

Tools will continue to report as its own segment until we close our recently announced joint venture with Danaher and then it will be recorded as equity income.

We realize it will take some time for the investment community some time to get accustomed to these changes but we do feel they provide more transparency as we build on our very strong global electrical franchise.

If you will turn to page three of the handout I'll make some very specific comments regarding the first quarter results.

Our revenue in the first quarter was down 2% to $1.23 billion our core was down 5%.

Electrical and safety solutions was down 6% with the core being down 9%.

Electrical products group was down 2% with the core being down 4%, and tools stepped up nicely up 16% with the core down excuse me the core up 9% versus last year.

So a real nice recovery versus the difficult first half or full year they had in 2009.

Our order rates are improving our book to bill was 107% for the quarter, all of the businesses were over 100%, and it is best book to bill we've had in over two years.

We had a very strong operating margin in the first quarter at 13%, and even up 20 basis points from the fourth quarter of 2009 and up a very strong 450 basis points from the first quarter of 2009.

We had a strong start again on cash flow, of $70 million.

We expect to now have our 10th year where our cash flow will be greater than reoccurring income.

So, a strong performance and a very strong start to the new year, and then lastly, with regard to the CFO selection process, we have a Board Shareholder meeting the first part of next year, and so you should expect a public announcement for us right after the Board meeting on Tuesday.

Turning to page four, end market conditions.

All beginning to feel a bit better our industrial markets are our biggest market are 39% of sales has had a strong rebound in manufacturing, factory utilization was up to 73% in the quarter and the ISM at 59.6%.

Both indicating very strong industrial momentum, at home and abroad.

Commercial construction or 24% of our sales seems to have bottomed, and we are seeing activity and renovation energy efficiency projects in overseas, but the new domestic construction is still not expected to recover until 2011.

Utility markets are 22% of our 2009 sales continue to be flat in the US, but improving overseas.

With the lack of new construction transformer sales continue to be the biggest challenge, but we are seeing investments in reliability, efficiency and alternative energy.

And lastly, in residential or retail are 10% of our sales we have begun to see order trends flatten out with better comps at the big box customers.

With better weather, lower mortgage rates and overall improved economic outlook we expect new construction starts to improve in the back half of this year and into 2011.

750,000 home starts would certainly feel pretty good off of these levels.

If you turn to page five now, I will comment on business segment results for the first quarter.

Energy and Safety Solutions become of the heavy reliance on Cooper Power Systems and Cooper Crouse-Hinds, it is a mid to late cycle segment.

And in the first quarter of last yore our core sales were down only down 12% but our backlog was falling quickly.

The first quarter of 2010 was just the opposite.

Our book to bill was 108% for the total business and Power Systems was up over 110% book to bill.

We had solid activity around the world with higher energy prices, and commodity prices, and steady business activity in Europe.

Our margins were up 200 basis points from last year due to the restructuring, productivity programs in place, SG&A management and pricing discipline.

Return on sales were very strong at nearly 17%.

The overall outlook for Energy and Safety Solutions is very strong for the rest of 2010, and certainly into 2011.

If you turn to page six, Electrical Products Group, a much shorter more domestic segment of our electrical businesses.

Last year's core was down nearly 19% in the first quarter and in the first quarter of 2010, our core was just down 4%.

We saw increased momentum over the quarter and ended the quarter with the book to bill of 104%.

We had very strong sales in MRO, electronics and transportation.

International activity was strong, retail sales were flat excluding poor margin private label we exited in the quarter, but overall, we still remain cautious around the recovery of the housing and commercial construction in the US and in Europe.

Margins at Electrical Products were also very strong, up 480 basis points over last year, and again, driven by the benefits of restructuring, our productivity by the benefits of restructuring, our productivity programs, SG&A management, and pricing discipline.

A consistent theme here you will see throughout the mornings call is starting back with the third quarter of 2009, we are seeing the benefits of the permanent restructuring and productivity plans we put in place, our discipline around SG&A and pricing, and expanding margins on flat to modestly down revenues.

For the Tools Group on page seven, the team did a great job staying focused while all of the distractions of forming the joint venture were occurring.

From our perspective, this joint venture allows us to maximize our global competitive position.

I will point out that we did not sell any equity in our tools business and we clearly expect the markets to recover from the steep drop in 2009.

The combined businesses are more powerful than some of the parts, from a perspective that the geographic coverage, product breadth and technology perspective offer a significant upside.

Business has very little debt and a very favorable market outlook.

For the quarter, our core sales were up 9% driven by the recovery in global automotive and aviation markets, and we had very strong demand for our [weller] products.

Retail l was up nearly 5% and our operating margins were just about flat with the fourth quarter of '09 and obviously up significantly over the loss in the first quarter of last year.

Again, the same story as I mentioned earlier, restructuring, productivity, SG&A and pricing, and here we got a little bit of volume and we leveraged up very well.

Now let me turn the call over to Terry to provide you additional details on the the quarter and update you on the full year guidance.

Thanks Kirk.

Before getting started on the quarter, we announced the tools joint venture with Danaher last month, that is currently expected to close in the second quarter.

On our balance sheet, you will notice that the tools segment assets are reflected one line item labeled "assets to be contributed to the joint venture" and the liabilities are also reflected in one line item.

If, as anticipated, the transaction closes in the segment quarter, the investment in the JV will be accounted for as equity investment, which means our balance sheet will reflect investments one line item, the income statement is one line item for the earnings and for the cash flow statement, two line items, one for earnings and another for cash distribution.

Condensed financial information on the tools JV will be presented in the footnote to the financial statement.

The joint venture assets will be marked at fair value and we'll recognize a small gain which will be more than offset by the recognition of approximately a $100 million after tax of cumulative translation adjustment that currently resides in shareholders equity and certain deferred tax items between fair value and pretax or tax basis.

Importantly the $100 million is really just a flush through from cumulative translation adjustment, into retained earnings for income statement.

It really has no cash impact at all.

We believe there's substantial synergies and value creation potential in forming this joint venture, and currently anticipate that the 2002 earnings per share impact will be minor.

Also, as Kirk covered with the anticipated tools deconsolidation and changes to our management structure this quarter, we begin reporting the former electrical segment in two segment, we included historical information for years 2007 through 2009, and each of the 2008 and 2009-quarters in the Press Release.

You are also notice that we are now including restructuring and normal recurring types of discrete tax item in our guidance.

We will of course continue to be transparent and disclose these items in press releases, conference calls, and regulatory filings.

Now turning to slide nine.

Kirk noted we had a strong first quarter free cash flow.

While on the surface we have down $67 million from a year ago, for the past decade this quarter comes in second place for first quarter free cash flow.

In the first quarter we pay customer employee incentives and start building inventory as a winter ends in the US and Europe and we begin to experience increased volume.

Our free cash flow in the first quarter of $70 million increases our confidence of achieving the 10th year in a row where free cash flow exceeds recurring income.

Our balance sheet remains in great shape with our debt to total capitalization net of cash at 15.4%, at March 31, 2010 compared to 15.7% at year end.

Our net debt at March 31st, was $545 million leaving us with tremendous flexibility.

Turning to slide 10.

We are pleased with the performance and operating working capital.

You will note that we have included the results for the tools business, in these results providing comparability.

Inventory decreased 18% from a year ago, and is only up $19 million from year end, with a lot of the increase planned to accommodate plan and product line moves.

Most important, inventory turns are up to 6.7 turns a full turn improvement from a year ago.

Receivables, our days sales outstanding at March 31st decreased three days to 61 days compared to the first quarter of 2009.

As you can tell from these results, we can continue to aggressively monitor credit collection and collect receivables within the terms granted to our customers.

Our payables declined only 4% from March 31st , 2009 driven by our sourcing and financing teams continuing to extend supplier terms offset somewhat by continuing improvement in capturing discounts negotiated on the supply base.

Our operating working capital turns improved to 5.5 turns, compared today 4.5 turns in the first quarter of 2009, a very solid start to the year.

On slide 11, our capital expenditures were $15 million for the first quarter of 2010 compared to $29 million in the first quarter of 2009.

Capital expenditures that originally were anticipated to occur in the first quarter slipped to late near the year, including two building acquisitions, one in the US and one in Romania.

Capital expenditures continue to be forecast at $110 million to $120 million for the year.

In the first quarter, we did purchase 632,000 shares of our common stock, spending $27 million against proceeds from the issue of $14 million for the 841,000 shares we issued in the quarter.

Our outstanding average diluted shares did increase by 1.3 million shares from a year ago, primarily as a result of the stock price increase.

Under existing Board authorizations, we can purchase in excess of an additional 14 million shares, as of the end of the quarter.

In February 2010, our Board did improve increasing the dividend 8% to $1.08 per annum demonstrated our confidence in our continued strong earnings and cash flow generation.

During the first quarter we completed the acquisition of Iluram, a small strategic explosion proof product line in Columbia that gives us a very nice base to build off of the in the region.

And in April, we purchased Eka Systems assets, which provides us RF technology for energy automation systems, smart grid solution portfolio, significantly expanding our market capabilities.

With our balance sheet in great shape and with our consistent strong free cash flow generation, we have tremendous flexibility to fund organic and acquisition growth, pay a competitive dividend and purchase our common stock.

Turning to the results for the first quarter in slide 12.

In both 2010 and 2009, we incurred restructuring charges, first quarter we recorded $3.5 million compared to $8.8 million, in the prior year first quarter.

The 2010 charge is primarily related to two factors that are in process of being closed at year end.

One of these factories was completed in March and the other is schedule today be completed in July.

In the first quarter of 2009, we also recognized $8.4 million of discreate tax items.

So the net impact of restructuring discreate tax benefits was to increase income from continuing operations $0.01 per share in 2009's first quarter and decrease income from continuing operations per share $0.02 in 2010's first quarter.

Now, turning to Slide 13, on revenues and earnings per share.

Today, we reported a revenue decline of 2.2% from a year ago, with currency translation contributing 2.1% and acquisitions 0.4% to revenue.

Price realization was slightly negative at around 1%, leaving between a 3% to 4% volume decline in the quarter.

As I mentioned at our outlook meeting in late February, currency translation tail winds for the first quarter would be around 2%, with, which were -- we had about 4% built into our forecast.

So we ended up pretty close to what we thought.

And at our outlook meeting, we remained cautious on revenue improvements.

The good news is that we saw sales and even more so orders build as the quarter progressed and anticipate core revenue growth beginning in the second quarter, and as I will cover in a few minutes we are increasing our forecast for the year.

For the most part, the businesses with the steepest declines in the first quarter of 2009 improved the most in the first quarter of 2010.

Specifically, Tools, Electronics, and Bussmann Electrical MRO.

The US continued to be the weakest market overall, with core revenues down around 9%, with international offsetting a poring of the decline as international core revenues increased approximately 3%.

Our book to build, as Kirk said, was well over 100% in the quarter indicating that we are beginning to build momentum for the remainer of the year.

We reported on GAAP basis, $0.70 earnings per share compared to $0.48 per share in last year's fourth quarter a 46% increase.

We continue to have strong execution, and cost management in the quarter.

While revenues were closer o the middle of the guidance adjusted for the lower tail winds from FX, earnings excluding the restructuring, which was not in the guidance, exceeded the forecast.

Turning to slide 14.

Gross margins increased 360 basis points to 33.2% in the first quarter compared to last year's first quarter.

We had great execution on productivity, and realization of cost actions we implemented over the past 18 months.

Our overall price realization was close to negative 1% of revenue in the quarter, but we also managed to reduce material costs adequately to offset all of this negative price realization.

Now, with a significant increases in most metals over the last year, we are out in the market implementing price increases, and are forecasting to stay at least equal on price versus material for the year.

Selling, general and administrative expenses for the quarter as a percentage of sales was 19.9% compared to 20.4% in the prior year first quarter.

A 50 basis point decline and 30 basis points below the fourth quarter of last year.

Very good cost management across the Company, while we continue to invest in our growth initiatives.

General corporate expense in the segment income statement decreased to $18.9 million from $21 million a year ago.

With the actions we have taken, we expect general corporate expense to be around $20 million per quarter for the remainer of the year absent legal or other charges.

Turning to slide 15, solid execution and continuing to maintain cost discipline increased operating earnings 50%, 41% exclusive of restructuring.

Our operating margin increased 450 basis points to 13% from 8.5% in the first quarter of 2009.

Continuing to slide 16, our net interest expense decreased $2.8 million from a year ago, primarily as a result of the $275 million of notes we retired last November.

Our effective income tax rate for the first quarter was 19.2% versus 10.9% for the first quarter of 2009, or 20.1% excluding discreate tax items.

We expect the second quarter to be in a range of 19% to 20% tax rate.

Our first quarter continuing income increased 46% to $119 million, on the 2% revenue decline.

With this being the first quarter with new electrical segments, we provided on slide 17 where a segment performance was under the old segment presentation, which included all electrical businesses.

Overall electrical revenues declined 4.3% with acquisitions contributing 0.5%, and translation 1.6%.

Return on sales increased 330 basis points to 15.7% and incrementally increased 20 basis points from the fourth quarter of 2009.

A very solid performance, with the seasonal, sequentially revenue decline of 1.6%, from the fourth quarter.

Turning to slide 18, for the quarter, our newly reported Energy and Safety Solutions segment revenues declined 6%, with currency translation increasing revenues 1.9% and acquisitions increasing revenues 0.9%.

Price decline declines were close to 1% in the segment and were fully offset by declines in overall material costs.

If you recall this segment performed relatively better during the free fall in revenue on the first quarter of 2009, as they completed projects and shipped backlog.

We anticipate positive core growth starting in the second quarter for is segment as a comparables are more normalized and the world economies continue to recover.

Sales in this segment through global electrical distribution increased low single digits, more than offset by utility and project business declines compared to a year ago.

Overall, the Energy and Safety Solutions segment earnings increased 6.5%, a 6% decline in revenue, and return on sales increased 200 basis points to 16.9% in the first quarter of 2010.

Turning to the Electrical Product Group segment in slide 19.

For the quarter, our newly reported Electrical Products Group segment revenues declined 2.2%, with a core revenue decline of 3.5%.

Currency translation increased revenues 1.3%.

Price declines were a little over 1% in the first quarter, but fully offset by material cost declines.

The demand for electrical products strengthened in international markets, but were more than offset by a weak US market.

Global electrical distribution sales declined approximately 5% from the first quarter of 2009, primarily driven by declines in nonresidential construction markets in the US, partially offset by MRO strength.

The retail channel revenues declined high single digits driven by the elimination of low margin source and sell products, while the OEM channel was up strong double digits.

Overall the Electrical Products Group segment increased 48%, and return on sales increased 480 basis points to 14.3% from 9.5% in the first quarter of 2009.

Turning to the Tools segment, on slide 20, a great recovery in our Tools business where sales increased 16% from the first quarter of 2009 with currency translation increasing revenues 6.7%.

We had a strong recovery on the top line, compared to the prior years for Tools, across the globe and in substantially all product lines.

Professional tools was the strongest performance, in Europe the weakest region.

Retail sales improved as the retailers continue to be cautious, on promotions, and inventory levels.

Tools operated at $12 million profit and 8.2% return on sales compared to a $3.9 million loss a year ago.

Before turning the call back to Kirk, I will comment on the forecast.

Turning to slide 21.

We started 2010 with earnings per share forecast at $2.70 to $2.90 excluding restructuring.

As the economy returns to more stable state, we are now including on going restructuring in our guidance and expect to incur $0.06 to $0.08 per share for the year.

As I mentioned, this month we acquired the assets of Eka Systems, this acquisition had the technology and RF radius for our AIM smart grid solutions and required additional R&D investments.

We anticipate about a $0.03 dilution from the acquisition in 2010.

So a comparable old forecast to the new forecast is $2.60 to $2.80 going to $2.85 to $3.

An increase of $0.20 per share at the high end of the range.

Said differently, if we continue to exclude items, today's guidance for EPS would have been $3.10 on the high end of our forecast.

As I said, before, as I said the new forecast includes restructuring and other items but it is important to note it does not include the noncash charge relate today the formation of the Tools joint venture.

Turning to Slide 22 on some details on the 2010 outlook.

For the second quarter, we are forecasting revenues to increase 2% to 5%, Energy and Safety Solutions segment up 2% to 5%, and Electrical Products Group flat to up 3%, Tools segment up 12% to 17%.

The forecast includes around 1% currency translation tail winds and around 0.5% contribution from acquisitions.

In other words, a core revenue increase in the low single digits for the second quarter.

Our forecast does include approximately $0.01 to $0.02 per share of restructuring in the second quarter.

Including the restructuring, we anticipate earnings per share of $0.72 to $0.77 for the second quarter.

If the Tools joint venture closes during the quarter, the Tools revenue will be deconsolidated from the date of closing onward and take a noncash charge as I previously discussed, it is not included in the earnings forecast.

For the year, we are forecasting revenue to increase 2% to 5%, and earnings per share including restructuring to increase 16% to 22% to $2.85 to $3.

And we expect free cash flow in excess of $500 million to be, this to be the 10th year where free cash flow exceeds recurring income.

Now I will turn the call back to Kirk for a wrap up.

Thank you very much, Terry.

In summary on page 23, after a for challenging 2009, where our revenues fell 22%, and earnings declined 30% excluding restructuring, we have achieved very solid and stable results on a much reduced cost structure for the last three quarters.

On roughly $1.250 billion on revenue, we earned $0.70 in the third quarter of 2009, $0.72 in the fourth quarter, and $0.72 again in the first quarter of 2010, all excluding restructuring.

We see solid momentum building across the businesses, as the global economies recover.

Strong industrial production, higher energy and metal prices, increased demand for electricity, growth and trends around efficiency and green, improved exposure to emerging technologies, electronics and transportation, EAS or LEDs.

We had a record vitality index and 39% of our portfolio is exposed to international markets.

The work we did last year on the balance sheet, also positions us well to continue to invest in the quarter.

Buying great companies that compliment our strategy, Eka Systems is a great example, and continue to return cash to our shareholders.

As Terry pointed out, in February, we increased our dividend 8% and we continue to buy our stock in the first quarter.

Lastly, we are well aware of our peak earnings of $3.59 in 2008.

And so it feels very good that after a year we just had that we're back to guidance in that $3 range, up over 20% with last year.

All in, we feel the team got off to a very strong start in what should be a very solid 2010.

Now, let me turn the call back to Mark to take your questions.

At this point, we'd like to open up the call for questions.

Operator, first question please.

(Operator Instructions).

Your first question is from Scott Davis with Morgan Stanley.

You may proceed.

Hi.

Good morning, guys.

Hey, Scott.

I don't want to get nitpicky, but typically if you look at the long-term average about 22% of our full year's come from 1Q which would imply that to do 285 would be things would really have to fall apart.

$3 and change seems a little more realistic based on history.

What's causing the conservative guidance?

Is it partially as a result of the fact that you have to go out get pricing and it is not kind of in the bag yet?

Or is it just, you just still want to wait and see how things come through?

I think Scott look, we went through an economy last year that is really unprecedented, and I think you still have some linger issues with regard to unemployment.

You have linger issues with regard to commercial construction.

25% of the mortgages people having net equity in their homes.

I think the predictability of the recovery and the steepness of the recovery is probably what makes us a little more conservative.

As I pointed out if you look at the last three quarters now we have quickly resized this Company really from fourth quarter of 2008 and the first and second quarters of 2009 to get back into the shoe box we are in.

If you see any volume coming through this thing we will continue to update you and give you better numbers as we see them coming through.

Now, the book to bill in the first quarter is positive, but as we noted in the Press Release that momentum built, January was kind of punky, February was descent but March really drove the quarter.

So the question is April may pick up where March left off or is something else going on out there.

I think we want to see how that materializes on the top line before you give you any better numbers than we have given you.

Sure.

Understand.

Can you talk a little bit about utility and project businesses?

We have heard from other calls that utility has been kind of the big disappointment this quarter and project business as well, we are seeing price pressure and real weakness and volumes.

Are you guys seeing a similar type of activity, and if so, what givers you the confidence you can get the pricing necessary to keep margins up next quarter?

So the utility business was about where we thought it would be, and we have been commenting on it for the better part of 2009, Scott, that we were a little surprised early in 2009 that it wasn't getting better, but as we went out and saw the customers of course you are seeing decreased electricity demand in the US for right now, stress on their balance sheets with liquidity and things like that to come up with the capital budgets, and so I would say the first quarter wasn't any different than we predicted across the board.

What was good is the north of 110% book to bill.

It was one of our best businesses book to bill.

As you know that business is probably our best backlog type of business.

So, a couple of quarters like that, would certainly bode well for the back half of this year, start seeing sequentially or yeah sequentially positive growth but I think we are still, we still love the business globally of course overall.

And the price economics on that, transformers is where you have the toughest piece of it but we think the pricing has stabilized and people will be responsible on trying to recapture some of the copper and steel costs that have gone up dramatically.

I mean it is difficult for a manufacturer to eat those costs in this environment.

Terry, you have anything else?

Yes, I would add, Scott, especially on the MRO, more shelf good type of things we have been in the market with price increases starting late last year.

So we have absolute confidence those are flowing through and will really start to flow through in the second quarter.

The project business clearly, it has been competitive and we anticipate it will stay competitive as we move through the year, at least until volumes start picking up some.

So, we won't have the type of spreads we had last yea but the first quarter came in within a million dollars of where we thought it would on material price versus material economics.

Terry, just for context, what percent of your revenue would you say are kind of project related?

Overall, it is tough to system of that goes into renovation but there's probably half and half.

Okay.

Of the rough benchmark.

That's great.

Thank you.

Thanks, Scott.

Your next question is from the line of Bob Cornell with Barclays.

You may proceed.

Hello, guys.

Hi, Bob.

Terry, if this is the last of these calls that we're going to hear you on, I want to thank you for all of the help I am sure it is shared by everybody on the call through the years and wish you well going forward.

Hope you stay around in some capacity.

He's going to co-pilot the second quarter.

So don't run him off so quick.

Trying to get rid of me, Bob.

I said if.

I said if.

Well, that's good.

We will look forward to that.

The, I was interested, Kirk, that you mentioned that the nonresidential business had bottomed.

You referenced the US was still going to go down but maybe just give us some color around where you think that business bottomed.

Again I think if you look at the fourth quarter, and you look at the trends month to month versus quarter to quarter, and of course we have all kinds of reports that dissect it but March domestically Cooper Connection was nearly flat, Bob, with year-over-year.

If you look at inventory and momentum there, that is the reason why we believe we start seeing some positive V's in the second quarter there.

Our international business was very strong as Terry noted and so the order rates, the book to bill and the momentum and sequencing of the order rates would certainly momentum would certainly lead you to conclude that the worst is behind you and we are seeing a bottoming in that market.

Bob that doesn't mean that year-over-year you don't have revenue declines because last year we were burning off the projects; right.

No.

I got that.

I understand.

I get it.

The lighting profitability, how is that hanging in here and what are you doing on the price cost side there?

I always say it is a real positive story for us.

We mentioned retail business that we got out, that was specifically on lighting, we held price down to close to 1%, in our controls business, is still growing double digit.

The backlog was up double digit in the business, and we probably have one of the best pipelines of new products.

The vitality index is a measurement of sales from three year, introductions in the last three years, it is over 30%.

And the margins were up year-over-year nicely.

So, we feel we are doing a pretty good job on lesser revenue managing the overall cost equation.

A final thought you know on Tools, the, on the Tools impact went from minor to modest.

What is the Tools impact joint venture delusion if anything going to be second half and what accretion might we look forward to in '10?

We have to mark the fair market value and of course there will be some acquisition related expenses that flow through, but net of those currently, we expect it to be pretty neutral to our EPS guidance for the year.

What about in 2011?

2011 we do not have those numbers but I can asure you that it will be accretive.

Hopefully nicely.

Thanks very much, you guys.

Thank, Bob.

Your next question comes from Rich Kwas with Cooper Industries, you may proceed.

I didn't know I got a new job.

You brought you on,t that's good.

I guess we won't have a tough question.

I should know everything; right?

I shouldn't even have to ask a question.

Okay.

Kirk, on the recent acquisition this seems to fill in the smart grid, the product portfolio for the smart grid.

What's the potential revenue opportunity, not so much in that when you look at the product itself, but when you think about the overall portfolio, and how this positions you to take advantage of the trends in the business, how should we think about that a little longer term?

Yes, great question.

So we made the first acquisition of this space was Cannon and that had power line carrier technology, demand response, and really gave us a lot of software through the Yukon system that allowed us to do substation automation, capacitor bank automation and things that really fit nicely with our core utility business.

We made two other acquisitions, one was around this data concentrator technology and the other was around was self healing grid, so those were the three.

The piece that was missing from our portfolio all along was a RF technology on meter reading.

And so, Eka had established and developing this technology over about ten years, 50 more or less engineers with very modest revenue because they really didn't have the resources having spent so much money and energy developing it to roll it out with the sales and marketing and utilities, let's be honest are slow to adopt technology that doesn't have a strong balance sheet behind it.

We think this fills in nicely a piece of the overall portfolio, purchase price around $15 million, but as Terry said, it sort of -- its still going to burn cash and be a sort of a R&D investment, for us for probably a couple of years.

The overall business is still very exciting.

North of $200 million, very profitable type of EBITDA margins as a software business and my guess is you can see solid double digit growth for the next three to five years on this business.

Were you getting excluded not excluded but getting turned down because you didn't have the technology and does this put you in an area where you can really win some more substantial projects?

Absolutely we used today have to partner with somebody in the urban areas, because we had a power line that doesn't work as cost effective in the urban areas.

So we will see how big this is, but this gives us the absolute full portfolio to do anything out there.

So we have to build out the technology, we have to integrate it into our platform today, but very exciting what it can do for us.

Okay.

Then, there have been rumbling regarding stimulus funds starting to flow through.

A few companies out there a little more positive.

What are you seeing?

What are your thoughts for the rest of the year?

I see the notes, and we talk to guys in our businesses and the one piece I am -- on the smart grid side is we went out and talked to customers the last couple of months which you found out is all of the contractual issues around IP and who owns the IP and then the funding getting the contracts out, very slow probably delays more projects than stimulated.

On the lighting side, I'd say second have of this year we ought to see some more of that money roll through.

So, nothing in the first half and we are hopeful you begin to see things in the second half, but frankly Rich not really anything into the guidance that we gave on revenue or earnings.

Okay.

And last question, further restructuring beyond what you have already quantified, what else needs to be done?

There's nothing significant out there.

I mean we have been through it now under tough conditions.

I would say a lot of small stuff but we look, there's not many big projects left to do this year really.

We have a couple of projects, we don't have the AFE's in on yet, but you they it will be pretty typical type of thing where we will always be looking at a couple of locations a year to close, product line removed, et cetera.

So we will keep incurring some level of restructuring like we always have.

But it will be substantially less than it was in 2008 and 2009.

Okay.

Thanks, guys.

Thanks, Rich.

Your next question is from the line of Christopher Glynn with Cooper.

You may proceed.

Thanks.

You gave us the international growth, 3% I think, but any comments on the developing markets?

How that did by some of the regions?

Let me kind of walk through it.

Seeing life now in Mexico, which is nice, it has been pretty tough down there for the last say 12 to 18 months, but that has come back nicely.

South America is strong, Asia very strong, and Middle East still kind of punky for us.

The commercial construction is obviously taking a hit out there and some of the energy projects more timing than anything else but we were still down in the first quarter there.

Terry, anything else?

Asia was very nice.

Asia was strong, yes.

Overall, Chris, we were up overall international 3% --

Western Europe, Terry, if you took out FX was flattish to --

Western Europe was flat to down slightly.

That's the second largest market.

You can tell by that nice growth in the rest of the world.

Our business is a more France, Europe, Germany, UK little in Italy, Spain, and Ireland.

But so there's, we have held our own over there, I think.

Okay, and at what point do you think you could see some restocking and what kind of impact would you guesstimate that can have?

That's a tough one.

We are not seeing restocking any place except electronics business, which that channel is come back really strong.

So it is really going to take in continuing to increase demand.

I think you saw nice pick up on the industrial side or it.

But for any distributor that is, for example, covering any a lot of non residential construction whether here or Europe is not increasing inventory.

The good news, Chris, is that utilities when we saw them are are very low levels, electrical distribution in the US is sitting on very low levels of inventory.

So that is an upside, in addition to sort of just general economic growth.

Okay.

Great.

Thank you.

Thanks, Chris.

Your next question is from line of Jeff Sprague with Vertical Research Partners.

You may proceed.

Thank you.

Hello, everyone.

Hello, Jeff.

Covered a lot of ground here already.

Just on balance sheet, Kirk, your thoughts on, you are letting the share count creep up here even with all this flexibility, obviously the number is still minor, but what is the M&A pipeline and what are your thoughts on share repurchase if deals don't start materializing?

Now that Terry is leaving.

I told him to buy more shares at 25 and 30 last year Jeff, for the record, right?

[Laughter].

I'll say look, the Tools deal was not easy.

It was two large companies due "diligence-ing" the others business, so for the better part, Jeff, of three or four months, we were pretty focused with our BD teams and legal teams and business units on that deal to get that done.

And then, at the same time, we got the small deal done in Columbia, we got this smart grid acquisition done.

So we have a pipeline, but I would say in the near term there's nothing of large significance.

So the biggest challenge is revitalizing and getting some projects closer to a finish line.

There's a lot of interesting pieces, a lot of interesting things we have put back the dedicated BD resources in Europe, in Bussmann, in Power Systems, in Crouse-Hinds and that's the way we generate these bleeds and fill up the pipeline and some of those positions are filled and some we are in the process of recruiting for right now.

I think that bodes well and there's never really a shortage of opportunities for us.

That's a big part of the focus and part of Neil's job as EVP is take me out of some of the day-to-day and allow me to spend more of my time on the M&A side.

Can you give us a little additional color on Bussmann geographically, where you are seeing things pick up by end market?

Jeff, I will tell you it is across the world.

Europe is up nicely, Asia is up very nicely, both electronics as well as electrical and even our transportation business, which was down substantially last year has picked up very, very nice.

So I would say geographically, the weakest area would be the US clearly.

The rest of the world doing very, very well.

Finally, on Power you danced around it a bit here on the call.

Is the, is the strength that you see building in the pipeline mostly the newer "smart grid stuff" or do you see pick up in the traditional products, is it transformed prices are week or is demand starting to improve or elsewhere in the portfolio?

It is pretty much across the board.

Last year we took down throughout the year all of the backlog in the business by the time we got to the end of the year.

At this point we are building backlog but it is pretty much across the board, across every product line in the portfolio.

Okay.

Great.

Thanks a lot.

Thanks, Jeff.

Your next question is from the line of Eli Lustgarten with Longbow Securities.

You may proceed.

I am upset I don't work for Cooper.

[Laughter]

So much for the iron curtain between the sell side and the companies anymore, right, Eli?

Just noticing these things is what happens, nice quarter.

One clarification that utility business your guidance assuming the utility business is better in the second half of the year and grows for the year?

Overall, Eli our forecast for utility, we gave at outlook was essentially pretty flat.

That had a little FX in it clearly because there's a nice part of that business that's international.

So, it is not really up so much in the back half of the year.

It is up because that's so weak.

But comparatively it is a relatively modest sequentially increase as the year goes on,.

It is rolling out as we thought, Eli.

The book to bill has got to build the backlog, your book to bill goes positive in the first half and sales come thereafter because of the lag.

The back half would look better certainly from a shipments perspective than the front half of the year.

A couple of questions, just questions on the new segment things, and Electrical Products which the margins, if you look at the historical data you gave us, it is typically around 15%, you sort of climb back in the fourth quarter and you drop off a little in the first quarter.

That's seasonality and is soft of 15% what we can expect for the business for the year or as we look out, just trying to get a sense of how to look at the Electrical Product business.

Yes, Electrical Products has a little more seasonality to it as far as mix to it than the other businesses, Eli, because it is tied closer to the construction side and has less international to it on it.

So, it -- the margins will fluctuate a little bit but for the year it should be right around the 14% to 15%, probably 15% range.

And is that, historically, is that sort of where it was, if you give us back to 2008 numbers, is that I assume you are targeting these improved margins on that part of the business as you go forward, the next couple of years.

That's where the volume has been down too, commercial I have lightning and wiring device, residential and nonresidential have been hit the hardest.

When you roll the volume back on that side of it, you will get better with, the good news is Bussmann's margins are good and B-Line traditionally has good margins as well.

One last question, going back to the new Energy and Safety business, you had a good balance in margins but historical data shows you were at 18% in 2008.

Of course the numbers around that matter.

Is that sort of a realistic number to to get back to this year or is that a couple of years out?

That business will our segment a lot of that will dependent on what volume does because that segment will leverage up much better and much faster than the Energy Products Group will.

That's where a lot more industrial there type of businesses, a lot more put it the other way Electrical Products has a lot source and sale business in it.

We import a lot.

So we don't have a lot of manufacturing leverage per se on that segment or as much as we do in the Energy and Safety Solutions segment.

It is nothing inherently structurally that will stop that business from getting back to the type of margin you had in 2008.

No, absolutely not.

Its the volume through Power Systems Eli is the big driver there.

The Crouse business will leverage up well, the Safety will leverage up but if you look at the volume, it is transformers back in those factories, that will leverage back up to that 18% kind of number, sure.

Okay.

Thank you very much.

Thank you, Eli.

Your next question is from Anthony Kure with Keybanc.

You may proceed.

Good afternoon, guys, just a quick question, not sure if I caught the FX assumption for the full year forecast?

It is right around 1%.

Okay.

The comments on the project versus MRO mix, was that in the context of the Company over all or a utility company?

It is Company overall.

Okay, would you care to comment on what that would be for the utility, how that would be different?

The utility is much more book or we build it as we get the orders, that's probably what, Mark, 80-20?

Okay.

Yes.

Just looking long term core growth we have heard mention many time, 2004 to 2008, the 7% to 8% core type of growth, just given the recent macro indicators and how the pace has progressed here early on, if we exclude commercial construction, would do you think that the rest of your businesses are growing at that sort of clip?

You've got a couple of examples you see Bussmann snapping back because of the automotive and those issues.

If you assume housing starts go back from say 500,000 or 550,000 to 750,000 that's a 50% jump, albeit off a lousy number bit that's a 50% jump.

If commercial construction, like you said throw that out, if utility comes back to historical norms, those numbers are, are well achievable, with the electrical business and then the acquisitions that we have made all should support a higher core growth rate, our international exposure on a give us access, if you look at our developing markets growth in the quarter versus are just total international, substantially higher.

So, yes I think if you look at those historic quarter growth rates, well within, well within reason to use and as we dig ourselves out of this, albeit sort of unusual low trough that we just came through.

Okay, thanks a lot.

Thanks, Anthony.

The last question comes from Shawn Severson with Bank Equity.

You may proceed.

Thank you, good morning, gentlemen.

Hey, Shawn.

Can you give a little more color on the industrial outlook?

I mean obviously things have picked up a bit the last six, seven, eight months, and just as you look forward through the year, where you are expecting in term of specific segments and some geographies where you expect continuation of this improvement and where you seen in to date as well?

If you took our industrial business you would split it in two piece, one piece is related to energy and metal prices and things like that.

So the oil and gas, the Crouse sort of space, the other piece of it is really directly correlated to factory utilization, the harder you run the factories, the more consumption.

I would say right now the MRO business has dramatically picked up from factory utilization in the high 60's going to the low 70s.

The normal cycle on that is high 70s to low 80s.

If you get anywhere near back to those levels we'll do very, very well.

The piece that was flat in quarter was Gulf Cost refinery, and a lot of new investment.

Now, with $85 oil prices and steel, copper, aluminum double, we have very good expectations through our relationships with the EPCs and such that there's a ton of business on the order boards and a lot of activity going on around the world.

So, we are very encouraged that will pick up and gain momentum in the back half of the year as well.

So, we really like the industrial space.

This is where we have done a lot of acquisitions, most of our international exposure is heavily related to the industrial space as well.

That bodes well for the developing economies, as we go through the year as well.

Thank you.

Great.

There are no other questions, sir.

Okay.

Then with that thank you for joining us today.

Please feel free to contact me with any follow up questions you may have.

Ladies and gentlemen, thank you all for your participation in today's conference call.

This concludes the presentation and you may now disconnect.