伊頓 (ETN) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Eaton third quarter earnings conference call.

All this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

Instructions will be given at that time.

(Operator Instructions)

As a reminder, the conference is being recorded.

I'd now like to turn the conference over to our host, Eaton's Senior Vice President, Investor Relations, Mr. Don Bullock.

Good morning.

I am Don Bullock.

Welcome to Eaton's third quarter 2014 earnings conference call.

Joining me this morning are Sandy Cutler, our Chairman and CEO, and Rick Fearon, our Vice Chairman and CFO.

As has been our practice, we will begin today's call with comments from Sandy followed by the question and answer, as the host alluded to earlier.

Before we move into the call, I'd take a moment to draw your attention to the statement on page 2 of our presentation.

It contains certain -- our presentation today contains certain forward-looking statements.

The comments on page 2 outline those factors that could cause actual factors to differ from what's outlined in the presentation.

These factors are noted in today's release, and also the 8K.

In addition, the presentation contains certain non-GAAP measures as defined by the SEC.

A reconciliation of those measures and the most directly comparable GAAP equivalent is provided on the Investor Relations page of eaten.com.

With those opening comments, I'll turn it over to Sandy.

Great.

Thanks, Don, and thanks, everyone, for joining us this morning.

I am going to work off of the earnings presentation which was posted earlier.

Hopefully, you have all got that in front of you.

I am going to start on page 3 that's filed Highlights of the Q3 Results.

Just a couple comments the here.

We had, we think, a very strong and balanced quarter in the third quarter.

As you have already read, or operating EPS was above the midpoint of our guidance.

It came in at $1.29 versus the $1.25 that had been the midpoint.

Significantly, that operating EPS is up 15% from a year ago in markets that are, I would describe as overall as less than robust.

Our sales were up some 2%.

Core revenue was up 3%, and that obviously reflects the impact of 4X of negative about 1 point.

As you will hear us talk as we go through each of our businesses and the total corporate results, revenues really are the tale of two cities.

Strong conditions here in the US as the US continues to strengthen and then weaker conditions as we get outside the US.

Just as one indication of that, when you look within our core revenue of being up 3%, the US was up almost 7%.

So, we are doing quite well in our businesses here in the US.

Record segment profits which we are pleased to see.

You will recall, the first quarter segment profits were 14.5%.

Second quarter they were 14.6%.

But I think you'll remember that we had taken some restructuring expenses in our industrial businesses during that quarter.

Without those restructuring expenses, the margins would have been about 15.2% and now, obviously, the all-time record 16%.

All of that drove a record operating cash flow of $943 million.

That excludes the legal settlements that were settled in the second quarter and we paid out, as we mentioned to you in numerous forums, paid out that cash early in July.

The free cash flow was at a very robust 14% of sales.

Really pleased with that performance.

Strong bookings in electrical, again, 4% overall.

Aerospace some 12%.

And we are pleased that all the work we're doing to integrate the Cooper acquisition remains very much on track.

If we turn to page 4, just a very quick and pretty simple reconciliation to our guidance.

You will recall, as I mentioned, our guidance, the midpoint was $1.25.

Our record margins, which came in about $0.04 stronger than we thought, that was really in the electrical systems and services segment.

I will speak more about that, but very pleased with the very full recovery we made in the third quarter.

Frankly, a little faster.

We had said that we thought we would get an average of about 14% margins.

In the third and fourth quarter, we obviously came in above that in the third quarter.

Then Aerospace came in slightly higher, powered by some of the strength of our aftermarket shipments there.

I will speak more about that in a moment.

With volumes coming in just a tad lighter than we had indicated when we were looking for about $150 million of incremental revenue when we gave our guidance for the third quarter, we worked very hard on productivity and expense control across the Company.

Our corporate expense came in, as you saw, at about $64 million versus the mid [$80s] guidance that we had provided.

Taxes were about two points lower, and that offset the lower than expected volume compared to our guidance, and that was just about $120 million lower expected physical volume and then a negative $65 impact -- $65 million impact from 4Q.

Again, compared to consensus, our volume was about $14 million difference than consensus out there.

So, overall up from $0.04.

We think a very solid quarter of execution.

If we move to page 5, just the corporate numbers that you have already seen with the overall sales 2%, 3% core growth.

That adds back the 1 point for 4X.

I think the rest of the numbers speak very much for themselves.

No impact of acquisitions or divestitures at the total corporate level.

So, hopping right into the business segments.

If we turn to page 6, another very strong quarter performance in electrical products segment, our biggest segment in the Company.

As you can see, sales up some 3% from last year, core growth up 4%.

We think really solid when we look -- whether we look against peers or look against market here.

Margins expanded to 18%, bookings very significantly up 5%.

And when you look within those bookings, once again, the story is very much the same, as I've already mentioned twice, about strength in the US.

Bookings over 8% in the US.

Really strong numbers here, again.

And Asia-Pacific was stronger with, as you might expect, Europe being the area of -- still looking for stabilization in those markets, and that's the area of weakness.

As we look within those bookings, lighting continues to be an area of continued strength.

Volume up some 19%.

Our LED participation or percentage of percent of our total lighting revenue at 45%, really leading the industry.

Very pleased with that.

If we look around the world, we're pleased in the US.

Our demand for industrial products, our industrial control products, up some 15% in the quarter as well.

Strength in the Middle East.

And we are pleased that we are seeing some pretty strong activity on component activity in Asia now.

Not as true on the system and services side, but I'll come to that in just a moment.

We think a really solid quarter, very much hitting our targets for performance in terms of volume and margins.

If we move to electrical systems and services segment, perhaps one of the, I think highlights of the quarter in terms of really converting upon our improvement plans here, I'll come back and talk about these three areas that we worked particularly on here if the quarter.

But obviously volume's up 1%, 2% core.

Again, a negative 1 point from 4X.

Up 2% from the second quarter as well.

Probably the big highlight is the margin of 14.6%, up from the 12.7% disappointing performance in the second quarter.

Bookings up 3%.

Again, over 5% here in the Americas region.

So, very much that same outlook.

And a number of you will recall, when we talked about volume increases in the second half of 2014, that one of the portions of the systems and services businesses we were counting on was strong services increase.

Our bookings were up over 20% in the quarter in services.

So, it's very much converting on what we had thought.

We are seeing a little better tone out of utilities where we actually were up plus 6 in that particular area and doing well on the power distribution gear side.

The weakness continues in the large UPS markets, whether it's here or in Asia.

As we spoke to you, we thought that would be the condition that would continue for this year.

Just a quick comment following the second quarter.

And during our second quarter call we talked about initiatives to get our margins back in line with our own expectations that were around freight and logistics, that were around capacity, right sizing and our power quality business and about continuing strong bookings momentum and getting a better price tone.

You'll recall the time I told you that we needed improvement in all three of those areas, that they were about equally weighted.

Frankly, we had hoped we would get to, as I mentioned, second half margins of 14%, which would have had us a little slower in the third quarter than 14%.

A little above 14% in the fourth quarter.

Clearly, we got back to 14.6% in one quarter.

Really good progress on all three of these.

It was not a significant change in material cost.

So, that's not what drove these increased margins.

The increased marks came from getting the progress we targeted in those three areas, and we expect that to continue in the fourth quarter as well.

If we move to hydraulics, a challenging quarter in hydraulics.

And I think we gave you some indication of what our thoughts were in terms of what was happening in the market at the end of the second quarter.

We've talked about it all through the third quarter that while we have talked about China construction equipment weakness over the last year or two, the big change in this market has been what's been happening in the global ag market, and particularly in the US and in Europe.

You've all seen the announcements from the major OEMs.

A very significant turn in their outlook in terms of what they're doing with anticipated sales and production, and obviously production has an impact on us.

Let me turn first to the issue of bookings, which are down 6%.

Very significantly, our distributor orders were flat.

They were actually up in the US.

But the real story to understand what's happening on the bookings level here is that our OEM bookings were down 19%.

And if you took the ag market out of that total of OEM bookings, all our other OEMs are up some 6%, and that includes the global construction market.

The real weakness is in ag, it's due to significant cancellations in the Americas and EMEA.

I don't think that's probably a surprise to any of you who are following the ag market.

It's going for preparation for quite a down cycle.

We have tried to be transparent that we think next year will be a down year in ag equipment as well.

This quarter, where our sales were down from last year 1% and again, when you get into the 1% down in volume of shipments, I'm now switching to shipments, distributor tone was quite good, up 7%.

OEM down 6%, really driven by the ag side again.

So, our large exposure to ag is obviously showing up in this quarter.

The 11.7% margins are influenced by the lower margin and the fact that we have taken our inventories down in response as well.

We think that this is a condition that's likely to carry into the fourth quarter.

We will see some small improvement in margins.

But this kind of level in volume and the typical fourth quarter being slightly less than the third quarter in terms of volume is, I think, how this will play out in the fourth quarter as well.

Let me switch to Aerospace.

Really a terrific quarter in Aerospace.

If you'll move -- this is page 9. If you'll move to the slightly green colored box on the left-hand lower side of this chart, you'll see that core growth was 6%.

You'll see right underneath it, divestiture 6%.

These are the two small units that we divested in the second quarter that we now have a full quarter of the lack of those sales.

So, the actual organic growth in the business was really quite good.

In fact, very good, 6%.

We're very pleased with the bookings up some 12%.

And had both positive bookings on both the commercial and the military side of the business.

Significantly, we call out in the yellow box that after market shipments accelerated during the third quarter.

That obviously is a help on the margins, and I think you saw the very strong margins of 15.9%.

You'll recall we have had a number of quarters now, these past several quarters, we have had significant acceleration on the after market spares and repairs activity, and we are starting to see that come through in the shipments here as well.

If we move to the vehicle business.

Another strong quarter of performance.

Volume up 5%.

Again, core growth up 6%.

Margins of 17.4%.

We obviously raised our guidance for the NAFTA heavy duty class 8 build to 295,000 units for the year.

We can see that finish line pretty clearly here, as we said at the end of the third quarter, early fourth quarter, in terms of what this year looks like.

And I think in addition to the strong September NAFTA heavy duty orders of almost 25,000 units that we are seeing in the marketplace, we are hearing pretty good news about what October is going to look like as well.

So, I think continued good news.

The weakness in this particular market is the same as we have spoken to you about, and it has not turned around from a production point of view.

South America, Brazil in particular, continues to be very weak in its vehicle markets.

We have got, again, a little bit of a story of two different worlds here.

The very strong North American activity, the very weak Brazilian operation.

And remember that Brazil is a pretty big percentage of our business that's outside the US in this particular segment.

If we turn to 11, wrapping up 2014, full-year segment margins, we still think they will be about 15.2%.

I am sure there will be individual differences by a decimal point in these five different segments as we get to the close of the year and await all the quarters.

But overall, we are pretty comfortable with 15.2%.

As we shared in our earnings announcement, we think that the full-year market growth is likely to be around 2%, with US markets growing at an attractive 3% level and the rest of the world growing at more like 1%.

4X obviously has been a big change vis-a-vis what we foresaw at the middle of the year.

You saw we had about $65 million year to year of negative 4X in the third quarter.

We think the full year is now likely to be on the order of some $220 million.

For those of you who are doing the quick deduction, that means more in the fourth quarter than it was in the third quarter.

That is correct, because most of that currency change occurred in September.

If they stay at these levels, we would get three months of that impact in the fourth quarter instead of largely one month of impact in the third quarter.

And we're really pleased that with all the complexity of all the different programs that our teams are working, they are doing a great job, and the Cooper synergies remain on track for this $210 million in 2014, which to remind you, is about $95 million of incremental synergies and profits in 2014 compared to 2013.

If we turn to page 12, operating earnings per share, same numbers that we showed you full year at the end of the last quarter.

So, we're holding that guidance.

That's up 11% from the previous year.

The fourth quarter midpoint in terms of operating earnings per share of $1.20, that's also up 11 points -- 11% from last year.

In markets that we think are growing on the order of roughly 2%, we think very attractive leverage in terms of the profits dropping through.

If we move to chart 13, it's titled Comparison of Q3 to Q4 for 2014, it obviously starts with $1.29, which we reported for the third quarter.

We will again get about another $0.01 coming from Cooper synergies.

Margins in our fourth quarter, for those of you who have followed our Company for some time, normally are about 0.5 lower in the fourth quarter than they are in the third quarter.

A portion of that has to do with there are regions of the world where large parts of December are not business days.

And that would account for about a $0.06 drop from the third quarter to the fourth quarter.

That is in line with what our expectations were for the fourth quarter when we put our second half guidance together at the middle of the year as well.

4X we think, as I mentioned, it will be on the order of about negative $100 million, comparing the third quarter to the fourth quarter.

That's going to drive about $0.02.

And then the normal lower core volume that we see with the fourth quarter being slightly less than the seasonal peaks in the second and third quarter, and that will be on the order of about $50 million.

That's how we get to our $1.20.

Obviously, putting that together with our first three quarters puts us at our full year midpoint that I covered on the previous page.

Chart 14 is provided just for a quick summary of the key elements that we've tried to provide in our guidance and discussion about results.

A couple changes that I have already mentioned, but I would just highlight them for your record keeping ease.

On this chart market growth, it was at 3%.

We've lowered it to 2%, as I mentioned before.

That change is all occurring outside of the US.

Our forex, you may recall we started the year thinking it would be about a negative [$200 million].

We got to the middle of the year, and it didn't look like it was going to be at that level.

We went to zero.

We now think it's a negative [$220 million].

I think further confirmation that we nor no one else does a great job of forecasting 4X.

And then if you drop down to free cash flow, it's up $50 million.

It was $1.8 billion to $2.0 billion.

As we've gotten through the year this year and have looked at the pace of all of the programs and the programs we've prioritized, we think we will be spending about $50 million less than we thought when we entered the year.

I would call that tuning.

It's not a reflection of any programs being behind.

It's really just our ability to get it spent this year.

If we turn to page 15, a summary of the quarter and the year.

As I mentioned, we think it's a very solid quarter of performance.

Clearly, forex surprised us a little bit.

But I think it probably surprised almost everyone.

Record margins really reflect all the work on productivity and effective cost control.

Record free cash flow, we think a really good look into 2015.

I'll talk a little bit more about that on the next chart.

Running at 14% of sales.

We think the market conditions in the fourth quarter are likely to be similar to Q3.

The only modification of that, I would say, is just there is a seasonal difference in the fourth quarter.

And that we think a very solid attractive year this year with 11% operating EPS growth coming off a year with relatively modest worldwide market growth in terms of our markets.

I know very much on your mind at this point is, what does 2015 start to look like?

We are in the midst of our operating planning.

So, we can provide you only with a couple broad-based indications, and obviously we will address this in far more detail in January in our call at that time.

But maybe a couple comments to reflect on.

We think market growth is likely to be similar to 2014.

I think the big trends there are continuing growth in the US and lower growth outside of the US.

As you break that down into our individual businesses, I think this -- our general feeling is that Aerospace is likely to be a little higher growth than the average.

Hydraulics is going to be a little lower growth than the average, and the other franchises are going to fall somewhere in between.

As we've mentioned in our last call, and I would reemphasize today, we have got two very big drivers of self help here in terms it of another incremental $150 million of Cooper synergies.

Another incremental $35 million of benefits, they come from the restructuring we did in the second quarter of this year in our industrial sector.

And then the negative that we spoke to you about earlier, that we do expect that our tax rate will move from this roughly 6% this year to something in that 9% to 11% range next year.

And then finally, an issue that many of you have asked us about and we've discussed in quite some detail over the last year and a half, it had been our expectation ever since we announced the acquisition of Cooper is that by the middle of 2015 we would have the vast majority of our acquisition integration activities completed.

We would have been paying off the major portion of the debt that we had indicated we had would repay back that we took out as part of the acquisition and that the Company will have the opportunity at that point to really be thinking through what its optionality is behind the very significant cash flow that we are driving at that point.

And that's likely to include either getting back into the M&A market and/or share repurchases.

We've not taken our finger off that chess piece at this point.

You saw that we did purchase about $225 million of stock that was roughly 3.4 million shares in the third quarter.

We have the capacity, we believe, that if we decide it makes sense to continue purchases in the fourth quarter, but that's frankly a decision we have not reached yet.

And as we get into 2015, I think it just opens up some very attractive alternatives for us as we get back to a point where our balance sheet is considerably strengthened and we would have completed most of it integration, which gives us the confidence then to think about new initiatives, as I said, that either are on the M&A side or are on the side of purchasing back shares.

So, once again, we think a very strong quarter.

One that we really hit on upon the key elements that we felt we needed to improve upon after we came out of second quarter.

I think it sets up the fourth quarter and entering next year on a strong basis.

So, with that, Don, I'll turn things back to you and look forward to people's questions.

Very good.

Our moderator will give you some instructions for the question and answer.

(Operator Instructions)

Our first question is from the line of Nigel Coe with Morgan Stanley.

Please go ahead.

Thanks.

Good morning.

Sandy, I just want to pick up on your comments, your last comment on the share repurchase and/or M&A.

And I think most of us are thinking of 2016 as when the balance of your opportunity opens up.

So, mid 2015 is a bit healthier, so I am just wondering if anything has changed with the composition of the agencies, et cetera?

And in terms of the pendulum between repos versus M&A, I have got to think that at the current share price, repos would be where you are thinking more so.

Any comments around that would be helpful.

Thanks, Nigel.

And you're right.

We do feel that we have the mature year of our synergies in 2016.

But we have been pretty clear that most of the actions and decisions will have been completed by the middle of 2015.

What we have been indicating over the last six months is that we think that it opens some opportunities if we continue to hit the cash flow numbers that we are, that we can begin planning those activities in the middle of 2015.

Obviously, if it was M&A, it's likely to be something that we would think might not close until later in 2015.

But that doesn't mean that you don't get the work done earlier than that.

I would tend to agree with you.

At the kind of share levels that we have seen more recently, it has to be a pretty special acquisition to be one that would outpace a repo.

Okay.

That's helpful.

And then switching to ESS margins.

You indicated that your plan was for sub 14% margins in 3Q.

You came in obviously ahead of that, 14.6%.

What drove that -- the upside of your plan?

And should we then think about 4Q being sequentially higher than 3Q, given your initial set up?

Yes.

And you stated what I said correctly, is that, yes, we did think that the second half would average 14%, was the language that I had used.

And really proud of the job our team did in terms of really addressing all three of the improvement areas that we said we had to work upon.

It's not our expectation we would give that back.

It's our expectation we ought to be operating at pretty similar levels as we go into the fourth quarter.

This is a business unlike some of the other sectors where seasonally the volume goes down in a number.

Normally, in the systems and services business, the volume stays a little bit more constant going into the fourth quarter because there are an awful lot of large installations that do repair and service work over the various different holidays that are sprinkled through the fourth quarter.

Our expectation is that we'll stay at these types of levels in terms of profitability.

Okay, and then just quickly, the ESS orders, did they reflect a bit more pricing discipline on some of the larger project opportunities?

I would say that the biggest issue there is still, Nigel, the weakness in the very large power quality markets.

I think you have seen that from a couple of our peers who have announced as well.

That is the piece that is not as robust.

The power distribution side is -- I recall it's fairly robust as we go forward at this time.

Great.

Thanks, Sandy.

Our next question comes from Scott Davis with Barclays.

Good morning, guys.

I just want to follow up a little bit on Nigel's question on UPS.

I think some of us are trying figure out how much of this weakness is cyclical and how much of it is secular.

Do you see changes there in power quality that would lead you to believe that is something that is probably going to stay weak a little longer than what you've -- a usual cycle would be?

I think what we have been trying to share with people, Scott -- and first, good morning, is that we do think there are some important changes going on from the point of view that there has been a period of overbuild and then under build.

And we with think we will come back to a period of time when people will be building more.

By the topology of the technologies are changing as well.

And so the total electrical package that's sold in many of these large data centers, that isn't changing much.

But the mix between the power quality or UPS and the power distribution side is changing.

And that's not in all the data centers, but it is in what we call some of the Web 2.0, or hyperscale type of data centers.

And we spoke to it that at several conferences this year.

I do think part of what we're going through right now is that we have got some areas where people have pulled back on spending.

All those drivers of capacity continue to happen.

So, I think we'll step back into that.

But it does mean that companies have got to have these new topologies to really be able to deal with the change and the mix of products.

We do.

And we sell, obviously, both the power distribution and the power quality.

On a net/net basis, that doesn't make us suffer, but it does mean it's a little slower on the power quality side.

Fair enough.

And I just want to get a sense of where your thought process is, Sandy, on -- your stock price has been a little disappoint.

I think it's had a tough year, and you have lost that.

For a while you were trading more like a multi-industry company.

Now you are back to trading more like a machinery company.

Does to make you wonder if you are ever going to get credit for moving towards being an electrical equipment peer play?

That maybe some of the more cyclical business are always going to have an outsized influence on where you trade?

I think for us, Scott, it's really all around performance.

And I think that we've built a Company that has balance.

It has balance from a geographic point of view.

It's got balance from how it participates through the cycle.

It has balance in terms of its different businesses.

And I think what we're trying to deliver for shareholders and owners is a stream of income and revenues that continues to grow right through the cycle regardless of what's happening around the world.

There will be individual quarters where an individual business or region of the world won't be as strong as others.

That's part of going a global company.

It's part of being a diversified company.

We still think we can deliver on that strategy and that promise, but we have to deliver it each quarter, and that's what we're really focused on.

Okay, fair enough.

Our next question comes from Steve Winoker with Bernstein Research.

Good morning, guys.

Maybe just start off with that 2015 guidance.

Could -- any preliminary thoughts on how you were thinking about the corporate line items and pension and some of those other, what can be large swing factors?

Yes.

Maybe just on the pension issue.

You may recall at the end of the second quarter, we had opined that if rates had stayed at similar rates, that we might see a tailwind, a positive tailwind, in terms of pension costs.

I think about as quickly as we said that, we saw interest rates and discount rates continue to move in confounding directions.

I think our guidance at this point is that we just don't know.

We'll see when we gets to those rates at the end of the year.

That's why you don't see that on our summary list at this point.

I think in terms of the corporate expenses and all, obviously you see that we have really worked hard on productivity and costs all through the Company as markets have grown a little less quickly than we all might have hoped at the beginning of the year.

I think you got to assume that's going to continue as we go forward.

We think this worldwide economic outlook that we have is one that basically says the US is going to continue to be the strongest part of the neighborhood.

That you are going to see Europe struggle through challenging times on a continuing basis, and that what's going on in the emerging nations will be quite inconsistent from country to country.

And that's what sets our belief that you have to be ready to run your company successfully with this growth rate of what we're experiencing this year of around 2%.

Okay.

Well, maybe on the segment margin commentary, ex-cost synergies implied in that guidance as well.

The $185 million between cost synergies and restructuring benefit.

But normally, even if you didn't have that and you're steering at 3% plus core growth in the business, you should see some positive fall through on the margin side.

Maybe how are you thinking about that?

I think what we've indicated there, Steve, is we think this 20% to 25% is probably the right way to be thinking about that going into 2015.

And obviously, as we get through our operating planning, we will share far more detail on that and margin targets for each of our businesses as we start the year next year in January.

Okay.

Maybe I will have a little more luck here on the Cooper synergy discussion, then.

How's the -- last time you gave us the -- I think it was slide 16 in Q2 and looked through the annual pretax synergies.

I assume there is no change to that thinking, but are you really seeing these revenue synergies come through?

Because you have got slower market growth.

You have got, even the outgrowth that you have talked about.

It's a little hard for me to tell whether you are really getting some of these sales synergies.

No, we definitively are, and we are really quite excited about it.

I think you see that in the comparison.

When you go to our electrical products segment, you look back over bookings just this year.

First quarter 6%.

Second quarter 6%.

Third quarter 5%.

Go down the peer numbers in the electrical industry, and we obviously look at those pretty hard in terms of the core numbers.

And you clearly see what we're gaining.

I think for those who are out there in the channel and have been at the major customer conferences, it's pretty clear for those who are close to the industry that they know we're gaining and these synergies are coming through.

There's no question about it.

Okay.

I'll pass it on.

Thanks, Sandy.

Our next question comes from Ann Duignan with JPMorgan.

Good morning, guys.

Sandy, can you just talk about, as you look across your different businesses and you talk to your new chief economist, what does lower oil prices do to each of your businesses?

Obviously, there may be some upside to vehicles perhaps, and maybe downside to some other businesses.

Just conceptually, how are you thinking about that?

Ann, obviously there have been some forecasts put out the last week and ten days which obviously have people, I think, spinning a little bit.

We personally are not bought into the $75 oil forecast.

But having said that, with lower prices, there are obviously oil prices, there are a couple of businesses that, again, it takes some time for these changes to come through.

But obviously, the vehicle markets that are enhanced by that lower cost, it obviously will help the aerospace industry as well because it's lower cost there as well.

We think it helps residential construction because the consumer has more money.

It helps utilities because the utility costs go down.

Their costs of operation go down as well.

And I think within oil and gas, because I think the question on everyone's mind is, how severely does this push back on investment in oil and gas?

An awful lot of the activity that's going on in oil and gas is actually downstream.

Not upstream.

And the type of work that has to be done there, and we're really quite excited about our revenue potential in 2015 and 2016 in that particular area.

When you do go upstream, you have probably seen some of the stuff that has been published recently in terms of the number of rigs that have to be extensively reworked because they are over 30 years old.

I don't think a relatively short-term change is going to have -- and in short-term, I say 6 to 9 months, is going to have a significant impact.

I do, to your question, think there are a number of businesses that get a plus out of lower prices.

We are not a big consumer industry, but we're reading the same things everyone else is reading, that people are anticipating lower heating costs, that the consumer may do well both at the pump with their vehicle as well with lower heating costs.

That would be our general thinking.

Okay.

So, net/net, more of a positive than a negative?

Is that your view going into 2015?

I think for many of businesses, and I think the issue is, how long does it stay down?

Because obviously, if it stays down for a couple of years, I think then you are likely to have an impact on spending patterns by the major oil and gas and service companies.

Okay.

And then -- thank you.

Thank you, that's good color.

And then following up.

Your lighting strength.

Just a point of clarification.

You said volume was up 19%.

Was that unit volume or is that revenues?

That's revenues.

Okay.

Thank you.

Appreciate it.

Yes.

I'll get back in line.

Our next question comes from Jeff Hammond with KeyBanc.

Hey, good morning, guys.

Good morning, Jeff.

Just one last one on 2015, and think maybe Rick touched on this at a conference.

But how are you thinking about restructuring costs, the $40 million you spent this year going away versus finding other restructuring to do?

Yes, I think we have been consistent on this, Jeff, since we spoke last spring and announced our intent to do that, is that the $39 million that we expended we had said it was going to be $40, million, it turned out to be $39 million in the second quarter, was a pull forward of some activities that we had not anticipated doing during 2015 when we set our -- or 2014 when we set our plan.

Having said that, we are doing restructuring all the time in our Company and we would expect that we would continue to be doing that in 2014 and 2015.

I think it's a normal part of doing business.

We encourage people to think about the $35 million of benefit, but that the $39 million would not go away, i.e., that is part of the overall restructuring we do from year to year.

The only reason we called it out this year is because it was a change to our plan once we had started the plan and we saw markets start so weaken.

So, you should not take $39 million plus $35 million and assume that's a source of profits next year.

It would be the $35 million on top of this year's profits.

Okay.

Perfect.

And then just on free cash momentum, can you talk about how you're thinking about pension contribution, cash restructuring, and working capital in 2015 versus how it played out in 2014?

Yes.

I think in terms of the pension, Jeff, it's a little early for us to be able to say per se, because the interest rates are and discount rates are proving to be a little bit more volatile than we might have thought they would be.

It would be less than we did this last year, but we're not yet comfortable we know how much less.

Rick, you want to add anything to that?

The other factor, Jeff, as you well know, is Congress passed a bill that reduced the minimum required contributions for 2015.

So, it gives us a little more leeway.

But nonetheless, still heavily impacted by the discount rate.

Yes.

And on the question of a cash restructuring, our restructuring tends to be pretty close cash and profit impact.

And I think you may recall that we didn't include the chart simply because it hadn't changed but that the anticipated acquisition integration costs in 2015 were $35 million.

And that's our best thinking, still, at this point.

So, no change in that regard.

Then you had a third element, Jeff?

Just working capital.

Working capital.

Working capital has generally run about 16%, 17% of sales.

And so I think whatever your assumption would be of incremental volume next year, that's a pretty good number to assume in that regard.

Thank you.

Very good.

Our next question comes from Andrew Obin with BofA Merrill Lynch.

Hi, guys.

How are you?

Good morning.

Just a question, Sandy.

You described the world where US is outgrowing the rest of the world, and it doesn't seem like that's going to change in 2015.

And as you guys put your business plan, I would guess long-term business plan, several years ago where the world looked very differently and it was the international growth, emerging markets on the industrial side that drove the growth, are you guys giving any thought to a long-term changes in your capital allocation?

I.e., shifting investments more to the US, changes to M&A strategy?

What are you thinking about that?

I think, Andrew, you're right with your memory in terms of our view, and that was sort of pre-2008.

But once we came out of the recession, our view was that Europe was going to come back more slowly because we really thought the amount of restructuring that had been undertaken in the countries wasn't sufficient to really put them on a growth rate.

We thought that the growth in the emerging countries, because you'll recall that inflation took off so quickly, they had to reintroduce much higher interest rates, would be inconsistent.

I would say on the run, we have been making that adjustment all during this time period.

I think China will continue to be attractive.

It's not going to grow at the rates we saw before, but if it does grow at, say, 6% over this time period, that's still going to be attractive.

Clearly, geopolitical has made Russia a whole lot less attractive.

Middle East continues to be attractive to us, particularly the oil and gas driven portions of it.

Frankly, we hoped India would be better.

We think it will become better under Mr. [Modey's] leadership.

At this point, there are some early indications that will begin to change at this point.

I think the one that has been perhaps a bigger surprise in terms of how long it's going on is Brazil.

And you have heard us speak with our own caution about Brazil in terms of what's been happening in the economy.

And obviously, with the election not having resulted in a change, I think one has to assume that economy stays a slower grower than it had been pre-2008.

But I'd say we have made those changes on the run.

So, I'd say it's not so much a conclusion we're reaching here at the end of 2014.

And yes, it does impact both where we can grow, where we will grow, and where we'll put incremental capital.

And just a follow-up question on ag.

It seems like the order book is being built right now for the spring selling season.

That doesn't seem to be very strong.

How long do you think until we hit the bottom?

Do we need to go through the fall combine order season to really see where it ends up, or do you think the spring selling season could be the bottom?

I think we can't give you a decimal point on this, but our best estimate is that this takes more than one growing cycle to work its way through.

When we spoke at the end of the second quarter, we thought it could take two or three growing cycles.

That's not two or three years.

That can be 18 to 20 months.

But -- and we don't have any indication that -- of any newer data than that.

I think what we're seeing is that as people have become -- they have gotten closer to their actual build schedules, we have seen them adjust not only here, but also in Europe.

This is primarily a US and European.

And to a little lesser extent, South American kind of impact.

But big ag has cut back fairly significantly.

Coming off the peaks, we have got to start to see those crop prices move back.

You all know the crop price numbers.

They are a long way off the peak at this point, and it's going to take some time to get them back.

Thank you.

Our next question comes from John Inch with Deutsche Bank.

Thank you.

Good morning, everyone.

Good morning, John.

Sandy, just to try to make sure I am understanding exactly what you're saying with risk factor restructuring, in the second quarter, you took [$0.01] of restructuring.

I understand the context of pull forward, just as we are building out models.

Are you planning to also take another $39 million in the second quarter, or is it TBD in terms of spreading it around?

It's a question of, is it still another $39 million?

I think that's what you said.

And would we expect it if the second quarter or spread throughout the year?

I would say it's a TBD because just as if we were sitting in the fall of 2013, we would have been working through our planning of when we were going to do different actions.

So, can't give you a specific quarter.

But I think the way I would encourage you to think about it is we, I think like most other large organizations, are always working on areas of trying to improve and do productivity and address issues that either aren't growing quickly or aren't producing the kind of profit potential that we think are necessary.

That's how I would think about that number, and it will be during the year next year.

I don't have a good enough feel right now to be able to share with you what quarter.

Based on the strength of the US, would it be fair to say that if you were to pursue these actions, you probably are looking at your international operations?

Or is it, again, that too soon to tell as well?

I think a little too soon, John, just because there's -- again, a $22 billion plus company, there are always, there is, we can always work to get better.

And so it could be it will be outside the US, there could be some things we do in the US as well.

I just don't have a good handle on our final prioritization yet.

And just to -- just as a clarification, you mentioned Russia.

The Russian economy looks like it's falling apart.

Your exposure there is pretty de minimus, is that correct?

Even the oil and gas side?

We don't have -- we have exposure there in both our electrical businesses.

That's probably our biggest exposure there.

But it's not a big one, though.

And then the thing on the tax rate, I guess I realize there is a little bit of a black box element to this.

But Rick, you have alluded to, and you guys reiterated this morning, a 10% tax rate place holder into next year.

I thought tax rates, number one, were going to be a little higher this quarter, so I'm a just curious why they weren't.

And secondly, just to understand, why do tax rates, why would they hockey stick?

Why would they go from 6% to, say, 5 points higher in 2011 to get to the high end of your range?

Well, you have a couple of things going on, John, and I mentioned this on an earlier call.

In any given year, you do have some one-off items that enter into the tax picture, and we had expected some of those this year and indeed, they largely have occurred.

Secondary, you have higher US income.

And because the US is the fastest growing part of the world, it does have the highest tax rate of virtually any country in the world.

And so it's the lack of those one-time discreet items plus the higher US income that is really pushing the rate up.

Now, mind you, 9 to 11 is not an overly high rate compared to most others.

Okay.

But the -- so you're saying, Rick, all it is is really the impact of higher US, or is there --

That's a big part of it.

Okay.

And then, just the US up 7%.

What got better in the quarter versus your expectations?

Obviously, the performance was commendable.

It's consistent with what other companies are saying.

What got better, and do you think it's sustainable as we roll into next year?

I would say from a geographic perspective, it's not that anything really got before or worse from how we thought the world markets were.

It always felt like Asia -- excuse me, like outside the United States was weaker than the US.

I would say that the thing that has continued to be weaker that really reinforced our lowering the full-year market growth from 3 to 2 is that South America that is continued to be weak.

No question.

Europe, I think we've all read the indications of, is it teetering on the edge of something a little worse than what it's been over the a last couple of years.

Clearly, it's taken a step back from when -- I think the first quarter, many people felt it was maybe starting to go up.

I would say those are the two big that had changed.

China, the situation hasn't changed much.

Our sales have increased there, but you hear lots of discussion around whether it's a real 7% or 7.5% as well.

But I'd say those are the two geographic areas.

And I would say from what improved for us, as I mentioned earlier, margins came in ahead of our expectations, both in the electrical systems and services and in aerospace.

And then I think we had very attractive margins, obviously, in our vehicle market and electrical products sector.

Thank you.

Our next question comes from Julian Mitchell with Credit Suisse.

Hi, thanks.

You've mentioned many times that the US is better and all the rest of it.

But it sounds like electrical globally the market grows at a similar rate in 2015 as in 2014, and the US or North America is over half of that business.

And presumably, in that region, you are seeing better trends in utility you talked about.

You have been fairly vocal about non-res getting slightly better.

I wonder, you factoring in there for any electrical that you get a steeper downturn in (inaudible) time next year or a bigger slump in China or Europe?

I would say at this point, Julian, we have not tuned next year's forecast down into microsegments.

That's the work that we're doing right now.

We have just tried to approach this early view in the next year is that we don't see drivers of significant change at this point from the way markets are behaving this year.

And so I don't have detail I can really provide you to tell you that this one is -- the sub element is going to move to another.

Frankly, we were a little bit positively surprised that the utility business had a better tone to it here in the US in the third quarter than we had thought.

But I would say the rest of it has been pretty much as we had expected.

We'll have more, obviously, as we get our operating plans.

We are right in the middle of going through all those reviews with our teams right now.

Thanks.

And then on the -- outgrowth is something you used to talk about more.

The 150 BPS of outgrowth you have dialed in for this year, any reason that changes much, or any reason why you might change the way you present the outgrowth?

No, no.

That would be our expectation next year as well.

Thanks.

And in hydraulics, as you said EBIT was down more than revenue, I think, year on year in Q3 because of destocking measures.

Sounds like that drags on into Q4.

How far through that destocking are you now, and are you taking measures to ensure that really in the second half of this year the destocking is ring fenced?

Yes.

And again, it's just, so no one misinterprets your question, it's not distributor destocking, which we also use.

This is our getting our own Eaton inventories down because we have seen the ag demand drop off.

I think it really does depend upon how much more we see in terms of drop in the market.

It's a drop of that demand.

They have obviously canceled very significant portions of the forward orders that were in our backlog.

But our hope is that we have seen the worst of that at this point.

We will have to see as we work through the fourth quarter.

As I mentioned, our anticipation is seasonal.

We anticipate slightly less volume in the fourth quarter than we had in the first quarter -- or the third quarter, excuse me, in our hydraulics business.

And that this year, we have had pretty modest growth in the overall market.

That's our assumption for next year.

My hope is, Julian, that we have got a lot of that inventory correction done in the third quarter.

I would guess we will do a little more here in the fourth quarter.

Great.

Thank you.

Our next question comes from David Raso with ISI.

Good morning.

I'm just trying to size your comment significant cash to deploy.

Now, I can calculate by the middle of next year your net debt to trailing EBITDA is probably back at 2, maybe even a little bit below 2. To help us size, I'm trying to think through your comfort level with leverage.

It's the end of June next year, your leverage is down to 2 or less.

What kind of capacity are we talking about?

What kind of leverage are you comfortable running the Company on?

Well, as we've said, Dave, quite consistently, we believe the long-term positioning of the Company should be straight A. But we realize you first got to get to A minus before you get there.

And so the reality is, to get to straight A, if you really ultimately think about that target, you'd have to be about 1.5.

But we aren't saying we are going to -- we are not going do anything until we get to that 1.5.

It's a balance, of course, of rebuilding the balance sheet, paying down the debt we have already committed to.

And just to remind you, the last installment of that $2.1 billion that we committed to the agencies to pay down occurs in January of 2016.

If you think about the cash on the balance sheet at September 30, the very close to $1 billion of cash, and you think about cash generation in Q4 and then the cash generation next year, it's relatively easy to see that -- and you also consider the paydown schedule that we have committed to, it's relatively easy to see that cash does accumulate.

And that's what creates the optionality once you get to the middle of next year.

Just to be clear though, I am just trying to make sure we manage expectations on this significant comment.

Again, the net debt to EBITDA being down to 1.5 by mid next year doesn't look likely, just given the seasonality of the cash flow.

Just to be clear, are we saying we can be down near that 1.5 by the middle of next year?

No, no.

You also have to factor in the paydown schedule the debt, which is about $400 million in the first half, $600 million in the second half of next year.

What we are saying, though, is that even factoring in the paydown schedule, we will begin to accumulate more and more cash on the balance sheet.

And that is the comment about optionality.

And of course, we generate the largest part of our cash flow each year in the second half.

And so as -- we'll start to accumulate as you get to the end of the first half, and then we'll accumulate much more during the second half of next year.

And so absent taking any actions, acquisitions, repurchases, you would expect to see the end of next year with a relatively better cash balance.

Okay.

Just to quantify it --

I would add the comment, David, and I recognize how you're trying to calibrate this, is that -- I would go back to what I said earlier, is that by the middle of next year, we will be in the position to start to make decisions about deployment.

It doesn't necessarily mean we will do it at the middle of next year.

But I think we will be in a position then having seen what the cash flow is and what the rate of improvement is that we can start to make decisions, whether it's M&A and/or, or simply share buyback.

You have seen, obviously, that we have been in the market in the second quarter.

We were in the market in the third quarter.

I think that reflects the fact that we do have some optionality around the edge.

It gets bigger as we go forward.

Again, just trying to manage expectations here.

I am just running these numbers.

It sounds like it's more of, we generate roughly $2 billion of free.

$1 billion goes to dividends.

That extra $1 billion, now we are thinking of being a little more aggressive with it than necessarily leveraging the Company up.

Just so I am clear on --

That is correct.

Yes.

That's all.

I just wanted to clarify.

Thank you very much.

Certainly.

Our next question comes from Josh Pokrzywinski with Buckingham Research.

Rick, just to go back on your comment, Sandy it might have been on you, on the 20% to 25% base incremental as we think about the framework for next year before we get into discussions about restructuring or Cooper synergies.

It seems like with the easy comp that you have on the ESS side, and I think you're signaling that you've largely fixed the issues there, it seems like there might be another $40 million to $60 million of just easy comp there on margins.

Should we think of that as not being a component or being something outside of it?

Or is that 20% to 25% really more like 20% because 5 points of that is just easy comp?

A lot of questions there, but I think you see where I'm getting a the.

Yes.

Again, I would say that we will be in a far position to tune as we get into early next year.

But I think for this purpose, I would go back to the markets similar to this year.

The outgrowth that was asked earlier.

Yes, we do expect that to happen.

And I would just -- 20% to 25% plus those two sources of additional profitability that we talked about being the additional Cooper synergies and then the additional profitability that comes from the restructuring action we took this year in industrial.

That's about as far as we can go at this point until we have our operating plans put together.

Okay.

That's fair.

And just to follow up on that, not thinking about 2015, but with ESS in the quarter and the progress you've made, could you rank order the things that went your way between pricing, productivity, synergies, raw mats, the rank order of that.

And then how that necessarily shakes out 4Q and what's sustainable, what's a little bit more one-off?

I think you'll recall, there were three items we had indicated had led to the shortfall in our targeted margins in the second quarter in our electrical systems and services segment.

Those were freight and logistics, there was some capacity resizing that we needed to do in the PQ business.

And then there was the bookings momentum because we had had several quarters of weak momentum before that and price.

They were about all about equal.

We said at that time, they were about one-third, one-third, one-third in terms of how they contributed to the challenges that we had in the second quarter.

And I am really pleased, we made progress on all of them.

We essentially got our [fixing] programs and initiatives in place faster than we thought with greater affectivity.

I wouldn't say it's any one of the three that is outsized versus the other.

As a I mentioned earlier, we think they are absolutely sustainable going into the fourth quarter here at this point.

Got you.

Thank you.

Our next question comes from Mig Dobre with Robert Baird.

Thanks for squeezing me in.

Sticking with ESS, Sandy, I recall you saying that the bookings on the services side of the business were up something like 20%.

Can you please confirm that?

And maybe talk a little bit about the drivers here, because I recall services being core to the revenue synergies that you were talking about on the Cooper deal.

Yes, the -- you're right on both recollections.

Let me do the Cooper deal first.

One of the four sources of revenue synergies in the Cooper transaction was that we felt that particularly for the power systems that was the business they were serving primarily utilities with, Cooper had not had an internal service organization.

We have been in the process of beginning to service those customers with the existing Eaton service group that we have, obviously enlarged to handle more demand.

We are very pleased that momentum is beginning to pick up.

I would emphasize again that that was one of the sources of synergy.

It wasn't the biggest one on the sales synergy.

But that's beginning to go quite well.

You may recall that Tom Gross spoke to that a little bit on the New York meeting this past February, early March.

Things hadn't picked up as quickly then.

They have picked up now.

So, thanks for bringing that point up.

Secondly, when we provided our guidance for the second half of this year at the end of the second quarter, we had talked about that one of the reasons we were pretty bullish on the opportunity to have a significant increase in the second half over first half electrical business was that in the last two years, we have had some budget interruption happen down in Washington, which tends to shut down federal spending.

It was our anticipation that would not happen this year because of the mid year election and, indeed, it has not.

And as a result, we are seeing more of this business which serves the significant federal installations continuing through this fall.

That's indeed laid out pretty much as we thought, and we are seeing the bookings and the orders for doing that.

That's great.

And my last question would be on aerospace.

After market starting to tick up a little bit.

Is this a one-off or maybe the start of a trend here?

Thanks for the question.

It is, we think, the start of the trend.

But what we cautioned at the end of the second quarter I would say now as well, is that it took three years for the percentage of aftermarket as a percentage of the total business to decline 5 to 8 points.

I think it will take a couple years for it to go back up a couple points.

We did have a very nice quarter in terms of shipments of after markets accelerating, but I don't think that pops us right back to the 17% margins that we experienced when the overall aftermarket was a higher level within a year or so.

I think this takes a couple years to come back.

But I think it is the start after more positive trend in it that regard.

Which should provide you with some tailwind hopefully into 2015.

I think probably even bigger as you get into 2016, because it takes some time for this to work its way through.

Great.

Thank you.

Our next question comes from Andy Casey with Wells Fargo.

Thanks a lot.

Good morning, everybody.

Good morning, Andy.

A lot of questions been asked, so I wanted to bring it back up to 30,000 feet type thing for you, Sandy, and ask a fairly broad question about the US economy.

Your first look suggests growth is going to be better in that region than the rest of the world.

But really not to expect -- the signal is not to expect any growth acceleration in 2015 despite some of the early cycle US markets acting pretty well.

But overall growth really not gaining momentum.

I wanted really to get your view on why we are likely going to continue to be in relatively steady growth environment.

Is it a function of capital restraint because of lingering lesson learned during 2009?

Do you think it's related to export market-driven business uncertainty dragging on the overall growth, or is there some other factor we should consider?

I think you've hit on a number of them.

Clearly, with roughly one-quarter of the economy tied to export, our biggest trading partners aren't doing particularly well right now.

I would say that is one element.

I think the second element is that obviously, the country has not yet come to grips with its deficit.

While we are laying it on in terms of the debt at a lower rate than we were, we are still running a significant deficit, and that tends to anchor economic growth to a certain degree.

So, each time we start to run a little faster, we start to run into those budget issues, if you will.

A number of the markets that have done quite well over the last couple years and certainly, a number of the retail oriented places, it's hard to see them grow quite as quickly as they had.

I think that's part of our reason.

When you put it all together, and we have not done the final tune-up on this, we think it's more likely it grows at the current level or slightly better here in the US that we are not back at 4% to 5% growth in the US.

We are more of a 3% number.

Each of the last four years the Fed has had to revise down their growth rate.

We are aware that there is, as I mentioned, this anchor on the economy.

Hopefully we are wrong with that, Andy, and we can scramble up.

But that's our best thinking at that point.

Okay.

Thanks.

And then just really two quick questions.

Within ESS, you mentioned pricing improved sequentially from Q2.

Does that imply the price pressure that you saw in Q2 is gone, or it is just a lesser factor?

I would say the pricing and the bookings backlog were coupled in my comment.

You may recall that the second half of 2013 and the first quarter of 2013 were very weak quarters of booking for us.

The booking -- or the quarter before has a big influence on the next quarter in this business, because it is a backlog business.

So, the fact that we had had weak loads, which meant that we didn't have as much utilization in our factories, coupled with competitive pricing, had really led into that second quarter challenge we had.

We have now had a couple very good quarters of booking.

I think the pricing tone feels a little better than it did in last winter and early part of the springtime.

So, the two together are what we were hoping to have really happen and we got that put in place.

Okay.

Thanks.

And then lastly, on Europe, outside of farm equipment and auto, can you discuss any view about incoming orders related to European industrial demand?

Is it flat, down, or up?

Little different by country.

And I would say that the disappointment, I think, in this early fall into late fall has been Germany where early in the year things looked a little better, and they've clearly flattened.

France has never been a star in this regard.

Some people are speaking about Italy being a little stronger.

We've not seen too much of that, not much of a change in Nordic and UK at this point.

Thanks a lot.

Our next question comes from Eli Lustgarten with Longbow.

Good morning.

Thanks for letting me in.

One quick clarification, the drop in corporate expense we saw in the third quarter.

Is that a new ongoing rate or a one-time offer?

I think for this year, we are assuming -- because we didn't show an increase in the fourth quarter, that it's the rate for the remainder of the year.

And your outlook, you said what would be plus minus, you put electrical basically in not much different.

The US market, (inaudible) product, you are up 8%.

We see a lot of strength in North America and in the US and particularly in electrical products going forward in the non-res spending component.

Are you reading anything about changes the rest of the world would be a lot weaker, or is there a chance that we can get a lot better results in electrical next year than you are indicating?

I think it's really going to depend upon, as we tune up our economic view, what these other regions of the world look like.

Because Europe obviously is weaker, and that's not contributing to growth at that point.

But we do expect we'll continue to get the strong outgrowth, as we have indicated.

But I think that base view for the US is a 3% growth rate.

And hydraulics, with the big drop in ag that's going on that's going on first half of next year, is the 12% operating margin the stabilization point we're looking for hydraulics as we go forward?

At this point, you indicated the fourth quarter would be a little better, so it seems to be at that point that we can manage with ag that weak?

Yes.

And ag -- and those of you who have followed our business for some time -- excuse me, on hydraulics, know that profits are always stronger in the first half than they are in the second half.

It's a little bit of a seasonal in that business for us.

And this year we're saying we think profits come in around 13% this year.

And we think that likely that we can get to margins that are in that range next year or a little bit stronger.

But it's -- we will have a better feel for it once we complete our profit planning work.

All right.

Thank you very much.

Our last question today comes from Joe Ritchie with Goldman Sachs.

Thanks for squeezing me in, guys.

I'll only have one question.

I may have missed this earlier, Sandy, but have you talked a little bit about your October trends and the cadence as you went through Q2 -- Q3 and into this quarter?

And then I know that you've said that trucks seems like pretty good news today.

I'd be just curious to hear it across your different businesses.

Yes.

We don't have October numbers yet, Joe.

It's more what I would call anecdotal discussions than it is facts.

And that's how I would treat the truck information as well, too.

There is a lot of buzz out in the marketplace that October is going to be a very strong month of order bookings.

Generally, what we're hearing in our electrical businesses is very much a continuation of the strength we saw in September as well.

Not much has changed on the side of the ag side.

It's still pretty much working through this.

Their lower anticipated shipments next year, which means lower production for us right now.

And aerospace tends to be a longer cycle business, so it's not much change there.

I would say we feel good about the overall fee as to where we are in our electrical business.

We will work our way through hydraulics, which again, remember that's about 12% or 13% of the Company.

And the vehicle sides, whether you are talking about the truck or retail sales for cars, and I think you're seeing people respond to the lower gas prices, they are really quite good still.

Strongest again in the US, weaker outside the US

Okay.

Great.

See you guys in a couple weeks.

All right.

Thank you very much for joining us today on our call.

As always, we will be available for follow-up questions for the remainder of the week.

Thank you.

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