洛克威爾自動化 (ROK) 2008 Q1 法說會逐字稿

Thank you for holding and welcome to Rockwell Automation's quarterly conference call. I need to remind everyone that today's conference call is being recorded. Later in the call, we will open up the lines for questions. (OPERATOR INSTRUCTIONS)

At this time, I would like to turn the call over to Rondi Rohr-Dralle. Ms. Rohr-Dralle, please proceed.

Thank you, Latasha. Good morning and thank you for joining us for Rockwell Automation's first quarter fiscal 2008 earnings release conference call.

Our results were released earlier this morning and have been posted to our Web site at www.rockwellautomation.com. A webcast of the audio portion of this call and all the charts that we reference during the call are available at that Web site. These will remain there for the next 30 days.

With me today are Keith Nosbusch, our Chairman and CEO and Ted Crandall, our CFO. Our agenda includes opening remarks by Keith followed by Ted's review of the quarter.

We will as always leave time at the end of the call to take your questions and ask that you self limit to two questions to allow broader participation. We expect the call today to take about one hour.

As is always the case on these calls I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings.

So with that, I'll turn the call over to Keith.

Thanks, Rondi, and good morning to everyone who joined us on today's call.

At this same time a quarter ago, we laid out an ambitious 2008 plan for Rockwell Automation. One that raised expectations for execution and reflected the continued transformation of our company and evolution of our business model. Although a lot has changed in the macroeconomic environment since then, I am pleased to report that Q1 was another quarter of strong execution by Rockwell Automation.

We generated solid results, again demonstrating the continued strength of this business model. Our revenue and earnings were in line with our expectations. We benefited from investments in technology leadership, regional expansion and the ongoing diversification of our revenue base.

Let me make a few specific comments about this quarter and then we'll talk about Q2 and the balance of the year. Revenue grew 16% to $1.33 billion. This revenue was driven by very strong growth in Latin America, solid growth in the U.S. and Canada, and continued improved performance in Asia, outstanding revenue growth in our key growth initiatives, process and OEM businesses, as well as in the life sciences and oil and gas verticals.

Achieving the performance targets of our acquisitions, ICS Triplex, ProsCon and Pavilion, which are important contributors to growth in 2008, and the ongoing globalization of our business model illustrated by the fact that half of our sales came from outside the U.S.

Earnings per share from continuing operations were up 37% to $1.04. Again, very much in line with our expectations.

Strong productivity performance in the quarter was at the high end of our targeted range. This productivity realization allowed us to meet our earnings objectives while sustaining investments to drive globalization, growth and technology leadership.

It also reflects the maturity of our productivity pipeline and underscores the disciplined execution of a broad set of productivity initiatives. All in all, I was pleased with how we executed our growth and productivity initiatives this quarter, particularly in our Control Products & Solutions segment.

Now let me shift gears and turn to Q2 and the second half of the year. As we described in our press release where we acknowledge that while there is significant uncertainty in economic environment, particularly in the United States, we have not seen any fundamental change from our plan in customer demand for our products, services and solutions.

Customer capital spending and project front log activity appears firm at this time. We haven't noticed any unusual order cancellation, project delays or changes in quoting activity. Further, we have not seen any slowdown in our U.S. flow goods business at this time.

However, in view of the recent changes in the macroeconomic outlook and the fact that the downside risk to growth are becoming more pronounced, it would be imprudent not to be cautious at this time. Said another way, the economic conditions necessary to hit the top end of our range are more uncertain than when we talked to you in November.

So where are we? Based on what we know and can see today, Q2 is shaping up to be another solid quarter. We continue to carefully monitor numerous economic indicators and their potential impact on global customer demand.

If we notice any changes in demand that might cause us to modify our outlook, we will obviously re-evaluate our guidance and communicate accordingly. For now, assuming business conditions in the industrial sector remain stable, we are reaffirming our guidance for 2008: Revenue growth of 10 to 12%, excluding the effects of currency translation, EPS of $4.25 to $4.45, free cash flow of approximately 95% of net income.

Going forward, the entire organization remains heads down, intensely focused on generating above market revenue growth while maintaining best-in-class operating returns. Our relentless focus on global growth, productivity, and execution allows me to be cautiously optimistic about our performance in 2008.

Now, let me turn it over to Ted to give you more of the details on our performance. Ted?

Thanks, Keith, and good morning. All my comments will be referencing the charts that are on our Web site.

Turning to Chart 1, titled, "Q1 Results Summary" and starting at the top of that slide, revenue in the quarter was $1.332 billion, an increase of 16% over 2006. That includes 7% organic growth, 4% growth attributable to acquisitions, and 5% due to the effects of currency translation.

Segment operating earnings were $257 million, an increase of 13% year-over-year. Purchase accounting expense was up about $4 million, primarily due to acquisitions completed last year, the largest of those being ICS Triplex.

General corporate net expense was $14 million, that's down about $5 million from last year primarily due to a $6 million pretax gain on the sale of the remaining Baldor shares that were received in the sale of Power Systems. For the balance of this fiscal year we expect a run rate and general corporate net expense of about 20 to $22 million. Interest expense was $18 million, down slightly from last year.

The fourth quarter effective tax rate was 28.5%, in the middle of our range of 28 to 29% guidance for the full-year '08. In Q1 last year the tax rate was 30%.

EPS was $1.04, up $0.28, or 37% compared to EPS from continuing operations in Q1 last year.

Average diluted shares outstanding in the quarter were 151 million, down 12% from a year ago. During the quarter we repurchased 1.4 million shares at a cost of $96 million and as of December 31st still had $930 million available under our current $1 billion share repurchase authorization.

Moving to Chart 2, Q4 results for Rockwell Automation. As noted previously, growth in the quarter was 16% year-over-year, 11% excluding the effects of currency translation.

Sales declined 3% sequentially. That's not unusual in terms of normal seasonal patterns and we experienced particularly good performance this quarter in the Americas with continued improvement in Asia.

Moving to the earnings side of the chart, as I noted, segment earnings were up 13% year-over-year. Operating margin in the quarter was 19.3%, down 0.5 point from the first quarter of last year, primarily due to the impact of acquisitions year-over-year. Although not displayed on the chart, our trailing four quarter return on invested capital was 24.7%, up almost 3 points versus the year-ago period.

Please turn to the next chart which summarizes the Q1 results of the Architecture & Software segment. Sales in Q1 were up 9% year-over-year, 4% excluding the effect of currency translation. On a sequential basis, sales were up 1%.

Operating margin was 25.7%, down 2.1 points from the fourth quarter of last year. Q1 last year was one of the higher margin quarters for Architecture & Software so it was a bit more difficult comparison.

Revenue mix was somewhat weak in Q1 this year, with processors and software as a lower percent of our total sales. And Architecture & Software as a focus area for the technology and growth investments that we told you we would be making this year.

A&S margins in Q1 were below our expectations for full-year margin in Architecture & Software and as you'll see on the next slide we had above average margin performance for Control Products & Solutions this quarter. Margins in both segments will vary somewhat quarter-to-quarter.

The next chart, Chart 4, covers our Control Products & Solutions segment. Sales in Q1 were up 22% year-over-year. That included 10% organic growth, 6% growth attributable to acquisitions and 6 points due to the effects of currency translation.

Sales were down 6% sequentially, reflecting a typical seasonal pattern, particularly related to the Solutions businesses within that segment. That being said, our Solutions businesses performed very well in the quarter compared to last year, and the anticipated contribution from acquisitions in this segment is on track.

Operating margin improved by 1.6 points year-over-year to 14.5% and operating margin benefited from volume leverage and strong productivity performance, partially offset by the impact of the acquisitions in the segment.

Let me turn now to Chart 5, which shows the geographic breakdown of our sales in the quarter. This chart provides regional growth rates and the far right column shows growth rates excluding the effects of currency translation.

As you can see on the chart, we had a strong global mix of sales in the quarter. The U.S. realized 5% year-over-year growth and Canada was up 8%, both excluding currency translation. The contribution of acquisitions in these regions was only about 1%.

Latin American sales were up 28%, basically all organic growth, another great quarter for this region and overall just very good performance in the Americas.

EMEA sales were up 20% in the quarter excluding currency impact. EMEA experienced very strong growth in eastern Europe but was somewhat weak in the developed countries, particularly the U.K. Acquisitions had a significant impact on EMEA growth, contributing about 12 points of that growth.

And Asia-Pacific sales were up 13% excluding currency effects, continuing the double-digit growth that we saw last quarter, acquisitions added 2 points to the growth in the Asia-Pacific region. As Keith noted, we realized a very good balance in revenue this quarter with 50% of sales coming from outside the U.S.

Please turn to Chart 6, Q1 results, free cash flow. We generated $78 million of free cash flow in Q1 compared to $74 million in the first quarter of 2007.

Working capital this quarter was a $90 million use of cash. This reflects a typical seasonal working capital correction in Q1 and we still expect free cash flow for the full-year to be approximately 95% of net income.

Please turn to Chart 7 which summarizes our guidance and basically repeats Keith's comments. We are reaffirming revenue guidance of 10 to 12% excluding the impact of currency translation.

As we told you in November, our original guidance anticipated only a minor year-over-year impact due to currency. We're reaffirming diluted EPS guidance of between $4.25 and $4.45 for the fiscal year.

With that, I'll turn it back over to Rondi to begin the Q&A.

Thank you, Ted. Latasha, we're now ready to open the lines for questions.

Thank you. (OPERATOR INSTRUCTIONS) Your first question comes from the line of John Baliotti with FTN Midwest Securities. Please proceed.

Good morning.

Good morning, John.

Keith, could you, maybe to start off, could you go through maybe some of the end markets globally, you know, sort of run down where you saw the growth and kind of how they shaped up in the quarter?

Be happy to. In the quarter where we had above Rockwell average growth, would have been in the life sciences and oil and gas industries, verticals.

Where we were at the average would have been food, beverage, home and personal care and the semiconductor industry and where we were below our average it would have been the automotive industry. We continue to demonstrate higher growth in the resource-based verticals and we certainly expect that is something that will be continuing.

In the automotive industry, we are enjoying growth on a global basis, but that is being offset by continued weakness in the Detroit automotive market. So that's a little color behind the different segments.

Okay. And just to follow-up on that.

I know auto collectively is ten-ish, maybe a little bit more percent of revenue, and the partnership you did at the end of the year with Dassault, do you expect, you know, while I think that can serve the auto markets globally, do you expect to see some benefit from that in this fiscal year or maybe how do you see that playing out?

Well, John, we don't see much benefit of that this year in the automotive industry and it would be a global relationship. And certainly one that we're very excited about, because while there's other people that have other automation suppliers that also can interface with Dassault, we believe that we have unique compatibility because of the core structure of logics being that its object oriented code that really matches up nice with Dassault's PLM software and our combination.

You know, we've developed a joint virtual design and production environment for our customers that enables customers -- and these customers now are not just the car manufacturers, but OEMs and engineering houses and system integrators that enable them to take weeks out of their design cycles. So we're excited about this as a time to market enhancer for our customers and really this is something that tends to play out as part of new model designs as opposed to an installed base design.

So that's why it's going to take a little longer. It has to be in the front end of the design cycle, which tends to be a couple of years, quite frankly. So no short-term benefit but an exciting development to where we're continuing to partner with enterprise-wide players and in this case, an enterprise-wide player in the product life cycle management specter.

Okay. Great. Thank you.

Your next question comes from the line of Bob Cornell with Lehman Brothers. Please proceed.

Yes, thanks. Pretty good quarter, looks like to me.

Keith, could you expand on, first of all, when you talk about the visibility and the guidance for the year, how far out can you reasonably see with confidence in making that statement? Is it three months? Six months? I mean, what's the scope of the vision out there?

Yes, Bob, I guess we really have to split it into two categories. Our flow goods type business, generally we have a pretty good picture, four to six weeks generally is the play there and probably closer to four at the end of the day.

In the project related businesses, there, we have pretty good visibility for a quarter out, reasonable visibility in two quarters, and then everything gets kind of gray in the third quarter and so we see a pretty strong projects business. Certainly for our next quarter, the quarter we're in, I should say, we see that it's reasonable at this point for our third quarter and we still have to fill in some of it to have a successful fourth quarter.

So the end of the year visibility, I would say, is where we have concern at this point given all the uncertainty in the economic market. And while we're not seeing that now, any impact now, that could have a potential impact in our fourth quarter area. So that's kind of the way we see the visibility factor going forward.

Got it. Thank you. One other question.

I mean, could you go back into the mix point you made in Architecture & Software? I mean, it seems to me that we've had a couple of soft quarters in Software and maybe you could just expand on both the processor issue and maybe talk a little bit about logics as well as Software.

Absolutely, Bob. With respect to logics, actually, we had a very good quarter in logics. We grew over 15%, which, you know, is certainly similar to our growth rates last year and given where we had some weakness in a couple of the regions, we were very happy with the logics growth.

The mix issue really came about, Bob, because of a more rapid decline in the other part of our processor business, the legacy PLC and SLC declined at a much steeper rate than the 8 to 10% that we had in the plan. That would be the real mix issue that Ted referred to in his comments.

With respect to Software, Software is more of a timing related issue and it's not something that we expect to be a consistent theme for the total year.

Thanks very much, you guys.

You bet, Bob.

Your next question comes from the line of Ned Armstrong with FBR Capital Markets. Please proceed.

Thank you. Good morning.

My question had to do with the productivity initiatives that you announced. Could you, one, describe a few of them? And then give us some view as to how much more in gains you can get, how far out you can see continuing to get those gains?

Well, let me answer the last one first. We have a consistent goal in our company that is 3 to 4% of cost productivity per year. And I see that for the next couple of years. I mean, that is the target, that's the goal and that's what we work towards.

And how we develop that is that we have basically a rolling forecast and window and we look out six quarters and we expect a pipeline that will deliver that 3 to 4% continuous cost productivity and so we have a pretty good window now into the start of 2009. Now, obviously, this is made up of -- so not a back up to what are these types of activities.

Well, it's everything. It's in the total company. We have hundreds of initiatives that we're working. Every function, this is not just in operations.

You know, our staff functions, finance, legal, HR, in addition to all the businesses and the operations organization and our selling organization, have to drive productivity initiatives. This is really driven by, I would say, the biggest umbrella is probably around lean and Six Sigma deployment.

It's also around design for -- in our design guidelines that we use and it encompasses, as I said, really a lot of our end-to-end processes that are becoming instilled in our company as we evolve into our new business system, which is really a change in our business environment to where it's a much more integrated environment, much more an end-to-end focused process improvement and we have not started the optimization phase of those processes yet. We're going through three steps, consolidation, which we pretty much have done based upon a term we used probably the last two years ago, starting functional excellence where we consolidated a lot of back office opportunities so that we could invest in growth.

We then -- we are now in the middle of standardization of those processes so that we can install our new business system and then it's about optimizing those end-to-end processes. So that's why we see a couple of years of runway here and it's obviously very broad.

Are there any functional areas where you're seeing notably more or less progress than you might have anticipated?

I mean, I guess just maybe an obvious answer is I think some of these things are always tougher in some of the staff functions, and we tend to have the most rigor and the most aggressive activities going on in our businesses, in our operations, and we continue to focus on our staff and functional activities to be able to drive these process improvements.

But that's the challenge, I would say, that is somewhat typical but I would say we're typical in that regard.

Ned, I would also say, I think one of our successes last year, and we talked about this a bit last year, was focusing on SG&A and trying to kind of reduce admin and shift some of that resource into selling.

And that's been the benefit to us, is that we've been able to keep SG&A relatively flat, yet we've been able to add customer facing resources to drive growth.

Okay. Good. Thank you.

Yes.

Your next question comes from the line of Mark Koznarek with Cleveland Research. Please proceed.

Hi. Good morning.

Good morning, Mark.

I'm wondering if we could explore the outlook a little bit because as I recall, when you first initiated the 10 to 12% growth it had in there revenue from acquisition, which was about 3 points. And then I believe we were talking about roughly a point of currency.

And now with currency coming in, you know, very notably stronger than that in current quarter, 5% contribution, is the core growth, which I kind of roughed out previously to be 6 to 8%, you know, excluding currency, excluding acquisition, does that core growth actually moderated in your outlook and the offset is higher currency?

No. No. As a matter of fact, you characterized it well at the start.

Our 10 to 12% was exactly how you characterized it. It was 7 to 9% organic, maybe 6 to 8 organic, 1 point of currency. It was slightly under, actually, and it was slightly above 3 points of acquisition and that's how we got to the 10 to 12 range.

What we're saying now is, it's still 10 to 12. All of those still apply, but we did not anticipate 5 points of currency, which is what drove the 16% in Q1. So, and obviously, we're not very good at predicting currency, particularly the multiple currencies that we now operate in with 50% of our sales outside the U.S.

So we're still reaffirming the 10 to 12, which is made up of, just as you said it, 6 to 8 organic, three -- a little more than three acquisitions and a little under 1 in currency, and that's why we're still 10 to 12. But if the exchange rate continues along this line, we will generate more revenue based upon currency than is in the 10 to 12% forecast or guidance.

I see. Okay.

So the guidance is kind of based on currency relationships at the start of the year and you're really not tuning that up?

Absolutely right. That's a good way to think about it. Based upon what we expected during the planning period.

Or Mark, to say it differently, basically what we're reaffirming is our organic growth guidance plus acquisition effect and there was a small component of currency in the original guidance.

Okay. Got it.

And then could you talk a little bit, just to follow-up on the A&S business that did seem to slow down somewhat sequentially, you talked about what was going on in logics versus some of the legacy processors. What about some of the growth initiatives like process in particular and guard logics, the safety initiatives, have those continued their momentum?

Be happy to talk about those because actually those are great highlights for the quarter.

First, as I mentioned earlier, logics grew over 15%. And in fact, greater than three-quarters of the logics sales growth in quarter one came from process and CompactLogix, which means our process and OEM initiatives are fueling a lot of the growth in A&S, which is a real positive because that's where we've been making the investments, so that is very encouraging and certainly reinforces why we're making those investments.

If you look at process as the initiative, which is broader than just logics, but the process initiative, the quarter one growth rate was 27% year-over-year, and if you include the acquisitions, it's 80% year-over-year. So we've had great core growth in the U.S. in process, up 25%, in Asia, process is up 36%, and in Europe, EMEA, process is up 54%.

So really great performance in process and we continue to win larger orders, which means we're broadening our ability to -- we have broader industry and application coverage than we historically had in just the batch hybrid space and, obviously, with the acquisitions, in particular of ICS Triplex, that gives us a great entree into customers and we're already seeing good leverage and good synergy in that activity. So process is a, it continues to be a very positive development for us.

Great. That's very helpful. Thanks, Keith.

You bet, Mark. Thank you.

Your next question comes from the line of Jeff Sprague with Citigroup Investment Research. Please proceed.

Thank you very much. Good morning, guys.

Good morning, Jeff.

Keith, just a few things. Could you remind us how you would characterize the mix of your sales now between projects and flow type business? Just kind of percent of sales.

I'll give you a very rough. Think of half of the Control Products & Solutions segment as being solutions and services revenue.

Yes.

And the balance is flow good sales.

Okay. Would you characterize any of A&S as flow?

No. I'm sorry. I'm sorry. All is flow.

No, I think, you know, when we talk about flow, it's all in flow in that it's a quick order and shipment, so it comes in, we ship it out. But the end use of that, obviously flows into system integrators and into solution providers, as well as our internal MPS business and those people are project-driven.

So there is an element of our A&S business that also flows into projects, but from an operational standpoint, it's, you know, the order comes in and it's shippable generally within the same month that it ships in and that's a distinction that Ted's making. If you look at the lead times and our visibility, that's why we talk about -- we have good visibility from a project standpoint for about 25% of our business.

But when you look at the utilization of our components, we still have, you know, there's still probably another third of our business that, or more, that flows into projects whether they be short-term, brownfield expansions in plants, or greenfield, large projects that have a typical project capital, Cap Ex type of capital spending and really, the MRO or replacement market I think is what you were referring to, Jeff, that's probably around a third to 40% of our A&S business based upon installed base, as opposed to either short-term projects or long-term Cap Ex type spending.

And the piece of A&S that is project related, do you have the same visibility into those projects or do you see --

Yes, we have good visibility into those projects and that's why I made the comment that we have not seen any change in project quoting activity, in customer requests for us, or in the spending of our customers. So that is where we do understand we have a backlog in that business and that we feel very confident in our second quarter Solutions outlook.

We feel somewhat confident in the third quarter and the fourth quarter continues to have risk in it based upon the ability to change projects or to reduce capital spending in our customers.

And then do you think there's anything to glean from the legacy PLC weakness or the software lumpiness? I mean, is the legacy PLC weakness MRO plans maybe getting put on hold at year-end or things like that?

No, we still believe for the year it will be in our 8 to 10 range. I believe what we can glean from it is that business was tougher in the Detroit automotive market in our fourth quarter, in our first quarter, than we anticipated. And I think that's where we saw the significant difference and you know, that's what we're expecting to change over the remainder of the year.

So I would say the take-away is only that it's even a tougher road that Ford, GM and Chrysler are going through at this point in their North American channels, because all of them are spending more aggressively outside the U.S., but I think we're seeing the impact in the U.S. to be a little deeper and a little stronger than we anticipated earlier. And that would be the only take-away that we are getting at this point in time from our first quarter performance.

And then not to put too fine a point on the rounding on this guidance but, so, I mean the guidance is 10 to 12 ex currency and currency was supposed to be 3, so that was 7 to 9.

Jeff, currency was less than 1.

I'm sorry. I misspoke. Deals were supposed to be, so for 10 to 12 ex currency and then we take out deals of 3 we're at 7 to 9 organic.

Well, the fine point I was making was, it was slightly above 3 on acquisitions and not a total point on currency. And so that's where you're still finding the play in the numbers.

Okay. So although the prior guidance said excluding currency there was essentially a little bit of currency in there.

Minor amount.

And then given that currency is the wild card here, maybe, or one of the wild cards, how do we think about the profit fall-through on currency, if you are getting it? Certainly I wouldn't expect it to come through your incremental margins but would it come through at your average margin rate or is there some other offsets elsewhere in the P&L?

First of all, I would say we haven't had a lot of experience with kind of the major currency impacts we are seeing right now, right? But if we look back at our past experience, it would say that typically the conversion on currency is at less than our normal operating margin rates.

Can you tell us how much it was in this quarter?

You know, plus or minus something, call it around 10%.

Okay. And then just one last one for me.

Just a little more color on Europe, maybe, Keith. So you called out U.K. a little bit weaker. You know, is there some distinction there between kind of the OEM machine builders versus kind of legacy type automation business and what do you see going on in Germany?

Well, a couple of comments with Europe. Yes, we did call out the U.K. is a little weak and I think it's just a weak manufacturing environment in the country and nothing particular to us.

With respect to Germany, Germany is the area where we have focused activity, particularly with the OEMs, to your point. It is a very strong OEM market and we continue to see success there, which is one of the reasons CompactLogix grew at such a, at a high rate.

It is because of the ability to work with OEMs and we are not seeing any change in Germany. As a matter of fact, our first quarter performance in Germany was stronger than last year.

So we think some of the actions we're taking are helping us improve our position in Europe and we certainly believe that somewhat, somewhat independent of the economy, because of our market share, we can continue to grow share at an accelerated rate above GDP, or continue to grow our business above GDP growth in developed Europe simply because of our market share position.

So we remain very optimistic with our outlook on Germany and on Europe, except for the U.K. That's a little tougher and we're going to have to work through the slowness in that economy.

Great. Thanks a lot.

You bet, Jeff.

Your next question comes from the line of Steve Tusa with JPMorgan. Please proceed.

Hi. Good morning.

Good morning.

Just a question, one more question on the guidance. The operating margin target, I didn't see that in the slides. Because you provided that last quarter.

Go ahead.

919.7 I think you said sustained.

We are still guiding for basically sustained operating margin over fiscal '07.

Okay. So basically no change there?

Right.

Right.

Okay.

And then you know, Latin America continues to put up great numbers and I know it's small but it's growing very fast. What's driving the business down there?

Well, I think two things. One, we've got a pretty good team that is executing very well but the markets are favorable. And I think now we're into multiple years of financial stability and political stability and high resource prices.

And so that combination is making people want to invest and driving investment and so the oil and gas, the mining, the metals market, and a growing consumer, because of the creation of wealth, the build-up of a stronger middle class, we get some consumer industry growth as well. But it's really a natural resource-based development and the fact that we see those high prices continuing, we believe it will continue to be a favorable investment scenario unless we have a hiccup in the financial or the political environment.

Got you. And then one final question.

I'm not sure I understood your comments earlier. You said in your prepared remarks the, making the high end of the range a little more uncertain.

Are you just saying that you're getting a little more benefit from 4X so you're not changing the range but the high end of the operating guidance given where we are today in the macro environment, seems a little bit more -- I'm just trying to clarify that comment.

Yes, sure. Sure. I think the clarification is there's greater uncertainty at the higher end given the macro environment that the economic environment that we're in today than when we gave the guidance three months ago.

That's the only point that I was trying to make. I would say more risk, greater uncertainty because of an unclear macroeconomic environment. And that's, I guess, that's what I was trying to say.

Got you. Good quarter in a tough environment. Thanks.

Thank you.

Your next question comes from the line of Richard Eastman with Robert Baird. Please proceed.

Good morning, Keith.

Good morning, Richard.

Also and Ted, sorry.

Good morning.

I wanted to just clarify. On the flow goods side of the business, Keith, how often do you get a read on the sell-through from the distributors?

Well, we do that with great detail every quarter. We do pulse checks in between those quarters. And we did a very strong look the first three weeks of January to try to understand what exactly was -- what was occurring and what they were seeing and what they were sensing and with distributors, you know, they tend to have a pretty good picture a quarter out. After that, it gets a little tougher for them.

The other thing we're able to do is we're able to monitor inventory of our distributors and certainly we have the systems capability then the connectivity to be able to understand any unusual patterns in inventory build-up or lack of inventory purchases on an ongoing basis. So those are the types of things that we're able to do.

One is very clear. The inventory. The second one is this kind of a pulse test of what are they sensing, what are they feeling and how are they anticipating the outlook given the environment that they compete in and the customers that they're in front of every possible day.

And certainly when we did that, when we did that check in the, during the first three weeks of January, it was a positive outlook on balance and certainly the majority felt that they were going to see continued growth and that's why we're talking about a solid second quarter, because of our distributor comments, in particular, this now that I'm talking about is mainly in the U.S. and Canada where we do the strong distributor surveying and analysis.

Okay.

And then exiting the fourth quarter, the project business was quite strong. I mean, you had some backlog there and you suggested that business would outgrow the A&S business in the first quarter. Is it reasonable to look at that business, the Control & Solutions business, and ask if you had -- did you have a book-to-bill greater than one in that business in the first quarter?

Yes, we did. It is possible to look at it and in fact that is exactly what happened. So another good quarter for our CP&S business.

And to Ted's comments earlier, the majority of that was build-up in our Solutions businesses. So continued strength.

Keith, as we're into this macroenvironment at some point here, nobody seems to know where, you know, the mix of business over the next few quarters will most likely favor the CP&S business, I presume. But what does that mix of business tell you today relative to your experience with the business cycle and demand cycles?

Well, I think what -- I guess two comments. One is a little more color around just the CP&S business. What we're seeing is somewhat unique from my experiences, but it's unique from two standpoints.

One, we've made a number of acquisitions that have added to our capabilities in the Solutions side of our business. So some of the growth is coming from acquisitions and historically, we did not have a lot in that area. So that's a little bit different.

But secondly, this is a prolonged period for investment because of what's happening in the resource-based industries. And, you know, in the last cycles we didn't have the demands of a China, the demands of an India, the demands of a Brazil, the demands of Eastern Europe and Russia offsetting a potential weakness in the U.S. and/or Western Europe. So there's just a more -- the supply chain is tighter.

There's continued emerging market growth and I would say that is what's very different than what we had during previous business cycles where it truly is a global economy with global competition for commodities. And I think that's a lot of what's driving the CP&S growth and it obviously is influencing why we're seeing CP&S at a stronger growth rate now than A&S.

And what we projected for the full-year is that CP&S will have a stronger growth than A&S and nothing we've seen at this point would tell us it's any different as it's going to play out at this time.

Okay. Okay. Thank you.

Yes.

Operator, we'll now take one last caller.

All right. Your final question comes from the line of John Inch with Merrill Lynch. Please proceed.

Thank you. Good morning.

Good morning, John.

Hey, you know, question I guess on -- just a question about the 6 to 8% organic growth rate sort of without splitting hairs but down from the 7 to 9.

What is the delta again? Is it kind of a bit of currency or is it Europe because that's, that was my other question. Europe came in organically at 7 and you thought it was going to be mid to high teens in the year and yet you've got some reasonably tough comps coming up in Europe. Maybe a little color there, Keith.

Sure. Well, first, we expected Europe to be low to mid.

I'm sorry, yes.

Growth, so just to be there, just to make sure that's clear.

The color on Europe is, it was a slow quarter for us. I wouldn't say anything in particular. We have a strong outlook there based upon activity, based upon some order flow, but really, we need to improve our execution in Europe to be able to continue to drive towards the guidance that we gave earlier which was low to mid single-digit, double-digit organic growth.

So I don't think there's anything unique in Europe. We're very pleased with the implementation of the strategy. We continue to add selling resources in Europe and certainly our outlook is to be able to grow even in a difficult economic environment because of our low shares.

So John, I don't believe there's anything more in Europe other than just a weak quarter for us and we have to execute our strategy and our actions a little more aggressively and a little stronger the remaining three quarters of the year.

That's helpful. Thanks.

If I can just go back to the discussion you had with Jeff Sprague around your revenues. I guess the question, really in my mind, I find a little bit of it confusing, if you were to look your total revenues, Keith, what proportion would you have four to six weeks of visibility on? What's the rest of it that would have sort of a longer tail of visibility?

Yes, I think a simple way to think of it is 75% of our sale is short visibility, 25% of our sale is long visibility. And that's weeks versus months is the way I would characterize that.

Right. I understand.

Then just lastly, looks like you built a little bit of working capital in the quarter. Is that in response to demand trends or is there something somewhat unusual about this quarter, vis-a-vis the cash and the working capital build?

I think you would find it is not unusual for us to have a correction in working capital when we go from Q4 to Q1. Probably the other thing this quarter, though, was inventory is up a little bit more than we would have expected.

We had an SAP go live on January 2nd. We did deliberately build some inventory in anticipation of that. I would expect that to correct itself over the next couple quarters.

Great. Thanks, much.

Okay, John. Thank you.

Okay. That concludes today's call and thank you all for joining us.

At this time, you all may disconnect. Good day.