洛克威爾自動化 (ROK) 2013 Q2 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, Vice President of Investor Relations. Ms. Rohr-Dralle, please go ahead.

Thanks, Emily. Good morning, thank you for joining us for Rockwell Automation's second quarter fiscal 2013 earnings conference call. With me today as always are Keith Nosbusch, our Chairman and CEO, and Ted Crandall, our Chief Financial Officer. Our agenda includes opening remarks by Keith that will include highlights on the Company's performance in the quarter and some remarks on the first half and outlook for the full year. Then Ted will provide more detail on both of those. We will take questions at the end of Ted's remarks. Our results were released this morning and the press release and charts have been posted to our website at www.rockwellautomation.com. Please note that both the press release and charts include reconciliations to non-GAAP measures. A webcast of this call is accessible at that website and will be available for replay for the next 30 days.

Before we get started, 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. 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 hand the call over to Keith.

Thanks, Rondi. Good morning everyone and thank you for joining us on the call today. I know it's a busy earnings season for all of you, so I appreciate your time today and your interest in Rockwell Automation. The first portion of my remarks will cover the highlights for the quarter, so please turn to page 4 in the slide deck. Q2 was an interesting quarter with strong earnings and cash flow performance on uneven sales results by region. Adjusted EPS was up 11% on a sales decline of 2%. While there was some benefit from a lower tax rate in the quarter, most of the EPS increased was from operating performance. Sales in the quarter came in below our expectations, primarily due to a large decline in Asia.

So let me go into Asia in a bit more depth. Sales in Asia were down 18%, and the weakness in the region was broad based. China and India were both down 16% in the quarter. Australia and Southeast Asia saw even larger percentage declines. We believe this is attributable to weak market conditions as evidenced by continued project delays. I told you last quarter that I felt sentiment has improved in China and I still believe that's true. We did see some sequential sales growth in China in Q2, but the improvement was well below our expectations. There are signs that point to a better second half in China, but we're somewhat cautious because current investment levels seem at odds with some of the published macro data. All of that said, we remain bullish on the long-term prospects for China, the evolution to more consumption-based economy will drive investment in consumer packaged goods manufacturing which is a sweet spot for us.

Before I end my discussions on the top line, let me share a couple of other data points that I know you're always interested in. Process sales declined less than 1 point this quarter. We think process will be flat to slightly up this year. Logix was flat in the quarter, so a bit better than the Architecture and Software segment as a whole. And the solutions and services book to bill was again solid at 1.14. Operating margin of 18.7% in the quarter was very good, given the sales decline, with a strong contribution from productivity.

Before I move on to the outlook, let me share a couple of thoughts on the first half of the year. Given market conditions, I'm pleased with where we are at the halfway point. On flat sales, we've been able to maintain margins while continuing to make select longer-term investments. Productivity was very good in the first half with contributions from all functions, businesses, and regions across the organization. Productivity is core to our growth and performance strategy. Cash flow on the first half was strong, and we recently raised the dividend another 11%. We've increased our dividend by almost 80% over the last four years, reinforcing our commitment to returning excess cash to shareowners. And we continue to generate very high return on invested capital.

So now we're on to the outlook. This is how we're thinking about the second half of the fiscal year. Industrial markets remain uneven around the world. The US and Latin America are on steady growth paths, but the recession in Europe continues and Asia has been stubbornly weak. We continue to believe that the second half will be better than the first half with sequential sales growth in all regions and across our products and solutions and services businesses. Sequential growth will be highest for our solutions businesses which typically have a very strong Q4. And we're entering the second half with a solid project backlog. The year-over-year growth rates in the second half will be uneven across the region. With two quarters behind us and given our current assessment of global economic and market conditions, we're lowering our sales outlook for the year to 0% to 3% organic growth. However, we're maintaining the midpoint of adjusted EPS guidance and narrowing the range of $5.40 to $5.70. Ted will go into more detail on this guidance.

I have a few closing remarks before handing it off to Ted to go through the rest of the slides. For the fifth time, the Ethisphere Institute has named us one of the world's most ethical companies, a recognition honoring companies that outperform industry peers when it comes to business ethics, governance, anti-corruption, and sustainability. I want to thank our employees for continuing to making integrity a core Company value and incorporating into the business decisions they make everyday. Together with our partners, we have proven we can effectively execute in all market conditions. We manage costs prudently with a sharp focus on select investments when things are slow and we're continuously finding more ways to add value to our customers. Even in this low growth environment, I am confident we will continue to improve our market position, build our pipeline of opportunity, drive productivity, and deliver superior returns to our shareholders.

Here's Ted to provide more details on the financial results for the quarter and our revised outlook for 2013. Ted?

Thanks, Keith, and good morning, everybody. My comments will continue to reference the charts that Rondi and Keith mentioned, and I'll start with page 5, second quarter results summary. Revenue in the quarter was $1.523 billion, that's down 2% compared to the second quarter of last year. The year-over-year impact of currency and acquisitions was negligible, so sales were down 2% organically as well. Segment operating earnings in the quarter, current period, were $285 million, up 3% compared to Q2 last year. General corporate net was $18.1 million in Q2, compared to $24.5 million in Q2 last year. Last year in Q2, general corporate net included a $7 million legacy environmental charge.

The adjusted effective tax rate in the second quarter was 23.6%. That compares to an adjusted effective rate in the same period last year of 25.3%. We benefited in the quarter from a catch-up adjustment related to the extension of the US R&D Tax Credit. The impact of the catch-up both for fiscal '12 and for the first quarter of this year reduced the effective rate in Q2 by about 3 points.

Adjusted earnings per share were $1.33. That compares to $1.20 in the same quarter last year, so up 11%. The lower tax rate contributed about $0.03 to the year-over-year improvement. Average diluted shares outstanding in the quarter was $141.8 million. We repurchased approximately 1.4 million shares in the second quarter at a cost of about $126 million. And at the end of Q2, there were $723 million remaining under our $1 billion share repurchase authorization. Through the first half of the fiscal year, we've repurchased 2.6 million shares for approximately $214 million. We're slightly ahead of the rate required to hit the $400 million full year repurchase expectation that we talked about on the previous earnings calls this year.

Moving to page 6, this is the graphical version of the total Company results for the second quarter. On the left side of the chart, you can see the 2% year-over-year sales decline. Sales increased by 2% sequentially. On the right side of the chart, you can see a modest increase in segment operating earnings both year-over-year and sequentially. Total segment operating margin in Q2 was 18.7%, up a full point from second quarter last year, despite the lower sales, and also up 0.2 points sequentially. In the year-over-year comparison, the impact of lower sales was more than offset by strong productivity, some favorable mix, and lower variable compensation expense.

The productivity includes a number of factors. We have savings from the restructuring actions taken in Q4 last year, and we have not fully redeployed those savings because of the continued sluggish market conditions. We also experienced a strong contribution from cost reduction and process improvement activities in the quarter, and generally would maintain pretty tight controls on discretionary spending. The entire organization is focused on productivity and cost control given the slow down in growth, and Q2 saw a particularly strong result in that regard. While not on the chart, our trailing fourth quarter return on invested capital was 29.8% at the end of the second quarter.

Now please turn to page 7 which summarizes the Q2 results of the Architecture and Software segment. Looking at the left side of this chart, sales were down 4% year-over-year, down 3% organically. Sales were also down 3% sequentially. On year-over-year basis, the largest portion of the decline was due to Asia-Pacific results. Operating margin for the quarter was 26.6%. That's up 0.9 points compared to Q2 last year. The margin increase is attributable to many of the same factors I talked about for the Company as a whole, but additionally Q2 last year was a relatively low margin quarter for Architecture and Software, so also a somewhat easy comparison.

The next page, page 8, covers our Control Products and Solutions segment. Compared to Q2 last year, sales were down 1% both as reported and organically. Sales of the product businesses in the segment were up 1% year-over-year, and the solutions and services businesses were down 2%. Sales for the segment increased 6% sequentially, primarily driven by a 9% sequential increase in the solutions and services businesses. On the right side of this chart, you'll note the year-over-year and sequential earnings improvement. Operating margin in this segment increased by 1.2% year-over-year to 13%. A similar theme in this segment with the effect of lower volume, more than offsetting those same three factors -- being more than offset by those same three factors of productivity, favorable mix, and lower variable compensation expense.

Switching to the next page, this is the geographic breakdown of our sales in the quarter. I'll focus my comments on the far right column which displays organic growth. Basically, growth in the Americas and decline in the other regions. As Keith noted, the US and Canada have continued to perform well in a relative sense. The US was up 2% in the quarter. Canada was up 1%, and that's against a pretty difficult year ago comparison. Canada grew 25% in Q2 of last year and 20% for the full year. Latin America was our highest growth region in Q2, up 6%, with particularly strong growth in Mexico this quarter. EMEA was down 25%. Generally, results in the southern countries continue to be below the region average, and emerging market results continue to be above. And as Keith noted, Asia-Pacific was down 18% year-over-year with weak results across the region. Keith provided a good deal of color, particularly in China, so I won't repeat all of that.

Instead, I'll turn to page 10 which is free cash flow. Free cash flow for the quarter was $180 million, another strong quarter. Year-to-date conversion on adjusted income is about 93%, that's a very good results from the first half of the year and we continue to expect conversion of about 100% for the full year.

And that takes us to the final slide, page 11, which addresses our current outlook for fiscal '13. As Keith mentioned, we're updating the guidance. We now expect sales to be in the range of $6.25 billion to $6.45 billion. That revenue range represents organic growth for the full year of between 0% and 3%. That's down from the previous guidance of 1% to 5%. With lowered sales expectations for the full year, partly due to our year-to-date performance, we still expect to see some improvement in the second half, primarily in our solutions and services businesses. However, we expect a lower year-over-year growth rate in the second half now compared to previous guidance. We believe that currency and acquisitions will add less than 0.5 points of growth for the full year. That's down from about 1 point in our prior guidance and mainly due to a stronger dollar.

We expect segment margin for the full year to be about 18.9%, compared to 18.7% in our previous guidance. In part, that's a reflection of our year-to-date margin results. We expect adjusted EPS in the range of $5.40 to $5.70. So we've narrowed the range, but maintain the same midpoint. We now foresee a full year adjusted tax rate of about 25%. Previous guidance was 25% to 26%. We still expect to spend about $400 million on share repurchases this year. And finally, we still expect general corporate net expense to be about $83 million for the full year.

And with that, I'll turn it over to Rondi, and we can begin the Q&A.

Great. Thanks, Ted. Before we get started, I'd just like to say that as our analyst coverage has expanded, it's been a challenge for us to get to all the callers in the queue, and we do our best, but I guess I would ask for your cooperation in that as well. So if you could limit yourself to a question and then a quick follow-up so that we can move on to the next caller. Okay? We appreciate your cooperation. And Emily, let's take our first questioner.

John Inch, Deutsche Bank.

Keith, thanks for your comments around China. Could we dig into that a little bit more? China this quarter seems to be a little all over the map in terms of companies and their results. Some were up a lot, and some like you struggled. You had thought it was going to grow about 5%. Obviously, I'm assuming that's not on the table anymore. Keith, what are you seeing there? Is it broad? Is it because of just credit restrictions? Is it -- just what's the tone and what are your customers saying?

To your first comment, John, you're absolutely right. We don't see 5% growth for the full year at this point in time. In fact, it'll probably be slightly negative for the full year. We do think that it will improve as we go through the second half. We're pleased with some of the solutions backlog that we've been able to build. But really, I think there's a dimension of liquidity there, particularly for the small and mid-sized companies. I think it's probably a slower developing recovery at this point than we had anticipated. Part of that may be because their stimulus was probably only a quarter of what it was a number of years ago when we saw a much more rapid recovery.

And I would say, I think China is -- what we're also sensing from some of the latest data that we've had is that China is probably being impacted more now from the overall economy in the other regions, and particularly Europe and other countries in Asia. The exports have dropped dramatically in the last report that we've seen, and that is a big part of their economy. We talk about in the future that we believe it'll be consumption oriented, but today it's infrastructure and it's exports. And exports have been down, infrastructure has had minimal stimulus, as I mentioned, compared to the previous one. So right now I think we see China as struggling to generate the types of growth that we've seen previously.

That makes sense. So just as then, the follow-up. Keith, how did your quarter progress? It looks like the month of March was a bad month in general for Europe, and generally speaking the end of March sort of wasn't that great, depending on your region and your exposure. What was the tone of your business? And any comments you could make on April would be helpful.

Sure. Basically, the quarter proceeded like a normal Q2 for us. And it starts out slow and March is one of our stronger months generally, and we saw that uptick continue in March. So progressed slightly better as the quarter progressed. And April, with what we're seeing to date, April started slow. That isn't unusual, given the fact that we had the holiday right at the start, but it's consistent performance month to date with our revised guidance.

Scott Davis, Barclays.

I want to back up and just ask kind of a bigger question -- bigger picture question. It seems that automation on an overall basis, if we look at your competitors as well, has really slowed globally, probably a little bit below global GDP. Do you think in your opinion is this more related to just the fact that people are so uncertain about the growth outlook that they're willing to put off investments, particularly productivity investments? And do think that's a timing issue and we get a snap-back? Or do you think this is something that could linger a while?

At this point, with the information we have and the conversations with customers and our sales organization and channel partners, we believe it's the continued uncertainty and the, I'll just call it the constant swing of news with respect to whether it's in Europe and the continuing lingering of financial austerity versus growth investments and then some of the conversation of overcapacity in China. I think the uncertainty factor continues to be, at this point anyways, the bigger card that is keeping investments from occurring at this point in time. And I say that for those reasons, but also it's not like companies' balance sheets are not in good condition. So it's not a lack of ability to invest, I think it's -- the greater impediment today is the uncertainty. And I think that is what's been lingering more than normal.

Yes, makes sense. And just to follow-up on John's question on China, is it your sense that you've lost share at all in China in the last couple quarters? Because I'm not sure that your competitors have seen quite the pullback that you guys have. Or is it just a question really of the mix of business that you have there?

I think the answer is a little. First, if you go back to last year we definitely know we were outperforming many of the competitors on a relative basis. And I think today, we certainly do not believe we're losing share. There is not really any good real time market data there, so I want to be careful with my comment. But we do know that our loss rate is not increasing. So we're winning what we were previously. There's just fewer projects. So once again we anecdotally, we don't believe we're losing share, and we do think the mix has the largest percentage of why we're, at this point, appear to be somewhat disadvantaged compared to the competition. We aren't losing at a greater rate, we just think there's fewer projects and that those projects are less prevalent than they had previously been. And quite frankly, we are no less bullish on the market for the longer-term, particularly given our portfolio and our capabilities, than we were previously. So I think we're just at a point in the cycle in China where we might be slightly more disadvantaged, but the longer outlook we think still bodes well for our opportunities.

Steve Tusa, JPMorgan.

So just on the margin, pretty surprising there that you guys are able to -- I guess last cycle, if you'd put up a negative comp like this, we probably would've seen a little bit more margin pressure. Maybe if you could just talk through and give a little more detail around what's driving that? I also think you had a sequential step-up in incentive comp. Maybe that didn't happen. I don't know. So even in the context of that, it looks even better. So just curious if there's more detail around your margin performance?

Yes, so if you look at the year-over-year comparison, I talked a little bit about that in my comments. Basically, we had a negative impact from volume obviously, but we more than offset that with primarily strong productivity results. And the productivity results were a combination of the restructuring savings that we haven't redeployed, and basically we haven't redeployed them because we're continuing to see pretty sluggish market conditions. We've been very tight on discretionary spending and the organization has reacted well to that. And then probably most importantly, in our cost reduction and process improvement initiatives, we just had a very good result year-to-date, but particularly this quarter. And coupled with a little bit of favorable mix and coupled with the fact that our incentive compensation expense is down year-over-year, that allowed us to more than offset the volume impact. Sequentially, we did have a merit increase, not an incentive comp increase, but a merit increase, Steve. And we were able to offset that basically with those same factors that I talked about.

Okay. And I guess what are you doing, just as a follow-up, what are you doing -- what are you not doing this cycle that you would've been doing last cycle with a more optimistic -- I guess I'm just curious, not only from your perspective, but also other companies are obviously behaving very differently in this environment. What are the things that you are not spending on that you would've been spending on last cycle?

I don't know if we're behaving that different. We're talking about a slight decline here compared to a pretty dramatic and a pretty quick one in that last cycle. So what we're doing, to Ted's point, is we're holding discretionary and any of the redeployment of our savings from what we did in Q4, the restructuring savings, we're just very slow at allowing that to be reinvested. So we picked a couple of very key areas, but other than that, it's the productivity that Ted talked about. And I think the other point that probably we should make is, this is something that has variability quarter to quarter. So we certainly don't think we'll see the same strength of productivity as the year continues to progress. But, this was a very strong quarter across a lot of the organization.

And in that regard, we talked a little bit about this on the earnings call last quarter. We have somewhat difficult comparison in Q1, somewhat easier comparison in Q2. If you look at our year-to-date margin performance, we're basically flat on a little bit of the sales decline, so probably closer to what you would've expected.

John Baliotti, Janney Capital Markets.

Keith, could you kind of go around the world in your geographies and characterize the type of demand you're seeing if you look at -- maybe put in the buckets of MRO versus project, just to give us a sense of where customers -- where their heads are at right now?

Okay. I think at this point, let's start with probably the one that's a little easier, and that's the US. What we're seeing in the US is definitely MRO and project, small project investments. And that's probably typical at this point. The US -- the manufacturing is running, I'll say reasonably strong compared to the rest of the world. And so you would expect to have MRO and small project activity. And in fact, in the US that is what we believe is driving the growth rates that Ted talked about.

If we go to Europe, in Europe we believe it's a number of activities. We still believe we're doing well in some of the northern countries. As Ted said, we have the north south phenomenon here. And certainly we see good work in some of the machine builder areas in those northern countries, particularly Germany, and a lot of that is export which is a strength of Rockwell Automation. We don't have a meaningful installed base throughout Western Europe, so the MRO business there is probably not being -- it's not helping. But on the other hand, it's not hurting because certainly the capacity utilization in Europe is down. The strength in Europe for us in this quarter anyway, is mainly in emerging where it is positive growth, in total, driven a lot by the Middle East which is heavy project oriented and that project oriented would be oil and gas as well as metals and mining to some degree. But we see that and so it will be more project work there for sure than the MRO, and there's really not much of an OEM base in the emerging EMEA.

If we go to Latin America, there, it's a mixture. We mentioned that Mexico was very strong. That continues to be a strong performer for us. There we see auto being a help, and we also see the strength of mining and food and beverage in Mexico as well. So it's more project work than any place else. Brazil remains positive for us. There, the majority of the work has been in project work. I would say it's been weaker in the OEMs. They're still struggling with some of their competitiveness in the global market. But yet, we see the oil and gas activities and improvement in the CPG industry there for us.

In Asia, we don't really have a strong MRO content if you look outside of Australia and New Zealand. So really, there it's driven by the lack of exports, the problems with liquidity, and therefore the ability to invest in small mid-size projects. And the larger projects are dealing with some of the overcapacity if you look at what's going on in metals in China and other countries in the region. So that's a little flavor as we go around the geographies. And I guess I'll stop there.

Mark Douglass, Longbow Research.

Keith, in relation to that, can you walk through globally what you're seeing in automotive and their investment cycle right now? Where are investments still being made? Where are they falling off? Does it seem to be kind of a peek here globally for at least the CapEx investments for automotive?

Yes, we think, to your point, we think automotive is continuing to invest at a high level, but it's not growing. But it's still a meaningful level of investment. And I would say the easiest one to talk about is Europe, in particular, Western Europe. Very, very little investment there. Most of it is still rationalization of plans which they have not gone through. And you've heard recent announcements there by almost all of the major companies about trying to take capacity out. And I think that will continue to be the situation in Europe for the foreseeable future.

If we come back to the US, there we have a lot of continued investment, both from the US manufacturers as well as the multinational and the foreign companies that are continuing to invest. That has been positive. We see a number of projects continuing. And we believe '13 or '14 will stay at a reasonable level as we see the outlook for the US.

In Latin America, I mentioned the strength of Mexico, some of that is definitely ongoing automotive investments. And I think really the only other country where there's any meaningful automotive capacity is Brazil. And there is investment going on there, although some projects are starting to -- have been delayed, not for economic decisions, but for just the ability to create the infrastructure that's needed given where one of the major plants is being located.

If we go to Asia, China, I would say we don't see significant growth in the investments in automotive in China. However, there continues to be investment in both the joint ventures, which obviously you need to have in China if you're a non-Chinese producer. And then also the top Chinese companies, the top indigenous Chinese companies are also continuing to invest. And when I talk about them, it's probably the top 5 to 10. As you know, there's hundreds of automotive companies in China, and that is not going to stay in that condition as time moves on. It's going to -- we're going to see a massive consolidation. But the larger ones are continuing to invest.

India, very weak. We don't see much investment going on there at this point in time. Korea and Japan, in the indigenous markets, we don't play very strongly in the automotive, but we work very well with the Japanese and Korean companies when they build outside of their home countries. So that would reflect more my comments about the US investment, Mexico investment, and Latin America investment. So that's a little flavor for what we see going on in the automotives. Continued high levels of investment, but we don't see incremental growth at the levels that we're currently at.

Great, that's a lot of flavor. And then just quickly on, looking at CP&S, is there a disconnect, but how are motor control and products in the segment relative to the services and solutions?

So in the quarter, year-over-year, the product portion of the segment was up about 1%, and solutions and services was down 2%.

Rich Kwas, Wells Fargo.

Keith, could you comment on the mining and metals market? I know it's been mixed for you over the last several quarters by region, and just wanted to get an update there. And then, if we're in a prolonged cycle where investment is going to continue to decline, how are you thinking -- what's your thoughts on that and then how are you prepping the business for that potential outcome?

Okay. With mining, as we look at that, it continues to be mixed results. We certainly see the drops and declining commodity prices which is starting to limit some of the investments. And I guess the good news in mining were those investments are being limited. Many of the mining companies are now focused on productivity in their existing operations as opposed to new investments. And that still results -- still will result in some business for us.

In the US, we had a good quarter in mining. We see mining as still -- and when I talk about mining, I'm not talking about coal mining. That's probably the area in the US that is weaker, but we don't play -- we don't have a strong position in the underground mining in coal in the US. So we aren't hurt by that situation. In Canada, we see it weakening, and mainly driven by the global commodity prices. EMEA, really the mining EMEA is South Africa. That continues to be weak because of the labor unrest. And as we mentioned in the commentary that I and Ted made, in Asia, the weakness was broad based, but we specifically mentioned Australia. And Australia is heavily driven by the mining industry. And China and India are the real destination of a lot of their exports. And with both of those countries weaker, it is impacting mining in China. In Latin America, it's mixed. I think some of the new investments are slowing in Latin America, particularly in the Andean region and in Brazil. And we see a pick-up in mining in Mexico. So continues to be mixed.

I think you also talked about metals. Metals, we see continued slowing in spending and investment. We certainly believe that there is overcapacity in China. And I did mention, however, part of the Middle East growth was because of mining because of metals, particularly energy intensive investments are still being made in the Middle East, particularly in aluminum. And we're benefiting from some of that investment. That would be the commentary around those two. I guess I spoke so long you had a second question.

Update the business for a potential slowdown.

Okay, Ted just reminded me. Thank you. As we went into the year, we had our contingency plans set. Ted mentioned that we've been very tight on discretionary spending. We think at these levels that, that is the prudent thing to do. And we don't see this as a prolonged slowdown. We would still call this as part of the mid-cycle pause. So what we think -- what we're doing today in how we're approaching it with watching our reinvestment rate and watching discretionary spending, we believe those are the appropriate actions at this point. And we always continue to monitor what's going on in the external markets, how it's impacting us, and be in a position where we can respond if things change one way or the other. But quite frankly, we have a lot of good projects to invest in if we start seeing some growth. And we're hoping that later in the year we can start making some of those investments as it becomes a little more uncertain as for what the growth is going to be going forward.

And then -- thanks, Keith. And then just a quick follow-up, these restructuring benefits that you got this quarter, that should continue for the rest of the fiscal year, correct? Is that the right way to think about?

I think it will continue until we see a pick-up in sales that causes us to start to redeploy some of that investment that Keith was just discussing.

Okay, so it's going to be at your discretion obviously.

Right.

Jamie Sullivan, RBC.

You talked a lot about the end markets, some good color there. Just wondering maybe what's -- in terms of end markets, what's a little bit weaker than you had expected and what sort of changed in your outlook and assumptions?

From end markets I think we would have to -- we'd have to look at it by region because in reality most of the regions are performing as we expected, other than Asia. And so if we talk about end markets in Asia, I would say a little bit to the conversation that we had earlier, mining is very weak. Metals is very weak. And I would say infrastructure investments in China have been slower as far as ramping up than we thought. Cement in China would be weaker. And I think some of the OEMs in China are weaker. And I would say that because of the commentary I gave on the export numbers. And I think it's hurting some of the smaller, less sophisticated machines that China is a leading exporter of. So I think we're seeing an impact in OEM. And then finally, as far as the OEM sectors themselves, I think tire has probably been one of the weaker sectors in the region. And whether that's from an end user consumption or the machine builders, I think we've seen tire probably slow a little quicker than we originally had thought. So a lot of it driven by the materials for the mining activities in Asia, some machinery builders and OEM content, and then some of the heavy industries -- the metals, cement, some of the power generation, and then infrastructure. So I would say that's -- those are where the differences are, and a lot of that comes back to Asia and then China and the other emerging markets.

That's helpful. And then I guess just in the second half, it looks like the organic growth in the range of somewhere in the flat to up 5% or 6%. Is Asia the big swing factor there or is that a big chunk of it and then say, the upper end assumes some pick-up in the broader economies and other regions as well?

If we look at the -- from an organic standpoint, we believe the greatest growth in the second half -- and we think at our midpoint, the second half organic growth is about 3% year-over-year. So the greatest growth there is really in Latin America where we expected to be mid single digits. The US, low single digits. And EMEA, low to mid single digits as well from an organic growth standpoint. And as I mentioned earlier, we still expect Asia-Pacific to be weak in both China. And the region will be a negative low single digits for the second half. So that's a little characterization of where we think it's coming from. But overall, 3% organic growth, once again, at the midpoint.

Steven Winoker, Sanford Bernstein.

Logix was up about 5% last quarter, and this quarter you said it's up again. Maybe give us a little bit of perspective for how much you're seeing in existing versus new customers for Logix, and where the gain is happening and whether you think you're winning -- who you're winning the -- what the share perspective is on that given that's one of the bright spots still?

Okay, let me make sure I characterize the Logix comment. I thought I had said that Logix was flat, but higher than the A&S average. So I just want to make sure that that's clear, that Logix was flat but higher than the A&S growth which was negative. And certainly, we believe that we're still going to see growth in Logix. The outlook is for that to be in the mid single digit growth as we go through the remainder of the year and to continue to be above the A&S average for the second half.

The success we're having with Logix continues to be driven in two areas. The first one is the continued expansion in the process. Now, process hasn't been growing strong, as you know, in the last two quarters, but we're still engaged in activity and projects. And process will be an expansion area for Logix as those markets begin to recover. And part of our backlog that we have in our solutions businesses is obviously in process, and that will continue to generate an expansion of an install base of Logix going forward.

The other area that Logix is being successful in, as we have talked about, is the continued expansion of the mid-range family. And how that expands our capabilities to address more of the OEM business globally. And that's part of the reasons we are continuing to have success in certain countries in Europe, in particular, the exporting OEM market. And we continue to generate conversion opportunities with those new platforms with OEMs in Europe, the US, as well is the exporting nation countries. Now obviously the decline we had in China meant that OEMs were also down, but we're continuing to work with them to incorporate the new mid-range platform of products whether it be motion, drives, PLCs, logic controllers, that enable us to grow that business as time goes on. So process and OEMs, key areas, and then safety would be the third area. We still have a very differentiated, integrated safety capability. And that plays very well in both machine safety and discrete manufacturing where you want to have an integrated control and safety solution.

Thanks, Keith. And then on the US dynamic, maybe you can talk a little bit, are you seeing anything to the idea and concept of near shoring at this point? What's your outlook from that perspective for North America? A lot of hype obviously in this area. Anything that would give you any indication that there's something to it in select spaces?

I don't think we would say that we've seen anything to it at this point in time yet, but certainly the conversations have great potential. Really driven at the core of the whole conversation is around a couple of things. One, the increasing cost in some of the low cost manufacturing environments around the world. In particular, all of you have seen the continued inflation in China, the wage increases, and the conversation of the need for more automation. On one hand, that's very good for us because we'll supply all of that automation. On the other hand, US companies can be competitive now. And so the competitiveness of US manufacturing is what's very important. And certainly, what we do for our customers helps them to improve their competitiveness. And I think as that differential gets smaller, the competitiveness in the US comes to the forefront if we continue to invest.

The other dimension which is probably the longer-term play, but one that maybe has the greatest potential, is the whole conversation around energy and in particular gas. If the US takes advantage of its gas reserves and the fact that we could have the lowest cost energy in the world, which once again is a huge competitive advantage, you could see a very meaningful uptick in the downstream industries associated with gas. And today you see production and exploration going on, but the downstream would be the chemical industry, fine chemicals, plastics, and also energy intensive industry, some of the metals industry. If the US has the lowest cost energy, which we do, and we create the right infrastructure, which means pipelines and transmission lines, we can regenerate that entire industry, in particular, along the Gulf Coast and the South. I think that is the longer-term opportunity for US, and hopefully that is something that the government finds a way to encourage incent and support for the long-term growth of jobs, quite candidly, a very prosperous middle class, and a very, very robust industrial sector for many years to come.

We are a little past the hour, but we'll take one more caller and then we'll have to wrap it up.

Shannon O'Callaghan, Nomura Securities.

Keith, the US still remains pretty solid, but kind of an even as you talk about. So it was up 2% a couple quarters ago, then up 6%, now up 2% again. Do you have any thoughts on what's driving the unevenness in the US, and why the first quarter was particularly strong and a little bit pull-back this quarter? What are you seeing in terms of how your customers are managing their buying behavior?

I would tend to fall back on our comments that we normally make, and that is quarter to quarter variability and project variability, end of the year timing, is there some budget activity that's going on that creates it, the tax incentives. A lot of nuanced areas as opposed -- and I think it's methodically moving forward, the perturbations that we see tend to be things that we have a very hard time quantifying or particularly identifying as any specific this is what happened in our first quarter, this is what didn't happen in our second quarter. So I think it's the quarter to quarter variability and really project timing is probably the biggest mover as far as that goes. But I mean it's very difficult for us to identify the short-term movements in our business.

Okay. And then, just as you think through this back half, is there anything by vertical market in terms of comps that get easier or a particular backlog you have in place that you kind of have a view into better growth in the second half year-over-year?

Certainly what drives our -- the biggest driver of our belief in improvement in the second half is the backlog of our solutions businesses. And we talked about the book to bill, the last two quarters, it was over 1, meaningfully in our first-quarter. I think I said 1.14 this quarter. We feel confident that, that is shippable backlog. And we expect that to go out over the next two quarters. And that's one of the -- I would say more firm pictures that we have as to why we believe the second half will see both year-over-year growth and stronger sequential growth.

And particularly sequentially. The solutions backlog at the end of the first half that's driving that sequential growth in the second half.

So you have pretty good visibility into that at this point?

We do for two quarters. And that's why we -- that's why Ted made the comment. It's pretty solid and obviously the only two I got you there are one, our ability to execute which I have a lot of confidence that we will be able to do. And then secondly, is there project delays from our customers? And those are things we don't know. We don't see anything unusual in that regard now, but what happens over the next two quarters, that would be the other factor that could cause even a solid backlog to not occur from a revenue standpoint.

Okay. Emily and all of the callers, thank you so much for dialing in today and thanks for your discipline on one question and a follow-up. I'm obviously available for follow-up calls with analysts after this. So thanks everyone for joining us.

Thank you. That concludes today's conference call. At this time, you may disconnect. Thank you for joining.