雷神技術公司 (RTX) 2011 Q1 法說會逐字稿

Good morning, and welcome to the United Technologies first quarter conference call.

On the call today are Greg Hayes, Senior Vice President and Chief Financial Officer; and Akhil Johri, Vice President, Financial Planning and Investor Relations.

This call is being carried live on the Internet, and there is a presentation available for download at UTC's home page at www.utc.com.

The Company reminds listeners that the earnings and cash flow expectations and any other forward-looking statements provided in this call are subject to risks and uncertainties.

UTC's SEC filings, including its 10-Q and 10-K reports, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

(Operator Instructions) Please go ahead, Mr.

Hayes.

Thank you, Dana.

Good morning, everyone.

As you saw in the press release this morning, a great start to the year, with solid organic sales growth of 9%.

Combined with the benefit of strong operating leverage on the higher sales, UTC delivered earnings per share growth of 19%.

Cash generation was also strong.

And finally, as expected, order trends continued to improve across UTC, including now much of our late-cycle businesses.

As we look across the globe, we see end markets are improving, much as we had expected back in December.

In the US, the recent employment and consumer spending data are encouraging signs of further recovery, while Europe generally remains stable, in spite of the continuing sovereign debt concerns.

Of course, emerging markets continued to lead worldwide economic growth, and UTC's businesses are capitalizing on this opportunity.

There are always, of course, concerns.

The biggest threats we see on the horizon are, first and foremost, commodity inflation, especially higher oil prices.

Secondly, the emerging supply chain disruptions caused by the tragedy in Japan are a potential growing issue.

While we're confident in Japan's resilience and ability to recover, there likely will be some short-term supply chain disruptions in our businesses.

The biggest area we continue to monitor closely is electronics -- microprocessors, capacitors, and other such components which go into many of our products across our business units, and deeply into the supply chain at second- and third-tier suppliers.

We continue to work with our suppliers in securing available inventory and alternative sources, and we expect that the impact of disruptions, if any, will only be felt in the back half of the year.

Let me stress, all of this is manageable within the scope of our current guidance.

All right.

Notwithstanding these potential overhangs, the stronger-than-expected performance in Carrier short-cycle businesses and improving order rates in both our long- and short-cycle businesses gives us confidence to increase our full-year outlook.

We now expect 2011 earnings per share to be in the range of $5.25 to $5.40; that's up $0.05 at both the top and bottom ends of the prior range, or 11% to 14% EPS growth.

We also expect sales of $57 billion, at the high end of our previous range of $56 billion to $57 billion.

So, that's sales growth of 5% year-over-year.

Before I start with the first-quarter results, just a reminder that we will talk to the segment results adjusted for restructuring and one-time items, as we usually do.

Okay.

On slide 2 -- in the quarter, sales were up 11% from prior year, with organic growth of 9%.

Importantly, 5 of the 6 businesses saw organic sales growth.

Carrier and Sikorsky led the way, with 18% and 15%, respectively.

While the strong growth is partially due to a tough first quarter last year, it's also evidence of a broader recovery in our end markets.

We are seeing a strong rebound in our short-cycle businesses, such as Carrier's Transicold and US residential HVAC, as well as our commercial Aero aftermarket.

Carrier's US residential gas furnace and split shipments were up mid-teens in the quarter, despite continuing weakness in the US housing segment.

Our longer-cycle businesses are also gaining traction, as expected, with growth in commercial Aero OEM, global commercial HVAC at Carrier, as well as Fire and Security.

Importantly, Otis's new equipment sales, which are still lagging, but the solid other tends give us confidence in the sales recovery in the back half of the year.

Total segment operating profit increased 15%.

That's even with higher E&D of $88 million, as the businesses continue to execute on their growth strategies.

Most significantly, at Pratt & Whitney, as it advances multiple development programs of the Geared Turbofan technology.

Segment operating margin expanded 80 basis points in the quarter.

Carrier led the way once again, with margin expansion of 530 basis points, to a record of 11.7%, reflecting exceptional conversion on its 18% organic sales growth.

Earnings per share in the first quarter were $1.11.

That's up 19%.

Restructuring costs in the quarter were $31 million, or $0.02, compared to $67 million, or $0.05, in last year's third quarter.

Excluding restructuring costs in both quarters, earnings per share increased 15%.

Foreign currency was a $0.01 benefit to EPS.

In the quarter, free cash flow was 117% of net income, even as inventory grew significantly in the quarter, in support of the robust organic sales growth.

Share repurchase in the quarter was $750 million, a strong start to this year's program.

And we also increased the dividend 13% last week -- another sign of confidence in our outlook, as well as our commitment to delivering consistent shareowner returns.

Okay.

On to slide 3.

First-quarter order rates.

First-quarter order rates remain strong, and this is what gives us confidence in our 2011 sales outlook.

In Aerospace, first-quarter commercial spare orders at Pratt & Whitney and Hamilton Sundstrand were up 33% and 23%, respectively.

At constant currency, Otis new equipment orders grew 14% in the quarter.

And Carrier's global commercial HVAC new equipment orders were up 24% -- further evidence that end markets are indeed recovering.

Emerging markets remained solid, and first-quarter BRIC country orders for our commercial Companies grew just under 20%.

So, an excellent quarter of solid sales and earnings growth, strong cash flow, and an improved end-market environment.

I'll come back and talk a little bit about the full year; but for now, let me turn it over to Akhil to take you through the business unit details.

Thanks, Greg.

Turning to slide 4, Otis delivered a solid quarter, with profits up 4% on sales growth of 2%.

Operating margins expanded 50 basis points, to 22.8%.

At constant currency, profits increased 3% on flat sales from continued growth in service.

New equipment sales were down 6% at constant currency, driven by declines in North America and Europe.

China new equipment, and aftermarket sales continued to grow.

Service sales were also up globally, with continuing growth in contractual maintenance and improving repair volume.

New equipment orders continued to improve, up 14% at constant currency, with double-digit growth in North America, Europe, and China, even as pricing remains under pressure in most markets.

For the year, Otis expects to see strong new equipment growth in emerging markets, led by China, along with improvement in the US and Northern Europe.

Markets in Southern Europe are expected to remain flat.

Guidance for the full year remains unchanged, with profits expected to grow approximately $150 million.

Turning to Carrier on slide 5, following a very strong order rate experienced late in Q4 and into Q1, Carrier posted an exceptionally strong first quarter.

Profits were up $167 million on 12% higher sales, resulting in a record Q1 margin of 11.7%, up 530 basis points from prior year.

As Greg said, organic sales growth was 18%.

Refrigerated container shipments in Q1 were at a record level, contributing to 60% plus organic growth at Transicold.

We also saw North America residential distributors restocking in Q1, resulting in shipments of residential systems up in the mid-teens.

Earnings growth was driven by strong conversion on sales growth, the absence of a $20 million charge from last year first quarter related to portfolio transformation items, and another $20 million earnings improvement in the Japanese joint venture from activity prior to the earthquake and the tsunami.

The ramp-up in Carrier's short-cycle businesses in Q1 was truly extraordinary, and we expect a return to more normal growths in the balance of the year, particularly the second half.

Given Carrier's first-quarter performance, we are increasing Carrier's profit growth guidance for the year to $250 million plus, from $175 million previously.

We now expect Carrier's organic sales growth to be up nearly double-digit for the year.

UTC Fire and Security delivered operating margin expansion of 100 basis points in the quarter, on 15% higher sales.

Organic sales were up about 3%, with product businesses up mid-single digits; Asia, up double digits; and the other regional service and install businesses flattish.

Acquisitions from two months of GE Security contributed approximately 10 percentage points of sales growth.

First-quarter orders also grew organically 3%.

Importantly, orders in the service and install businesses were up mid-single digits in all regions, except the UK.

Backlog is up organically 12% year-over-year and 7% from the beginning of the year.

Operating profit in the quarter grew 27%; 24% at constant currency.

The profit growth was largely driven by higher volume and the GE Security acquisition.

A gain from the sale of the UK guarding business also contributed about one-third of the profit increase.

For the full year, we continue to expect sales to be up high single digits, and operating profit up approximately $175 million.

Turning to Aerospace businesses, on slide 7.

At Pratt & Whitney, sales were up 9%, driven primarily by higher overall aftermarket sales.

Higher engine sales at Pratt Canada were more than offset by lower military engine shipments and development revenues.

Large commercial engines spare sales were more than 30% higher than the first quarter of 2010, and in line with the expected sales for 2011.

Operating profit was up 3% in the quarter.

The benefits from net higher sales and restructuring savings were partially offset by a $75 million increase in Pratt's E&D.

Also in the quarter, a gain from the sale of a minority equity position in a venture offset higher pension costs.

Operating margin for the quarter was 15.3%, down 100 basis points year-over-year.

Excluding E&D, operating margin was up about 100 basis points.

For the full year, we continue to expect Pratt & Whitney operating profit to be down $50 million, on flattish sales.

In the quarter, Hamilton Sundstrand operating profit grew 11% on 9% higher sales.

Industrial and Aerospace aftermarket sales were up low teens, while Aero OEM sales were up mid-single digits.

Commercial spare sales and orders were both up over 20% versus last year.

Book-to-bill was slightly above 1, and the industrial orders increased mid-single digit.

Profit growth in the quarter reflects the benefit of increased sales, partially offset by higher E&D.

Operating margin for the quarter was 17.1%, up 30 basis points.

For the full-year, we continue to expect Hamilton Sundstrand's operating profit to be up about $100 million, and the sales up mid-single digits.

Turning to Sikorsky on slide 9, operating profits dropped by 2%, on 16% higher sales.

During the quarter, Sikorsky shipped a total of 58 large aircraft, 5 more than the first quarter of last year.

51 aircraft were based on military platforms, and 7 commercial.

Higher sales in the quarter were driven by increased international development aircraft, including the first Canadian maritime helicopter.

And higher aftermarket volumes partially offset by fewer S-92 deliveries.

Operating profit was down slightly, as the benefit from higher US government shipments was more than offset by losses from international development aircraft and the impact from fewer S-92 deliveries.

For the year, we continue to expect profit growth of approximately $100 million, on sales growth in mid-single digits.

With that, let me turn it over to Greg for wrap-up.

Okay.

Thank you, Akhil.

We're on slide 10 now, for those of you following along.

So, a strong quarter -- solid top line, margin expansion, earnings growth, and cash flow.

As Louis would say, truly UTC-style execution.

In addition to the solid financial performance, we had some other notable accomplishments in the quarter.

Sikorsky was awarded the prestigious Collier Trophy for its achievement on the X2 Technology demonstrator program.

Pratt & Whitney's GTF continues to be a game changer, and has already won firm orders for over 450 engines on the A320neo program.

That comes from industry leaders Lufthansa and ILFC, as well as the largest order to date, for 150 firm and 30 options for IndiGo Airlines.

On the commercial side, Carrier continues to drive its portfolio transformation agenda towards completion.

They recently announced a joint venture with Watsco for the residential HVAC distribution in the Northeastern US.

Importantly, this completes the transformation of Carrier's US distribution footprint.

All right.

Let's talk about the full year.

As I said before, we're very confident in our improved outlook of $5.25 to $5.40 on sales of $57 billion.

But of course, we always remain cautious, because of some uncertainties that are out there.

As I previously mentioned, the impact from Japan is uncertain.

We're closely monitoring working with the supply chain, and don't expect this to be a significant headwind.

Also, as you know, high oil prices significantly impact our airline customers.

While the airlines have maintained pricing and capacity discipline, sustained high oil prices will likely dampen profitability.

As a result, it could lead to reduced capacity and a lower aftermarket demand in the back half of the year.

Some airlines have already announced slower capacity growth through the later part of this year.

That said, as this quarter's results show, commercial aero aftermarket demand remains robust.

But it is a short-cycle business, and compares will get tougher in the back half of the year.

On the other hand, foreign currency could be a potential upside to our outlook, if exchange rates remain at current levels.

Our current guidance of $5.25 to $5.40 still assumes that the euro will be about $1.35 for the year.

If the euro average holds at $1.40 for the remainder of this year, that represents upside of $50 million in pre-tax profits, which is not yet reflected in our guidance.

This is prudent, we think, as uncertainties of the sovereign debt crisis play out every day.

As far as the other elements of our 2011 guidance, we still expect restructuring to be $150 million to $200 million for the year, and equal to one-time gains both in the first half and for the full year.

For E&D, we continue to expect full year to be up $200 million to $225 million.

But this could come under some pressure, as we execute on numerous programs, and especially in light of Airbus's recent decision to accelerate the A320neo program by six months.

The effective tax rate for the quarter is still anticipated to be around 30.5%, with a second-quarter rate of around 29%.

And that's down from the 32.5% we saw in the first quarter.

As always, we expect free cash flow to equal or exceed net income.

We still forecast share repurchase of $2.5 billion, and acquisition spend of $1.5 billion for the year.

So, the world has improved, but the recent shocks from Japan and the Middle East will test the resilience of this recovery.

As always, we remain cautious, but confident in our ability to deliver on our commitments.

We are focused on the top line, and we continue to execute our strategies to capitalize on recovery markets, as well as our strong presence in emerging and growth markets.

I think it's important we also have a very strong product pipeline across the businesses, with programs like the 787, the Geared Turbofan, and the Joint Strike Fighter, which will drive solid long-term growth.

We're well-positioned to benefit from top-line growth.

At the high end of our guidance range, 2011 earnings per share will be up 10% from our 2008 peak of $4.90.

And that comes on 4% lower sales from 2008.

In addition, $200 million of higher E&D this year than 2008.

And I think all of that is strong evidence that the tough actions taken over the last three years to reduce our structural costs are indeed paying off.

In closing, the seasoned Management team is committed to driving long-term growth, both on the top and bottom line.

We're confident in the guidance and generating sustained double-digit earnings growth well into the future.

With that, let's open up the call for questions.

Thank you.

(Operator Instructions) And we will go to Deane Dray with Citi.

Good morning, everyone.

Greg, I was hoping you could comment on the price cost dynamics in the quarter.

I saw some earlier comments this morning that you made that gross commodity costs -- looking at $250 million.

Where are you on pricing?

And I have some follow-ups on that, too, please.

Yes, we saw about $50 million of commodity headwind in the quarter.

As you know, at Carrier, we raised prices early in February.

So far, those prices seem to be sticking.

But I think for the full year, we still expect the commodity -- gross commodity headwind to be about $250 million, with about $100 million of pricing to offset that.

So, still a headwind out there in the guidance, for really the back half of the year.

Call it another $100 million, on top of the $50 million we saw in the first quarter.

On top of that, there is probably another $75 million of energy headwind from the higher oil prices.

Again, that's all back half of the year here.

How about just specifically in -- at Carrier, and the price increases that you think you can put through.

Just remind us of -- on a percent basis, how much you put through.

Maybe some sense of the elasticity, and how much more room on the upside on pricing might you have?

Well, we put through price increases, I think we announced them back in the fourth quarter that were effective early February, of about 2% to 6% on the residential side.

And those prices seem to be sticking.

And again, I think with commodities holding about where they are -- copper at $4.20 to $4.30, we would expect that most of our competition probably has the same price pressure that we do.

I would also say that we got pricing pressure on the transport refrigeration business.

I think especially at Transicold, pricing remains difficult.

But with the market recovery and the fixed costs coming out, I think you see good margin and good conversion for that.

Great.

And just one specific question on the Aero aftermarket.

We heard that some carriers could be restocking, as some insurance against their own supply chain disruptions.

Have you seen any signs of that?

And might there have been a benefit this quarter from that?

Yes, we have not seen any evidence of restocking.

You look at the order rate growth at Pratt this year, 33%, that's off of a pretty easy compare from last year's first quarter.

And it's really in line, if you think about the overall sales level, about in line with what we expect for the full year.

So, I wouldn't expect 33% increases during the course of the year, but there might be some upside here if there is some restocking.

But so far, we really haven't seen it, either at Pratt or at Hamilton.

Great.

Thank you.

Thanks, Deane.

And we'll go next to Ron Epstein with Bank of America Merrill Lynch.

When you look at the guidance that the Company issued today for the organic growth for the rest of the year, given the order activity in the first quarter, and with the 9% organic growth in the quarter, doesn't it seem like that's pretty darn conservative for the second half of the year?

Well, I think again, you're not going to see it probably the same level of growth during the back half of the year as you're going to see it in the front half of the year, just because the compares get tougher.

You recall, we started to see an acceleration of organic growth throughout the year last year.

And so, if you think about, we're going to be up 5% total this year, that's the guidance, it would indicate a slowing growth rate in the back half of the year.

And again, I wouldn't expect to see 18% growth out of Carrier organically in the next couple of quarters.

It will probably be more in the mid-single-digit range, as we look forward.

But, we could be surprised on the upside.

I think the important thing is, as Louis has been promising since this recovery started, if we do see good news on the top line, you're going to see it on the bottom line.

And that's really the message here, this, with the $5.40 at the top end.

Okay.

And then, maybe, a capital deployment question.

In the quarter, you bought back, I guess, what -- $750 million worth of shares?

Right.

Now, when we think about that for the rest of the year, what's your view on share buybacks?

And I know you probably can't say a heck of a lot about it, but there is all of this speculation floating around Tyco.

So, maybe if I could throw out just the broad M&A question, what you're thinking there.

Yes, I think, again, the placeholders are still out there of $2.5 billion for share buyback and $1.5 billion for M&A for the year.

In the quarter, we only did about a $100 million of M&A, just some very small deals.

And M&A remains elusive, in terms of some of these bigger deals that we have been chasing.

So, we still feel good about the $2.5 billion.

You can see, obviously, the run rate on the first quarter share buyback, would be more like $3 billion.

I expect if we don't spend the money on M&A, just like we have done in prior years, you will see more on share buyback.

So, we'll see how the year progresses.

And as for specific deals, I think you guys all know I really can't comment on anything specific to anything -- any of those potential deals.

But what's the appetite for a big deal?

Meaning, you know, greater than $8 billion or something?

Well, obviously, you know, we're always open to deals that make sense for the shareowners.

But, it's -- having said that, it has to be a deal that makes sense.

It has to be something that is strategic.

We don't need to do a big deal, I would tell you, Ron.

We've been saying that for a couple of years.

We love the deals like GE Security.

We love deals that fit in the core.

A big deal -- it's - you know, they're tough to do.

You need willing buyers and willing sellers, and it really has to be the right price to make sure that we enrich our shareowners as much as we are going to enrich their shareowners.

Okay.

Great, thank you.

Okay.

And we'll go next to Shannon O'Callaghan with Nomura.

Good morning, guys.

A couple of questions on Carrier.

One, on the commercial HVAC order strength, can you give us a little feel geographically, in terms of how that played out?

Sure, Shannon.

I think the strength we saw was across the geographies.

Europe and America were up both sort of mid-teens, and Asia was much stronger than the average.

So, Asia was closer to 40%.

Okay, thanks.

And then, in terms of the price increase on the residential side, how did the months kind of play out for the year?

And did you see any pre-buy and then fallback, or that kind of thing?

How did things play out through the quarter?

As we entered the quarter, I think we made this comment back in January, that the inventories out in the channel were at really historically low levels.

So, we did see some bigger restocking orders January, February, slowed down a little bit in March.

But still, a pretty solid quarter.

So, it's -- I think as we look at channel inventories today, still relatively low for this time of the year.

So, we expect, again, a pretty good second quarter at Carrier on the res side.

And are there any further price increases planned?

No -- well, at this point, I don't believe there is anything out there.

But it is one of those things that you will just have to see what happens to commodity prices in the market, and try to stay in front of those things.

Okay.

Thanks a lot, guys.

And we will go next to Joe Nadol with JPMorgan.

Joe, are you there?

Can you hear me?

Now I can.

Sorry, I had the mute button pushed here.

It's early on the West Coast.

Good morning.

On Japan, Greg, just a little more color there.

I'm wondering, you already told us what -- you know, what types of things are -- you anticipate will be in short supply.

I'm just wondering in which segments those might fall into.

And then, more specifically, in Aerospace, are there the kind of things that are not replaceable, due to certification concerns?

Or are -- do you think that much of what you're going to be missing, you will be able to source somewhere else?

Specifically, on the Aero side, we had a little bit of a scare, because obviously we've got some partners on the V2500 that -- where their factories and sub-tier suppliers suffered some damage.

But we think we have work-arounds, we are working actively with those suppliers, and we don't see any big requalification efforts on that.

It may push an engine or two out a month or two, but nothing that's dramatic.

The bigger concern, as I said in the script, is the electronics.

40% of the world's flash memory comes out of Japan, as well as the capacitors, transistors, and things.

And we use those on a lot of different products, from Carrier's controls, to the F&S smoke and CO detectors that we make.

And we're working through that.

So far, it looks like we have good visibility to it.

But it's the second- and third-tier suppliers that we still worry about.

Our first-tier suppliers, we're all over that.

We have to make sure that those suppliers are all over their suppliers and that we don't end up with a surprise.

But I think the system works pretty well.

We have 1,500 key suppliers out there, 27,000 in total.

And we are working through that process every day.

But so far, not a big deal.

Okay.

And then, secondly, just to follow up on the organic growth, certainly it makes sense what you're saying, and the Q1 was easily the low last year for your organic growth.

It was negative.

And the rest of the year was positive.

And it got fairly positive toward the end of the year.

So, the comps are going to get tougher.

But if you go back a few years ago, your organic growth across the Company was pretty consistently, for a few years, in the higher single digits.

And certainly, the order numbers are showing us -- are way above the single digits -- again, off easy comps.

But I'm just wondering, if you put this into context, what's the opportunity, really, to keep this in the higher single digits, even if it slows a little bit in the back half of the year?

I think we talked about trying to grow sales here, kind of 2X world GDP, 6% to 9%.

That is the long-term goal.

I would tell you that probably the best metric to point out to, is just look at our top line today and look at the markets that we play in.

We are not at peak in any of those markets, save perhaps the container transportation business at Carrier.

But only on the container side.

So, the $59 billion of sales we had a couple of years ago, there is still runway to get to that and beyond, as these markets recover.

So, I'm still cautiously optimistic you're going to see growth.

Some this year.

And even more into next year, as all these markets recover.

Especially on the commercial construction side in the US and in Europe.

Okay.

So, you are saying that there could be upside to your number, then?

I mean, I'm just trying to gauge here the confidence level that -- when you guys are talking about organic growth, looking at the rest of this year and into next year, how -- you know, what are the chances you think that we're getting back into that sweet spot we were in four or five years ago?

Well, I'm not sure we are ever going to be in the sweet spot we were in four or five years ago, although debt is still cheap.

And that's what caused the bubble the last time, so there certainly could be some of that impact this time.

I think the good news is going to come out in commercial construction.

We are seeing that at F&S, their order rates have been improving.

We are seeing it especially at Otis -- which, as you know, the orders have been down.

But we will get to the 2012 guidance maybe in another couple of months here.

But for now, we're confident in this year and into the future.

We are going to drive solid double-digit growth next year and beyond.

Okay.

Thank you, guys.

Thanks, Joe.

And we will take our next question from Nigel Coe with Deutsche Bank.

Good morning.

I don't want to beat the organic growth horse to death, but you know, the falloff, into 3% to 4% range from 3Q to 4Q, compared to 1Q at 9%.

Obviously, you're putting in a big hedge in terms of Japan or, you know, airline profitability.

What concerns you most out of those two possibilities?

Is it the high oil price, or is it maybe some significant supply chain shortages?

I think it's actually the date on the calendar that concerns me most.

It's early.

Carrier has its biggest selling season ahead of it.

It has the second and third quarter, that's when the US residential business -- we'll know whether or not we're going to see the kind of growth continue that we saw in the first quarter.

The same, I think, with the commercial airlines.

I think the biggest concern we have is what happens with oil prices.

Typically, when we see a spike in oil prices, it's six to nine months before it drives a change in volume behavior at the airlines.

So, those are, kind of, really the two big things.

Maybe three -- it's early, Carrier's two biggest quarters are coming, and you have the high oil prices.

But look, we're confident in the numbers.

We're going to get there.

And there may be upside.

And obviously, you've reiterated the commitment to deliver in the upside of revenues to earnings.

You've said restructuring will be matched by gains.

But what about E&D?

It sounds like there could be an upside bias to E&D in the second half of the year.

Could you use some good news on revenues to maybe accelerate some of those programs?

Well, clearly, there is pressure at Pratt to spend more on these programs.

They have the C series.

They have the MRJ.

They have the Irkut C-121.

And they have this neo program, which is -- I mean, again, it's going gangbusters, right?

Orders are outstanding.

Everybody is excited.

Airbus wants to accelerate the program.

So, all of that means they want to spend more.

And quite frankly, we may well accelerate some of that investment into the back half of the year, just to try and get ahead of it.

The issue right now is just hiring enough good engineers here in the states to meet the demand.

Right.

And then, just finally, on the Carrier margins, it's a stunning performance.

Anything in there that's maybe not sustainable, going forward?

Because when I look at 1Q margins, normally 2 to 3 points weaker than 2Q, 3Q, you know, implies this year could be in the 12%, 13% range.

How do I think about that?

I mean, anything in this quarter that I should be backing out?

Yes, there's a couple of things in there.

And let me just say, I think we're highly confident in 12% by '12 at Carrier.

But the first quarter did have about $40 million of, I'll call it, unusual items.

Last year's first quarter, I think Akhil said this in the script, we had about $20 million from the portfolio transformation costs that came through their segment that we didn't back out.

We also, this year in the first quarter, had about $20 million of income from our Japanese joint venture with Toshiba.

And again, given what's going on in Japan, we wouldn't expect that the good news we saw in the first quarter is going to repeat.

So, of that growth, there is probably $40 million that is not going to repeat.

One other point, Nigel, for consideration is that -- you all know that Transicold is a good business for Carrier, and has generally higher margins than average.

And the growth rate there was over 60%, organically.

And if you assume that's not going to repeat every quarter, which I think is a reasonable assumption, then obviously that will have a downward pressure on the margins going forward, as well.

Yes, we'll be considering that.

We'll take out, then, 40% in the second quarter.

Okay.

Thanks a lot, bye.

Thanks, Nigel.

And we'll go next to Howard Rubel with Jefferies.

First question.

Just to change and talk about Pratt restructuring and cost takeouts and so on.

That's also very impressive, considering the higher R&D.

Could you talk a little bit about what you've been doing in order to improve, you know, the manufacturing base there?

And then, specifically, address how you're using that to drive out costs on the F-135?

I think there's a couple of things that Dave Hess and his team have been doing for the last couple of years.

They've taken a lot of structural costs out of that business; and for this year, we would expect about $75 million of restructuring benefits to flow through.

On top of that, we've done, I think, a great job in terms of business process outsourcing.

We've taken back office costs down there.

And again, you know, the benefits of ACE-ing the factories is really starting to pay off.

We just priced, I think it is lot 4, or LRIP 4, for the JSF.

Those costs are going to come down 16% from LRIP 3.

And again, we're driving costs in the factory down.

We're also driving costs down in the supply chain.

I mean, the reality is, your -- probably head count is probably down, and revenues are relatively flat.

And when you look at the mix, even if you probably were to adjust for spares, Greg, again, your structural costs seem to be working in your favor.

I think that was the point I tried to make earlier.

And the fact with revenues down, still 4% from peak, earnings are going to be up 10%, with $200 million of higher E&D.

So, that's the evidence that all of those structural costs that we took out, we spent $1.5 billion restructuring this place over the last three years, it really does pay off, and that you're going to see it on the bottom line this year and next, when these orders come back and sales recover.

And then, just to stay on this issue of restructuring for a moment.

If we take out the low margin revenues from the distribution business at Carrier, and the businesses that you've sold or JVed, can you give us a little bit of color as to what -- if we look at revenue comps year-on-year, how much of it -- I mean, obviously some of it's Transicold, but some of it's also the absence of lower margin business.

Can you sort of provide a little bit of color on that?

Howard, you are talking about a benefit to the margin from this portfolio transformation?

Yes.

Actually, it's not that big a number.

It's probably between 50 to 70 basis points of margin expansion you would attribute to the portfolio transformation.

I think if you go back in the road to 12% by '12, Geraud had laid out about 150 basis points of margin expansion going out of the total 450 or 500 basis points.

And I think we are getting close to that, on a cumulative basis.

So, most of the improvement you saw in Carrier this quarter was conversion on the volume growth.

And it's further evidence to Greg's point of the structural costs that they have taken out and the benefit of mix, to some extent.

Thank you, gentlemen.

Appreciate it.

And we'll take our next question from Terry Darling with Goldman Sachs.

Hey, Greg, wanted to come back to the Carrier margin guidance for the balance of the year.

If we back out the first quarter, year-over-year, from the $250 million guidance, about $85 million.

Even if I assume that organic growth drops into the mid-single digits, it implies kind of a 10% incremental margin.

You've talked about the commodity headwinds, net of price, actually get less -- less challenging, at the overall Company level.

Presumably, Carrier has the same profile, so I'm still struggling to see why Carrier margins in the back half of the year wouldn't have substantial upside to your guidance here.

What am I missing there?

Yes, Terry, I think -- couple of things to think about.

Firstly, when you look at the margins or the incremental margins based on just the reported volumes, you have to take into account the divestitures that are happening, because they have a slightly different impact on the margins.

And when I adjust for that, at least internally when we look at it, it looks like the margins in the back half of the year will be between 25% to 27%, 28%, as compared to a little over 30% for the first quarter.

So, it's not a huge change in the incremental margins we are expecting on organic revenue for the back half.

And we can talk more offline, just so I can take you through that math, if you want.

Okay, that's helpful.

But I can also say, Terry, that there is a reason we put a plus next to the $275 million.

Okay.

Or $250 million, rather.

I shouldn't say $275 million, should I?

Okay.

And then, on the Fire and Security margins, I guess going the other way, about a 17% incremental despite the ongoing benefits of the GE Security integration.

How do you see that ramping through the year?

And do you still feel like 15% margins, 2012, is a high confidence number at this point?

It is, Terry.

I think we still feel good about it.

First-quarter margins were a little light, but not surprising, because F&S, as you know, has been investing in the sales force and in E&D, that Bill talked about in March.

So, some of those costs are coming in, while we continue to get the benefits of the field integration efforts that have been put in place.

So, as volume comes back, and we do expect organic growth to be higher for the rest of the year, you would expect greater conversion of better drop-through, in terms of returns from those investments.

I think we do see accelerating margin expansion in the back half of this year at F&S, and that should continue and put us on good track for 15% by '12.

And just to understand the mix implications, I think you called out Asia, up double digits, products up mid-single digits, and the rest of it is flat.

In terms of this organic pickup, are you talking about the rest of the business, non-Asia, non-products, picking up, and that helps the margin?

Because I would have thought the products piece growing stronger than the other would have been good for margins.

The products piece, obviously, the margins are a little bit better.

But what we're really going to see is on the service and installation side.

That's where the recovery has to come.

And Akhil talked about, we expect field productivity to get better during the course of the year.

We didn't see a lot of that in the first quarter, but that's really where you're going to see the margin expansion, because that's really -- that's structural cost that's been taken out.

And so, as those incremental dollars come back, you are going to see really strong conversion on those incremental sales.

Right.

And just -- I think I mentioned this earlier, Terry, but if you keep in mind, the encouraging thing in Q1 orders for F&S was that the organic growth in the service and install orders was better than we have seen all of 2010.

It wasn't on the back of product orders.

And I think as those businesses do higher organic growth, then the benefits of field conversion will be greater -- field integration will be greater.

Okay, that's helpful.

What was that number on the service orders, organic?

Again, Akhil, sorry if I missed that.

It went up mid-single digits in the first quarter, organically.

Okay.

And then, just lastly on 2Q, Greg, appreciating you don't give EPS guidance, but I was just wondering if you might tick through some of the items.

You did call out the 2Q tax rate.

Can you touch on Canadian maritime impact?

And then, as it relates to Japan, I mean, obviously, there is no full-year impact, but will there be some negative impact in 2Q that is offset by a recovery in 3Q or 4Q?

Or is there no 2Q impact from Japan at all?

A couple of things you should think about Q2.

Obviously, the Canadian maritime will continue to be a drag at Sikorsky.

We expect to deliver three Canadian maritime helicopters, we are losing $10 million to $12 million apiece on those, so that will put Sikorsky's Q2 under a lot of pressure.

As far as Japan, again, we're talking less than $0.01 of impact here, probably in the second quarter.

So, any of that would be recovered in the third quarter.

But it's not -- it's really not significant in the second quarter.

Other than that, I mean, we've talked about the tax rate -- that's actually going down, Q1 to Q2.

And we had a couple of cents of unrecovered restructuring in first quarter; we'll probably have a couple of cents going the other way in the second quarter.

So, as we rack and stack second quarter, it looks pretty good.

Very helpful.

Thanks, guys.

And we'll go next to Heidi Wood with Morgan Stanley.

Yes, hi.

A question, Greg.

You talked about possibly accelerating E&D with the A320neo.

Can you also add to that kind of our understanding as you embark on discussions on the A350, GTF potential?

If that were to proceed, how should we think about how that would affect E&D heading into this year, and over the next several years?

Any talk about the GTF on the A350, I think, is way out into the future.

Airbus has its hands full, and we're focused really on the narrow body with this engine.

I think the next place you are going to see an application for the GTF would either be on a next-generation Boeing aircraft or an Embraer aircraft.

But I think the wide body market is still probably, I am guessing, 5 to 10 years out before we'd see any type of significant investment there.

Okay.

Okay, I wondered about that.

I thought it was a bigger leap, so good to get that.

And then, a nit on the Carrier side, just to understand better, you said -- talked about residential being up in the mid-teens.

Can you give us some more granularity on what you're seeing on the puts and takes there?

I mean, are we sort of seeing -- we're scraping off the bottom in residential finally?

I think, you know, again, as we said, entering the year, we knew the channel inventory was low.

And I go back to this whole issue of the replacement market.

Housing is still anemic.

So, all of the good news is really going to come on the replacement side or the add-on replacement, as we call it.

And there is, I think I said this morning, there's 93 million air conditioners, residential air conditioners, out there in the US.

And the replacement cycle would indicate a demand between 5 million and 6 million, and the industry is only building 4.5 million.

So, I really think there is just pent-up demand in the system.

And as the economy gets better, as people feel better about their job prospects, I would expect we are going to see more of the AOR business, in that 4.5 million.

And will it go up a lot this year?

Probably not, but certainly in the coming years, we're going to see a recovery there.

That's the upside opportunity we have.

All right.

Great.

And then, one last question, Greg, on M&A, and a little bit of a devil's advocate question.

Working a little bit off what Ron talked about earlier in this call.

Wouldn't it make sense that more strategic deals ought to occur when you're at the trough in a global economy, right before we head into an upturn?

Isn't that theoretically when you're going to have sort of the best opportunities?

I think that's probably exactly right, and so I think that's why we paid $1.8 billion for the GE Security business a year ago.

That really was the trough of the market.

What we're seeing now is price expectations and stocks running up in anticipation of a broader market recovery.

And people's expectations running even ahead of that, in terms of premiums on deals.

So, look, we would love to do deals.

We would love to deploy this cash that we've got.

We have $4.2 billion of cash on the balance sheet.

We have debt to cap at 31.

So, we have a lot of powder.

But it still has to be for the right deal.

And I would tell you, bringing Bill Brown down to the corporate office as head of Corporate Strategy & M&A, it signals Louis' intention, I think, we're going to turn up the game here.

But we're still going to be disciplined.

We are not going to go after things that don't make sense.

It has to be in the core, and it has to be for the right price.

All right, great.

Thanks very much, Greg.

And we'll go next to Jeff Sprague with Vertical Research Partners.

Thank you, good morning.

I was wondering if you could talk a little bit about price and orders.

Obviously, there was -- you alluded to some soft price in Otis and other places.

Kind of struck me, though, that even in Transicold containers, where you're kind of back to peak volumes, you're still seeing weak price.

Can you just give us a little bit of a lay of the land there, and you know, particularly in large, kind of the heavy iron in Otis, and Carrier commercial, are you at least seeing a little bit of firming of price?

Or is it still kind of downward bias?

I think, Jeff, you know, Otis certainly is seeing pricing pressure, not surprisingly, because the market has been down for a long time.

And in that situation, pricing does come under pressure.

It's -- in select geographies, certain markets have always faced price pressure.

And the good news is, that Otis knows how to offset the impact of that through cost reduction.

They are extremely good at doing that, and that's why they have been able to maintain the margins at the levels they have.

So, I think that's nothing new.

On the commercial side, for Carrier, pricing is -- as you would expect in projects, it's project dependent.

The energy efficiency projects, which have a good payback, generally tend to be better from a price of view, and there are some others which are new construction-related, where pricing can be tougher.

Can you give us a sense of that mix?

How much activity you're actually seeing?

And physical square footage addition in some of these commercial markets, relative to kind of the energy retrofit?

A lot of what we are seeing is on the energy retrofit side.

Because I think especially with the prices, fuel price is a concern, and energy efficiency being more topical with the introduction of new energy efficiency -- energy-efficient products out of Carrier, I think there is a lot of what we are seeing on that side of the equation, and not very much on the new construction.

Just to be clear, though, I mean, there is really a dichotomy in the market, where you have the US and Europe where the focus is on energy efficiency, and that's where the BSS or the global HVAC business is doing well.

As well in China, which is just really the boom in new construction there, continues.

We see it at Otis, their orders are up 17%.

And we saw it at Carrier, where their orders were up 34% in the quarter.

So, that's not just the energy efficiency play.

That is really just where the market is going.

And on containers, the sloppiness there is just -- what's driving that?

Is there still excess capacity there, although we're back to peak volumes?

Well, we're close to peak volumes.

I think again, there's just a lot of pressure.

We've seen the leasing companies come in to the marketplace, and there is pricing pressure.

There is competition out there.

We're trying to maintain our share, and we're going to do it profitably.

Great.

Thanks a lot, guys.

Thanks, Jeff.

We'll go next to Robert Stallard with the Royal Bank of Canada.

Thanks much.

Good morning.

Good morning, Rob.

Greg, I was just going to ask you a couple of questions about the Aerospace aftermarket.

Would it be fair to say that your performance in Q1 has beaten your expectations, and therefore, you've taken down your forecast in the back half of the year?

No, it wouldn't be fair.

Look, the first quarter was very solid.

But if you take a look at the run rate at Pratt for spares in the first quarter, it's really the run rate we expect for the first -- for the full year.

You have to go back to last year's first quarter, which was just awful from spares, down significantly, so this is just kind of a snap-back.

But we still expect kind of low double-digit growth in spares for Pratt for the year.

And the same at Hamilton.

It's just -- this is an abnormally easy compare to last year.

And we were down, what, 15% last year?

Yes.

So, you would expect growth and orders in the second half to be roughly half, then, of what you're seeing at the moment?

Yes, that's probably right.

Because again, we had -- remember, we had a huge fourth quarter last year, with orders up over 40%.

Up more than 30% last year's third quarter.

So, the compares get really, really tough.

And you have the dynamic of oil -- what's that going to do to the airlines' buying behavior in the back half of the year?

So, we stand by the forecast, kind of low double digit.

Could we get surprised on the upside?

Maybe.

But again, it's still April.

Okay.

And then, secondly, I was wondering if you could give us an update on the 787, and whether you have included any initial 787 sparing in there?

We do have, in Hamilton's outlook for the year, some initial provision, although it's relatively modest.

The first customer for 787 is actually ANA, All Nippon Airways, and they are actually going to be on our CARE program, which is a nose to tail program, where there won't be much provisioning.

So, really, the big bump is going to come next year, as Boeing ramps up production and as some of the airlines start taking initial provisioning.

Okay, thanks very much.

We'll go next to Cai von Rumohr with Cowen and Company.

Yes.

Thanks an awful lot.

So, you're up $88 million year-over-year in R&D in the first quarter.

I would assume Pratt is going to continue to build.

So, you know, could you be up more than the two and a quarter million?

Help us understand that pattern, and what drives it.

Yes, we talked about, for the full year, we're going to be up $200 million to $225 million, with probably bias to the upside.

Pratt has $175 million of that $200 million to $225 million increase built in.

So, yes, the run rate increase probably won't be as big in the coming quarters.

Again, we ramped up spending last year, as the year went on; but clearly, there's a bias on the upside for Pratt on the E&D line.

Okay.

And then, you had mentioned that the uncovered restructuring, but you also mentioned $20 million of nonrecurring cap gains at Carrier in the quarter.

Were there any other nonrecurring gains or negatives in the operations?

Yes, Cai, this is Akhil.

I did mention that in the Pratt segment, there was also, again, roughly $15 million, which offset the pension costs.

And that had to do with divestiture of a position we had in a joint venture.

Okay.

But $15 million plus $20 million is $35 million, so that's actually larger than the restructuring.

Because pension is kind of an ongoing issue.

Is that correct?

It's about even, yes.

It offsets.

Yes, okay.

Great.

And then, the last one, you basically were down at Sikorsky in the first quarter, with the three Canadian helicopters.

Sounds like it's a pretty tough second quarter.

If you're going to be up $100 million for the year, it assumes huge numbers in the second half.

Is that achievable?

Or is that -- maybe have a little bit of rift to that number?

It is achievable.

I would tell you, it's not without risk.

I think we have to see a return of growth in the aftermarket at Sikorsky on the commercial side.

We need to see a little bit of a recovery on the commercial side.

Most of that increase, though, is going to come from the factory floor.

That's cost takeout.

And I think we're confident, as far as our ability to take out costs in the production cycle.

But it still is dependent upon a market recovery on the commercial side.

Okay.

Terrific.

Thank you very much.

Thank you, Cai.

We'll go next to David Strauss with UBS.

Good morning, Greg, Akhil.

Good morning.

Good morning.

Could you -- Greg, could you reconcile where we are now with the contingency?

I think we started at $200 million, you took some in at the investor day.

Where do we stand now with the contingency?

At the high end of the range today, I would tell you that the math that we use to get to the contingency is about zero.

But again, I think there's probably still upside in the potential.

You have the euro, potential upside.

And perhaps Carrier in the second quarter, if the good news there continues.

But the math that we talked about, the $200 million contingency, remember that was at the midpoint of the initial range.

And we've moved that range up from $5.20 to $5.33 as the midpoint.

At the high end of that, essentially zero.

But still, we feel pretty comfortable with where we are.

And at Carrier, can you run us through your assumptions around res for the full year, commercial for the full year, in terms of volumes.

And then, also, at Transicold, and commercial, relative to the low-double-digit organic growth you're looking at for the full year?

Yes, I think this is -- the only real change based on first quarter is the Transicold business, where we think instead of being up over 10%, which is where Geraud mentioned in March, we probably think it's more like 15% to 20%.

And that's the primary reason for the uptake of the Carrier guidance.

But most of the other markets, even the res, was a little stronger in the first quarter.

It is a low quarter.

And also, some of it had to do with the distributive restocking that we talked about.

So, we still think that for the full year, between 5% to 10% for US residential is an appropriate level at this point.

And for the commercial HVAC, similarly, I think we had talked about mid-single-digit type of growth on an organic basis.

So, not much changed in the assumptions for other markets, expect for Transicold, which we think will be higher now.

Okay.

And then, similar question at Otis.

Your mid-single-digit organic growth rate assumption.

What are you assuming now for -- are you still continuing to assume kind of low- to mid-single-digit growth in new equipment revenues?

Yes.

Yes.

Okay.

And last one for me.

I think -- I recall that back in December, interest expense, Greg, you had talked about it being higher, in 2011, relative to last year.

Yet it was much lower in the first quarter.

What are you thinking about in terms of interest expense through the year?

We still think that the overall interest expense will probably be flattish, year-over-year.

We're going to issue some additional debt here, probably second or third quarter, depending upon cash flows.

But it looks like we'll probably go to the market, maybe end of second quarter, early third quarter.

But we'll see how that all goes.

Also, last year, interest expense was a little elevated in the third quarter.

We had some charges associated with some tax reserves.

We had to put up some interest on those tax reserves.

So, it makes the compare a little difficult.

Thanks a lot.

Thanks, David.

We'll take our next question from Doug Harned with Sanford Bernstein.

Good morning.

Greg, you said that on the F-35 engine, that LRIP 4 versus LRIP 3, that your costs are down 16%.

Is that a measure of the pricing in LRIP 4?

Your cost base?

Or is it both that are down?

It's both.

Look, this is all cost-based pricing that we're doing out there.

And we're right on the slope that we had agreed to with the JCO -- that's the JSF program office, as we get into full rate production here in the next couple of years.

So, they're on the glide path.

They're getting the costs out; as a result, the sale price is coming down, in line with the government's expectations.

Are they going to be happy?

Probably not.

But the fact is, we're right on top of where we committed to be.

So, I would feel pretty good about that.

And then, on the Geared Turbofan, on the A320neo, can you give a sense as to how your discussions are going?

And what I mean by that is, right now, if you look at the serious negotiations you may be having, are those, say, a few?

Are you talking about dozens?

What's the scale of the interest in this engine?

You know, there is a lot of interest out there.

It is not just a few.

I would say there are numerous airline customers that we're out there talking to.

And you know, it's a great place to be.

I think the value that the GTF brings to the table is really recognized by the airlines.

And I think that's why we've won these first three.

And I expect that there will be more by the time we get to Paris.

Because people see the value proposition of JSF -- this thing saves $1.5 million per airplane per year.

And so, again, I think pricing, it's not awful.

In fact, I would tell you the pricing on these initial orders is actually better than what we saw on other initial orders for new platform introductions.

So, I feel pretty good about where we are.

And have you found the challenge on pricing to be more on engine price, or on how you're looking at guarantees with respect to maintenance costs?

Well, look.

And liability.

It's all a package of -- as you come to the end of it.

But the fact is, the GTF, as we've told you, as we've told our customers, you're going to see about a 20% reduction in maintenance costs over the life of the program.

So, that's being reflected.

But again, I think we're getting value from that, from the customers.

Okay.

Great.

Thank you.

All right, Doug.

Thank you.

We'll go next to George Shapiro with Access 342.

Yes, good morning.

Greg or Akhil, sequentially, the spares at Pratt, I assume, were probably down a little bit because of your natural price increase on January?

Was that also true at Hamilton Sundstrand?

That's true in both cases, yes.

Does Hamilton get a price increase in January, as well?

Yes, they have the same catalog price increase that goes out the first of October, just like Pratt, that's effective January 1 of each year.

So, same kind of phenomenon.

Okay.

And I think you mentioned, Akhil, that Hamilton Sundstrand, the book-to-bill was above 1.

Was that above 1 at Pratt, as well?

Pratt was almost exactly 1.

And Hamilton was slightly above 1.

Okay.

And then, you mentioned that the Sikorsky was hurt in the quarter, because you had the one Canadian delivery which you talked about.

But also, less S-92s.

Can you quantify how many less you had versus last year?

Yes, there were about three less S-92s.

And that -- a little more than $0.01 of impact to Sikorsky's results.

Okay.

And if I look at Carrier and Transicold, it would seem like Transicold was probably up north of $200 million in revenues in the quarter.

And probably would have been $75 million or so profit contribution.

Are those numbers in the ballpark?

Yeah, not that far.

Okay.

And then, just at Otis, the services, you said, were up in the quarter.

I just assume they're kind of up to the normal 4% or so.

Yes, they are, George.

Okay.

Thanks very much.

Thanks, George.

Last question, please.

Okay, we'll go to Julian Mitchell of Credit Suisse.

Yes, thanks.

Greg, I just had a question, really, on the year-on-year sort of implied growth rates in your earnings versus your sales.

Because I understand that organic sales growth, the comps get tougher as you go through the year.

If you look at earnings growth, your full-year guidance implies, I guess, earnings growth exiting this year, is around half the 19% that you did in Q1.

But it sounds as if, for example, the E&D headwind gets a bit less in terms of year-on-year effect in the second half.

So, is there anything beyond just organic sales growth slowing that you think will affect incremental margins overall in the second half?

Perhaps, I guess, as a commodities thing you mentioned earlier.

That's one, Julian.

Also, keep in mind that restructuring in excess of gains last year was like $0.17 in the first half, and it was only $0.12 in the second half.

And this year, we are talking about being equal in both halves.

So, I think that does drive a little bit of the EPS compares as well.

Okay.

Got it.

And just in Otis, you mentioned pricing yourself earlier.

One of your peers in Europe obviously made a big deal about it in their prepared comments this morning, as well, on their earnings.

Is there anything actually changing there?

Or it's just -- it's always a steady state, sort of tough pricing environment?

Yes, I mean, pricing has been tougher, as Akhil mentioned, over the last couple of years.

As the market has been dropping here in the US and in Europe, pricing has just gotten progressively tougher, because there were fewer jobs to go after.

We're trying to retain pricing discipline.

I think Otis has done that, while maintaining its share in the market.

But pricing is tough.

And I think that will play itself out here.

As you see, we start delivering these orders in the next 12 months.

Got it.

Thanks.

Thanks, Julian.

Okay.

As we close out the call today, I just want to thank everybody for listening, but I also want to say a special thanks to Jay Malave, who will be leaving the IR team next week to take over as Vice President of Financial Planning and Analysis and Treasury at Hamilton Sundstrand.

Jay has done a great job these past two years, and we wish him well.

Replacing Jay is Imelda Suit.

Imelda comes to us from Otis, where she was responsible for FP&A, as well as treasury service and business development at Otis's North and South American operations.

Jay and Imelda will be on the call later today.

So, please take a chance to wish them both well.

To close, it's a great start to the year, one that gives us confidence in the outlook.

And we look forward to talking to you later today.

Thank you.

Again, that does conclude today's presentation.

We thank you for your participation.