Watsco Inc (WSO.B) 2009 Q4 法說會逐字稿

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Watsco, Inc. fourth quarter earnings call. (Operator Instructions) After the speaker's remarks there will be a question and answer session. (Operator Instructions) Mr. Albert Nahmad you may begin your conference.

Good morning, everyone. It's a sunny day here in Miami, Florida. I hope you're having a nice day yourselves.

Welcome to our conference, which reports on the fourth quarter full year of 2009. My name is Albert Nahmad. I'm the President and CEO. With me today is Barry Logan, Senior Vice President, and Paul Johnston, Vice President. As always, first let me read the cautionary statement. This conference call has forward-looking statements as defined by SEC laws and regulations, that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements.

Before I get into the specific results, I'd like to make the following observations. First, I believe we have responded and managed well to the economic downturn experienced over the past three years. Over this period, we have produced over $300 million of cash flow, versus $170 million of net income. We have reduced debt while doubling our dividend rate. We have maintained historical gross margins, despite significant volatility in the market. We have reduced operating costs by over $75 million, and we have significantly grown our market capitalization.

The addition of Carrier Enterprise was also significant event in 2009, and these are the highlights of that transformational transaction. We added 95 locations and expanded our revenue rate by over $1 billion. We added more brands and products, including a complete line of premium level air conditioning and heating systems and added a very competitive commercial offering. We added a performance driven, customer orientated team to Watsco, which is responsibly -- which is responding well to the challenge of growing revenues, market share, and profits. And we added overseas markets, and now serve the Caribbean, Puerto Rico, and parts of South America.

In total, the Watsco network now has 505 locations, serving over 50,000 contractor customers, by far the leader in our industry. Now let's discuss the current trends in our business.

Accommodation of improving sales and cost reductions led to improved profitability during the fourth quarter, and we see this trend continuing as we begin 2010. The 82% sales growth of high efficiency air conditioning systems is also a very bright spot. This trend expanded as the year went on, and is clear evidence that consumers are upgrading beyond minimum efficiencies. We expect this trend to continue, especially as a normal replacement cycle is restored to historical levels, and pent-up demand unfolds.

It is also important to note that the regulatory transition from R22 refrigerant to 410A refrigerant became effective this last January 1. This refrigeration change presents another long-term catalyst for consumers to upgrade air conditioning systems. One of the key factors in the transition to our 410A systems is that it leads to upgrading the entire air conditioning system. Not just a single component. Now on to fourth quarter results. Sales increased 68% to a record $564 million. And include $250 million added by Carrier Enterprise.

Same store sales were down 7% but showed improvement over the last several quarters. Sales of the HVAC equipment increased 1% from a strong sales mix of higher efficiency systems. Sales of other HVAC products declined 13% and refrigerant products decreased 15%. Gross profit increased 55% to a record $134 million and gross profit margin was 23.7%. Same store gross profit was $79 million, and gross profit margin was 25.6%, versus 25.8% last year.

Now a reminder about gross profit margins, the margin of Carrier Enterprise is considerably lower than the conventional Watsco gross margin by almost 500 basis points, and the addition of new, higher margin in products is now under way to improve that situation. SG&A expenses on the same store basis declined $11 million or 14% and reflect our ongoing efforts to reduce operating costs and improve efficiency. Operating income, excluding transaction costs, increased 175% to $15.3 million on seasonal operating margins of 2.8%. Same store operating profits increased by 64% to $9.9 million, and operating margins expanded 140 basis points to 3.2%. Diluted earnings per share on an adjusted basis was $0.25.

Now our reconciliation of adjusted earnings per share to GAAP earnings per share is included in the tables of the press release that was issued this morning. Carrier Enterprise performed well in the fourth quarter, with operating profits and margins showing improvement. It also generated cash flow in excess of its net income. A reminder that Carrier Enterprise operating margin is well below the benchmark set by Watsco's other business units and far from the 10% margin goal we have set for ourselves long-term. It will take time but we are certain progress will be made in 2010, and beyond.

Now, for the full year. Sales crossed the $2 billion mark for the first time in our history, an increase of 18% over last year. Same store sales were down 17%, and don't forget I've mentioned it was only down 7% in the fourth quarter, that shows you a trend. And this, the -- down we're moving was impacted by lower pricing of commodity products and lower sales in our western locations, which together accounted for $139 million, or about half of the revenue decline, and cost us $0.74 in earnings per share in 2009. We see much of the impact from these factors behind us.

For the year, gross profit increased 9% to a record $481 million, and gross profit margin was 24%. Same store gross profit was $358 million, and gross profit margin was 25.4%. And same store SG&A expenses declined 13%. Operating profit declined 13% to $86 million, on operating margins of 4.3%, and same store operations -- operating margins were 4.5%. Diluted earnings per share on an adjusted basis were $1.54 on an adjusted net income of $45.5 million.

Now on to cash flow. Operating cash flow was $88 million, or $3.10 on a per share basis, well in excess of our net income of $52 million. Dividends in 2009 were $57 million, an increase of 8% over 2009. Over 2008, I should say. And I trust everyone saw our press release earlier today, announcing that we will once again raise the dividend rate by another 8% to $0.52 per quarter. This will mark our eighth straight year of increasing dividends.

Debt ended the year at $13 million, and debt to cap ratio ended at 2%. From 2000 to last year, cash flow was $700 million versus net income of $480 million. We believe this is an extraordinary performance and speaks to our commitment and ability to generate substantial cash flow while growing the business. In terms of outlook, we are experiencing improving revenue trends, and we continue to aggressively manage costs. As a result, we do expect to show a more profitable first quarter this year, and we also need to remind you, however, that the first quarter is always the most seasonal period of the year.

Now, as for the full year, we do believe 2010 will be a good year, with good earnings growth, but we will wait to give detailed guidance when we have a better sense of the selling season. With that, we are here to answer your questions. Sarah? Sarah, are you there?

(Operator Instructions). And your first question comes from the line of Matt Duncan from Stephens. Your line is open.

Morning, Matt.

Good morning, guys. Congrats on a great quarter.

Thanks.

The first question I've got kind of pertains to these SG&A cost cuts you guys have made. You've done a great job controlling those expenses, and I'm trying to get a sense of, you know, the $75 million in cost cuts. How much of that do you think is permanent, and how much of that may come back as sales start to improve?

Al, I know you noted you are seeing improving sales trends. Were there any, you know, were there any temporary cost cuts that were not in 2009 that are going to have to come back in 2010 as you are seeing improving?

Matt, you always ask the good questions. And I'm always going to go to my best answer man for those kind of questions. Barry?

Hey Matt, how are you?

Great, thanks.

Obviously, what we've worked hard at doing in the last few years is to make all of our costs, as much of our costs, variable as possible and not, not consider anything necessarily to be a fixed cost. And, Matt, some of the costs will come back because it's performance based compensation, commission driven income, and frankly, we want those costs to come back, because it'll be indicative of performance.

From an efficiency point of view, though, we have made a lot of changes in terms of the way the business operates, and just grinding, really on some of the legacy costs that were there. It's going to be hard to predict, you know, how much of the $75 million comes back. But I think we've done, we have made a lot of permanent reductions in costs, and every company in a situation is going to modulate when and how quickly those costs are, you know, are examined.

And, so it will take some, you know, take 2010 to roll out a known. I would say this, and I think Al would reiterate it. There are still a lot of costs where we see reductions and capabilities.

We're still a work in progress in cost reduction.

Very much a work in progress.

Payroll and facilities are our two biggest costs, and we've gotten more efficient in those two buckets of cost, and I think that's going to benefit us as revenue increases.

Okay. I guess just to help kind of bring this up for us for modeling purposes, are there any cost accruals, Barry, that are going to return in the first quarter? You know, accruals for bonus plans, that kind of thing, that were not in the fourth quarter?

I don't think there is anything sequentially different going on Matt.

OK. That's very helpful. Guys as you look at Carrier Enterprise, it certainly beat your own expectations from the guidance you gave us at the time you made that acquisition for what revenues would be over the back half of the year.

You know, A, what drove that? And B, is that momentum you guys feel like you can carry forward here into 2010? And kind of piggybacking on that, how's it going with cost cutting actions at Carrier Enterprise and margin improvements there?

Well, let me start, Barry, and then you can pick it up. First of all, Carrier Enterprise is a company with very outstanding employees, and they saw the challenge, and they met it. The market is also improving for HVAC equipment. And we think we have a highly motivated organization that's very competent to deal with our contractor customers, and meet this increasing demand.

In terms of efficiency, I think that they've always tried to run as efficient as they can. We will challenge them to find more ways to be more efficient. That's what Barry was telling you earlier. We 'e not going to pull back on the drive to more efficiency as revenues increase, that's not in our DNA, I just think it's a wonderful experience with that organization, and I'm very optimistic and eventually, we'd like to break new grounds with margin expansion for not only Carrier Enterprise, but all of Watsco, to move us to the 10% level in terms of EBIT margins.

Okay. Looking at the same store decline of 7% in the quarter, can you guys help us frame that up between the change in replacement sales versus the change in sales for new construction?

Do you have that Barry?

Yes.

Or Paul?

The replacement market is in the fourth quarter in any event is the slower part of the season. As we come out of the summer selling season. But looking through the numbers, we did see improvement in replacement, especially, again the sales mix of high efficiency. The price in sales mix of those products added, it was positive for the quarter.

That tells us the replacement market there is healthy. New construction and the evidence of that is sitting in the non-equipment products, where a lot of our non-equipment products go into that side of the market and you can see there's still some pressure going on in the non-equipment side. Replacement market was healthy, as evidenced by both unit and price mix that we see, and equipment, and new construction you can see some lingering impact in the non-equipment.

Okay. So replacement revenues then were up year over year in the fourth quarter, Barry, if I'm hearing you correctly?

Yes, that's correct.

And then last thing here guys, the manufacturers, you know, of HVAC equipment, following kind of the comments that they've made, clearly are growing more positive on the outlook when you look at, you know, industry shipments in November and December, unit shipments up 22% and 44% year over year, help us frame that up with how much you think the industry is maybe restocking the channel versus, you know, meaningful improvements in underlying demand.

Are you beginning to see signs of meaningful underlying demand improvement? And then sort of what would you tie that to, beyond just the tax credit?

Paul, let's get you into that.

All rightie. A lot of -- you know, their shipments were up 44% obviously in December. And when you look through the numbers, you see that you know, part of that had to be a little bit of pre build, I'm sure on the R22 product that was shipped out.

Those numbers, I don't have those numbers for the month yet. However, you know, most of your distributors were down in inventory. I don't think Watsco really participated in that at all. We didn't have any pre build or pre buy inventory in the fourth quarter to speak of.

I think a part of the demand that we saw in the fourth quarter was also related to some units that just couldn't be repaired any longer, especially on the furnace side with the cold snap of weather, I think we all saw an increase in demand for our furnace, furnace sales. So I think it's a little bit of, a little bit of R22, and a little bit of distributors being down in inventory and taking 44% against a fairly small month for shipments. It doesn't reflect a whole lot of extra units in the field, actually.

Okay, thanks Paul, appreciate the insight, guys.

Your next question comes from the line of Jeff Hammond from KeyBanc Capital. Your line is open.

Morning Jeff.

Hi. Good morning, guys. Hey, just wanted to dig in here on the Carrier JV. Just, can you give us an update on you know, how these transition service arrangements are going? How you're thinking about just year on year cost savings from some of the actions you are taking to you know, get procurement savings, maybe in resizing or restructuring the business for your best practices? And, and maybe within the context of that, you know, how should we think about you know, margins in 2010 for that piece of the business?

Go ahead, Barry.

Well Jeff, the transition itself is still something that's ongoing in terms of getting a stand alone structure, independent of the carrier, you know, systems and processes that they had had. From an infrastructure point of view, that is substantially complete this quarter, and it'll be some savings and it'll also be some people added. You know, when we added the parts and supplies, for example, that would be in that case we're adding people to support that new product group.

But there will be, there is less headcount today and that transition, again, will play itself out in the early part of this year. On the product side, the product transition, the transition being adding parts and supplies, that too is going on, and I think they will have substantial new products in place for the season, this coming season. It added to sales to some extent in the fourth quarter, but really, it's more of a 2010, 2011 event in terms of a new product.

So there will be margin expansion, there has been margin expansion. Jeff, we're not going to get too speculative or guess at it for the rest of the year at this point, because we really want to see more of, of -- more of what's going to happen in the selling season for the whole company, not just for Carrier Enterprise.

As far as cost and that type of thing, again, they are under the same challenge that all of Watsco is under, that's to reduce cost, while we see sales improvement and generate more profit dollars. They did that in the last half of the year, they did that in the fourth quarter and again, margin expansion will be there for next year.

Okay. Just to follow-up, I mean, I know you know, trying to figure out you know, maybe what your parts growth and what the business maybe grows for carriers is a little more difficult, but is there a way to pinpoint what you think just the cost savings are from your procurement and taking out the transition costs, you know, kind of all things being equal.

Well, there not, there's not going to be in Carrier Enterprise, procurement cost reductions of any consequence. Because after all, the main event is the revenue that we generate from what's produced by Carrier Corporation, and that's not going to change much. I mean, Carrier, the corporation, will make adjustments to market situations as we progress.

But what Barry is emphasizing is the way we are going to grow margins, expand margins is primarily by offering the same contractor customer more of what he needs to support home, you know, home and business cooling and heating systems. And through unit growth, to spread out more unit over the infrastructure that we have in place. So, I'm not one that says we are going to lower procurement costs to any great degree on equipment purchases at Carrier Enterprise.

Okay then just a couple of finer point questions. Barry, can you give us price mix in the quarter on the HVAC equipment? In units?

Sure. On the -- this is the Watsco core business, which is what we consistently report on, pricing was up 4% and units were down 3%. Overall net one.

Okay and then, and then on the parts, which was down 24 in the year, how much of that down 24?

That's really supplies, more than parts.

Yeah, okay. Yeah. The supplies piece that was down 24%.

That's like duct boards and things like that that you need for new construction.

How much of that was price degradation around you know the copper-based products.

This Paul. Not much of that was really based on the copper-based products. A lot of that, and it's not based on price moving down. It's just based on the demand being down.

And we've been able to identify you know, several industry indices, as far as, you know, what the shipments are of various products into the marketplace, you know, using industry association numbers similar to AR I. And they indicate that the pounds, or the board feet, or whatever you're measuring are down substantially over 2008. A lot of that continues. Until new construction comes back, things like flex duct and grills and duct board and duct tape aren't going to recover.

Okay then. Final question here. On the $0.74 negative impact from the western operations versus.

The western and the commodities.

And the commodity. Is there a way to split that out between the two?

Barry why don't you look at that and let him know after the call. Barry?

Yes, okay.

Thanks, guys.

Wait a minute. Jerry, I just want to clarify that you should look for the mix change to improve margins too, gross margins. The consumer is well in, getting more and more into the higher efficiency equipment, which of course is rebated by not only the federal government, but by certain states and certain utility companies. And that's not a trend that is going to stop. That's a very positive trend and it's going to go on for many years as the country moves to conserve more energy. It's a positive trend, will impact positively our margins.

Okay. Thanks, guys.

Your next question comes from the line of Keith Hughes from SunTrust Robinson. Your line is open.

Thank you. Just wanted to delve back into the changes in the equipment sales in the quarter. The manufacturers are reporting numbers a lot higher than this. I know you, I know you answered about a pre buy associated with the refrigerant change, but even those that don't have, that own their own distribution have recorded higher numbers. So what do you think the major difference is?

You mean the major difference between the units that the factories are shipping versus the units that we're selling to the contractor?

Yeah, yeah. I mean, I knew there would be a difference. But it just seems, it's a lot bigger than I would have expected. Is there anything else there besides shipments on the new, pre shipments on the new refrigerant equipment?

Well, I mean, it would be a guess. Paul, maybe you have a better answer than I do. But geography could be that, but I can't see that. I don't, I think we're gaining share, we're not losing share. Paul, have you got a better answer than that?

You know, basically what we measure is what we call a movement, where a distributor actually sells it to a consumer, versus the manufacturer's AR I numbers that you look at are based on them shipping it out to a distribution point. And I recognize that several of the manufacturers do have some of their own distribution, which would mean that they are actually shipping to a consumer.

But, for the most part, I think part of it's R22 switch, but also the other side of it is, I think, most distributors had driven their inventories down to a level where they had to reorder inventory, for any sort of upturn. But it would be purely a speculation on our part, you know, what the other OEMs are doing.

Let me ask it another way. You don't feel like any of the OEMs that you distribute for, have their markets have changed recently at all?

Not materially, no.

Not material, okay. Let me move on to another question. I agree with the previous callers, Carrier Enterprise's numbers were fantastic. Is it fair to say that most of that work, good work, was just Carrier Enterprises versus any substantial change that Watsco made to the organization in the quarter?

Oh, absolutely. And I think our style of management is to empower the business unit, to incentivize them, to meet the goals that we set for them and it's very much a result of the -- that organization working hard to fulfill the goals that they were asked to fulfill. We have not, we do have the leader, it came from one of our existing units, and he is there it help where he can. But this is fully an effort done by the Carrier Enterprise team.

Okay.

With a little bit of help from us. I shouldn't say us, because we are all together now. A little bit of help from the legacy team.

Okay. Thank you very much.

Your next question comes from the line of Ian Zaffino from Oppenheimer & Co. Your line is open.

Thank you. You guys mentioned you are pretty happy with the success of the Carrier integration. Using a baseball analogy, what inning do you think you are in? And as you look at that, you know, what's kind of the next step as far as the acquisition front? Do you raise dividends? I don't know occasionally you may (Inaudible).

You're fading out.

I was asking you, as far as you have a good history doing deals, anything that you potentially look to do in the near term? Or is your focus on Carrier? Thanks.

Oh, no. We have an appetite for a heck of a lot more growth, including acquisitions. Interesting, this industry is so healthy that we do not see distributors in financial trouble. Very few of them, the ones that we see and look at, we haven't been interested in offering anything for them.

But the healthy ones, the ones that have size and scope, we are very definitely very interested in making them good offers and bringing them into the organization. That's, we certainly have a lot of dry powder, we have no debt of any consequence, and have very, very ambitious plans. We're only, you know, in the 11% share of this big industry, with our, with our traditional run rate revenue. So we've got a lot of room and a lot of capacity with the strength of our balance sheet, to make more acquisitions.

Do I have any that I want to announce today? I'm sorry I don't. But you certainly need to hear from me directly that we have a great appetite for them.

Okay great. Thank you very much.

Your next question comes from the line of Mr. Tusa from JP Morgan. Your line is open.

Morning.

Good morning. Just a little more clarification around the, around the first quarter commentary. You know, is there any reason that first quarter is going to be worse than the fourth quarter?

Worse than the fourth quarter? Well, I'll let Barry put some specifics on it. I'll, to give you a general sense, what I see happening. I think the industry started the bottom out toward the end of last year.

We saw some growth towards the end of last year, revenues, which as you know, since you follow the industry so well, is an unusual event compared to where it's been the last three years. And then I saw some growth in the first month, January. And then, what happened in February is unusual in the sense that the growth disappeared. And the best that we can tell, that's weather related. Some of our branches were closed.

And some of our contractors throughout the markets where this weather hit were not able to get to the jobs and do the work in such weather conditions. So do I expect a good quarter? Yes, certainly over the first quarter of last year. Materially better. And very.

We hope so.

Yes. And sequentially, I haven't looked at it from that point. Have you, Barry? In terms of quantification? He's saying can we beat $0.25, I think is what he's asking.

Sequentially, Steve, if you look at 10 years and average it, the first quarter sequentially always is a little smaller than the fourth quarter because of the seasonality of the heating season. And, and, heat, the cooling season has not started yet. So, and the data is there. And we can, I can give you historical data it's all public information. But generally it is a little slower in terms of size.

You haven't heard me say this in a while, but I'm feeling really good.

Right. You guys have been relatively cautious here so far, especially relative to others. So, I mean the street's at $0.18, so when you say a little bit down from the first, $0.18 seems to be a pretty good baseline number, I would think.

We'll leave it to your great judgment.

Okay. When, when you look at the carrier business, I guess the revenues were up what again? And then how much of that was units versus you know, mix? If you could just delve into that a little bit.

I'm sorry Steve, you said for Carrier Enterprise?

Yeah, Carrier Enterprises. What was the revenue up and then, what was, how much was actually units? And how much was trying to get a sense of how quickly you're, you know, driving the incremental business here?

For the quarter, their domestic business, the big residential business, was up about 8%.

Okay.

Commercial is down some and the international business is down some.

Okay.

And from a price mix point of view, about 7%, 8% of that was price and mix.

Okay. 7%, 8% was price and mix?

About 7%, 8% was both price and mix. So the growth came from price and mix.

Oh, okay. Interesting. Can you, so that's just a higher, when you say mix, that's the higher efficiency stuff?

Yeah that's what he's talking about.

Okay. So what was, if your equipment was up one, and you had this phenomenal growth in the higher efficiency systems, you know, what was down so much in the quarter?

The non-equipment products were down 14.

Oh, so that includes the non-equipment when you say that? The 82% higher efficiency heating and air conditioning systems?

No, no.

Business was up 1%.

The equipment business.

The equipment business in the fourth quarter for the Watsco conventional branches was up 1%, units were down 3%, price and mix was up 4%.

Okay.

On the equipment side.

On the equipment side of the business.

Got you. Got you. Maybe we can just delve into that after the call. Still a little bit confused on the 80% plus.

It is confusing, but we can clarify that.

Yeah, that -- that's fine. And then one last question, just on the, on the earnings now. So are we, why are we still adjusting out the restricted stock? I mean is that, are you guys going to go back to you know, including that in the number? You know the Carrier stuff obviously falls off with an adjustment. But why are we adding back, still adding back restricted stock expense?

We have a comparative to the EPS of last year.

Okay, so once we anniversary that, will we, will we, you know, include that in the number?

It is a 2009 analysis only. And, from this point forward, we won't go through the mechanics of highlighting that. Because it ends -- really, the accounting change happened in 2009 and it is behind us in 2010.

Okay, great. And then, sorry, one -- one more question. Just trying to, still, I think the biggest question of the call has been, you know, how to reconcile what the OEMs are saying with what you guys are saying. Do you guys look at the hardy data at all? Because the hardy data shows that, you know, basically the distributors that they, that they survey were flat to up a little bit for the quarter, which would be in line with you guys. I mean, Paul is there, is that data that you guys look at? Is that something we should, you know, we should use in our analysis to kind of put all these pieces together?

It's the. Yes, we do look at it, Steve. And yes, it is probably the most representative index that's out there for you to look at, outside of Watsco. You know, that is our peer group.

Right.

The OEMs are not our peer group, you know.

Right, so, to that, to that would imply that really is, it is a little bit of a channel build, for whatever reason. Whether it's just distributors, stocking up, going from very lean levels or, you know, pre-buying some of this R22 stuff.

That's about it.

Okay. Perfect, thanks a lot.

(Operator instructions) And your next question comes from the line of David Manthey from Robert W. Baird. Your line is open.

Hi guys. Morning. I was wondering if you could give us an idea, as you are looking at your same store sales, expectations for 2010. I know you haven't given guidance on this. But Al, I think you said you feel like you are getting back to normal. Does that imply sort of a low (inaudible)?

Well, I can help you a little bit with it. January our same store was 5% growth, in that neighborhood. Low single digits. But as I said in February, we seem to be giving that back, because we just can't get to the work.

I don't think there is lack of demand out there, I think there's lack of ability to deal with it. In some of our markets. I hope I'm right. I think I'm right. And therefore, I would be very pleased if we end the quarter with that sort of a you know, mid single digit growth rate and revenues in the quarter.

Okay. And just with, speaking of weather, with the real cold snap we had in the South, at the beginning of January.

That's what I'm talking about yeah.

You know, a spike in furnace sales, I would imagine that's more a northern phenomena. Did you also see a spike in heat pump sales in the Sun Belt?

Paul, do you have the answer to that?

We didn't see so much a spike in heat pump sales. What we did was, we certainly saw a spike in demand for products such as heat kits, and motors, that was type of thing. It was more of a repair issue with the air handlers. Unfortunately, it got so cold in the South, that most of the auxiliary heat systems kicked in and the heat pump actually phased out. So, most of it was related to the parts side of our business.

Got you, okay. And then, just finally, could you remind us of the seasonality of Carrier Enterprise. Is it generally greater or less than core Watsco?

Great question. Barry, have you thought of that?

Sure, sure. The revenue line, Jeff, is, I would say, very similar to Watsco's curve of seasonality. When you get down to an earnings line, because the margin is so much lower, the earnings are a little more lower in the fourth and first quarter, and restore themselves in the second and third. Just in the algebra of going through the margins. So.

Okay. So would you expect, then, you said the profitability a little bit lower in the first quarter? I should say, you expected the seasonality to be a little bit lower in the first quarter. Does that imply sort of break even for Carrier, maybe?

That's probably fair from a historical point of view, Jeff. Obviously want them to do better in this first quarter.

Okay. Barry?

All right. Thanks a lot.

And Jeff, just for everyone's benefit, your question on the $0.74 and breaking that out, $0.56 is commodity price related for those group of products and $0.18 is the rest.

That was for the year.

For the year.

Yes, '09.

There are no further questions at this time.

Well thanks very much. And I look forward to coming back online next quarter. Bye now.