Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to ask Pete X Corporation third quarter 2018 earnings Conference call. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference. Please press star.
Then zero on your Touchtone telephones.
In mind or just conference is being recorded I would now like to turn the conference over to your host Mr., Paul Clegg, Vice President of Investor Relations and Communications. Please go ahead.
Thank you saline and good afternoon, everyone. Thanks for joining US with me on the call today are gene Lowe, our president and Chief Executive Officer, and Scott Sproule or Chief Financial Officer.
Press release containing our third quarter results was issued today after market close you can find the release in earnings slide presentation as well as a link to a live webcast of this call and the Investor Relations section of our website that SPX dot com.
I encourage you to review our disclosure and discussion of GAAP results and the press release and to follow along with a slide presentation. During our prepared remarks, a replay of this webcast will be available on our website until November 16th.
As a reminder, portions of our presentation and comments are forward looking in subject to Safe Harbor provisions. Please also note the risk factors and our most recent SEC filings.
Our comments today were largely focused on adjusted financial results you can find deep detailed reconciliations of adjusted figures to their respective GAAP measures the appendix to today's presentation.
Our segment reporting structure combines the results of our heat transfer in South African projects into an all other category, which is excluded from our adjusted results.
Our intent is to report these entities as discontinued operations at such time as they meet the accounting requirements to do so.
Consistent with how we established our guidance or adjusted earnings per share also excludes non service pension items amortization expense, an investment valuation true up and one time costs associated with acquisitions. In addition, or adjusted segment results exclude amortization and acquisition related costs.
Finally, we will be meeting with investors during the fourth quarter, including presenting at the Beard Industrials conference in Chicago on November 16, and with that I will turn the call over to gene.
Thanks, Paul Good afternoon, everyone. Thanks for joining us.
On the call today will provide you with a brief update on our overall results segment performances and end market conditions before going into Q and <unk>.
During the quarter, we achieved strong results with significant growth in adjusted revenue operating profit margins and free cash flow.
I'm very [noise].
I'm very pleased with our execution for the quarter end on a year to date basis.
For the first nine months of 2019, we have grown adjusted revenue by approximately 7% and generated an additional $24 million in adjusted operating income expanding adjusted operating margins by 160 basis points.
The integration of our acquisitions continues to go smoothly.
And we see more opportunity to invest for growth both organically and inorganically as we actively pursue a pipeline of attractive opportunities.
As a result of our strong year to date performance and expectations for Q4, we're raising the lower end of our guidance range for 2019.
We now expect to report full year adjusted EPS in a range of $2.65 to $2.72 for a midpoint of $2.69 compared with $2.66 previously.
Turning to our adjusted results for the quarter revenue increased 5.2% from the prior year to $359 million and E. P. S was 60 cents, an increase of 54% compared with Q3 2018.
Strong performances in our age HVAC and detection and measurement segment, where the key drivers of our revenue growth and margin expansion.
As always I'd like to give you a brief update on the progress we made during the quarter on the initiatives in our value creation framework.
In H., frac heating or a new high efficiency boilers continue to strengthen our strategy of developing a stronger competitive position in the commercial and institutional markets, where we see attractive growth opportunities.
And our focus on service in channel initiative is helping to grow I've greater market and customer penetration.
In a truck cooling we continue to have success with our Everest cooling towers, which had the highest cooling capacity of any factory somebody unit.
We have further expanded our Everest line to introduce new models that serve a variety of end market applications and performance requirements and are seeing strong customer demand across all models.
Building on our strategy of growing our market position in commercial refrigeration. We're also expanding our fluid cooler aligned to include products with higher efficiency and lower water usage.
We recently launched a fan coil fluid cooler their provides enhanced try operations capability.
At the ASHRAE show in Orlando in February we will also be introducing a new line of [laughter] of high efficiency fluid coolers that will be among the most efficient in their class.
And our detection and measurement segment, our new electromagnetic locator focused on the water utility market is gaining traction by helping our utility customers prevent coffee system damage.
Additionally, our airport ground lighting product line, which we acquired as a part of the Sabic acquisition posted strong resort results during the quarter and remains well positioned with strong order front log activity.
Within the engineered solutions segment, our transformer business continues to benefit from operational improvement initiatives.
And now I'll turn the call to Scott to review our financial performance.
Thanks Gene I'll start with our net result for the quarter, we had solid third quarter results due primarily to strong performances in our each back detection and measurement segments.
Our GAAP, yes for the quarter was 47 cents.
<unk> adjusted basis earnings per share was 60 cents or an increase of 54% from the third quarter of 2018.
Overall, we're pleased with the Q3 results, which put us in a good position relative to our full year targets.
Turning to our just results revenue increased 5.2% during the quarter.
This included a 3.1% organic increase 2.6% growth from acquisitions and unfavorable currency effect of 0.5%.
Segment income grew approximately $9 million were 21% driven by higher revenue in a better overall margins, which expanded approximately 180 basis points.
I'll walk through the details of our results by segment, starting with age back.
For the quarter revenue increased 6.1 person, including organic growth of 4.2% and a 2.5% increase from yes, yes acquisition, which closed in early July .
This growth was partially offset by an FX headwind 0.6%.
Both our heating and cooling businesses contributed to the revenue growth.
Adjusted segment income grew by $6.6 million, reflecting a margin increase of 400 basis points.
The pricing and supply chain actions, we have implemented to offset the effect of commodity in freight cost increases at a positive impact in the quarter and was the primary driver both revenue and margin improvement.
Detection and measurement revenue increased 15.8%, including organic growth of 10.2%.
6.6% increase from the Sabic acquisition.
In an FX headwind, a 1% primarily related to the British pound.
The organic revenue increase was driven by strong project shipments in our communication technologies platform.
Adjusted segment income margins were 23% or a modest decline from prior year largely due to sales mix.
And engineered solutions revenue for the quarter decreased 3%, Rick reflecting lower prices cooling volumes, partially offset by increased revenue in our transformers business.
Segment income decreased by $600000 and margins increase decreased 30 basis points to 4.9% due primarily to lower process cooling volumes, partially offset by improved transformer volumes.
Overall operational performance with Transformers business is notably improved for both the quarter and year to date period.
Turning now to our financial position our balance sheet remains strong.
Net leverage was 1.6 times at the end of Q3.
We continue to expect <unk> leverage to decline towards the lower end of our target range of one of the half the two enough times by the end of year.
Leaving us well positioned for further capital deployment.
Cash and equivalents at the end of the quarter were approximately $49 million and we generated adjusted free cash flow of approximately $34 million in the quarter.
On the South African projects, we now anticipate full your operational cash usage to be up to $20 million or moderately higher than the 15 million we had previously conveyed.
This is largely due to additional spending to close out certain project work as we approach the wind down of our construction activities on the projects over the next two months.
As an update on dispute resolutions last quarter, we announced a settlement with GE and during October we resolved all outstanding issues with our for our former minority shareholder in South Africa.
The net effect of these two matters essentially offset one another on a full year basis, but creates cash flow timing differences with the cash inflow in Q3 and outflow in Q4.
As previously stated we did not expect cash usage for dispute resolution to significantly affect our capacity to deploy approximately $500 million of capital for growth investments for the end of next year of which we have deployed approximately 87 million so far this year.
Turning to our 2019 guidance.
Our solid year to date performance and outlook for Q4 leave us confident in our full year segment targets and we are tracking a bit ahead of plan on certain below the line items, including corporate expense.
As such we are increasing the lower end of our full year adjusted EPS guidance for new range of $2.65 to $2.72 up from the prior range of $2.60 to $2.72.
We continue to expect conversion of adjusted free cash flow of approximately 110% of adjusted net income.
We anticipate segment results be within our previously guided ranges as always you will find a slide with updated modeling considerations in the appendix of this presentation.
Finally, the overall company level remain on track to recover approximately 50 basis points of margin associated with price cost, which the vast majority is already been recognized year to date.
Now I'll turn the call back to gene for review of our end markets and his closing comments.
Thanks Scott.
We're on track for strong 2019, and we continue to see many opportunities for growth and our end markets.
While the recent economic data points create uncertainty we serve a diverse set of customers and various industries.
Several of our businesses have drivers that are asynchronous with the overall macro economy, including government and regulatory drivers.
In addition around 70% of our revenues are driven by replacement sales.
In Asia Pac cooling solid order rates in backlog support our full year outlook and we continue to pursue organic growth opportunities through market share gains from new product introductions and channel initiatives.
Approximately half of our cooling tower sales are from replacement orders and our demand base includes data centers institutional healthcare educational and public buildings. In addition to commercial construction.
In a track heating we had a strong quarter as we continued to gain traction on new products and initiatives.
Channels appear well balanced as we enter peak demand peak season demand and pre season orders have been solid.
And detection and measurement or front log of project opportunities in communications technologies and transportation remains strong.
We continue to see saw some softness in our locator business in the UK as Brexit uncertainty has caused spending to moderate.
However, we're also seeing strength in other markets such as the U.S.
Demand for obstruction and marine lighting products, which is driven by government related spending and regulation also remained strong.
The market for Transformers remains healthy and we continue to see steady demand from our customers.
And then process cooling, we continue to see a solid set of surface service opportunities developing.
In summary, I'm very pleased with our strong third quarter and year to date performance and we're well positioned to achieve our updated guidance range.
Our significant liquidity and strong balance sheet position us to pursue additional attractive growth opportunities, both organically and through our active M&A pipeline.
Overall, we're on track to generate double digit earnings growth. This year as we continue to drive value for our shareholders.
And now I'll turn the call back over to Paul.
Thanks Gene Celine we are ready to go to questions.
Ladies and gentlemen, if you have the question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q. Please.
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Your first question comes from the line of being in Paris.
Your line is open.
Hi, good evening everyone.
Hey, good Damian.
So I wanted to ask you about the communications technology business.
I would've thought that that might be an area, where you could potentially see.
Some of the recent global macro pressures out there.
But apparently not for you guys. So could you give us any more color around the nature of the project activity during the third quarter.
Had they been in the Hopper for some time and are you still seen good activity in that business through October .
Yeah. If if you know if we talk about the Comtech business I think about it in two areas. There is a substantial portion of run rate in that business. If you look at most of the a specialty obstruction lighting businesses.
Those are really predominantly run rate and we've had very solid <unk> run rate order activity there both in our core obstruction lighting and also on our marine lighting. If you think of the project activity you're right. There aren't that is a very global business.
And there's really two primary applications. There one is more of a military application and our Comtech area and then the other is more of a spectrum monitoring area and what we have seen as it's been really consistent steady performance.
In that business and I do think some of this is a function of the the sales model shift which has yielded much higher.
Both front log and conversion of the Frontlog, but you know as we look at both Q4 and as we look into 2020.
That business has really been performing well over the past couple of years. They have a lot of momentum they have a lot of good products and technology and as we look at the front log into 2020, we feel good and yes, I if I look at the Comtech looking into next year, we're feeling positive Scott.
Deeming I'd just add that we had been seeing steady demand certainly on that kind of replacement run rate side.
And regulatory factors are a good help there.
And that's really on the specialty lighting obstruction lighting side of the of the house. There we saw that good and strong demand in Q3 continued strong demand profile in Q4.
And you know really that's one of those asynchronous type of parts of our business a gene referred to really the whole Comtech group.
And then as far as the project natured side, that's that have does have a longer lead time from a visibility to projects. So we do have a better sense of where that's where those projects are.
Lot of those are either government or or quasi government agencies. So you understand you know we get a visibility of where the <unk>. They are in their process from having funds applied to the projects to when the award ordering timeframe would be so we had pretty good visibility certainly when we're in.
A 30 60.
Oh quarter to quarter two quarters of visibility.
That's very helpful. Thanks.
And my follow up question Gene you had talked about how you're actively pursuing a pipeline of opportunities.
Opportunities on the M&A front I suspect there's.
Quite a few investors out there probably eager to see some capital deployment. So just wondering what is the plan for getting some capital.
Yeah, I'll put to work it should we expect some deployment before the end of year.
You know as of right now it looks like you will be sitting on a a pretty nice a pile of cash as you as you exit the fourth quarter.
Yes. Good question, David I think the way that I would frame it a step back for a second and say the first thing I would say and probably the most important messages I do believe our strategy is very sound and I have more conviction.
In our strategy of really building out our HVAC and detection and measurement plot platforms than at any time and I do believe we've really started to prove this out the for bolt ons that that we have that we've executed on where we are performing well.
And we think there's a really nice runway for us to continue to build these further we believe we're in the early innings.
At the end of the day.
This strategy is extremely sound the having said that we have to be very disciplined in executing our strategy and particularly on pricing and valuations and then also we have to execute flawlessly.
When we bring these are businesses or product lines into into our business and I think to date. The teams have really done a nice job I think our model works there.
So you know I I do believe.
Strongly that we have the right model and I think there's lot of runway for us to go with some of the specifics it can be really tough to get into some of the specifics what I can say and what I did say last quarter is.
Our front log opportunity is I'd say the the most attractive that I have seen since we've been here and and we do believe there's going to be some nice ways to drive shareholder value. It's tough it's tough to get into the specifics of any particular things going on but I would just.
Say, we feel that we will have a nice opportunity to to deploy capital if you're looking forward over the next.
You know quarter, a couple of quarters year. We we believe this strategy sound, but we always have to be disciplined and and we will be disciplined so I'm feeling very optum optimistic about the opportunity we have in front of us.
Great well good luck with it.
Thank you David.
Your next question comes from the line of Brett Linzey with vertical research. Your line is open.
Hi, Good evening, guys, Hey, Brett favorite a really strong HVAC growth. Despite the comp could you maybe just offer some context, how that performed relative to your internal expectation and did you get an earlier channel low this year for the heating season.
And maybe what you expect for Q4 in terms of organic growth.
Scott I'll take that one so I would say we operated around where we expected to operate for for the quarter. You know they they said in my prepared remarks, we saw good really good traction we have seen throughout the year. Good traction on the pricing increases we've done and some of the supply chain management activities, we've done throughout the year.
That's a big driver are probably the predominant driver of both the growth in the margin expansion that you're seeing in the quarter a as a reminder, we're facing headwinds for the first three quarters of last year on price costs and so we had been getting improvement here food first nine months of this year.
Started leveling off in Q4 last year.
We did get some some decent volume across the business and the other pieces that we've had improved pricing discipline, particularly in our in international markets, which is muted actually some of the growth in the cooling side of the business that we're seeing in the Americas.
But resulting in better margin performance across the group.
Okay, Great and then on Slide 17, you mentioned just uncertainty within cooling around some of the macro data specific.
Points, you are seeing I guess, how does that compare to your internal dashboard as you roll up your project follow you talk to your sales folks.
You, just maybe a little bit more color on.
Stated that business and your from over there.
Yeah, I think Oh I'll jump in there and then gene can add on you know as we look at for the balance of this year. We're feeling really good about Q4, you know, we're not we're not going to kind of get into Piecemealing guidance here.
For 2020, I guess, we're just reflecting that on the macro that there that's an area that that we see some.
Variability in data.
I'm now would you did also talk about is that you know that's probably more on the commercial construction side, but we you know, it's a pretty broad base or end market demand driver for the business and remember that specifically for cooling you know half the demand is driven by replacement not necessarily new project.
So overall I'm for the company as we look at 2020, you were not going to go into guidance here, we'll do that in February normal timeframe, but we do feel good about the opportunity for organic growth as we look into 2020 and then as we just talked about we're looking in actively pursuing M&A.
Strategic M&A that could enhance that.
Okay, Great I'll leave it there thanks guys.
Brett.
Your next question comes from the line of Robert I.
I think research your line is open.
Hey, guys good evening, Hey, Robert Robert.
Thank you for giving me my Halloween back [laughter], very well into an important day [laughter] I'm.
Just a quick follow up on that I know.
You didn't want to get into 2020 in detail, but just.
As things stand out.
Revenue growth ranges for segment margin targets et cetera.
Oh.
Appropriate for 2020.
Yeah, I again, I don't want to get into that level of detail. It will do that in February but so I'll just keep that at the higher level that we yeah. We do see organic growth for the company. Both you know we've seen or revenue organic growth and we see some internal operational improvement growth looking down it from an overall drivers of organic EPS growth for the.
Company in 2020.
Got it.
Are you kind of reaffirmed everything from a segment revenue and margin standpoint for this year, but would you perhaps your us to the high or low end of any of these ranges.
In particular engineered solutions came in a little weak this this quarter versus.
Versus what we were expecting.
Any thoughts there yeah. So you see an engineered specifically a you know the Kennedy implied Q4.
Is showing some nice improvement and that's really on the process cooling side, where just the timing of some of the service type projects are more heavily weighted to Q4. This year. Those projects are all underway executing well. So we feel very good there Transformers continues have a good performance good consistent performance this year.
And as you a young you look at the really in any kind of look at the range of of the a guide it really has to do with both the project work within the Nm and the timing of how that plays out.
Feel good about the activities. It's just there's some timing variability there that could play out and then when you look in a heating it's about the natural heating demand of the season remember that we had a very cold heating season last year and we also had kind of a onetime unusual order for Columbia gas.
Last year that kind of gives them a challenging year over year comp and we've kind of set ourselves for more of a normal kind of mid season heating demand profile. If you look at October you know you're kind of off too.
You know the order rates are not supporting a strong winter demand, it's kind of supporting where our guide is but it could you could spike here in the last two months, but that's not predictable.
Okay. That's helpful. So and on engineered in particular it sounds like I think you said a lot of projects are underway. So line of sight there is pretty good yes.
I guess, just lastly from me I wanted to ask about also on slide 17, I think it's been a while I don't know maybe ever.
We've seen a mention affirming pricing and transformers.
So just curious.
Thoughts there how significant that is.
Can we actually see some potential upside to margins.
Looking out over the next 12 months or so.
Yeah Ravi this chain I think if if you look at it.
We've talked about for a couple of years that market you know the teams done a really nice job of self help initiatives and driven several hundred basis points of improvement.
Really an operational initiatives value engineering, a lot of lean a lot of cost out initiatives, but without really seeing any material change in price I think what we see today is it's still a very competitive market there is a.
You know as a reminder, that is a business where there is very steady demand. There's a lot of demand has had tremendous overhang of of old Transformers. We see are really long runway of steady demand there, but there's a lot of capacity out in the market and that's what keeps.
Pressure on on the prices.
And we have seen some some modest benefits to pricing our team has done a lot of work on strategic pricing and we've seen.
Some some impacts there and they other other thing that I would call out is.
Some of the impacts to the Korean imports.
Particularly in the each fee market, we think could provide a little bit of opportunity in that segment of the market.
As a reminder that might be in the neighborhood of 20% of our overall revenue and the Transformers business, but we think.
With the change in the tariffs on on a the Korean imports that provides an opportunity as well so I would say we could see some modest improvement there.
But but we're being careful.
Got it got it alright, well thanks guys.
Thanks Robert.
Your next question comes from the line of.
With Sidoti and company your line is open.
Hi, everyone. Good afternoon, Joe Joe one that had a couple of questions I'm on the a truck segment of the gross margins were really strong in the quarter. I think you cited price cost as being one of the positive could you just talk about that a little more and where are we sort of in <unk> and.
Flux and point of price costs is there more benefit going forward or.
Could you just addressed the incremental margins that you saw there in the quarter you know Joe's Scott So price costs was the primary driver there for that for the quarter. It's really three factors is the price cost and these are really you know the these pricing actions had really been already putting into place. So.
We're seeing a stabilization of our cost structure, we talked about was recovering the overall for the company. The 50 Bips of margin had when we had last year, we've largely accomplished most of that for this year. So you look at it from a sequential perspective, we're not seeing a significant impact for for Q4.
And then the other factors are there there's some operational improvements across the business that was a bit a little bit of volume increase obviously, we got some leverage there and then the pricing discipline that we've implemented in the international cooling markets that have all contributed to improve the a the overall margin performance for the segment.
Okay and in terms of the guidance for the back.
Segment there.
On page 17, it sounds like heating is you know trending pretty well here into the fourth quarter and cooling fairly stable the guidance. If you use the midpoint suggests.
Revenue down and margin down in the fourth quarter is that.
Anything to read into or.
I just read into that a little more no is it through it really has to do with the really difficult Q4 comp from last year heating had a really strong winter demand as well as those about 3 million dollar order coming from Columbia gas that was due to replace repair damaged.
Equipment from a gasoline explosion. So it was it's really those two items and were we are set our guidance for more of a kind of mid mid level season demand normal season demand for this year not seeing any any kind of impetus for a early kohl's.
Season, coming I'm, so far in 2019.
And should the year over year on a price cost basis should that be a favorable comparison fourq uniform.
Moderately we had implemented much of our price increases last year and started getting traction on that from a positive effect in Q4 2018.
Okay, and then on the detection and measurement segment I know, there's some lumpiness in terms of project work and you stated that the front log activity remains pretty solid can I interpret that as going into sort of the first part of 2020 that project work looks pretty good or is that just the.
Statements regarding the fourth quarter.
It was predominately a statement around fourth quarter from an execution perspective, but also from looking in even even starting to look into the total of 2020 were still continue to see a steady demand and now the timing on a quarterly basis, that's what becomes a variable as we get into affirming over our 2020 plans.
Okay, and then I wanted to ask on just in terms of the guidance regarding corporate costs, a little higher than you were.
Expecting last quarter, I think youre talking about low mid forties and.
Increased that to mid Fortys, just trying to understand what's going on with the corporate costs.
No. They did guide actually at this point is for the low Fortys and we've taken that down a little bit.
From the mid Fortys previously so the anticipation that Scott mentioned during your prepared remarks that there were some items below the line, where we were we were trending a little bit better than anticipated and that was one of them.
Okay, I got that flip that around and then just lastly, I know you're start early stages, but you're working through some continuous improvement initiatives in terms of trying to look at the overall company overall and ways to improve the business.
Anything that you can provide in terms of details of you know what you're doing where you're at in terms of that.
Anything.
I would appreciate it.
Joe. This is gene you know you you're right. This is a big initiative for us in 2020, and we do have detailed plans. The gentleman, whose is really a leading <unk> her spear spearheading a lot of this is Randy data.
Who who are who has as the South Africa projects.
I really materially complete this year.
It's going to be spending a lot more time on that we basically are a though I think we have a very good plan, we are applying resources to that.
Hey, it's probably too early for us to talk about what we think the impact of that will be but it's something that we see as as a nice opportunity for us and that we're taking very serious and something that we are going to be executing against in in 2020.
Okay can.
Can we expect the here more details on a on the Fourq you call or is that going to be more of a something to talk about mid year next year. No I think I think by the time to get to the for Q call and we start to look at 2020 guidance, we'll have a I think more detail to share.
And we'll talk about some of the specifics of our initiative at the resources, and a where where we see the opportunities there.
Okay perfect. Thanks, a lot I appreciate it.
Thanks like stroke.
Your next question comes from the line of Walter Liptak with Seaport Global Your line is open.
Hi, Thanks, Good evening guys it won't be one evening.
I just had a couple of follow ups I want to make sure I understood. The process cooling so the the trend in the third sounded like it was a little bit weaker but it was just timing of projects that shifted into the fourth is that right. That's right, especially if you look at it come a as a comparison to Q3 Q4.
Sure of last year.
Okay was there a reason for the shift from the third to the force you know because we're hearing of other companies that are.
Timing of projects is moving around just because of macro things, but this could have been more project specific.
Yeah. This this was more around say readiness and customer timing. What I said is that you know with the requirements that are in Q4.
Those projects are underway the service work is underway.
Those all progressing as anticipated so we're feeling good it where we are kinda early early in the quarter here.
Okay great.
And the cash flow as you indicated looked pretty good for this quarter and I wonder what you're thinking about for the fourth quarter for.
Working capital items, especially inventory.
So our cash flows always heavily weighted for the fourth quarter. We're at a much better position timing wise. This year than we were last year from what from a <unk> the requirements for <unk> for Q4, but you can kind of just always count on 50% or so of our or horse, 60% of our cash flows really generated in the fourth.
Quarter somebody that is a lot of that is coming from the heating businesses, where they're going to do and pre stocking activities in the third quarter and let me start getting the working capital normalizing and getting the receipts of cash in the fourth quarter.
But it's just it's just how we're kind of structurally slanted towards Q4.
Okay sounds great all right. Thank you yeah. Thanks Walt.
Your last question comes from the line of gaming interests with.
Your line is open.
Hey, guys just had a couple of follow up questions shirt or.
So gene you had spoken a little bit about.
Your expansion.
A number of product lines. Thank you highlighted.
In each back some of the newer Everest products and.
Fluid colors.
Well.
Just wondering how we should think about the margin trajectory as you roll these products out.
Yeah fair to assume that day, you don't like carry a price premium compare at your older models.
But also just trying to understand whether there or any other early costs or production issues that it might impact.
Margins.
<unk>.
Sure so yeah, it let's just kinda.
Let's go by the two different areas I'll start with H. HVAC cooling really there's there's two segments in that area. There is the open circuit cooling towers and then there is a the fluid coolers, which is close circuit open circuits. The bigger one we believe we're the leader in that market were very strong.
There.
We have a very nice position, particularly in the apprenda that market large applications. So very good business on the fluid cooler market, where they're relatively new entrant. There. We just started getting products into that market I would say.
Maybe 15 10 15 years ago. So we would would be the third player in that market out of the out of the three it's a smaller market, but we see some nice growth opportunities in that market. If I look at margins I would say they are in line with the rest of our business I don't really see them being particularly.
Yeah.
A a accretive or dilutive I do think it provides a nice growth opportunities for us we actually are broadening our product range. We can hit we're basically expanding our Tam. So we can go after more applications and we think that's going to provide some growth opportunities for the cooling business.
With regards to the.
Two or their upfront costs I would say, there's though we have a lot of R&D and our cooling business a lot of engineering hours. That's that's always built into our model. So this is nothing outside of what's already built into our run rate business. So this is really a function.
The priorities from product management, who have executed it to engineering, so I wouldn't expect any upfront.
Deviations, but we frankly, we see this is a nice a nice growth area and we're pretty excited about some of the innovations that have been coming out of there. It's been a this segment we haven't.
We haven't spent a as much time on as the open circuit and and we think that's good as a reminder.
The company that we acquired SGS, they do have coils and coil products. So this can actually benefit us as we move to expand our presence in the fluid cooler market. So that's that's what we're talking about on the cooling side.
On the heating side, a lot of our efforts really on building or expanding our product line in the commercial side and we've talked in great detail about the S.P.F., our stainless steel high efficiency commercial product that is is having a nice traction in the market.
We feel really really good about the product and how it matches up to the competitors.
Including lock in var, who's the leader in that market, what we need to do is to really build out the channel, where you know historically, where a distribution model resi, 75% of our business, 25% as commercial.
We need to continue to build out our commercial channel a inline with our expanded breadth of product line. We have made a number investments there and R&D, but that's already gone to the piano. So we don't really see any any really changes or deviations that's been built into.
We we we have a very a lot of focus on our N.P.I. every year, that's built into our K P eyes.
And I don't think you'll see anything extraordinary and upfront cost so with regard to those but but really I think both of those areas are good examples where there's been a a pretty relentless focus from all the businesses on organic growth initiatives and how to how to understand voice to the customer how to build.
Some really good products strong value propositions and and how to win in the market. So we're we're excited about the opportunities we see in in the H. HVAC side.
Got it that makes sense.
And you noted the Brexit uncertainty, how that was impacting demand for detection and measurement.
In the quarter.
Could you give us a sense on.
You know what how much of a headwind that wise I mean, what would have.
In organic growth and Oh, you know if you didn't see that underperformance or I guess, perhaps differently.
Yes, hi, within within radio detection kind of how did the European growth compared to what you saw in the U.S.
Yeah, and I you know we debated putting this and it is something we're seeing if you look at it.
On a broadly speaking aire radio detection in the UK is relatively small it might be in the neighborhood of I think it's under 4% of the overall detection and measurement business, but we did see you know added <unk> million or 2 million Bucks decline there versus what we thought we are seeing a you know some.
Certainty there.
Which is real but it is a is relatively small amount and we are seeing some strength in some areas up. We've also is as you've seen in the prepared remarks America is stronger than we had anticipated we've seen some nice progress and some of our the continent of a year up.
Also China has a is a is having a nice year. So.
You know I called that out, but I wouldn't raise a wouldn't you know there's not a four alarm fire, but something that you just an observation that we're seeing in in the end markets.
Okay, great. Thanks again.
Thank you Dan Thanks Damian.
There are no further question at this time I will now turn the call back over to Mr. Paul Clegg.
Thanks, Saline and thanks, everyone for joining the call. We look forward to catching up with you again next quarter and updating you on our progress have a good evening.
This concludes todays teleconference. You may now disconnect.
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