Q4 2019 Earnings Call

After todays presentation, there will be an opportunity to ask questions.

To ask a question, namely press Star then one on the Touchtone phone.

So we'll drive your question. Please press Star then to.

This conference call is being recorded today November the fifth 2019.

Emerson's commentary and responses to your questions may contain forward looking statements, including the company's outlook for the remainder of the year.

Information on factors that could cause actual results to variable excuse me the very materially from those discussed today is available at Emerson's. Most recent annual report on Form 10-K as filed with the FCC.

I'll now turn the comps over to Mr., Tim Raves director of Investor Relations at Emerson, Mr. Raves, the floor is yours Sir.

Okay. Thank you Mike [noise].

Joined today by David Farr, Chairman, and Chief Executive Officer, Frank Dellaquila Dell'aquila.

Senior Executive Vice President and Chief Financial Officer.

Well Carson by executive President automation solution.

Well I'm sharp executive president in commercial and residential solution.

And introducing Pete literally the incoming and upgraded director of Investor Relations, who will surely not mispronounce rank name yeah.

[laughter] welcome to Emerson's fourth quarter 2019 earnings conference call.

Pretty far along in the slide presentation, which is available on our website.

I'll start on slide three with the full year performance <unk> report card.

29 key required organization to be nimble and responses to a lower growth environment, and we had expected a year ago and we did respond on our second quarter earnings Conference call. We began talking about additional restructuring actions and we did so again on our Q3 call in August .

In total we executed 35 million of additional actions in the second half and on October 1st We announced our board you view a further actions appropriate for the lower growth environment, we see over the next couple of years.

[noise] underlying sales finished the year up 3% versus our initial guidance of 4% to 7%.

We saw slower than expected growth across both platforms automation solutions grew 5%, which was mostly driven by efforts targeting our broad installed base.

We saw a large capital projects start to push out in Q2 and that trend continued through the second half.

Commercial and residential solutions saw sharp decline in Asia in the first quarter and was a headwind to growth all year.

Cooler weather hampered residential growth in North America, and professional tools and cold chain markets began to flow through the second half as non residential investment flows.

Despite slower growth, we delivered just above our EPS guidance helped by lower tax rate and lower corporate costs.

Importantly, we had a strong cash flow flow year, delivering free cash flow was 2.4 billion, which was up 6% and reflected a 105% free cash flow conversion.

This drove dividends as a percent of free cash flow down to 50% a critical milestones.

In 2019, we completed our 63rd year consecutive dividend increases and returned 2.5 billion to investors, including 1.25 billion of share repurchases, which was above our initial target of 1 billion.

Today, we announced a four cents dividend increase in 2020.

Please turn to slide four.

Fourth quarter results were above the high end of EPS guidance discussed on the third quarter conference call helped by a nine cents discrete tax benefit.

Automation solutions was inline with guidance with 5% underlying growth in Q4, and full year EBIT margin of 16.0% spot on with guidance.

Trends in the business continues into Q4 was slowing global discrete markets and soft North American upstream activity.

Demanding global process and hybrid markets remained stable.

Commercial and residential solutions end markets.

Slower than expected [noise] and the business de leveraged on lower growth.

Q4 underlying sales were down 2% compared to our expectation that the business will be up slightly in the quarter.

Our fourth quarter free cash flow generation was up significantly versus prior year.

And we completed the 250 million of additional share buybacks announce on our Q3 call.

Turning to slide five.

Fourth quarter gross margin was up 70 basis points to 42.8% and full year margins or 42.5%.

Demonstrating strong price leverage and cost disciplines.

That's DNA cost as a percentage of sales fell 180 basis points as our business is effectively controlled costs.

Operational SG nice spend was lower compared to the prior year and also lower sequentially compared to the third quarter.

Lower corporate expenses also contributed to this improvement lower stock compensation as the favorable and a favorable impact of the prior year onetime for one k. contribution.

Reported EBIT margin was up 140 basis points.

In 2020, we will report adjusted margins, which excludes the impact of restructuring charges consistent with our new adjusted EPS framework, which will discuss in detail shortly.

2019, adjusted EBITDA margin was up 210 basis points to 22.8%.

The quarter benefited from discrete tax items similar to the prior year.

Fourth quarter EPS was up 20%, excluding these discrete tax items from both years.

Turning now to slide six.

From a geographic perspective, we saw a mixed results in Q4 in total mature markets were down 1% underlying in the quarter and up 2% for the year.

US industrial activity softened a bit in Q4 somewhat offset by stronger Western Europe .

Emerging markets were up 8% underlying in Q4 and up 4% for the year.

Strong fourth quarter emerging market investment activity was led by China up 9% Latin America up double digits and middle Eastern Africa up 8%.

Turning now to slide seven.

[noise] total segment margin was up 10 basis points, including recent acquisitions.

Total adjusted segment margin was up 50 basis points to 20.2%.

This improvement reflects greater than 40% year over year and sequential leverage.

We've updated our reporting a corporate and other costs.

Previously we showed two numbers.

Differences in accounting methods line, which included a management charge to the operating segments and certain pension and post retirement costs.

And a corporate and other line.

That included corporate operations.

Total company stock comp expense.

Acquisition and related acquisition related costs and other items.

Going forward, we will present free lines to more clearly show the pension and post retirement.

Costs at corporate the stock compensation expense.

And a corporate and other line, which includes the cost at corporate net of the charged to the businesses.

Acquisition related costs and other items.

We believe this presentation provides greater clarity and is more in line with how our peers report.

Q4 cash flow was strong.

Free cash flow of 1 billion was over 20% of sales.

And free cash flow conversions in the quarter was 140%.

Turning to Slide Inc.

Automation solutions underlying sales were up 5% in the quarter end up 5% for the full year.

September trailing three month underlying orders were up 4%, excluding two large nonrecurring power projects in the power in the prior year.

Strong demand continued across MRF spending and brownfield projects supported by primary demand.

Growth programs focused on our installed base.

We continue to see long cycle bookings.

With that September backlog for final control and systems businesses up 6%.

However, our large project funnel continued to stall as customers capital spending plan push out due to trade tensions and geopolitical uncertainty.

North America underlying sales were down slightly as discrete and upstream markets continued softened.

Strong growth continued in Latin America.

Demand in Europe was stable in the quarter and underlying sales growth accelerated on strong backlog conversion.

Asia underlying growth was broad based led by China, which was up 18%.

Strong growth in Middle East in Africa was driven by long cycle investment activity.

Automation solutions segment margin was up 70 basis points, including significant restructuring investments executed in the quarter.

Adjusted segment margins was up 140 basis points to 19.5%.

For the full year, excluding the dilutive impact of acquisitions.

Automation solutions delivered over 30% leverage on an adjusted basis.

Turning to slide nine.

Commercial and residential solutions underlying sales were down 2% in the quarter and down 1% for the year.

September trailing three month underlying orders were down 2%.

North America underlying sales were down slightly cooler weather affecting key HPC markets.

Additionally, slower industrial markets weighed on professional tools and cold chain demand.

Latin America demand remains solid.

Underlying sales in Europe were down slightly reflecting weaker trends and cold chain market somewhat offset by steady growth and heating and commercial air conditioning markets.

Asia Middle East and Africa was down 7% underlying with China down nine primarily reflecting modest declines in commercial air conditioning, and cold chain markets, partially offset by steady growth and professional tools.

Commercial and residential solutions margin decreased 120 basis points and adjusted margin decreased 110 basis points.

Lower profitability, primarily reflected deleverage on lower volume and unfavorable mix, partially offset by favorable price cost.

Let's turn to slide 10, which outlines our 2020 guidance framework.

With a slowing macroeconomic backdrop and continuing geopolitical tensions we're planning for a lower no growth environment in 2020.

For the full year, we expect underlying sales growth of down 2% to up 2%.

Automation solutions down one to up three and commercial and residential solutions down three to up 1%.

We expect reported sales to be slightly down with a point of FX headwind on the stronger dollar.

As Emerson has consistently done during economic slowdown throughout our history, we have shifted shifted our management and investment focus from a growth mindset to cost.

We started this process in Q2 and a total we increased restructuring investments 35 million in the second half of 2019.

As announced on October Onest, the board initiated a review of operations capital allocation and portfolio initiatives.

The 2020 outlook framework presented here does not include any potential implications of the Board's review.

And our February Investor Conference, we expect to present in detail the outcome of the Board's review and an updated 2020 framework outlook framework.

[noise], although we anticipate significant restructuring investments in 2020 as a result, as a board to review our adjusted guidance framework excludes restructuring charges entirely.

That is we have zero restructuring charges built into the outlook.

Adjusted EPS guidance also excludes significant discrete discrete tax items.

We expect adjusted EPS for 2020 in the range of $3.48 to $3.72.

Against a 2019 adjusted EPS the $3.69.

The guidance focuses on operational improvement in margin expansion to drive earnings growth.

Which is more than offset by 29 cents of headwinds related to tax unfavorable FX higher stock compensation due to higher stock price and higher pension expense due to lower discount rates.

In 2020, we anticipate another strong cash flow year, as we continue to drive operations execution and incremental cash flow from recent acquisitions.

2020, operating cash flow is expected to be 3.1 billion and free cash flow conversion north of 100%.

Please turn to slide 11, which bridges, which bridges, our 2020 adjusted EPS guidance.

The starting point for the bridge is 29 team GAAP EPS of $3.71.

And walking across to adjusted 2019, adjusted EPS of $3.69.

Hi, excluding 14 cents, a favorable discrete tax items and adding back 12 cents of restructuring charges.

And now walking from 369, we discuss first the 29 cents of headwinds next year.

First tax.

The 2019 adjusted tax rate it 21.6%, excluding the discrete tax items last year.

This is 1.4 points better than expected 2020 rate of 23%.

Resulting in a six cents EPS headwind.

Second FX the stronger dollar result results in an FX translation headwind next year, assuming October 31, FX rates hold for the remainder of 2020, we anticipate.

A 200 million unfavorable impact in that sales, resulting in a four cents EPS headwind.

And finally stock compensation and pension stock comp is up due to higher stock price and pension costs increase this year due to lower discount rates.

Partially offsetting these headwinds we expect to drive eight cents of operational improvement on flat to down sale.

Which reflects 30 to abate 30 to 50 basis points.

Of improvement in adjusted total segment margin.

We also expect 12 cents EPS.

From our improved debt cost structure and strong balance sheet.

With 1.5 billion of share repurchases.

Please turn to slide 12, which bridges, our first quarter 2020, adjusted EPS guidance.

For Q1 last year, we add back a penny for restructuring charges to 75 cents.

There were no discrete tax items in the quarter last year.

The 2020 bridge for Q1 looks a lot like the full year bridge.

Nearly half of the headwinds we discussed in the full year impact of first quarter.

This is because Q1 last year benefited from lower stock compensation due to the decline in our stock price in late December as oil prices fell.

In total we faced 13 cents of headwinds, which are partially offset by two cents contribution from operating operations and three cents from shares and interest.

These items are by five cents EPS contribution, which is proportional to the 20 cents, we expect in the full year.

And now.

Turning to slide 13, and I'll hand, the call over to Mr., David Farr. Thank you very much Tim and thank you very much for your service.

As Investor relations at the going out so over the bank is interesting time, we've been having here.

But I want to thank all the employees around the world for their support through fiscal 2019, they've they did accomplish a lot a in a very challenging marketplace and I want to welcome everybody on the on the call today.

As as we talk about what we're seeing in the marketplace in what we see going here going forward, but it's been a very dynamic time period as we all know as a challenging time period, but the management team across this company both here in Saint Louis and around the World is very very focused on delivering increased operational margins in a zero percent unreal.

And growth period.

Growth is better better forward. So it's not we're ready for it and that's what we're doing I also want to thank all the sell side analysts and the shareholders that I've met with Tim and I.

Over the last 60 days can talk to us as we looked sought your inputs, which we conveyed back to the board as we've gone through this process to make sure the board understood, where our shareholders stood today and what they expected of us.

So if I look at.

Where we're going right now and you see the order pattern chart 13.

Preliminary numbers for October the I look at automation solutions, they drifted down a little bit, but not much running around I think around 3% ROI growth rate.

Bob's business has served flatlining here around this negative one zero percent growth rate. The last couple of months and overall, we are as a corporation looking at 1% ROI growth rate right now as we know were we believe we're facing a very challenging time and 2020, and we are getting ready for that now.

More comments on that as we go forward here.

If you look through the chart 14, the history of Emerson from the years that we've gone through different cycles through periods that I've been leading the company as a CEO from 2000 to 2019, yes. We have continued to the change the composition. The company. We've continued to invest in the company, we've divested close to 55% of that.

The company's assets since I've become CEO , we repositioned and invested in new companies in automation business is that the new companies, our commercial residential business and we've driven our gross profit to very good levels are targeted to get that number back into that 44 plus percent range over the next couple of years, but weve.

I'm, an op industrial operation standpoint, we know what we're doing here, we know how to invest in technology to drive higher gross profit and to drive what I'd call renewable type of business model as I look at our aftermarket business going forward. We've had very good through underlying growth rates throughout the economic cycle, yes, there are cycles and yes, we are.

Facing a cycle right now and I believe this team is focused on how we're going improve the profitability and drive as much growth as we can for our shareholders going forward here. The next couple of years.

If you look at chart 15.

The EBITDA margin standpoint over little overlooked over the time period Emerson.

21%, our weighted average peer is around 16% our commercial residential solutions business are very profitable business of businesses runs through cycles, a little bit different a little less cyclical runs around 25% EBITDA versus our peer group around 15 automation solutions business also very very good business is going be.

Held up over a long long time, Iran. At many many years ago I'd say the current leadership team is far better than I ever was back you and I was running in the late ninetys, but running an EBITDA around 20% versus our 15, but we believe we have opportunities here to drive as EBITDA margins back up those peak levels and to enhance our profitability as we go forward and as the next.

Couple of years, and we'll be talking about that a little bit more if you look at our digital transformation capabilities. Today, we now have a very large installed base close to $120 billion and automation world. We have we have a capability with the our digital capabilities today, both from a hardware standpoint in the system standpoint, and we are.

Driving unique business model around that Lau created a new business within that the focus specifically on this higher tech transformation opportunities and we have a very good start in this in this business today, you're going to hear more about that as we now start talking about what we're doing what we have to offer here, but it's really a truly unique differentiation that we.

We have in really from the standpoint over $120 billion installed base, it's quite unique to come off of and I were very very excited about it. It will continue to invest Matt even through a tough time, we will continue to invest in that.

I also want to thank go Wow, and Ron and his whole team in the first couple of years other valves <unk> controls work, it's really created unique shareholder value for us from an EBITDA standpoint, the pro forma of 2017, you look at 2019, there now over $600 million of EBITDA EBITDA margins are now up to 16% we've.

Fundamentally have room to go we made a commitment to our shareholders that we would get to 20% we will get to 20% we're doing the necessary action to get to that level is a step by step bases were underway right. Now we've decreased the number of facilities you will see more of that in 2020, we driven out working capital on a combined basis when we took over.

VNC that number is close to 50% and on a combined basis of our final control is 35 total and we're now down to 26, we're doing a lot of different things here to drive value both for the customer perspective, but equally just important for our shareholder perspective, and a lot more to go here for the Romulus team in lousy is a as they go forward with this integration process.

Yes, it will continue to accelerate debt in 2020 and 21.

We've also continued to drive a lot of cash and back to our shareholders. If you look or Emerson capital allocation over the last 10 years, we paid back to our shareholders in $10 billion, a share repurchase $112 billion with dividends ACA is acquisitions, we've done $10 billion worth capital spending we've done about $6 billion worth so.

We continue to invest in the company continued investment in technology, and we continue to give back to our shareholders. In the last 10 years that number is 57% of our cash flow goes back to our shareholders. This year, we were over 60% as we drove back our dividend and as we grow back our ship share repurchase we clearly had money to get back to shareholders. We did not.

He has made as acquisitions and our attention has to get the money back if we can't use it internally.

On a return basis as a company over the last 10 years. Our return on total capital has been 18% is a number that goes up and down as we make acquisitions a number of drip down as we integrate those numbers are drift up in over the time. If you look through it does go up and down but we drive at very high levels of return on total capital a very important metric for us.

Well from cash standpoint from a sales standpoint in margin standpoint, but returns on our investments for the shareholders perspective is something is high in our mind at all times.

You look at that COVID-19, the only thing I want to point out as we go through a different cycles, you look at Emerson and you look at Rgs energy seven with China. The numbers cycle around we are definitely in the downward drift right now the concern I have as I look at 2020 as I look at the GFI numbers right now they're under 1%.

That tells me we are facing a very challenging time period I'm waiting for the catalyst to cause it to turn.

There are lot of people to believe that we'll see a second half reach recovery, we're not planning on that we're planning on getting the costs out getting our margins moving upward in the in a no growth environment. If we get growth then we'll leverage nicely, but right now what I see and I've been in this game a long time as you all know I see a very challenging environment for at least 12 months.

It could be 18 months and we'll see what that catalyst is that drive that I firmly believe there will be of a bounce back up this cycle has been artificially depressed growth over the geopolitical issues the trade issues and I'm looking at what the take it bounce it but my standpoint, we're betting on a slow global growth for the next year as.

Alogent growth for us and we're we're adjusting accordingly.

We're going through the repositioning review with the board right now, we're where we have a lot of work to do the effort is underway to has been underway for several months, we'll come back out to the shareholders later in after the first quarter and getting into that in February investors call, but I'll tell you I'm thinking right now we are trying to aggressively.

Advance our restructuring effort you are going to see the first quarter restructuring number around $70 million.

So basically what we see at this point in time between Laos business between corporate and Bob We're looking at around $70 million a restructuring on top of what we just did in the fourth quarter incrementally. It was 35 million higher as I look at the total plan from.

There too late to 19% to 20% 21 early 22, I would say right now you should be factoring somewhere between 203 hundred of dollars of restructuring as we go back to drive our EBITDA margins, our EBIT margins to record levels to high levels and that's that focus is underway. The work will be done and reviewed with.

Or to the coming months, and then we'll share that with the outside investors, but we're well underway and we're going to take a significant hit in this first quarter as we really action around things that should be done and to get going on this and that will that will come through and we report our final GAAP numbers, it's not of the numbers that we presented to you today, but it will be around seven.

$3 million and I would expect that number obviously never hit exactly it's going be plus or minus but that's what we're talking about in the first quarter up from what we have spent in the fourth quarter of our fiscal year.

So if we look at what's going on right. Now Board has is looking operational review looking at total cost structure across the company Bolton Bob's business, our corporate organization allows business how can we optimize the cost structured to get back to driving record levels of EBITDA margins EBIT margins, we've hired out.

Side global consulting firm to work with us to look at the pinch points to make sure we're not missing something.

We consider ourselves very good operating people, but having a different perspective is something is very valuable and that's why we brought in somebody to look at this and that's underway again, we will review that with a board the board wants engagement nets, and we're going to make sure that we take a hard look at that with the board in early February . We're also looking at the capital structure, we're looking at our capital.

Allocation, where we see spending money. The next couple of years, how much we see it and acquisitions, how much we see going back of dividends, unless we see going back and share repurchase how much we see going back into capital spending again, we're looking at where we're going to spend the money as we go forward here I know that we're going to put more money into capital as we Rebase summer cost.

Structure I also know that we will continue to drive operating cash flow and free cash flow, which will allow us to increase our dividends as we drive down towards 45% of dividend payout versus free cash flow. We're at 50. This year and we want to get back down to 45 level and finally, we're taking a look at all of the portfolio of Emerson what assets makes.

Then sweat as don't make sense, where we get do if anything we're going to do with some of these assets on the businesses. This is something we do all the time, but we've really put a little more effort into it we like to look at this especially when we go into a downturn allows us to remix and it also allows us every chance of say where do we want to invest for an acquisition standpoint. So every.

Things on the table, we had a two day board meeting this week on Monday and Tuesday.

And we're looking forward to sharing allowed us insights with the shareholders in our February Investor Conference, which is I think February 13th and New York City. It at the famous stock exchange, which everyone loves to go too but.

It's a it's a good price point from a standpoint of costs and so that's why I'm looking at from that perspective, but I want to know, let you know the board and the senior management are very focused on how we can drive improved profitability proof of prior profit margins and also drive growth, we're not walking away from growth, but we know we're facing a challenging market I know that is.

Patients around the water focused on that we're also making the right investments for the next generation technology. The next generation areas. It really will drive growth and we're getting ready for what I would say a bounce back in the marketplace. When it does happen in the meantime, we're very very much focused on drive that value for our shareholders through that margin improvement the cash flow.

Hello, and we're going out and we're very much focused on drive drive that cash and paying back more money to our shareholders in 2020 through the higher dividend increase of four cents. This year, assuming we continue that and also share repurchase of 1.5 billion. This year. So our forecast right now says we're paying back more money to our shareholders in 2020 and.

We also look into drive higher operating cash flow with that much open the Mike and a lot of first questions and it will go from there. Thank you very much.

Thank you Sir we'll now begin will question answer session to ask a question in your press Star then one on the Touchtone phone.

Using the speakerphone, please pick up perhaps it before pressing the keys, if any time request and has been adjusted I'd like to withdraw. Your question. Please press Star then to again navistar than one to ask your question at this time, we'll just pause momentarily to assemble roster.

And the first question, we have will come from Julian Mitchell of Barclays. Please go ahead.

Hi, good afternoon.

I want to say, thanks to Tim's rule to help over the past several years.

In terms of maybe the first question David Smith has been in lot of sort of back and forth between the shore and Emerson and we saw that press release. This morning, how would you characterize.

Where you stand visa Vd show right now and also when you're thinking about the board's changes we saw the modeling announcement should we expect further bullet changes in the quarters ahead.

Thank you very much so I'd like to do here is sort of deal with this issue right up front here and then not have that question come at me for the rest the day I want to focus on Emerson and what we're trying to do here, but first of all we get input as you. All know from every shareholder has been part of Emerson DNA for a long long time, it's how we operate.

And the Board review announced in October was the combination of discussion on the board front over the last six months and the consistent with how Emerson addresses challenging macroeconomic slowdowns.

The board's decision was shaped by input from all our shareholders. That's why I went out and I've asked so many of our shareholders I talked to nearly 40% of our shareholders over the last two months.

Board members of join me on several of these phone calls and meetings and support for them to hear the board understands our strong position as a company in the board's support that we have heard from our shareholders and the board will continue to make the right decisions for the long term for all of our shareholders.

We appreciate the inputs as I said earlier from everybody that I've talked to over the last 60 days. It is important that we the pure wasn't all that we are in control of our own destiny here. We are in control of what needs to be done what our strategy.

Now as I look at what we announced this morning and with Mark Glenn.

What we've been looking out for the last couple of years is we have two directors that will be retiring in early 2021. The board corporate governance Committee have been looking at candidates for quite some time, we've had two candidates. It we've been working on we had an input from a shareholder.

The board.

Took a look out of he was a very interesting per person from the standpoint every board member met this individual wintour very rigorous process and we made a decision as a board the move into the front aligned versus the other two candidates. We have this point in time Mark has unique skill sets. He has a unique experience in the industry. He took a company through a major repositioning effort.

Our restructuring effort he has enormous boards experienced being on the Texas instrument board as a lead director interesting background also from a CFO standpoint is on the border Leggett <unk> Platt is on the board of other companies, which really do bring value to us. So board made a decision that mark fit exactly where we're looking for any move to the front the Q and we brought him on.

And from my perspective. This point time I think is a bit are Fantastic addition, mark is mark no mark for several years and I'm looking forward to as inputs relative whats gone the industry and I think that you, obviously, we listen to shareholders and we're totally in cutover destined his point in time.

Our objective right now is to execute execute around what I've been talking the board about and what I've been talking my Cheryl Cheryl was about we are in total control and destiny and I want to say Mark was a very good addition to our board don't be surprised if I'd only add another director in 2020 late 2020, because I do have this director and that will be retiring in late or early.

21, and I need to make sure that I find that replacement for her with the same time I'm looking for a diverse candidate there and I will in the board's looking at that at the same time, so drilling I appreciate that and once you were another question you might want to ask and go ahead.

Sure maybe.

Looking at some of the other investors suggestions that have been floating around I think on the portfolio you have made it clear that sort of many things around the table.

Maybe on the restructuring aspects.

How do you in the bullet think about balancing that needs to cost efficiency against also the need to keep investing given a lot of changes that are going on in the automation world right now.

It's a very important point for the board at this point in time, the board's very focused on trying to make sure that were not jeopardize in the future of this company.

We've done on a several large acquisitions over the last two or three years were taken we're taking a very strong focus in how we could integrate those businesses how could we get our cost structure improve there were taking a hard look at the touch points between the corporate in the businesses and as I committed to the board, both Bob and I'll have to commit to the board yesterday, because they asking the question. The same question is at.

Asked us how you make sure you're not jeopardize in the future other company just because you're trying to get to just short term topicals, that's not something Emerson does we over the time have been a technology leader, we have been an industry leaders, who are the industry and we have not have no intention to to damage at going forward and these guys talk later on you get asked the same question.

But these guys are very much focused on the key strategic areas, we have opportunities in the side. This company to take our costs down and do things better we have some excess facilities through acquisitions, we have unique opportunity do some best cost job moves by billings new facility. So Julien. It's it's a very important issue for the board because they do not want to make sure that Dave far and.

His last two years does things short term Orient and then hand it over to the next generation site Osha and so I guarantee that thats on the four for the board today will be challenged me to be challenging Bob allow to make sure that they do that Bob you guys want to say anything allowances saving on those lines Yeah. David. Thank you. This is all cars.

And by we've been looking at this weaker environment for sometime now and operating in a world. That's changed since we last spoke in February and we've been accelerating restructuring across the platform.

As we executed through Q3 in Q4 and as we look at the opportunities today, where focus of our structure across the enterprise with structure, we're prioritizing enhancements and speed and execution.

And the key priority for my management team is around protecting our customer touch points at protecting our technology.

And Thats, how we were severely officer, Bob anything you want to add there.

Yes, I'd say generally our investor call again in February we talk more I'll show you. Several examples of programs will drive we continue to drive.

Both to expand the served market, we have and get growth and it is a challenging trade off when you get a situations like this but we are continuing to fund those.

And from our restructuring cost standpoint, we're very heavily focused on a gross profit side of things in the plants and.

Product costs and such so.

We're going to use that also helped fund so lucky sales programs, yes, they get the important point, Joe anything I generally waving asked before I pass on the next person.

Maybe just one last one you talked about slowing growth in North America, I think on slide six.

I just wonder if you could give a bit more update on we have in automation solutions. Specifically is all the weakness in North America still focused on upstream and discrete or do you see it spreading I'll, let alone will answer that question season expert missing on the disappear on CEO , Jeff that does thanks, David Joe in the.

The weakness that we that we experienced in the in the second quarter, leading through the year on discrete continues and has continued through to the fourth quarter and into what we currently see in the environment. Likewise, we continue to see stresses around the upstream and midstream oil and gas.

Value chain in North America, with very little spending at lower acceleration of spending in the in those markets I have not yet seen a broader slowdown in process that particularly as it relates to MRO spend having said that the North America capital environment slow down.

It's been delayed has been impacted by the geopolitical and general economic situation.

Thank you very much while we should we afford was up snacks.

Thanks, Julien. Thank you. Thank you.

The next question will come from Steve Tusa of JP Morgan.

Good afternoon Mr. Joseph.

Hey, guys.

Good afternoon, just on the on the organic guidance and you're starting the year up mater was.

For the first quarter on organic your guide you know negative two to positive I would think in climate at some point in the next I don't know like 10 quarters, you guys will have somewhat of an easy comp at some stage it again.

What is really bugging you within automation solutions.

Specially given you have a need is process has kind of a backlog related business and you should MRO business shouldn't be that.

You know the lack of visibility there shouldn't be that bad what what exactly.

It is the driver that kind of gets you to below.

The flat lined for the year on organic.

Dave It's it's a fair question, given where we are in the for the backlog standpoint in order can standpoint ill give you my perspective on it loud Bob give you two seconds on this too from my perspective on what scares me as I look at the last couple of months, starting I started talking about concern about 20 to 2900 late 29, nearly 21 back back in Asia.

But in the last two or three months I've seen the global Gfive numbers really roll off and when I see a number that goes now GFT forecast for 2020 drop now below 1%. It scares me from the standpoint, Okay guys.

The current pace, we see maybe says it doesn't do that maybe should be better that as you say, but I'm more concerned about the fact that the trend line between the geopolitical the tariffs the trade all these different discussions right now are driving this much weaker gross fix investment number when I see a number go below one historically, we move really quickly towards a zero.

So our negative number on an underlying sales so what so from my perspective, what I'm doing right now say guys, we're driving to a zero our negative number underlying growth I understand there's investment opportunities out there, but we've got a figure out how to get the cost structure set at that zero standpoint, Steve because I am concerned that something is going to happen here from an.

Election standpoint, our Europe or Sam for something happens the middle East and the GFI forecast numbers are really going to happen if that happens we're going to be looking at very low growth. So that I would say, we're I'm being driven by that caution and I think that until we see that catalyst that drive that backup you're right. It should be from catalytic will standpoint at something.

The balance, but I'm not willing to say, we're going to see that bounce yet into I start sensing the underlying economic numbers get better or stabilize I don't see that yet so that's where it's coming from.

At the low end of that range, what does that imply for your short cycle discrete business, which I would assume is going to be the the leader of that of that kind of negative negative view.

In the context of your other businesses what way I just want to lower the allow much of what you heard bunch of our for declines and discrete loggerhead, yes on the broader on the broader process issue.

Don't forget the discrete question and I will then I'll come back to that Steve the.

Capital discipline that we see out there the spending disciplines. The weight our customers are looking at where they put that dollar today is where we've got a really assess how that look goes forward, we've seen that slowdown in North America and ups in oil and gas we've seen in the discrete globally.

Well I have not seen and likely will not see tied to the second our recycling targeting the discrete markets as a good they're very closely tied to GDP NGL Fi trends and we are yet to see a recovery across the broad discrete markets, whether that's automotive semiconductor packaging textiles et cetera, and I don't.

Foresee that coming back so as I think about discrete in that mix, it's somewhere in the mid.

A single digit negative.

At the low end of October web portals.

I'd leave it there thanks, guys I'll share anything I too want you want you I think or Bob you want to ask Bob on.

Well I'll tell you.

I'll just a few questions I'll leave it there.

Bob will make a statement here then.

General and asked my question, Bob Once you can make a comic as tussaud's doesn't like you enough.

I think you know is that am I order visibility gives me about 12 to 14 days of outdoor and so it's hard to say beyond that.

Challenge right now as though the softness is just so widespread weather's general industrial commercial agencies.

Pretty weak right now cold chain as.

You want to industry numbers right now the challenging so.

It's hard to build a toy 20 plan right now on the a recovery of any sort of what happens there will be great.

As a dozen what we're dialing in to do is improved margin without the growth.

And that's really where the focuses right no. Good. Thank you very much Dave I appreciate who's next.

Yes, Sir that question will come from Nicole Deblase of Deutsche Bank.

Yes, thanks fashion and Dave.

Good afternoon Nicole.

And so maybe just starting with a follow on on their restructuring slide and let's say, we do get like a 200 to 300 million costs restructuring framework should we think about that probably I would like must see dropping to the bottom line or would there be off that's kind of going back to juliens question by and a little bit more detail.

It's going to be from our standpoint, what we typically works, where we're trying to target here based on the phone numbers, we're trying to get back to a record level to EBIT, which was a little bit over 19%, we're trying to get back to our record low EBITDA, which was around 22 322.4. So some of the investment will be.

Longer term the payback of a little longer but I think that what we're looking at as a mixture of the long term impact the short term impact allow us to drive that profitability back those peak level margins with very moderate growth of underlying sales. So I would say and historically when we look at it we get back a dollar for dollar it may be over 18 months.

Period, but it's typically a dollar for dollar and we'll let you know as we lay this out there are going to be some capital investments, which will be a little longer because we're going to we need to build some best cost disabilities as weak as we consolidate some of our manufacturing and that will be a little bit different payback, but it's definitely we still always look for doubt dollar plus for that type of.

Thats, what and that's what we're seeing right now.

Okay. That's really helpful. Thanks, and then on just one on the first quarter I'm, just and you could talk a little bit about what you're embedding a not two cents of operational performance accretion, maybe like looking at underlying sales growth and expectations from margins and one Q. Yes. So we're looking at basically about a 1% underlying sales growth.

And were there were or look at probably a couple tense operational margin improvement. The key issue here, though is up now that in that does include the savvy and we're we're we're banking on a recovery on the cost investments the acceleration we did in the fourth quarter, if we get a decent mix a different growth hopefully, we'll have a little bit better margin improvement there.

But in reality, what we're really trying to get geared up for right. Now. The goal is we're trying to get the so as fast as a cost reduction is done in this first fiscal quarter, but that's why we're trying to $70 million, which will allow us to start getting some margin improvement underlying as we get into that second and third quarter. So we're we're trying to get this game going faster I think right now we're ahead.

The wave and I'd like to get a little bit further ahead of the way. So thats, how we as I should feel about us right now.

Got it thanks, I'll pass along someone else. Thank you very much goal that we see a soon.

And next we have John Walsh of credit Suisse.

Hi, good afternoon.

Good afternoon John .

I guess, maybe a clarifying questions first so the 70 million of restructuring in the first quarter.

Is there any benefit associated from that restructuring in the current guidance Construal No 20, now so what so what we've built in is no no benefit improvements and acceleration the restructuring so when we as we as we start doing this and we lay out the plan. We will tell you what benefit costs is going to be coming in for the cost.

Structure, and what benefit will get from profits in this year, because we will by getting going in the first quarter like we're doing right now both Bob's business in corporate allows business, we will get some benefit from from incremental EBIT dollars. This fiscal year and so thats why were pushing really hard to get as much done as possible. This first quarter. It gets.

As it gets tougher and tougher as you go into that second third quarter. So that's why we're trying to front load as much as possible. So the answer is no. We have not is that book than any costs, nor the benefits, which there will be benefits.

Okay, and then looking at the free cash flow I mean, obviously there is some moving pieces on the EPS guide, but free cash flow of 2.5 billion came in line with us in the Street I mean can you talk about some of the levers you have to pull you know to drive that 2.5 billion a performance.

Then.

Expectations for that to grow going forward from here I know you mentioned some capital investments maybe to drive the the larger restructuring program there.

So from the standpoint of this next 12 months I think the best lever. We have is from an operational standpoint can we.

Get our inventory back I think I think our inventory has room to come down a little bit into at 2020.

As we as we slowed in the sales growth in our inventory that was did not come down as much as I thought they did do pretty well, but didn't come down as much. So I think we still have up to $100 million inventory, we can get all the company in in 2020 as you go forward. The key issue there is going to drive. This is a continued working capital.

Performance and allows business as he continues to integrate is two recent big acquisitions, I think Bob's businesses running pretty well tightly right now I think he's got his tools business running pretty well after the first 12 months and then obviously the if we driver profit profit drive that cash flow. So we're trying to drive that free cash flow that level.

Back up which is what we're trying to get back to his we're trying to get back to that 4 billion dollar operating cash flow, which allows us to to get spend the capital we need up to 675 $700 million. We will be also altering our capital spend as we get to understand the restructuring programs. We may have to spend a little bit more than $600 million.

Which is a bed that forecast we made to spend 625, but we're also going to keep trying to push the operating cash flow up because I really do want to get.

Our free cash flow to dividend payout back down towards 40 847.

As soon as possible in 2020 early 21, and so there's a lot of things going on right now, but we're very focused on that cash does that we know that thats, how we drive value.

Great. Thank you for the color in the thank you Tim for all the help.

He's been a decent guy I'd say, we're going to find good job form.

You know he's really done a yeoman's job last 60 days in Fortunately will I think we'll find a really good job form to.

Recast his skills with okay.

You could work out in the Jim or something like that [laughter] give.

Thanks, Jim.

Next we'll have Andrew Obin of Bank of America.

Yes, good afternoon, gentlemen, good afternoon, Andrew I would say the general and this is very loosely described so we don't refer the Midwest I wouldn't call as gentlemen, the Midwest Oh Boy, Oh, well first I do want to thank Tim fall to help.

Do you have a question for Mr. Sharp.

Okay are you guys high due mainly to fill in service Joe or if you left the Robert Oh, you're in China.

I am in China, Yes, yes, I have we're very excited.

Or city when I was I.

Hi, yesterday senior guys. Okay. Good so yes.

Oh, yes under monetized.

Okay Hakan.

Okay.

Just a question on.

A lower I have no first gen our EPS guidance.

What kind of macro scenarios and maybe what can walk what's happening in North America, and Asia would it take for you to sort of hit the lower and all of your guidance because again, our comps seemed to be fairly easy in Asia and too.

Steve Tusa was point that north American compound that already there.

I think to hit the lower end of the scenario Asia would have to.

Going down.

And the pool that hard to tell right now I think you know the I think you're getting a good read right now on the market.

It doesn't feel like thats going to happen, but it's really hard to tell right now month to month.

And you us would have to.

Be we'd be very difficult and that would probably be the broader industrial kind of a picture hitting the pro tools business commercial.

It would be something more than just like a residential thing.

Gotcha and thank you and then question a follow up just a couple of details.

Do you include have you gotten orders again, I know that the Saudi facility or wasn't amorous on facility.

How much of the impact of every Paris was in Q4 and how much if any warrants you've got a for first half of next year and the second question I think there was some talk about sort of large.

If you want order slipping from Q4 into Q1.

Is that correct kind of we're going to see sort of any recovery from Q4 in Q1 or is just stated rate from Q4, two Q1 on automation solutions.

Sure Andrew.

So the salary facility was largely is largely a lever so facility both from a control system perspective instrumentation and valves, we saw repair activity replacement activity through Q4 as it facility came back online very quickly within four weeks of facilities essentially back online and but.

The volume that it took in terms of our equipment to get it back when I was on material.

To the quarter, having said that the modernizations that are going to have to take place within app CAG and their system facility to get that facility modernized assets.

And safe.

I would redundancies will have an impact to us those projects and I fully defined yet Andrew as we've gone through those got the multi million dollar you're going to be very large yet as far as the case will be one order that slipped we have talked about one specifically, we're still working that it's very much in the worksite I'm trying to close it here with the team in Asia, Jamie and that team here in November .

It may slip into the very rich so outlooks into Q1.

So it did not happen ahead of where we're here is still trying to get it first go work in it you will see it because it will be a big order of popular and build pop up.

Okay. Thanks, gentlemen.

Hi, good job.

Yes, Dave I know you're just what you are generally is I'll give you say and get back to state soon okay.

Hi, Thanks.

Next we have.

Excuse me, Joe Ritchie of Goldman Sachs.

Thanks, Good afternoon, everyone. Good afternoon job.

Thank you Tim will compete.

As far as you're not going I know you'd go you're not area I am not know prime in New York City.

That's kind of more than a sometime soon.

So to.

Maybe just talk in China for a second and this this potential trade juice in practice, our guys have been writing about peak trade pain today, and basically that being behind us if we get if we get.

If we move forward and sign phase wine, how long do you think it will take to kind of re kickstart. The capex engine to start seeing a little bit better growth rates across your business Dave.

I think that.

I'll just take Bob's business first I think there would be a fairly positive impact pretty quickly for Bob. This from a spending an attitude standpoint. So I think that you would see a good business bounce and in China.

John Bob has a lot of business in Chinese very strong there. So I think there that would probably within a couple of months, what I would say bounced pretty quickly for him.

The capital side I think the the Ceos would would start I would say within a quarter they'd start reevaluating I think you start seeing some incremental spending start to flow allow the work has been done the as you well know.

We are booked but not entered now our won but not entered numbers how big of over a billion over $1 billion. So a lot of those projects are based around our China exports have a market and so I think that you'd see some of those move pretty quickly so I think that.

Both Bob's allows business, we'll see a pretty good balance were not as obviously not assuming that right now because there's lot of uncertainty, but that would be one that would be the catalyst as I said they would create that second half recovery that would would change us obviously to the the plus two type arrangement in higher from that perspective, but I would that be nice to see in the meantime.

We're focused on that cost, but that's a good positive that would happen.

In Canada.

The channel would move quickly as Bob said.

I guess, Steve than in that context, right you guys have said ill call. It like a flat guide for the year here your order trends or maybe kind of slightly above that I guess in what scenario do things kind of get worse.

From where we are today.

This now get worse is that going back to my G. GSI numbers that if this if we do not get a an agreement with some improvement to get that that tension out of between the us in China and it keeps grinding I think you're going to see CEO is really continue to curtail spending and that would drive obviously, the GFT number down that would hurt us.

Good day to day spending the other thing that would also have been I'm really concerned about is the European.

Economy does not see a recovery in the actions are trying to do with as the new European leadership to try to get spending in the investment going if this thing is still malaise in Europe Thats a concern that we've built into that thing. So that we we don't see the catalyst yet that being treated we know what they are but we don't see them being triggered it.

You are right, Joe and what you guys are talking about in that we do see some realistic change in the in the discussions when they use in China, we do get them realistic movement coming in Europe that will be to positive catalyst that would change the momentum of the curve and move it upwards and obviously move that thing from zero to positive number and growing from there but until we see.

That I mean, I want my guys a focus on getting the cost down and if we get a down fast enough. This recovery happens then obviously, we'll make pretty good leverage.

Got it that makes sense, maybe just one quick one for Bob Hi, Bob and just and just thinking thinking through the margin profile. This quarter in your business can you just kind of parse out what really drove the decremental margins. This quarter what were the what we're kind of the key drivers among mix pricing what affected the.

Yes this quarter.

Right.

Right price cost was or was it was positive for us as it was as it was in the second half nor turned a lot through the year.

The delivered drove the sales and then.

With that you some plant issues are on productivity and turnover and stuff. When you don't have the growth to to work off of gets compounded as part of it.

Then as Tim said for mix, the resi versus commercial what I see in cold chain the transport.

Some of the more profitable food retail was off against other things.

And then on the pro tools on the Disposers soon within the tools area.

Very high margin products. So it was a number of things right kind of lined up for the wrong side of mix in the quarter.

We don't we don't see that as any particular long term trend or something like that it's just sometimes.

Stars align and then sometimes think work against US in this quarter was just badminton things just did not lineup will it all.

Got it thank you I'll.

Take care good CLC soon.

And next way of Andrew Kaplowitz of Citi.

Good afternoon guys.

Andrew.

Dave Spille when you look at Asia Middle East Africa automation solutions for growth was 10% in Q4 should accelerate versus Q3, you mentioned in the briefly but it does seem like it really accelerating here. So what markets are contributing to the re acceleration and your confidence level increasing.

China is still gonna grow, 5% to 8% or 16% and slide 20 and automation solutions.

I think that from our perspective, we saw some some very good international growth in late in the second half year as it was really good to see.

The deprive the I think the opportunities in China are pretty still significant as they continue to invest in technologies in areas that are allowing them to become more self sufficient.

They are clearly investing in next generation digital technologies and so we're seeing that that's a positive. So we had a very good year last year end the year before in China, and so I think that we still feel very confident we're going to see sales in mobile orders in this 5% to 10% range.

So I think we still see that now going back to I think Joe's questions. If we did get some kind of settlement in the relationships did improve I think that would be a big positive to us because of our presence in the quick the quick investment opportunity.

But I believe guest feedback is.

It's just something that it's soured and we need to obviously fix that relationship you look at the middle East.

I think the middle East has a huge opportunities where concerns me about the middle East and primarily as a factor of the other the geopolitical turmoil. The other actions are going on there you I wouldn't call war, but the skirmishes they're going on and so I'm very concerned about this period right now and that's why I'm probably more cautious.

Then they average person relative to the middle East because I'm really concerned about all the activity underway in the middle East and the concern that I have around is that disrupt the projects and that standpoint, now the bookings would say not but I am a little bit concerns on little bit cautious is than those two marketplaces and the other one I would say is Latin America is headed.

Good one and the question is does the whole Argentina's thing the Brazilian thing and lack of money does that saw as we go into a 2020. So allowance you give your your your view of the thanks David.

The China team did a phenomenal job serving whether it's for us a logic and build a dollar market with very relevant customers, who are willing and that will using our technology today and they want the latest and greatest technology, whether its digital transformation control systems final controlled or instrument devices. So a phenomenal job by the team.

And to drive mid.

Low teens type of growth in China. This year as David said, our expectation today given the environment is in that mid single digit typical five to 10 in that range with based on what we see in this space today.

The only what I would add David I think you're right on the Middle East Africa, I think Latin America is a concern right now given given the this from issues and the unless we have just basically across the confident we had a phenomenal a two year run in Latin America, and there were a little bit we're going to watch that were very carefully as we go for good. Thanks.

Thanks for that guys and then just staying with China actually an Asian heating and cooling market. It does seem like the issues. There for you guys have dragged on non bit longer than you expected in a competitive issue. There at all and then you do a much easier comparisons coming up in Q1 as I remember correctly, China heating cooling fell off quite significantly in Q1 and then.

Sure. So would you expect Asian, south to shift now the positive growth.

Despite continuing lethargic markets.

Yes. It was improving like you said it was down 30 actually in the first quarter last year, and then it improved and getting pretty flat, but then Q4 was down 9% again, so it's still been bouncing around a bit.

We do revenues year comparison in Q1.

You know October data point were solid so.

You could see a scenario where china's positive in Q1.

And again the question is what kind of stability that hasn't keeps throughout the year.

There's a little bit heard until Renault I mean, it's not going to competitive issue I think bobs, yeah, sorry, I missed that.

Money, it's they don't have the money.

The mix and then from the standpoint or the driving right now the commercial side of the business is frankly, not Chinese competition.

It's pretty specific competition, though we know endpoints in detail and we're doing well there, especially with some new with 25 horse product we have.

And then on cold chain as well so no we don't fear as a competitive thing its heating really fell away the heat pumps and stuff there there's still the green air policy and stuff like that but I wouldn't say it was is actively being works.

For a while and as that funding and activity plays out.

Is that recovers that's also be part of the story I think if you think back is that the people the phone in Andrew you talk about I think there's a couple of big wildcard you guys. It it's China.

Clearly.

China could be a very strong play for both businesses. This year could be a doug but it could be a very positive if there if favorable discussions happen between the two presidents the country and we do come to some kind of terms of initial phase agreement that would create a positive mode. Both in China and also in the U.S. for us and so those are two wildcard that I see that I had a.

Biggest impact potential for us in the upside as we look at the company today and that's why we're trying to work as quickly as possible cost because if we get this thing going and get that cost down that they'll be a nice bounce for us but those are two wildcard you guys are focusing on pretty hard and the questions I agree with you on both of them.

Thanks, guys. Appreciate any can appreciate all the help.

Thank you Andrew.

Next we have Robert Mccarthy of Stephens.

Good afternoon, everyone.

Good afternoon, Rob anywhere up thanks again.

I never get out that taxi I saw you into the ever get on that taxi.

Eventually yeah that eventually.

You are right you are banned the when nobody that kept saying help me health [laughter] apps I mean, you know what a door knob as you know your view your from your from Someplace not just for the East coast related to get confused yeah. I just wanted to honor. The quiet period. That's all you looked like you were in a hurry and awareness soon.

Yourself shaving I don't know.

[laughter] well, maybe today to say you guys. They do the right okay.

In any event thanks, Tim for everything really appreciate it I think a a couple of questions.

You know if Bob wouldn't mind, just talking a little bit longer term about the h. HVAC markets from what he's seeing.

Clearly other competitor conference. This week, some a middle east smaller cap players have been talking about perhaps a flattening out of trends, particularly in housing or housing related.

Consumer replacement like HVAC water heaters et cetera, where you could it be seeing some pronounced weakness that could point to kinda and and or pause in the echo boom of housing that we saw in the late 2000 timeframe I Didnt know, what Bob seeing over the longer term and the installed base of what he deals with.

With the players he serves whether there is some concern that we could be seeing a longer term secular step down in and what has been a very strong market over the past call. It 10 years.

Yeah, I would say I think for 2020, our outlook on the U.S. market is quite modest and.

In the commercial.

Probably a little bit of different dynamics written in the residential and commercial side.

You see a no I think I just saw the port last week. The average person thing it under his 13 years, though so they're not turning over as March with triggers a lot of the Remodels and.

80, or so for some of the.

Hey, Tracy sales are on the replacement as opposed to the new stuff. So you know how I mean housing starts as the lumber and along into low ones and.

We don't really see anything different about that.

On a replacement cycle.

Yeah, Yeah, I get let me give to send me a Bob you I've been involved this business for a little longer than than Bob has here and I would say there a couple of things going on I think there is a fundamental flattening and there's a growing my concerns is these guys when deal with this issue. It's a cost of the new efficiency standards and the fact that people are now replacing.

It is or repair units versus replacement because the avoid the efficiencies change ups and the price point of those units. So this trend has been going on for some time I personally believe and as Bob Company structure. This thing I think this is going to continue and they're not going to unit growth you are going be price growth and as a dollar guide to growth and that's what we're.

On to see did you guys go forward with your new placements, that's what's going to happen years commit technology value play because I think the cost of the new efficiency use the new refrigerants are going up and it drives down the underlying out and the underlying unit volume. That's what we've been seeing for quite some time and I think thats been continue to your point when as you move into the next refrigerant standards for 2000.

23 would be to the mildly flammables that's going to also requires them mitigating stuff on the systems that goes with the flammability.

You know they'll probably prolong some of the place or I think people are looking to replace fair and 20 years I think right I think they're going to try to drive these use as long as possible.

To your point I think thats whats going to happen I mean between the refrigerants and efficiencies I think people are going to travel on the news as long as possible. So thats going to drive a unit. Therefore, you got to make out in costing US a makeup and price points.

Okay. Thank you for that color. That's that's very helpful. I think you. The only other question I would have it's just in terms the free cash flow I think if my math is correct, which is often wrong you know, we're talking about $4 and free cash flow for next year.

And from that standpoint, you know what do you see did drive it in the out years and obviously given whats occurred in terms of the global economic environment and other issues I don't think we need to talk about the target of 450 in earnings per se for fiscal 2001, whether that's on or off the table I think more importantly.

What could we expecting to see in the kind of that free cash flow number in the out years, what do you think it could compound that and maybe maybe just talking to the segment leaders. What do you what can they can kind of caught tweak up or control whether it's through the continued final control valves.

Operation or other parts of the business to improve cash going forward. So that you think you can you could continue to compound or here in a pretty high rate is a key differentiator to the story is clearly your free cash conversion so kind of eminent we're going to buying this thing because these are things that were as we look at the profitability has we're changing our capital mix.

As we do the capital allocation, Rob as we look at the capital investments and the change in the structure of the company that's going to have an altering to the free cash flow. So we'll make sure that we will cover that at the February me because that is one of our objectives can read we as a company have always been a very good cash flow generator. The question is as we drive.

Or margins as we Rebase and we look at excess capital employed in the company. We take that out can we can we make that capital our cash flow number even better so I'm going to push on that until we finish our work here because as one of the outcomes of the work we're doing and that is clearly one of our objectives. Because we believe strongly cash will drive the value of our company and also.

Allows us to give money back to our shareholders.

I'll leave it there. Thank you. Thank you very much Rob all the best it'd be safe.

Next we have Jeff Sprague of vertical research partners.

Thank you good afternoon, everyone.

HM Okay gentlemen.

Are you are you in are you. Some place. These tells you this China you Wouldnt, Antarctica, where are you.

I'm in the city that works Stamford, Connecticut [laughter].

[laughter]. This city the taxes are these they work together as taxes are works with that.

[laughter] go at standpoint.

It would PR for the sake latitude to [laughter].

Yeah.

So Dave the.

The eight cents of EPS growth for for 2020, the operational improvement.

Thats effectively I guess on zero organic growth right.

That concludes dragged us restructure.

So so implicitly that's restructuring savings so that eight cents is 65 million bucks or so is that carryover from 2019 actions. You said earlier you have no benefit from Q1 in your and your guide, but it would seem like perhaps there is some restructuring coming through.

Yes, I mean theres a couple of things going on there are there does the carryover for the second average because we accelerate restructured in second half year, that's helping us in a big way you will see that it from the incremental margins to the price cost is definitely help us in this scenario a little bit better more favorable from a price cost that's helping us and we clearly look at the different.

Have a mix and we had some tough mix that second happiness. So we're basically we always go back to normal mix. We don't plan on same top mix. So I think that those are three things were clearly a biggest chunk of that would be the restructuring benefits. We got from the acceleration from June July August September and I would say that's because that's it and then when we flow.

While the restructuring the first quarter, we tell you what that number as well start laying out the benefits and you'll start seeing those incremental benefits come forward in this in the second half of 2020.

But what should we expect Dave you haven't put them in your guide but.

There should be some payback from that 70 million and yes. There has got mean, yes, there will be some good payback and mean.

I think it's gonna be dollar for dollar because it's because it's we're not going to full year, but I would say at least 50 cents of one dollar we my estimate right now.

And this year and then just thinking.

Right and this year and then just thinking about what we might here in February so it sounds like you have full board approval for this restructuring right. You you know what you need to do you are going to do 70 million in the first quarter. This call 30% of a grand total of 250 million.

Sure. So so you're you're coming out of the gate with.

Apparently board approval and company by end on the whole restructuring.

So putting aside kind of portfolio questions. I mean is there some further deeper discussion on cost store or other metrics or regardless of the portfolio changes or not this is the this is the restructuring number so I do not have full board approval yet on everything we are drawn to do what I.

I told the board is that we're still working the broad plans at each of the businesses that first passes I've also have some initial work looking at from a corporate standpoint, and what we can do it the corporate but it's not done yet so what we what I told the board is there's $70 million of activity, we can do pretty quickly.

This quarter and I want to get on with it and they need to Trust me as it has a longtime CEO is a leader this company that we're not doing things there damaging the company going back to what earlier question. So I do not have full board approval on the total plan what I would I push these guys pretty hard is what can we get done in the first couple of months of this year.

It really give us some headroom and some flexibility if things get sloppy and so thats, what the $70 million is and yes, you're right, we I pushed pretty hard but the board does trust me that I'm not going do something stupid and then we'll see the whole review of all the plans as we go forward here. So they have not approved it they just a lot.

Let me to take a big chunk and jump on the first start here.

Based on Mike My credibility and leadership of overall running Amisom for last 19 plus years, so thats what looks like Jeff.

Yes, so that makes sense and so that would then meaning that if you do do the to the full 250 or 300, there is a heavier structural lifts that these actions would clearly carry into 2021, you would not be able to get all that stuff started in 20, twond, while the stuff, where I wasn't up and growing up.

The stuff up front right now are very quick these are very quick actions, both Bob Lasalle and we are corporate doing so the stuff that we're trying to do right now are will be quicker and faster payback and really structural things will take longer in the second half a year and more into 21. So you saw what I, what I ask the guys do find music things that we could get onto.

Very quickly that we didn't make a lot of sense from you know that would we would debt we do normally but let's get into as quickly as possible and it gives me some time to deal with a longer structural issues and how we go about losing that we want to prove the once the board approval on those things.

And so I think Thats how were looking at it for the first 345 months I'm looking at a quick things we can do by going after some liquid cost structures, which don't really take a lot of a board approval process from the standpoint going forward. So that's what we're looking I'm trying to get things quicker. It gives a little headroom from the standpoint of what's going on the economy.

Great. Thanks for the color good luck.

Thank you thanks very much Jeff.

The next web Josh Pokrzywinski Morgan Stanley .

Hi, good afternoon guys.

Hey, Jeff Josh you're going to be my last guy here and I apologize everybody outs, but you know.

It's a longer questions I have I have more people in the phone today. So I apologize that I will work very very hard to get the rest of people next time or I'll work at around but.

We've been already passed that our to our 20 minutes, so but I want to Josh you got your question to take your time, you're closing. It you are the your same between August and getting a drink and they don't screw it up now im on Meghan. Good I'd have more time, if Rob Mccarthy wasn't such as storyteller, but will.

[laughter].

I'd like to say docket [laughter] just on the restructuring if you could kind of help us with maybe the the framework that you're adopting or as you bring in some of these external folks to walk to look at the organization.

Is it more kind of looking at some of the the structural costs things like DNA, where maybe there duplicate functions or is it more on trying to benchmark businesses say like Oh final control could take it to the next level, we can compare that to a a competitor or something like that is there a specific track that this is going down or is it a little bit of all the.

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It's more of that we're looking at DNA expenses that may be that we don't need to do it would have duplications. We're looking at things that both the two businesses due in the corporate do are the things that we do from a frequency standpoint, and in the process or we were worse or over doing them and maybe we're spending a little bit more money as rich as we.

Shrunk the company into two platforms and we in we trade off back and forth where do we go after from an Gnh standpoint, the structure stuff that we're working on very much is around the structure between that the individual businesses, our facilities and maybe where we have too much capacity to make facilities or maybe where we have too much.

Overlap from a of organization standpoint, we may want to put organizations together. So we're looking at more of a structural from that perspective, and then we're looking at the that cost structures in between all the Gnh benchmarking, what we do as a company and what other companies do you make sure that yes. We are we consider ourselves best in class, but are we doing things to.

Josh.

Got it that's helpful and then shifting over the demand side and Dave. The last time, we have a slowdown you had a big set of customers in oil and gas to kind of Warren capital discipline for for the first time. So maybe they are levers that got pulled that wouldn't get pulled again, how would you compare some of the decisions are customers are making around timing or curtailed.

Thanks, spending and kind of how rational dosing in the current environment or how sustainable you know some of those decisions are.

Well first Josh is you know this cycle just barely got started and I don't think theres been any any level of excess spending or capital that we've seen I from my perspective, I think they've been very rational.

What they're doing right now is their spending more money on short term paybacks, you sort of the cobi three to kelby too.

So I think theres a lot more discipline within this segment I'll, let loud software in the second.

But I think it's a better process for us and if they get some clarity around what's going to happen in China. Some clarity what the let's say the trade discussions are going to be I think you'll see some that capital flow out and I know do they have pressures on them relative to their capital allocation, but I also think they have the capital flexibility to invest for the future.

Sure in I'd. So I think this the disciplined standpoint is been much better here the last two or three years in this cycle has been truncated and pushed down and I think it could pop back up in a nice way. So loud anything you want to add there no I think thats well said, David the discipline around the capitals third the discipline around the operational dollar start there as well, but ultimately the plants.

The run safely to fields have to run safely and there's a degree of investment that goes along with that correct and that hundred $18 billion type of install base that we do have leads us to gain continue to gain customer relevance and trust as we go through the slower periods of time.

I want to thank everybody, Tim Tim is not going to go away he'll be still with US I think you'll still be with us in early February we may be.

Transition nobody is not going anywhere anytime soon so you guys always have a chance of.

Be nystrom, one more time I wouldn't overdo it but.

I appreciate everyone's I appreciate everyone's patience and I also want to thank all my shareholders in the sell side analysts for giving me the time to talk about issues, what's going on what you think about the company and what the board should be thinking about those those are very very important inputs to us and the board truly appreciate them and they were summarized by Tim.

Market myself, and they got up and they ran them and I want to thank everybody and I would look forward to senior guys real soon thank you bye.

Thank you Sir also into the rest of management team for your time today again. The conference calls now concluded at this time you may disconnect. Your lines. Thank you again, everyone take care and have a great day.

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