Q4 2019 Earnings Call

It's like three we state that we are presenting certain non-gaap Financial measures in this presentation. We believe that these are useful Financial measures to provide you with additional insight into our operating performance and for helping investors understand and compare our operating results across accounting periods. And in the same manner as management, please read this slide for information regarding these non-gaap Financial measures wage, and please see the appendix for reconciliations of these measures to the most comparable measures in accordance with gaap.

now let me

If we review the agenda for today's call Luis will lead off with his opening comments and an overview on the quarter.

Rob will then provide our fourth quarter Financial results in detail and provide an outlook for 2020. We will then move to Q&A after which Louis will have some closing remarks now I walk in the call over to Lewis.

Thanks, Rob, and good morning everyone. Thank you for joining our fourth quarter earnings conference call and thank you for your interest in Regal.

We continue to experience tough macro conditions in the quarter. Our fourth quarter Financial results reflected the ongoing slowdown in industrial markets particularly in office in China due to the ongoing global trade uncertainties weakness in the industrial distribution Channel and inventory destocking in the HV AC in pool pump Mark Regal posted negative 9.3% organic growth in the quarter of which approximately 1.7% was from our eighty-twenty account pruning FM.

overall

Orders were down 2.8% in the quarter excluding a one-time blanket project order orders were down 5.7% for the company.

This compares to down 10% in Q3.

Orders were relatively flat in the quarter for the industrial business, but down mid-to-high single-digit for the other three segments, excluding the unusual blanket order off despite this challenging sales environment. We generated an adjusted EPS of a dollar twenty-five and delivered well below our normal rate at 12.5% I am proud of our our Regal teams that have been driving a T20 leaned productivity and supply chain improvements along with SG reductions to simplify our business.

We are still in the early stages of executing on these tools and efforts, but the benefits are already showing in our results.

For four year deal average rate with 15.5% You can see this improvement in our sales per employee metric which was up approximately 7% off over 2018.

As is clear from our earnings release, we made a strategic decision to reorganize into for reporting segments climate and PTs will remain unchanged.

Dni has been split into two segments commercial systems and Industrial Systems. All four segments currently have a president who reports directly to me with previously disclosed retirement of the Regal Cielo.

This new segment alignment will improve transparency focus and accountability while placing a greater Spotlight on performance in particular with the commercial systems and Industrial Systems businesses.

Back to Q4 2019 performance. Rob is going to provide more detail on segment performance, but I will share my high-level perspective in the commercial systems and Industrial Systems businesses the market headwinds from the over stocking in the pool pump Market the general industrial slow down and the ongoing weakness in China from trade-in Thursday all continue to weigh on sales in both businesses. We have them reducing sg&a costs and are deploying eighty-twenty techniques as a result both business package delivered at lower than historical rates our rigorous Cadence, including weekly and monthly business unit and president operating reviews is starting to pay off.

However, there is no question that our industrial business in particular is underperforming, but we have taken clear actions that will drive margin Improvement in 2012-13. Even with the lower sales levels. This will be accomplished through a T20 SKU reduction a new line of cost competitive motor and Generator solutions for dead American Market as shown on the slide.

Consolidation improving our supply chain management and focusing on our highly valued customers.

Our commercial systems business also has significant self-help opportunities that will improve performance in 20 20. In addition. We are excited about the growth that will come from the south Twenty One pool pump Energy Efficiency regulation and are currently developing differentiated product to meet this requirement. In addition. We are accelerating Global growth of our are handling Solution by expanding our portfolio and entering into new markets and we are bringing new technology to the market in our high speed motor offering.

We feel confident that our investments in product in technology will pay off in the future.

Climate and PTs performed solidly given the market conditions climate improved operating margin by 240 basis points and PTs improved by 120 basis points off. This was achieved despite headwinds from weather and continued inventory to stocking which drove mid-single-digit organic sales declines in both segments.

I am

Actually proud of our climate and PTs teams that even with the sales declines both improved operating profit year-over-year. I am also excited about organic growth initiatives in both of these businesses. That will impact 2020.

In climate Solutions two examples of this are the legislation that went into effect on July 1st, 2019 driving higher Energy Efficiency is a gas furnace products in the North American market and while we gained five million dollars incremental Revenue in 2019 with forecasting market demand, we expect thirty-five million dollars incremental in twenty-twenty. The second example is our premix spoiler solution which assists inefficient clean-burning of natural gas heat water Regal is a leader in this product category in the domestic market and has significant opportunity for growth in the global hydronic Heating and water heating segments, which expand Regal into unserved spaces with highly differentiated products. This is a global opportunity of over ten million units and we have already developed a pipeline wage.

5/30 million dollars

of sales opportunities

In our segment as an example, we are laser focused on our unit Material Handling mod sword offering where our sales opportunity funnel has tripled in the last three months. Our product is well differentiated provides cost savings to our customers improve productivity safety and ergonomics and has a less than one year Payback.

In addition our renewable renewable energy business continues to grow as we introduce additional solutions to this Market we more than doubled the business in 2019 and expect to be another year of double-digit growth.

Both of these businesses have flourished in the decentralized organizational structure have made compelling growth initiative Investments and have their business unit leadership firmly in place.

Or the total company, we have new leadership in 12 of our 25 business unit or sales leadership roles hiring roughly one-third of the leaders from outside of this business this mixture of tenured Regal leaders plus external hires creates a really solid team of business Executives wage are providing new ideas and perspectives to drive further performance improvements.

In addition, I want to share some more details on our eighty-twenty effort in the fourth quarter. We pruned low-margin account with total sales of over fourteen million approximately 1.7% of sales the 80/20 principle and methodology is quickly permeating the organization in our day-to-day activities took date. We have already trained over 900 Regal Associates in eighteen twenty or 22% of our salaried Workforce.

8020

It's clearly taking hold at Regal.

For the 4th for the quarter our free cash flow was 122.2 million dollars up twenty eight point two million dollars from the same period of 2018.

Through a continued data analytic approach to inventory management our teams drove and inventory reduction of forty-seven million dollars in the quarter. We finished the year with free cash flow of 316.1 million dollars up $31 from 2018. It was an excellent year for cash management and I can't think teams enough for their efforts.

As I have shared in all of our earnings calls, we are taking a non-biased Approach at evaluating our portfolio. It is clear that our industrial system segment in particular job opportunity for significant self-help, and I believe we have a clear path to drive shareholder value.

Focuses on improving earnings and roic but in addition we are considering Acquisitions that could make us stronger in particular in our pts and climb Solutions businesses where we can leverage Regals core competencies of strong channel to Market and our Global footprint while driving significant cost synergies.

However, with the current market conditions and inflated valuations, we will only make portfolio moves that are accretive to shareholder value. We will share more with you on our strategic at our investor day in March.

In summary our reaction to market headwinds the deleveraging the quarter along with the strong free cash flow aligns with the improvements. We are driving at Regal. We are well-positioned for growth when demand returns and destocking subsides.

I am very excited about our future prospects.

With that I will now turn the call over to Rob who will provide more details of our financial performance.

Thank you, Luis and good morning. Everyone as Lewis mentioned we had some significant top-line headwinds in the quarter. That's all weakness in several end markets and regions despite these sales jobs Regal delivered at 12.2% well below our normal rate helping to minimize the volume impact to our operating profit.

I will start by providing comments on the segments and end with more detail on the total company and our guidance as Lewis mentioned. The company has realigned into four business segments effective December 28th, 2019. Those segments are commercial systems Industrial Systems climate Solutions and power transmission solutions for the recast Financial results related to this segmentation. Please see the tables in the appendix of our earnings release or this presentation.

Starting with commercial organic sales in the fourth quarter were down 10.4% from the prior-year the segment saw double-digit declines in North American pool pump and in general industry along with low single-digit declines in the China Market.

The decline in sales was also driven by our proactive approach to pruning low-margin accounts as we continue to execute on our eighty-twenty initiative. The impact of this pruning initiative was rough estimately two hundred basis points over the organic sales decline.

The adjusted operating margin in the quarter for commercial was 7.5% down 290 basis points compared to the prior-year this margin wage down due to the volume decline along with the impact of unfavorable mix primarily in the pool pump distribution Market. However, margins were also impacted by the fact that we allocated corporate expenses to nicotra Gephardt business within this segment in 2019, but did not allocate corporate expenses do this business in 2018 the year of acquisition spite these headwinds we were able to partially offset the impact with favorable price cost and 80-20 actions for the year deleveraging the commercial segment was 14.3% off an adjusted basis. Well below the normal delivered in this segment and a clear indication that the actions around eighty twenty and productivity improvements are gaining traction.

Orders in commercial for the quarter were down approximately 8% reflecting weakness in a number of our end markets along with continued destocking in pool pump. However, this is an embankment from the 11% reduction. We saw in the third quarter lastly. We are seen some slight Improvement in first quarter order rates, but it is still too early to determine if this Improvement is the same.

And Industrial organic sales in the fourth quarter were down 14.2% from the prior-year.

The segment saw double-digit declines in power generation North American General industrial Motors in China industrial markets. The decline in power generation is primarily due to the continued project delays in the data center industry as well as weakness in oil and gas. The decline in sales was also driven by our proactive approach to pruning low-margin accounts long as we continue to execute on our eighty-twenty initiatives. The impact of this pruning initiative was approximately one hundred fifty basis points of the organic sales decline.

The adjusted operating margin in the quarter for industrial was 1.2% down 250 basis points compared to the prior-year. The margin was primarily down due to the volume Decline and the lower mix of power generation sales in addition margins in the quarter were impacted by the ongoing impact of tariffs. However, despite the headwinds. We were able wage partially offset the impact with sg&a cost reductions and our eighty-twenty initiative leverage in the industrial segment was 18.3% significantly below the normal divorce rate in this segment while the margin in this segment is not where we wanted. It did improve sequentially in each quarter of 2019.

Orders in industrial for the quarter were down approximately 1% significantly improved from the 16% reduction in the third quarter.

Turning the climate Solutions organic sales in the fourth quarter were down 6.5% from the prior-year. The decrease was primarily driven by the mild start to the winter and by the fact that the fer pre-buy in the first half of the year, the decline in sales was also driven by our proactive approach to putting low-margin accounts as part of our eighty-twenty initiative. The impact of this pruning initiative was approximately two hundred basis points of the organic sales declined on a positive note. We saw double-digit sales growth in our asia-pacific region during the quarter off the adjusted operating margin in the quarter for climate was 17.1% up 240 basis points compared to the prior-year the margin expansion was driven by productivity improvements sg&a reductions and actions around our 80/20 initiative. These efforts allowed us to be two more than overcome the margin headwind from the sizable volume decline.

offering

Profit grew by 8.6% despite the 6.5% organic sales decline in the quarter.

Orders in the climate segment for the quarter we're down approximately 7% which was a deterioration from the down 2% rate. We saw in the third quarter of this year as previously mentioned, I'm start to Winter along with the impact of the fer pre-buy in the first half of the Year dampened our residential HVAC demand and the quarter lastly as we enter the first quarter order rates continue to be weak from a year-over-year perspective, but it is still early and very dependent on weather conditions.

Turning the power transmission Solutions organic sales in the fourth quarter were down 7.2% from the prior-year the primary headwind in the segment was the continued slowdown in oil and gas both Midstream and Upstream. In fact in the second half of 2019. We essentially receive no new orders for Frac pump gearboxes. We also continue to be impacted by week month in North American industrial markets in the distribution Channel along with weakness in the beverage conveying Market.

the decline

Was also driven by our proactive approach to pruning low-margin accounts as part of our eighty-twenty initiative. The impact of this pruning initiative was approximately 100 basis points of the organic sales decline partially offsetting these challenges with significant positive growth in the renewable energy and Market.

The adjusted operating margin in the quarter for pts was 13.3% up 120 basis points compared to the prior-year favorable price cost improved productivity sg&a cost reductions and 80-20 actions more than offset, the significant volume decline operating profit grew by 1.6% Despite the 7.2% organic sales decline in the quarter.

Orders and PTs for the quarter were up approximately 8% a reversal of the down 16% in the third quarter. However, the Improvement was primarily driven by activity in the renewable energy page where customers are buying ahead of reduction of a tax credit in 2020. Looking at standard product order rates in the quarter which would exclude the engineered to order Solutions. We saw a decline that approximately 8% slightly improved from the third quarter decline, but still negative.

as we

For the first quarter, we continue to see weakness in distribution and expect orders to be relatively flat to the fourth quarter.

Now I will summarize a few key financial metrics for the fourth quarter. Our Capital expenditures were fifteen Point 1 million dollars in the quarter the total for the full year was ninety six point four million dollars. We continue to be focused on ensuring that we deploy Capital that drives returns of our average weighted average cost of capital and ultimately improve shareholder value our summer vacation and footprint consolidation activities resulted in 18.1 million dollars of restructuring and related costs in the quarter the full-year restructuring and related costs total 31.5 million dollars.

We expect our 2019 restructuring actions to result in more than $38 in annualized savings an additional $6 million dollars of savings above what we communicated with last year last quarter. Excuse me. The adjusted effective tax rate in the quarter was 22.2% The higher effective tax rate in the quarter was due to an unfavorable true off of a tax on a distribution between two of the companies foreign subsidiaries partially offset by the favorable impact of higher-than-expected earnings in lower tax regions.

We provided a table in the appendix of this presentation to reconcile the Gap ETR to the adjusted ETR. Our full-year adjusted ETR was 19.9% Our total debt 1 billion 137 million dollars an hour net debt was eight hundred six million dollars. Our net debt was down one hundred one point eight million dollars from the end of the third quarter down 250 2.4 million dollars from the end of last year. We ended the quarter with our net debt to adjusted ebitda ratio at one point seven down from 1.9 last month and well within our comfort zone of 1.5 to 2.00. We received we achieved 122.2 million dollars of free cash flow in the quarter up twenty eight point two million dollars from the fourth quarter of 2018. This was driven in part by 47.3 million dollar inventory reduction in the quarter for the full year 2019. We achieved Thurs

16.1 million

A free cash flow up $31 million dollars from 2018 again. Most of this Improvement was driven by the trade working Capital Improvements made throughout the year. Also in the fourth quarter. We purchased approximately $181,000 of our shares for $15 this brings our year-to-date purchases to approximately 2.2 million shares as we continue to execute on our balance Capital allocation strategy. Now, I will provide provide our full-year guidance for 2020 our updated guidance systems Organics sales growth to be flat to slightly down. We expect to see stronger headwinds in the first half of the year with some recovery in the second half barring any further south of macroeconomic challenges. We are expecting our full year 2020 gaap EPS to be in a range of $5.35 to $5.75 on an adjusted EPS wage.

We are expecting.

Just $5.65 to $6.05 an increase of roughly 7% at the midpoint on the bottom of this slide. You can find our other guidance assumptions for 2020.

Although we are not anticipating much sales growth. We continue to expect to see benefits from our reorganization restructuring and eighty twenty efforts allowing us to operate more efficiently may help mitigate the soft sales growth and set us up for future profitable growth operator. We are now ready to take questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question. You can press * then to our first question comes from Mike Lauren with bared. Hey, good morning. Everyone. Good morning Mike. So so why don't we just start with the guidance side and and talk about a couple of things here one the sequential Trends into the first quarter seem like they're stable. It's not improving in specific areas May touch a little bit on that. And then also how much of an improvement are you embedding in guidance? Is this is this slight Improvement something more significant and how would you compare it to normal seasonality? Thank you.

Sure. Mike is Rob. I'll take that one.

So first of all from like from a Cadence standpoint going into the first quarter, you know, let's talk about top-line first, you know, we we certainly are seeing some headwinds especially in our in our climate Thursday. I meant we talked about that a little bit as we as we talked about order rates entering the quarter, you know, all of our all of our segments are certainly seen some pressure off. I enter the first quarter the first half of the year, we do expect to be pressured from a top-line perspective and from a bottom line perspective from a margin switching down the margins. Now you shall we see that, you know on a year year-over-year basis, you know, we'd expect that commercial would would be down slightly, you know industrial off lightly along with with climate and PTs relatively flat. But again, the top-line headwinds in the first quarter are certainly fairly significant and you know in light of everything that's going off.

And the economy right now, we do see that pressure continue.

Doing at least through the first quarter if not through the first half.

Was that I was I was more referring kind of a sequential trend for for the first job. Do you think there's stability on that side, but I do certainly appreciate the incremental color.

Yeah, there is certainly you know, I think that from a fourth the first standpoint, you know, we will continue to see pressure on on the the the top line again, especially in the office in the the climate segment, but from a margin perspective, we would expect the margins to be relatively flat for most of our segments from June 1st perspective. Although we don't provide as you know guidance from a quarterly perspective. That's just a little bit of color on how the it should work sequentially.

And then the the the the embedded back half recovery just some comments on that. Yeah, so, you know we've we've got savings that we've talked about throughout 2019 to the tune of $32 part of that is related to the reorganization at $15 on an annualized basis plant rationalization at about $17. And then we just announced another benefit as a result of restructuring of six million dollars. We have a thirty million thirty-eight million dollars of annualized benefit the we do expect them that we would see a fair amount of that coming in to 2020 more back half waited the the reorg the 15 million dollars. We would expect to see throughout the year and at the full run-rate of the 15 million dollars. However, the plant simplification activities we we talked about it off.

second and third quarter

You would expect to see that more back half waited as we go into 2020 and we'd expect the other restruction. We just announced a six million dollars to be more back half waiting with about half of that coming in 2020. So most of the benefit of the of the savings that we're talking about is coming through the second half with the exception of the original 8:15 million would talk to customer support.

And then just the comment on demand assumptions front half vs. Second half and why there's confidence in the acceleration and how what kind of magnitude are you talking about? Contextually dead? Yeah. Mike said this Lewis good morning. Let me take this one. So, you know, we're certainly coming out of the fourth quarter orders down as much energy to 3, but certainly down the expectation going into the first half is that first quarter is going to be light a year-over-year perspective and faith in recovery through the year with the second half being stronger that second half stronger is really driven by three things. One is a little bit better comps to compare against plus as I talk to them out in my commentary. We've got some really solid commercial initiatives that were driving in particular in the climate and PTs business that were were gaining some momentum. Yep.

And then we just expect an over.

Overall Improvement in a slight Improvement in markets that's going to make the second half stronger than the first half great. Thank you. I appreciate the time. Yeah. Thanks a lot.

Our next question comes from Julian Mitchell with Barclays.

Thanks, Julian. Hi lucky to get a question in after that barrage. Maybe just the just the first question around the inventory levels, you know, maybe if you could just characterize how you see those your channel partners and customers across the different segments particularly. I guess the progress in industrial wage.

Yeah, so I'm I'm happy to take that one Julian good morning. So but I'm I'm going to start with pts and tell you and we we see the channel inventories. I would tell you we work through those inventories in in Q4 from the pts perspective. So we did not see a significant. We do not expect a significant change from a distracting perspective in q1 of this year. However, we still see destocking in in both the commercial and Industrial into that matter in in a climate especially with going through this quarter. We've seen the inventory levels come down from Q3 to Q4, but we still expect to have that work through that through this quarter. We expect to be through destocking by the end of q1.

That's helpful.

Thank you. And then my follow-up may be focused on the Industrial Systems segment. Um, so in Q4, you had that one on the half points sales impact from 8026 pruning. Should we expect that number to get larger in 2020 as you sort of get your arms around the business and maybe any color at all. You could get on the sort of margin range of the assets inside the segment, you know, there are there are some that are very high margin and then a a mass of of sort of Break Even ish profits or losses. Maybe give some broad brush comments on that. Yeah. Sure happy to join. So you're you're absolutely right eighty-twenty. We stop ruining in fourth quarter of about 1 and half percent. You know, we're we're open to sharing that we expect around 2% for total Regal in twenty-twenty further prune juice.

Now I would expect.

More in the Industrial Systems business, but we're not really ready to give that guidance. We are digging deep. This is what 8028 helps you with is it allows you to segment the damage understand you're highly valued customers your valued customers. You're a products or be products and then determine what's the best path forward for Industrial Systems, We do expect to continue to see pruning in 2020 from a margin perspective Julian, you know, we don't really give specific gross margins within a segment. What I can tell you is that we have a clear path to improve the performance of margins in that segment eighty-twenty is going to help SKU reduction is going to be significant. We're launching a new line of motors and generators for their North American Market that are much more cost-competitive. So again are dead.

Who is this is a segment that?

There's real value creation opportunities through cost reduction that that don't need to occur with volume either so we're we're pretty bullish of our ability to improve in this segment very helpful. Thank you. Thanks for letting

our next question comes from Christopher gin with Oppenheimer. Good morning. Good morning. So I was just curious on the month savings coming through and twenty20 broad-stroke way to think about the geography that among the segments. Yeah. So um is Robert I'll take that one on so certainly, you know, as you've seen, you know in the in the past we we have put a lot of our restructuring dollars towards Palm Thai the That was cuz we had readily actionable projects and as a result commercial delivered well in 2019, he'll March around 9% Now we're actively taking the same page with industrial but there are clear restructuring activities in each of our segments and all of our segments have opportunities. So although we are shifting some of the focus now Tor bap.

industrial to get that

Margin profile up to what we would what we'd like it to be there are certainly opportunities in all segments. And so it's it's fairly evenly weighted with the exception of climate. You don't need as much in climate the margin profile. We've done a lot of restructuring in our past in the climate segment. And so it's not as much restructuring dollars allocated to climate in 2020.

Okay, and on the 17 million savings annualized related to the plants that second-half waited should be anticipated kind of full annualized run rate in the back half.

You would expect something close to a an annualized run rate in the second half of the year with the full run-rate coming in Twenty-One. But certainly yeah month-wise basis that would be your second half assumption. Okay, and then industrial Solutions is, you know, relative scale serving those off the competitive issue at all with channels and then customers

Yeah, I'll take that. Our position is not as strong in the Industrial Systems business as it is in some of our other segments but we have differentiated products and solutions that have strong our Associates in our leaders in those businesses have strong application knowledge of how they get deployed in those markets. And so there are Parts business that we're very bullish on that can still grow I'd say in so again, there are those Niche segments that we like a lot and then the other part of that business is standard Motors that we need to be more cost competitive and that's exactly why we're coming out with the new line of of of motors and generators to be more cost competitive in the segment.

Okay, and did you give a free cash flow guide?

We didn't on on the page, but we would expect free cash flows to exceed 100% of adjusted. Net income in the year. It's good follow-on to last year. Thank you. God. You got it. Yeah. Thanks Julie Earth Chris. Excuse me.

Next question comes from a Chris Dankert with Longbow research. Good morning guys, I guess to pull the thread a little bit more on on Julian's question, you know historically the big Focus was get C&I to 10% ebitda margin and maybe we have to wait till March but I'm going to try here. Anyway, is it fair to assume, you know, industrial even margin is significantly higher probably less than ten and maybe commercial as above 10. Can we kind of get that bigger than a Bread Basket sort of quantification?

Here's what I'll tell you Chris and this Lewis. We see an absolute path to get our industrial business return on invested capital gains are weighted average cost of capital for Regal and that's our Focus. Now, this is not going to be an overnight activity. It's going to take time but with the approach that we're taking to this business wage around driving cost competitiveness eighty-twenty. We're very confident our ability to improve shareholder value through that effort now commercial is further along and we're excited about doing even more with commercial and it will come quicker. So I think for now that's how I'd like to summarize the response and see and I

Got thank you.

Of the additional color that that's that's helpful. And again the new restructuring very exciting not to get greedy but it seems like you guys are moving quick. So is there more to be announced yet from a restructuring or a plant footprint perspective and not look at the quantification now, but just can we expect there is still work to be done from a big picture perspective. They're yeah, so I'll take that one as well Chris. Absolutely. There is a path are honestly are square footage utilization is not where it needs to be and we've got some more work to do their job. I I don't know that we'll be providing a lot more guidance in March, but we'll be giving an overview of the next few years in our thought process around capacity generalization, but there is certainly a path to further simplification. Yeah. Thanks so much to leave it there.

Great. Thank you.

Our next question comes from Jeff with keybanc Capital Market.

Hey, good morning. Good morning, Jeff just to come come at the cni different way. So, you know, I think Louis when you came in you had talked about there being some some non-core businesses and just wondering if that informed kind of how you split the two businesses here and you know, just kind of how do you balance kind of getting the margins up versus you know saying hey some of these businesses are not in court and we should just move on.

Yeah, it's it's a good question Jeff. You know, I'm actually and I hope I didn't say it this way. I'm not a Believer necessarily in core vs. Non-core. I'm a believer of businesses that I think can be positioned. Well for future success and have good returns and shareholder value creation. So it is not I'd say that's a bit of a strategic change for Regal honestly since I started so, you know, no I don't the split of commercial and Industrial wasn't because of Court non-core wage really was all about getting a higher level of visibility providing a greater sense of transparency and major focus on what we need to do to drive Improvement and in the performance of the business, so I I wouldn't I wouldn't actually read into core vs non-core with this action.

Okay.

And then yeah, I think you mentioned a couple of times the climate weakness in the order rage. Do you have a sense of what's going on there? Is it just a milder weather or is it you know, there's some Heavy D stocking going on just maybe speak and then you know as you look at that opportunity like are we done kind of through the Free by and and we just get the full 30,000 fibers in an offset with you know destocking.

Yeah. No, I think you you kind of hit the nail on the head with the first two parts of your answer which is you know, certainly mild weather has had an impact on average. The cooling days are down 6% off to Norm and that is certainly had had an impact and we are also seeing uh in inventory adjustments that are that that are are having an issue. But you know, we're not we don't expect this to continue beyond first quarter. Now, there is the overhang which you know that nine million dollar pre box in the first half of the year that we're still working through but we barring any significant changes from the macroeconomic perspective. We still expect incremental thirty-five million dollars of sales office of the F ER solution in 2020.

Okay, and then just just 1.1 the pool pump D stock and you think that's that's done or is there more to go there through this quarter is our expectation.

Okay. Thanks guys. Thank you. Thanks Jeff. Again. If you have a question, you can press * then 1.

Our next question will come from Joe Ricci with Goldman Sachs.

Orange, oh, hi. Good morning, everyone.

Maybe just maybe just following on that thread and just to make sure I understand it on Ser for q1 is is q1 going to have less of an impact or more of an impact than four Q ad in terms of pre by.

In terms of pre by so the guy ended at the end of Q2 of last year and what you're asking is how we work through that. And are we back to normal data off and levels for q1 and I would say not quite yet right I would add on that, you know, the the overhang will linger into the first quarter certainly not to what we experienced in the fourth quarter, but we are seeing the mix up to higher efficiency Motors.

Got it. Okay, that's that's that's clear. And then I know there's been obviously a lot of a lot of discussion on the on the margin opportunity within commercial and Industrial but you know, the the public performance this quarter in both climate and in pts, uh, just just just given the given the volume declines. I thought was was pretty impressive. And so how do you think about the longer-term margin entitlement for those two businesses given that we're we're basically sitting here at record margins for both of those businesses today.

Yeah, let me take that on first of all and I agree and and just incredibly proud of our teams climbing and PTs had a really solid Q4 and for that matter both solid 2019 even even given the tough sales impacts of macro conditions, you know, these are both very well performing businesses and we're actively looking to invest in driving growth. Now, how do I think about the business? You know climb I think margin potential is is roughly where it is. And so we're looking to grow pts still has some room to to improve our our bottom-line performance, but we're also looking to grow there. So, you know when I compare that to commercial industrial we are are strictly focused on margin Improvement in commercial and in dog

and so from a

Strategic approach our emphasis is 2020 is that climate and PTs will grow and we've all she awaited that our teams incentive plans to growth while commercial industrial are weighted to margin Improvement. All of our incentives that at Regal are aligned to the Strategic imperatives of the segment. So hopefully that gives you a sense of how we're thinking about the four segments.

Yeah, that's helpful. Thank you.

Sure. Thank you. Thanks Joe.

This concludes our question-and-answer session. I would like to turn the conference back over to Lewis Pinkham for any closing remarks.

Thank you operator to summarize in the quarter. We Face some difficult and challenging and market conditions. We feel that we met those challenges and delivered. Well as we improve performance in consecutive quarters.

looking

Forward we are providing adjusted earnings guidance for 20 20 in the range of $5.65 to $6.05 this approximate 7% increase at the midpoint over 2019 will mainly be driven by our ongoing eighty-twenty and cost out initiatives. We are not forecasting a strong rebound of March 2020 and expect the first half of the year to continue to be challenged but believe we will see some recovery in the second half overall. We are forecasting them to slightly negative sales growth in 2020. We are energized about our reorganization Andre segmentation, executing eighty-twenty and driving improvement through cost out and supply-chain efficiencies while staying laser-focused on exceeding customer needs with differentiated products Solutions and services.

while ultimately

Driving profitable organic growth. I hope to see you all at our investor day in New York City on March 3rd. Thank you for joining the call in your inbox in Regal. The conference is now concluded. Thank you for attending today's presentation. You may now.