Q2 2020 Earnings Call

Underlying sales growth was well below expectations down 7% German by the dramatic drop in global demand as the covid-19 pandemic quickly spread in March trailing 3-month orders were down 3% also reflected by the decaying demand environment that indicating some modest backlog build up.

Do this process most likely as the audit committee yesterday to we're going to wait a little longer probably be more like August this year. I want things to stabilize but we're going to look at things. Like how did our supply network box financial crisis standpoint that they have the money did we have to help them which ones we have to keep up with us as we ramped up and down. So I think that from as we looking at right now Josh, you know, we're off we're not going to make any fundamental changes. We as you know, our strategies we have multiple suppliers, but the big issue for the first time we're seeing not just one or two countries closing down. We have three countries closing down and so I guess we're going to have to do here is evaluate this from an economic standpoint and Enterprise risk standpoint is looking at this model now and say, okay do we have to have for you know, so, those are things that we will do nothing right now. I mean, I'm more interested in stabilizing and then recovering but we we do know what happened to us and I guarantee you there will be changes wage.

Gaap earnings per share with flat and adjusted earnings per share are up 70% to $0.89 driven primarily by lower stock compensation costs due to a lower stock price and aggressive restructuring action started in Q3 of last year starting to take effect. Despite lower sales. Both platforms execute well on profitability exceeding their adjusted ebit and adjusted ebitda margin plans for the quarter due to previously initiated an ongoing restructuring actions automation Solutions. Underlying sales were down 8% and trailing three months or years were down 1% also well below initial expectations due to the pandemic demand environment taking shape in March commercial and residential Solutions underlying sales and orders from both down 5%

Cash flow performance was solid in the quarter with operating cash flow of $588 and free cash flow of $477 million up 10% and 15% respectively the business returned over 1.1 billion to shareholders billion dollars to shareholders including over 800 million and share repurchases that over three hundred million Indians. Lastly the company continued to continued and built upon its aggressive cost reset plan initiating forty million of restructuring actions in the quarter turning to slide five will cover the piano. Second quarter gross margin was flat at 42.1% as favorable price costs and Cost Containment actions offset, the declining revenues wage.

As we leave this year on account of your basis and as we move into 2021 on a calendar year basis, so I think it's a little too earlier act. We we've been able to overcome it and the mean time I dunno will make some changes as we go forward here in in twenty late twenties and early Twenty One.

Got it. Appreciate that. And then just as I think about some of your you know, your kind of longer cycle customers or you know, folks who don't make decisions likely I would imagine that the the speed of which this has happened is I mean it hard to kind of calibrate what they want to do, you know just show up one morning and kind of, you know, erase the Zero from the budget and go forward at what point. Do you think you get clarity off from your customers IE, they've had enough time to scrub everything and get back to you cuz I would imagine you're you're not quite in that moment yet where I am in what they they want to do with Josh this this one's a lot faster. And the reason it's this one's a lot faster. I mean, is it a hundred percent know but it's a lot higher percent than you think in the reason for it goes back to what Frank covered is the liquidity financial crisis. So they really had to jump on this thing very early on in February March now, will it be some changes the answer is yes, but I I think that you you missed.

Sg&a is a percent sales decreased 130 basis points reflective of the drop in stock compensation costs due to a lower share price.

Adjusted ebit and adjusted ebitda margins which exclude restructuring and related costs increased 240 basis points and three hundred basis points respectively. These improvements can be really reflected lower stock compensation costs combined with aggressive Cost Containment actions taking effect over all the company continued to execute on feet margin plans, which were laid out at our February investor conference in addition to responding quickly with additional actions as sales deteriorated in March and the economic outlook for the remainder of the Year became increasingly challenging.

You don't represent them. Well that if you don't

Think that these guys have made some fundamental changes. We we're living at Daily now if we get together at 2:00 every day the OC downstairs the big boardroom and we're spread out and you know, we both of us both long bob. We're talking from a customer's input. So these guys are are moving much faster. So maybe the last pieces will be finalised as they finish out this reporting this quarter. But if I look at our customer base from a financial standpoint, they had to take action very very quickly both from internally cash flow generation. And then also what they're looking at from a financial markets near so this one's a little bit faster pace and hence being together allowed us to make some adjustments much faster, but I I would say these guys are further down that pipe than you think and probably this quarter we'll we'll finalize anything you want to add in that. No, that's right. And a lot of it is because nobody just nobody really knows what to expect. So in that in that event, they freeze quickly State whether it's a small customer or a large customer. Everybody's freezing very odd.

Turning to slide six geographically. We saw broad-based weakness unfold in the porter for particularly in China and the us down 8% and over 20% wage actually Europe which finished down 2% showed strength early in the quarter, which was quickly rewarded in March as the virus rapidly spread in most countries closed their borders.

Please turn to slide step total segment adjusted ebit margin increased fifty basis points to 17.6% reflecting the aggressive cost control measures and strong operational execution has sales declined stock compensation costs decreased $97 million as the stock as the stock price moved dramatically lower in the quarter back to cash flow performance was solid operating cash flow increased by 10% to $588 million and free cash flow increased by 15% to 477 million representing 91% conversion trade working capital ended higher as a percentage of sales as ending inventory increased due to the sharp drop in demand in March.

Yeah, so I think don't underestimate this. It's happening pretty quickly.

Not appreciate the, I'll leave it there. Okay, good next.

Next question comes from Steve Tusa from JPMorgan, please go ahead and got it easier name to pronounce. Sorry. I was just I was just fixing myself some dinner on slide yourself some dinner. I mean lunch or lunch or breakfast. What are you mean cooker? Well, I'm not just saying this is a pretty comprehensive conference. Call your Avenue here. It's been spinning been a long time ago. Oh you had to go to the bathroom. Oh, okay, you're complaining. Oh God. I was going to think about the I was going to ask about the sequential downtick from June to July on 5:34, but I'll I'll leave that I'll take that off line that's cute about that one. You have a modest sequential down there. Okay, so I am at anyway, we really appreciate all the detail most companies are withdrawing guidance. Obviously, you know, you guys are have given a lot a lot of detail here just a very simple question.

Turning to slide eight. We will Bridge second quarter eps.

Working from our 2019 adjusted EPS of $0.83. You see that non-operating Tailwinds totaled fourteen cents led by lower compensation due to a lower share price.

Operations declined ten cents reflective of the volume declines due to covid-19 while share repurchases and lower interest cost deliver $0.02 adjusted EPS finished up $0.89.

In summary non-operating Tailwinds were largely offset by defective covid-19 on operations importantly total segment adjusted ebit increased by fifty basis points and total segment adjusted ebitda increased by 120 basis points reflecting just 9% Do you leverage on four hundred million dollars of lower sales versus prior year off now, we will review the business platforms turning to slide ten automation Solutions underlying sales finished down 8% for the quarter as sharp declines in Los Gatos more than offset some growth and life sciences and food and beverage the u.s. Drop 12% while China was down sharply over 20% off.

How much of this cost is I think you said 46 million of the cost savings have been booked kind of in the first half. How much do you have queued up for the second half and then how much do you have visibility on for 2021 so I try sharing we do have the numbers here. Let's work this number and working for you. But we basically what we show the board last week Steve Took the second-half quarter-by-quarter. And then also what we showed him is the first half next year. So now what do you have queued up for savings build into this at this point into the plan just to kind of money. We spent a hundred twelve million in the first half. We recognize savings from the restructuring and other activities in the first half of 46 million. Okay? Okay. Second half page structuring will be $118 million with combined savings into your and excuse me in the second half of $186 a month. So incrementally about a hundred forty something, you know, and yep.

Trailing three months underlying orders were down 1% driven by the early quarter relative strength of the longer cycle businesses final control and systems which grew 3% and 7% respectively of note backlog grew by by 3% to nearly 5.1 billion on a sequential basis compared to the last quarter.

The platform delivered strong profitability in a very challenging demand environment adjusted ebit and adjusted ebitda margins were up fifty basis points and 130 basis points respectively reflect the aggressive cost actions taken effect.

We're structuring actions total $29 billion across the platform which brought the total to $112 million for the first half of the year.

Do you what you're running out? What do you what did you do?

All Aboard going into the first half the next year you're going to clearly not change off the plan from February. You can run rate obviously impact the air while we're doing incremental read this year the big savings for lousy second half and then we'll go into the into the into the first quarter next year. Okay. So you said there will be some carry over into so did you pull all of that into this year or you still have a pretty decent, you know year-over-year kind of variance heading into 21? What did you tell the board on a twenty one? Right? I'll share with you. Well, I did not I did not go into Twenty-One thousand but I'll spend on 21 is expected to be $83 million and change that number eighty-two million. So we've accelerated some stuff in and they're 483 million. He'll have those still have some savings. I don't know if it's going to be down because there's going to be some some longer-term ones, but it'll still have some carryover Steve. They'll probably have no eighty million dollars to the whole year next year. They give you perspective 2019. Yeah will be 238

Turning to slide eleven commercial and residential Solutions.

Also reflective of the deteriorating demand environment environment with covid-19 North America dropped low single-digits while Europe dropped 1% as modest momentum in the heat pump business is more than offset by declines in the pool business Asia Middle East and Africa were down 15% driven by China which was down sharply over 30%

Trailing three months underlying orders were down 5% as each of the HV AC oil change and tools businesses were down mid-single digits long. He's your orders dropped 14% driven by China, which dropped over 25%

Commercial and residential Solutions also delivered strong profitability with adjusted ebit and adjusted ebitda of 40 basis points and 90 basis points respectively this outcome. I'm not even primarily by aggressive cost control cost actions and and favorable price cost Dynamics.

In 20, yeah, and then in another eighty three and Twenty-One. Yeah, you'll get dollar-for-dollar savings over pretty quick Lane that but for commercial residential for the restructuring programs. We're doing this year about 6% of the savings benefit will capture this year. So we got carryover about 40% and then of course, we got a whole nother set of actions in 21 for 21 and Beyond that'll that'll lay into that as well with the key. Okay, Steve. I think I think we'll still have savings coming in the first half of next year the ones we will have to offset in the first half of the year will be things like the salary Cuts cuz we will institute that so that those I will have to come back, you know, that's too and around 6 and 1/2 million dollars for a second half so 3 and 1/2 per quarter the salary planning numbers will hit us off or next year or two cuz that will roll back out. So for lowering there's a number of things again, we're doing in the second half to be, you know dramatically if you will that.

For the quarter restructuring actions totaled $9 which brought the total figure 219 million for the first half.

Turning to slide 13. We will review the updated guidance.

The speed and breadth of the impact of the covid-19 outbreak has been truly unprecedented as such we see a very challenging demand environment certainly further remainder of the fiscal year and into the first half of next year off. Additionally. We assume that oil prices will stabilize in the $23 range per barrel later in the call management will elaborate on our Outlook and detail but here's the summary page on conversations with customers government officials internal internal analysis and comparison to previous downturns. We now expect underlying sales to be down 9 to 7 % and Nash sales to be down 11:00 to 9 % for the year.

Depending on how the sales curve returns certainly some of that spending return. Yeah, the key thing is try to bridge as much of a cost right now and then are real costs things will flow in as as we finish this year. But I like the money right now. I I look at what's going on with the the detriment on the inefficient plants and the savings are falling through pretty nicely and why in the back of my mind though, I feel like that there was like a 70 million number that you throughout their job, you know earlier in the year and said, you know, you had embedded some of that. I mean these numbers seems substantially higher than that. I thought a little more was going to be pushed into kind of 21 or do you just kind of acceleration does yeah, we had a 35 number for last year. I think they are bigger numbers now Steve because what's happened is we've we've we've done a lot more short-term numbers and I think that phone numbers that we shared with you in February are very similar to this but they're obviously higher now because we have more savings and we're trying to accelerate so the costs are going up but the savings are going up the same time. We'll have we'll have probably more FAQ.

Due to the deteriorating demand environment. We've increased or structuring spend to be approximately $200 million with approximately 230 come from the automated coming from the automation Solutions platform and 45 million coming from the commercial and residential Solutions platform.

We now expect adjusted EPS in the range of $3 to $3.20 a reduction of approximately 16% at the midpoint. We expect operating cash flow to come in at approximately 2.75 billion and capex spending expectations have been decreased by one hundred million to five hundred fifty million resulting in a free cash flow targ approximately 2.2 billion.

Lastly our share repurchase program for the year is now complete at approximately 950 million.

Carryover because we're doing more action right now. I mean the issue is we're living in a.

Please turn to slide 14 which bridges are updated in 2020 adjusted EPS guidance.

. Right now that we have to figure out how to drive our costs down and that's where we are at this point. So the numbers are bigger than I talked about earlier, but it's it's always hard to type back to other things. I've said, you know over the phone, right but and and then just you're quick on. Yeah. I just wanted to kind of nail down kind of the quarterly sequencing cuz you gave you gave the third quarter in the fourth quarter and the fourth quarter obviously is a step up sequentially on an EPS basis is that essentially kind of the mechanics of basically Revenue stabilization and then all this kind of cost-cutting flowing through that you get you know, you don't see that in the second call back cuz of how hard revenues going down but you really see it in kind of the fourth quarter. Just trying to reconcile, you know, this this sixty cents moving to kind of the the eighty to ninety cents or whatever. It is in the in the fourth quarter percent. Correct Steve. I think that right now, you know, we started I mean the team started working extremely hard about March 10th, and we started taking okay guys, we got we got something coming out of scare. And so what you're seeing right now, he's

The starting point for the bridge is 2019 Mbps of $3.71 walking across we have 2019 adjusted EPS of $3.69 which wage it's $0.14 a favorable discrete tax items and adds back $0.12 of restructuring now walking across from $3.69 would expect a total of $0.11 off ends this year for FX and pension.

Operational headwinds have dramatically increased we've reduced our full-year sales plan by approximately one point eight billion dollars from prior-year resulting at $0.50 57% off. We expect $0.09 of eps from interest and share repurchase Tailwinds.

This gets us to a full-year adjusted EPS midpoint of $3.10 note since the major port portfolio transformation of 2015 to 2016 Emerson is at 42 to 43% of full year estimate EPS by the end of the first half this year our first half adjusted EPS totals $1.56, which is about 50% of the full year EPS guidance. Well ahead of normal Pace. Please turn to slide fifteen which lays out our third quarter 2040 guidance guidance office.

This wave is hitting us a lot harder as we saw around the world. So we've taken actions and we fundamentally believe will stabilize by telling me get into June business are still be down. But our our our costs actions happening in that allow us as as the volume stabilized a little bit. I love you a lot lower level are same as those start flowing thru. That's why we have that from stepping up the other thing, you know, make a comment you I think you well know is that I always had a variable performance share program going back since early seventies in a charge that we showed in charge 8 and we showed the first quarter. We got hit very hard by $0.10 because the stock price is going up and down on the first quarter report in February this quarter what's happened is obviously with the stock dropped dramatically. A lot of wealth has been locked in a lock off of our shareholder base including people like me and Frank anneberg Bobby how but the the fear of a plant obviously is a lot lower cost. So therefore we got a benefit this quarter. We're assuming our stock price will stabilize and start coming back up. So we're factoring a little bit of recovery, so we'll have a wage

The underlying sales outlook for the quarter is dramatically negative reflecting near-term challenges and an elongated recovery and Industrial Market from the covid-19 lockdown combined with low oil pressure and Associated spending reductions. Underlying sales is expected to be down 16% to 13% We expect adjusted EPS of $0.60 Plus or my life since which excludes roughly one hundred million dollars of planned restructuring actions in the quarter.

Get a number based on right now in the second half of the year. We've always had a variable plan and we marked the market as you well know and you pointed out to me over the times got it. Your your life is probably not too happy about that. One thing. I appreciate it is getting food right now. So don't worry about it. He likes the home-court team. He likes 1/4. He's got a lot more play time with Dad.

Let me see total segment adjusted ebit in the 15% to 15.5% range and adjusted ebitda in the 20% to 20.5% range of of aggressive cost control measures somewhat offsetting the reduction in volume.

And now please turn to slide 17. I will hand the call over to mister Frank Miller Mister. Mike trained to discuss liquidity and operations. Good morning everybody. We wanted to spend just a few minutes off the quiddity to dispel any concerns. Anyone has we're in really good shape. We believe we never take this for granted. We never complacent but we believe we're in very very strong position as we took we entered the downturn here. We have the capacity to fund all of our internal needs and our dividend You know, despite the fact that we as you just saw expect reduced operating cash flow over the next several quarters month. We we have a modest amount of Leverage even in the downturn it will be less than two times debt-to-ebitda at year-end on this plan. 65% of our total debt is is turned off and as a result, we have very good liquidity in our capital structure. I'm looking here. It's like 17 just walking down those points at March Thirty one. We had two point six billion dollars in cat.

The next question comes from Robert McCarthy from Stevens, please go ahead. Good morning David team. Thank you for calling. Are you holding up girl? Where are you? Where are you hiding Cambridge, Massachusetts rejected three times, but they couldn't keep me out. So that's you could be you guys got off of activity going out of the right now. I don't know if I'm going to want you talking to me you could be fast and stuff too as well. I think Elizabeth Warren is going to erect a a guillotine and start, you know, take it out anybody over a hundred thousand dollars, but I digress well, they don't make sense. You should be safe cuz you don't make a hundred thousand dollars. Yeah. No. I know I work for peanuts, you know that. So in any event expanding upon Mister chooses, excellent inquiries always the uh, I wanted to ask a little bit about the underlying Cadence of at least the near-term

More than half of that is available on a same-day.

Or at most next day notice. So we're in very very good shape if there should be a market disruption and we also have a three and a half billion dollar revolver, which is not drawn and it's just through April of 2023. We also have the right to extend it under the current terms and there are no Financial covenants in the revolver. So all-in-all, you know as we look at our ability to fund our needs short-term and longer-term. We feel like we are in are in very good shape. If you please turn to slide eighteen, you know, when we begin to slowly began to see this coming in mid February we met we started to extend maturities and the c p program at first that was difficult because the market was somewhat roiled it improved when the FED stepped in and announced a couple of programs to indirectly and directly support the commercial paper market and as a result over the last month and half we've been able to extend the CP maturities from about 20 days out 2:45 a.m.

Obviously you sit on the one of the Committees that was just announced that committee to reopen the economy. I think you're part of the industrial working groups. I don't want to prejudge the recommendations you're making.

And I better be careful cuz my month the guy writes my checks the gentleman who owns my firm is on that committee as well. But well no, I wanted to get a sense, uh in all seriousness of how do we think about the near-term short cycle in North America? How do you think about what is a return to a lease economic normal see people getting back to work? Obviously, we've heard a lot about you know, kind of a red blue State divide here and I don't want to get into a political discussion despite my earlier rhetoric, but I do want to get a sense of how you're thinking about the industrial short-cycle plays out in North America and perhaps, you know, Bob can amplify some of those comments what's embedded in your guidance as as we roll it out going forward. I mean, I think that what we see right now is that you know, the Business Leaders a lot of political leaders are starting to realize the tax revenue shortfall the the cost of this of shutting down. The economy is enormous. Yep.

Asian including that included in that and he built a 1 billion dollar cash buffer here in the United States which we will revisit as we go through time here and if we get comfortable that things are improving will start to break that down. But for now, we think it's prudent to have that on the balance sheet just in case that there should be a you know, a downward turn in market conditions. We're also offer validating the issuance of term debt credit spreads gaped out pretty significantly at the beginning of the of this crisis. They've come in quite a bit since then and all-in cost per term debt for life has been great companies are pretty attractive. So we are obviously looking at that. Now what have you toured injecting more liquidity into the into the capital structure so you can see there on chart 18-month probably maturity profile of the CP plays out and then finally on 19, we've always maintained a very conservative that ladder always been very conscious of spreading out in Charities so you can see that we have a game.

They're starting to see you know, you starting to see it here in this town, you know, the medical professions are having to lay people off in the cut costs because because you know the all the businesses disappeared revenue and other than just the Chrome surround coronavirus coronavirus and the same thing in in the business world. So I think we're all fighting to save our lives as a companies and and institutions a lot will not make it so from my perspective, you know, the push forward is trying to get the economy open and get business open we can do this safely. We've learned a lot from how this isolation and how we go about this and how we work together both from a company standpoint and the geopolitical standpoint. I've watched politicians and business leaders Business Leaders of Business Leaders, you know, there's been a lot more collaboration than the Press would ever ever ever talked about and so I see right now to be honest Rob. I think I think you're going to see the next two quarters going to be pretty tough for America, you know, there's a lot of you know things have been stopped dead.

A lot of places there where if we choose to issue term debt over the next month or so here we can we can do that in size and spill have a very conservative debt. Ladder as we hit the open spots between the towers that we have there. So again in some I think we're in very very good shape regarding liquidity. We're going to watch it very closely, but we feel pretty good about our ability to do everything we need to do is we go through this downturn. Thank you. I asked Frank to to talk to the shareholders morning about this issue Frank and his team. I have to give a tremendous kudos to accomplishing what they've done now, they came to us in early February 8th basically saying we need to start taking action Frank also work very closely with the finance committee the chairman and several of the members of the finance committee who are very knowledgeable of what's going on in the marketplace. I am instructed this very well at the time. He also had several Executives that we had an executive board meeting to discuss this issue and other actions and then we also last week we pulled up our our board meeting and had a four-hour board name of the boardwalk.

Slow down. There's a lot of concern Even in our Workforce of of coming back to work and being exposed to this because people look at this as like it's a it's a Killing Zone if you leave your house from home, I think that so what we're factoring in the US right now is a very very weak third and fourth quarter. We're not looking for much recovery here and and I think that we're going to see the recovery happy internationally first and I think that's what we're starting to see already in the month of April. So I think you're going to see a very gradual get back to work. I think that you know, hopefully we'll start seeing some travel come back. Thank God. We're not in the travel industry. I don't know how they're going to recover here for a while, but this is going to be a very slow recovery and you know, the money's being put out there, but in reality is so much wealth of economic wealth has been lost that you know, there's not enough money in Washington to flood this world to to bring it back. So we just got to get people back to work making things engineering and that's going to take a long time.

And then yesterday we have the audit committee meetings.

For trying to communicate to our to our board to get their inputs, but most importantly as I look at this the quiddity the financial structure that ability to finance this company and and the times like this are very very crazy and Frank and his team have done an outstanding job with that before. Mike has a comment about the battles. He's been fighting around the world. I want to remind people I'm part dark 24 the new south side or invest out there Emerson's had a very Global Regional strategy since back since the day I started running the company and as a CEO back in two thousand and we've we've had this graduate Wheel World on America's Europe and asia-pacific we go from manufacturing Engineering Supply Chain customer sales and support service and we look at ways. I call it the Tic Tac Toe chart we look at ways that we can serve the global market choices out of one or two and maybe even three the other Regional areas. This has been one of our strategies from day one. I also want to thank the audit Committee in the work that so many are head of birth.

That's how we're factoring into we're not factoring much of an economic impact in the in North America at all. What do you see? Yeah. I mean, do you do you dramatically more difficult than any other region off the the general industrial the construction environment as I mentioned the cold chain environment frankly. We just see all of that being challenged for a while yet until we have the comfort that tells the job losses, you know, and we get the comfort of people getting back to work which you know is is going to take a little time problem. I mean, you're looking over 3:30 million uninsured people United States let alone the people in climbing and let alone the people that are very hold up in their in their homes right now. They don't want to come out. So I think this is this going to be quite dramatic. It's going to take some time to start to be like the China I think Europe and those guys will probably hold off sooner and it's going to be tough one anything else. You want to know anything else.

I got Lisa Flavin who runs audit for us here inside work on a Enterprise risk strategy which analyzes this chart and making sure that it works and our and it has worked as we've gone through this strategy first tested it clearly and February and early March with the China shut down and we've tested again now there are issues will deal with when we get out of them. But from my perspective this whole Regional strategy when you hear now, even the president of States talk about is something that's been very effective for this company relative to serving our customers and I and I want to make sure I remember that we have this we will fine-tune this a little bit when we come out of this cuz I I see some different issues in today's world, but this is a living document that we've obviously adjusted over the years including when we had too much concentration in China body years ago and many of you know that I started making moves with a team to move some production out of China and diversify it more around the world. Yep.

Yeah, I know. Well, that's very sobering I guess, you know on top of that. I think you have your president of safety in attendance if that's right. Yeah, and again, I don't want to get into too much baggage policy discussion, but one thing that's been nettlesome for everyone of bureaucracy and policy aside has been uh has been some of the shortages around testing. I guess. The question I would have is as you say you kind of flex across your facilities and and you look at Mike's Mike's chart have you in instituted your own kind of captive testing program for Emerson or what? Have you done to make sure that you can create the best information and environments for your workers to go back with some confidence of safety the big issue. I mean everything we can work around the rep quipment the right spacing the right environment that right cleansing, you know, having, you know cleaning your hands before I go to the facility be cleaned everything else staggering the workforce, you know heat off.

And I want to thank Frank and the work of the finance committee. And then also want to thank the global operations and I'll have more comments in this in the second before I turn over to Mike. You know, when we got the OC together Thursday, March before many many task force led by the oce wasn't that one throat to choke here. We had everyone involved and one of the things that Mike stood up to do is dealing with the international markets International governments and making sure that we can keep our facilities open both from a manufacturing standpoint and a sales and you know sales operations and supply chain and Mike has extremely odd Broad and deep knowledge of the international markets. He's been working on for pretty much his whole life here at Emerson. And so Mike has been reading this battle with the operating leaders at the same time. They're taking taking care of this battle. So Mike I'm over to you and update the share holders and how we see it right now. Yeah David. Thank you pleasure to be with you here today just on that chart twenty before we leave that I think Emerson's, you know critic wage.

Temperature of this this virus a little bit different in temperature you could you could have the virus for several days before your temperature starts moving the big issue that we've all talked to the president about and he knows this from a business standpoint is we're going to have to have what I call Quick testing at facilities. We're going to go back assuming. I mean, I'm hearing more and more words. I heard it yesterday out of Washington. They're coming along with quick testing to allow us to have a much faster than a fact. So if we have someone come sick in the facility, we can test him or her find out if they are really sick and if they are sick isolate them and quickly isolate people around them and then plans and then get back to work. So we're going to be in this game here. I think for the rest of this year, you know, the vaccine thing you you we can't wait for a vaccine. It won't be there won't be any business left to wait for a vaccine. We've got off of the the testing ability to find out who's had it who's you know, who's got it right now and I think that's the big push both in Washington in the medical community because they know from business we need that wage.

Sure the work we do.

Being able to be responsive and resilience in each of these Regents is really really important. So let's go to chart 21, you know, if you recall last time we were together was our investor meeting on February 13th, or kind of operations were just getting restarted after a government mandate to be closed for two weeks early days were rugged as suppliers took some time to get cleared to restart and there was quite a challenge on enter Province an international Logistics. This is significantly improved in the past month as we've seen are trying to business starting to come back in a stronger way. And I know Lala Baba will provide some insights on that in a moment. That was a coronavirus can to make its way around the world. We saw challenges to our operational capability and posed by governments as implemented various forms of stay home shelter in place and walked down orders with a person provides critical infrastructure products and essential services in with great effort. We've been able to gain government recognition and designation China led to the South Korean. Italy impacts wage.

We can do everything around that accept that and so the quicker that we get that and I know they know that and that's why I heard yesterday the ramping up the millions upon millions of that testing that quick testing a new jersey obviously will benefit from that cuz that's come from the pharmaceutical industry the drug industry in the meantime, Rob we're going to do everything around that and we that quick testing things got to come. It's got to come to give calm the workers the mean time we're going to do everything we can to keep things safe. And that's where we are right now. But you know, we have the company. I think the number is is is under 40 people globally have had tested wage laws on this meeting to meet every morning forty people tested. We've unfortunately had one individual part-time worker in England passed away. I was very unfortunate situation with your isolation is really dropped off right now, the new cases have really dropped off, you know, but safety is a Paramount to what we're doing and and we've got a top top people on this thing and they dead

Leave the one to France and Russia Middle East and the Americas it's been a highly Dynamic environment and I must give our Global Emerson team or likely listening into today's call a big thank you for their Collective efforts and working with customers suppliers and governments to keep these critical Industries running running when it's needed most in the last two weeks of March and early age. We saw a multitude of states in the US and multiple countries around the world Implement these orders. We saw tens of thousands of our own employees leap into a a work from home mode and it's been amazing and watch E Anderson team deal with a suddenly reality and come through in every aspect not great timing from the end of a quarter perspective, but our plants on balance stayed up and running and we did our best to deliver to customers as we sit here today. We were working some major issues the India lock down which was recently extended to May 3rd is proven exceptionally challenging as Logistics. And the ability to operate were shut down practically overnight.

Countering people like me who has you know from my standpoint you charge forward you're out there and you're dealing with issues. I mean, I'm the type of guy that would lead and World War Two, you know, if you got that freshman,

So that's where we are. I'm going to take one more question from a sales side one more sell side analysts and and then we're going to lock it down.

Next question comes from Joe Ricci from Goldman Sachs, please. Go ahead. Thanks. Good morning. Everyone Thanks for fitting me in a joke. So Dave I just I guess I guess my first question when you when you think about that that 14% number organic decline in in the third quarter. Can you just talk about you know April specifically is that been trending at that number already or below that number? I'm just curious like where you stand today, you know months today or quarter today home. Of course is that number? It's our order pattern right now is below -15. So we're tracking below that at this point. I'm I'm Bob's business allows business is probably a little bit better than that off while still got some backlogs. So, you know, we look at that 14 we go plus or minus one and half, you know, most likely to get me around $14 15% the key thing that will come out with

We worked out to get all of our plants designated critical and up and running to some extent. Thanks for now moving in the right direction, but we have several weeks to go before we really get back to the solid place. We have worked closely with the government officials there and I appreciate their engagement in Europe. We went through some rough times in Italy but things are much improved now. We're still working through some supplier issues and Community sentiment in Europe, but again directional things are going the right way in the Americas USA has been incredibly interesting to navigate. I need to highlight the guidance of the Department of Homeland Security issues on critical infrastructure and essential services and with a few exceptions or states and cities of aligned on this guidance right now. I'm spending my time on Mexico where there's still significant efforts to manage the virus and I'm working to get alignment on critical infrastructure guidance both in Mexico, and it costs over the US and Canada David a lot of detail here for investors, but hopefully this gives them a good snapshot of how the world is dealing with the virus in climbing its way back. I know we have some yep.

We will come out with the orders in April. May will get that out for everybody Joe. But right now the trend line is is dropping quite rapidly, but we're starting to see some stabilization in a an international markets including Europe. So the key issue the big the big wild card for us right now of substance is the u.s. Going back to my comments with Rob, you know, this is still in a free fall and not in the question will be is how do we stabilize this from a business standpoint in the in the in the near-term? So I think that I feel very comfortable even today as I talked to the audit committee yesterday morning. I'm not 15% negative third-quarter is well in tune in in I expect our orders when we come back in. We'll see that or orders are probably around that fourteen fifteen percent in in the month of April April.

The conversation coming up which may be important to thinking throughout things play out over the next few quarters. Again. Am I ever seen colleagues? Thanks for the tremendous effort in collaboration really important as we keep food medicines energy electricity off medical Goods. Everything else would touch flowing.

To our communities. Well Mike I want to thank you very much for this issue. This is this is not easy as the 24 hours a day 7 days a week day in and day out over the weekend you and I were talking a lot you were talking to various people dealing with political leaders at all levels to make sure they understand the importance of this and then working very close with hands in the hands of operations. I also want to make a call out Steve couch in the organization a relative to the work they've done on on safety and all the all the task force that we've rolled out would help above and law and the other team around the world knowing what's going on every day. We get reports around the world of what's happening with the employees. If any of them have contracted the coronavirus anyone has become tested positive who's being isolated Steve is organized this right now, he's now in the process of working with the the HR teams and the global manufacturing teams to get the how do we come back out of this on a measured way in a safe way. How do we come back out of this on this operation and get everyone back to work and back into a job?

Got it. Okay, and maybe and maybe just kind of following on there and and like I like oh everybody else's comments really appreciate all the the rigor and level of detail that you guys went to to give us as much information as you did today, but just following on on that last on that last Point day of so when you think about then as we progress through the year, I mean, it's really hard to know exactly how the shape the recovery is going to be. How much is China I guess influencing your thoughts around the and and and kind of that Improvement in in the growth pattern as we head into 4 and two and it's a 2021. I think that from my perspective I said earlier, you know, that's at people would like to make that early comparison the same comparison. It's not going to happen the same way China's control Society. They they worked extremely hard shut it down hard, you know, it seems somehow the sickness was only in a couple of regions and they came in structurally. You know what we learn in China from our facilities. Obviously, we're using from a safety standpoint other facilities.

The buildings that we have from a salary standpoint and support our Global manufacturing and Technology. But Mike in this area here, this is something that we've never had a realized before where we've had to work government to the highest level. This is we're having those relationships that all of us have everybody's this level and also retired Executives that Emerson have that really meant come on come home and help us in times like this, but for the people out there before I go into it. I want to make other comments you can imagine we are fighting a global pandemic war and given the CEO that runs this company you guys know me pretty well. I finally believed that leaders need to be at the front brakes need to be hiding in bunkers or hiding at home leaders need to be at the front and fighting the war and winning this war and I want to make sure that special recognition goes to the board who's been working with us very closely with special meetings. The oce the senior Executives in all the world area people that have been engaged in a working this on the daily issues. It's amazing what comes up in a daily basis but being together allows them.

Around the world. So I did the China structure is completely different it will help us obviously, but what we're looking at here is a US is a completely different cycle in Europe a completely different sides. It's in a different world. So we're looking at as far more negative far more muted and much more. I would say a U-shaped type of a structure if we're going to stay down longer and then gradually come back out of it in a second half of of 21. We do not see a quick snap back at this point in time in the US now if there's somehow that everyone got back right away, we got the testing that we needed maybe the 4th the 3rd calendar quarter we could start seeing stuff but I think that's going to be more in the fourth quarter this year. So I'm I'm very negative on the US growth month and I'll let I'll let law and Bob talk about this, but that's how we see it right now. We're structuring a completely different cycle for each of the World areas based on historical norms and based on what we're seeing from our customer base right now so log

Walk down the hall probably stay apart from each other other than every once awhile and be screaming at somebody so they'll know to close but it's important that we had those I bought I bought contact to deal with the issues again the board accelerate a board meeting accelerate the the review of the numbers and the audit committee approved the numbers yesterday and we will be filing our queue. Hopefully by Friday at the latest on Monday. I am also very important to all the employees around the world and customers as Communications and every one of us myself and Bob and Lala and Steve and Mike. We've all had a home videos. I'm doing another set of videos today is his Bob. I believe we've had notes we've had letters and we've communicated constantly to our employees so they know what's going on. It's important that they're not too worried about because we are clearly in a war and we've got to keep fighting this so from my perspective. Also, I want to make one other comment you'll see in a slide here and the conversation I had with executive chef.

Yeah, absolutely agree as I went around the horn with my world very leaders yesterday was clearly in North America challenge.

Significantly more so than anywhere else. So once you get a couple of colors, you got some colors North America, you know, I'll give you a real never given this information again. I'll be off the rip my tongue out there were getting this month information. I've owned not giving you the color around around what's happening with rotation rates are down in that 25% rate. Yeah, you know, you know across our businesses, but just to give you perspective globally wage globally. We were booking approximately 850 million a month. That was I'll run right as we went through nineteen and to the first quarter of 20 in peace 7 will be home around $680 million, but that's kind of drop off as is very significant. That's that fifteen ish plus percent for him is April 4th. They work on. That's April and the big just hitting that is the US and Canada the other World areas Europe Asia and Middle East will exceed their plans, but the Americas yep.

board a couple of weeks ago we made the decision at the level that we at the board level the old see we took a 15% base salary cut to

Effective April 1st, which is now in place. We went to the next senior level executive levels pretty high level all the way out down to 10% and then the rest of the global people involved in on our bones programs or took a cut of 5% but you're going to see cutbacks. You can see furloughs. There's a lot of things that's going to be happening here. We pushed out all salary increases for 12 months. So it's a role process that people like me would normally get my salary increase in the in November time. That will not happen in November of 2020. I won't get one into twenty Twenty-One, which most likely means I'll get nothing because I will be retiring so so be it and Track 23, I want to give you a sense of the orders. They'll keep in mind. I know people are wondering how to Emerson only have a negative 3% in the quarter while the the real impact started in the last 2 and 1/2 weeks in March, you know, we we as a company talked to you all in February. It's a it's a meaning and and yep.

Surely will will be challenged they're in so Asia will be very close honestly to a normal we call a normal month in bookings surprising that they've returned in Europe doesn't look as bad but it's really that America in and you're getting a lot of medical books cuz that's not go a lot of life science David and oil and gas honestly Downstream. We we want a significant order with BP yesterday and Thursday on four controls a digital twin control system. So it's I think it's the international markets. And so that's that's what we see right now. I think the companies are very international. Well that benefit.

Why do you want to add anything you want to add know again? I think we don't expect to see the is hard is trying to do it but we expect to see it stay down longer. So it's it's a little time again it it all depends on if people get back to work if there's the vaccinations of this kind of thing, you know, second half of next year could be a very exciting second half for us if it plays out longer than that could change but you know, when we come out of these before we've had some pretty strong quarters and again, hopefully that scenario we'll build up in this one as well. We need we need a taxi in the medical support them. And I think that's what I think that's what business we pull tell you. Well, I want to thank everybody for the calls and I appreciate you calling and listening. I know it's a lot of material. I apologize, but I thought it was important for everyone to have that input and look forward. I know Pete will be very business on the phone and follow up here for the day, but I appreciate everyone and I hope hopefully we'll be able to see everybody and yep.

Around a hundred million and then we raised here a couple of weeks later to about a hundred and fifty million. Then what happened is a world started engaging we saw the impact in the second half of March. So overall we are only down percent automation Solutions only down one, but if you look at Bob's five, he basically he's in line. He's a book and ship company. He was pretty well in line with his orders and sales for the quarter. So what this charge shows you though is clearly what we see now is as a pretty strong drop off in the month of April May and June and July and you're going to see orders that are now going to start bouncing in the negative 10 negative 20% and I know long bob will give you some color on this but that's what we're be facing right now cuz historically you would see that -3 and say however still be okay the third quarter that's not the case it starts chopping but that so I want to give you understanding of why the order held up we're doing well from the standpoint of what's going on the economy, but it's still going to start dropping down and hence the very weak third-quarter that people

Like the the famous doctor the worst Donald Trump, I intend to shake hands and hug people at some point in time before I die. And so I'm I'm I'm a hand-shaker and I don't I don't believe it's the handshake will disappear. I mean, we're all going to be that worried you might as well just go jump the water right now, but I look forward to seeing everybody and I look forward to seeing what unfolds here in the coming months, but rest assured Emerson at business Emerson's working in Emerson is is working. It's extremely hard to make sure that we can take advantage and solve everything that needs to be solved here in the coming month. Thank you.

Outline with you earlier as you look at the underlying sales growth is the oce and we held web access around the world with all the other key leaders around the world over the last several weeks took the last 45 days as we lived together here, you know, we now see a pretty strong downturn here in the third quarter also in the fourth quarter. We see this as a Ford at 6 a.m. Reduction. This is Uncharted 24 and and at that point in time, we're structuring our cost accordingly. This is not going to be a quick bang up bang down hang up. No not it's going to take time. Now. If you look at the Twenty-One numbers, those are directional order only we think we're going to have the first half will be negative and then it'll start turning back up. The question will be how fast the government's woke up certain parts of world how fast the government stimulus comes into play how fast how fast is somewhere customers come into play. We are now modeling what we think is going to be the the $21.23 off.

okay, we're going to

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thursday

also our internal standpoint as we see more and more influence every

Read a coming in from the customers every day coming in from around the world. But you look at this. We're looking at a pretty strong negative third quarter down 14% on growth plus or minus. Probably mm Point third quarter which will talk about law talk further about -10 plus or minus three point. So and then you see some negative growth as we move into the first half of next year. So we're looking down into a very very challenging twenty-twenty and a challenging first half of 21 and hence the work that that the operations and also corporates done relative to call back and I look at what's going on right now and we're in this pandemic War, you know, we basically look at the situations of what we're evaluating everything what what we really need what what I'm evaluating organization which ones are rising these challenges which ones have the right stuff and which ones are are bunkering. And so all these things are very very important to me as we go in and spend our time every day here in the office. And since there's no God.

Going on I basically spend ten hours a day at the office and I go home and walk for about an hour and half every night when my wife and then I start thinking about things and I get back to the office. So a lot of time and Emerson right now as I think through with this team most each team and talk about what's happening. If you look at the aggressive cost actions that we started last year and that's what's really helped as as you saw the clothes wage laws business and Bob's business if you think about what we did versus our guidance in our sales dropped in the second quarter 340 million The Leverage is only 15% That's tremendous. That's you'll see Bob allow will give you a little bit more detail on that versus last year, you know, if I look at from the second quarter standpoint, you know, we dropped 408 million and we only deal a 9% and that was fundamentally because of the work that Bob did last year early on and then also the work that loud did in the second half of calendar year 2019 birth.

That really paid off cash flow the guys around the world did a great job but now earnings are dropping and we're looking at a much tougher cash flow and second half. We still will generate strong cash flow but not the same level because earnings are dropping we clearly right now as you look at the analysis under castle and the first first half we are now starting to liquidate our balance sheet, which is not unusual for Emerson. We're very very good at managing cash flow. Hence. We generate strong cash flow in the first half a year. But as we liquidate the balancing the second half of the year the toughest of the inventory because inventory the the volume has dropped dramatically right now and then we'll what will happen to us is we go under 21 will starting to have to add the balance sheet as we start growing the company again sometime in late 21 restructuring is truly helped us wage. Both of the corporate level. I talked to you about the cutbacks were taken across the world on on salaries on on cutbacks and delays and salary increases but also our bonuses will be significantly reduced we are dead.

going to zero bonus we've cut them back significantly will be setting targets around margins and cash and this is very important right now as we go through this positioning how to how to paint protect and maintain those wage and how to generate cash and that's something that we're working on right now is a corporation and I'll

Work with a full consummating and the full board. We're also accelerating restructuring, you know, we had a major restructuring program underway already in 2020. We're going to spend 215. It's now up to 200000 both businesses are using this opportunity to really evaluate. How do we you know, how do we set the cost structure even stronger for us going forward looking at layers looking organizations? And what do we really need to do relative to the organization to make sure we win but also have the right cost structure. And and so we go through this tough time. You know, we we don't know exactly how things are going to go but we have a good faith mean this team has been around a long time as you know, I've been at Emerson for forty years if I went around this room and ask how many years these senior Executives in this room have been these guys are well into the twenties into the thirties. So they you know, we know what's going on. We have very strong indications of what we've seen before but we speak today. So, you know, we're really looking at you know, keeping the costs in line and making sure we stayed aggressive one of the wage.

You've done over the years as you well know as we continue to diversify the company today 80% of our we have not oil and gas and markets. So oil and gas markets clearly Upstream oil and gas the pipelines and I'm not even pipelines and terminals right now is a question while Market some of them the terminals are actually growing they're investing in terms cuz they're storing oil. But typically we're down to basically 20% the driven by this is a gas fluctuation of business would continue to diversify on and both allow and Bob will talk a little bit about this but we clearly have a different mix today and you'll see it here in a few minutes and if she has a very broad diversification around some key Industries, so it makes a little bit different than we've had in the past. Yes. We were going to get hurt by going and gas Investments when 20% of the companies around that Upstream oil and gas but you also going to quickly see that we have a very strong KOB three business here in this Marketplace. So the markets not going to zero we are going to support these organizations and you'll see the number.

They're quite significant Investments. We made over the last ten years in our service organization and penetration in the aftermarket and allow we'll talk about that.

One of the other things is clearly North America the North America we obviously do very well. We have a very strong position oil and gas. However, we also continue to diversify yourself against away from this Marketplace am still support it we're not walking away from it. We just have other businesses that in from the standpoint of pharmaceutical medical chemical whatever Industries power. So if you look at where we see today, you think instead of automation sales this year. We're going to be in ten to twelve percent an oil and gas North America. It's not going to go away. It's not going to go to zero you can see last year was nine hundred million dollars Upstream this year were looking a 750. I guarantee you the majority of that will be after market business to keep the facilities safe and running and producing you look back at the last industrial recession, you know, we're with a billion dollars. It dropped a little bit Upstream, but it didn't go away. We don't have the numbers relatively low 809 numbers, but you can see that was little bit higher percentage of that point in time. So we we have the continued. Yep.

By either work are aftermarket business and what I really really want to do for the guys and turn over to blogger in a second, but I wanted to give them to give you an Insight relative business issue right now also to give you guys some really strong insights that you're not going to get from a lot of other people around China actually giving you numbers showing the shape of the Curves in the recovery.

But we do a lot of work here thinking about what our investors would like to know about what's going on inside and what we see day-to-day which clearly is fluid but we as a team are working very quickly to react to this and so, once you take them through this your presentation here. Yes, sir. Thank you David and good morning. I'd like to begin by acknowledging the global automation Solutions team for for a tremendous close to home particularly as we faced rapidly deteriorating market conditions. This team has momentum and executing our Peak margin plan and is focused on the additional challenges NO phase. So turning to chart 28, this is how the plan looks from an order's in sales perspective. And what is a significant demand-driven cycle.

Orders were down eight tenths of a point in Q2 versus a 2.3% plan and will weaken and turn off in Q3 and stay negative for five consecutive quarters as we have modeled the next 4 quarters from a Global Perspective. These are 2015-2016 type of numbers. However, in 2015 and 16 it took us essentially forequarter unwind whereas in this cycle. It really happened in 1/4 North America is is is very challenged. I'll give you a little bit of color on the world or the World areas. Now off with America is very challenged. Obviously the the oil prices and what's happening in the marketplace is unsettling and it presents a huge challenge to the Upstream business. We will see production quotas imposed as a Texas Railroad Commission and others meet and vote later this morning. Rick count is down 35% in western, Texas in the last 30 days and our rescues, and yep.

And business is down about 25% There are only thirty five operating rigs left in Alberta. And we believe production will be curtailed by at least 20% in North America off Downstream refiners are continuing production as well. Some are shutting down units and other smaller refiners are shutting down completely. This is partially offset by strength in medical and lifestyle should just be pointed out. We want to major biopharm job, which we will book in May and we have a hundred percent team assigned operating at about 2,000 hours a week to deliver an F approved validated system in September that is record time for to stand up a form of plant.

Let me turn to Asia. The good news is China's recovering is better than expected. We will beat order the orders plan in April significant driven by semiconductor and mayonnaise the New York term demand in China is relatively strong as the economic stimulation takes hold and I'll show you the specific details on a monthly basis on China. India is a bigger risk off as Michael pointed out with significant lockdowns across the country in more restrictive measures instituted today making it increasingly challenging from a sales executing perspective. So we gotta keep working. However in across Asia covers are resilient and anxious to do business, but the restrictions are prohibitive at times on the sales side.

let me turn to Europe Europe's had a very

Good close to 2 and we have very few cancellations to date customers are working two T's and C's aggressively and our excuse in total have dropped about 15% Well, I'll give you an example of southern Europe which is interesting for us southern Europe Italy, France, Spain and Portugal arguably the hardest hit part of the world when it comes to viruses impact on average. We book forty million dollars per month in those four countries. We will book thirty-eight million dollars per month in April in the month of April that's life. That's found less than 10% or Italian plants and suppliers that back online and goods are flowing as a fourth of January is now reopened albeit very busy.

Turn to the the Middle East very strong environment continues which strengthens Saudi Arabia offset by weaknesses in Iraq and Kuwait the project final continues to move positive or wait with aramco remaining committed to their jobs and virtual meetings are taking place across the region and we have significant digital transformation wins as well and lastly in Latin America. We have seen a significant impact particularly in Mexico that chili copper Mining and Peru gold mining continue to be bright spots in Brazil outside of petrobras particular bodak continues to be a good story for us turning to sales. The plan for you to is a positive 5/10. We were down 8% as we pointed out again. We will try will drop the 12% off 3, and we'll stay negative as planned here for the for five consecutive quarters. I just wanted to be important for me to highlight. I'll back off position in the first half of 2012-13.

We built six hundred million dollars a back block predominantly across our final control systems and measurement Solutions businesses. The Assumption in this plan is that we reduce backlogs like three hundred million in the second half of the year that results in Q4 being down in the 8% range and twenty20 bring down in that 7% midpoint range if he can only convert a third of that backlog assumption meaning about a hundred million Q4 will be down 12% and 2020 sales will be down approximately 8 per month. That's a sensitivity on the sales plan. That's trying to charge 29. The last portion of the chart is an exact replica of the chart. I shared with you during a February investor conference.

The 2023 Peak marketing plan is defined had $325 million dollars of restructuring spend impacting 2300 salaried headcount and a hundred and ten facility reduction using approximately four hundred million dollars in savings focusing on twenty-twenty. Specifically we committed to spend $177 of restructuring in the first half. We spent a hundred and twelve million including 83 million which we spent in and that was prior to our February meeting in New York. The team has identified an additional $53 of restructuring bringing the total for 2022 230 million dollars and driving annualized Savings of 314 million offers. This means that we have to execute $118 of actions in in the second half $85 million dollars in Q3.

It's incremental planning.

Pax an additional 1,100 individuals and results in forty million dollars of savings in the year an additional forty million of savings are generated by pullback of discretionary spending enormous cost actions in 2020 alone. We will impact over 8% of our salary Workforce.

That's trying to charge Thirty One of the most fundamental differences in our business today versus prior Cycles is okay. You'll be three position. We have essentially professionalized mro strategy since 2011 when we add a significant Focus to this program and have subsequently expanded KOB 3 as a percent of total sales by Twenty points month through March of 2023 makes up 60% of our Global business up three points from the 2019 historical High the $120,000 installed base of our technology around the world has created tremendous trust and credibility with a customer base.

We're not relying on large orders through this challenging cycle. We are significantly more dependent on day-to-day small orders that are becoming increasingly important element to our business office. Nowhere. Is this more relevant than in North America where KOB three now represents 67% of our sales. Let's turn to 31. Please home. Most of the industry's focus had been on the dramatic cuts from the shell operators in North America. And while we drive a large percentage of our oil and gas sales from North America 44% as in the page the chart of exposure to the to the shield segment specifically of customers has only represented approximately 20% of total oil and gas sales.

Well, we do see Capital spending coming down in all geographies. We continue to win and execute critical projects around the world. The or Logistics challenge is creating opportunities across the goal for terminals terminal projects. Both modernizations and Greenfield developments in several funded new jobs in Mexico. And in China additionally Upstream projects are still moving forward with limited new Awards in international markets and projects in execution are progressing leveraging dish tools for remote collaboration for engineering and acceptance acceptance acceptance tests.

So what does this mean for Emerson one a strong Global team of sales and service continue to engage with our customer base in some cases in person. But also using the digital tools that describes to Emerson's digital transformation business is a competitive Advantage for us. We have well-developed connected solutions that enable customers to take people out of the process after 3. We are actively working with customers to reschedule shut down and turn around activity Into The Fall season for we have increased engagement with customers using our remote Educational Services. And lastly. We have developed targeted competitive displacement programs as many of our peers have extended product. Lee x 8 to 10 weeks or longer. Are they lack the regional manufacturing footprint capability?

Turn to page thirty-two.

The project funnel currently sits at seven billion dollars versus seven point 1 billion dollars. We communicated in February. Do you all price shock has triggered projects to be deferred off into 2021 or 2022 approximately $900 million dollars of jobs have shifted to 20 21 that is 2x to Pace of life that we have seen to date cancellations are predominately occurred in North America in to help you bridge between the February meeting and what we see today as a business office had approximately a hundred thirty-five million dollars that we booked out of the funnel since February. We removed 203 million dollars out of the funnel.

twenty-seven million dollars a scope change occurred

and we added approximately $270 to the funnel the major reductions. As I said, we're in North America predominately privately-funded LNG jobs. And the the predominant additions were modak fpso three shifts. Asia petrochemical jobs predominately in China and BHP job in the Gulf of Mexico three large projects remain in the funnel the Qatar n f e l n g chemicals and the raft nigiri refinery in India, which is a GT between a doctor and go and Indian oil. Let's turn to chart 33

I'd like to turn to a segment of our business that have significantly accelerated through this challenging time a medical and life science business, which would be close to five hundred fifty million dollars in 2026 ruined double-digit in the medical is predominantly in our discreet and Industrial segment of business. This includes Branson, ultrasonic welders that David highlighted the offset for medical ask a medical Regulators for applications such as ventilators and oxygen therapy machines pneumatic controls for lateral turning mattresses on intensive care beds. The boss is projected to be up 40% in 2020 288 million dollars. The life science business is largely not processed Business Systems measurement and final control where we have built a significant amount of Technology around a leading DCS position in the life science Market this offering involves control as well as hygienic valves a single month.

Instrumentation opposition to the life science business is very strong. It goes back to the foundation of delta-v as a smaller system best suited for batch applications Thursday. We have over 40% participation in what is a half a billion dollar life-size DCS Market that's two times greater than the next nearest competitor and we play across the entire industry value chain from development to production in film turning to chart 34 like to give you some perspective of what we've experienced in China over over the fiscal year.

this chart

Orders in sales for 2020 by month the lockdowns in China were extended Beyond Chinese New Year, but most of our operations resumed by February 10th. We always exposed to a car in February as you saw there. They occurred in 2019. Obviously more more extreme this year by March. Our orders were a hundred twenty five million dollars down 9% off of 2019 and I expect it to be down 10% in April as well. Although I could see us closing that Gap the acceleration in orders in the second half is driven by call Storage sign a pact recently announced the constructions of seven new tank Farms as well as petrochemical activity ramping up for the elements like fiber production the key fob in stock for medical PPE much of this is visible in the Q4 plan sales in March were down 22% versus nineteen despite our capacity being back to 96% wage.

By the end of the month in April capacity and Manpower availability at both at 98% in sales are expected to be down 2% to Flat versus 2019 Dodge a quick recovery as we get out of March into April for 2020 right now. I see orders projected to be slightly up around 1% in sales to be flat for the 2019 know I'll turn it over to to Bob Sharpe. Thank you. Thanks a lot. Like did I want to start by recognizing the key Mount they're cute too ended very differently than what we saw it starting with China downturn in February coming out of Adelaide coming out of Chinese New Year and then going into marches. We'll talk about despite that. We had a very strong quarter gross profit off drove the 9/10 of adjusted ebitda Improvement. We held sg&a in line with sales, even though again sales drop by about 5% just in the last weeks and and that was certainly a strong effort. Yep.

The central business we keep running around 84% of the commercial residential Solutions employees are still going to work everyday at the site cuz that's what we need to do to produce and ship our product and I certainly want to extend a special thanks to that group and we've taken many measures to make sure they're safe following the government and local Health guidelines as well as doing additional actions as well for them to hear what I'm showing the sales and orders for commercial residential largely go in line with each other. We have very much a book to ship business. So what I'm showing here is our sales outlook for this year in the next year off and then I'm going to use the financial crisis as a reference because I don't there's not really any direct reference to what's happening right now, but the closest thing I think we see is probably the financial crisis so you can see it going in Palm quarters have been kind of flattish if you will down a bit we expected it to be very similar through the rest of twenty-twenty even a month or two ago and then things started changing pretty quick Thursday.

in Q2, China

Ended up being down 33% the US still held pretty closely around 3% down and you can see now as Covetous fact has carried through into Europe and Asia and other places the second half changes significantly again, China was down 33 we expect China to actually be moderating if you will and coming back. I'll show some more specific song that and then things are really going to turn where it's us and Europe in particular down significantly in the second half. So a bit a bit of a flip-flop, um, certainly the two keys for us for the second half are going to be what China does from a trajectory standpoint and then us summer is always the key variable for us with the with the heavy air conditioning presence that we have.

You can see right now directionally and it is certainly directionally cuz we're focused primarily on this. In this quarter more than anything but going into twenty Twenty-One a it follows similar down terms of the past. We would expect by the second half to be turning up and the magnitude of that is is certainly to be determined by by a lot of things that the bottom back again the two thousand eight to ten reference that we had a little more growth going into the financial crisis up a couple percent being down. You can see we went down to Ken's and 20% sent for phone numbers and then had a pretty sharp snap back in 2010. There are some differences I think in this one the housing starts in the US went from about two and half down to a half million. Mm and it was very much Financial oriented. This is obviously a very different prices certainly substantial job loss right now, especially in the US over twenty two million jobs. So yep.

We see that as being probably less housing oriented kind of positions, but certainly as that plays out that could also be a key factor as well. So again, you know took this point. We're buckling down for a very challenging, uh quarter that we're in still continue challenges in Q3 and then we'll watch how things develop including a lot of the external factors around the cold virus as far as what's going to dictate for 20 21 album. The next chart I'm showing is on. The left is the exact chart. I used in February for the investor meeting. You can see the peak plan summary about $330 a total actions 500 salaried headcount actions on on only about eight thousand salary headcount in this business off a substantial percentage a number of moves the best cost a number of factory changes. This is a very GP oriented plan so driven heavily by fax.

The activities Automation and other programs and then certainly price cost is always a big factor for us on the right. You can see from an update repeat this plan for 4-H one again, despite the fact that the second quarter changed significantly in the last week's to this plan. We've added three hundred additional salaried actions. That's a combination of restructuring and then pulling open jobs in basically every possible move with respect to the workforce. We're very tight right now and and the organizations are are managing to that. We are going to be using widespread going into business. It's an unusual practice for us if you will, but partly because we do expect this ideally to be a a relatively short-lived Thing Once the virus comes under control trying to manage through by keep getting the cost down quickly in this half still have the opportunity with their Workforce and and next year. Of course, if next year changes, we still have authors.

Published a poll but that's the one where we're going after right now on top of the restructuring activities. There's also a $31.

And other additional cost actions which is again, basically all levers we can fall on the sg&a side our second-half sg&a spend versus our original plan is now down over 10% off. That's what we're working to to adjust to the volume Decline and certainly as Mike mentioned. There's a lot of supplier internal customer and other disruptions to our operations as we wage to keep running work to keep our customers going in that certainly going to be a The Factor on the second half profitability and in the GP as well.

The next part talks about China and you can see again. We had a very strong 2018 in China. It started turning down the first half of last year's down 20-plus percent and we we felt we were coming out of that. Um was some ups and downs, but then as you can see again Q to change substantially down at the bottom you see January was down 43% that was largely a factor of the Chinese New Year timing versus last year February, which normally would have been stronger turned into effectively and extending Chinese New Year by a matter of weeks in some cases for some operations. So we also had a very significant downturn March was a bit better 19% April. I used to improve it's in the ten fifteen percent kind of a dynamic right now. And as you can see we do expect that this point to be it to steadily return again through May June.

And then up above you can see in Q3 and Q4 and and certainly under under ideal conditions. If you will or under under the right conditions, perhaps even turning positive in the fourth quarter of Down Below on the left there. There's a number of project Investments going on right now across the provinces. You can see about a billion dollars in total or close to that many projects. A lot of these affect buildings A lot of these affect Bus and Rail where we have air conditioning and Refrigeration. So we see these as a proxy the the life Partners we have in China have strong visibility on Project. The key thing is going to be the execution of them. Everybody is tight on cash right now. So nobody wants to release orders until they're getting paid by their customers and our our channels in that same condition as well. So

Again, the trying to right now is playing out in this way and just as long mentioned certainly as we came out of the Chinese New Year. We had some some challenges in the initial days. I'll say but really by and large we're back to running very normally in China and as our customers and suppliers wage, so we're hopeful that this is going to play out.

We got a couple of charts here on Emerson's support in the fight against covid-19 chart 39 from the commercial residential standpoint, you know, certainly one of the things we've done is to help out particularly the First Responders the medical organizations other care facilities. Um, we've we typically have a number of fifty things in our plans gloves mask goggles and things like that and frankly, we've done a lot of work to give away a lot of these things initially particularly in ninety-five and cayenne 95 es which are basically the Chinese standard of of The n95 Masks we've given away nearly forty thousand of these two too many different care facilities around the Us and other countries wage gloves and other things too. We are providing our own employees with surgical masks cloth masks and other things from a prioritization standpoint. We're basically saying that the medical community needs the M 95 more than us.

And then from our product standpoint.

Good examples on the right are Cargo Solutions business that device that you see, uh keeps the temperature tracking and it also transmits cellular so it can transmit the conditions in a shipment of a customer was trying to move some coded test kit materials from Korea into the US the first time they did this they were all destroyed during The Layover due to freezing and so they they they contacted us on a Sunday for a Monday shipment. We gave got some devices to them and helps to preserve the product as it came across to the US in the bottom left a cold changes this Thermo Fisher an important customer of ours needs Refrigeration for some other covid-19 esta stations that some of the testing environment and were able to supply a number of those quickly Thursday. We got a number of other examples pop-up medical facilities for air conditioning other things the bottom right shows and our professional tools business the Corps of Engineers in the pop-up care facilities, and yep.

We're in Miami and we provided a lot of equipment for them to be able to get that infrastructure established. Again it really it really plays to the importance of Emerson in our products as a central businesses versus home. And and again, it's something that we helped helps our employees understand why it is that we do need them coming to work every day because we've got a lot of important things we have to make sure we're providing to customers rep. I'll turn it over to law. Thanks Bob. I want to share a few examples from an automation Solutions perspective as well in for specific examples of the efforts. Our teams are making to support the covid-19 off this response starting in drug Development. I've already mentioned a major pharmaceutical bio firm announced a significant expansion recently. This is in response to a positive response of one of their drugs in covid-19 treatment. I can't mention the name of the firm or the drug as we are in an NDA. However, this contract is north of $20 and will be dead.

And shipped this fiscal year in the testing realm of coriolis meters are being used for the precise feeling of reagents and testing equipment. If we move over to Medical p p and Thursday, we have been awarded orders from Honeywell in the over the past five weeks for Ultrasonic welders to be used in the manufacturing of medical masks and lastly in-patient therapy. We've received needs $20 of orders for valves manifolds to be using oxygen therapy machines and Cemetery regulator solutions from ventilator applications. So very broad set of offerings wage support the response that's occurring around the world. Thank you. Thank you very much and thank everybody again. We made the decision as we listen to our investors and the calls and the sale titles and also advise I'm investors that we felt that we needed to go a little bit above and beyond normal and our communication don't expect this type of detail all the time. A lot of work goes into this. I just want you to make sure but I think it's important.

that our investors

Understand what we're living in day in and day out. And again, I want to thank everybody both in this room the tyros Hui for 15-20 people that put up with me for the last 45 days off and also the people around the world as both Bob and wow and Mike and and Frank of communicated. It takes a team effort and we've divided and conquered and informed task force and worked this on a day-to-day face-to-face basis and I want to make sure that everyone's recognized for that. I'm doing a video again this afternoon 2:00 to videos one for the employees and then also one for our website to thank everybody. I want to make one special emphasis on this people know me quite well in two thousand fifteen sixteen Seventeen. We went through a major repositioning effort and I made it very strong statement that we would not cut our dividend. We would not break our dividends of History. I want to make sure people understand that I'm still the CEO. I'm not dead. They'll people have tried to kill me. I'm still young.

Quite strongly in charge as long as I'm here are dividend will not be cut and we will maintain our dividend payments in history. We have the financial flexibility and capabilities to do that going forward. We also are looking clearly one of the things I want to make comments on his acquisition. We clearly see some opportunities that will start emerging and we want to make sure we're strong financially set and wage work the franxx doing and the work everyone's doing right now gives us flexibility to pick up unique opportunities like we did D&C many years ago, but with that I want to thank everybody in the situation here and I want to thank everybody around the world that it's listening to us from Emerson. And now we're going to open the line and take Q&A and we'll start so off the bat. So announcer you wouldn't do live from Saturday Night Live. This is live from st. Louis. And the first question is coming from I guess my Colin so let's open the line. So Mike and ask the question.

Yes, first question comes from Mike Halloran from Baird, please. Go ahead. Hey. Hey, good morning everyone. And thanks. Thank you. Mike. Good morning to you. So first question just some historical context that are you looking at the oil and gas cycle here. Obviously been through through a few of these days can certainly appreciate the Slime. I'll put together on the amount of kob3 that's now in the portfolio. But how do you think about puts and takes structural concerns as you move forward gas vs. Liquid in in in high school quickly you think your customers can start responding but putting more Capital dollars and not that dollars back in the market. So I Michael to give you some context I've been around quite long. I ran the process business back in nineteen ninety-six ninety-seven when we had the financial crisis of Asia and the price of oil went below $10 and almost went to zero wage.

You're exactly right. We're going to say I'll let it like

It's a couple of things here double steel structural change. I think we'll see an acceleration overtime from liquids the gas. I think you're going to see a structural change in the power industry a topic. You know, what's going to be going off the power industry generate energy electricity. I think they'll take their time with this situation. I think some of our gas projects are still on the table of six talk about Golden Pass Plus the one going on in the Middle East right now, but then the first thing right now Mike is they're going to hunker down and protect cash. They're going to they're going to try and maintain the current liquid production that you know, they both knew there. So therefore they're going to have to spend KOB tree type of dollars and a little bit of KOB $2. I think this thing transition will be more out there in the 23 24 and 25 time. Based on our historical knowledge of this and I and I appreciate that and by the way, I'm assuming covid-19 go over the wires and you get me sick cuz if you get me sick, I'll be very upset with you Mike, especially since you're a Brewers fan off.

Sake Brewer Fan so loud anything you want to add to that? Yeah. Thanks David. Well, we've seen recent announcements by the majors cutting capex down 22% versus nineteen those kinds of changes. It is important to note that here in North America. It's a heavily concentrated space approximately fifty players generate in Eighty percent of the oil production in the United States took a 20% is done by thousands of players. I think this eighty players will be the 50 players, excuse me would be very disciplined as they go through this the thousands many of them will be in trouble as wage. So typically when I think about the two segments the downstream refining and the Upstream oil and gas, I believe they have different economic Cycles. However in this both are grappling with that faith in a lack of demand Mike is as you pointed out refiners that facing difficult decisions that reducing utilization rates as I pointed out some of the idling units and some are trying to figure out how long

Just maintenance and turnaround intervals to manage this this stuff environment for us Upstream is significantly more waited to capex historically and refining has been more waited to pull backs. That's one aspect where we see some difference. The other aspect is that we believe that the refining segment will rebound a little quicker as demand normalizes. However, long oil the oil production is more structurally impacted I believe and that would be a significantly more more challenging because of this oversupply element that we have. That's how we see it right now in the two but I think structurally Upstream all production will be will be a more challenging cycle here. One of the things we're doing Mike and the cuz you're exactly right Thursday some structural changes here, we're starting we're evaluating organization to and we're putting Investments and how we as far as you well know we can we can adjust our people but we're we're working very quickly cuz clearly is not dead.

And major projects for a while in the liquid side. They'll be more on the gas side and we're and obviously we're going to redirect our people and and support the aftermarket business. So a lot of adjusting going on by the world are

Three people, you know, Jamie out in Asia Pacific media and the Middle East we have obviously rule in in in Europe our leaders. They're all Justin because of the same issue that you bring and it's going to be very fluid and and live for I think for two or three years David to your point around gas. You're absolutely right going on past continues to move forward. That's an LNG job. Uh, Saudi Saudi is Marshawn project is the offshore gas production continues to move forward and we we continue to book the awards there. So I think they're looking long-term gas opportunities suck dynamic. They want to continue to fund like one more question quite pleased. Yeah, so that's how do you think about the structural changes that you're seeing on that on that piece and what that month for the second overtime, you know hybrid discreet some of these medical life science type of applications seems to be very very well and certainly a better tale as we look forward you age.

Particular if you bring some stuff back and you some more regionalization come on that side how quickly can you morph the portfolio? What does it look like? Obviously, you don't stop supporting the KOB three-piece and you start out of breath and depth there. But how quickly can you move and what do you think about inorganically versus organically? Yeah. I think that we are one of the things that you know law and his team are are really in there. You know, we're obviously looking at long-term investment. I'll answer personal allowed answer this too. But we're obviously changing our investments towards serving the more the discrete Marketplace. The other Marketplace is not the liquid side because I think the gas Investments should continue to come back the aftermarket gas is very very strong and there will be a liquid but it will be changed as you're saying so you're going to see that we continue to invest at higher levels around the areas that the hybrid space a discrete space other space both from an acquisition standpoint that also this internal development. We have a lot of projects are underway right now working clearly within the discrete space within the system off.

Remove outside the oil and that Marketplace. We're also looking potentially some Acquisitions. Can we shake out some Acquisitions that a little more software-based along those lines. So like I think you're right off and obviously as we've seen in every other structure time, like this are liquid business will be less and other business will be higher so that percentage will continue to drop so if you think about the revenue office and you think about the the business that we have today and it's going to continue to shift away from the liquid side. We are not going to walk away from these important customers that we support and oil and gas area. These are very important customers the industry wage depend on us and our Technologies, but you're right. We will reallocate some of the new innovation around the other areas and our portfolio continue to mixing away from the oil and gas. So anything else you want to add their life David. We have made significant efforts both organically and inorganically developing our portfolio around the discrete space both of Acquisitions in Europe and internal investment Club.

In that business around our core technology and there's a significantly longer Runway to continue to drive that there to other areas David that I'm particularly focused on from a diversification perspective during the hybrid segment life science particularly as we touched on bike in the power segment. I think there are opportunities to expand our power Market beyond our traditional generation birth control system into other areas. Yeah, I think that on what you also like to add on a he's up in Minneapolis right now. They're working on a lot of sensors for the hybrid life sciences and Fiber space which is important as well. But our next question, come on.

next question comes from Nicole diblasi from

The bank please. Go ahead. Yeah. Thanks. Good morning, Dave. Good morning, Nicole.

I'm sorry. I just wanted to ask about margins in the second half of the year. Looks like you guys are embedding decremental is getting worse in the third quarter despite the fact that I would suspect restructuring payback is Jeff stepping up. So if you could speak to decremental margins as well as the expectation for restructuring payback. Yes. I think the big issue right now. Nicole is in the second the second quarter why I ask for so much better is obviously we had a lot under done in the first quarter and then the the drop-off and the sales be a significant, you know, but not the same level we're talking about in the third quarter. So right now the acceleration of the decline of our sales are overwhelming basically the restructure we've done the first half and the new and the incremental destruction we have going on at this point in time. We took we are still looking at 12 months or less on the on the total pot. We are also looking at some longer-term ones that we're doing relative to our International markets so we can you know, sort of set us up.

Pop up for a better 21 and 22. But the third quarter in particular is really is because the drop-off you see in those Tales. I think what do we drop off a billion something in the third quarter sales rep $7 million. It's it's just overwhelmed everything we've done at this point in time. So we've been a little bit more cautious on that but we're still looking at a very good payback of 12 months from that standpoint very focused on that, but I just don't see us overwhelming that drop off in sales as hit us so hard in April May and June. Okay fair that makes sense. And then just take you back to the question. Is there any big difference in the margin expectation by segments or we'll both faced similar detrimental as in the second half just thinking about the fact that most of the restructuring spend have been focused on a month Bob want you and what's your detrimental second-half you right now you're going to be closed 2:30. We're going to do leverage to around 30% order of magnitude. That's that's worth.

Those down, you know well into the into the teens, so there's a pretty is a bit of a sales difference in the second half between the two platforms. But as Dave mentioned that magnitude a sales decline even with wage strong history and a reduction versus last year and certainly many activities in the plants the operator that deliver the volume as well as again, the covid-19 impact which is very disruptive to the plants right now how long it's going to be very challenging. I think the only thing you want might want to add value Bobby. You're still trying to Target some ebitda margin Improvement for the whole year even with the down down sales. You're looking at that still the case with Justin either. In total for the whole year. We're looking to hold versus last year, but it's harder. It's going to be hard at this point. Yeah, that's going to be very strong with the volume to fine. But it's going to be difficult to at this point beyond the big issue in on Thursday nights are 2 to call. The big issue right now is a plant, you know, some plants will operate for a day two days and then get shut down as we have to clean and that's that productivity impact is very very hard to overcome in which yep

Safety within our facilities is very very important. It's

Frustrating you you have a situation often you have to shut down then you gotta get people back up. So it's it's another hand tied to a hundred back here. But overall I think with all that situation is doing pretty well so long you want to add thanks, David Nicole. The the third quarter is clearly almost challenging quarter would be leveraged rates in the 40% range for us that's driven by program factors one being the North America impact, which is most significant in the third quarter accelerates from March into Q3 and the book to ship businesses impact so the short bed or businesses, you know, instrumentation and KOB 3 and final control being impacted those our higher-margin businesses than some of the longest local businesses that we do have things do get better for us to quench willing to offer from a deal average perspective and we fall back into the twenties on a on a Puri basis which is which which is more normalized but the 3rd we take a significant his name, ma'am.

Okay. Thank you very much, and I'll see you soon.

The next question comes from Andrew open from Bank of America, please. Go ahead. Yes, good morning. Good afternoon, or good morning and drive. I guess it is morning. Where are you staying out? Yep, I got used to sporting stuff. Don't get used to that either. I'm just going to go ahead just a simple question. I'm looking at the comparison you guys making with a 09 and I understand the bottoms up fact that the company is better. But you know, it seems that the GDP forecast for 20 20 are going to be weaker than wage even showing the great financial crisis yet. Your Revenue performance seems to be better than in the financial crisis. Is it all driven by just changes in the portfolio page or the other assumptions from a macro perspective and that there as well number one issue Andrews. We went into the financial crisis running hot strong. We were very strong. We were growing dead.

Digits, uh, so that was the biggest thing we were in on a growing curve and then we got hit and we dropped hard off that hit as you well know we were structured this year for a basically a flat year. We had a we had a couple you know last year for Bob's. This is he was flattered slightly down while I was way off what he thought he was originally so we're we're going into the cycle differently and the second thing is we are differently structured from the mix of the business since the last cycle, but the big issue is when we went into that one, you know, we were growing very strongly and then the bottom fell out this one we were ready for it the bottom had already started college last year. That's the biggest biggest different and room and just a second question in terms of restructuring you are talking about spending more money, but can you just talk in terms of logistically? What is it you're doing in 2020 now that you know a couple of months ago you didn't think you would have to or you couldn't do it either opportune. Yep.

Is to move faster or is it just you know, you're being more aggressive on footprint and if you just give us more detail.

No, that's do, you know specifically where if you could share that publicly. Thank you. Yes, so there's there's there's two Avenues here one we are what we're trying to do is accelerate the programs or the fixed cost programs the facility programs that we had built more into twenty. Twenty-One were trying to accelerate those into the second half of 2020 so we can get those done sooner wage because you know, when the spike does come back we want to have those new facilities up and running lower cost structure. Secondly. We are being a little bit more aggressive on some of these consolidations and how may we doing and how we how fast we get them done from that perspective in a third thing is is I said earlier both bolted corporate and the two platforms. We're looking at the structural over the overall company and what layers we can take out and what layers we don't necessarily need any more as we learn how to run a company in a different world, which we are right now. So those are things we're we're doing and we're just looking at everything very carefully and and sort of dead.

If we don't need it, we're we're not going to do it and that's from that perspective. So that's what's going on a lot different view of this as we go through this pandemic War. I think allow you want to have yeah. Thanks David Moss on the facility to rationalization. It is dependent on us building the best cost sites so that we can execute some of those some of those plans. They are underway, but obviously building plan change takes time and accelerating as best we can so did they gets point a lot of what we've identified into it incrementally has been purely around volume relating headcount decision what we do and don't do and then identifying further delayering opportunities across the businesses. Those are the those two categories as we talked about in New York and you are the real quick is paid back on restructuring and and quickest to execute and and that's what we leaning on the very hard here in twenty-twenty as we accelerate the second half hour structure. Yep.

Well, I'll just say that you know, which plan did not have things like wage freezes and cuts certainly discretionary. I think most everybody else is doing the same thing is is practically non-existent. Um, and frankly, I thought we were just going into the organization that'll level, you know part of its volume related. But but a lot of sg&a isn't necessarily easy to do with body and so we're just making some tough choices right now and positions that we hope to at least be able to to to work, you know have without for at least a year or so to get the payback on it. But, you know some of the stuff what we do get volume will certainly come back and it sucks. I wouldn't say it's really part of the plan. It's part of the dealing with just a very dramatic sales cycle that we hope doesn't last too long. But but again the operational side the plants and that that's all that's going there's not a whole lot more we can do that will affect the second half of this year. Although I will say even the manufacturing salaries ranks and costs. You know, we're not we're turning over every stone right now dead.

And trying to deal with a pretty dramatic volume slide here quickly.

And your definition of what low-cost facilities are in this environment given this fracturing of Global Supply chains that people talking about we use the word best costs and in the answer is no we've always we always look up valuation real to the logistics if you think about are you think about a regional strategy we think about logistics Supply chains. I think there will be some changes as people look at rebalancing that Thursday that we use and you know, we did a rebalancing about five or six years ago seven years ago. We will take a look at that as we go forward here, but from our perspective, you know, we're week that that Matrix on a constant basis it will tweak it again at the end of 2020. But right now the definition of Vest cost is not changed know really appreciate it. Thanks so much.

The next question comes from Julian Mitchell from Barclays, please. Go ahead.

Hi, good morning. And thank you for your detail morning. Maybe just the first question David looking at slide twenty-four and you've got that scenario of of the big dip in fiscal Q3 and then staggering back toward the sort of flattish line a year out. Maybe just help us understand within each of the two main segments wage which end markets you think will lead that recovery and which one which ones might be blackguards understand that maybe Upstream capex is definitely a laggard that I had called out but maybe any other color across the two platforms of the the slope of n Market trajectory. Yeah. I think if you I'll comment and I'll let both these guys comment on their specific business needs to be different. I mean clearly the liquid side of lost business is going to be is going to be very slow. I think you're going to see starting in the first half of next year some some some companies look at Birth.

Getting some facilities back in in in the United States. So it'd be some spending around pharmaceutical and medical they'll be spending around, uh, you know, some of the chemical side of the materials that go into that space. I think you're going to see the only the only laggard we see probably early on will be the liquid side on the new contract and the new business historically. I mean it that would would lag with this type of shock. I would also apply be cautious about the gas. I think the gas gas Capital investments will will probably be a little bit slower during back but the rest of the eighty percent of business that we look at I think we'll start bouncing back pretty quickly as a go through their own Matrix and see where they're making stuff and how they rebalance that but the power in the country I think will continue to expand as it is right. Now if I look at the food and beverage I look at the chemical all these guys are re-evaluating those are spending. So I think those are the they're going to come back and see the liquid and the gas side job.

I would worry about which is about 20% of the total business. Anything else. You want to add to David just very quickly obviously in a 60% cable be three business Julian.

For what a day-to-day small orders. Yeah, essentially what that 60% defines is what what is required from an automation perspective to keep the plant running see it a pharmaceutical plant a Refinery or a coal-powered fire distinction. So it's it's that that we're focused on I agree with David that as as this comes back it would be I wouldn't lie on that would be not be not production side that will lag. It would be more Downstream as we see it, but we're currently already scheduling turnaround activity log into The Fall season that's across the broad scale of our process Industries and power that will see accelerate and returned very quickly as people allow back on site and we should see the benefit out but you're going to see a lot of the as the White House and I'm sure every governments around the world looking at all the areas that went into the healthcare the medical the type of chemicals, whatever they need the phone number.

Just a question.

Suitical I guarantee you they're going to look at how do you around the world? Not just the us, but also Europe and Asia.