Q3 2020 Emerson Electric Co Earnings Call

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Good afternoon, and welcome to the Emerson third quarter 2020 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star key followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question. You May proceed star then one on your Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded I would now like turn the conference over to Peter Lily Investor Relations. Please go ahead.

Good afternoon. Thank you and welcome everyone to Emerson third quarter 2020 earnings Conference call I hope, everyone is staying safe and healthy.

Today, I'm joined by David Farr, Chairman, and Chief Executive Officer, Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer.

All Carson by executive President of Emerson automation solutions, and Bob Sharp executive President of Emerson commercial and residential solutions.

As usual I encourage you to follow along in the slide presentation, which is available on our website.

Starting with the cover slide.

In the area of Cobot, 19 safety and health had been right we brought to the forefront as a global this conversation.

That Emerson safety is a core value and in June our employees celebrated global safety day to reflect on the importance and personal responsibility of each individual foster healthy unsafe behavior.

Additionally, Emerson has a passion for stem education and innovative thinking that's critical enablers for the needs of business in society, so today and in the future.

Emerson recently hosted a virtual stem competition in cooperation with our impact partner here in North America Smart and controls.

The winners designed wearable devices that gave alerts when within a six foot social distance barrier congrats to the winners cadence and Caleb margin.

Please join me in turning to slide three.

I'd like to briefly highlight the immersed in the corporate social responsibility report, which is also available on our website.

This document highlights in detail all of Emerson's aspirations and accomplishments within the environmental social and governance realms.

Cobot 19, and the ongoing social discussions are catapulting. Many of these important BSG topics to the forefront.

As problem solvers at our core immersed in strives to advance the discussion share our own progress and strategies and also to be a valued resource for our customers as they embark on our own SG journeys.

Emerson takes very seriously our role as a critical enabler and partner traditional monitoring measurement optimization and efficiency management across our broad customer base.

Please turn with me to slide four.

Despite the challenges presented by Cobot 19 in the quarter. There were also many reasons for cautious optimism.

I'd like to briefly share a few.

First Emerson remain steadfast in our commitment to health and safety for our employees customers and communities.

Business continuity disciplined cost control and positioning to outperform as we emerge from cobot 19 remain our additional key automatic priorities.

Our regionalized supply chain and operations remain resilient and stable in the current environment and we continue to work hard to ensure we can serve our customers and their essential industries.

In the quarter the team was able to exceed adjusted EPS guidance by 20 cents with 16 cents being attributable to strong operational execution.

A lower effective tax rate also contributed to the overall adjusted EPS beat.

Cash flow was strong in the quarter, representing 181% conversion of net earnings.

Additionally, the team was able to manage decremental margins to the mid twentys level at adjusted EBITDA.

Despite the uncertainty and continuing challenged demand environment sales and orders finished in line with guidance given in April.

As expected China is leading the emergence from the downturn with positive sales growth of 3%.

Additionally, we are seeing trailing three month orders starting to stabilize highlighted by commercial and residential solutions month of June year over year orders turning positive.

Finally based on current recovery trends, we expect sales to turn positive in either Q2 for Q3 of next year.

Moving to slide six which summarizes results of the quarter.

Underlying sales growth was within guidance down 15%.

Trailing three month underlying orders will also within expectations down 19% reflective of the ongoing challenging demand environment.

GAAP earnings per share were down 31% to 67 cents and adjusted earnings per share were down 18% to 80 cents, which was 20 cents above guidance.

Despite lower sales both platforms executed well on profitability due to covert 19 related cost control measures. In addition to the ongoing aggressive restructuring reset actions.

Automation solutions underlying sales were down 13%, However, China sales were up 9% as it emerged from lockdown.

Trailing three month underlying orders were down 19%.

Commercial and residential solutions underlying sales and orders were both down 19%. However, as previously mentioned June orders turned positive which continue to positive trend in month over month orders.

Cash flow performance was solid in the quarter with operating cash flow of 842 million and free cash flow of 738 million.

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Year to date operating cash flow and free cash flow.

One of 1.85 billion and 1.53 billion were up 3%, an 8% over prior year respectively.

Lastly, the company continued to build upon its aggressive cost reset plan initiating a total of 94 million of restructuring actions in the quarter.

Turning to slide seven we will bridge adjusted EPS.

Beginning with third quarter of 2019, adjusted EPS of 97 cents.

You will see that non operational items of foreign exchange effects stock price effects and pension detracted nine cents, which was offset by a more favorable tax rate than expected due to R&D credits and other items. The net effect effect was a one cent tailwind.

Operations contained the deleverage to 20 cents and share repurchases added two cents for a net 18 cents headwind.

Overall, we finished the quarter at 80 cents, which was 20 cents above previous guidance.

Additionally, total total segment, adjusted EBIT, and EBITDA margins of 16.8% and 21.9% exceeded their respective guidance reagent ranges of 15% to 15.5% and 20% to 21.5%.

Slide eight depicts the key elements and magnitude of operational performance on adjusted EPS.

Starting with adjusted EPS guidance of 60 cents, we saw both business platforms as well as corporate can contribute to the SDMA containment.

Automation solutions contributed 10 cents commercial and residential solutions to sense and corporate four cents for a total effect of 16 cents.

Additionally, the effective tax rate came in at 11%.

Compared to the guided 18%, which provided a five cent tailwind.

Subtracting ascent brother items, the adjusted EPS mind at 80 cents.

Leverage was contained to 26% at adjusted EBITDA.

Moving to slide nine we will review the PNM.

Starting with gross margin, we saw a reduction of 140 basis points to 41.3% as deleverage and unfavorable mix were partially offset by favorable price cost.

Importantly, SGN as a percent of sales declined by 20 basis points as aggressive cost control actions went into effect as volume declined.

Adjusted EBITDA, and adjusted EBITDA margins, which exclude restructuring and related costs.

Priest 240 basis points, and 150 basis points respectively.

This outcome reflected de leverage from the decline in revenue being offset by restructuring savings and cost containment actions.

Lastly, our effective tax rate dropped from 20.3% to 11.2% driven by nonrecurring tax items, including R&D credits.

Overall, the adjusted EPS decline of 18% from 97 cents to 80 cents was in line with the revenue declined 16%.

Turning to slide 10, we will look at underlying sales by geography.

The Americas showed the steepest declines down 20% with the United States down, 20% driven by broad based weakness in all industries, except medical and life Sciences.

Europe in Middle East Africa and Asia.

Were both down 9%.

China, However grew at 3% as the economy was the first to broadly reemerge from locked down.

Please turn now to slide 11, and we will discuss total business segment performance.

Total segment adjusted EBIT margin decreased a 170 basis points to 16.8%.

Reflecting aggressive cost control measures and strong operational execution as sales declined.

And as previously mentioned total segment adjusted EBITDA deleverage was 26%.

Stock price related costs increased 20 million as the stock price improved from lows at the end of the prior quarter.

Adjusted corporate and other costs dropped by 14 million as aggressive cost controls travel restrictions salary reductions and other measures took effect.

Adjusted pre tax earnings dropped 270 basis points to 14.1%, However, 180 basis points of that movement can be explained by pension.

Price and foreign exchange losses.

Q3 cash flow performance was solid given the challenging environment.

Operating cash flow and free cash flow, both decreased by 11% to 842 million and 738 million respectively.

Free cash flow represented 181% conversion of net earnings.

Lastly, the drop in net sales resulted in an increase in ending inventory and lower payables.

Turning to slide 13, we will review the business platforms.

Automation solutions underlying sales finished down 13% for the quarter as broad base declines and most end markets were only slightly offset my life Sciences medical and food and beverage.

North America saw the steepest declines down 20%.

Meanwhile, China led the recovery growing by 9%.

The final controlling systems businesses were down high single digits in mid single digits, respectively.

Trailing three month underlying orders remained within expectations at down 19% again, reflecting broad based demand challenges.

Aggressive restructuring actions totaled 80 million across the platform, which brought the total to 192 million year to date.

The platform delivered on profitability profitability in a very challenging demand environment with adjusted EBITDA and adjusted EBITDA margins down 120 basis points and 30 basis points respectively.

Reflecting the aggressive cost cost actions taking effect.

Decremental margins were held to 22% at adjusted EBITDA.

Of note sequential backlog was unchanged at 5.1 billion.

Turning to slide 14.

Commercial and residential solutions underlying sales were down 19% also reflective of the broadly broadly weak demand environment due to colder 19.

North America led the declines down over 20%, while Europe dropped 12% has momentum in the heat pump business was more than offset by declines in professional tools and cold chain.

Asia Middle Eastern Africa was down 18% with China down 9%.

Order rates vary dramatically during the quarter from down 35% in April year over year to positive 1% in June.

Trailing three month underlying orders come down, 19% driven by weakness across the distribution and OEM based businesses.

In contrast does this is exposed to big box retail and do it yourself markets fared better and were down mid single digits.

Asia orders dropped by 20%, while China was down 7%.

For the quarter restructuring actions totaled $12 million, which brought the total figure to $31 million year to date.

Commercial and residential solutions also delivered solid profitability, given the demand environment with adjusted EBITDA, and adjusted EBITDA down 270 basis points and 160 basis points respectively.

Decremental margins at adjusted EBITDA were 32%.

Turning to slide 16, we will review the updated guidance.

The impact of covert 19, certainly continues to present a challenging demand environment. However, we are raising guidance due to early signs of stabilization and good momentum and cost containment and restructuring actions.

First we assumed demand will continue to stabilize and gradually improve.

There are no major operational our supply chain disruptions no changes in discrete tax items and oil prices remain in the 35 to $45 range.

With those assumptions in mind, we now expect underlying sales to be down nine to down 7.5% and net sales down 10 to down 9% for the year only slight refinements from previous guidance.

Okay.

We are raising expected adjusted EPS to the range of $3.20.

The $3.35 an increase of approximately 6% from the previous midpoint for $3.10 to the new midpoint to $3.27.

Expected total restructuring spend has increased by approximately 20 million to $300 million with approximately 235 coming from automation solutions 55, coming from commercial and residential solutions and the balance from corporate.

Please note that we will review the updated restructuring reset spend and savings plan as well as that drove a 19 related cost savings in detailed later during the presentation.

We expect operating cash flow to come in at approximately 2.8 billion and Capex spending expectations remain $550 million, resulting in a free cash flow target of approximately 2.25 billion.

Lastly, our share repurchase program remains complete for the fiscal year.

And now please turn to slide 18, and I'll hand, the call over to Mr., David Clark. Thank you very much Pete.

I appreciate your input Pete wants to be called Commander Pete and.

You've got new name come the military background I didn't have to deal with us with Tim.

But to beat I do by the way I did see Tim today wed aboard call and Tim was in Germany, with our German director and his family has arrived in Germany.

The president of professional totals in Germany is doing well understand there now there and has kids will be going school life and so it's good to see temporary seem to be pretty happy today and never added call him commander, but again, then again he couldn't kill me with two fingers like you [laughter].

With that I went on the order trend chart.

As I would say.

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The trends for orders were pretty much in line to what we thought would happen and the quarter for month by month basis.

Clearly you can see commercial residential as quick as seemed to about found the bottom in the month of June I think you'll see that that is improved again in the month of July I'll, let Bob talk about that.

While continues to seem to be stabilizing around this bottoming out let him talk a little about his businesses, but overall month by month, we solve the quarter unfold exactly like we thought was going to unfold relative to orders relative to sales.

Margins came in much better as you've seen from from the cost reset accidents and to what we call. The the cold weather related savings. Therefore cash flow came in better to overall execution was was extremely good Anna and I really want to thank.

The global leaders relative to their strength of operations throughout the quarter I want to thank the whole team around the world as usual the all CE.

And top 10 or 15 people on this building that other corporate card never left the building. We now have the whole building back we ever campus back obviously from time to how we might lose somebody but Raul here operations are working around the world. We have not had really many hiccups weve last couple of days here in there and Bops case allows case, but overall great execute.

And by the team around the world as I shared that with a board and we are acting and we're running this company lies in person in our offices as best we can not everywhere, but as much as we can and I really thank them for what they have done because it's been a very challenging quarters. You know we laid out our forecasts in April mid April we went out early.

We executed around.

The the planned from Us order standpoint sales.

Manufacturing and we really really did a great job around the cost reductions both from the reset actions, which we started last June which will have accelerated and we'll talk a little more about those to the covered related adjustment savings from the onetime cuts the furloughs delays the salaries, obviously know travel entertainment.

All those things and we'll talk more about those all those came in.

Very well and helped us from a profitability standpoint.

But in particular, what I was extremely pleased to see is as we laid out that detailed major cost reduction reset program back in February to shareholders, but the board last year in August time period. They really have stayed ahead of it and they've actually increased the numbers, you'll see that in the charts coming up and that's not easy to do another.

Garment, where you're not able to travel you have hard times, having meetings.

But these guys have done a phenomenal job relative to really drive in those programs for what a different phase right now we're in the phase of actual consolidation of facilities shutdown facilities new facilities, we're moving stuff at this point in time versus initial phase a lot tougher phase and both of those businesses are on track at.

And I think are doing extremely well and I'm I'm very pleased with that with the effort in the in the quarter, which was better than I thought from for the earnings.

Better I thought from a cash flow we've raised the year, we have confidence in the year.

And we'll I'll, let Bob and I will talk little bit about that but really from the execution on operations, we really did a great job and from that perspective.

But I just was pleased to see from the standpoint of that execution and what we saw in we'll see as we go into the quarter I think from my standpoint are.

I think that we will see some strength emerge from the businesses I think the profitability of continue do well.

And I think that we're going to have a very good order from the standpoint, and what I would like.

Bob and lot of talk about briefly here first about the orders first and then we're going to go into the talk a little bit about the quarters, but above once you get a little color what you're seeing right now in orders allow you to the same thing and it will go into a couple other departure.

Thanks, Dave as Pete mentioned earlier, the front end of the quarter was very much. Unlike the back ended the quarter.

April really drops so really.

Really everywhere North America AC in particular with a lot of a lot of plants being down including customer facilities and our professional tools a lot of the channel basically just shutting down and offices being closed.

Then of course, we ended with June swing it up positive so quite a dramatic change.

And the numbers, we have for July right dollars rider on flat, so we're holding pretty solid again.

The three month for June was down nine team and that'll bring the July three month into the five to 10 range.

So definitely going the right direction.

Coming out of it.

As it does go as going into was broad coming out of it is really quite broad too.

But again North America AC up the all follow a lot of the HPC producers in North America, clearly when the heat head of late June.

That made a dramatic difference and we felt very quickly the DIY space continues to be very strong so the VAT business sentence and greater.

In particular quite good.

Pro tools was very strong a part of that I think is basically branches reopening them and the thats kind of a little bit of a channel bullwhip I would say more than the market itself, but.

June was certainly quite different and.

And your in Europe in July was action was quite strong as well the European heat pump business.

Is very dynamic right now in total and we've got some very good relationships with some Oems that are in our joints and very strong growth right now yeah, I think Bob when the key issues, we talked about on the lines I've had lot investors on the line over the over the last.

Two or three months as we knew the balance would happen. The question in the key issue for us to keep those back is going and Thats, where bobs right. Now is very focused because on a global basis is demands coming back and what we want to make sure as we deliver on that demand and not Mrs. Bounce and we've gone through these before and I think there right. Now is teams are very much focused on that I've been to a couple of a sites in there ill.

Getting ready for Arden sequential balances this quarter and that's going be a key mathematical for us from that perspective factories very much in focus right now been able to deliver against these numbers can volume ocular up you're obviously different part of the cycle and from that perspective, but you are I would say forming the bottom at this point in time and in you clearly have the same issues relative a mix.

Our broad industry capability. So once you give us a favorite what you see relative your orders right now before we can get into sales the global businesses. Thank you David Good afternoon, everyone, Yes, clearly operating around the bottom of at both of this order cycle as we feel it through June it actually July came in on a daily basis about 4% about a month at June as.

We saw broad stabilization, particularly in Europe, and driven by some growth in China and stabilization in North America believe there's three phenomena, David as we think about as we think about the order rates, obviously oil and gas upstream as one of Gabelli impacts our strong upstream markets North America in Europe to some extent it has had.

An impact, particularly on the short cycle businesses to begin with and now extending into some of the longer cycle businesses. We've seen ridges topics that we seem to for Capex. As a result, secondly people are not quite back in the plants yet.

At a detriment to impact in day to day care will be three waters as plans have been kept opening safe for the last folks in them and consequently projects are being executed modernizations that happening and some of that will come back as before we turn to work that Thats had an impact through the quarter, where we sit today and then lastly, I highlight that China has recovered.

And we had a good good quarter in China.

Positive orders and sales and there were seeing that in a broader stabilization across Europe, and and hopefully in North America here as we go through July as well. Thanks, as we expected we expect loud a lag in the cycle. He went down slower he did not have a minus 20% in early stages, you could easily have that in a quarter a month.

Here, but this isn't a different cycle right now I feel very good about where they sit and we're starting to feel pretty good insights and around that you go in the next chart chart 19, you look at the underlying sales.

From our perspective, we were dead on from the underlying number that we talked about.

For the quarter us maybe slightly better than than we thought originally you can see that what we're going into now in the fourth quarter.

Very similar we had before but I would say the slightly better I think Bob business will talk a little bit about it here next charter too.

I will slightly better I think while businesses is going to be the key issue for him as he backlog reduction, but as we move in the trend line and Directionally right now what we're seeing based on the customer input space of economic trend lines based on the open in the World is that we have a chance to go positive in the in the second quarter in sales slightly positive it will be everything has had more.

Right, but last class Court I would never let's say that to you at right now it looks like that case and things have to go the right way, but overall the direction in the their trend lines of this cycle feel pretty well understood. At this point in time, and we're managing around that and we're having to really allocate a lot of resources could we have businesses within.

Then Laos business were up 20% like in life Sciences, or empower is very strong in Bob got businesses today are gone right now so we're having to move.

Lease resources around and we're happy to be very careful relative to our plant restructuring and monetization.

As we see this trend line change and it's very interesting I've been around a long time as you all know as CEO and that Emerson I've never seen a cycle quite like this where we've had a sudden surges in certain pieces and other pieces drop off so it's really by being together as a management team day to day and look at each other eyeball to eyeball no Sir.

But this eyeball to eyeball, we are we have a chance to actually manage is very well and I feel good about it so I'd like to do as turn to allow Pherson give a little bit update on your chart royalties sealy underlying growth in China, and what you see as your point inflection right now, but I think he feels very good about what's happening I do I think a dividend I think has said it correct regular I think which is.

Generally appliance automation to the automation marks in our sales performance over the next six quarters.

But especially in the story for us in Q4 is going to be.

Stabilization of the book to ship order environment in North America and backlog execution.

Consistent with a plan that we shared with you last quarter, we have to execute about $300 million of backlog in the quarter. The good news there is that in the month in July we took $96 million a backlog out so we're well on that path, but it works to do at August and September sell land is somewhere in that 10% to 12% down range.

Offsetting the areas that is the book to ship and then we see a add an additional two challenging quarters, we have a shops to get flat in Q2, the pending as David described how things swing on the order environment, but clearly we see a positivity in the second half and the on a global basis.

On orders and sales to what is interesting things loss showed today to the board discovery information you had five customers you did a lot of work around looking at the trend lines of a cars. When you can pick up trend line card something similar factory factories are operating at 30, 40% levels and in that you can see directly correlate that to our to our sales of those those individual factories, which was pretty into.

Missing insight that you shared with the board, yes are we use data the Google mobility data and trained plotted against our daily order run rates in North America, including as a linear relationship there plus pricing as people are just nothing they've been working from home and focus on in the plans to place Pls and what kind of sell sell effort, we need those folks to get back in the.

Thats clearly, particularly here in North America on the bottom of the chart, we've got China, which.

Was it was a tough story down 21% in.

In the second quarter of the came back very strongly for us in Q3, we see good activity.

Broadly in China orders on a destination basis will also positive in the quarter in China. So.

We see some good momentum there on the order rates the sales comparisons get very very challenging in Q4, which is why you see that that two to five barrel range for us in the queue ports nothing more than just an incredibly tough comparisons to Q4 last year, which is a record on just about every measure for us in China, you will still be a fairly strong number.

To execute within that range in China sales year to date are positive, which is helping us and then we see an environment Thats positives as we go through fiscal 2001.

Let's turn to Bob Bob onto with going up there, where you see unfolding the quarterly sales at this point in time, Okay. So we're going to concede that Q3, we ended up coming in that down 19.

Right now the fiscal year guidance has been updated to eight to 10. So if you do that math that puts us in probably in the five to 11 range for Q4.

So the things did going the way the goal and we do feel like there is some potential upside.

In June and July single month orders were a bit stronger part of that again I think as catch up on April or may were much lower than 19 down and then and Theyre actually we have a small amount of long cycle business, we do gas compression for for recovery of like landfills and Digesters in the arms and such for a green activity.

And and that's that's actually pretty strong right now so that'll give us some projects for 21 as well.

So you can see right now Q1 down Q2, right now is a bit hard to tell we expect Asia and the and do it yourself DIY kind a springs.

To be kind of leaving US out if you will and then the other stuff to come in broadly certainly in Q3, especially with the comp will have against this year. So we're going to fill in overall feeling good.

About two stronger recovery, we've assumed that before like in the financial crisis, and course, or so lot of unknowns, what's going to happen next 12 months.

China is mentioned Thats been a rollercoaster for US we were down heavily in early 19. It was moving up we had talked about potentially being up in Q4 of last year and then it's kind of stumbled a bit we did get positive in Q1.

And then with cobot hitting Q2 was very dramatic in terms of ahead.

Q3 payment down nine it's.

It's mixed basically as kind of the best description the thought of broad strength right now for our areas.

Some of the stuff is happening and and we look for that to keep going up again, though it will probably go sideways a little bit for a while here and then certainly again as we get into Q2.

The comparisons should be.

Should be good and then outside of China. The rest of Asia is a bit of a factor too in terms of the total numbers and hopefully if we get the U.S strength, we're looking at in China.

If you followed in line with those yeah. Thank you appreciate that.

The next chart, what one of the things we wanted to do as layout and give you. The detailed by the first half second half of what we call the reset restructuring I want to make sure. The whole total program is well understood book within that what's going to be moved around both this year next year also we want to give you an insights relative to what we call the covered related savings which are from actions.

We took from furloughs the pay cut to bonus cuts to two also Latin no traveling and all the different things that that unfolded in the cobot number which to this year as what it's worth about $150 million to us, but if you look at the total program that we've laid out over the last of since February to the outside World you can see a 19.

2019, we spent took 2095 this year, we're spending on 300 million I believe that up a tad for in the last time, we talked and we're looking at a 125 million, which again up a little bit offer we talked about as we continue to.

Really focus on the programs on the reset programs, which are our permanent program actions, which we've got benefit already we're already feeling. It is you can see the savings on the reset program in the first half was 75 and the second half it's going to 145 million and if you go into next year is going to be 210 million in total so it's a very important.

Program, It's actually work and then we're going to have benefits in 2223 from the initial reaction of the actions are going on right now at the facility levels around the world, which take longer to get done, but overall, our payback our costs total programs me around 500 plus million dollars or restructuring and we'll have over $500 million the savings.

From the reset programs ignoring the covered related.

Areas.

On the chart you can see we talk about as we look at we want to give you an estimate we see as businesses does come back it's a function how fast business comes back half how fast we can travel again and what we can do but right now our best estimates we have a $150 million savings. This year from cover related $70 million that will start flowing back where we are.

The pay cuts we took in place the furloughs all those things Walt will start reversing here and they will and that will start flowing back into the PNM will be a headwind for us but right now our best guess at this point in time is 70 is 150 will flow backend overtime in 20, and 21, if growth takes off faster and were able to travel clear those numbers will.

We will shrink and we'll have a more more cost coming back into the piano next year, but that's our best guess at this point in time as we look at it but I want to make sure you had a distinction between the reset cost reduction programs, which are really well done by the global organizations, both allow side and Bob side and also corporate and then also what we see going on.

On the cover related so you've got a lot detailed air and you've been doing you can track everything that's going on at this point in time, but I think it's necessary for you understand what's going on in a lot of hard work when I look at what the organization got done from a profitability standpoint this quarter. They really it really paid off all the work we did last year as we started as we can.

Can you go forward our margins our cash flow is better.

Is allowing us to stay on track relative to the savings despite sales being down as far as they are at this point in time.

Feel as they look at the next couple of months. The next let's say next 3456 months I think we have a pretty good vision of what's going to unfold here I see the savings flowing through we are obviously going to be very cautious and how we put money back into us as we start seeing that growth happened, but we want to make sure that we are serving our customers and we're making sure we.

To support our customers around the world as a gulfport, but the organization on a global basis of how to do a lot of things without a day to day contact for leaders I guarantee none of the leaders of the sea level have been able to travel into Europe, we've not been into Asia, we've not been the Latin America I am starting I'm traveling I'm, sorry, I'm traveling and North America as is while and Bob.

And we're doing site reviews were getting out a were actually the first time I got to walk a factory for first time, I really felt safe walking the factory.

When I did want to contaminate people to factor or of them from the contaminant me.

But we walk into a couple of factors here recently this is important our people want to see back event three factories now in the last couple of weeks that people want to see us and we're out it's important to go on for what they're doing in the factories today is not easy and I really want to make sure. They understand how much. We appreciate that what they're doing but that's where we said we feel.

Good about as a great quarter execution I want to thank the team did a phenomenal job I want to thank the O C for stand by me come in the office every day, even though they may not want to go in the office every day, but we were here and it's important for the people around the world that are in the office working very hard at this point in time factories are working well and now we see.

The trend lines coming our way and bogs business first and allow the second and I feel good about where we sit right now overall and let's turn the open the floor for Q and aim let's go from there. Thank you very much.

We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble a roster.

Our first question comes from Scott Davis with Melodious Research. Please go ahead.

Hey, Good afternoon, guys can you hear me day record Scott Good afternoon, good air from here.

Thank you.

Got a bit of a power outage here. So hopefully you can you can hear me with the backup generator running with an Emerson transfer switch by the way as I remember that's good to hear we had a little damage down North Carolina came through last night from nine to one o'clock. This morning that they move fast saw we have to you. So as went through in southern refinery that we have our place.

So go ahead would you want to Gary.

Hi, I'm curious are my room, so I've got a problem I got to deal with after this call, but well you if any viacom Richard Vasco to home depot will ship amount to year end, we'll put in the quarter.

Well I just follow what are your.

Incinerators, there's a shortage of those things out there by the way I should know that but.

Yes. Thank you very much what I'd comment there [laughter] so hard to.

We're working on that issue.

Yes, hi topic.

Nick just to think about your own business the guidance on the restructuring is great, but what else changes as you think about when you get into 2021, I mean your own capital spending.

Cash flow, probably isn't quite as easy I mean, how do you how do you think about ramping up your own spend.

I think that.

As we look at it right now realize I think we'll probably spend little less this year. Scott. So we're I think were forecast around 550, I think we'll probably a little lower the reason for that is the inability to to travel and get the projects and get them organized.

And that those are very important project is a lot of automation work going on right now we have the plant, we reposition but what we want to do as use automation now because of the whole cobot situation in distancing and trying to get the production out of facilities, we're going to be putting a lot more automation into these facilities as we relay amount. So I would say our capital spending.

We'll be a little bit higher next year.

But we're not going crazy on this because our volumes are still going to be on average.

Down and total probably for next year.

And I think that but I, we expect capital becoming up as we go into automaker facilities as we have several new facilities underway. So I would say overall bedding man right now slightly less than 550 capital. This year next year number will be have a six in front of it and in my opinion and could be six 006, or a one but I think thats, where we are right now.

Our cash flow overall, you're exactly right.

I think we'll be will will be up a little bit.

The the fight issue next year is going be the falling we are clearly right now receivables are and start building to sequentially. We're going to have a very strong fourth quarter sequentially, we're going to have a stronger fourth the first quarter because of what's going on here right. Now is that we feel thats going to increase our receivables in the first half the year, which is from the sample make more earnings where we have more receivable sorry.

Balance sheet, which we've been liquidating a little bit this year will be a headwind for us next year.

And those things, we know and we're obviously work on that right now, but I would say that will generate the cash will be more than 100% free cash flow at earnings, but it will be a little bit tougher next year.

Because of the growth, which is a good thing to have broken the balance sheet. So that's how I see it right now Scott.

Okay helpful and then.

Dave I think I know to answer this but I want to hear your view I mean, what what is your lowest visibility end market is it still oil and gas is certainly a hope at all and finding a bottom there.

Yes, I think I'll, let him answer first on that line. So first I would say the toughest visible market is North America oil and gas North America oil and gas and ice I think we're starting to see some the formation of the bottom here a little bit I think you see an automation come in.

The key issue for US right now is when will they start doing some some work around the fields around the other facilities and that will be the toughest issue, we're not seeing it yet.

And we practice up day to day today, but as of this market is not turned up in the month of July like the rest of the markets that allow saw so I think thats, what we see I think that will be well into 21.

But I wouldn't be surprised of MRO, our care will be three business doesn't pop at some point on it so low at this point allow with what's your feeling in all right I couldn't agree more David I think you said it is we're going to be through 21, but clearly that tradition their traditional roles in the oil and gas market that are being impacted if somebody just disappearing as a result to differ actress Anna interesting.

Fair enough and you touched on it David efforts Scott. This virus has been a catalyst for adoption of automation, perhaps in the oil and gas industry and we're seeing operation is becoming automation and remote operations became more prevalent across which poses an opportunity for us as people come back as decisions expanding occurs yet so we have a lot of re.

Mold automation software equipment, and we see that being a great demands a automate their say so there's an upside to that we just got to get through it and I feel good about where we are right now I mean, Laos business is going through this trend is restructuring like heck out of things Bob will come through as faster he will spike faster I feel very good about where we are and I feel extremely.

Good proud about the organization.

And having to deal with what this what's going on with them and not worry about their families, but worrying about being sick and worried about the customer and the big decision right now for North America, Scott due to be very honest fios seekers Yossi get together on several times a week now is this whole school thing.

We've got we've got a situation, where we have a lot of young parents single parents to parents to parents working single home parents with kids and what do we get how we're going to how we're going to help them get through the school thing.

Where are our our schools our government tax dollars are not helping us here and so business has picked us off and that's important decision because we're not going to leave let our kids get hurt again.

And in this environment Thats, a tough call that we're all making right now one on one looking each on the Miro's beyond us.

So that Scott Thank you very much.

Yes, good luck at good luck.

Yes.

Our next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Thanks, Good afternoon, everyone.

Good afternoon, Joe.

Okay.

First question for you.

Yes, thinking about your your guide or that fourth quarter.

Yes.

Personal residential flu, Kansas seems like you guys are implying like a mid single digit down.

Quarter, yet you know the trends in pretty good right.

And again in early July.

Maybe talk a little bit about kind of dragging the growth area and if you could specifically Todd sign.

Ready ATAC in North America, I'd be curious to see what you guys are seeing there specifically.

Certainly ill comment first I'll, let Bob comment I think the key issue for US I think you're right to order pattern is returning Bob sought in mid June we saw through July I think it's across all of your business has had a pretty good July and orders.

Big issue for US Joe is manufacturing output you are taken facility is that was historically would not be doing this much sequentially from quarter to quarter. We you. Obviously have attendance issues you have issues relative to if you have a negative hired some a positive covidien and your plant. All these different things are working through US right now and then Bob.

And his team had a challenge of actually trying to improve output in environment that we're workers or can be as our troublesome for us at this point in time, that's one of the biggest issue. He has I think for the standpoint of we're being cautious relative the recovery.

Things have hit it pretty well the heat wave so residential hvdc has taken off and Bob can talk further about that that's not unexpected when you get this type of heat, which we had last couple of weeks.

At the same time, we've got to keep the plants up and running and we've got to be able to serve and that's the biggest issue. We face at this point on keep in mind sequentially. I think we typically do Frank around to 5300 and from third to fourth quarter.

This this year, we're going to do 500, we're going to 500, so we could be doubling our sequential growth rate from quarter to quarter, which is something that with the plants just getting ramped down ramp backup is a challenged I think I feel optimistic about that I think I think lau will have the other plants is the questions can you get the book to ship and again.

To get the backlog out, which so far has done recently launched in July Bob any comment I want to add color on that for that's just set right now theres lot of there's a lot of bullwhip thing or looks on kind of stuff going on right now there's a sell through distribution has been.

In very different states ecommerce is going gang busters.

The big box are doing very well you've got a lot of professional distribution that hasn't branches closed to for an extended period of time.

Oems just like Us I've got challenges at times with plants and.

And.

Absenteeism and other issues. So it's just.

There's a lot of noise in the system right now certainly the June and July orders are very encouraging.

We're working our Sanofi, our operating plans to be able to to work that as you mentioned.

They are come challenges in some areas like like disposer inventory.

And including the distribution linkages of our customers so.

June July orders no question, a very encouraging.

Pretty broad reporting I think only HPC on residential being very strong commercial still being difficult refrigeration still being quite difficult.

With food service in particular.

We're seeing the same kind of thing. So I think were given guidance to mid of arranged for a quarter I suppose.

For us to be talking about anywhere from five to 11 or so we're already in the quarter, but it's just emblematic of what's going on right now yeah very.

Any other color. They also want to ask yeah now that those are at that that was great color I guess, if my one follow up I know last quarter, you guys talk a little bit about.

Getting that getting the decremental margins back into the Twentyth by the fourth quarter.

So expecting a little bit better better growth at a Bob business, but a little worse breath that allows business, though the curious for both of them.

And your ability to get there and forecasts.

I think we did it is we did it in the third quarter I feel very good that we'll do it again in the fourth quarter.

The only thing to be a problem would be a supplies supply chain shock, which is what Bob laparoscopic of supply chain. Chuck I think right now our cost controls are reset programs, we've got great restructuring done the third quarter.

Obviously, the cold outage I mean, I feel very good that will be in the twentys again in the fourth quarter I think it need to I mean, we had several down plan days in April and May either are caused by us nor caused by perhaps customers not being able to take anything there's a lot of disruption in Q3.

And do a good amount of the clearing out and you had we're both had plants in Mexico that we're paying people to stay home because for governor assets to make these fuel sale because the potentially could our risk risk. So we are paying people stay home. So yes, and clearly we've had the impact of the heart restructuring that we went after very hard now a year into the program.

As you highlighted David we do have a step up in volume cute sequentially.

Q3, Q4, which will also help but we did hit those low 20 decrementals in carefully already so with there.

And I think with that no reason to believe that won't hold as into Q4. So I think the one thing I'd be worried about of all the stuff to be honest show it to supply chain. We as we start now ramping up here in the fourth quarter can our supply chain keep up with a goal base and there's a lot of work going on that and we've been working out now for two months because we knew this was coming at us and so they get ready for a two month.

Thank you.

Thanks.

Yeah, I think their job.

Our next question comes from John Walsh with Credit Suisse. Please go ahead.

Hi, good afternoon.

Afternoon John.

All right I also am in the same store him as.

Scott So hopefully don't cut out even greenery out you have a tree in your house.

I don't ever tree in the house. So so things are looking up.

[laughter].

So so so thanks for all the color on on slide 22.

Just thinking about that 140 million net as you see it today is there anything related to price cost or productivity net of inflation.

Do you see as it did tractor to that number.

Not right now John I think that you all the big issue for US right now will be yellow the balance of the net material inflation relative to price we fundamentally.

We see that we're going out a little bit different environment next year, I think pricing will be tougher.

And therefore, the net material inflation is going to key issue for us so pricing will be tougher.

That will be in the Red and and then therefore, we need to have positive net material inflation. This is not something that we didnt expect we expect it has to happen I know both Bob's business. The corporate organization and allows business have been focusing on this to me a very important issue relative to next year, because we're trying to get through the year as we say neutral.

Not have a slightly green or slightly positive or red number here. So right now I think we're in pretty good shape I feel good about the balance I feel good about that 140 number that we talked about there so as nothing really causing a big issue for us at this point in time.

So, but the plan right now I'd say is a little bit red.

Built into plan and I think that we're really working hard the net material inflation at this point in time without stressing our supply chain too much because of what we got expect in the fourth quarter and in the first quarter one of things Youre going to see this year, which is a little bit different two things in the for the fourth to first John for companies thinking about this.

So year has been tough for companies for companies like us.

There are programs out there that you get extra hours, you get rebates and stuff like that no. One is going to be earning a rebate. This year. So our customers are not going to be going insane, let's pull into the quarter, they're going to be pushing so we're going to that that's one thing you're going to see secondly sequentially from fourth to first I think you're saying you're going to see consistent demand improvement in bottoms business and so any.

Story will continue to be flowing into the channel, which normally we would not be seeing so those two things would say that we'd have a better better first fiscal quarter fourth calendar quarter, because the trend lines what happened to us in the shock in the middle of year. So as a lot of things that we're putting on the table right now relative to our own planning both in sales and also the ethanol p. the manufacturer.

Because we know there's a moving parts relative to where our customers going to deal with us and but right now I feel good about the price costs I feel good about our savings and just got to keep keep management day to day.

Great. Thanks, and then you know as a follow up maybe digging a little bit more into the margin performance at automation.

You talked about some challenges in the Q will be three order rate, but can you actually talk a little bit about the mix of kao be three year on year if that was.

A good guy or I'm, just trying to understand a little bit behind that margin performance ill, let I'll answer that question because it allows got the facts I'd be making it up and you can you tell me Johnny I don't want to make it up for you because you'll probably on the on the Matt in this one so not once you tell me about year to date, there will be three looks versus Q over Q and he'll be one clearly any kind of business, but people are going.

Our business, three which is koby three being their MRO into small order sizes typically what you see in or not and in day to day business or short cycle business.

You guys continue to increase relative to where we finished the last fiscal year as weve navigated through this year part of that as a reflection of.

The signs appeals are being issued part of it is a reflection of deferments into larger capital modernization projects. So we're sitting north of 60% as well as we closed the quarter. We don't have the exact numbers yet there is a little bit of.

Our systems work that needs to be done first to have the final follow on but.

We will be north of 60% K will be three which is it over five point approval. What we finished I believe last year last year. So it's definitely moved that way that job but.

The effect of the matters there is less of it yes.

The pie the percentage has increased so when the key issue here that that we are tracking is very tight on in particular and going back to I think Joes question on.

The North America oil and gas well, we're watching very carefully the order intake on a daily basis. This is important to us in particular in North America, because that's where we're going to see the care will be three pop back up first and when you're running a factory at 30, 40% with people and it you're not doing much but that's where we're watching because when that rate comes up I mean.

It makes them at that tells us that were in the short term stuff starting to kick in and our can be three be very good and helps our profitability and we'd like to see some that in the fourth quarter were not banking a lot in the fourth we see it more in the first for the should be a nice thing to have force in the fourth because that would give us better leverage and better margins better cash and maybe just a little color on that day during times of North America spin.

Yes, I've been through May and June yeah across our short cycle businesses. The number of physical Peos that we received was actually equal to last years as good times could sign however, the quantity of units within each PEO too often.

And thats reflected in that sequential or daily in order to drop posted a 20 million a day to their fixing our net debt settlement Wachovia and drive the Peos petitions less units and so that's where we're watching John and we have that DT deal and detail because we can tell you very quickly when these things going to turn.

He could smell bottoms business I believe we're out talking to his guys get smell. It allows business. We know it's being brewed right now so its comment yes, and then too just on the other Ed we have not seen any truck detrimental pricing on cable equally towards US yes, the prices held and it continues to be very strongly.

And project wise since rather than a carefully there can be one you said you've seen some push out some cancellations.

New stuff, yes, David honestly, we know we've had some wins we booked.

A significant amount as we went through the quarter. We've also seen some deferments on on Coty, one so as not been a lot of move it in the in the in the bubbles or the pipeline.

But we do know that.

What we're going to be living office can be three and can be too here for the next I would say next 18 months because of projects are going to be smaller and work. We're doing a lot of refresh right now with a lot of inputs and I think we'll give you more input as the next quarter.

Because there's not enough movement right now in even due to say it's changed that much but it's clearly this influx right now, but we don't we feel pretty good about where we sit at this point done because there are new projects and install projects over our overall, we're holding pad our backlog right now still is still hold right in there which is pretty good that's not been canceled it told right and.

Next question John you another question.

Now I'll pass the baton Thank you.

Thank you very much on his and hopefully no tree will fall on top of you.

Our next question comes from Andy Kaplowitz with Citigroup. Please go ahead.

Gained good afternoon.

Good afternoon, and a good to hear from if you aren't where are you in the storm too.

And I'm in the storm to backup generation no Treselle, we all feel for Scott you know, we know how that is hopefully things get better for heavily skewed soon so how you guys.

Doing pretty well, we were not having a storm here kind of cloudy, but.

It's a pleasant this quite pleasant to be honest, new I'd like to be a little warmer was that awareness.

Let the little East Coast get all the re let you guys I'll have fun.

Yeah, Thanks for that.

I'll give you see you guys seem relatively confident about at least modest recovery in next slide 21, and I know a lot of that is based on year of orders turning here, but you also talk into a lot of customers and what we hear from.

Other CEO is is they confident is pretty mediocre out there. So maybe you could tell us sort of the conversations you're having and are you hearing more confidence out of the customers you're talking to despite the concerns around the inception resurgence that we've seen.

The answer is yes first of all we did put a forecasts out there Andy and we did hit our forecasts from April 24th and.

So I had enough confidence to put the put our neck out there in the line we hit it and we actually did a little bit better.

Yes, we've had conversations we are seeing the markets around the world I would say the more cautious markets on the industrial side is the us.

But as you look into Europe as you look in the Middle East look into Asia, China, We are seeing those and we're seeing those markets theres a lot more confidence of of the incremental spending and we're seeing that business get a little bit better.

And so that's why we feel reasonably confident now we're not changing much of our forecast from what we laid down and April relative to the the fourth quarter. It's it's very similar I think the key issue will be as Bob going back to a couple of questions earlier, if Bob's business quarters continue to hold is able to produce it.

I would say Bob is going to have a stronger quarter in that bounces coming back after is down 2030, 40% and those some of those months. So Andy that's why we feel confident about it we we've been here done. This before all this this turn is very soon to Bob's financial crisis turn and the term allows business a little bit different basin.

North America oil and gas, but I think we have enough confidence in enough I would say conservatives in the underlying sales forecast through a straight time right now based on what we're hearing from our customers that we can say that and and that's how we're very in tune to into our customers right. Now we're out talking tumor out visiting is allowing me anything you want to.

Add there yeah. Thanks, David we we'd myself and the leadership team days been engaged in this we assumed are waiting to many customers.

And participating many meetings starting really in the mid May early June timeframe, we are salespeople start to get out and see customers again, obviously, our service people have been engaged throughout the crisis.

Engaged in plants.

And so that the projection really hasnt change and the sentiment from the customer base hasn't changed a whole lot. Andy this conservatism and concern in oil and gas that David described as optimism and medical in life Sciences, and food and beverage and power, but we're having a record year in North America power. So it's a bit of a mixed bag, there, but oil and gas really is where we're concerned.

But that's no different than what we spoke about on April 24 billion. So broad industry. We have lot of industry is doing better than other nurseries and.

Standpoint, and Bob set of running the cut back so rapidly and Bob's business between inventory and shutdown could make stuff that we knew there was going to be a sharp bounce at some point in time and that's what we're seeing right. Now. The question is is sustainable.

And and can we produce.

So that's where we've had very helpful guys.

That's helpful. David Let me just ask specifically then about China, because you know that region very well as well on there always seems to be some stimulus tell when you do have some geopolitical issues to deal with and some people think improvement in production is ahead of demand, but it seems like you know it's picked up for you guys. So what's the outlook for you and issue.

Really as is going to 21 in China.

I think the.

Well, we're seeing right now is allows businesses and abroad basis is pretty good and so I think he's going to see a pretty strong high single digit growth as we go into.

Into 2021, the wildcard for us as Bob is business because you know the consumer in China is really pulled back and some of the programs and the question will be when do they start spending money again, feeling confident of spending money on.

If you look at the air travel inside China, it's back pretty close to where it was before the Covance situation now international no, but there's sort of move it's starting to happen and that will be a big impact for Bob as that starts happening. So we're waiting for a consistent improvement I don't know what you saw in June and July Bob out of China, but.

He's been cautious at first he does he does know he'll start getting easy comparisons, but what I'm trying to see the underlying demand. So are you seeing any sense of improvements from your standpoint of China goal. It's in the high single digit decline right no five to 10 down yes again, the orders have been bouncy, we've gotten some bright spots at times and then it flips like you said I think the.

On the commercial side, there's lot of stimulation stimulus programs that are being worked.

But then in the consumer side, including housing purchasing and everything people are being very cautious like us the savings rate than everything and by now so I think what we're going to see Andy is law will have a very solid year next year as they continue to make investments both in the life science area the power area energy area.

Some chemical Eric I think Bob will be the wildcard I mean will he be a zero early the 10 plus.

And so that that will be the wildcard for Bob next year in China, but my gut tells me the spending will start coming as the as they see some stability in the consumer in some travel in the investments but were pretty good shape right. There right now the picture with 11 21 is China gets positive in Q2 and stays positive, but again the magnitude as hard to say so yes, it's very hard.

Thanks, Andy very much appreciate it guys stay well thank you Joe.

Our next question comes from Andrew Obin with Bank of America. Please go ahead good afternoon.

Good afternoon Andrew.

So couple of questions could you just talked about how you guys are doing in automation solutions.

Relative to peers do thing, it's an opportunity to take market share I think some of your competitors had some reward.

How is the market share trending in this downturn.

You know, it's pretty hard [laughter], we've got one quarter on it right now our two quarters that say I.

I would say if I look at the final control business I would say ROM and his team has done a phenomenal job and final control.

In the last several quarters.

Both in execution, I think that they'll probably end up down somewhere around five or 6%. This year, both in orders and sales that is better than historically, we would you think about the combination of our our final control and the VNC final control is they're doing much better. He is raising as profitability is GP margins are doing better his cash flows doing.

Better so I would say on that side of business. We're we're winning and I just had a site review with them and I'd like both from that we're making technology investments.

On the system side, I'd say, we're doing pretty well.

We had systems this quarter, which we didnt, who does not in there, but our systems were up.

For the quarter, where we what we ups overall actually we were down sales for the quarter, okay, 7% effect, but compared to the down 11 look as 15 on peers. Okay. So were down seven overall, okay. So is that we had a decent quarter Im systems I think it instrumentation not much move in the movement in that thing from that from that perspective.

So overall in a quarter I feel good about we are but I'm thinking about the next two or three four quarters. I think we are well positioned the key issue for US Andrew is the execution around the plant moves right now the technology moves are pretty good but the plant moves because if we that's how we lose share if we're not able to deliver so the key issue for me right now if we continue to.

Invest and get the plant moves done then as economy gets better we should I would say, we're going to have a good move in the downturn and will pick up share, but one quarter is a good sign but we've got we've got several quarters more to go by like where we sit at this point it over to add onto your path to your systems at a power side with ovation.

Thats been a phenomenal quarter underwear positive. They were fido were positive that's right. They are positive I got the wrong one.

Okay next I'm going to Andrew Yes got the follow up on a conservative moves I can you just give us more color I mean.

You had a head start and everybody else because you announce your program several months before that.

One of the challenges of moving facilities in the midst of Cove. It and this huge sort of whipsawed effect in terms of manufacturing and how have you adjusted your plans.

In terms of facility moves.

So.

It is takes a lot of planning, let's put that white and we've we've moved some plans in and out based on the areas of where that you know we can get people in and out.

One of the problems, we will face as it were and I will fly Fi resources around the world right now so we're going to depend on our our local resources. Both in Latin America is or Asia or in Europe, and typically we would be fine resources around.

But from our standpoint, we price we plan so that they're going to take a little longer Andrew and we have had a couple from the standpoint, we might have moved a month or two one is we once we work for the governments and also to relative the resources. So on average I would say they are on track we've had a couple of slippage, but I think we've planned in this call.

Good thing was something we knew was coming at us and so as we finalize the plans. We started moving these plans we have that pretty well in size and shape at this point in time.

The big issue, we would face Andrew to be honest, if we had a huge breakout of covidien say certain parts of the region. We have a plan going into that were clearly slow us down Fortunately knock on wood, we have not had that yet.

But thats something we actually review with the board today, the more what I call them more challenging moves that we have underway both allows business and Bob's business to make sure. The board understand the magnitude of what we're trying to do is you know we restructure all the time, but this is a much higher magnitude and we are in the middle of the covered but so far the teams around the well done a great job.

And and I expect them to execute him and I feel good about it.

And if I could just squeeze one more just.

Yes.

Hi, boom boom ability to data it does line up with your industrial orders is that a fair statement.

If I may get go out the Google mobility data, what we did answers we took we segmented purely to the commuting hours yeah. Its North America data only obviously as you know that data is an off 10 location tracking data location services data off with a Google.

Phones, but it does track very well to daily bookings in North America, and you got picked a location facilities in cities in so thats. What these guys and that we know the facilities are we know the customers and it does seem to attract pretty well.

Just wanted to clarify thank you so much yes, it's nice that.

People are monitoring all this right now as I go back and forth. The work now makes me feel real good.

Not.

Okay. Okay next question please.

Our next question comes from Steve Tusa with JP Morgan. Please go ahead.

Mr. Tusa I guess I mean, if I use are you save some places like New York or.

I don't I don't really ever I don't really ever feel safe. So it's all relative I guess.

Well I thought I heard that they are are there was a person on the Mars Rover side I thought maybe that was good.

Maybe you because I think you would like to do that going that March Rover thing that's been shut shut off last week.

That yeah yeah.

Yeah, I think it's it's it's probably a I probably the better up there than on our now this plan right now I'm not sure not sure what planted I'm on these days.

Anyway, what are what was what do you think price cost is going to end up for this year.

Do you guys embedding.

I think we have positive price this year.

Price cost to be slightly positive I mean, these guys are looking the chart right now frankly be the key for this.

To be less than one for so I mean less than one we've had a obviously with a with a good net material inflation and we had pricing said in earlier on and they think that that will cause us to have to give some of back next year or second half is when the half to full point positive. So overall, Steve I think it'd be less than 1% really positive for the year that less than one for.

But I mean, but that's it but that's price, but thats price or price cost Thats why you guys seem like Uh huh, Okay got it got a 12% on the margin front as we're getting yep Yep. Okay. I think we're on track is pretty well right, where we set to begin the year.

Yes, So and then and then just on this.

We are in Es business I mean.

You know these Oems are obviously talking about like eye popping order numbers here in June and July.

On the you know some guys up like 50%.

Are you got like is there you're saying you're basically saying you guys are having kind of like fulfillment issues and then on the beyond that I guess into the kind of back part of the year ended the kind of the you know the calendar fourth quarter. They they're also kind of being a little bit cautious do you think the market.

It goes from being a heat driven market, where the consumer you know it's going to do what they have to do to have a to stay cool to market in the fourth quarter, the kind of re couples more to the fundamentals of the consumer in other words, you know a high unemployment and weak consumer confidence I mean is is that kind of.

Is that what's on the board right now as far as today as far as the variables you're looking at or is that the wrong way to look at it we're going to part of the part of the popping know is April was pretty dramatically. Other direction are on a dollar basis. Our June orders for HSBC in North America were to two X. What they were in April and I I think.

Our customers have talked about it we talked about it where there were a number of plants down and sometimes for as much as a couple of weeks our customers.

Our customers and them even us in April.

As we first kind of learn how to deal with the first cobot incidents inside and cleaning and other things like that so so again part of this is a make up I think the.

I mean, you write the reports I read the reports.

Distributions gotten very thin, there's lot of examples of wholesalers and others.

Considering other brands, because one particular supplier can't do it.

We we supply also we see that dynamic play out and so it's very strong right now I think theres a bit of a pent up both of getting the channel back established as well as certainly the sell through with the heat in the in June and July.

About 35% or some of the units our heat pump units. So they are relevant for the wintertime as well.

And you got a lot of people sitting at home and frankly sitting on a decent amount of cash.

With the unemployment benefits, which is probably not skewed to homeowners exactly.

So bottom line is I think the marketing.

I don't think there's a reason this won't stay pretty strong through the season.

Even debt also to get the channel in play you know in.

The stuff for coming out a season, yes, it's really soon right now so Steve right now I think we see a couple of quarters are pretty good demand here a little bit different again, the key issue for us like with them when I. We're shipping right now, we're keeping up with them into strong demand, we're keeping up with the big issue to US is clearly if also in you had an outbreak in wood or are.

Plants are located in their plants are located.

Supply, saying supply chain disruptions right now we are we went from basically not producing much to full out so to what you're talking about and so thats, where we are at this point than we are able to keep up with them and we're working a pretty hard and the key issue for US is we've got to keep those plants running and we've got to keep your plants running safely. It's one thing to run a plant for allows when you are noncash.

Colgate environment. When you have a cobot environment you have to be very very careful to not stress through the workforce and also to have something get in there and create an environment, where you have half the plant become come down a cold. It. So we're running hard right now and we're keeping up with them, but I'm always concerned that one break as we've seen it both in our customers.

Level in our level. So yeah. This is something like that I feel the demands there and we're going to see over the next couple of quarters, and we'll keep going out and do you see someone said the housing market's going to be pretty good and so we're going to see construction and things like that and repair just we just got to keep the plants running in the supply chain gone, which I right now we are.

Metric for the one on one the one last one for you just on software.

I don't even know if you guys track kind of.

Software sales outside of.

The systems business spot die in any way to give us any color on on on that kind of line item or or that a that metric I know you guys don't.

You know pretend to be.

Software company like some others do but are you know are you seeing growth in those areas or is that just kind of like in that systems and services bucket.

The cross talk on the on the automation side, correct or high Steve Raul here, Yes, no as we spoke about in New York. The software business is predominantly in the system side, Although we do have a significant ingoing amount of software that's outside of that.

Since in our digital transformation business.

This software with this systems is closely tied to ovation and LTV that's embedded in there the standalone software packages, albeit smaller in scale over half a billion dollars in size already today continue to grow and continue to grow not ethic at a rate that we expected obviously back in New York continued to be positive.

Yes, very continues to be very interesting sorry, sorry.

Did you say half a billion for that business you have a standalone soft yeah Pepperdine asadorian.

You guys should especially change your named Emerson technologies or something like that maybe get some more attention round that out on that business. It's already I. Appreciate it. Thanks, guys, yes break it out there Steve.

Our final question comes from Julian Mitchell with Barclays. Please go ahead.

The chart.

Hi, good afternoon.

No.

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And then maybe just the first question David on how you're thinking about capital deployments at this point.

The buyback you have kept.

A ceiling on it for the past few months now.

In General you have seen global M&A starts a warm up again after a freeze.

How are you thinking about acquisitions at this point.

So right now we.

Right, we were going to were and keep the hold on the share repurchase for the rest of this I would say the this quarter and then we reviewed it with the finest coming to this morning will review it again the next finance to me at the end of this fiscal year right. Now we are focusing very much on acquisitions, we have several things underway as you said there they are freeing up.

And we're working that.

If we get into it appeared that were not able to close acquisitions and we see obviously from our cash flow standpoint that.

We have the flexibility to do the share repurchase will will quickly go to that but right now.

We talk to the board were focusing pretty hard at some unique opportunities and are on the acquisition front that we'd like to comps do get done here in the next the next quarter. So so that's what we're looking at but if that if they don't happen. Obviously, we're just regenerate cash then we'll look at again re reinstituting the share repurchase most likely we will inch reinstitute the share repurchase in.

Fiscal 21, but I don't know the magnitude of it right now it really is a function of can be close any acquisitions here in the rest of this calendar year. So that's that's how we're looking at Julien.

Thanks, and then just a quick follow up maybe for loud on the automation solutions backlog I think you'd said level, but that was flattish show stable sequentially.

Ending the June quarter.

The sales decline is obviously a lot less than the orders decline that you've seen.

Suggests you're sort of pulling revenue down from that backlog into the PM now how do you think the backlog trends from here, let's say the rest of this calendar year.

Yes, sure Julian so what we're planning it's embedded in the plan that I communicated to you is that about a 300 million dollar take down in backlog. So if they are horse for 848 on a fixed rate basis sort of play for currency 4.8 billion at the end of September which is a normal trend for ethanol. The trend. We took 96 million outage in the month of July.

Yes, so we're well on that path.

Over the next two months drilling that said this is pretty nice I mean, it's going pretty well the orders are pretty well hold up there over the project business is going in there and it's not cancellation, so our backlogs holding their nicely and and allow in particularly around final control in the systems, they're executing the backlog and that's that's a good sign for us and I think thats going to hold.

It will start building again as we go into next year, but this is I think our execution in the plants. They I did plants are up and running well right now.

I am more worried about someone buys this is Bob has some businesses there have been jerked around when you go minus 40% plus 20, it's that's pretty tough to doing a plant level, especially have got cold floating around out there and so that's the concern we have with Bob but overall I think that is our wrap up here I want to again I want to thank everyone. Joining us today again I want I want to thank.

Everybody out there across Emerson work, so hard to make this quarter happened, we delivered a quarter. We laid out we want a few companies the laid it out as we did we delivered it and we did better job execution around the cash flow in the earnings and I feel very confident that we are well structured to go through this final quarter and really have a good rest this calendar year, which would be our.

They are too and so it's his question of where the same trend line goes ins is working hard to keep things going get the restructuring done generate the earnings and then also make sure we make those long term investments we have to make so I feel good where we sit today earnings cash and momentum is on our side organizations pretty strong and so I look forward to a good.

Finished the year end will go forward with that and I appreciate everyone. Joining us today. Thank you very much.

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

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