Q4 2020 Emerson Electric Co Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the Emerson's fourth quarter Investor Conference call.
During today's presentation by Emerson management, all parties will be in listen only mode. Following the presentation. The conference will be open for questions. If you require operator assistance. Please press Star then zero. This conference is being recorded today November <unk> 2020, and machines comp commentary and responses to your questions may contain.
Forward looking statements, including the company's outlook for the remainder of the year information on factors that could cause actual results to vary materially from those discussed today is available at Emerson's. Most recent annual report on form 10-K as filled with the us easy I.
I would now like to turn the conference over to our host Pete really director of Investor Relations at Emerson. Please go ahead.
Thank you and welcome everyone to Emerson's fourth quarter and full year 2020 earnings conference call.
Hope everyone thinks gaping out today.
I'm joined by David Farr, Chairman, and Chief Executive Officer, Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer, Carsten by Executive President of Emerson automation solutions, and welcoming Jamie Road, our new executive President Emerson commercial and residential solutions.
As usual I encourage everyone to follow along in the slide presentation, which is available on our website.
Starting with the cover slide.
Despite the over arching challenges of COVID-19, Emerson has continued to invest in key technologies and solutions for future growth and value creation.
We are excited to welcome coinciding with the Emerson family, a leading provider of software based technology for advanced grid management did.
Additionally, we also welcomed bridge year group members.
A leader in software based H. my skater and analytic solutions we.
We will also be we will also review other important strategic 2020 acquisitions later in the call.
Now please turn to slide three.
[noise] similar to last quarter I'd like to briefly highlight the Emerson corporate social responsibility report.
Which is available on our website Emerson dotcom.
This document reviews in detail many of emerson's aspirations and accomplishments within the environmental social and governance routes.
Many of these important topics remain at the forefront of the national and international conversation.
As problem solvers that our core Emerson strives to advance the discussion.
Share our own progress and strategies and also be a valued resource for our customers as they embark on their own individual sustainability journey.
Emerson takes very seriously our role as a critical enabler and partner for digital monitoring measurement control optimization and efficiency management across our broad customer base.
Fundamentally we believe that this role and responsibility aligns very well with the broader purpose symbols of the sustainability movement.
I encourage everyone to read the CSR report if you have not yet had a chance to do so.
Please turn with me to slide four and we will review some highlights of the quarter and the fiscal year.
First Emerson remain steadfast in our commitment to health and safety for our employees customers and communities.
Business continuity, serving our customers in critical industries discipline.
Disciplined cost control.
Positioning to outperform as we emerge from COVID-19 remain our key thematic priorities.
Next we continue to work hard to ensure that our localized supply chains and operations remain stable safe and productive.
Turning to performance Emerson executed well in a challenging but stabilizing demand environment.
The organization was able to deliver adjusted earnings per share of $1.10 cents in the quarter and $3.46 for the full year, a strong finish driven by our ongoing aggressive cost reset actions, which totaled $73 million of restructuring actions in the quarter and over 300 million for the full year.
Cash flow in the quarter was very strong representing 128% conversion of net earnings and 6% growth year over year.
It is important to highlight the balance that that the balance and market diversity and stability of our two platform business portfolio was critical to enabling the strong operational cash flow out.
Savings for the year on both restructuring and coping related cost actions totaled approximately $370 million and we were able to manage decremental margins to 21% and adjusted EBITDA.
Despite all the uncertainty of demand challenges sales and orders finished squarely in line with guidance given in August.
Commercial and residential solutions orders turned sharply in the quarter ending up 6% on a trailing three month three month basis.
We now expect this business platform.
We'll turn positive.
The sales growth earlier than previously expected.
Overall as we look towards 2021 management has adopted a conservative view given the uncertainty in the marketplace continues to expect sales to turn positive in Q3.
Now please turn to slide six which summarizes results for the year.
[noise], both net and underlying sales growth finished towards the higher end of their guidance ranges as down 9% and 8% respectively.
Commercial and residential solutions came in slightly ahead of expectations at down 7% underlying.
Adjusted EPS of $3.46 was above the guidance range of $3.20 to $3.35 and restructuring actions finished finished slightly above guidance of $300 million.
Despite lower sales both platforms executed well on profitability.
The COVID-19 or related cost control measures. In addition to the ongoing aggressive restructuring reset actions.
Finally.
Cash flow performance for the year was strong with both operating and free cash flow, finishing above guidance.
Turning to slide seven we will briefly bridge full year adjusted earnings per share.
Starting with adjusted EPS in 2019 at $3.69.
We subtract 13 cents for foreign exchange pension and other items.
Tax share repurchase in interest added 17 cents, which partially offset operational headwinds totaling 27 cents.
Operational headwinds from cobot, 19, or broadly mitigated by restructuring and cost containment efforts.
This left adjusted EPS for the year at $3.46.
Turning to slide eight who will review the results of the quarter.
GAAP EPS of one dollar and 20 cents.
It was up 3%, while adjusted EPS of $1.10 cents was down 4%.
Total net sales were down 8% with underlying sales, finishing down 9%.
Importantly, both underlying sales and orders for the consolidated company, we showed improvement from last quarter.
Automation solutions underlying sales were down 11% and trailing three month underlying orders were down 19%.
Commercial and residential solutions underlying sales were down 3%, while trailing three month orders were up 6%.
Cash flow performance was strong in the quarter with operating cash flow of 1.23 billion in free cash flow of $1.02 billion.
Full year operating cash flow and free cash flow of $3.08 billion, and 2.55 billion were up 3% and 6% over prior year respectively.
Lastly, the company continued and built upon its aggressive cost reset plan initiating a total of 73 million restructuring actions in the quarter.
Turning to slide nine we will bridge adjusted EPS.
Beginning with fourth quarter.
Between 19, adjusted EPS of $1.14 cents, you can see that non operational items of foreign exchange effects pension tax and other items detracted a total of seven cents.
This was somewhat offset by three cents from share repurchase and interest.
Most importantly, operational deleverage was fully mitigated via cost control actions.
Overall, we finished the quarter at one dollar and 10 cents.
15 cents above consensus estimates.
Moving to slide 10, we will review the PML in the quarter.
Starting with gross margin, we saw a reduction of 150 basis points to 41.3% as de leverage and unfavorable mix were partially offset by favorable price cost.
Importantly, SGN as a percent of sales declined by 150 basis points as aggressive cost control actions took effect.
Adjusted EBITDA, and adjusted EBITDA margins, which exclude restructuring and related costs increased 80 basis points and 140 basis points, respectively also.
Also reflecting the cost containment actions flowing through.
Lastly.
Our effective tax rate dropped this quarter driven by foreign subsidiary reorganization efforts.
Of note the adjusted EPS decline of approximately 4% was ahead of overall revenue decline of approximately 8%.
Turning to slide 11, we will look at underlying sales by geography.
For the quarter, the Americas continued to show the steepest declines down 13% with.
With the North American market also down 13%.
Here, we saw strength in residential life Sciences, medical and food and beverage markets more than offset by weakness in most other end markets.
Europe was down 5% and Asia Middle East and Africa was down slightly driven by by growth in Southeast Asia.
For the year, the Americas finished down 11% with the other two world areas each down a more modest 4%.
Please join me on Slide 12, we will discuss total business segment performance.
Total segment adjusted EBIT margin decreased 30 basis points to 19.9%, reflecting aggressive cost control measures and strong operational execution and sales declined.
Total segment adjusted EBITDA leverage was limited to 21% in the quarter.
Meanwhile, adjusted pre tax earnings increased 70 basis points to 18.4%.
As previously highlighted.
Q4 cash flow performance was strong given the challenging environment.
Operating cash flow of 1.23 billion and free cash flow of 1.02 billion, both increased year over year by 2%.
Free cash flow represented 140% conversion of net earnings.
Turning to slide 14, we will review the business platforms.
Automation solutions underlying sales finished down 11% for the quarter.
As broad based declines in most end markets were slightly offset by life Sciences medical and food and beverage markets.
North America against again saw the steepest declines.
[noise] down by over 20% means.
Meanwhile, Asia Middle East and Africa was slightly positive driven by India and Southeast Asia.
Trailing three month underlying orders were down, 19% again, reflecting stagnant, but stabilizing demand trends.
Restructuring actions totaled $52 million across the platform, which brought the total to $244 million for the full year.
The platform delivered on profitability in a very challenging demand environment adjusted EBITDA and adjusted EBITDA margins were limited to down 80 basis points and down 20 basis points, respectively, reflecting the aggressive cost the cost actions taking effect.
Decremental margins were held to 26% and adjusted EBITDA.
Lastly, the platform converted approximately $400 million backlog, leaving an ending balance of 4.7 billion.
Turning to slide 15.
Commercial and residential solutions underlying sales were down 3% in the quarter.
The Americas and Europe, each had modest declines of 1%, while Asia Middle East and Africa was more challenged at down 13%.
As previously mentioned trailing three month orders turned sharply in the quarter, finishing up 6% driven by residential and big box retail market demand.
For the quarter restructuring actions totaled $21 million, which brought the total figure to $52 million for the year.
Adjusted EBITDA and adjusted EBITDA margins were up 50 basis points and up a 120 basis points, respectively, reflecting continued effective focus on profitability.
Please turn to slide 17, and we will introduce the first quarter guidance.
We expect the underlying sales will be in the down seven to down 6% underlying range as residential life Sciences medical and food and beverage market growth is more than offset by.
By challenging, but stabilizing other process discrete and commercial markets.
GAAP EPS and adjusted EPS are expected to be 52 cents and 60 to 67 cents, respectively, plus or minus two cents.
We expect adjusted EBIT margin to be fit 15.5% to 16% with adjusted EBITDA margin in the range of 21.2% to 21.8%.
Slide 18 introduces our full year 2021 guidance framework.
First management has a conservative outlook for the macroeconomic environment in 2021, given the ongoing coogan uncertainty.
We assume that demand will continue to be challenging lets stabilizing and gradually improving as companies communities and governments continue to learn and operate and live with the virus as the year progresses.
We also assume that there will be steady progress with regard to vaccine development and distribution during the fiscal year.
Lastly, we assume.
There are no major operational our supply chain disruptions and the oil prices remain in the 35 to $50 range.
With those assumptions in mind, and we expect to flat underlying sales year with a range of down one to plus 2%.
Automation solutions is expected to be in the range of down four to down 1%, while commercial residential solutions is expected to grow into Q4 and 7%.
Expected total restructuring in 2021 now totals over 200 million with approximately $160 million coming from automation solutions 30 million coming from commercial and residential solutions and the balance coming from corporate.
We expect operating cash flow to come in at approximately $3.1 billion.
Capital spending.
We have 600 million, resulting in free cash flow target of approximately 2.5 billion.
Emerson intends to resume share repurchases in fiscal year, 2021, and the amount of $500 million to $1 billion, while concurrently maintaining optionality for further acquisitions should the opportunity arise. This.
This allocation excludes the funding of the previously announced acquisition of open systems International which closed on October Onest 2020.
Additionally, we remain fully committed to our dividend program and plan to increase our dividend per share for 65th consecutive year.
Within this framework as management forecasted in April 2020, we expect overall revenue to return to growth in the third quarter of 2021.
Commercial and residential solutions is expected to return to growth earlier than originally expected while automation solutions is expected to return to growth later in the year.
GAAP EPS is expected to be $3.11, plus or minus five cents, while adjusted EPS is expected to be $3.45 plus or minus five cents.
Lastly.
We do expect to encounter some profitability headwinds in the year. These.
These include the return of some coven related costs as business conditions slowly normalize.
Stock price changes.
And a more this nation costs from the ASI acquisition.
Also of note, we expect price costs to be less positive in 2021 and pension costs to be a tailwind for the year.
And now please turn to slide 19, and we will review the updated reset restructuring encoded related savings summary.
Due to the delay recovery in many automation markets, we are increasing restructuring spend within automation solutions in 2021, resulting in a two and a total company restructuring spend of over $200 million up from the 125 million shown last quarter.
This increase in restructuring spend yields higher incremental savings in 2021 of approximately 245 million.
We still expect that approximately $70 million of the 150 million covered related savings from 2020, we will come back in 2021 as business conditions start to normalize in the back half.
Total long term annualized savings of the overall reset restructuring program are now expected to exceed $650 million.
Please turn to slide 21, and I will now hand, the call over to Mr. David Farr.
Thank you very much. Thank you very much paid and Jamie welcome to the group here and thanks, David Frank and obviously, a loud, but and start 21 is clearly the underlying orders forecast I'll talk about that in a second but first I do want to welcome everybody from the Investor World The shareholder World our employees. Thanks for joining us today.
Great and thank you for your continued support and engagement with the over this quarter and the total fiscal year.
As we all know it's been a truly unusual fiscal year for this company, but I think this team has risen to the challenge.
I want to make a special call out to the global Emirates employees, the leadership team and our at our new members from acquisitions.
From from acquisitions, this year and thank them for their commitment to safety our customers, our fellow employees and shareholders and community as we returned to work starting in March and throughout the year as we continue to Reengage and be successful as a company I want to appreciate appreciate everything you've done about thank you for the job.
Good and thank you for everything you did over the last eight months.
As we re bought got back into our offices as we got back a manufacturing plant and we open that produce product for our customers and thank all of you very very much I know, but this was not easy to do but you all did it erodes the challenge any delivered for our customers our shareholders and the communities in the fellow employees.
As we know 2020 was an exceptional year in sales profit margins earnings and cash flow our free cash flow to earnings are a conversion was close to 140%. This year, it's our 64th year dividend income.
Increase our dividends free cash flow came in at 47.5% as many of you know we did not cut our dividend when we did the major repositioning back in 2016, and we've worked our way back into the of under 50% in free cash flow to dividend ratio, we returned over $2.1 billion to our shareholders. This year and 20.
20, we kept our dividend going like many companies did not do and we returned capital to our shareholders the share repurchase and given what I see right now in underlying margin improvement and strong cash flow generation of growth returning in the commercial and residential solutions business and I think that as a business and automation solutions that will reach.
Turn to the second half year, we are going to increase our capital allocation back to the shareholders to get to $2 billion. This year as as Pete talked about this is something we feel strongly about confidence in the company. We've positioned the company from a cost standpoint, the new products. The investments we've made in acquisitions clearly we've got a very uncertain.
In political environment right now, but the investments we've made we'd have a lot of confidence in that we'll be able to grow and outperform in this marketplace and do well at the same time, making investment internally, but returning more cash back to our shareholders and I think thats very very important to show that confidence to our shareholders that we will get our way through this.
As you know we sat here in April gave a forecast for quarters for the year in the first half of 20 and 2021 very few companies did that.
We delivered we actually beat them as we will have to that quarter were two quarters ahead and commercial residential return to growth tremendous performance by the commercial and residential solutions group and the markets are coming back great to see they're leveraging their margins are really doing well based on all the restructuring that went on from 2019 throughout 2002.
Hunting and they're ready they are ready to grow and expand those margins. We also believe the auto solutions the cycle that we laid out back in August we were probably one and a half quarters behind that cycle still some tough things ahead of us, but we feel quite strongly that business. We returned to growth in the second half the year, but while and his team that have comps.
Thats and delivering improved profitability and improved cash flow in 2021 has made the decision to increase increase the restructuring in the first half of this year at all and mostly five in the second half of the year, but most importantly, the first half the year to drive higher margins, even though sales are going to continue to be down in the first half of the year that.
It's not easy to do when you look at all the things they've been doing over the last 12 to 18 months, but I feel quite strongly they will deliver.
The company stronger balance sheet stronger I believe the underlying growth momentum will return our aggressive cost actions. Our self help we are on track to deliver the peak margin plan. We laid out in February of 2020, despite sales being approximately $2 billion lower than we said back then before the pandemic before the obvious.
See the recession, we've we've had to go through but the the hard work on cost actions the hard work and restructuring the hard work and new product investments and the and the things we had to do to make this company stronger for our shareholders and for our customers. We have done we have confidence in 2021, yes, we still have brought the head of US yes, we have an election going on today.
Who knows what's going to happen, yes, cold virus are still out there, but we have confidence we'll have a vaccine we have confidence that will move back into a more normal business environment. As we go into the middle of 2021, we feel good that we can return more cash to our shareholders as we go into 2021, but.
But again before I go to the charts I want to make us very special call out to our Emerson employees around the world. The Emerson leadership team the corporate employees the point that stood by me and the O.C. life.
In St. Louis not fly from Saturday Night live, but live in St. Louis to get through this call that pandemic environment live together I want to thank them for making that happen clearly we got some challenges, but clearly I feel the company today is a much stronger position. It was back in April when we talk and I feel very good about what what's going to happen as we go into.
The 2021 time period.
As we laid out a chart 21 chart you saw 21 lot peoples that how you're going to get back to the top of that lines were coming down well we did.
Right hand corner, obviously commercial residential came back strong wireless business is going sideways right now as we continue to wait for America kw three in some tail be too he will be talking about that we've.
We've laid out some dots here as we go forward into this quarter and why we think orders will trend in the end the first quarter our call orders will trend in the second quarter. This is the trend line, we see it we have to be on as a total company how the various pieces move around that will change depending on what happens each month, but we this is a trend that we have to be on to.
Return to total growth for the total company by the second half of 2021 again as we sit here today as we talked about and April of 2020 in the midst of coal that the forecast that we laid out is pretty well in line, except for a little bit ahead for commercial residential and allows a little bit behind just from a recovery standpoint.
He didn't go any deeper than we thought but you didnt. He has not recovered yet primarily because of care will be treated in the turnaround business in North America, but we're seeing other parts of the world doing pretty well for a while we go forward to chart 22.
Here's a forecast were laid out right now on the first quarter after delivering down 8.6 underlying growth in the fourth quarter. This year, we're looking to be down somewhere in the 6% to 7% I hope will be closer to 6%.
As we look at October weekend, I Hope, Jamie will comment on how we saw October allow comment how they saw October.
But I think that will be down somewhere in the 6% to 7%, we'll get a little bit better as we move to the second quarter and it will get better and go positives as we go into third and fourth quarter. This is the same lines that we drew out in this last year and are in April. The only difference is right now we clearly have the uncertainty the election, we clearly have the uncertainty of how the cobot, we'll continue to.
Moving impact the rest of world, but we feel confident that we can control some of our own destiny for underlying growth and also improvement in profitability and cash flow as we go into 21.
As I look at the OEM solutions business and I'm going to turn it over to so to allow right now to talk about what he sees but it's very important to see that.
I think the momentum will start shifting for you while as we go through this quarter and I want to take the hats off to you and your whole team and the restructuring many people on this phone don't know how hard is to restructure and do what you're doing and I my hats off to what Youve got done I know what how proud you guys are the team, but this is not easy work so.
It's your Mike. Thank you. Thank you David for those words very meaningful for all of us in the business. So it was an extraordinary year as you've described.
I'm, so grateful and humbled by by all the efforts and the results that this team delivered.
The prodigy said a few words, if I may one 2020.
The second half of 2014 was was weaker than we expected when we first talked David back in April.
As we set the plan.
We did not see that acceleration in orders in the second half in the latter half of the year as we expected into Q4. However, the team did a tremendous job on and I'll qualify fronts here.
The first being identifying and executing the restructuring programs secondly, converting $400 million of backlog in the second half of the year.
Meeting our commitment that we had made thirdly growing our life science and medical segment by over $100 million in sales value through the year, that's through participation gains in therapeutics in vaccine development as well as medical pp.
Factory.
Fourth we stayed committed add to the digital transformation journey across our business and then lastly, working very very diligently on the diversification and software Alan.
Elements of our business, including through acquisition and internal development. So just tremendous work across across the business to deliver a 26% quarterly adjusted EBITDA leverage and 23%.
Annual adjusted EBITDA leverage on almost a billion and a half catalyst sales. So great work on on that for the year now turning to 21.
We do expect to additional challenging quarters in the first half prior to turning positive in the second half of the as we laid out the plan here. So we are watching three key leading indicators in the business first the discreet industry orders and the inventory levels in the distribution channels.
To David's earlier point, we are seeing some early encouraging signs through September October, particularly in Europe, and China, driven by automotive so that's encouraging to see as we go through the first the first month of this fiscal number two the manpower presence and customer sites. If you recall, we had talked about back in August at a 40% level.
Sales of men power presence that's moved now into the mid Seventys through October Thats very encouraging as it will be a sign of moving from an environment of break fix into further K will be two in Q2 will be three activity and then lastly, and perhaps most importantly, the ultimate Bell was wet weather in this business is the rate of our.
Short cycle K will be three business in North America, and then again SP pointed out it's stable today.
But we need to see an acceleration in the core market spending as we go through the quarter and into the second half of the year.
Let's turn to page 224th.
I want to highlight three specific segments spread performed extremely well over the calendar year 2020, there are over $650 million of sales represented on this chart across the platform life Sciences on the on the left grew 15% in 2020, we have the leading vcs position into lifestyle.
Industry Delta V., our position that has been invested in over time through both organic investment and acquisitions.
We have over 3000 adults of these systems installed in the industry, including 1200 across the top 20 pharmaceutical companies. The growth has been predominantly in two areas driven.
Driven by Covance.
The first is been therapeutics in the sector has been vaccine development in production.
Where we are engaged in over 20 of the 160 vaccine efforts underway around the world.
In the Middle part of the chart is our medical business, which grew 40% in 2020, driven by two predominant applications medica, a mask manufacturing, where we use ultrasonic welding machines. Instead of for example, glu to assemble masks, and secondly, valves and regulators for ventilators and oxygen therapy devices for patient treatment.
And then lastly, but very important is our clean fuels and renewable businesses. We are well positioned we have a well positioned portfolio that grew 10%. This year to really capitalize on this macro trend. There are two key areas here number one enabling our core process customers to reach carbon to triality it predominantly in upon.
Lower in oil and gas industries, and secondly that we have the technology and application know how for Biofuels bio methane applications as well as the growing field of clean hydrogen in that fuel sales for the long haul mobility segment, so very encouraging and we have a significant role to play here, particularly in that hydrogen valve.
The change from production to distribution equalization.
Let's turn to page 25, and I wanted to highlight four very significant investments that we made that through the year. We continue to be acquisitive, and we think about our expanding our served markets diversifying our industry and and and and increasing our our profile software.
Portfolio. So in Twentytwenty, we completed three acquisitions in may to for the equity investment the four investments.
Yes, and governor our side for GM as well as information support our strategy to drive end market diversification and shrink through the portfolio has described.
Ill power industry diversification is driven by growth in renewables hydro turbine controls in good control and optimization.
And we bought an h. in my company improved year that.
That complements the plc assets that we had acquired from general electric It really focuses on the hybrid in discrete segments and then lastly information is a German based next generation cloud native and OTI data Lake, which is a critical element for the continued success of our digital transformation business.
And then lastly, I wanted to provide you with an update on our project funnel.
So the funnel today is valued at $6.4 billion, that's down from the $7 billion. When we last we view the front on April 2020, and David We did not look at this as since that period of time as as we went through this the last six months. So we have booked approximately a $150 million honor the funnel since April for bringing the total bookings.
From the funnel to 400 million for 2020.
Significantly significant bookings in Saudi Arabia, as well as in the Arctic LNG as a matter of fact I would like to highlight the LNG wave we've spoken at length with the investment community about the eight jobs that have been that have been committed through this better way to this career of Preconfigured. This wave three of 150.
4% of the available automation dollars today.
And there are an additional $600 million to be bid over the next year or so so a tremendous drop across all the automation businesses, but I'll take my hat off particularly to the final control business that has participated in every single one of the jobs to date. So great job there there's been about $800 million of value thats been with.
Moved from the funnel the single biggest cancellation was about $200 million, that's a saudi crude to chemical job that was just moves it moves down and then we've had about $700 million or projects that have shifted.
Into two from 21 to 22 and beyond so thats occurred.
And then the last thing I'll say is $500 million of project additions into the funnel is up particularly on average smaller projects and concentrated in gas globalization in the power generation segment.
Before we turn it over to Jamie I, just want to thank while the team for a couple of things here one major effort on our restructuring cost reductions to get drive their margins backup the peak margin improvement and to drive higher margins in 2021, they're going to have even though sales are still going to struggle for them in the first half the year.
I also want to say that they made sure. They made the right investments as I as we did cite reviews as we did talks and had web axes are face to face meetings. We made sure we talked about the new products and next generation technologies. We wanted to make sure that we continue to make the right investment they've got the right monies, where they need to be to make sure. We did not jeopardize the future franchise.
Business within this company and at the same time, we made some very unique as you saw acquisitions that strengthen our hand in many many core places that we think that will have long term growth and long term sustainability from the standpoint of value creation for Emerson and diversification purposes, allowing your team phenomenal job. So Jamie your first call.
I mean, I hate to say, Bob sharp set it up for your hand, and now you've got you've got a growth and you just got to keep the plants opened the star growing you've got a growing tire in your hands. So here. It is yep, Yeah, we went about as well as in Asia work working with law as we were working through the death of the cobot impact and it's great to come back here to see that the team for the tremendous none.
Her of investments in place both in terms of improving our operational capabilities and transforming our structures in our business. So that we can have improved profitability as we grow going forward, but they also invest in the technology and as we go through these charts I think you'll see a combination of those two things looking at chart 27, we saw a return to growth in underlying sales in the fourth quarter.
For 2020 across many of our product lines driven by strength in the North America residential markets. We also experienced sequential improvement across our businesses as the quarter unfolds unfolded trailing three month orders in September were 6.4% and will improve to be double digit as we finalize the October numbers residue.
Central markets globally, typically represent between 40% to 50% of our mix in a given quarter in North America is by far the largest portion of that.
Inventory restocking across residential segments provided is providing additional order sales growth opportunities beyond the demand being driven by home sales and home improvement. So I think we're very well positioned for 5% to 6% underlying sales growth in the first quarter second.
Second quarter outlook and growth percentage is slightly lower than Q1, as we believe the inventory rebuild restocking activities will start to level out a little bit.
And the North America AC strength, we think could continue potentially into fiscal third quarter, given seasonal trends, we see growth occurring into Europe heating and AC technologies group businesses throughout the year and overall growth for the broader European portfolio returning in the second quarter and Asia is on track right now to return to growth late Q1.
Or early Q2.
Looking on to chart 28.
Home sales home improvement inventory restocking and our operational capabilities enabled strong Q4, North America residential AC growth, our strong partnerships with customers ability to execute have allowed us to capitalize on these growth opportunities Q1, 21, North America KFC will be up 20, plus percent with greater than 50 per.
Recent growth in the residential space alone.
We've also been investing heavily during the downturn and technology and recently won an HR Expo Innovation award the K seven compressor that you see on the chart will help prepare the industry to meet the new deal we efficiency standards, which go into effect January 2023, and this product line will support multiple refrigerant types, including lower GWP refer.
Drugs, such as our 32 and our Fourfifty four beat this product line will serve residential and commercial markets.
On the right side of the chart you can see the sensory platform, our CNC thermostat sensing and analytics platform continues to outperform and has been recognized in the industry. Additionally, we have lots of exciting features on the way over the next couple of years. So we're very excited about how that space is unfolding.
Moving on to chart 29.
Not only of market conditions created growth opportunity in our web drive back in and see greater businesses, but the investments and improved performance as well as new features functions and product lines position us well in these spaces Q4 combined sales for these businesses were up 10% and as you can see on the chart, we expect an even stronger Q1 performance. Additionally.
Our main led drive at competitor shot back has created a unique opportunity for us in the market to take our leadership to the next level. We are working very closely with our channel in that space and we're putting in the appropriate investments to help serve the industry needs and accelerate growth.
Looking at the bottom half of the chart, although the commercial industrial spaces have a return to year over year quarterly growth sequential improvement matched with our investments in new technology provides momentum into the second half of the year on the chart you can see multiple examples of products that we launched in fiscal 2020. So the team really stay focused on innovation.
And launching new products.
Let shaft and pipe inspection enhancements and technology will increase our customers productivity and provide features such as a combined cleaning camera visibility and the ability to see the pipe pitch during inspection.
And our next Gen battery tools category that you can see on the right side of the chart, our rigid product shown increases cycles to a level two X. The normal time needed for service and provide cycles greater than the tool normally requires making it essentially service free.
The insulated tool shown can help protect a worker from accidentally cutting alive line up to 1000 volts, a very unique and new feature for a battery hydraulic tool in this industry.
The remote cable cutter product shown which was awarded a Showstopper award by the National Electrical contractors Association allows the user to manage the job with a remote control keeping them safely away from the cutting procedure.
In partnering with users of our products. It has really helped us unlock innovative ways to improve their work experience, allowing them to be safer and more productive.
On chart 30, you can see our focus on product lines that helped drive de carbonization served us very well in 2020 with strong year over year sales growth in European heat pumps.
And renewable natural gas compression orders multiyear growth in these spaces is expected to continue driven by market trends and in many cases accelerating subsidy and de carbonization targeted policies.
Just to wrap up I'd say that given the current market conditions, we do see a solid first half fueled by residential market second half growth driven by improving nonresidential markets of those residential markets kind of ease into more sustainable growth rates, but I want to say this is Dave and we'll also have helped so proud I am of the team their focus on.
On on safety, our people safety, our customer safety operational accident excellence and margin improvement, but I'm really proud of them because they did all those things while maintaining the same intense focus on innovation and they had it all those areas. So that we can return this growth returned to growth with enhanced products to serve our customers' needs with that.
Ill hand, it back to David to you and Pete. Thank you very much Jamie again, I want to thank the commercial residential organization for the work you've got done.
Bob in 2018, and 2019 in the first half between time really got into the restructuring that kept investments going we knew that we would return to growth and they are that but they have the return to growth level of major new new innovation major new product portfolio second to none and I think it's pretty exciting the markets are returning the key issue for that right now they have several plants.
Within the restructure running full out in the midst of coded increase cobot, that's not easy to do their plans they have to keep running and producing at record levels and we have a complete major competitor to disappear on the marketplace. We will return, but we don't know exactly when in the same time they'll have other industries across their business that will start growing in the.
The second half of 2020, so the team got ready for this they executed and I give them high marks before.
Before I go to Q and I, just want to make couple of comments here.
First of all you know 2020 was my Twentyth year as CEO, a year that I'll never forget.
We started out with activism. We then we launched a massive massive restructuring effort across the company to driving increasing margins and in a tough year.