Emerson Electric Company

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's Investor Conference Call. During today's presentation by Emerson Management, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, February 4, 2020. I would now like to turn the conference over to our host, Pete Lilly, Director of Investor Relations at Emerson. Please go ahead.

Thank you so much, and welcome everyone to Emerson's first quarter 2020 earnings conference call. I'm joined today by David Farr, Chairman and Chief Executive Officer, Frank Dellaquilla, Senior Executive Vice President and Chief Financial Officer, Mike Train, President, and of course, Tim Reeves, Director of Investor Relations Emeritus. Emeritus, a graduate. I encourage you all to follow along in the slide presentation, which is available on our website. I'll start on slide four with the results of the quarter. Underlying sales growth came in slightly below expectations, flat year over year, driven by softness in global discrete markets and North American upstream oil and gas activity. Despite lower sales, operations executed well to deliver adjusted EPS of 67 cents, spot on the guidance we provided in the fourth quarter call. Automation solutions underlying was up 1%. which was somewhat below management's expectations, primarily due to the aforementioned U.S. discrete and upstream market softness. Demand in other global process and hybrid markets remained stable. Importantly, we also saw several large LNG projects book in the quarter after delays from the second half of the last year. Commercial and residential solutions was in line with expectations, down 1%, reflecting continued softness in global professional tools and cold chain markets, somewhat offset by stronger markets in Europe and Asia, Middle East, and Africa. The company initiated 97 million of restructuring actions in the quarter, well above the 70 million discussed on last quarter's call. These actions, combined with incremental actions from the second half of last year, are expected to drive improved profitability in 2020. Cash flow performance was solid in the quarter, with free cash flow up significantly versus prior year, reflecting 94% conversion of net income. Turning to slide five, we'll review the P&L. First quarter gross margin was roughly flat at 42.4%, as favorable price cost was offset by unfavorable business and regional mix, primarily due to lower U.S. shale and highly profitable upstream and discrete markets. SG&A as a percent of sales increased 110 basis points to 27.1%. However, this includes 150 basis points of unfavorable impact from higher stock compensation due to a higher stock price. Adjusted EBIT and EBITDA margins, which exclude restructuring and related costs, declined 180 basis points and 170 basis points, respectively. Importantly, These changes include 220 basis points of combined unfavorable impact from stock compensation, pension, and FX losses. Excluding these impacts, adjusted EBIT and EBITDA margins were up 40 and 50 basis points, respectively, reflecting strong read-through of prior year restructuring actions. Turning to slide six. From a geographic perspective, we saw mixed underlying sales results in Q1. The Americas were down below expectations due to weak U.S. upstream oil and gas and discrete end markets. The United States and Canada were down 3% and 1% respectively, and Latin America up 4%. Europe was down slightly with 2% growth in Western Europe offset by sluggishness in Eastern Europe. Asia, Middle East, and Africa was up 6%, led by China up 6%, and strong growth in the Middle East. Turning now to slide seven. Total segment adjusted EBIT margin dropped 40 basis points to 15.4 percent, reflecting the negative impacts of foreign transaction losses as well as unfavorable business and regional mix. These items totaled 80 basis points unfavorable impact. As previously mentioned, stock compensation costs increased due to a higher stock price and pension costs increased due to lower discount rates. Corporate and other costs, excluding restructuring and related costs, was favorable. Q1 cash flow performance was solid. Operating cash flow increased by over 30% to $424 million, and free cash flow of $310 million represented 94% conversion. Turning to slide eight, we will bridge first quarter EPS. Tax stock compensation and foreign exchange transactions totaled 13 cent headwind for the quarter, which was in line with guidance. Operations, share repurchases, and lower interest costs delivered 5 cents, also in line with guidance, to net 67 cents of EPS on an adjusted basis. In summary, operations and balance sheet delivered our target EPS contribution on lower than expected sales. We will now review the business platforms, turning to slide 10. Automation Solutions' underlying sales came in somewhat below expectations at 1% growth for the quarter. December trailing three-month underlying orders were up 2%, driven by several large LNG bookings that had been delayed from the second half of last year. Of note, backlog grew by 7% to nearly $5 billion on a sequential basis compared to last quarter. America's underlying sales were down 1% as discrete and upstream markets continued to soften. Europe's sales were also down 1%, as low single-digit growth in Western Europe was more than offset by weakness in Eastern Europe. Asia, Middle East, and Africa grew 6%, led by China and the Middle East. Our long-cycle businesses continued steady growth, with both systems and final control up mid-single digits. Adjusted EBITDA margin was down 60 basis points, reflecting 50 basis points unfavorable impact of FX transaction losses, as well as unfavorable mix resulting from the year-over-year decline in the more profitable North American upstream and discrete markets. Excluding these impacts, the business delivered improved adjusted segment EBITDA margins on lower than expected sales, reflecting the benefit of 2019 restructuring actions. In the quarter, restructuring actions totaled 83 million across the platform. These actions, together with approximately 30 million of incremental actions in the second half of 2019, are expected to support improved adjusted segment margins on flat to slightly positive underlying sales for the year. Now turning to slide 11, commercial and residential solutions underlying sales were down 1%. December trailing three-month underlying orders were also down 1%. The Americas' underlying sales were down 3% as North American residential HVAC markets remained soft and slower industrial markets weighed on professional tools and cold chain demand. Latin America grew by 6%. Asia, Middle East, and Africa grew at 5% with mid-single-digit growth across China, the rest of Asia, and the Middle East. Commercial and residential solutions adjusted EBITDA margin increased 90 basis points, primarily reflecting favorable price cost and the benefit of prior year restructuring actions. For the quarter, restructuring actions totaled 10 million. Combined with approximately 5 million of incremental actions from the second half of 2019, we expect improved profitability for the year on slightly negative underlying sales. Turning to slide 13, we'll cover the updated guidance. Despite some progress toward trade resolution, we continue to expect geopolitical tensions, pending elections, and corporate focus on cost cutting to drive a low to no growth environment in 2020. For the full year, there is no change to our expectations for underlying sales. Of note, this outlook does not include any potential impacts from the unfolding coronavirus, which will be discussed later in the call. As highlighted on the last call, Emerson has managed multiple economic slowdowns in our history, and in the current environment, we have shifted our management investment focus from a growth mindset to a cost mindset. We initiated this process last year, increasing restructuring investments $35 million in the second half of 2019. Today, we announce the next phase of that plan. For fiscal year 2020, we expect total restructuring spend to be approximately $215 million, of which $175 million will happen within the automation solutions platform. Commercial and residential solutions and corporate will each take $35 million and $5 million of actions, respectively. Of note, during our upcoming investor conference, we expect to present in additional detail the outcome of the board's review announced on October 1st as well as update the longer-term guidance framework beyond 2020. We now expect adjusted EPS in the range of $3.55 to $3.80, an increase of $0.07 at the midpoint, reflecting the benefit of 2020 cost actions. We expect minimal net cash impact from restructuring actions. Operating cash flow is now expected to be $3.15 billion, and CapEx spending is increased to $650 million, leaving our free cash flow target unchanged at $2.5 billion. Please turn to slide 14. This slide bridges our 2020 adjusted EPS guidance. The starting point for the bridge is 2019 GAAP EPS of $3.71. Walking across to the right, we have adjusted 2019 EPS of $3.69, which excludes 14 cents of favorable discrete tax items and adds back $0.12 of restructuring charges. Continuing from $3.69, we expect a total of $0.26 of headwind this year for tax, FX, stock comp, and pension. Largely offsetting these headwinds, we now expect $0.15 of operational improvement on flat to slightly down sales, up from $0.08 discussed in our prior guidance, reflecting the benefit of 2020 restructuring actions. We also expect $0.09 of EPS from improved debt cost structure and a strong balance sheet with $1.5 billion of planned share of purchases. This gets us to a full year adjusted EPS midpoint of $3.57. Please turn to slide 15. This slide lays out our second quarter 2020 guidance. The underlying sales outlook for the quarter is flat, reflecting continued headwinds in North American upstream and global discrete markets. Note that this outlook does not include any potential impact of the coronavirus. Despite continued North America mixed headwinds, we expect total segment adjusted EBIT margin up 20 basis points and EBITDA margin up 60 basis points, driven by the benefit of prior year restructuring actions. We expect adjusted EPS of 81 cents, which excludes $50 million of planned restructuring actions in the quarter. Please turn to slide 16. This slide lays out the first and second half adjusted EBITDA margin progression for our business, assuming the midpoint of their respective underlying sales guides. We expect first half restructuring spend totaling approximately $145 million across both platforms. These investments, together with easing mixed headwinds and favorable price costs, drive significant margin improvement in the second half, with Automation Solutions' adjusted EBITDA margin up approximately 150 basis points and Commercial and Residential Solutions up approximately 100 basis points. We plan to exit 2020 with an improved cost structure that yields stronger earnings and cash as we go forward, and we look forward to laying out our long-term plans at the investor conference on February 13th. And now, please turn to slide 18. And with that, I will turn the call over to Mr. David Farr.

Thank you very much. I want to welcome all the Emerson investors this afternoon and the analysts that follow Emerson in our markets we serve as we discuss our first core results and what we expect for the full year. I also want to thank all the Emerson leaders around the world and for all the Emerson employees that made this quarter happen and are implementing the total aggressive cost resetting programs to make Emerson stronger, more competitive as we deal with this challenging and uncertain global industrial and commercial markets. Thank you very much for your efforts. As you can see from the first quarter press release, it's been a busy, busy first quarter executing around our two and a half year cost resetting efforts. As you know, we accelerated the fourth quarter cost resetting by about $35 million. That money, those savings are flowed into this year, built into the plan originally and from a savings dollar per dollar, maybe a little bit more than a dollar per dollar based on the, it was a headcount reduction program. In the first quarter, we did $97 million. Part of that included corporate, where we took down the Emerson plane fleet to five and we sold the helicopter. We are expecting for the total year around $215 million of restructuring. And in total, you'll see next week well over $420 million, $425 million of cost reductions during this time period, over this two and a half year time period, with savings well north of $425 million. And we're expecting incremental savings on the first quarter restructurings around $50 million. The big issue now is we're starting to attack and go after the excess facilities, and the higher cost structures will pay back more in 2021 and 2022. But we're going to continue to drive, as you can see, well into the second half this year and well into 2021. We will have over dollar-for-dollar savings when it's all said and done, and the execution is going pretty well at this point in time. I'm pleased with it. We reviewed with it in great detail yesterday with the board, well more than three and a half hours of details with the board if they understood what we're doing to make sure we're taking permanent cost actions, permanent cost setting, and not damaging the core quality of investments, the technology, and the customer service support that we have out there, not damaging the long-term viability and franchise businesses that we have at Emerson. As you know, we have our annual investors conference next week in New York City. on February 13th. It's going to be, you know, not being on Valentine's Day is unusual for me, so you guys make sure you do everything special for your spouse that evening. But we're going to be doing our call, our investors conference in the morning. Details around the global cost resetting to drive in the new peak margins. We laid out very detailed with a lot of growth, you know, the very little growth environment. You'll see what we're trying to undertake and how we're trying to do it. The timing, the annual savings, when they're flowing in, when we're going to reach those margins from an EBIT basis and an EBITDA basis. At the same time, we're taking very significant actions around the corporate headquarter structure, not only here in St. Louis, but around the world as we look at best ways to optimize our cost structure, looking between automation solutions and the commercial residential. This is driven internally. by the key leaders, the business leaders and the corporate leaders, but also with the support of McKinsey as we looked at how we could optimize Emerson's efficiency, effectiveness, and possibility to drive record levels of margins by each of the major business units. While Bob and I will put more color on this next Thursday, but we're having very good progress. As you can see, in the second half of this year, automation solutions margins are starting to pop up. Bob took after this last year, Bob and his team, Bob Sharp, and they're already seeing improvement in the underlying profitability of the businesses. So the actions are taking hold, and they're doing a good job, and we'll talk a lot more about that as we go forward. But as the global Emerson employees know, and no full wealth, we are fast in the execution mode right now, and we cannot depend on the fact that there's no growth out there. We are figuring out how to grow our profitability, how to grow our earnings, and grow our cash flow in a no growth, low growth, or maybe a negative growth environment. I'm ignoring the coronavirus right now. Both Mike Train and I will talk a little bit about this and what we see at this point in time, but it's definitely going to have an impact in the near term, medium term, and potentially long term as we look at this. As you can see, our total orders are trending in the plus two, minus two range right now, trending right now towards zero as we look at the current month and the current quarter. It tells me that we are trending very tightly in the range that we've laid out for our underlying sales. We continue to look for those catalysts that drive up in North America and other markets of the world. But as I look at the world order pace, I look at the sales pace right now, North America is weak, weaker than we thought. Western Europe is about in line, 2% to 3%. Eastern Europe is down, primarily driven by Russia and Turkey. The Middle East and Africa, which we were just in, is doing better, and several large projects are happening underway. In Asia Pacific, as of The middle of January was trending pretty well and had pretty good growth in the first quarter, and we still look at pretty good growth for the full year there. My concern as I look at the next couple quarters is I don't see the catalyst to drive the fundamental pickback up in the U.S. at this point in time. I don't see Canada, nor do I see Mexico and other parts of Latin America. What we're trying to do right now is control our destiny through our costs and cost resetting to figure out how to drive better earnings and cash flow through this cost reset. If growth comes and we get it, so be it. But we're going to have to fight, I believe, all year long for incremental pockets of growth, and things are continuing to happen to us. As you can see, the global markets are not easy at this time. They're definitely not easy. I do see opportunities for growth out there, but I don't see how and when we will get to those levels at this point in time. I know people believe there will be a stronger second half, but from my standpoint right now, I'm not betting on that. This company is betting on very low growth, moderate growth, or no growth, and we're driving the actions necessary around that. Operating cash flow will be good. You saw the first quarter. We had very good operating cash flow for the first quarter. Some of that was trapped, in my opinion, working capital on the balance sheet. We also had some cash flow based on taxes. Frank had done some restructuring. Frank and his team restructuring taxes that flowed through in that first quarter. That should continue to help us as we go into the first half of this year. Overall, I think our cash flow is going to be up nicely at $3.15 to $3.2 billion this Right now, as we review for the board and we see this, assuming no significant acquisitions, we're going to pay back $1.2 billion in dividends. We're working on our 64th year of increased dividends. Our dividend ratio, as you look at free cash flows, is dropping down below 50. Our share repurchase is somewhere around 1.5, assuming no significant acquisitions at this point in time. So close to 85% of our cash flow is sure to be paid back to shareholders in support of what we're trying to do with our shareholders. Again, if we have the opportunities for acquisitions, we'll take them. We're also assuming higher capital spending this year. We've raised capital spending up to that 650 million range, 650 million range, in support of the actions we're taking as we build new best cost locations around the world as we continue to reset our facility structure and our cost structure. Our acquisition funnel right now is pretty small. People are very nervous about selling assets at this point in time with an uncertainty around the cycle. Now with China's situation, we have in the process, we're in the process right now of closing two nice little bolt-on acquisitions worth about $125 million of value purchase price, both one in automation solutions, one in commercial residential solutions, both in the control element part of the pyramid that we always talk about. Mike and I are joined, and we're going to talk to him a little bit on China, give you some insights of this. Let me give a brief overview. I'm going to turn it over to Mike, and we'll go back and forth here. The China situation first, I want to say something to all my employees. We have 11,000 employees there. We are in constant touch with them. We have the ability to communicate to 80,000 of our employees on an ongoing basis, every minute, every day. You know, our hearts are going out with all the people that are locked up in their apartments right now. Fortunately, we are all safe at this point in time. But clearly, they're in their apartments. They're working, communicating, obviously, by phone, by email, as they try to figure out, you know, how do we get ready to get going as we come out of this. But our thoughts are with them at this point in time. And it's a concern that we have relative to all our employees, not only there but also around the world. As I look at this right now, it will be a negative impact. And I'll let Mike go through some points here. But from my perspective, assuming that they do allow us to start manufacturing again, and we start seeing a supply chain again on February 10th, I still believe we'll have somewhere between $50 and $100 million of sales impact. Now, folks, I'm giving you my feel for knowing China and my feel for what I think is going to happen. If this extends, that number will go up. But I'm just giving you my feel. As I look at the sourcing situation, we'll show you I am concerned about the startup of this, and Mike will give you some numbers around that. I'm concerned about the customers and how fast they'll come back up and live. We also have a lot of our customers that do a lot of manufacturing and shipping out of there, and we have componentry in there, and I'm concerned about some of that work going on. My perspective is, as I look at the number of $50 to $100 million right now, Some of that will be permanently lost, depending on, you know, Bob Sharp's business and the heating system marketplace. Once the heating system is gone, you're going to wait for the next year. I fundamentally believe that automation solutions, assuming this doesn't go too long, should make it up before the fiscal year is done or within the calendar year. But, again, what I look at right now is the feel that we have based on how long we're going to be shut down and our sort of estimate of how quick this thing will start up. So, Mike, why don't you give a couple facts, and we'll go back and forth and talk a little bit later.

All right, great. David, great to be with everybody this afternoon. Thank you very much. First of all, I also want to share my thanks to our China team, our 11,000 employees. You know, we recently celebrated our 40th anniversary in China. You know, today we have a terrific business in China, nearly $2 billion in size, and, again, almost 11,000 employees. And we had a solid Q1 in both platforms in that mid-single digits that Pete talked to. Secondly, January 15th, we saw the signing of the U.S.-China trade deal, which was pretty important. That phase one deal is pretty important to us. I think it also, there were announcements on both sides that there would be phase two discussions commencing shortly. We're excited by that. It's going to take some time, but we're excited by that. So I wanted to highlight that. But just about at that same time is when people were recognizing that we have this coronavirus issue. Our employees went out on January 24th for their Chinese New Year holiday. They've been out now for 11 or 12 days. And currently, under the government regulations and guidance, we intend to restart our facilities next Monday on February 10th. But we need to make sure that happens, and we'll be watching that. And I think we can report on that a little bit next week. Yes, we can. You know, I think some of the issues that we're going to face are going to be around as you restart these facilities. Obviously, we're going to have to manage our facilities. We have the temperature monitoring. We have travel restrictions. We're doing everything we need to manage. But our supply chain, I think, will be something that, you know, despite best efforts, it's just going to be a rocky start. The logistics, the supply chain. sub-suppliers and all these kinds of things.

How much do we have in our supply chain right now, both for China, Mike?

So our supply chain in China is about $750 million. $500 stays in China. $250 actually goes out to the global business. So we'll have impacts in China. We'll have impacts beyond China in terms of that. And again, as you highlight, we have several global customers that use China to build their projects, their modules, that kind of thing. And we're going to see some impacts there that would impact business in other regions beyond China as well. So... So we're starting off with kind of the view of what's going to happen here. I think next week will be a big, important week. We'll learn some more things as we go forward. And then maybe we can comment again next Thursday on what's going to happen there.

Thanks. Thank you, Mike. You know, as I look at this, I referred to it at the board yesterday and today. For the people, I'm aging myself here. You know, the power of space programs, in the five or six minutes, we have the reentry blackouts. We are in that reentry blackout period for China right now. We do not know what we don't know at this point in time. But clearly the organization for China, who I know are listening on this phone or will be listening on this phone when they wake up, are doing everything they possibly can to get ready right now. I just know that the supply chain, the uncertainty, logistics, all these different things, there's a lot of moving parts. The sub-supply chains, you know, the feeders to our supply chain, there's a lot of components here. So for people not to think that it would not be a negative short term, I don't think they're thinking straight. It will be a negative. It will be a negative for the global economy. It will be potentially bigger if it doesn't get started. This thing drags on a long time. But right now, our feeling is right. It's not going to drag on, but we're just getting ready for it, and we're planning everything around this so we can execute and make sure they have the resources they need to get the job done. They're all geared up to come back to work. We'll give you an update on the 14th. As we look at what happens the 10th, 11th, and 12th, because we'll get a good deal for this, my gut tells me it will be a slow recovery, and they'll get their act together and things will happen. But, again, we are in that Apollo space program reentry, five to six million minutes, where no one knows what's going on. And when I talk to you on the 13th, you'll get me, Houston, we're live. And we'll talk about that. So, again, that's how we see it at this point in time. I don't want to scare people, but it's the facts. You know, we do a very major business in China. We're very strong in China. We have a good sense of China. Mike and I both managed and worked in China for many years together as a team, and we spent a lot of time there. And we're supporting our employees. We're supporting the government, and we're supporting our government as we try to work through this. But that's where we sit at this point in time, and we'll keep you informed. So I want to thank all the employees. I want to thank the board's engagement, and I also want to thank the shareholders' engagements I've been having the last several months, and I will continue to have with our shareholders. With that, we'll open the lines, and we'll take some Q&A to see if we can get some clarity around the concerns and questions people have out there. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your Dutch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from John Walsh at Credit Suisse.

Hi, good afternoon. Good afternoon, John. So thank you for all that color around China. I guess Just maybe a point of clarification. You kind of detailed what you think the impact could be, but then I guess going through the prepared remarks and looking at the release, you have some comments that the guidance excludes any impact from the coronavirus. Just trying to, so how do we kind of sensitize that? Is it in the plus the two minus sense that you call around next quarter, or would it actually be greater than?

I would say it's in the plus or minus two cents right now in that quarter, John, to be honest. Now, we're assuming that we're going to have starting up in the 10th, February 10th, and we have a slow ramp. So I see some potential impact to the year, that $50 to $100 million. That plus or minus two cents, I would say, covers that right now based on what we're seeing on slow start-ups. Now, if we're sitting there in New York next week and say, hey, this thing is really grinding and we're having a hard time both with our customer standpoint and also our supply chain standpoint, we'll have to reconfigure that. But right now, that's how we have this factored into play, that plus or minus two cents. You're exactly right.

Okay, great. Thank you. And then, you know, just thinking about the margins for the quarter in automation solutions, you called out a couple of things in the prepared remarks. You know, I'm just as I'm looking at mix for the balance of the year, thinking about North America, about discrete, about, you know, maybe some OE greater than aftermarket at some point here. You know, how are you thinking about the cadence of seeing mix be, I guess, maybe less negative as we go through the year? Or how are you thinking about that?

So what we would like to see happen in the cadence of the year, obviously the first quarter flow, North America was really very negative for us. The discrete business was very negative for us relative to our discrete around the world. So a very high profit business, both of us. So the cadence will be expected. I think we're going to continue to see strong KOB3, which does help us. I think our cadence is that we see some stability within the oil and gas market space in North America, not growing but stabilizing. So as we look at the channels, as we look at our customer base, we'll see some improvement in the flow and discrete business, which will help us a little bit on the margin pressure, and then the rest of the help is going to come from all the restructuring. But you've called it right. The flow and the discrete right now in North America is a very challenging issue for us, It was very difficult the last two quarters. And, you know, as we look at this right now, you know, our plan is we see some stability, some improvement, which will help put a little margin win to our back as we get into that second half. And that's where we see it right now. And, obviously, you'll be able to tell in our order releases and our comments basically how we're seeing it. If you start seeing it say, hey, things are stabilized, things are improved, you'll know, John, that we're seeing a little bit better improvement around that flow business, which is very important to us.

Great. Thank you for the color. I'll pass it along.

You going to make it next week?

Of course I'll be there, yep.

Okay. I'm bringing up doing Rocketbook with me.

The next question is from Andrew Kapowitz at Citi.

Good afternoon, guys. Can't wait for the Rocketbook. How you doing, Dave? So I know you don't want to give us too much color or more color around the $425 million program before the analyst day. But as your board and the consultants reviewed your cost at opportunity from what it looks like in FY20 for the initial $215 million, it looks like the majority is focused on AS versus CNRS or corporate. So when all is said and done, how much confidence does the program give you to get AS margin back up to the 19% margin that you've previously talked about?

So, I mean – My conference level in the board, as I said, the board spent three and a half hours on these actions. We're talking about the board conference. My confidence level is extremely high at this point in time, extremely. We are taking serious actions. Bob's business started, as you well know, Bob's on a sixth quarter of negative sales. So Bob started his cost out seven quarters ago. So if you look back at his major restructuring, it actually started in in late 18 throughout 2019 so what he's working on right now are actions around fixed facilities to try to take some fixed facilities offline and consolidate. So his are a little bit different. That's why you're not seeing a lot with Bob right now. His business is for the next couple years, and he'll be doing that fixed savings, and he's starting to get that. I feel very, very confident. I'm involved in reviewing the work with Lau and Ram. The board and I look at detail, and we look at the costs. I feel very good about those savings. I feel very good about the bridge chart that we're showing you from the second half. I think the question the previous caller, John, asked is very relevant relative to that mix issue, which needed stability. But as I look at the actions they're doing right now in the short term, because it's very much people-oriented, and then we're starting to take some of the longer-term facilities up, I feel very confident we'll start seeing that margin move up in the second half. Anything you want to add to that, Frank?

No, I think, you know, we've got a good plan going forward. We're looking for significant margin improvement in the second half. And, you know, a lot of it does depend on the pace of business and the mix. but the restructuring actions will kick in and we're pretty confident in the margin development as we go through the year.

And McKinsey reported to the board yesterday in the work that we did between the two business units and corporate, and we have additional actions that we can deal with probably starting in another couple years. We want some backup stuff and some other opportunity, but let's put it this way. Our hands are pretty – our plate's pretty full right now with actions we've got going on, but we're going to study and lay them out and see how we can start flowing some of them maybe later this year, early next year, to give us some protection in case – Oh, you know, I'm not supposed to swear, but I'm going to swear. Oh, shit's happened. But from my perspective, you know, we're trying to cover that. And McKinsey did a good job explaining, you know, how we're protecting what makes Emerson unique, their franchises and the corporation culture, but at the same time look at how we can be more efficient and more effective. It was a very good discussion around from the board perspective as they pulled back the sheets.

Thanks for that, Dave. And then you mentioned when you released December orders that they did display some signs of picking up in AS and really in LNG. You said that again today. AS backlog increased 7% sequentially. So did you see a bit of an uptick in project releases by customers? Do you think they've become more cautious again if coronavirus continues to spread? And maybe stepping back, it's been a little while since you updated us on the large project funnel. Do you still have a billion dollars of projects that you've been told you've won that but haven't booked, and is your project funnel improving, decreasing, or roughly stable?

So, I mean, he's going to nail the head here. The issue right now, I think the North America projects we're starting to see release. I'm very worried, as I'm sure my customers are worried about, because a lot of that business is going to be shipped, production will be shipped to China. And so my concern is – If this coronavirus goes longer, it could delay those projects and it could slow down some of the projects we think that should be released here in the next couple of months. So the coronavirus has an impact on many, many things relative to our business pace. So, therefore, that's why we are still convinced that the second half could be a challenge for us, and that's how we're banking on that zero growth because of things like that. Now, the projects we see releasing, and I still believe will release, are the Middle East, and India. Those projects are separate from the work being going on in China, but I would say the Middle East, Mike, you and I were just there, China, I mean the India projects. So I feel good about those, and I think that will help us as we fill out that pipeline for the second half of the year, and then as we move into 2021. But we've got to get some settlement, some resolution on the corona. We've got to get some traveling, and if we don't, then that's going to clearly slow down some of the North America projects.

Thanks, Dave. See you next week.

See you next week, Andrew. Thank you.

The next question is from Gautam Khanna at Cowan & Company.

Hey, good afternoon, guys.

Good afternoon, Gautam. How are you doing, my friend?

Doing well, thanks.

Well, I bet your San Francisco friends out there weren't too happy about that Super Bowl game, were they?

I know, right? That was tough to watch as a meltdown.

You guys in the East Coast probably didn't watch it because there's no East Coast team in there.

Okay, what do you want to know, Gautam? Not the same about the Patriots. Yes, just curious, you know, what is your expectation this year for KOB1 as a percentage of Automation Solutions revenue?

Okay, I'm rubbing my rally monkey's head here a little bit, Gautam, so I can see if – okay, so I'll give you my feeling right now, okay? I think we're going to be – I think we're going to be around 25% for KLB 1. I think we will be 57, 58% for KLB 3. And so what does that mean for the 18% for KLB 2? That's where I think we're going to be right now, and I don't have any crystal ball more than you, but that's where I see. I look at the pipelines. I look at the things we're talking about right now. We share with the board we're not backing off any of the KLB3 investments. We have the organization highly motivated to try to take some market share on installed base. We're focusing other things to cut our costs around, but that area right now is ripe for us to continue to take share. And we want to build that KOB 3 up strongly because those projects will start flowing and it will help us offset the margin dilution for the projects.

Got it. And not to steal thunder from next week, but how far out do you anticipate providing long-term financial targets? Is this a fiscal 22 or, you know, what are you thinking?

I think we're going 23. We're going to go 23. We will bridge. We will bridge the 450 and what we see on the, I mean, I, as you know, I try to be honest and transparency, sort of like, like the Iowa caucus. Um, I will try to bridge for, uh, the, uh, 2021 numbers. These guys are all can't handle this. They can't hail the true fire. They could not be at any movies like me. Um, but, uh, We will break that so you can see the 450 we talked about, and then we'll talk about what we see going on going forward. You're going to see a much lower sales forecast as we manage the growth. We're focusing on the cost, and until I see some really strength in what's going to happen in underlying growth, we're going to keep that growth rate down and manage around cost. So we'll give you that bridge, but think 23, but also I'll tell you what I think about 21 and what we told you last year. I always try to bridge what I committed to.

I appreciate it. Thanks. Good luck, guys.

All the best to you. See you next week.

The next question is from John Inch at Gordon Haskett.

Sorry. Afternoon, everybody. Afternoon, Dave.

Good afternoon, Mr. Inch. Are you down in Florida or are you hard working up in New York?

I'm hardworking in New York, although it's almost warm enough to be Florida.

Don't worry about it. The cold weather is coming. We're about to get three or four inches of snow. We had 70-degree weather. It's now raining, and snow is coming tonight. So it's coming your way. We're going to put in a little Federal Express packet and send it to you.

Oh, I like those inches.

Okay, so... Oh! No pun intended. Did we pay for that?

We haven't paid yet. Okay, so... I just want to be clear. So the 215 of restructuring, the 95 that we did last year, Dave, you talked about reviewing this with the board. Does this mean on the 13th when you talk about the board's review or you present it that there's no new restructuring on top of that? The restructuring basically is now confined to what you've articulated or is there more?

What I just laid out for this year is locked and loaded. Okay, is it going to be 210? Is it going to be 220? But, yeah, that's what we're talking about right there at this point. But we're going to show you 21. And, you know, what we're going for, as you all know, we wanted to try to get everything done within a 24-month time period as best we could. So we did a little bit last quarter. I mean, in the fourth fiscal quarter last year, we're doing a lot right now in this period right here in 2020. We're going to be doing a pretty busy 21. But when we get out of 21, I want to move back towards our stability rate, run rate of restructuring, which typically is around $50 million. So you're going to see how we go up to over $400 million total in the cycle and how we're focusing that. But what we told you this year, that number ain't changing unless I have Okay, I shouldn't say ain't because it could change. But if we had something happens in the world relative to a major change and we have to refocus, you know, something happens in China, something happens with a business, but right now that's what we've locked and loaded, and I would say that's going to keep our hand full for the year.

So what we're going to hear then on the 13th, other than the traditional analyst review, the board, you know, you guys have McKinsey in there, you've done this – obviously top to bottom look through, are you going to be talking about the strategy or the payback? So if there's no more new restructuring, what should we expect?

We're going to talk about the type of restructuring. You're going to talk about, you know, outcomes of the review of our businesses. We're going to talk about, you know, the cash flow generation and how we're going to allocate that cash flow generation for the next couple of years. and some fundamental strategies. You're going to see a presentation on digital transformation coming out from one of Lyle's key new platform leaders, which we built. Yeah, not platform, but business level units, presidents. And then also we're going to give you an update on the final control work that Rob's doing. Rob's going to give a presentation on where he's taking this to the next level. So there's going to be a lot of strategy. There's going to be insights to what we're doing and how we're going to drive. But fundamentally, I want you to walk away with the strategies in place, and we're driving costs, and we're going to drive around that business. We're also going to give you an update after 18 months of owning the Textron Tools business. We're going to give you an update around the professional tools and how that program is going. Both VNC and the professional tool ones are going very well, and they're a key part of our repositioning effort to drive value. And, you know, Tim's down here in the room down there. He's real happy because he's going to be part of that maybe. And we're thinking about there's a couple positions open like HR and maybe plant management. We're going to put them in there and see if we can do anything different.

That would be good. I hear there's vacancies in Canada open, but anyway.

You know, Canada, his wife doesn't like cold.

I think you could buy one of your heat pumps. Okay, thanks very much, guys. Appreciate it. That's good, John.

John, you got a new book on laughter or something like that? Jokes and shit?

I'm working on it. See you later, John. I hope to see you next week. We'll see you then. Bye-bye.

The next question is from Deepa Raghavan at Willis Securities.

Hey, good afternoon, Dave. Good afternoon. Just a quick question on the classification on the EPS range that you are maintaining. We understand the coronavirus impacts are not easy to assess, but how does the 367 guidance at Bitcoin feel given what we know now It looks like there's this virus impact, your North American region is trending below your expectations. Just curious, do these newer headwinds just clip the upper part of the sales range, but keep the midpoint, sorry, upper part of the EPS guide range intact? Sorry, risk is to the upper part of the... EPS range, but keeps the midpoint intact? Or is there any risk to the midpoint also at this point in time?

No, we wouldn't put a guidance out there. I mean, we can believe we can hit both ends of this, both the top and the bottom and the middle. But our feeling right now, based on the trend lines, is that the midpoint is the most likely. The upper point, even with the coronavirus, because we're assuming that it'll come back and production will start coming back up and we'll start calling back from the $50 to $100 million of sales. So we fundamentally believe that that range is still viable, even with everything we face around the world at this point in time. The cost actions are happening. If we get a little bit more cost out, you know, from the timing issue, there's always a lot of timing in there. It can help our margins and obviously help the EPS. So at this point in time, that range is very – we're very comfortable with that range, and we feel – I mean, my highest probability clearly is at that zero, but I also see – I still see some potential on the positive side too.

All right. Thanks for that. Another clarification question is on China again. Can you ring sense what percent of your China sales or profits are in the affected area versus your overall China exposure? I know you gave us a supply chain number and the impact.

No, we can't do that. That China sales, we sell across all of the markets, depending on which customer is going on right now. Is the customer going to be further west, east, north? Now, there's no way we can break that down at this point in time. I mean, this one's going to be kind of fluid as we see things moving back up. And I know our sales force are going to try to figure out how they can claw some of it back. So, you know, they're going to be pretty energized to figure out how to get that business back. It may come in a different location. So there's nothing that says at this point in time.

All right. Okay. Thank you. See you next week.

The next question is from Julian Mitchell at Barclays.

Hi, good afternoon. Good afternoon. Maybe a first question on slide 13, the restructuring costs and earnings tailwind. So you have the restructuring costs of 26 cents, the benefit this year of 7 cents. So that balance of sort of 19 cents, do we assume that that's a mix of what's recognized in 2021 and also what's kind of reinvested in 2020 and things like the service network um just wondered how we thought about that drop through so yeah now we'll we will share with you how the savings are going to flow up you know in 21 and 22. and i'm not sharing that with you yet but we'll share that out with you so

So you're trying to see – say that again, Julian. Say that one more time.

Sure. So it's just that on that slide 13, you're spending about $0.26 worth of restructuring this year, and you're recognizing $0.07 as the benefit. So I just wondered, that balance of $0.19, is it all coming next year, or a portion of that $0.19 is reinvested into the business?

No, no, no, no, no, no, no. So a big chunk of our savings will come next year of the delta, the spend, you know, from the standpoint that the area that we will, you know, that will still have some delay out is going to be around the facility restructuring and the facilities because that may not start flowing until early 22 or late 21. What we see there is the reinvestments built into our core plan. We took the costs out and we've netted that out already. There's nothing else going on here from that standpoint. Those savings will flow and there should be a significant increase in savings as we move into 21 and you'll see that as Lyle talks about his repositioning effort. As you know, there's very little cash being impacted here because we've been pretty good about managing that cash flow and trying to keep it cash neutral. So those savings, I would say 90% of those savings will flow back into 21 and we'll still have a little tail hanging over us in 22 from this restructuring right there you're talking about.

Thank you, that helps. And then my second question just on the top line outlook in automation solutions, maybe just focused on the sort of chemicals and petrochem piece of automation solutions. Some companies last week, like Aspen Tech, sounded pretty negative on chemical spending. Some of the customers in petrochem, like Chevron or ExxonMobil, are under some pressure. So I know you had good orders growth in your chemicals and petrochem piece in calendar Q4. Do you think that can continue through this year, or it's more likely to get sort of lumpier?

You know, right now we still feel pretty good about it. Now, I think the first quarter number was a little bit stronger than I thought it would be. We had some project business come in there. But, Julian, we're not too worried about that at this point in time. Now, I'd like to see another quarter of what's going on there. But that business, that petrochemical, the chemical businesses, as we know, we serve a lot broader group of that customer base than an Aspen Tech will serve.

And our KB3, correct?

Yeah, and we've got strong KB3 going on right there. You know, I don't feel concerned about that. I'm more worried about the upstream side and, you know, the new oil and gas investments. I think what I see coming down the downstream right now, I feel better about it, and that's a very high KLB 3 marketplace. And as I said earlier when some of the guys asked me, I finally believe we'll continue to see some improvement in KLB 1. So I'm more optimistic about that.

Thank you. See you next week.

See you next week, Julian. Thank you.

The next question is from Jeff Sprague at Vertical Research.

Good afternoon, everyone.

Good afternoon, Jeff.

Hello.

Are you up in Connecticut, or are you paying taxes today in Connecticut, or what are you doing?

Yeah, I'm getting creamed by the SALT deduction issue every day up here in Connecticut.

Well, that's because we carried you for so long. It's about time you paid your fair share. Yeah. If you want to talk about paying taxes, talk to me.

All right. Wow. You got a little bit bigger W-2 than I do, Dave.

Oh, okay. Now we're playing the size card.

Okay. Size matters, buddy.

Okay. Ask me a question before we get in trouble here.

I guess this kind of dovetails off an earlier question, but just kind of thinking about incrementals. So, you know, obviously if we're in a no-growth environment, incrementals is kind of – you know, a non-concept, I guess, right? But are you suggesting to us, though, that we should, you know, assume you do some kind of normal, you know, 30% or so incremental on growth and we can drop, you know, at the end of this two or three-year period of time, $425 million of savings on top of that?

Yes, that's what we're talking about doing here. I mean, we're going to have the incremental growth of sales. We'll show that to you as we lay out our plan, and then obviously the restructuring that we're going to flow through. And someone, I think Julian, just asked me about the reinvestments. So we'll lay that detail. We went through that with the board, because the board's very, very interested in making sure we don't cut key programs long term, but we're trying to structurally make some changes here so that it does flow through. The key thing right now is we're banking on very little growth here for the next 12, 18 months. That's the key issue.

Yeah. And that 30 to 35, is that kind of the zip code you're comfortable with for incremental?

I think we're building on 30% from that standpoint. That's what we're building on, Jeff. Yeah.

Hey, and then on the LNG stuff, so it was good to see some of the orders come through. I was wondering two things. Was the stuff that was released and hit your order book deliverable from a revenue standpoint for 2020 as it currently stood?

I don't think we'll see any deliveries on that. I think you could have some progress payments.

Yeah, stuff that went to orders.

We'll start working on it. We will probably have some progress payments in the latter part of 2020. They'll be more flowing into 2021. As you well know, the But where these bookings will go, you'll see more coming. It goes, obviously, the compressors and the big LNG projects, our systems, then the control valves, then instrumentation. So we are in the early stages of this four-way right now. So we're anticipating here the next two, three, four months a continuation of booking some stuff. And I wouldn't see that we'll book money sales this year, be more in the 2021. But I guarantee you we'll have some progress payments probably in the systems in late this year.

So if you thought of your total scope on these projects, kind of total Emerson scope, like what have you booked so far? We're talking like only 10 or 20% of the project value so far?

Very small, very small, very small, very small. And that's one of the concerns I think, I can't remember which of you guys mentioned this. You know, my concern is this whole book, you know, coronavirus, could that slow down the process here a little bit again? Because we've got it going again with the trade deal that Mike mentioned. There was, you know, the trade first phase one, and now the coronavirus will slow things down again. That's always a concern of mine, and, you know, that's why we need to get through this so we can get a little bit more visibility on, you know, what everyone's going to do. But right now, we should have a lot more bookings around those major projects.

All right, great. Thanks for the call.

Okay. Take care, Jeff.

The next question comes from Steve Tusa at J.P. Morgan.

Hey, good afternoon. This is actually Pat Bamanow for Steve Teaser.

Oh, thanks, Pat. How are you doing?

Good. How are you doing?

Not too bad. Are you in training today? Is that what's going on here? Is that why Steve sent me a text to harass you? I was wondering why he sent me that text. Make sure you really harass him.

No, Dave. No, Steve's with his second love. He's working on the HVAC stuff today. Yeah. Yeah.

Okay, good. Okay, let's go.

Yeah, so you gave me an opportunity to harass you. Hey, on restructuring, can you explain why you're seeing minimal net cash impacts from the actions you're taking? And then what was the comment on the cash flow-based taxes you made about helping results?

Yeah, go ahead.

This is Frank. There's a lag on the spend versus when we put the expense. That's pretty significant as we get out of the gate here. and then a not insignificant portion of the restructuring is non-cash. It's facilities. It's asset write-downs and things of that nature. So when we wash it all through, we think the net impact in 2020 will probably be not terribly significant, less than $50 million. Yeah.

A lot of times in the people, which was our front load late last year, early this year, there's cash up front, but eventually you get some of that cash back because you're not paying. So it washes out and You know, right now, you know, in cash generation is pretty good. So, I mean, that's going to be pretty neutral. The tax is just basically some work that Frank's been doing relative to some of our international subs as we go through this process.

It's just ongoing reorganizations that we've been doing. We've had several discrete tax benefits last year. I don't expect them to be the same magnitude this year, but we will have a little bit here and there. And we did have a cash tax savings that actually went through into the cash flow in the first quarter. What will be the net cash out for that 425 you mentioned?

Oh, I don't have the number off the top of my head. Frank, do you have a rough number?

I would say in the end, 80%, 85% of it is probably going to be cash.

Over time.

Over time. But it's lumpy. I mean, the timing is the key.

And the key issue there is the sooner you get some of the cash impact ones done, the faster you get the cash payback because it pays quickly. The facility ones are the hardest part because the cash goes out and then you don't get the savings for a long time.

Okay. Maybe switching gears, can you give us an update on what you're seeing in res EAC markets in North America? What did the business do for sales in the quarter and kind of what's your outlook there for this year?

North America is still in a tough zone right now. We're sort of in the middle of winter here. Flats are slightly down. I mean, it's hard to say how fast. I mean, the one thing I like is the residential marketplace. Construction has been good. That's a good sign. You know, typically, you know, we start seeing some payback and some improvement here as we get into that March time period. So it's not going to be much of a change until we get into a little bit warmer weather. We had a good quarter, you know, in Asia and China. That was before everything happened there. That bothers me. And so I'm a little bit concerned about that now as we come out of it. We hear from President Xi, he's going to try to pump up the financing and try to get some spending going to get the economy going, a strong stimulus. Typically, that goes after the markets the commercial residential guys go after versus the auto solution guys going. Right now, our HVAC business in North America is weak, and we're forecasting probably our sixth down quarter in total for commercial residents globally. And then And then the question is, can we see some improvement as we move into the second half of the year?

Did you see anything in the orders in January out of China that makes you concerned at all about the business there? Or is it more just like, you know, what do you expect?

They were pretty much what we expected. It was slightly negative. It was not that good. You know, again, it's a short month because it's the Chinese New Year. And so... From that perspective, it's a pretty small month. I'm really worried about what we – because we're trying to take orders over the phone right now. We're still live, but there's not much business going on. So I'm really worried about as we get into this post-February 10th, as we start seeing what people do, what happens. So it's certainly live here after that February 10th time period comes up for the next two or three weeks to see if there's any slowdown or a pickback up. We'll see.

Okay, great. Thanks for taking my questions. Appreciate the time.

The next question is from Joe Ritchie at Goldman Sachs.

Thanks. Good afternoon, everyone.

Good afternoon, Joe.

Hey, Dave. So just focused on automation solutions for a second and really just trying to think about the margin step-up expected in your fiscal second quarter. So clearly, you know, there's definitely some headwinds out there. We talked about coronavirus. I'm just curious, are things expected to get much better in fiscal 2Q versus fiscal 1Q from a mixed standpoint? And then secondly, clearly you guys took a lot of restructuring actions here in the first quarter, and so do we start seeing a pretty sizable benefit from those actions in fiscal 2Q?

Okay, so did you back into auto sales margins in the second quarter? Is that what you did?

Yeah, I backed into, well, I mean, yeah.

Yeah, you can back into them. Yeah, you can back into them. Yeah, so there's two things. One, auto sales, if you think about progression, our second quarter sales typically are seasonally higher, you know, obviously in the second quarter, and we are expecting some stability around the mix of business around that flow and the discrete business. So, That is not – that's normal for us. And then we've obviously started to get some savings. Some of the $35 million that we spent aggressively in the fourth quarter, most of that was around AutoSol. And obviously a lot of the 97, almost I think 85 of it was around AutoSol in the first quarter. And so you're seeing – You know, those guys are going to start seeing that benefit more and more about that as they go into that second quarter and clearly ramps up into the third and fourth quarters. But that's how we see it right now. And the savings are happening because these are really near-term cost actions that are taken.

Okay. All right. That's helpful. And then I guess just my one follow-up. I saw that there was no change to the buyback portion of the bridge. I guess the question I have is, look, your balance sheet is in great shape. You guys have the opportunity to toggle it up if you want to and be a little bit more aggressive with the buyback. I guess at this juncture, what's holding you back from potentially doing a little bit more?

I mean, first of all, I think, you know, if you look at our history, we buy back substantially more stock than most people. And secondly, we also continue to want to work on the acquisition front and invest in the company. If we feel that we don't have the opportunities, we'll continue to take that buyback up. But right now, you know, I look at what we've bought back the last several years has been a pretty high pace, and I don't see any reason to take any higher at this point in time. Now, the board always reviews that. If we see the acquisition front stays, you know, very moderate, then we're going to have the situation coming forth that we're going to have to increase the leverage and the balance sheet. But keep in mind, I said it again, we're already paying back shareholders 85% of our cash flow in 2020, 85%. And it's a good number. Yeah, it's a big number.

All right. Appreciate it. Thanks, David.

Our last question comes from Robert McCarthy at Stevens.

Good afternoon, everyone. Good afternoon, Rob. I guess the first question, have you had any contact with the Chinese authorities about the nature of the response, what they need to do, any kind of comfort around that? Because obviously, it seems to be there's definitely a credibility gap that seems to be emerging over the last couple of days. Any thoughts around that, just given the fact that you have substantial tendrils in China?

Our organization, we have a leadership there. The team is in constant contact with the Chinese government. Mike and I in the top OC get a daily report back out from what they're being told by the government, both at the national level and the local level. I disagree that the Chinese government is misleading people. I feel they've been very open to us. Now, everyone wants a hard answer, but you can't get a hard answer in something that's moving like this. But as I look at the consistent information I'm getting from people, from the government into the regional governments to my people and my leadership team that reports into Mike. I feel very good about it. So my comfort level right now is pretty high. The key issue for me is can they get the plant, allow the people to go back to work if nothing else major happens here, and then can the supply chain start mobilizing? Because logistics could be a problem as things start flowing around, but it's just a matter of getting planning. And I know Mike and all the guys and gals across China are working this pretty hard right now So I feel my comfort level is pretty good, assuming they can hold that 10th. Or if it goes to 11th or 12th, that's not a big deal. Within a couple of days, that's, Rob. So I feel I think we're ready at this point in time. But, again, it goes back to the Powell moonshots when it comes back to the United States. We're in that blackout period right now, the reentry blackout period for about the next five or six days.

Yeah, I mean, to that point, it's almost it seems like your guidance outlook could have two very almost binary outcomes or trajectories, because one, you could see a global synchronous downturn, real problems to the supply chain, demand destruction in oil impacting your projects to a material degree, but then obviously high visibility on you in terms of your cost actions. Conversely, if we do have a quicker than expected resolution to this, you could see a pronounced rebound in oil, which would probably be broadly stimulative of upstream projects. you could see an upside to growth overall, and obviously maybe a tentatively M&A, but that obviously puts a lot more pressure on you to deliver the restructuring in what would be fundamentally a different demand environment. Correct. How do you square the circle in terms of where we could be?

First of all, I'm not in the – Pandora's box, which is your first thing where you might as well throw in a couple of locust attacks and maybe some ships going down and planes going down at the same time there. I'm not on that side of the equation. I think that... I could say there could be some positives as this thing recovers pretty quickly. I feel that. But I'm more in the status right now that this thing slowly recovers and regrowth comes back. We probably lose a couple points of the high single-digit growth that we were talking about for China, which takes a little bit away from us a little bit. So I'm more in the I'm on the glass half full and the glass empty or glass all full, which you just went.

Even if they do stimulus, it's going to really be more than that. Yeah.

I think we got, let's, you know, I know everyone's trying to guess, second guess this. I think you got to wait. Those dates, the 10th and they've been holding here pretty consistent. If those things hold and it's say the 10th or 11th, going back to work and we start seeing the plants up and running, then I feel good about it. Now, if the plants start starting up and they start failing, that could be a good thing for us because it's obviously business. But I think we've got to watch that. So you've got to listen to all the people you follow and listen to them and see how things are starting. And I think that would be the key indication. Are they starting up or not starting up? Are they getting the supplies? But, you know, I think you're going to hear people communicate that pretty loud and clear.

Thank you for answering my questions. I'll see you next week.

Felix, all the best. I want to thank everybody. Again, I want to thank the global organization. I want to thank the investors and the shareholders for supporting us as we go through this process. Thank you very much now. Bye.

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