Dover Corp (DOV) — Q4 2015 Earnings Call Transcript

Thank you, Kristy. Good morning and welcome to Dover's fourth quarter earnings call. With me today are Bob Livingston and Brad Cerepak. Today's call will begin with comments from Bob and Brad on Dover's fourth quarter operating and financial performance and follow with our 2016 outlook. We will then open up the call for questions. As a courtesy, we kindly ask that you limit yourself to one question with a follow-up. Please note that our current earnings release, investor supplement and associated presentation can be found on our website, www.dovercorporation.com. This call will be available for playback through February 9, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 1-800-585-8367. When accessing the playback, you'll need to supply the following access code, 22028065. Before we get started, I'd like to remind everyone that our comments today, which are intended to supplement your understanding of Dover, may contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover by referring to our Forms 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statement. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information can be found. And with that, I'd like to turn the call over to Bob.

Thanks, Paul. Good morning everyone and thank you for joining us for this morning’s conference call. Our fourth quarter and full year results continue to be impacted by tough market conditions, especially in oil and gas. We delivered fourth quarter adjusted EPS of $0.81, driven by solid execution and some year-end tax benefits as our teams continued to pursue customer wins, cost actions, and productivity initiatives. In 2015, we increased our efforts around operating efficiencies through our Dover Excellence program. One key element of this program focuses on free cash flow generation, which increased to $795 million for the year. The program also supports our ongoing investment in product innovation and customer activities. Additionally, during the year we took multiple steps to resize our businesses to reflect difficult market conditions, especially in our Energy segment. These initiatives will remain a focus in 2016. Further, we closed on four acquisitions since our last call. These businesses would generate well over $0.5 billion in revenue in 2016 and significantly complement and expand our market positions. Now, let me share some comments on the quarter. From a geographic perspective, excluding our energy exposure in tough comps and retail refrigeration markets, our U.S. industrial activity remained solid and grew more than 4% year-over-year. On a sequential basis, China markets improved and European activity was largely flat. Both regions were down versus the prior year. In Energy, markets were even tougher as we moved through the quarter and into the New Year. Given that as a backdrop, our teams focused on actions to drive sales and remained resolute in implementing cost reductions. Our aggressive cost actions have reduced the impact of volume declines, as reflected by decremental margins in the low 30s. On the revenue side, we estimate we’ve generated 5% growth from new business, much of it driven by new product introductions and continuing strong service levels. In 2016, we will strategically look to win new business with a strong focus on customer service and, of course, continue to look for opportunities to reduce our cost structure. Engineered Systems had a solid quarter with 4% organic growth. Within Printing & Identification, our digital textile printing results were strong, driven by a significant increase in order activity. We also posted good results in our core marking and coding business. In the industrial platform, modest organic growth was led by strong results in our environmental solutions business. Fluids once again posted strong margins, despite revenue being impacted by oil and gas exposure, reduced year-end capital spending, and tough comps after a very strong fourth quarter of last year. The solid execution resulted in segment margin exceeding 19%, excluding the impact of recently completed acquisitions. Within our Refrigeration & Food Equipment segment, revenue and earnings performance was as expected. Importantly, we now see the benefits of our customer expansion efforts reflected by new wins in retail refrigeration. Our retail refrigeration orders were up 20% over last year, setting us up for an improved start in 2016. As we’ve discussed, we were able to close as we ended the year. Integration activities are well underway and our customers are excited about the broader product sets we now offer. Early results are quite positive. Regarding the acquisition pipeline, we’ve continued to look for businesses that expand and enhance our positions in our key markets and will remain diligent and disciplined on valuations. Now, looking to 2016, we expect Engineered Systems, Fluids, and Refrigeration & Food Equipment to all grow revenue this year. Within Energy, we’ve remained cautious. We have reduced our full year revenue forecast to reflect weaker U.S. market conditions providing some offset, we now have better line-up side on incremental new business. Our aggressive pursuit of additional business, expanding our international presence, and strong focus on cost is ongoing. We expect to make further progress on these initiatives in 2016. In Engineered Systems, we anticipate solid organic growth led by the leading technology and new products offered across the segment. Specifically, we expect the marking and coding markets to be solid, and our digital textile businesses to have double-digit growth. Within our industrial platform, modest organic growth will be led by strong performance in environmental solutions and vehicle services. This performance will be complemented by our continued focus on cost and productivity. Fluids will grow, driven by the recent acquisitions. We also anticipate continued strong core margin performance on the benefits of ongoing productivity projects. In addition, a well-executed integration of our recent acquisitions will provide a path to future revenue and margin improvement, and enhanced customer service through skills and efficiencies. Finally, within Refrigeration & Food Equipment, we expect much improved revenue and earnings in 2016, leveraging our leading technology and merchandising solutions. Retail refrigeration should lead the improvement. We also expect solid performance in our Food Equipment markets. In summary, we are reaffirming our EPS guidance.

Thanks Bob. Good morning everyone. Let’s start on Slide 3 of our presentation deck. Today we’ve reported fourth quarter revenue of $1.7 billion, a decrease of 14%. This result was comprised of an organic revenue decline of 12%, growth from acquisitions of 2%, and an FX impact of 4%. Adjusted EPS was $0.81 and above our implied Q4 forecast. The performance improvement consists of $0.01 higher segment income and $0.05 on the tax line. Segment margin for the quarter was 13.3%, 150 basis points below last year. Adjusting for fourth quarter restructuring of $16.5 million, margin was 14.3%. Restructuring activities were broad-based with a continued focus on Energy. Bookings decreased 13% to $1.6 billion, largely reflecting significantly lower oil and gas markets and soft macro conditions. Overall book-to-bill finished at 0.96. Our backlog decreased 16% to $1 billion. Free cash flow was once again solid at $274 million for the quarter, 16% of revenue. We are beginning to see the results of our Dover Excellence program reflected in cash flow performance. For the full year, we generated $795 million of free cash flow, representing over 11% of revenue, a full point higher than last year. Now turning to Slide 4, Engineered Systems had solid organic growth of 4%, reflecting strong growth in our Printing & Identification and environmental solutions markets. Fluids’ decline of 6% was driven by weak oil and gas markets and generally softer market conditions. Refrigeration & Food Equipment's organic revenue declined 6% primarily on reduced volume from a key retail refrigeration customer. Energy organic revenue was down 40% on significant declines in North American oil and gas markets. As seen on the chart, acquisition growth in the quarter was 2% while FX had a negative 4% impact. Turning to Slide 5 and our sequential results, revenue decreased 5% from the third quarter, largely reflecting normal seasonality in our retail refrigeration markets and a continued step down in Energy markets. Engineered Systems and Fluids were modestly up. Sequential bookings decreased 5%, principally driven by the impact of oil and gas markets and normal seasonality in retail refrigeration. Strong growth in Engineered Systems resulted from solid Printing & Identification markets and robust environmental solutions orders. Now on Slide 6, Energy revenue of $323 million decreased 41%, driving earnings down to $31 million. Energy results continued to be impacted by steep declines in oil and gas markets. However, we continue to see targeted customer wins in the Middle East and North America. Energy absorbed an additional $4 million in restructuring cost in the fourth quarter and has incurred $31 million in cost for the full year. Excluding the Q4 restructuring cost, our operating margin was 10.8%, reflecting volume and price declines partially offset by the benefits of productivity and previously completed restructuring. We expect the carryover benefits of these and other cost actions to be approximately $40 million in 2016.

Bookings through $316 million in book-to-bill was 0.98. Now on Slide 7, Engineered Systems revenue of $597 million increased 1% overall, reflecting organic growth of 4% and acquisition growth of 3%, partially offset by an FX impact of 6%. Earnings of $89 million decreased 4%, principally reflecting the impact of acquisitions in the quarter. Our Printing & Identification platform revenue was $256 million, increasing 3%. Organic revenue was up 8%, reflecting strong digital textile markets and solid North American marking and coding activity. Acquisitions had 6% growth while FX had an 11% impact. In the industrial platform, overall revenue declined 1% to $342 million, where organic growth of 1% was offset by FX of 2%. Organic growth was once again led by environmental solutions. We incurred $5 million in restructuring cost in the quarter for actions that will further improve our cost structure. Excluding the Q4 restructuring cost, margins were 15.7%, reflecting the benefits of prior cost actions partially offset by business mix. Bookings were $608 million, a decrease of 2%, reflecting organic bookings growth of 1% and acquisition growth of 2%, offset by 5% impact from FX. Organically, Printing & Identification bookings were up 6% and industrial bookings decreased 3%. Book-to-bill for Printing & Identification was 0.98, while industrials was 1.05; overall book-to-bill was 1.02. Turning to Slide 8, Fluids revenue decreased 6% to $356 million and earnings decreased 1% to $62 million. Revenue performance reflects a 6% decline in organic revenue, whereby the impact of acquisitions and FX largely offset each other. Our Fluids transfer businesses remained solid and were up slightly organically. While our pumps results reflect the impact of weak oil and gas markets and the timing of large project shipments. The impact of acquisitions reduced margins roughly 170 basis points in the quarter resulting in a margin of 17.6%. Excluding acquisitions and related purchase having a deal cost, margin was 19.3% reflecting continued strong execution.

Bookings were $321 million, a decrease of 7% overall or 6% organically. This result primarily reflects slower year-end CapEx activity and the impact of oil and gas exposure in our pumps markets. Book-to-bill was 0.90. Now let’s turn to Slide 9, Refrigeration and Food Equipment revenue of $419 million declined 9% from the prior year and earnings were $43 million. As expected, revenue continued to be impacted by reduced volume from a key retail refrigeration customer. Our glass door business remained solid and our can-shaping business improved. Operating margin was 10.2%; adjusting for $6 million in restructuring cost for the quarter, margin was 11.7%, down 50 basis points from the adjusted prior year reflecting lower volume, partially offset by productivity improvements. Bookings were $380 million, an increase of 3%, reflecting significant improvements in order activity. Book-to-bill was 0.91, a large improvement over last year. This strong bookings activity sets us up well as we begin 2016. Now going to the overview Slide number 10, let me cover some highlights. Corporate expense was $25 million, down $5 million, reflecting ongoing cost management initiatives. Our fourth quarter tax rate was 25%, excluding discreet tax benefits. This rate was lower than our last estimate, principally reflecting the passage of the Tax Relief Extension Act, and as of now, our full year normalized tax rate was 27.8%. Moving on to Slide 11, which shows our full year guidance. Our 2016 revenue guidance has been modestly lowered from our recent Investor Day. We now expect revenue to increase by 1% to 4%, within this estimate organic revenue is expected to be down in the range of 1% to 4%, one point reduction from our prior forecast due to oil and gas markets. We expect completed acquisitions will add approximately 7% growth, while the impact of FX is expected to be about 2%. This is unchanged from our prior guidance. As a reminder, at the mid-point of our guidance, adjusted segment margin is expected to be around 16.5% excluding the impact of recent acquisitions. Our full year corporate expense and interest expense forecast remains unchanged. We now expect the full year tax rate to be approximately 28%, one point lower than our last guide, reflecting the Tax Relief Extension Act and the impact of recent acquisitions. CapEx remains unchanged, as does our full year free cash flow forecast. From a segment perspective, Energy’s full year organic revenue forecast is now expected to decline 11% to 14%, a three-point reduction from our prior forecast. The expected full impact from declines in oil and gas markets is partially offset by incremental new business not in our prior forecast.

The carryover benefit of shares already purchased will be approximately $0.08. Interest, corporate and the tax rate will impact earnings about $0.08, reflecting a minor improvement over our last forecast. In total we expect 2016 EPS to be $3.85 to $4.05. This estimate is unchanged from our prior forecast. With that I’ll turn the call back over to Bob for some final thoughts. Markets are mixed as we enter 2016. Our businesses with exposure to oil and gas will once again face challenges, whereas Engineered Systems and Refrigeration & Food Equipment should grow organically. Within this environment we will remain focused on new product launches and innovation across the entire organization, expanding our business with new customers and in new geographies, capitalizing on our customer wins mindset by becoming an even more important partner with our customers and leveraging our Dover Excellence program to continue to drive margin, productivity, and cash flow. The combination of these actions is expected to provide incremental revenue of 2 points in 2016 and increase core margin 20 to 40 basis points. The bulk of this incremental revenue is sales from new product introductions. Our plan for EPS growth and strong free cash flow in 2016 is supported by three significant activities that have already been implemented. They are the completion of several acquisitions that will deliver meaningful accretion, 2015 restructuring actions that will provide significant benefits this year, and completed share repurchase activity that will deliver $0.08. We expect oil and gas markets to remain uncertain in 2016 and we are poised to take further cost actions beyond what is currently forecasted if necessary. With that I’d like to thank our entire Dover team for staying focused on our customers. Paul, let’s take some questions.

Thanks, before we take questions I’d just like to remind you, if you can limit yourself to one question with a follow-up. We have several people in queue, so the more questions we have the less people we can talk to. With that Kristine, let’s have the first question.

Hey Deane.

Hey, Bob I was hoping you could expand on Energy where you said that there was some new business that you had won, maybe kind of expand there, what products, what regions? And you also mentioned international expansion.

Good morning, Deane.

Good morning, Bob.

Sure, I’d like to... look I think I have shared this comment on at least one call if not a couple of calls last year that as we work through this down cycle in the Energy business, we have continued to work on new product launches and targeting specific customers that we thought we should establish an initial business position with or even a larger business position with. And in 2015, I think in the second half of the year, we estimated that we had about 5% of our revenue in the second half of Energy re-labeled as new wins. As we provided guidance and initial guidance at the December meeting, we knew we were going to keep the business that we had won in 2015, but we were not including in our guidance any anticipated new business in 2016 unless we actually had a contract or knew we had won the business. And since then we have won some business, we’ve got contracts. Some of the business will actually have modest shipments on here in the first quarter and it’s across the segment, specifically within the upstream markets, we continue to win new business with our PDC introduction, but it is most noticeable within our artificial lift business. But I would be remiss if I didn’t give a nod to the guys in our Bearings & Compression business; they’ve also been pretty active and have been successful in this regard as well.

Thanks, good morning guys.

Hi Joe.

Just a quick question on oil and gas, there are a lot of outcomes and uncertainty as it relates to oil and gas over the next three years. I’m just trying to get a sense of how you’re thinking about your business setup today if we go to cash costs or if we get an uptick in oil and gas and really just where is your mindset there today?

Well, I guess to begin that answer Joe; I’ll revert back to the answer I just provided Deane. We have been very active in taking costs out in 2015 and you’ll see us continue to do that in 2016. But at some point in time we will see a change in this market and we are still convinced that our superior service levels and the continuing investment we’re making in product development are the right things to do to be prepared for an upturn when that occurs. Our assumptions in the 2016 guidance, we are seeing in our plan for the first quarter, maybe even in the first four months of the year reflecting the current pricing of oil in today’s environment, let’s call it roughly $30. Our plan does assume that the price recovers a bit in the second half of the year. Our plan is based on a $40 oil price in the second half of the year.

That’s helpful Bob and maybe my one follow-up is really around margins and Brad perhaps for you, within the 16.5% guidance for the total portfolio, what is the Energy number and how do you think about the trajectory of Energy margins if and when do you get an uptick in oil?

Okay, sure, so the 16.5% at the midpoint, that’s an adjusted number, just to reiterate that. That’s excluding acquisition related activity, but with respect to our segment, the core margin expansion is really coming from the other three segments. We see Energy year-over-year adjusted to adjust down into 2016 and I would say roughly, we would say the margin expectation in Energy is around 12% to 13% for 2016. I would say the way we see the year on Energy reiterating what Bob said is that obviously year-over-year in the first quarter energy is going to be down significantly. I would say we should be thinking about energy more like the fourth quarter moving into the first quarter, sequentially being pretty much the same, and as it relates to the rest of the year, we see in our forecast some recovery in the average price per barrel of oil, it is modest. We would see some further improvement throughout the year. As it relates to the other segments, year-over-year core margin expansions so the first quarter and into the year will look a lot like the sequence what we have seen in 2015; that is the way we think about it.

Good morning, guys.

Good morning, Andrew.

Just a question on pretty good industrial performance Printing and ID; could you get us some color because it seems you guys did quite a bit better than Danaher reported this morning.

Well, we had - as I reported we had a very strong fourth-quarter at Markem-Imaje organic growth for Markem-Imaje in the quarter was 4%. We actually ended up for the entire second half at 4%, we ended up at 5% organic for the full-year, but on top of that we had a very strong performance from MS, our textile printing business. And interestingly enough, we didn’t get any contribution from our higher margin acquisition JK in the fourth quarter because of our AD&A charges, but we were quite pleased with the performance of the printing and ID platform in the fourth quarter. I would add to that North America was strong for us in the fourth quarter.

And could you just point to specific areas of strength that you were seeing as I said because I think the buy-side and sell-side are still gloomy in North American industrial and you guys are doing so well.

Well, if you look at the three regions, North America, Europe and Asia, I’m doing this a little bit from memory here, but I think North America was our strongest business for Markem-Imaje in the fourth quarter, perhaps followed by Europe and trailed by Asia.

And if I may on other industrial business, what trends are you seeing, are you seeing any destocking towards the end of the quarter, once again very strong performance.

No, actually we were quite pleased with the performance from Engineered Systems in the quarter; both platforms, both printing and ID as well as our industrial platform and did not see any evidence at all of destocking.

Thank you, good morning Jim.

Good morning.

Hey, good morning, just before my question, one point of clarification, about what Brad said about Energy in Q1. Are the comments about similar to Q4, was that similar rate of year-over-year decline organically or similar revenue levels versus Q4?

No, actually I would tell you that if you look at the first quarter for Dover, if you go back and look at the first quarter of last year, the results will be quite similar. And the other three segments, excluding Energy, the real change you are going to see in the first quarter is simply the year-over-year decline in Energy. Jeff, as you remember, the first quarter of last year was still a pretty strong quarter; I would love to return to that level this year, but the first quarter for Energy last year was pretty strong, and almost all of the first quarter of '16 down from the first quarter of '15 is attributable to the decline in energy.

Right, I was trying to get at whether or not regarding with an organic...

On revenue actually, okay if you want to look at it sequentially, I think our revenue guide for energy is probably down very, very slightly, maybe $10 million sequentially from the fourth quarter.

Okay, thank you.

Our earnings are flat in Energy fourth quarter to first.

Thanks, good morning guys.

Good morning, Nigel.

Just wanted to go back to I think the comment that you made on regarding Energy the sequential but looks at the last year. I think that was the comment and I am just wondering does that include Tokheim because that is a very material acquisition.

No, I’m really referring to earnings, Nigel, not the top line. Obviously in the first quarter we will have the top line performance from Tokheim, but I don’t have the detector, but I don’t think we are expecting any contribution or earnings from Tokheim in the first quarter just because we have the normal, what I call it front end of purchase accounting on the Tokheim acquisition. Also, don’t lose sight of the fact that as we enter 2016, we don’t drop it to discontinued operations because that rule was changed, but we try to show these details to you on the attached slides that we didn’t disclose; it’s a significant business, a $100 million business walking covers in the fourth quarter; obviously that is not in the numbers in 2016, and we have another pending divestiture that should close here in the next few weeks that is about a hundred million dollars a year in revenue that is not in guide.

Okay, that is helpful Bob. I’m just taking a step back and I guess this repeat into the portfolio, the discussion you just made. How do you think about capital allocation here this year because it seems like it’s a good better environment to be a buyer; yet obviously the macro situations are a little bit less visible, so is there a bias towards spending more or maybe conserving capital here, how do you think about that Bob?

Well, I always start first with the comment that my preference is to build the business through capital allocation, and will make the acquisitions that are right to help us build bigger businesses and better businesses within Dover. And my second comment is, I guess we don’t always control the timing of the opportunities. In fact, if I remind people here, it is rare for us to control the timing and we get to say yes or no. I am a little cautious right now with respect to valuations because I think the sort of the down draft on public company valuations is not very well reflected in the, I would call it in private companies that may be for sale. So we are being a bit cautious here with our outlook here over the next three or four months, and then of course that brings up the question of share repurchases. And look, all I can tell you is look at our history, we have been quite balanced between M&A and share repurchases over the last three or four years. You should expect us to be as disciplined and balanced over the next two or three as we have been over the last two or three, but we’re not announcing a share repurchase activity today perhaps more on that over the next two or three months.

Okay, very clear, thanks Bob.

Hi, thank you.

Good morning Julian.

Good morning, just a question on Refrigeration and Food Equipment, adjusted sales were down 7% in Q4, but your bookings in Hillphoenix were very good. So, when you’re thinking about the sales base turning around, you are guiding up to 2 to 4 adjusted sales growth for 2016. Do we see those bookings speed into the revenues early in the year in Q1 or that is more of a second half feeding into revenue?

Well, no, you will see the bulk of those bookings have the revenue impact in Q1 but not all. I mean we do have a different order profile with some of our customers than we did with Wal-Mart and I think we are well loaded with respect to - our factories are well loaded in their first quarter with respect to our forecast, but we are expecting to see this business and this segment return to a growth profile in 2016 and we are pretty confident. I would add one further comment, last year we dealt with loss of significant chunk of business from Wal-Mart. We are not looking at Wal-Mart as the provider of our growth in 2016; in fact, I think the guys are actually taking the Wal-Mart business down a little bit again in 2016, but with that we still believe we have got a good executable plan for growth within the Hillphoenix business and within the segment.

Thanks a lot, and then my follow-up would just be on the Energy segment. You talked about how you lowered your oil-price average assumption for the year, what about your assumption on pricing for your own products within that business, have those assumptions changed at all?

No, we closed 2015 pretty dead on about 3% price concessions for the whole segment, and I’ve commented on this several times during 2015. The bulk of that we saw within our rods business and artificial lift and as well as our PVC insert business with our drilling activity. We do include in our guide another 2% down on top of that, which is 2% incremental for the segment in 2016, and we feel pretty comfortable with that.

Great, thanks.

Thanks and good morning.

Good morning.

Just a bit fire point to get on the Energy side what rate kind of assumption are you making now for 2016 given this continued deterioration?

So, let’s say I told you that in the first three to four months of the year we are looking at a price of oil 30 or below 30s. For the recount, I think the low end of our guidance, we see the rig count down 28% or 29%, at the high end point of our guidance, it is down 25%, 26%.

Okay, great that’s helpful thanks. And then if you breakout both the Engineered Systems the industrial piece within that on the pump side the things that were actually down…

Wait a minute, pump is not an Engineered Systems.

No, no, I know, I am talking about two different segments. So within the first on the industrial side of Engineered Systems the down 3% on the bookings front and the down 1% on revenue, obviously that is not environmental which is - what is getting hit in that place, in that segment?

Well, I’m not following your - I am not - you have asked me about the numbers but I will…

You said environmental solutions was positive something negative.

More of it, what you need to recognize that included in the industrial platform is a business that we owned in 2015, that we still own today that we are in the process of divesting and it is about $100 million a year and that revenue for that businesses is taking out of our guidance in 2016 and I think you’ll note that is probably the most significant decline.

That is hitting organic, okay.

That is hitting organic, yes.

Hi guys, and sorry if you already answered this question. I don’t recall hearing you say what your pricing your backlog look like holistically, was it that you said it was flattish, I think your sector Energy was better than kind of expected but the price for oil.

The pricing in our backlog, gosh, Scott, we are such a book and ship business, it is not something I really pay much attention to; as I commented earlier within Energy our price for the segment, our price concessions for the segment were down 3% for 2015 and we expect another 2% down in 2016 but I’m not sure. Does that answer your question?

Yeah, I guess I was trying to get at the non-Energy stuff and see if there was some price deflation you’re seeing on those businesses.

No, no.

Okay, that’s fair enough and then what is the FX impact on the backlog, has to be pretty substantial I would think so trying to get some granularity there.

I would say we dealt with the bulk of the FX impact on our backlog in the first nine months of last year. I don’t think we have any exposure in our backlog beyond what we’re already guiding, which is another 2% headwind this year in FX and I should be sitting here with a smile on my face saying it is down from four to two, but still 2% is a pretty significant number for us, but again it is - we are such a book and ship business that you see it show pretty quickly in revenue and I think we’ve got it covered.

Okay, all the other questions have been answered, so thanks guys.

All right, thanks, Scott.

Hey, good morning.

Good morning, Steve.

Just a couple of questions on restructuring; can you just help us kind of reconcile what would be the incremental restructuring? Did you guys take relative to the third quarter in Energy, what was - I had my own expectation but kind of what was the steps up and down that was attributable to Energy from your third quarter guide? And then also of what were the year-over-year savings you guys recorded? I assume you’re getting some of the savings where you took some heavy structuring early in the year, what were the savings that is recorded year-over-year in your Energy margin in the fourth quarter?

Oh my goodness, I don’t have that detail with me. The restructuring in the fourth quarter in energy was a little over $4 million and I think that was - I think it was probably up about $2 million slightly; it was up about $2 million over what we thought we would do as we entered the quarter.

So, I guess the question is if things are worse here going forward if it is not you guys are down more like in line of what you are down relative to rig count this year, I mean are you still taking these only choosy restructurings or do we need to see more dramatic cost take out because this seems like $2 million relative to your annual revenue rate and the decline to dramatic step down in rigs that we’ve had and the dramatic step down on oil price, is it a little bit late to help us feel good about the margins you’re gearing for next year.

I think if we - and it’s a good question Steve, I’d tell you that if we weren’t continuing to try to expand our customer service activity, and we did in ‘15 and our plan in ‘16 is again to see an increase in product development spending within Energy, if we weren’t doing that you would see actually more benefits coming through from some of the restructuring actions we have taken in ‘15. In 2016, I think our guide we have; I think $20 million of restructuring charges in our guide for 2016, 80% of that’s probably in the first half, Steve, there may be a little bit of trickle over into the third quarter, but 80% of it, I would say is in the first half. Of the $20 million probably $9 million of it is Energy. The balance of the $11 million is pretty evenly split between Fluids and Engineered Systems and if we see further deterioration in the energy market - look we have got a - at some point in time we have this push versus pull of taking cost out versus continuing to invest for tomorrow and for being a better partner with our customers. And if we see further deterioration in the energy market that debate gets a bit harsher.

Got it, great, thanks a lot.

Thanks.

Good morning, guys.

Good morning, Shannon.

In terms of down 45 in drilling and production in the quarter, do you have the split between the drilling and the production piece and then are you seeing any change in sort of drill, but uncompleted well activity or any other dynamics there.

So, do I have a split between drilling and production? You will have to follow up with Paul and I don’t have that. I will tell you, as a cover comment that through every single quarter in ‘16, our drilling activity was down year-over-year much more than our other upstream activity which is artificial lift and automation. I think our drilling activity in ‘16 was down 60% or 65%, significantly more than we saw in artificial lift and automation. I don’t know if that gives you a little bit of color, but I don’t have the exact numbers, Shannon.

Yeah, that’s helpful and in terms of I mean now that we are down at 30, I mean have you seen any change in behavior on the production side in terms of these uncompleted wells or anything else in the various space.

We are monitoring that pretty closely, we continue to see what the industry looks like uncompleted wells, we continue to see the uncompleted wells inventory built during the third and fourth quarter. That’s always hard to forecast. For us, it is something that we look at in our sort of our rear view mirror as the data gets released, but we do know that the activity is quite different between the basins here in North America. West Texas or the Permian basin is starting to see some increased completion of drilled, but previously uncompleted wells; we are not seeing that in the other basins, and that’s our fourth quarter comment that’s not our first quarter comment.

Okay, that makes sense, thanks a lot guys.