Emerson Electric Company (EMR) — Q3 2018 Earnings Call Transcript

Thank you very much. I'm joined today by David Farr, Chairman and Chief Executive Officer; Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer; Mike Train, Executive President, Emerson Automation Solutions; and Bob Sharp, Executive President, Emerson Commercial & Residential Solutions. Welcome to Emerson's Third Quarter 2018 Earnings Conference Call. Please follow along in the slide presentation, which is available on our website. Let's start with the third quarter summary on slide 3. Sales in the quarter of $4.5 billion increased 10% with underlying sales up 8%. Demand conditions remained favorable and trailing three-month underlying orders continue to trend in the 5% to 10% range with June orders up 9%. Profitability improved across all metrics with gross margin up 220 basis points and EBIT margin up 180 basis points. Price/cost was slightly positive in the quarter. GAAP EPS was $1.12, including a $0.24 tax benefit related to the Tax Cuts and Jobs Act. Excluding this benefit, EPS was $0.88, up 40% compared with the prior year. Q3 cash flow was very strong. Free cash flow of $804 million is 18% of sales and free cash flow conversion was over 110% in the quarter. We've continued to buy back shares. In Q3, we repurchased 3.7 million shares. Year-to-date, we've repurchased over 15 million shares for a total of $1 billion, and we've returned over $1.9 billion to shareholders through both dividends and share repurchases. Turning to slide 4, third quarter gross margin was up 220 basis points. This improvement includes a tailwind from prior year Valves & Controls purchase accounting charges. This tailwind was partially offset by timing of the V&C acquisition, which closed in late April last year, resulting in two months of dilution from the acquisition last year versus three months this year. On a comparable basis, that is, excluding the impact of the prior-year purchase accounting charge and the additional month of V&C dilution in the current year, gross margin was up 180 basis points. Reported EBIT margin was up 180 basis points and on a comparable basis was up 140 basis points. Again, that is excluding the prior year purchase accounting charge and the extra month of V&C dilution this year. Turning to slide 5, from a geographic perspective, the momentum we've seen this past year continued in Q3 with broad-based demand and favorable trends across the world areas. Mature markets were up high-single digits led by North America. Europe returned to growth in Q3 after a flat first half, reflecting steady growth in air conditioning and refrigeration markets and improving trends in key process automation markets. Emerging markets were up high-single digits in the quarter led by Asia. Latin America grew 7% after being down slightly in the first half, reflecting favorable trends across both business platforms. Turning now to slide 6, total segment margin was up 40 basis points, including the aforementioned timing impact of the Valves & Controls acquisition. On a comparable basis, excluding the additional month of V&C dilution in the current year, total segment margin was up 100 basis points. Operating cash flow was up 19% to $924 million driven by high-quality earnings and strong working capital performance. Trade working capital improved 150 basis points driven by receivables and inventory improvement. Turning to slide 7, Automation Solutions underlying sales were up 12% in the quarter. Strong growth continues to be driven by MRO, small and mid-sized projects, and turnaround activity across our key end markets. North America continued the trends we saw in the first half with both the U.S. and Canada up in the mid-teens. China likewise continued strong growth with broad-based investment and project wins across our key end markets. Outside of China, modest growth continued across the rest of Asia supported by solid MRO demand and improving investment activity, especially in India. Europe turned positive this quarter after being flat through the first half reflecting oil and gas investment in Eastern Europe and improving industrial investment across Eastern and Western Europe. Latin America was positive this quarter after being down slightly in the first half, and the region continues to show some signs of stabilizing and improving. Middle East and Africa growth was supported by strong MRO and improving investment across the region. Automation Solutions segment margin was up 170 basis points including the timing impact of the V&C acquisition. On a comparable basis, excluding the additional month of V&C dilution in the current year, segment margin was up 250 basis points. This improvement was driven by leverage, the benefit of prior period restructuring actions, and operational improvements at Valves & Controls. Now please turn to slide 8 and I will hand the call over to Mr. Mike Train.

Thanks, Tim. Pleasure to join the call again. Steven had asked me to provide a little bit of an update on our large project funnel, we shared that with you at the February investor meeting and we've updated it for today's discussion. On slide 8, you'll see for August 2018 we're at about $6.8 billion in funnel size. That has increased significantly since the February timeframe. We've seen projects going into the funnel really across all the different industry types that are listed there. I would say at this stage of the game, we're probably not anticipating the funnel to grow anymore given that there are smaller projects that don't make the funnel and there's investment decision dates beyond 2020. Right now, I think this is a very good set of projects that we're working with. There have been awards against this funnel probably on the order of $700 million to $800 million that we've been tracking over these last six months. Emerson has won a good number of those. I'm very satisfied with our hit rate on those awards. And generally, those have to be engineered by EPCs before they become orders and then ultimately become sales records. So there's still a little bit of that out in front of us for the large part. We are seeing great take-up at our main valve partner concept. We've launched that here in the last year. Talking to customers as we've built up larger Final Control business. We are already seeing some very serious discussions around that and I think there's going to be end users and engineering contractors that want to take advantage of that. All in all, I think again the project pace is strong. I think the activities are there. I've been around the world twice in the last four months, talking with EPCs and customers. We see customers stationed at the EPCs. They're doing the pre-work, the pre-feed, the feed work. And it looks pretty robust I think as we look forward.

Thanks, Mike. So we'll continue now on slide 10, in the Commercial & Residential Solutions, underlying sales were up 2% in the quarter. In North America, air conditioning demand accelerated versus the second quarter, underlying demand and macroeconomic trends remain strong and we expect air conditioning growth to further accelerate into Q4. Growth in China was impacted by timing of government subsidies for heat pump units. Outside of China, demand remained strong across the rest of Asia in air conditioning and refrigeration markets. Solid growth continues in Europe reflecting steady demand for professional tools and strong growth in air conditioning, heating and refrigeration markets. Margin decreased 80 basis points as material inflation and unfavorable mix was partially offset by operational leverage, higher price realization and the benefit of prior-period restructuring actions and aided by the divestiture of the ClosetMaid business which was sold in October of 2017.

Thanks, Tim. First of all, I'll give everybody an update. We closed on Textron Tools & Tests right at the beginning of the quarter. So as Q4 is reported, you'll see it's starting to come into the numbers. And I'll say we're off to a very good start here, a very good combination. We have merged RIDGID Tool and Tools & Test together into a single professional tools organization with a singular management team. That's well underway. A lot of activities now around our global footprint, especially from a sales coverage and customer standpoint at the beginning. A lot of work right now with optimizing our North America sales presence and, again, good progress on that. We'll be having some actions here soon. Focusing heavily right now on the spend, you saw a lot of opportunities we presented as far as margin potential. Materials is a big piece of that. We've already done a heavy analysis of the material buy of the Tools & Test business combined with RIDGID and have a number of activities underway, certainly, applying Emerson's terms around payables and other things with some very good quick progress there. So overall, good organization. We've had several meetings with these management team and employees throughout the sites and we've been in all the factories, doing a lot of work in the factories around safety and operational activities. And I'll say there's a very good vibe right now as far as people feeling the combination, both from the RIDGID folks, as well as the Textron Tools folks recognizing that this is a very obvious cultural combination, if you will. And everybody's seeing some good opportunities and really good reaction from the customers as well. So we've talked about synergies. You see synergies around $40 million, a lot of that cost driven, also a number coming from sales in the time. And then cash flow, these two businesses combined generate very good, healthy cash flow and we see a tremendous opportunity to increase that combination over the next four or five years as we have the plan that plays out. Good start there. Chart 12, I think it is, on Asia. Certainly, China was a change. We have enjoyed a very nice string of extreme growth, I'll say, in China and certainly had some amount of a pause here in Q3. Very much timed to heating. As they start getting in focus the heating season and releasing government contracts and subsidy activities and things, clearly some pause in that activity. I will say, July was a good month. August is looking well and, as we show here, we're expecting to be back on a double-digit track in Q4. For this year, cold chain, commercial AC, heating, all 20% plus kind of growth dynamics. Residential AC up in the 10% territory. So certainly, we would have liked to see a stronger number in Q3 but do not see that as any sign of any fundamental change right now.

All right. Thanks Bob. So, turn to slide 13, which steps through our changes to our EPS guidance. The table starts with our May 1st GAAP EPS guidance of $3.10 to $3.20. As shown here, we are raising the guidance range $0.05 for stronger performance and $0.24 for our one-time tax benefit in Q3 associated with clarifications on U.S. tax reform implementation. The $150 million tax benefit in Q3 drove a 6% GAAP tax rate and reduced our full year expected tax rate from 25% to 27% to approximately 19%. Also included in the guidance update is $0.06 in Q4 for purchase accounting and restructuring charges associated with the Tools & Test and Aventics acquisitions. For these acquisitions, we expect to have little, if any, additional purchase accounting charges carry over into fiscal 2019. And finally, as discussed on our call – on our Q1 call, in response to U.S. tax reform legislation, the company reviewed U.S. comp and benefits programs and has enacted numerous improvements. As part of this, in the fourth quarter, we will take a charge of $24 million, or $0.03 per share, for discretionary one-time 401(k) contribution to every member of our U.S. workforce. The net impact of these changes is to raise our GAAP guidance range $0.20 to $3.30 to $3.40. Please turn now to slide 14, which outlines our updated full year guidance, and please note that this framework now includes the sales and earnings impact of the recently closed Tools & Test and Aventics acquisitions. We expect total Emerson underlying sales to grow 7.5% with Automation Solutions up 9% and Commercial & Residential Solutions up 4.5%. The GAAP EPS range of $3.30 to $3.40 represents growth of 30% to 34% compared with the prior year. This guidance assumes a neutral price/cost impact, as we continue to offset material inflation with price realization and cost reduction efforts. The expected effective tax rate for 2018 is reduced to 19% due to the one-time benefit in Q3, and we expect the tax rate in 2019 and thereafter to be 25%. The fourth quarter will be our fifth consecutive quarter of strong sales and earnings per share growth, as Q4 of last year was the first time since our strategic repositioning that we delivered both strong sales growth and earnings per share growth. In this fourth quarter, we expect 7% to 8% underlying growth and earnings per share of $0.86, plus or minus $0.05, including the $0.09 of acquisition charges and one-time 401(k) contribution shown on the bridge. For 2018, we expect free cash flow conversion of 110%, reflecting our high-quality earnings. This guidance is in line with our prior guidance of 115% excluding the one-time tax benefit in the third quarter. And now, please turn to slide 15, and I will hand the call over to Mr. David Farr.

Thank you very much, Tim. I also want to thank Bob and Mike for joining us today and updating everybody. They'll obviously be on the call to answer questions for the people that want to ask questions. As you look at the order trend chart, the trends have continued to stay within the band that we outlined in February of 2018 at the conference in New York. In total, I expect this will continue in the fourth quarter. I would expect us to be at the high end of this band as we've moved up towards that greater than 5%. Automation Solutions orders will continue to do well. From the standpoint of both Mike's business and Bob's business, Mike is now starting to come into tougher and tougher comps, because last year at this time, he had a very strong July and it will start to continue to bounce up against that. Bob's business clearly has been positive in the 5% to 10% range, and now it's a little slower over the last couple – two years. And so, his comparisons are getting tougher and tougher. But overall, I feel very good about the momentum, the pace of business is not slowing down, our growth and opportunities are out there, and we're seeing our customers continue to spend. We are seeing the impact – the positive impact of the new tax law in the United States, and people are spending money and we are clearly getting that piece of business. If you look at our North America sales and orders, they've been very strong since the enactment of the tax law. But I want to thank everybody for joining us today. One thing you might have noted from the first page, we had a recent STEM program and I was addressing my new employees, and I had one in the front row here in the little green outfit, you'll go back and look at that photograph, and she was asking me a great question. Her parents are shareholders and she was asking me a very delicate question. She said Mr. Farr, are you going to break the dividend string in 2019, and I said, I see no reason to break the dividend string in 2019, so – and she said, good, I'll be able to afford to buy more milk or whatever I need for eating here. So, she was very diligently asking me questions about the dividends, which is quite interesting. As you know, one of the things that we've been doing and working across the company since the new platform structure is to make sure we have the right benefit structure, the right compensation structure across the global world. Clearly, we're trying to make sure that we're making the right enhancements to stay competitive. And as we said in the press release, we have continued to make changes to our package and – both on the health and medical side, also parental leave improvements, better vacation plans, and now the most recent one is the improvement in our 401(k), and we're making a one-time contribution to our U.S. employees which is going to cost us around $24 million. But it's all about making sure we have the best group of employees that we need around the world as we continue to enhance our benefits around the world. And in today's competitive environment, this is very, very important and we wanted to make sure that we did it. We'll continue to tune things a little bit, but the major actions have been undertaken and we'll continue to make sure that we stay competitive on a global basis, so that's extremely important to us. If you look at everything that's going on, it's been a very good six months. If I look at the improvement of sales, I look at the improvement of orders, I look at our gross margins, our EBIT margins, our cash flow, both businesses are operating at very high levels of performance. We had two days of planning conference with the new Final Control business. The total integration of V&C was outstanding. They are ahead relative to sales expectations. Our orders this year in both businesses are growing. We did not expect the orders of V&C would recover so fast, but they're growing in line with the Final Control and the whole Process business, which is exciting to see. We're seeing improvement in profitability. We're ahead of our margins that we expected and we're seeing a very strong cash flow as you can see in our cash flow conversion from the total company. But a really great job by both Mike's and Bob's organizations and around the world, and I want to thank his teams globally for doing an outstanding job. Mike and Bob, really appreciate that. If I look at the global market today, we have all of our global businesses now basically in the markets growing. We have various marketplaces showing positive growth both in orders and sales. When we first started the year, we still had a couple of markets that had not recovered, started growing. But now, in total, you're seeing all our markets growing. And as I look at the order pace and I look at the interest in business right now, that's a good thing to have as you move into 2019. You'll remember, we talked about that initially the mature markets would take over and grow first, which we've seen. We are now starting to see the emerging markets take off, and I would expect to see our emerging markets sometime in early-2019 outgrow our mature markets. Our mature markets will continue to grow at a good pace, but I expect the emerging markets to take off as the investments continue to go forward. As you look at the performance, last year at this time, our underlying sales were growing around 4%. We grew underlying sales 8%. As we go into the fourth quarter, last year, our underlying sales were growing 3%. We're talking about underlying sales growing around the 7.5% range at this point in time. Comparisons are getting tougher, but the pace of business remains to be very strong and we have very good momentum across this company in many areas. So, I'm very, very pleased about that. But I know that Bob now has his hands wrapped around and his team have their hands wrapped around the acquisition of the Textron Tools & Test business. They're quickly going about how they can integrate, they're quickly going about how they can grow this business, how they can improve the profitability. You'll clearly see, like we saw in V&C, the profitability in the segment will be hurt by this acquisition, because it's clearly a lower profit margin than we have today. But they have plans to get that margin back up and stop it from being dilutive in a relatively short time period. I also see improvements relative to cash flow, which is very important to us relative to that acquisition. But equally important, their organizations are working together very quickly and it's really exciting to see. We closed Aventics a couple weeks ago, and Mike and his team reported to the board today, as did Bob in his acquisition, and talked about what they see and what they see after the first couple weeks, in Bob's case, after the first 30 days. A lot of opportunities here and they're continuing to work it, and both of them will have a negative impact on initial margin, but will work its way through to make sure that it contributes to overall profitability as we move into 2019. But from the standpoint of where we stand with V&C and these two other major acquisitions, we've done a lot of acquisitions in the last 18 months and I would expect us to have bolt-on opportunities going into 2019, but I would – not the same magnitude of what we've done here in the last 18 months, but very strong performance, earnings and cash flow. And I fully believe that, as I said early on in the year, V&C will contribute to our overall earnings for the year, and they will contribute very strongly in cash flow and their margins are getting to where they need to be as we've talked about, in fact they're ahead of plan as we move forward here, so really running well going into that fourth quarter. I would like to make one other comment relative to the corporate organization and in particular around Frank's team and Alex Peng and his team relative to the tax. The tax planning with the new tax laws, we were really well prepared and we were able to take advantage of our tax laws and really minimize the impact of the overall cost to the corporation. The true-up of picking up this much money, $150 million, both earnings and cash over time, but really reducing our rate for the quarter, again, investing in people, investing back in the company. But really this is a great job by Frank and Alex and the whole team down there, on behalf of all shareholders, to make sure that we have the right rate structure and make sure that we're doing the right thing on a global basis for tax payments, and really helped us for the quarter and also for – as we move forward into the coming years. Our effective tax rate will be in this 25% range. That's down 5 or 6 points from where it used to be. And so, that's a lot of value creation, and the question for us is how we put that money to use to grow the company a little bit faster, more profitable, and using that cash flow to also pay back more money to the shareholders over time, too. So, I'm very pleased, and Frank – and you know the team has done a great job down there. I appreciate that. As I look at that fourth quarter and I look at where we're heading into the fourth quarter, as we sat here three months ago talking about the third quarter, we talked about a quarter that would be plus or minus, I believe, around $0.85 – I said $0.85, plus or minus $0.02. I mean, that's basically how I think. I'm thinking within a $0.05. It's difficult for us to call it a $0.05. And I know people always think when we say plus or minus, it's always going to be plus. You should never think that. When I say that, I'm trying to give you the best range that I can give you at that point in time. As we look at the fourth quarter, we feel the momentum right now gives us about 7.5% underlying growth. We see pretty good growth relative to acquisitions. The currency will hurt us as we end the fourth quarter, but I still believe that we'll be over 10% on a GAAP basis. And clearly, the comps are getting tougher and tougher, but we have strong momentum going into this quarter. I expect this quarter to be, as we're saying here, around $0.86, plus or minus $0.02 to $0.03. Clearly, we'll push for the quarter ending and see what we can do, but that's about the range we see right now in the pace of business as we look at everything that we're dealing with across this company. And again, operations are doing well and we're performing well, and it was a very good quarter and we hope to continue to drive this in the next couple of quarters. And I don't see any reason why not, at this point in time, but as every day is a new day in this world and we'll see what happens. But the momentum is on our behind, really with us right now and also from the standpoint of strong opportunities around the world for orders and for growth and for profit improvement. So, I like what we see at this point in time. And so, we have a lot more positive working for us than we do against us. So, with that opening the phone for calls, and we'll take some Q&A and look forward to talking to you.

Yeah. Thanks. Good afternoon, everyone.

Good afternoon, Nicole.

So, I guess last quarter, on the second quarter call, you commented that you expected Automation Solutions organic growth could accelerate in 2019, and we now have another quarter under our belt, things are stronger than expected, order growth was really healthy.

So, I guess, would you sit here and make that same comment today, Dave? The issue was I've always said from the early on in the beginning of the year, Nicole, what I saw – I looked at this as a two-year type of band of growth. We always felt that the growth was going to accelerate throughout the year. We thought this year would be more of a not double-digit, we didn't think we'd cross that 10% mark. Clearly, now as I look at the two years, I've always felt that we would have somewhere around 16% to 18% to 19% combined growth. We have a lot of momentum right now. And so, we have a stronger front-end load. And so, from my perspective right now, I'm looking probably equal years from the standpoint. I don't see – there are certain things that our customers can work on, and as Mike said, as we see the funnels come up towards this top number, it could go up maybe a little bit higher, but at some point in time, we only can work on so many projects. So, the momentum is pretty strong. We're going to have obviously a stronger year this year. We're getting closer to 10% for the whole year underlying growth rate for the Automation business. And therefore – so, I'm looking next year probably going to be in that 9% to 10% range now, because I'm looking at that – I look at the two-year cycle for this business and it's not any different than I said last year or earlier this year. I said if we have a 7%, 8%, then I expect us to be a 9%, 10% next year.

I'd say we've seen very strong KOB3, the aftermarket business throughout the year. It's been probably stronger than we even anticipated in February, and it's been good for our business. It's a relatively fast turn business. I think that's helped contribute to the second half here in a major way. The KOB1 projects, the greenfield projects will come along. They have their pace as you've indicated. They've got to get engineered. And I think – again, I think there was a lot of pent-up demand on the KOB3 side and we've seen a lot of that come through here as these customers have felt better with their cash flows and where they're sitting.

So, I can't tell you that it can't be a double-digit year next year, but I think something in that 7%, 8%, 9% range right now feels about right.

We always have to play it out and see what happens.

Yeah. I mean, historically, we have seen a two-year cycle. If you look back at our cycles, we're typically when we're taking off on a combined basis is at 16%, 17%, 18%, 19% on a 24-month time period. So, that's how I look at it. I thought we were going to be less front-end loaded. Now, it looks like we're stronger. But it's going to be a good year anyway you look at it, Nicole. Right now, our backlog – our growth in orders are strong. So, we're very positive about it. Now, we got to make sure we've enough people. That's a big issue now.

Got it. Thanks, Dave. And I guess for my follow-up, I know you've talked about in the past that one of your top concerns from a macro perspective is trade war. So, I have to ask, have you quantified the risk to Emerson from the tariffs that have been enacted to date? And I guess, just level of flexibility on your supply chain, your manufacturing footprint to handle what we're seeing today?

We have quantified it. We've not gone publicly. It's not that huge of a number relative to what we're doing. The teams have done a great job of offsetting both with material containment or pricing actions. We're staying slightly green. I think that will be the case for the fourth quarter and again next year. Obviously, Bob's business is more challenging. He has less flexibility in the short term, but over the long term, he can adjust. We have the flexibility around the world. We talked about this with the board, where today one of our global strategies is to have that flex manufacturing capability and we've had that flex manufacturing capability. Fortunately, our businesses are not in, let's say, the bull's-eye of a lot of the tariff activity. So, it's smaller and we can react to it. So just as much as – maybe some of our competitors are hurt, we're hurt, and vice versa, it's been a pretty good trade-off.

Understood. Thanks, Dave.

Hello, David.

Good afternoon, Steve. How are you doing?

It looks like a... It must have been nice to have that kind of engaged and thoughtful crowd in that auditorium versus some of the Investor Days. This looks like an engaged crowd there, so.

Steve she not only had iPhones taking pictures of my charts. You'll notice I had the one chart rolled up because I was afraid to show her, because she wanted to take it home, it was our dividend history.

Nice to refresh the audience every once in a while, that's key, got to keep them fresh.

On this Climate thing, what will your volumes grow in kind of North America Resi for the year now, kind of on a seasonal adjusted basis? I mean, I guess your fiscal year is kind of aligned with the OEM's calendar year. I'm just curious what that number will be ultimately? What do you think it will be when all is said and done? Yeah. We'll be in the mid-singles. I'm thinking we are hitting an all-time high. And so, the plants are running pretty strong right now and a lot of our customers are starting to level load more production, Steve, versus where they used to try to cycle. We're starting to see more and more customers try to keep things level, which smooths us out more. So, we're not seasonal. It's a different view than we've started to see some different habits from our customers now.

In the last few years, we've had quarters where it's been down in a quarter, and we've had quarters that have been high-single and double-digit. So, even quarter to quarter, there can be several point swings. I think that every company measures differently and shares that differently, so we see it much materialized into the volumes out there versus pricing.

I guess, I'm just kind of struggling a little bit with the fourth quarter, because you said about six ways from Sunday $0.86 and maybe plus, maybe minus. Normal seasonality to us looks more like $0.90 and I'm just trying to figure out, if Climate is bouncing back and the orders here at Automation quite frankly accelerated, did you pull something forward here into the third quarter? It doesn't seem like that.

No. No, we didn't. You also got to keep in mind that $0.86 we're taking care of the one-time accounting stuff for Aventics, we're taking care of the $0.03. And so I mean, those are two restructuring. So you're right I mean normally. But we're also taking care of some issues as we close some deals and as we do the one-time 401(k). So, that I mean – as you well know, Steve, I really can't call a quarter within $0.05. And so, when I look at that and say that feels about right and it would be, as you say, the normal seasonal thing would be around that $0.90 plus, that's why if you – that's what we have to deal with relative to the... that's what's going on. So, you're not that far off. It's just – don't forget about the $0.06 and the $0.03 from what we're doing there.

Right. And then, I guess just as a follow-up to that, on Climate, you guys have these kind of escalators that I guess that would mean your pricing is going to kind of lag by maybe a quarter or two, a quarter plus relative to raw materials. It's not necessarily like, hey, we're an OEM and we're going to do a price increase at the beginning of the year, and then this kind of unusual price increase in the middle of the year. You guys are a bit more on a rolling basis. So, I mean, if raw is kind of stabilized here, can you be in Climate green at some point here in 2019 and start to kind of flip the other way for a period of time, given the way your escalators are working?

Yeah. It depends on the timing of when it happens. Again, if it happens later in the year, it's difficult because we're still carrying that drag. But, again, you saw it happen when it turned unfavorable on us about 18 or so months ago. Like you said, it takes a quarter or two to sink in. And as it subsides or even stabilizes, that's about the same kind of lag timing to go the other way.

Right. So, that's a good guide.

Steve we work a very fine line with our OEMs, because we know that we're trying to make sure they stay competitive, we stay competitive, but also we're trying to keep it really tight around that plus or minus line relative to price/cost type of situation.

Right. One last one for you, Valves & Controls, what kind of revenues will that business finish at in fiscal 2018 or?

I don't think the revenue is going to change much. I think they're going to be slightly – on a reported basis, they're going to be slightly down, because of the divestitures in the product lines we got rid of. But the underlying growth rate is now growing. So now next year we're going to have a growth. And so, the underlying order growth is around 9%, 10%. So, they were slightly down because of what we divested and what we're getting out of, but now they're coming off. And if you look at the order pattern, they're growing faster. So, now they're going to start growing. So, overall, we're going to grow that business and it's going to be – we got a good couple years here between that business and what we're trying to do with it.

Okay. Looks like it. All right. Thanks a lot.

Thank you very much, Steve. I appreciate it.

Hey. Thanks and good afternoon.

How are you doing, Steve?

Hey, Dave. I can't resist also on that front page, I know you guys turn over every stone for new investors and applause, and on that one, it looks like you got both.

It's definitely. And as Tusa said, this is a little bit more friendly audience, other than the fact that they never shut up. I mean...