Honeywell International Inc (HON) — Q2 2015 Earnings Call Transcript

Thank you, Lisa. Good morning and welcome to Honeywell’s second quarter 2015 earnings conference call. With me here today are our Chairman and CEO, Dave Cote; and Senior Vice President and Chief Financial Officer, Tom Szlosek. This call and webcast including any non-GAAP reconciliations are available on our website at www.honeywell.com/investor. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change and we ask that you interpret them in that light. We identify the principle risks and uncertainties that affect our performance in our Form 10-K and other SEC filings. This morning we will review our financial results for the second quarter and share with you our guidance for the third quarter and full year of 2015. Finally, as always we’ll leave time for your questions at the end. With that, I’ll turn the call over to Chairman and CEO, Dave Cote.

Good morning, everyone. As you’ve seen, Honeywell delivered another quarter of double-digit earnings growth, capping off a strong first half of the year and positioning us well to achieve our full-year outlook as we head into the back half. Reported earnings per share of $1.51 increased 10%, normalized for tax coming in at the high end of our guidance range for the quarter. Sales of $9.8 billion were up 3% on a core organic basis. We saw organic growth accelerate in both the short- and long-cycle businesses within Aerospace, continued growth in our commercial and industrial businesses within ACS, and higher volume across our Advanced Materials portfolio, particularly in Fluorine Products. Each of our business segments achieved the sales estimates we provided in April and we expect that the sales acceleration we enjoyed this quarter will continue into the second half of the year. The absence of friction materials, strengthening of the U.S. dollar, and raw material pricing in Resins & Chemicals drove the difference between reported and core organic sales growth. Segment margin expanded 170 basis points to 18.4% in the second quarter and similar to last quarter, a large portion of the margin expansion came from improving gross margins. Strong execution across the portfolio drove margin expansion in each of our three segments at or above the targets we communicated in April. Our Enablers and key process initiatives continue to deliver growth and productivity benefits, and our previously funded restructuring actions provide the runway we need to continue improving our operations and cost base. We’re keeping that pipeline full, which is critical to supporting our continued margin expansion into next year and beyond. We proactively funded about $39 million of new restructuring in the quarter, building on a healthy pipeline of new projects. While managing cost is critical, we’re also seed planting, and that is investing in capacity expansion, new products and technologies, and resources in high-growth regions to drive future growth. We also continue to benefit from the strategic portfolio decisions we’ve made in the past, and we’re well-positioned and aligned to favorable macro trends with significant runway to grow. There continues to be a lot of exciting activity across the portfolio driving our strong results, so I can’t help but highlight a couple. In June, our Process Solutions business hosted their 40th annual Honeywell Users Group, or HUG, America symposium. A forum that provides users of our process control and industrial automation systems an opportunity to exchange technical information and provides feedback on their equipment service needs. The sentiment was decidedly positive and the turnout of over 1,200 channel partners, end users, and Honeywell sponsors from over 300 different companies was our largest ever. Customer interest in Process Solutions that drive increased safety, reliability, and greater efficiency was noticeably higher than prior years. In addition, Process Solutions announced a partnership with Intel Security to help bolster protection of critical industrial infrastructure and data, combining the latest advances in cybersecurity technology with Honeywell’s unique industrial process domain knowledge, another example of our smart investments and commitment to growing our software capabilities, which we see as a key differentiator. In Aerospace, we announced last month an agreement to supply our advanced Primus Epic cockpit technologies to Dassault’s newly unveiled Falcon 5X. The new plane combines the latest features for safety and performance, including smart view synthetic vision, next-generation flight management system, interview weather radar, and smart traffic collision avoidance, while achieving the lowest fuel consumption in this category. Our Aerospace team in Dassault developed the next-generation cockpit with the future in mind, giving pilots and operators advanced communication, vision, and awareness features that simplify their jobs. And in PMT, our Fluorine Products won additional $600 million in orders with key OEMs for our Solstice low-global warming suite of products, bringing the lifetime value of signed agreements to approximately $3.2 billion. We also have an additional $200 million in agreements currently under negotiation, which we anticipate finalizing by the end of the year. Our Solstice product has global warming potential less than CO2, making it a terrific choice for products and companies seeking to reduce their carbon footprint. EPA phase-out rules restricting the use of high-global warming hydrofluorocarbons, or HFCs, in a variety of applications, including refrigerant, aerosol, and foam insulation blowing agents, coupled with approvals for the use of two additional Honeywell Solstice refrigerants as replacements for high-global warming HFCs continue to show that we are invested in the right place. The demand and adoption of Solstice products continue to be a great story for Honeywell. As we look ahead, we’re not counting on a significant uptick in the current macroenvironment. But we are confident in our ability to deliver continued sales growth and to leverage that growth drive further margin expansion. As a result of our strong first half performance, we are again raising the low end of our full-year 2015 earnings guidance range by $0.05 to a new range of $6.05 to $6.15, up 9% to 11% versus last year. We have a fantastic portfolio and we’ll continue investing in high-growth regions, high ROI CapEx, and new products and technologies, while maintaining our cost discipline and ensuring we deliver the savings from restructuring projects funded over the past few years. We’re in the midst now of our strategic planning reviews of each of the three segments, and we’re excited about each business’s innovation pipeline and growth opportunities. Over the next planning period, you can expect us to build on our track record of outperformance through the consistent execution you come to expect from Honeywell. We continue to enhance our focus on each of the 74 HOS Gold Enterprises, which we believe will make us more entrepreneurial and nimble versus our competitors by identifying breakthrough strategies and moves into smart new areas and adjacencies. I look forward to sharing more with you, of course, as the year unfolds. So with that, I’ll turn it over to Tom.

Thanks, Dave, and good morning. I’m on Slide 4, which shows the second quarter results. Sales of $9.8 billion were up 3% on a core organic basis, each of our segments met or exceeded the top-line guidance we provided in April, led by our Commercial Aero – the commercial and industrial businesses within ACS, and Advanced Materials. I’ll talk about each of these more on the business slides. We’re encouraged by the acceleration from Q1 and the momentum we have exiting the second quarter bodes well for the second half. As Dave mentioned, the Friction Materials divestiture, foreign currency, and the raw materials pricing in Resins & Chemicals, all resulted in the reported sales decline this quarter. Segment margin expanded 170 basis points to 18.4%, that’s 20 basis points above the high end of our guidance. Each segment is contributing to the impressive profit growth and margin expansion this quarter, and good volume and strong operations are playing a big part. On the volume side, our continued investments for growth in sales, marketing, and new product development drove higher volumes in the quarter. On the operating side, we continue to drive improvement in our gross margin rates and continued moderation of our G&A rates through HOS Gold deployment, and our focus on commercial excellence, new product development, functional transformation and strong cost controls. Items below segment profit were favorable on a year-over-year basis as we had anticipated. Higher pension income was largely offset by additional restructuring. New restructuring projects funded this quarter were approximately $39 million, building on our over $300 million plus pipeline as of the end of Q2, which positions us well for continued margin expansion throughout our five-year plan. We delivered the high end of our EPS guidance range with earnings per share of $1.51, up 10% normalized to our expected full year tax rate of 26.5% in both periods, once again achieving double-digit earnings growth this quarter. Finally, free cash flow, $1.2 billion, 5% higher than 2014. Free cash flow conversion was 98%, and we expect to be in a net cash position of between $1 billion and $2 billion by the end of the year, with no significant M&A activity. Overall, we continue to generate strong results in a relatively slow growth environment.

Hi, good morning, guys.

Hey, Scott.

Hey, I’m going to say the usual congratulatory language, Dave, you’ve...

Well, thank you. It’s still nice to hear it, Scott.

Yes, I know it. Well, it’s good…

I know it kills you too.

It does. It does. Anyway, Dave, help us, I was going to ask about capital allocation, but I think that’d be a wasteful question at this point. Well, what are you seeing in the world, Dave? And the reason why I asked that question is, last quarter you had 2% core growth, I think it was this quarter 3% core growth, next quarter you’re kind of guiding to 3% to 4%. So you’ve been sequentially improving or at least talking about sequential improvement. But the world seems like it is almost going the other direction that sequentially and maybe degrading. Are you not seeing that or kind of help us understand how the macro lines up with the guidance?

Well, I wouldn't say, we’re seeing a boomlet, and that’s not what we try to convey, but all in all, I think starting off with what was generally a slow first quarter for everyone when it came to sales growth, things have in my view improved a bit since that time. And I’d say a lot of this is coming more under what we are able to control and what we are able to do, and we’re seeing better performances in our businesses being able to take advantage of the growth trends that do exist. I would also say Scott, we benefit some from this diversity of opportunity that you hear me talk about. So that, yeah, okay, we've got some oil and gas exposure, but we’re able to manage that, and it doesn’t have such a detrimental effect on our performance that we can’t manage above it. So I’d say it’s more a combination of things and saying that it’s slightly better than it was, but it’s still not a boomlet. Tom, I don’t know if there’s anything you want to add there.

No, I would agree with that. The only piece of color to maybe provide is that when you look at the month sequentially, April was definitely the lowest from a growth perspective, slightly better where – whereas the momentum picked up in May and June, and got us to that 3%.

Okay, that’s helpful. Guys, how do you think about the interplay between growth and margin? And what I mean is I mean, you’ve been crushing in on margins, core growth has really been in pretty much in line with the group now for most of the last couple of years, give or take a point. Is there – are there conversations you have internally around that going after margin might be hurting price in some – I’m sorry, might be hurting growth to some extent, or is that just not related at all?

Well, the two are interconnected, but I look at it differently. And if you go back to the beginning of my tenure here, I’ve always said growth and productivity go together that as you grow, you become more productive, because you have more volume leverage, you’re able to leverage your fixed cost better. By the same token the more productive you become, the more money that gives you to reinvest in the thing you’d like to do. And as you know, I’ve always been big on this concept of seed planting. And that was pretty costly in the early years, because we pretty much had an empty pipeline on everything whether it was high-growth regions, new products, new strategies or technologies, we really had to fill the pipeline, so margin expansion was a little more muted back then, because we had to fill the pipeline on everything, and it took us five or six years to do, which unfortunately took us right into the recession when, yes, we were benefiting from some of that, but it was just a hell of a lot less visible. Well, now that we’re able to get some of the sales growth that we do, we’re much better positioned to get that sales leverage as minimal as it might seem in today’s environment, we’re still able to get some leverage from that. And we’re able to, I’d say finally, start seeing the benefits of HOS and some of our other initiatives on the gross margin side. And that’s where we’re seeing the real leverage here. The two go together and I can promise you we’re certainly not under-investing whether you look at R&D or CapEx, or new product programs or commitment to Huey is certainly not a case under investment, because we want to make sure we make not just this quarter, but this same quarter three years from now and six years from now.

Makes sense, the track record is there. So thanks, guys, and good luck, and have a great rest of summer.

Yes, thanks. You too.

Thanks. Good morning, guys. Nice quarter.

Hey, Joe, thanks.

Good morning, Joe.

It’s nice to hear, it stated with no reluctance at all, Joe. Thank you. I’d like to go ahead.

Yes, we differ in that way. The first question I have is really around China, and you guys seem to still be doing incredibly well there growing at double-digit, and you’ve had some of your European peers come out and talk about the credit issues recently and peers are starting to intensify a little bit more around the region. I’m just wondering what you’re seeing specifically in a region whether trends deteriorated at all during the quarter?

Joe, good, I’ll take that one, Dave. The – yes, China was a very good story for us in most of the pockets. I mean, ACS as we said was near double-digit. Really the changes that we’ve made to connect all of those businesses in China, and get to Tier 2, Tier 3 cities and make investments to help all the businesses in portfolio, running it as one portfolio, really are having a huge impact. In fact, we expect that to continue. We expect very strong growth rates in Q3 and Q4. In fact, for China, some of our orders are actually – we use sales as a surrogate for orders. But in some cases we actually do have the orders and what we’re seeing really gives us good encouragement for the rest of the year in ACS. Aero was also strong. As you know, it’s mostly in spares and R&O business there in China for us right now, up mid-single digits and we do expect that to continue. TS is a little bit smaller. The commercial vehicles segment in TS was challenged. So we were down in China for Transportation Systems. And then when you look at PMT, some challenges, particularly with cyclicality in UOP, the cat shipments are quite lumpy and can be lumpy from year-over-year. In Q2, we had significant cat sales, so tough quarter from that perspective, but we see that improving as we go forward into Q3. So I think all of the businesses are expected to continue to grow and improve from Q2 to Q3, so we’re encouraged by what’s going on.

So if I could add to that, Joe, you’d have to say, overall, clearly the Chinese economy is straining a bit more than it has in the past. But that being said, it’s still pretty good and we see the oil and gas side, Tom’s point, but on balance between the growth that does exist there, plus our own strength as we develop more China-based products, I think puts us in a pretty good spot.

That’s helpful, guys. I guess, maybe following up on oil and gas, and specifically the margins this quarter, they were pretty phenomenal. And I’m just wondering if you can help parse out, the 330 basis points, you can clearly still expect oil and gas margins to continue to be good in 3Q, despite a deteriorating backdrop. And so just help us get a little bit more color into that?

Yes. As you know – thanks for pointing that out, Joe. PMT margins were up to 21.3% with their 18% last year, so really nice 330 basis points. We had great contributions from some volume in Advanced Materials that we talked about, very good productivity, strong cost controls, lower indirect expenses, but also at the same time, as Dave said, continuing the investments. So productivity was definitely a big driver. We’re also seeing good results in terms of the pricing. That seems to be holding up well. And as I said, there are some things that have driven that down a little bit. The catalyst comps year-over-year, little bit of a tougher story. And then, the overall volume declines that we mentioned in UOP and HPS will drag. So to summarize all of that, it’s good commercial excellence, good performance on the commercial side, tough from a volume perspective, but really nice work on productivity.

All right. Great, thanks, guys, will get back in queue.

Thanks.

All right, Dave, a very enthusiastic great quarter.

Thank you. I liked your appreciation.

Could you feel that coming through?

I liked it.

Okay. So, obviously, this full year plan pretty much intact, little bit high at the low-end – on the margin line. Just reading through the commentary, it feels like Commercial Aerospace is a little bit better in the plan; perhaps, PMT a little bit weaker. Is that a fair comment to pass it on?

Yes, it is. I don’t know that – I guess PMT might be a little weaker than what we thought because oil and gas had a slightly bigger impact than we thought at the beginning of the year, but still pretty much within the forecast. And I’m pretty sure – I think all three segments beat their sales numbers based on what we had committed anyway.

Yes, for the quarter.

Okay. So pretty much – the mix is pretty much as you expected, okay.

Yes.

That’s great. Then just switching to the Solstice backlog, $3.2 billion, that’s obviously a very impressive number given the size of that business right now. Do you have any – can you give us any sense on how that backlog is aging and how much of that backlog converts for the next couple of years?

Most of it is all forward. We’re not going to age the backlog, but I would say, it’s going to be a good contributor to us over the next two or three years, especially as you think about that PMT inflection that we talk about, it’s going to be driven by the UOP MTO stuff and the Fluorines capacity, both of which we’re investing in today.

Yes, okay. And then just the final one, I think Tom you mentioned 3Q to TS up low single-digits, and I think the expectation is that European volumes might pick up in 3Q. So I’m wondering, number one, do you see that coming through in Europe? And then secondly, are we seeing a big offset from the commercial weakness there?

Yes, I think in the second quarter, TS in Europe was, you’re right was pretty strong from an organic basis in the mid single-digits, as we said in line with overall TS, and we see that continuing for the third quarter. I mean, it’s a mix of some platforms expiring and new platforms coming on, and there are some offsets that that also come into play. The commercial vehicles overall for both in China and the U.S. as we talked about has been kind of one of the challenges we’re dealing with. But overall, Europe should be up mid-single digits or even higher for us in the third quarter for Transportation Systems.

Okay, that’s great. I’ll leave it there. Thanks a lot, guys.

See you, Steve.

Thanks, and good morning all.

Hi.

Hey, Dave, the only thing I can say is that the share price is thanks enough. So I’ll leave it there.

Well, we want to keep everybody comfortable, Steve.

It’s important Dave, we need these results. So let me just ask quickly on the quarter for Q3 guidance. It looks like, it’s up, I guess, 5% year-on-year, which implies the fourth quarter has got to be up like 15%. Maybe talk about the cadence there, and particularly within aerospace as you’ve got lower margin expansion on higher core growth than you did before. And is that just, even though, that’s a strong 80 basis points to 100 basis points number, is that just makes offset or what are the headwinds there?

Well, first of all, I don’t think the b-percents are quite as dramatic as you indicated. But I’ll turn it over to Tom.

Yes, I mean, we will have a strong – very strong fourth quarter. There are some nice inflections coming in PMT. As an example, we have, again, there’s some lumpiness in the gas business. But we think that in PMT, we’re going to see some nice growth coming through in those businesses in the fourth quarter. And overall it is our highest quarter from a volume perspective. So there’s – the base is really driven by what we see the visibility that we have to the sales pipeline.

And in the margin – the margins in Aero even though it’s 80 basis points to 100 basis points, again, the core growth is looking strong and you did more before, is that, what are the headwinds there?

Well, we get more comparability from an FX perspective and, of course, Friction Materials is in that – is in the business as well, so that the two of those temper the significance of the margin increase. So if you go back to that page, I think it was page five in our slide, you see the big impact from those three factors. Those tend to subside as we get further into the year, particularly the FX and the Friction Materials.

Friction Materials is mid-July last year.

Yes, but operationally, I mean, all the factors we talk about from an operational perspective should still hold in pretty firm.

And how is the cash flow progress in aero? Is that improving in, as you see that improving, Dave, you’ve talked about a lot of opportunity there going forward?

We’ll, the cash flow is still good. They just need to do a significantly better job on inventory than they have in the past...

Yes, okay. Okay. All right, and maybe...

...which would be upside.

And maybe just lastly on gross margin just a little bit bigger picture question. So this is the highest Q2 gross margin we’re obviously seeing in very, very, very long time. So as you see that crossing 30% now, Dave, from a pricing and business model perspective, do you think it can continue with that same pace, you think it can accelerate, decelerate, how are you thinking about that?

Oh, yeah, I think this is going to be an ongoing phenomenon for us. I’m not going to commit what it’s going to get to at some point. But, certainly, it’s going to be an important factor as we continue to grow our overall operating income percentage.

Right. Okay. All right, thanks.

See you, Steve.

Thank you. Good morning.

Hey, Jeff.

Dave, the 40th anniversary, Honeywell Users Group, did you guys print up some shirts like, give me a hug or something like that you could send around?

Only for you, Jeff.

Okay. I’ll be checking my mailbox. Hey, just a couple of things. Actually, first, thinking about business jet and strictly large cabin, there are some cracks showing up in what some of the OEs are saying, pressure from wealthy developing countries and the like, sounds like you’re pretty constructive on the back-half. But do you see any reduction in the order books going forward there?

Not for us. I would say, while they may be seeing some softness which will get reflected for us also. It’s going to be more than offset by all the gains we’ve had. So...

Both on the equipment side and on R&O, I mean, strong R&O performance as well in the BGA. And it looks like that will hold up for the rest of the year.

Okay. And then on gas processing getting firmer, is there – I guess, you pointed to emerging markets. Is there something really specific driving that? Is there some share gains or what’s actually the driver behind that?

Well, if you go back to the premise of the Thomas Russell acquisition that we did then, it was primarily a U.S. based business. We said at the time that our intent was to grow it more internationally, which it takes some time to make happen, but you’re starting to see the benefit of a lot of that from all the seed planting that we did over the last two or three years to make that happen. And that’s mostly the effects you’re getting.

And then, finally, maybe for Tom, I was just wondering on the hedges. Have you done anything new there, rolled it forward or are we kind of making the bet here, kind of this whole euro trade has played itself out and we’re going to – you’re going to let things roll off? What’s the thought process there?

Well, we’re not betting first of all, but we – what we told you at the end of the first quarter, we pretty much – it’s pretty much consistent with where we are right now. So you know the story on 2015, pretty much fully hedged for the rest of the year. 2016, we got the euro hedged probably about three-quarters of the exposure, and some selective hedging in some of the other currencies. We keep our eye on it. We talk about it every week and we’re all closely interested in seeing how that plays out.

What’s the exchange rate on the hedge for 2016?

As we said, for the euro it’s $1.10.

$1.10, okay, thank you very much.

See you, Jeff.

Hi, good morning.

Hi, Steve.

Congratulations on the use of the word deleterious. It’s a bit more, it sounds more like Harvard than UNH, but so – it’s a good work on that.

You have no idea of what UNH is capable of, Steve.

On PMT, the UOP business, Thomas Russell, how bad was it in the quarter? And do you think that there is enough out there that you can confidently say that you may be able to kind of fill this domestic hole and actually hold the business flat next year?

We’re still in the process of planning everything for 2016, but overall, I think Tom alluded to this earlier, is that we’ve got pretty good quote activity going in both, oil and gas, UOP, and process controls. So we’d like to think, now, that’s – quote activity is not synonymous with an order. But it’s certainly a nice, hopefully, leading indicator of where things could go. That being said, that’s too early to declare victory.

Yeah, I mean, sequentially we’re seeing improvement from first quarter, second quarter, and third quarter expectations on orders in the gas business, so – and there’s is a reasonable degree of visibility to some of the revenues that we expect to see in the second-half. So, as Dave said, we’re watching it closely, but there are some positive signs for that business.

Is there another part of PMT? Are there benefits from what’s going on in downstream margins globally? Or – it seems like a lot of this stuff is much more UOP-specific, so little bit tougher to call, by looking at just the macro. I mean, is that the right way to think about it? And, I guess, are you still in a growth mode again for UOP in 2016? I know you guys talked about that last quarter that you expected to grow in the 2016.

I guess, a couple of things that I mention is, one of the things we’ve said in the past is that you have to kind of break out that oil cycle between the exploration side that’s more price driven and the refining petrochemical side that’s going to be more driven by economic activity. And you’re seeing a bit of a drag on that second part, because of how people have reacted to the first part. But, overall, their margins as you know look pretty good. And we think over time that investment begins. When it comes to UOP, they still got the capacity expansion that’s coming and that stuff, we got to complete that plant on time, because we need to ship, and the projects are already being built. So I certainly feel more than okay about it.

And you still pretty – you still feel pretty confident with the fluorine stuff coming on with that revenue – incremental revenue chart you guys put up in March with I think it was like $1 billion in incremental revenue in 2017. Even with the oil and gas macro-headwinds out there that you are – there is kind of no changes to that view.

Yes.

Even better, I mean.

Even better with the Fluorine Products. And then one last question, any degree of evolution at all on the balance sheet? I mean, you guys are clearly executing well. So you don’t necessarily need to – there is really not a need for significant urgency around the balance sheet, but any of these properties that you covered loosening up at all with what’s clearly a more – a tougher micro-environment out there or no change?

Well, I would have to say, the strategy hasn’t changed. And like I’ve said with the retail store, you never know when these things are going to hit. You never know when the customer is going to walk in. So, we’re armed and ready.

Okay, but no big buyback near term?

Strategy, still the same.

Thank you very much. You called – Tom, you called this out a little bit, but maybe you could elaborate a bit. SG&A was down substantially, I think it fell from 13.4% to 12.7%. Can you elaborate on some of the causes, some of it maybe FX, but a bunch of it is probably process changes?

Yes. I think the, Steve, when you – the percentage that you’re mentioning...

I do not want to get confused. I do not want to get confused with Steve, please.

I’m sorry about that, Howard. So I think when you look at the percentage you’re talking about, since the FX is affecting sales more than it is the cost numbers, you do get a little bit of a margin impact, but for us the initiatives that we’ve got going on, the continued work that we’re doing in functional transformation, the continued work that we’re doing in managing the indirect cost of those groups and function spend, the e-auction process that we’re using. All the initiatives are really having a solid impact and they’re coming through, so there is not one thing in there, just continued sustained momentum that we got.

And then, you talked a lot about one of the things that makes a difference at Honeywell has been new products. And we can see it in Fluorines and we can see it in a few other places. Is there – do you have a metric that you look at in terms of new sales, new product sales as a comparison to a year ago?

Actually, Howard, I’ve always tried to stay away from that, because if you want a metric that can be easily gained internally and externally that’s it. I go more by are we growing faster than our competition. And when I see things like the Dassault cockpit, and what we’re able to do with fluorines, and what ACS has coming, and Huey bases that everybody is using for it; then I know it is happening.

I hear you. And then if I could just go back...

In other words, if you said, jeez, we want to see 50% of your sales coming from products introduced in the last three years. My guess is every company can generate that metric for you, regardless of how they’re performing.

You have a fair point. And then the last thing, I think a number of people before me have asked the same question in another way. It seems if in PMT the oil and gas expectations that had been laid out earlier have shifted to the right. Have you gone back in and examined exactly why or even have you kind of added some belt and suspenders to the process to make sure that, in fact, the second-half that that you’re looking for is going to play out the way you’d like?

We’re not counting on a huge second-half on oil and gas, it’s kind of static, maybe a little bit better, but we’re not counting on anything big.

I think, the – I think you’ll see an uptick in orders knock on wood for gas we’ve said, as well as for catalyst, but on balance, I don’t think, we’re expecting a major material change right now.

Thank you. Good morning, everyone. Thanks for fitting me in. Hey, Dave, I thought at some point you would have worked in a free-Brady into your remarks.

And I was expecting you to talk about the technical difficulty, Deane, so I guess we both were disappointed.

One of the bullish comments that you had was on non-res. So just maybe expand a bit on the dynamics in the market, it’s kind of the data points, it’s just part of the boomlet that you would expect to see in the second-half?

Yes, I’d say, it continues to get better as we’ve talked about in the past. And I don’t think you’re ever going to see a boom in non-res construction, largely, because there was never a real crash. It was kind of that slow in, slow out kind of thing that we talked about with the recession. I think as we’re going to continue to see on the residential side, my guess is, you’re going to continue to see that do better, because rents have been going up and that will spur more activity. But I think for non-res, that’s the right way to think about it, it’s kind of slow and steady.

Yes. That’s where we’ve seen our best growth in ACS, particularly on the industrial side, industrial piece of the non-res, but commercial buildings as well, trends are very good, the products that we sell into there and ECC, fire and safety or security, all of them are doing well.

Great. Thank you.

Okay. Operator?