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Executives

Patrick Fitzgerald – Director-Investor Relations

David N. Farr – Chairman and Chief Executive Officer

Frank J. Dellaquila – Executive Vice President and Chief Financial Officer

Charles A. Peters – Senior Executive Vice President

Analysts

Julian C. Mitchell – Credit Suisse

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Mike R. Wood – Macquarie Capital

Christopher Glynn – Oppenheimer & Co. Inc.

Jeff T. Sprague – Vertical Research Partners

John Inch – Deutsche Bank

Richard M. Kwas – Wells Fargo Securities

Deane Dray – Citi Investment Research

Shannon O'Callaghan – Nomura Securities International

Joshua C. Pokrzywinski – MKM Partners LLC

John Quealy – Canaccord Genuity

Scott R. Davis – Barclays Capital, Inc.

Emerson Electric Co. (EMR) F2Q13 Earnings Conference Call May 7, 2013 2:00 PM ET

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to Emerson’s Investor Conference Call. During today's presentation by Emerson management, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) As a reminder, this conference is being recorded today, May 7, 2013.

Emerson’s commentary and responses to your questions may contain forward-looking statements, including the company’s outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson’s most recent Annual Report on Form 10-K as filed with the SEC.

I would now like to turn the conference over to our host, Patrick Fitzgerald, Director of Investor Relations at Emerson. Please go ahead, sir.

Patrick Fitzgerald

Thank you, Angela. I’m joined today by David Farr, Chairman and Chief Executive Officer of Emerson; and Frank Dellaquila, Executive Vice President and Chief Financial Officer.

Today’s call will summarize Emerson’s second quarter 2013 results. A conference call slide presentation will accompany my comments and is available on Emerson’s website at emerson.com. A replay of this conference call and slide presentation will be available on the website after the call for the next three months.

I will start with the highlights of the quarter as shown on page 2 of the conference call slide presentation. Second quarter sales grew slightly to $6.0 billion, underlying sales increasing 2%. Results were mixed across end markets and geographies as slow global economic growth lowered confidence and suppress business investment especially in mature markets.

Gross margin expanded 30 basis points at 39.8% and EBIT margin of 14.9% improved 20 basis points led by 50 basis point of business segment margin expansion. Earnings per share of $0.77 increased 4% and free cash flow grew 18% to $477 million. Second quarter results reflected solid execution in a business environment struggling for certainty and momentum.

Next slide, P&L summary. Net sales of $5.960 billion grew 1% limited by macroeconomic sluggishness. Operating profit decreased 3%, as an increase in gross profit was offset by higher pension and stock compensation expense.

EBIT increased 2% with 20 basis points of margin expansion, up by lower restructuring and currency gains. Earnings per share grew 4% to $0.77 benefiting from 156 million of share repurchase in the quarter.

Next slide, sales by geography. Underlying sales in the U.S. grew 1%, Europe decreased 3%, Asia grew 2%, Latin America grew 8%, Canada was flat, and Middle East and Africa was up 19%. Total underlying sales increased 2%, currency translation and divestitures each deducted about 0.5%, hence the net sales increased 1%. Strong growth in emerging markets of 6% offset slow market conditions in mature markets.

Moving to slide 5, cash flow and balance sheet. Operating cash flow increased 6% and free cash flow grew 18%, reflecting strong year-to-date cash generation. Working capital as a percent of sales increased 50 basis points from prior year, but improved to 140 basis points sequentially after a slow start to the year.

Next slide, business segment earnings. Business segment margin improved 50 basis points, including a 30 basis point headwind from higher pension expense. Corporate expense increased $20 million primarily from the stock compensation program overlap. Pretax was up 2% and the tax rate received a small benefit from the R&D tax credit.

Moving to Slide 7, Process Management. Process Management net sales grew 8% and the underlying sales increased 9%, but the U.S. down 1%, Asia up 14%, Europe up 7%, Latin America up 13%, and Middle East and Africa up 36%. Solid investment continued in oil and gas, chemical and power end markets, and growth was led by the Systems and Solutions business. Underlying orders grew 3%, led by Asia up 16%. U.S. demand had slowed due to higher natural gas inventory and robust growth in the prior year.

Margin expanded 170 basis points benefiting from volume leverage, cost containment, and currency gains. Unfavorable mix remained a headwind due to lower maintenance investment in the U.S. The rate of growth is moderating, but should remain solid in the near-term supported by near record level backlog.

Next slide Industrial Automation. Industrial Automation net underlying sales decreased 6% with the U.S. down 1%, Asia down 3%, Europe down 15%, Latin America up 11%, and Middle East and Africa flat. Industrial goods market conditions remained weak especially in Europe with the power generating alternators business the most challenged.

Industrial motors and electrical drives demand remained soft as well. Growth was solid in the hermetic motors business driven by HVAC compressor demand. Margin contracted 140 basis points as volume deleverage more than offset cost containment programs. Non-recurring dumping duties received in the prior year resulted in a 30 basis point headwind as well. We expect weakness in global capital goods end markets to continue in the near-term.

Moving to Slide 9, Network Power. Network Power, net and underlying sales declined 4%, with the U.S. down 2%, Asia down 6%, Europe down 3%, Latin America up 8%, and Middle East and Africa down 10%. Weakness continued in global telecommunications and IT end markets.

Underlying sales in the Network Power Systems business declined slightly due to sluggish data center markets. Demand in Europe continues to be a headwind. Sales declined at a double-digit rate in the embedded computing and power business.

Margin declined 110 basis points as volume deleverage and other cost increases offset cost reduction programs. Data center and telecommunications infrastructure spending is expected to remain slow until macroeconomic growth accelerates.

Next Slide Climate Technologies. Climate Technologies’s net and underlying sales grew 7% with the U.S. up 8%, Asia up 4%, Europe up 8%, Latin America down 5%, and Middle East and Africa up 26%, both were strong in residential air conditioning markets with the U.S. up 23% due to data residential construction and favorable comparisons.

The commercial air conditioning and refrigeration businesses were soft, with transportation particularly weak. Comparisons eased in Europe as well. Margin expanded 50 basis points, as volume leverage and cost containment offset unfavorable mix from lower margin residential growth. Residential air conditioning markets are expected to moderate but grow steadily in the near-term, commercial and refrigeration demand is expected to remain slow.

Moving to Slide 11, commercial and residential solutions; commercial and residential solutions’ net sales declined 4% while underlying sales grew 2% as the Knaack business unit divestiture deducted 6%. The U.S. was up 5%, Asia declined 5%, Europe declined 3%, Latin America grew 3%, and the Middle East and Africa decreased 39%. U.S. residential markets continued to reflect steady demand. Growth in the residential storage business was particularly strong. Margin expanded 30 basis points benefiting from cost reductions and a divestiture mix impact. Modest growth is expected to continue in North America residential end markets in the near term.

Finally slide 12, 2013 outlook. After weaker than expected end market demand in February and March, April orders continued to trend downward with trailing three-month underlying orders expected to be negative 5% to 0%. Business confidence continues to deteriorate, and global economic growth lacks strength to drive an increase in business investments resulting in a productivity trap. We do not see an obvious catalyst to improve economic growth in the next six to nine months.

Based on current conditions, the revised 2013 outlook is as follows; reported underlying sales growth is now expected to be only 1.5% to 2.5%. EBIT and pretax margin are expected to be approximately equal to prior year, and earnings per share are expected to be $3.48 to $3.58, up 3% to 6% from prior year. An updated outlook by segment will be provided at the Electrical Products Group Conference on May 20, 2013.

With that, I’ll pass it over to David Farr.

David N. Farr

Thank you very much, Frank. Welcome everybody to the conference call. I appreciate you joining us. I also want to thank the tremendous support of all the OC members, the business leaders, and global presidents, and all the corporate key staff members as we drove through this first half and the second quarter.

Yes, we delivered growth of sales earnings and cash flow this quarter, but clearly not at the pace that we wanted to see as we left the quarter, in particular March. Late March and all throughout – late February and throughout March, we saw orders weaken, and now we’ve seen April orders in the last couple of days, and they have continued to weaken.

The second half of February and on, we’ve seen a significant change in the pace of business spending around the world. Yes, there are pockets of growth like U.S. residential, Middle East oil and gas, Latin America oil and gas, but other part of the world had clearly taken a step back and are waiting to see where they want to spend their money.

In April and in particularly in the last couple of days, we went out and really pushed hard to find out where things were coming and the orders came in worse than expected, and we quickly realized that based on March, based on April, and what we’re seeing with also the push out of improvements in gross fixed investment forecast in the most recent quarter and also the next quarter, we clearly see there’s going to be a slowdown on our sales, and potentially, actually a negative sales quarter here that we’re facing this quarter.

Over the last 30 to 60 days, this GFI slippage really has bothered me, given the words you keep hearing that things are getting better, and now all of a sudden you’re seeing businesses are holding back and are pushing out their spending. they’re spending money, but are being very cautious just like us. Our capital spending in the first half of the year is slower, just working on replacement, new products, and smaller increments of new capacity. As I referred to that productivity gap, basically our underlying sales growth right now is less than our productivity improvements, and hence we don’t have to spend nearly as much capital and I believe every business out there based on the levels of profitability and productivity are seeing the same thing, we’re not alone in that area.

Therefore, after seeing the March and the Q2 close results and now the weakest April orders and the GFI spending improvements being pushed out, we had to reset our earnings and sales expectations. Underlying sales now, we were talking about being in the 2% to 5% range, now we will be in the 1.5% to 2.5%. EBIT margin would be basically flat plus or minus a tenth. EPS will be in the $3.53 or going from $3.53 to $3.63, down to now $3.48, $3.58 basically our nickel off our forecast that we have presented in February.

It clearly is a step down in the pace of business. Still growing, still delivering profitability, but the activity level is significantly lower than you would expect just 60 days ago. Our asset management and cash flow remains extremely strong in the first half and we do anticipate record levels of operating cash flow and free cash flow. With our current capital allocation of about $1.2 billion going to dividends, about $0.5 billion into acquisitions, we now have increased our share repurchase into the 800 million to 900 million range, probably closer to 900 million this year for fiscal 2013.

Here is our intention to return a minimum of 60% of our operating cash flow to shareholders in 2013 given the slow growth environment and given that we do not see any significant acquisitions that we must accomplish this year. The same fundamental issues that we have been working on and discussing in February are still there.

So we are dealing with a much slower growth market. Europe has continued to weaken, more negative than before. We most likely will be – our sales will most likely best be flat and most likely slightly down. Brazil has weakened, but still growing and China has weakened but still growing. Again, we are seeing pockets of growth and what we are going through right now as we drive towards this 2% underlying sales growth, which is less than last year’s 2.6%, we are having to go and reallocate where we want to put our money for those growth programs and for the investments we want to see to drive the improving growth as we go out in the later years. We are driving record levels of profitability, EPS, and cash flow, but growth will be the big issue. We will continue to focus on improving Network Power and also to continue to free up resources for the rest of this year and set up and improve investment in other areas for future growth and improve our profitability as we go forward ending in 2013 going into 2014.

Net-net, second quarter was not nearly strong quarter as we wanted, but the first half came in almost exactly what we thought. The big issue for us right now is based on orders and based on the current expectations of the GFI in the next two quarters we cannot deliver the 2% to 5% underlying sales growth. Therefore we’re going to have to pull back our earnings per share growth and our second half will not be that pick – stronger pick up that we initially had forecasted.

Overall, it will be a good year, but the growth is going to be the key issue for all us in the business and we’re not seeing it right now. The consumer spending business has been very cautious. Our cost structure is in good shape. We are reallocating some of our cost reduction and restructuring efforts, but fundamentally we’re in good shape from a profitability standpoint, and we feel good about what’s going to happen here as we go forward though it’s going to be a lower growth.

I mentioned back in November that I actually did expect one negative growth or EPS growth this year, and I said most likely to be a third quarter, I believe it will be the third quarter. I believe that will be at best flat most, likely slightly down in sales based on the three months rolling underlying order pace, which will again be more negative when we get April numbers finalized and present them in the next couple of weeks.

And that will drive most likely the lower sales or flat sales, and because of a very, very difficult comparisons of profitability last year as we recovered from Thailand, the third quarter profitability is extremely tough hurdle, and I would say the most likely we will have a down third quarter earnings per share and then recovered as we go back in the fourth quarter. I said the same thing back in November and now that we are here in the order pace that’s what kind of happen as I look at this point in time.

So with that I want to again thank all the people around Emerson for the hard work they put into the first half. Clearly, growth is a big issue for us and we’re having to redirect our resources to deliver that growth and find that growth.

And with that, I’ll open the lines and take questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Julian Mitchell from Credit Suisse. Please go ahead.

Julian C. Mitchell – Credit Suisse

Hi, thank you.

David N. Farr

Hello.

Julian C. Mitchell – Credit Suisse

Hi. So firstly, I guess on the Network Power, you called out other costs being a drag on the earnings year-on-year in Q2, the decremental margins in Network Power has been pretty big sort of 40% or 50% for three quarters in a row now. Can you just talk a little bit about those other costs, what’s going on in the mix and if you think that we can get a year-on-year growth in EBIT in Network Power in any quarter this year?

David N. Farr

Yeah, I mean from our perspective as we look at it right now, if you look at this quarter in particular, we did have some very challenging mix from the Network Power systems business in particular as they looked at a slowdown here in projects in North America and a further deterioration in Europe. We have gone out and launched as this quarter finalized some new incremental restructuring efforts that will have an impact for us in the second half of this year that would drive an improvement in the second half profitability. But as I look at the basic Network Power systems business profitability, it will improve as it has historically in the third and fourth quarters and we’ll see a little bit of improvement in the sales as it historically has done, and that’s the way that seasonal business works, but we do expect continued improvement as the year goes on, and the restructuring has really been launched and that will help us in the fourth quarter.

Julian C. Mitchell – Credit Suisse

Got it, thanks. And then within the Climate Tech, you talked about some moderation maybe in some of the stronger markets recently like U.S. residential. Is that just in comparison to the 23% growth number you called out or are you saying there is a general kind of market slow down as well in HVAC there?

David N. Farr

From our perspective, right now what we’re seeing is, April is very cold and wet and so we’re seeing – we had a good three or four months in U.S. residential, and now a slowdown is occurring because of the weather more than anything else. So our customers are keeping their inventories very tight and they are driving back and forth based on the pace of what’s going on in the weather in the near-term and it’s not been very good. Overall, Climate Technologies has had a good couple months in orders and I now expect their orders to actually be negative as we get into this month and next month because of more of the weather related than anything else.

Julian C. Mitchell – Credit Suisse

Thanks. And just lastly, quickly on process, you have a – you pulled out the mix from U.S. aftermarket being weak. Is that something you think can come back, it just a short-term thing and as long as the facilities are running, aftermarket should snap back soon or there is no visibility really on when that could happen?

David N. Farr

Historically it does go in lumps and we had a very long and we -- it stayed up longer than I thought last year on the North America MRO. There was a lot of investments if you remember our process business last year was up well north of 20%. I would expect that we will start improving as the rest of this year, maybe not this quarter, but the next quarter, the fourth quarter and going into the next year as our customers digest what the money they – the capital they did bring in and putting in place, and so this is pretty normal. You had a surge, and then also may back off and they surge again. So I would expect probably another quarter of tougher comparisons in the OEM or the aftermarket and then maybe the fourth and first fiscal quarter next year getting better.

Julian C. Mitchell – Credit Suisse

Great. Thanks.

David N. Farr

You’re welcome.

Operator

Your next question comes from the line of Steven Winoker from Sanford Bernstein. Please go ahead.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Thanks, and good afternoon

David N. Farr

Good afternoon.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Dave, could I just make sure I understand also in terms of how you articulated the change over the last couple of weeks, the thing that really moved you to lower guidance relative to where you were a couple of weeks ago? Was it really the April -- just what you were seeing in April quarters?

David N. Farr

Yeah, I think there are two things that could cause me to change. I watched the close and seeing how things closed as we closed in early March. And then the April orders and the third thing, as I looked at the push out of the forecast by quarter, as we’re seeing the economics come in the last couple of weeks. What’s happening is they keep saying GFI around the world is going to improve. But they keep moving it a quarter. And so, I mean they did the same thing to us here in the second quarter, so there wasn’t any incremental improvement in actually the second quarter GFI that we look at, and there was going to be an improvement in the third quarter, last third quarter has now been pushed out again.

And they haven’t changed the year much, but they just keep pushing it. And therefore, the combination of those three things as I sat there after we put out our 8-K, did look at it. This thing has not been coming back, and then when orders came in, I said, it’s pretty clear to me that we have the next couple of months, the next couple of quarters could be challenging, and we better address these issues. That’s why.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Okay. And the second question is around the margin expansion on the volumes. So the reported number was 20 basis points. But then thinking about pension and the Industrial Automation issue and the stock comp and all of this, I mean what were you thinking, you achieved on kind of a more normalized basis in the quarter and what does that make us think going forward particularly as I recall, you’re talking about those price cost tailwinds that you currently have and used to have and the question whether those will continue. And how does that come out and how are you thinking about it?

David N. Farr

I don’t really -- Maybe Steve, I don’t go -- we don’t go normalizing taking stuff in and out, because what happens is things hit us from time-to-time. And so, we have to absorb that, and so I don’t look and say, hey, we really did five tenths improvement. But clearly, we had a little bit higher margin improvement, EBIT margin if you take those things out, but the way I look at it is, I’m trying to figure out how to improve my EBIT margin all in, and that’s the way I look at. So I don’t sit here and peel things back to make myself feel good about a higher margin. We firmly delivered to our shareholders, this EBIT margin for the quarter, and that’s how we look at it, 20 basis points improvement and that’s how we looked at it.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Okay.

David N. Farr

I mean, if I parse this thing, I can make myself feel real good all the time.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Okay. So how about the price cost side of it then?

David N. Farr

The freight cost right now, I mean the costs are coming down. There’s no doubt that the input commodities right now what we call our net material inflation has actually continued to get better for us or lower, so therefore the issues, the costs coming in or better. And therefore, the price environment for us at this point in time, you know the gap is okay, and I most likely will have a situation as the material stay down there, and I am going to have pricing will be tougher for us to get and to hold, because we expect the net material inflation to start getting higher as the year went on and now it’s starting to be more negative.

So (indiscernible) now as the year goes in the second half as people look at the pricing for some of the commodities. So right now, it’s okay, but I really deal with the more negative net material inflation than trying to hold back price than trying to deal with a higher inflation environment from our perspective right now. Does that make sense?

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Yeah, it does. And your typically lead time, when do you start seeing that material inflation steadying and the prices lead time or lag time, so that is -- usually you can hold it for a quarter or two or a couple of quarters?

David N. Farr

You are looking at one quarter typically.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Yeah.

David N. Farr

Some business it’s one quarter, some businesses it’s two quarters. So it’s on average let’s say three to four months.

Steven Winoker – Sanford C. Bernstein & Co., LLC.

Okay, great. I’ll hand it off. Thanks.

David N. Farr

Okay, thank you.

Operator

Your next question comes from the line of Mr. Mike Wood from Macquarie.

Mike R. Wood – Macquarie Capital

Hi, good afternoon.

David N. Farr

Good afternoon.

Mike R. Wood – Macquarie Capital

Can you talk about your China and other emerging market trends, the 6% growth that you reported there? Do you think about that as a function of the market growth or is this the investments that are leading the outperformance there and if you could just talk about the outlook for those markets?

David N. Farr

The emerging markets look pretty good to us right now. We continue to make investments. In the emerging markets, you can have a good quarter, bad quarter, and you move back and forth, it is a little bit more volatile, though I could say the same thing about Europe. But right now when we look at our emerging markets, we see China continue to grow. We’ll probably see China grow somewhere between 4% and 5% this year and across the board based on the markets we serve doing pretty well. So a little bit less I would have thought we were going to be more like 5% to 8%. But I think the underlying economic environment in China is a little bit weaker.

Southeast Asia continues to grow nicely for us, high single digits, a little bit weaker because obviously China impacts there a little bit. India is a marketplace that’s holding up, but I’m very nervous about it, but it’s still holding up for us as is the Middle East and Latin America. So overall, our emerging – I see pretty good growth in the emerging markets for the rest of this year. What we are concerned about is, obviously, now we’re going to have a negative out of Europe, which we thought maybe would get us to breakeven in sales growth, but it’s going to be negative and I expect the weaker U.S. marketplace. So the actual from my perspective right now based on the recovery in the U.S., which has been pushed out and muted a little bit, and then obviously Europe continues to weaken. So the emerging markets are going to do pretty well based on investments we’ve been making on the last couple of years.

Mike R. Wood – Macquarie Capital

Okay. And then you also mentioned the rationalization in embedded, is this just procedures you are going to before selling the business or is it something that you might decide to hold on to trying to improve the profile that embedded business?

David N. Farr

We’ve been – we started this process last year and as the market continues to hit, we thought the market will stabilize as we start our fiscal year, but that was a fake and is continuing to drop down as you see in the near-term in the embedded customer paid. So what we’ve continued to do is take our product lines and customers that this do not support what we can do the profitability and the cash flow needs that business. So we have continued to take out business and therefore hurt our sales that we think it just makes no sense long-term for this business. We’re making decisions in this business, there are right decisions for other [orders] or the future owners are going to be.

Mike R. Wood – Macquarie Capital

Okay. Thank you.

David N. Farr

You’re welcome.

Operator

And your next question comes from the line of Christopher Glynn from Oppenheimer. Please go ahead.

Christopher Glynn – Oppenheimer & Co. Inc.

Thanks. Good afternoon.

David N. Farr

Good afternoon, Chris.

Christopher Glynn – Oppenheimer & Co. Inc.

I have a bigger picture question stepping back on network power. If you look at the CAGR’s you’ve laid out in February for 2012 to 2015, you’d be backing into network power having the strongest performance in 2014 and 2015? And wondering just, if that remains reasonable or some of the data center growth drivers of the past have kind of played themselves out maybe take the cycle off?

David N. Farr

In the last (inaudible) our new forecasts are 2014 and 2015. But clearly, the spending need of this industry is still out there. I just think people being very cautious right now. I still believe that we will come back and it has – there is always – there is a lot of trends going on, but we try to take those in consideration both the positive and the negatives. So I haven’t really looked at 14 or 15, again in 60 days, but I, I mean, my feeling is that business will return to growth and as we get – as we move out of the embedded power computing business, we will some reasonable growth in the Network Power Systems business, so I still say we’d come back.

David N. Farr

Okay. I know you more position now as agnostic between transformer (inaudible) data centers?

Unidentified Company Representative

Oh, yeah, we’re – our transformers products out and has been now since six, seven months ago. So we’re in very good shape there now, and we have that capability around the world.

David N. Farr

Thank you.

Unidentified Company Representative

You’re welcome.

Operator

And your next question comes from the line of Jeff Sprague from Vertical Research Partners. Please go ahead.

Jeff T. Sprague – Vertical Research Partners

Thank you. Good afternoon, Dave.

David N. Farr

Good afternoon, Jeff.

Jeff T. Sprague – Vertical Research Partners

What you said about kind of your deal play folder and share repurchase kind of explicitly suggest deals are not a priority and that’s obviously not a new statement relative to what you said in the few months or so. But just stepping back and looking at the portfolio, I mean, there are somethings you maybe have to do, change the complexion of IA is probably kind of a biggest one. How should we think about how you address that if there’s urgency to do, are you going – there’s kind of a practical way you to get at that relative to what the targets might be?

David N. Farr

Yeah, I don’t think it changed – I think as we’ve said in the past, I mean, we continue to explore different ways, to try – to add to that space be it through ventures are going to acquisitions and – but at this point in time, it’s not my priority at all. My priority is to continue sale and finish the sale of the embedded power computing business. And then finish the stabilization of the Network Power Systems business and get return for my shareholders. So at this point in time, we are doing small pipeline acquisition, we’re continuing to work on those and we will continue to work on those. But those are primarily focused right now on our process management climate technology and that will be the focus for the next six to nine months. And as we generate the cash, we’re going to pass it back to the shareholders at this point in time. Our balance sheet is extremely strong and if one of the opportunities that we’ve discussed in IA comes forward, an opportunity comes up. I discussed it to the board a couple of times a year. We’ll move forward, but right now that’s not where we’re focusing on.

Jeff T. Sprague – Vertical Research Partners

And then just thinking about the share repurchase announcement than they have sold 70 million shares, call it roughly $4 billion, maybe more than that of today’s prices. You are doing 900 this year, should we assume this is kind of a four or five-year process then they get that much stock out or give them a (inaudible) have while we will be discussing that out.

David N. Farr

Right now from my perspective, it’s going to be a four or five-year process just like it took us almost five – not quite five years, the last time. I mean we did it five years ago, same thing. If we see – I will make one change in it. If we see that the market stays at moderate growth and we do not see the acquisition opportunities and we continue to generate the cash, then clearly we could look at taking that up a little higher and accelerating that. But this point in time, I still believe that you’re going to see some acceleration improving the underlying market growth and we will continue to push acquisitions and one of them will pop as they always do. So from our plan base we said, four or five years, it can be faster. But right now, it’s four or five years.

Jeff T. Sprague – Vertical Research Partners

All right. And then just one other final one if I could, so it sounds like there is a process backlog that’s still pretty strong. I guess near record means it’s down a little bit. But more importantly, what does kind of the margin mix look like coming out of backlog the next year or so between projects and after-market, I mean how should we think about margins?

David N. Farr

I mean the process margins right now are going to be – they’re going to be operating this year about the same level they operated last year. It’s not that much change. We have a quarter. the flow through this year – this quarter was not that exciting, but I mean, we had less North America. I mean, obviously, if you had a strong North America; you’d have a higher margin. but right now, I would say their margins for the year at the EBIT levels has been very close to what it was last year, probably up slightly and the backlog looks pretty good. The backlog actually, if you just look at our peer backlog was actually was flat with last year if you adjust for it, and so our backlog is versus last year, is down slightly, versus the first quarter, it’s up slightly. So we have the backlog right now, the question is executing it. And so from my perspective, our backlog did improve slightly in the second quarter across the board and it’s still a little bit down versus last year when we had, we’re observing that obviously the time and time across the whole company. So we have the backlog. my concern is this the last five or six weeks, this underlying order pace and it’s not just one if you look at the order line, order trend chart, all the businesses are trending downwards, and they have been quite significantly and so – and with the GFI moving out, it’s pretty clear to me in the near-term, we’re not going to overcome that, and it’s just the fundamental of what’s going on at this point in time.

Jeff T. Sprague – Vertical Research Partners

So it will be just like 2008 here?

Unidentified Company Representative

No, we’re not coming off that high level. No…

Jeff T. Sprague – Vertical Research Partners

Okay.

Unidentified Company Representative

I mean, there has been very little recovery in the market space, [Ben]. This is like, we get a couple of good months or maybe a couple of good quarters, and then things soften up again, so it’s a very tough world out there right now.

Jeff T. Sprague – Vertical Research Partners

Yeah.

Unidentified Company Representative

And what we’re trying to flex around our resources for growth and our restructuring base, what’s going on our capital at this, they are all – there’s a lot going on, lot of moving parts.

Jeff T. Sprague – Vertical Research Partners

Great. Thanks, good luck.

Unidentified Company Representative

You’re welcome.

Operator

Your next question comes from the line of Scott Davis from Barclays. Please go ahead.

David N. Farr

Hey, Scott. Scott, you are out there? We should (inaudible).

Operator

We’re going to go to the next question.

David N. Farr

Yeah, we’ll go.

Operator

…from John Inch from Deutsche Bank. Please go ahead.

John Inch – Deutsche Bank

Hey Dave good afternoon.

David N. Farr

Good afternoon. Thanks.

John Inch – Deutsche Bank

I’m wondering, how do you think you performed in the quarter versus your market that you serve? Are there areas where you think you did better and other where you think end markets – maybe performed a little faster than Emerson?

David N. Farr

My feeling is about a quarter; it’s very difficult. I feel like overall excluding and better power in computing, we did very well this quarter. I mean I know in climate, we did very well from a growth standpoint. I know the residential guys did very well this year. I know that on a global basis, the Network Power systems did very well and process obviously did I think that’s extremely well again this quarter. So I look those trends, I feel very good. And I look at more – I don’t count outperformance against anything in the sense – 12 month because in choir doesn’t make much difference. But overall, the underlying growth at 2% in total is pretty good given what we face in the macroeconomic downturn. So it’s not enough to drive, I would say incremental margins and incremental higher margin, incremental growth for us is bottom line because we’re running at high level of profitability right now. We are running at high levels of cash flow and we’re fighting, trying to find the pockets of growth, and as soon as you find one, you use another one. So overall I feel pretty good about it.

John Inch – Deutsche Bank

Go ahead sorry

David N. Farr

And the other big issue is our largest customer has been in a huge inventory reduction now for two quarter, Caterpillar. That’s taken a significant growth out and we understand. And we participate in that and we’re closely associate with them and we deal with that issue. But that’s hurt us a lot in that whole industrial segment because of what they’ve done with inventory. And that will come out and they’ve taken a lot of inventory out of that company in the last two quarters.

John Inch – Deutsche Bank

Will you mention order slowing since the end of February? And s you mentioned that it’s broad, meaning it’s touching all your segments. Is that – did you see kind of an accelerated pace of project activity being pushed to the right or was it…

Unidentified Company Representative

Not project, it’s more day-to-day.

John Inch – Deutsche Bank

Yeah.

Unidentified Company Representative

It started really, we started towards the end of February and really – so really hard in the second half of March and we see in throughout April. it’s not a project; the projects are moving pretty well as we anticipated, the project wins, the project order to close, the projects still. We see they haven’t changed. It’s the day-to-day spending that we’re seeing people being very cautious where if I’m going to add some kind of incremental capacity am I going to do this, I am going to do half of it, and I am going to slow it down. And it’s no different than way I’m acting (inaudible) Emerson right now to the honor.

John Inch – Deutsche Bank

Yeah. It makes sense. So what happened if we get to six to nine months out and the world hasn’t really changed from Emerson standpoint, would you consider, I mean, you guys have a lot more flexibilities on other companies right through balance sheet and so forth. Would you consider more of say broader action solution to try and (inaudible) things up, I could be say, a bigger restructuring action in Europe or something else or..

Unidentified Company Representative

I don't think so, I don’t – from a standpoint, picking thing, I am trying to go out and do so big acquisition, the answer is probably not. I don’t see (inaudible) I can figure out how to create value or two, from a restructuring standpoint, we have been restructuring quite heavily, do you know from 2008 or late 2008 until early this year and I think from my perspective, our cost structure is in very good shape. We’re running at very high levels of profitability right now. So the cost structure are repositioning around the world is very good. And so we’re going to be trying to mind the pockets of growth and try to get – how to get some growth. And I think that gains can be playing out here, it could play up for a couple of years, you’re right. If we see no fundamental improvement in demand or underlying growth, then we’re going to be looking for those pockets of growth out there.

John Inch – Deutsche Bank

That’s makes sense. And just lastly, how does your China business do sequentially? It looks, it’s not easier to compare year-over-year, but what happened to China as the quarter progressed?

David N. Farr

I think, I mean, they are going to look at the hard numbers. My gut tells me China did better in the second quarter.

John Inch – Deutsche Bank

Isn’t it?.

David N. Farr

Yeah, we did slightly better in the second quarter.

John Inch – Deutsche Bank

Okay. All right. Thank you.

Operator

Your next question comes from the line of Richard Kwas from Wells Fargo Securities. Please go ahead.

Richard M. Kwas – Wells Fargo Securities

Hi. Good afternoon, Dave.

David N. Farr

Good afternoon.

Richard M. Kwas – Wells Fargo Securities

Industrial automation, how are you thinking about the business? I know you took a fair amount of restructuring out, just from a margin standpoint, you’ve got the CAD issue right now, and that will play itself out. But when you start to see some growth, how do you think the leverage plays out there, it seems like it’s running pretty lean in your position for some pretty decent leverage once you see – start to see some growth?

David N. Farr

I mean, we saw – last year we leveraged as we came back – and I think that we will leverage right back up again. It’s a business that has a – from a restructuring standpoint we got a few things we’re doing this year, and they will be done, and so our cost structure is going to be really finely tuned. So I think from the standpoint, as we see caterpillar come back on, we would stay well, don’t get the inventory out and correct it, as we see some of the other industrial base tick back up. We’ll see that profit margin will pick back up again. I feel good about that. Our cost structure right now, I mean they are holding their deleverage pretty well right here with the cost structure they have. So I feel good about that, so we’ll come back up like we have historically.

Richard M. Kwas – Wells Fargo Securities

And then back on the M&A, you talked potentially about doing bolt-ons, $500 million or less, what’s your view on that now?

Unidentified Company Representative

Yeah, (Inaudible) I mean, I think, we took a deal to the board today for a little bit over $400 million bolt-on.

Richard M. Kwas – Wells Fargo Securities

Okay, so that’s still intact as you look out to next several months.

Unidentified Company Representative

Yeah, the number of ones, we’ve been working, we have a pool and we work a lot, a lot, a lot and in this environment right now, we’ve not been able to get a lot of – broken free, but we have double on the process, we have one in the Climate where we are working right now and nothing more else at this point in time. So from my perspective, we’re going to continue to try to find the bolt-ons, and in quarter we’re going to work them because that’s I think in the marketplace that will be the best chance to one to get unique technology, a new market space and have more value from our shareholders.

Richard M. Kwas – Wells Fargo Securities

Okay, and last one from me what’s the updated CapEx number for the year?

Unidentified Company Representative

Right now, we didn’t change it, it’s $700 million, but last year I think we did around $665 million, the $700 million, well, my directors asked me today, what do you think and I said it could be somewhere in between there.

Richard M. Kwas – Wells Fargo Securities

Okay.

Unidentified Company Representative

I mean, they are trying to make sure that I am not stripping our capital unnecessarily, so I – there is no reason. I think we’re – our plan is pretty well set, and my gut tells me it will be less than $700 million, it will be more than $665 million.

Richard M. Kwas – Wells Fargo Securities

Okay, gotcha. Thanks so much

Unidentified Company Representative

You’re welcome. Take care. Thanks

Operator

Your next question comes from the line of Deane Dray from Citi Research. Please go ahead.

Deane Dray – Citi Investment Research

Thank you. Good afternoon.

Unidentified Company Representative

Hey, Dean.

Deane Dray – Citi Investment Research

Hey, Dave, I was hoping when you talked about the color regarding April orders it was interesting you didn’t want to blame it on one geography and lot of people have been finger-pointing at Europe, but could you just give us a sense how the fall off in orders trended from the major geographies?

David N. Farr

I don’t have that detail, I mean, I’ll be very (inaudible) I don’t have that. I went out early and got them because first of all, I had a board meeting yesterday and today, and we also wanted to announce the earnings and – and start the quarter up for the year

Unidentified Company Representative

I mean, I can’t get – I know what it was like in March, but I can’t – I mean, it’s hard for me to say, I’ll have that by the time we get down in the EPG stock. Give me some more dates for that to come in. They won’t be coming here for –formally coming in for another two or three days. So I don’t have that.

Deane Dray – Citi Investment Research

Qualitatively does it feel like it’s broad based or is it more centered in Europe?

Unidentified Company Representative

I’d say what I would say based on what I saw in March I would say April is the same and it would be Europe, it would be some in the U.S. Industrials, I wouldn’t be surprised if I didn’t see some weakness in Latin America and Brazil. But I think China is okay. I think Southeast Asia is okay based on what I’m hearing from people. Frank Dellaquila and I came back from Europe and that’s not doing very well at all right now.

Deane Dray – Citi Investment Research

I just want to go back to your answer to Jeff’s question regarding whether it’s also line 2008 and I was thinking that it would be a question that was long lines of the pace of the deceleration, the types of orders that are falling off and said your comment was, were coming from that higher level. But maybe you just talk about how much it feels like 2008 or whether it doesn’t and it didn’t sound like CapEx projects we are getting pushed out a bit more of the short cycle. But just could you verify that?

Unidentified Company Representative

Yeah, I mean I look at 2008 we’d keep in mind 2008 we had a very strong economic environment coming out from ’07, ’08 and then just the bottom fell out from our perspective as you looked at that. This one here, we just started coming back up, the industrial business has just started coming back up since late 2012 as I look at the businesses and then it sort of came back up in a moderate level and they sort of flatten out and then they saw and they rolled.

Nothing I see or feel as you are going to have sharp, I don’t see a sharp drop off, I see it fighting at low levels of growth, and if you even look at the – indicators would tell you that you don’t see a lot of expenses, you’re going to be dissipating some negative growth and some positive growth, that’s what we’re seeing right now, but not a sudden drop off. I do not see their contraction. 2008, the market is constructed very rapidly as all of those rents geared about money. And so we all start spending so rapidly, I don’t see, that’s up to same thing right now, we’re being cautious, I’m still spending money, but I’m spending at a pace a lot less than we originally thought, it’s a different feel for us.

Deane Dray – Citi Investment Research

Okay, that’s really helpful. And just a last one from me maybe for Frank, is there a lot of the companies this quarter have been showing a bigger benefit from the R&D tax credit. But yours did not look as meaningful to preserve anything going on there?

David N. Farr

No.

Frank J. Dellaquila

No. Nothing, it’s just the usual. It’s just not as big for us as it is the sum.

David N. Farr

Yeah. Maybe we got a moderate pickup. we’ve probably get as much offshore as we did onshore, so it’s very moderate.

Deane Dray – Citi Investment Research

Okay. Thank you.

David N. Farr

Thank you.

Operator

Your next question comes from the line of Shannon O’Callaghan from Nomura Securities. Please go ahead.

Shannon O'Callaghan – Nomura Securities International

Good afternoon, guys.

David N. Farr

Good afternoon, Shannon.

Shannon O'Callaghan – Nomura Securities International

Hey, Dave, you mentioned freeing up resources to invest in other areas for future growth. I think, can you maybe fill that out a little bit in terms of what you mean by freeing up and what a kind of units, the priority areas to deploy?

David N. Farr

From my perspective is, if I see the market improvement delaying and say, in some of the industrial space or even certain pockets, the Climate space, Climate Technology space. We’re taking some of that money and redeploying it from some of that incremental growth programs back over to process or back in some of the emerging market space at this point in time. so the business leaders, we’ve set up that $45 million, $40 million of strategic money every year to begin the year. and then the business if there is an need with the OC members and Charlie, Frank, myself, Ed, and Craig, all will debate with the business there. And we reallocate, we’ll pick the money back out of one area and (inaudible) hey, we’re not going to spend nearly this year, things aren’t picking up, we should just hold off from that, and we’ll reallocate that back over maybe into some of the other emerging markets or some of the other technology play. So that is something we’ve learned how to do the last couple of years is this what I call the chart topper marketplace and we’re going through that right now as we get ready for the second half of this year and as we get ready for the beginning of next year. And then things – again will push the money back over, so that’s what we’re doing right now, Shannon, and that’s what I am talking about.

Shannon O'Callaghan – Nomura Securities International

So process and emerging markets are kind of the two big areas that you…

Unidentified Company Representative

I’d say this, the two guys right now getting it.

Shannon O'Callaghan – Nomura Securities International

Okay. And then I understand that productivity trap, but I guess, just from a macro standpoint, I mean, there has been so many things weighing our business confidence, what do you think the current priority is in terms of things that are really holding people back?

Unidentified Company Representative

In the U.S., it’s primarily the onslaught of regulations coming out, and things that we are all trying to digest both from I think from a customer standpoint and my standpoint and most likely the customer standpoint. In Europe, I think that the fact that money for the small medium sized businesses, which a lot of our customers, it’s still extremely hard to get and they are being very cautious at investing, so – because they can’t get the money from the bank, so that will be the European scenario.

China, I think the big issue is they have plenty of excess capacity and going back, Frank just point to me so there are two things that always are a little bit of a struggle on our customer base as to healthcare costs that are coming out. We know it’s already starting to hit us and so my customer base is right now (inaudible) they’re going to have to spend a lot more money there. And then finally, I think will be the tax policy. I think people are still been hoping that we get come kind of clarity and tax policy relative to where we invest and how we – maybe we can reallocate our cash flow around the world. But right now we’re getting no clarity on that. So I think businesses are going to be extremely tight with our money. And a lot of these businesses are going to expect – sending that money back to the shareholders and the balance sheets are getting stronger.

Shannon O'Callaghan – Nomura Securities International

Okay, great. Thanks, Dave.

David N. Farr

You’re welcome.

Operator

Your next question comes from the line of Mr. Josh Pokrzywinski from MKM Partners. Please go ahead.

Joshua C. Pokrzywinski – MKM Partners LLC

Hi, good afternoon.

David N. Farr

Good afternoon, Josh, is that what you said?

Joshua C. Pokrzywinski – MKM Partners LLC

Yes. Just a follow up on the process margin comment from earlier, I understand you said that for the year, you’d still expect to be up a little bit. How did – is that frame out in the second half? Obviously, the margin comps there are a little bit tougher and then if the top line of the story by the make up from Thailand as well?

David N. Farr

Yeah, even on a normal basis, as we look at our normal process trend line, they historically have higher sales in the second half. And so we expect that to happen even though – if you try to look at comps last year, (inaudible) on me in here. If you look at – cough it on me, if you look at the first half, the second half typically, we would see incrementally higher volume and then – and therefore we leverage it. So if you look at our first half EBIT, we ran 17.6, is this correct, Frank? 17.6 and then a 20 point quarter-to-quarter. And then – so we are going to be running in the low 20s, then a little bit higher 20s, mid 20 – towards the mid 20 by the fourth quarter. That’s just based on the normal volumes that we see in that business. So I don’t see any change there.

Joshua C. Pokrzywinski – MKM Partners LLC

Okay. So maybe flattish margins year-over-year in the second half?

David N. Farr

Oh, you’re looking at that? Okay. No, the third quarter margin in last year was phenomenally strong. We do not – I think you’re going to see more of the normal type of margin. Typically we see a slight margin improvement from second and third. And so, we did 20%, you are going to see, let’s say you’re going to be around 21% for the third quarter and then typically the volume picks -- we usually have a fourth quarter volume pick up. It happens initially in the fourth quarter. And then you see a couple of more points pick up. That’s what’s going to happen. Last year we had a huge pick up in the third quarter. That’s not going to happen this year.

Unidentified Company Representative

I’m sorry, I just explain to me, my fault.

Joshua C. Pokrzywinski – MKM Partners LLC

No, I completely understand. And then just a follow up on the HVAC up 23%., is there is any share gain in there. I think one of your quasi competitors in this space had had some business loss. I’m wondering, I wanted to see if that was our – or that plus 23 was just pure organic?

Unidentified Company Representative

There is real growth, let’s put that way. But I won’t comment on shares. But we did weld the quarter. Let’s put that way. I know people put that away. But I don’t comment on shares. But we did weld the quarter. Let’s put that way. I know that people are thinking we’re going out of business in our HVAC business in North America, but it’s not. So we did okay. Let’s put it that way.

Joshua C. Pokrzywinski – MKM Partners LLC

Fair enough. All right, thanks.

Operator

Your next question comes from the line of John Quealy from Canaccord Genuity. Please go ahead.

John Quealy – Canaccord Genuity

Hi, good afternoon. Thanks for taking the question.

Unidentified Company Representative

Thank you, John. Have I ever met you, John?

John Quealy – Canaccord Genuity

I don’t think so.

Unidentified Company Representative

Okay. Where do you reside?

John Quealy Canaccord Genuity

I reside in Boston.

Unidentified Company Representative

Good, they recently initiated out of there.

Unidentified Company Representative

Okay, so I’ve not met you. I look forward to meeting you.

John Quealy – Canaccord Genuity

Yeah, I look forward to meeting you.

Unidentified Company Representative

Sorry about the bad situation I have enough there. I hope your city recovers nicely.

John Quealy – Canaccord Genuity

Yeah, no. Thanks very much.

Unidentified Company Representative

Maybe the rest of (inaudible) again this year.

John Quealy – Canaccord Genuity

I’m not too sure about that, but. Process management, if I could in the back half when you’re looking in growth remaining stable. Can you break that down for us by end market specifically? Oil and gas, obviously we know the dynamics. But utilities especially, domestic, international have you seen any softness refer to lot of chatter out of Europe on utilities just shutting down, CapEx is in process. So can you break down a little bit for us?

Unidentified Company Representative

Actually utility business is doing pretty well. We’re not the major player in Europe. So we have two companies that are a little bit stronger than we are, and you could probably name who those two companies are in utility industry. We’re doing pretty well in Europe, but we’re not the major player. Our Asia business is extremely strong right now in China, we’re very strong in China and Korea. And we are – we have a very good presence in North America and we’re seeing pretty good pace of business in North America right now. So we have not seen any slow down and our utility business and the key markets we serve. So I expect to have a very good year in the utility markets and then when we saw that system, we get obviously the instrumentations goes and that control valves go along with that.

And oil and gas, we see that continue to grow. Right now, I think, I look at Latin America still do well this year, I still think that we’re going to see a very good business environment for Middle East and Africa, it’s been very good for us. I think the China has been continued to be very good for us in the second half of our book orders in China. We’re very strong in the first half. We had a good sales growth but I expect our China to be driven by our process business and Southeast Asia has done well. So, yeah, I think the actual two weeks is markets for us for process are going to be Canada and United States because we had such strong growth last year. (inaudible) some recovery in both Canada and United States, but I think you’re going to see our international business driving our process management in the second half of this year.

John Quealy – Canaccord Genuity

All right, thanks. And then follow-up, did you talk about x embedded what network power margins were or what we sort of calibrate them to be.

Unidentified Company Representative

We have not said that yet.

John Quealy – Canaccord Genuity

Are they the consistent with sort of the February update of what it would be if you strip that embedded?

Unidentified Company Representative

Yeah, yeah, that’s true.

John Quealy – Canaccord Genuity

Okay, thanks, guys. Okay

Unidentified Company Representative

Thanks, John.

Unidentified Company Representative

Hope to see you soon, John.

Operator

Your next question comes from the listen of Scott Davis from Barclay’s. Please go ahead

Scott R. Davis – Barclays Capital, Inc.

Hi, guys. Sorry, I messed up earlier.

Unidentified Company Representative

You didn’t mess up. I had to quicken the button, I probably cut – I have a button now.

Scott R. Davis – Barclays Capital, Inc.

I don’t really know how to use a phone yet, my fault.

Unidentified Company Representative

I do have that button here. So be careful.

Scott R. Davis – Barclays Capital, Inc.

I do wanted to just ask a couple of things, at the Investor Day, you talked a bit about receivables and having some concerns about days outstanding extending out, some of your customers taken their time to pay their bills, has that stabilized at all, Dave?

David N. Farr

It’s improved. The business leaders; Frank, Ed Monser, and Charlie Peters, all the guys, we’ve got a task force put on it and part of it is our own fault to be honest. With the mixed concern of projects and the paperwork that you have deal with projects, we created some of the problem and then some of it is just our customers using us as a bank, but our receivables actual, what we call past-due receivables have come down from their peak and we expect that to continue to come down. So it was part of our cash flow improvement from Q1 to Q2 and I think that will continue to be the focus for us in Q3. We reviewed in detail with the board today, and I have to say the guys I called out here are doing a great job and we had a call to action and they did it, and I feel very pleased with them.

Scott R. Davis – Barclays Capital, Inc.

Okay. That’s helpful. And then just as a follow-up, I mean, you had talked also at the Investor Day about competition in China in Climate and I think one of the comments made, off-line comments, which is that – it wasn’t clear how share shifts would move around in China, but your numbers were pretty good. So should we kind of then imply that you really extended out competition there and that you guys have won the battle if you will and it’s still stable…

Unidentified Company Representative

Well.

Scott R. Davis – Barclays Capital, Inc.

…or is there still some volatility there ahead?

Unidentified Company Representative

We did very well in the first six months this year. We have several new products out within the Asian marketplace both in variable speed and some of our new compressor, not, variable speeds and the fixed speeds stuff, so that’s helping us. So we actually – we did gain in China in the first six months. Relative to China, I never count my chickens or eggs until we got them into the oven, and so we’re going to keep working at that from a technology standpoint, we’ve got to stay ahead of this and make sure we do well. But we did well as you saw in the first six months. Purvis and his team did a great job there. And now in North America, we obviously had a very strong start, the inventories were low. We did pickup a couple of new accounts and we see some new technologies coming to play on the HVAC side. My concern right now is the weakness in transportation and in (inaudible) and then we are hoping to see that come back late this calendar year, which will help us get into 2015. But right now execution wise on the residential on a global basis, it was a very good six-month and now we got to keep it going.

Scott R. Davis – Barclays Capital, Inc.

Okay. And then last Dave, do you think we’ll expect or do you expect at least to have some finality through embedded in the next 60 days, 90 days or is it more a couple of quarters out?

David N. Farr

We wanted to drive this to be – to confirmation before this fiscal goes out. So yes, we are moving – that’s what we are moving, we’ll update the board that we will move in that leg. We want to bring this to finalization, so we can take our management time and address it somewhere else.

Scott R. Davis – Barclays Capital, Inc.

Okay, great. Thanks guys, I appreciate it…

David N. Farr

I will see you soon.

Operator

And our final question comes from the line of Alan (inaudible). Please go ahead.

Unidentified Analyst

Thanks for taking my call and question. You guys have been known to give aggressive guidance, would you consider the guidance you just gave out for the rest of the year gives the ability of your dog even jump over?

David N. Farr

I’ve gotten in a mode now as the first guy (inaudible) Dora. We tried to give guidance as Dora can jump over. And since a couple of years ago, when I – my dog got a little older, so we’ve tried to make sure we can get, we can jump over, yes.

Unidentified Analyst

Okay.

David N. Farr

I mean the key thing for us is, we’ve got to get some underlying growth grown again here in this probably marketplace, which I think it doubts as is a matter of getting it done.

Unidentified Analyst

Okay, thanks.

David N. Farr

You’re welcome, Alan. Take care.

Operator

Now I’ll hand it back over to the management.

David N. Farr

I appreciate everyone calling today, I appreciate the questions. and again, I’m sorry that we to revitalize or reset the guidance for the year for both sales, but we have to be realistic with what we’re seeing right now in the near-term and deal with that. but the company is running very well from an operational standpoint and cash standpoint, and marketing standpoint and we intend keep that going and give more money back to shareholders in the second half of this year. Thanks.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. please disconnect your lines.

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