Emerson Electric Co (NYSE:EMR) Q1 2015 Earnings Conference Call February 3, 2015 2:00 PM ET
Executives
Craig Rossman - Director, IR
David Farr - Chairman & CEO
Analysts
John Inch - Deutsche Bank
Scott Davis - Barclays
Julian Mitchell - Credit Suisse
Shannon O'Callaghan - UBS
Josh Pokrzywinski - Buckingham Research
Deane Dray - RBC Capital Markets
Jeff Sprague - Vertical Research
Nigel Coe - Morgan Stanley
Mike Wood - Macquarie
Mark Douglass - Longbow Research
Steve Winoker - Sanford Bernstein
Steve Tusa - JPMorgan
Joe Ritchie - Goldman Sachs
Andrew Obin - Bank of America Merrill Lynch
Jeremie Capron - CLSA
Rich Kwas - Wells Fargo Securities
Operator
Welcome to Emerson's Investor Conference Call. [Operator Instructions]. This conference is being recorded today, February 3, 2015. 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 your host, Craig Rossman, Director of Investor Relations at Emerson.
David Farr
Before Craig starts, this is David Farr. I just want to make sure that everyone realizes this is Craig's first day on the job here and first quarterly announcement. So go easy on him out there and just try not to get too upset and write nasty comments. You can pick on me. You can pick on Frank. But go easy on Craig and his first time. We'll get him next time. Craig, it's all yours and congratulations and welcome aboard.
Craig Rossman
All right. Thank you, David. Today's call will summarize Emerson's first quarter 2015 results. A conference call slide presentation will accompany my comments and is available on the 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 90 days. I will start with the highlights of the quarter, as shown on slide 2 of the presentation.
Net sales were unchanged at $5.6 billion with underlying sales up 6% in the quarter. Underlying sales increased in all business segments with Climate Technologies being the strongest, up 17%. The Americas exhibited strong growth in the quarter with mixed results in other regions. Emerging markets grew by 5%. Gross profit margin increased 90 basis points to 40.8%, while segment margins were up 60 basis points to 15%.
First quarter earnings per share were $0.75, representing a 15% increase over prior-year and a 4% increase above the consensus. Share repurchases accelerated to $518 million in the quarter and the previously announced divestiture of Power Transmission Solutions closed on January 30. The first quarter was a solid start to the year, despite an increasingly uncertain macroeconomic environment, due to a strong U.S. dollar, the significant decline in oil prices and the continued weakness in Europe.
Turn to slide 3 for the first quarter P&L summary. Net sales were flat to prior year while GP improved 90 basis points including the effect of portfolio repositioning and efficiency gains. EBIT increased 210 basis points which included favorable currency transactions of $19 million.
Turning to slide 4, underlying sales growth in the quarter was up 6%, offset by 3% declines from both currency translations and divestitures. The United States and Canada reflected strong market conditions, up 8% and 21%, respectively, while trends in other regions were mixed.
Turning to slide 5, business segment margin expansion was led by Climate Technologies and Process Management, while also including the effect of portfolio repositioning. Favorable comparisons in corporate expenses resulted in a $74 million decrease versus the prior year. Lower operating cash flow reflected primarily timing of working capital investment to aid underlying sales growth in the quarter. Trade working capital improved 50 basis points versus the prior year.
Turning to slide 6 for the Process Management segment results. Process Management underlying sales grew by 6% with a 3% reduction from currency translation, resulting in net sales growth of 3% in the quarter. Sales growth was strongest in North America, up 9%, led by downstream and MRO investment. Demand in Asia was mixed, up 1% with growth in India and China offset by weakness in Australia and Southeast Asia. Europe grew 4% as double-digit growth in emerging countries offset modest declines in mature markets. Latin America reflected robust growth with sales up 26% in the quarter.
Conditions in the Middle East/Africa were mixed with sales down 1%. Segment margins improved 40 basis points, reflecting favorable currency transactions. Order trends have remained solid and backlog is strong, despite an uncertain outlook in the process industry.
Turn to slide 7 for Industrial Automation segment results. Industrial Automation underlying sales grew by 4% in the quarter offset by a 4% reduction from currency translation, resulting in net sales that were flat to prior year. Strength in North America was reflected with sales up 13%. The increase was led by growth of over 20% in the HVAC-related hermetic motors business.
The electrical distribution and power transmission solutions businesses reported strong growth with the fluid automation business down modestly. The declines in power generating alternators and motors and drives businesses reflected continued economic weakness in Europe which was down 8%. Overall, Asia grew by 5%, benefiting from robust growth in Japan coupled with solid results in China.
Order rates in power generating alternators are expected to slow further as increased pressure from lower oil prices reduces spending in the upstream oil and gas market. We expect market conditions to remain mixed in the near term with favorable trends in North America and continued weakness in Europe.
Turning to slide 8 for Network Power segment results. Network Power underlying sales grew by 1% in the quarter, offset by a 3% reduction from currency translations and a 12% reduction from divestitures, resulting in net sales decrease of 14% versus the prior year. The data center business was up slightly, reflecting mixed market conditions with strong growth in Europe, benefiting from a hyperscale project in Sweden, while growth in North America was offset by Asia, Latin America and Middle East/Africa.
The telecommunications infrastructure business declined at a double-digit rate with growth in Asia offset by weakness in other regions. U.S. telecommunications customers have curtailed spending referencing uncertainty surrounding potential changes in federal regulations. The margin increase of 70 basis points reflects the impact of divestitures. Demand is expected to remain mixed in the near term with favorable data center market conditions and reduced levels of telecommunications investment.
Turn to slide 9 for Climate Technologies segment results. Climate Technologies underlying sales grew by 17% with a 2% reduction from currency translation. Net sales increased 15% as U.S. regulatory changes that went into effect on January 1 drove residential HVAC customers to build inventory ahead of the deadline. Commercial HVAC grew at an upper single-digit rate which was led by North America.
Global refrigeration had modest growth as strength in the U.S. and Asia was partially offset by a decrease in Europe. The demand for sensors and controls businesses was flat. Segment margins increased 40 basis points primarily from leverage on the increased sales volume. Second quarter order trends in the U.S. will be uncertain until customers consume inventory that was built in the current quarter. Market conditions are expected to remain favorable, driven by end user demand with continued momentum in North America and Asia.
Turn to slide 10 for the Commercial and Residential Solutions segment results. Commercial and Residential Solutions underlying sales grew by 4% with a 1% reduction from currency translation resulting in net sales growth of 3%. Market conditions were mixed with increased demand in the Americas and Middle East/Africa, while Asia and Europe were down. Increased sales were led by solid growth in professional tools with moderate increases in wet/dry vacuums and food waste disposer businesses.
The commercial and residential storage businesses decreased modestly. Segment margin remains strong at 21.5%, up 10 basis points versus the prior year. As we continue to assess our portfolio, we recently initiated the evaluation process of a potential divestiture of the Intermetro business. We expect favorable trends in the U.S. residential and commercial construction markets to continue in the near term.
Slide 11 contains our 2015 outlook and guidance. The current state of the global macroeconomic environment is mixed with favorable trends in North America contrasting weakness in Europe and other emerging markets. As we consider the outlook for 2015, we note three main concerns. First, the strength of the U.S. dollar which will continue to be a significant headwind. Second, the continued weakness in Europe which has not recovered from the global recession of 2008-2009, as well as weakness in other emerging markets. And third, the rapid and sustained decline in oil prices which will be primarily felt in the second half of our FY ‘15.
Given our concerns, we have decided to accelerate a restructuring to approximately $100 million which will allow for a selective repositioning of our cost structure. Based on these current business conditions, the following is expected in 2015; underlying sales growth of 3% to 5%, a net sales decline of negative 1% to negative 4% reflecting a 4% to 5% deduction from currency translation and a 2% deduction from divestitures.
Profitability is expected to continue to improve modestly from favorable mix and accelerated restructuring. The expected range of reported EPS is $4.50 to $4.60. This guidance includes a significant reduction from currency translation, an estimated divestiture gain of $0.75 per share and accelerated restructuring costs of $0.05 per share. Additional business segment guidance will be provided at our annual investor conference on February 19.
Now, I'll turn it over to Mr. David Farr.
David Farr
Thank you very much, Craig. Great job. Much smoother voice and delivery than Craig "who" Fitzgerald, who's, by the way, doing a great job in one of our process businesses now in Louisville and having a fun job back into operations. I'm sure he's enjoying that today. Again, I want to thank everybody for joining us. I appreciate your time. We had a very solid start to the new fiscal year with 6% underlying sales growth.
But as I say, the challenge is now beginning. With the dramatic drop-off in oil prices and the resulting capital spending which we'll talk about when we meet in later this month in February, continued weakness in Europe and their only address at this point in time is to weaken the currency relative to doing real structural reform.
The global weakening currencies in emerging markets as these currencies are trying to adjust to figure out how to get growth in a global slowdown. And clearly, a stronger dollar are going to hurt a lot of our exporting customers here in North America as they have problems competing around the world with a stronger dollar. Consequently, we decided to accelerate restructuring.
The world's clearly changing from the last conversation we had in November with a lot of moving dynamics, but fundamentally as we see it today, we see a much slower global growth and we're concerned that there's not a lot of momentum relative to turning that growth around potentially for a couple years. So we feel it's very appropriate to rebalance our SG&A headcount on a global basis.
We balance our global manufacturing and get our cost structure in-line with what we see as a slower marketplace and a changing marketplace as the whole world rebalances with the relative currency changes, the lower energy costs and the uncertainty relative to some of the major economies in the world, be it Europe, be it China, be it Brazil. We know how to do restructuring.
We had built in $50 million originally in our plan and we feel quite significantly upping this to include another at least $50 million, maybe a little bit more and to get on this right away, to help our second half of calendar year 2015 margins. Also, to help 2016 which is very important to get on with this and we're taking action today and we will continue to accelerate this.
From my perspective, we will continue to drive the necessary investments to accelerate our growth, to improve our growth. Growth will be still challenging, but we're going to grow. I still feel comfortable saying our underlying growth rate's going to be in the 3% to 5% range. Clearly, it's not as strong as we thought it was just six months ago with the global dynamics, but we still feel it's pretty solid.
We have a strong backlog. Our profitability is running at record levels. The restructuring's going to allow us to help us protect some of that profitability in the dynamic economies around the world. There are some pluses out there in the world that I think with lower energy prices, you're going to see some of the emerging markets accelerate growth late 2015 and going into 2016. In addition, a lot of these emerging markets have actually lowered their currency valuations to make themselves more competitive.
So repositioning right now makes a lot of sense because you're going to see some of these markets, the India, the China, other parts of the world where lower energy costs are going to help them be more competitive at the same time they have reduced their currency value which will give them the ability to be more competitive. As you know, we're extremely strong in emerging markets position today already from a manufacturing standpoint, a selling standpoint and our ability to compete.
So I feel it's very appropriate to take action and deal with the issues facing us right now and figure out how to drive growth, at the same time to protect our profitability in the uncertain world. We will have the benefit of lower commodities which helps us from a net material inflation standpoint in the near term. Potentially in [inaudible] that will start reversing as we'll start seeing other pricing pressures.
We have the benefit of some of our emerging market positions to be able to accelerate and be competitive on a global basis from an export standpoint and be in our strong position there. So a very strong position from which to protect our growth and protect our profitability.
From a cash flow standpoint, for the year, we're still looking at the range of $3.7 billion operating cash flow. This does not include the impact of a loss of cash and the divestiture of power transmission business which is done, also the tax impact of that which will have an impact on the cash flow on a reporting basis. Cash flow is generally going to be solid again this year. Capital spending is going to be around $800 million as we continue to invest in new products, as we continue to invest in our global footprint and make sure we stay competitive.
We'll get into the segments and what we see in each of the segments in our February meeting coming on February 19 in New York City, but from my perspective right now, we had a good start to the year.
We see some issues out there. We're dealing with these issues. We're accelerating restructuring. We're making sure our cost position stays at the right level and taking those actions allowing us to address some issues that had built up in the last several years and we're going to deal with those. At the same time, I feel we still have some strong underlying growth opportunities. We just have to be very nimble and very quick and figure out where those are and make sure we can see growing the company. The company is very strong at this point in time and we're going into the second quarter in a decent position, but the winds clearly have shifted and we'll talk a lot more about that on February 19.
I want to thank all the businesses out there for delivering a solid first quarter and I want to thank the businesses for taking very strong action so quickly on the restructuring which a lot of it is going to occur over the next two or three months which is very, very important, impacting 1000 SG&A people and impacting at least 1000 hourly people around the world.
So with that, open the line up to take questions and look forward to seeing everybody on February 19th in New York.
Question-and-Answer Session
Operator
[Operator Instructions]. We'll go first to John Inch with Deutsche Bank.
John Inch
Dave, could you dig in a little bit to China business trends? You guys are a pretty good read on a lot of those puts and takes in that market and the macro suggests slowing, certainly construction doesn't look great. You guys had a tough compare. Just what are you seeing and what's your outlook there?
David Farr
My expectation in China right now is that it will be slower in 2015 than it was in 2014. We had a very good year in 2014. Obviously, the underlying economics have weakened. China started out very slow. We did have some tough comparisons, but just the overall pace of business was more challenging. I do think that it's going to grow low single-digit.
I still believe that looking based on the order pace and based on the project list that we're seeing right now, but I do expect China to be weaker this year than last year and I believe the government is taking actions necessary to, again get their house in order and figure out how to keep that growth going and trying to continue to let air out of what I would call the bubble in certain sectors of the economy.
But overall, I just got back from meeting with my Asia people and they're pretty still positive about China. But my assessment is even though they would think that they're doing as well as last year, I think they're doing a little bit worse than last year, but still okay, still positive growth, still at the growth rate.
John Inch
Dave, a couple years ago I think you had called out a trend of Emerson pursuing more automation as part of your facilities in China. Where do you stand with respect to your operating footprint? Are you happy with the cost structure, where you're positioned there. Do you think there's a little more action you'd like to take just in light of the pending slightly softer outlook?
David Farr
Still on path, John to continue to rationalize our manufacturing footprint in China and I would say that part of the actions we're taking in this acceleration will be to continue to do more of that. So the automation part is continuing to happen across the businesses. I think we pretty much got that done. But right now, what I'm going through is a rationalization of the manufacturing footprint and do we need that capacity or not need that capacity? But you also have to take into consideration the renminbi right now is continuing to devalue again and so we have to watch that. But we're continuing to rationalize that and I would say that the footprint is still declining.
John Inch
Just lastly, the PTS gain, I think you said $520 million, I think previously we thought it was going to be about $1 billion. Was there something about the final closing that made that adjustment?
Craig Rossman
Pretax number John, the 520 is an after-tax number.
John Inch
Okay. So it was just pre versus post-tax.
David Farr
$1 billion gain. Pretax gain. You had the right number.
Operator
We'll go next to Scott Davis with Barclays.
Scott Davis
Dave, you made some pretty cautious comments regarding the macro, I think for somewhat obvious reasons, but your guidance still implies some acceleration year-over-year. You just came off a pretty good quarter. What is it that you're seeing out there that's changed and maybe it's the month of January that's caused some concern, but if you back out currency your orders have been pretty good. Just give us a little bit of color on why you've been more cautious, despite the fact the 3% to 5% core growth, if you take the midpoint, would still be your best year in three years.
David Farr
From my perspective Scott, the big issue right now would be what I'm seeing happening to our major oil and gas customers and they are definitely are starting to cut back and we're starting to see that. As you know we're very strong in that sector. We have good strength in North America and the North America guys are going to be cutting back with the price of oil where it is and the pressure point relative to the demand around the world.
I have a pretty good understanding of the process industry. My gut tells me right now that we're going to see a deceleration of orders and sales in the process business that could cause us problems in the second half of this year and also 2016, hence the need for acceleration. I'm being very cautious because I am nervous about that.
Scott Davis
How does -- I think upstream oil we all would -- I think most of us on the line here would agree is going to have some challenges. How does chemical play out as we get into the back half of the year and such? You're also very strong in that world as well and utility as well.
David Farr
Yes, I think that there is a lot of puts and takes with the lower price of oil and gas as you well know, as you were just saying there. Upstream is clearly going to be hurt. National oil companies will keep spending, going in my opinion, around the world. Downstream with the lower feedstock going in both the oil and the gas, will be helped. The question is how fast do they go make those investments?
The question is, I think it's going to be later maybe late 2015 on the calendar year basis, maybe early 2016 that we would see that type of acceleration. They have to go through the process. They have to think about the world and the rebalancing. They have to think about the world's demand. So I think there's going to be a lag to be honest, Scott. Based on what I've seen in the past when we've had this dramatic drop-off in the oil prices, you see a lag. I think there eventually will be a benefit and you're right, but I wouldn't be surprised if there is not a hole there for six or nine months or eight months for some of our businesses as the shift goes between downstream and upstream. We're strong in both bases. We're going to talk quite a bit about that, but clearly there is a hole opening up. No doubt about it. Hence, we're getting ready for it.
Operator
And we'll go next to Julian Mitchell with Credit Suisse.
Julian Mitchell
Just a question on the portfolio, you mentioned divestment sort of potentially underway in Commercial and Residential Solutions. It's sort of the fourth year now of maybe low, mid-single digit earnings growth. Does that make you want to accelerate portfolio change in divestments or does it make you want to kind of slow them down because you're not getting as much organic earnings growth as you may have expected a couple of years ago?
David Farr
From my perspective, we laid out a plan of what we want to undertake in the restructuring a couple years ago and we have a couple pieces left and they are businesses that don't fit us strategically and we're going to get that done.
One of them is we announced we're evaluating Intermetro right now and we will continue to look at acquisitions and when they come up and I think they will come up in this marketplace that potentially could get a little sloppy in late 2015, early 2016 from an acquisition. We're clearly looking for acquisitions, but we're also not going to go crazy. I understand that divesting has an impact on the company, but I'm also repositioning this company for the future. Sometimes transition takes time. The company's extremely healthy right now through this transition. We're investing. The quality of the earnings, the quality of the assets are very high.
I expect my shareholders to stay with us as we make this reposition and then we will continue to figure out how to accelerate our top line growth and earnings growth coming out of this. We know what it takes to grow this company.
Julian Mitchell
And then just on the currency hit to earnings, wonder if you could quantify that at all for this year or say what the hit was in Q1 to earnings from currency?
David Farr
So from the perspective of the way we look at currency, as we look at the way we're balanced around the world, both the inputs and outputs. If we lose $1 of sales, we lose about $0.15 of profits, 15%, and so if we lost 3 points of growth in the first quarter, you can calculate that and you can then calculate what that means on average, we lose about $0.15, $0.16 with the current structure and the current currency makeup.
So can tell you how much earnings we lost in the first quarter. Those things help us sometimes and hurt us sometimes and I'm a big believer in a strong dollar. Right now obviously, it's hurting us, but I'm a big believer in a strong dollar and our objective is to figure out how to grow this company and deal with the fact that we have a headwind, but who cares, we've got a headwind.
So from my perspective, we're going to deal with it. And so the same thing happens through the year. We just lost, as you know, we're going to lose probably 4 to 5 points of currency growth for the year. You can do the same calculation what that means in EPS.
Julian Mitchell
Very quickly, just a clarification on the -- you made some comments on pricing. Your gross margins have obviously been very, very strong Q1 and last fiscal year. Do you see any potential for that gross margin increase to kind of plateau out because pricing may get tougher?
David Farr
From our perspective right now, the comment I made is we look at the price cost and we're green. With the movement of commodities where they are right now, it's going to help us in the next couple quarters. I know that we will have pricing actions necessary over time and typically, what happens, pricing will catch up and so we'll lose some of that green.
But at this point in time, our ability to manage the price cost and stay slightly green or within that around zero has been very good and I don't see that changing here in the next couple years. Stability will come in commodities and we'll probably have to give some price back, but that pressure probably won't build into 2016, but I still believe that we can maintain our green capability.
We have the infrastructure and management team to be able to do that. So we clearly are mapping it out right now and we have a benefit going, but I also know that benefit will come against me at some point in time, too.
Operator
We'll go next to Shannon O'Callaghan with UBS.
Shannon O'Callaghan
Dave, you talk about increasing the restructuring, but you've also had the foot on the gas with some of these growth investments that you've been increasing recently. What happens to those in this sort of changed environment? Do you keep speeding on those or pull back on a few? Maybe a little color there.
David Farr
From our perspective, we're going through a quick evaluation of some of those growth investments based on the segments, based on what we see happening here in the next couple years. I would say there is going to be a fine tuning, but we're going to continue to invest and protect the key growth investments to drive that growth and re-evaluate our cost structure elsewhere and so we're going to do a balancing act here.
Clearly, one of the things we're going to look at is if we have a segment that's under a lot of pressure and downward trend line for the next couple years, we may pull back on that from a growth investment standpoint and not spend that money. But we're going to keep most of it going forward and rebalance cost structure elsewhere.
Shannon O'Callaghan
All right. In process, we've got kind of the end market look, upstream, downstream. As you look across the different product lines, the valves, devices, systems, is there any difference you expect or you're already seeing or that you expect to see in terms of what parts of that are going to hold up better than others?
David Farr
It's a little bit hard to tell right now. All I can tell you is, someone asked me the first question about why we have insight been in the business quite a bit. We have some segments in the process world that lead this change when the cycle changes and they've been changing now for 60 days and they've been changing the wrong way, down.
So I think that the early cycle parts are already starting to impact and we're seeing that and we're going to redirect our organization to figure out how to make sure we protect our MRO business, how to protect the small brownfield investments and I think that it's hard to say which one's going to do worse. All I can tell you right now is the leading places within the process world have already started turning and directly tell us that we're going to have a slowdown. It's coming.
Operator
We'll go next to Josh Pokrzywinski with Buckingham Research.
Josh Pokrzywinski
I guess first question on the backlog, how much visibility do you think you have? And then I guess in conversations with your customers, I think to follow-up on the question from last quarter, how long before they start thinking about cancellations in addition to incoming order weakness?
David Farr
Right now, the backlog is holding. As you know, we reprice our backlog every month with the currency and so when you see our orders turn down, a lot of times when the currency impacts those orders down and up and so right now, we're repricing, but the backlog's sitting at higher levels than it was this year last time. Right now, it's at $6.8 billion and so we have not seen any pushback on the backlog.
I think what's going to happen is you're going to see a push out in maybe some of the execution of them. If the project's been awarded and they're procuring materials, there is a lot of cancellation impact there. I think you're going to see a rebalancing from a customer perspective. What's going on right now is they're evaluating where they want to spend their money which projects they want to go forward which projects they want to slow down which projects they only want to do half of. This is going to take time, but it's pretty clear to me, based on the grinding we're seeing at the customer level and the feedback we're getting and also the early indications that there is going to be a slowdown and a push out.
As I said earlier, there is going to be some holes emerging in the process order and sales book and our objective is to figure out how to gain penetration around the world to try to protect our growth. But I know it's going to slow down and be slower and we're going to have some quarters that potentially go negative in the process world. So it's pretty clear what's happening. It will take about six months to unfold and our customer base is clearly working it right now. Most importantly for us is we're getting ready. We're redirecting our organization around the world where we think we need to go to make sure we can maximize our growth potential in the marketplace.
Josh Pokrzywinski
To think about the magnitude of that, I understand it's early, there's a lot of balls up in the air, still not all determined yet, but presumably in your career, you've seen big CapEx downturns by some of your larger customers. Do you find yourself moving at a fraction of that or a multiple of that or kind of on a one to one basis? If you had an E&P CapEx by 20%, do you guys feel it dollar for dollar or maybe less so?
David Farr
It's not dollar for dollar. We're going to take you through, I've asked Steve Sonnenberg to take you through the mix of our business in February, how it mixes out, how we see if capital spending goes down in oil by 15%, what does that mean to us relative to -- we'll go through the details and calculations for you on that. But it's not dollar per dollar. Our current indication right now, based on inputs, is we're going to see the marketplace globally, the market globally is going to be negative. I think in the process world for the next 12 months.
What we've been able to do historically, is we've been able to outperform the market, but we clearly see with the take back, the cut down of certain spending that the marketplace, what we call the process world is definitely going to go negative. The game plan for us right now is how to have growth in a marketplace that's going to be negative for 12 or 18 months coming at us here in the very near future. That's the game plan.
Josh Pokrzywinski
If I could sneak in a non-oil question which I'm sure you're longing for.
David Farr
I like oil. I love oil.
Josh Pokrzywinski
I'll sell some to you at a discount. On the HVAC business, I guess the climate side, related in IA, are you guys able to quantify what the benefit was from pre-buy and how we should think about that versus 2Q and 3Q?
David Farr
The market has talked about 1 million units being pulled up. 1 million units. I can't remember off the top of my head, but it's pretty significant. I couldn't tell you, if you go out I'm sure it's out there, they can tell you who it is and you can go out and find out how many units are out there. One million units were pulled up and clearly that is not for one quarter. That's a pull ahead, they have 18 months to use that buildup.
So the way I look at it right now as we put in the press release, we won't get a feel for this until March, April, what units are being sold and what other type of market dynamics we have out there. We're going to see pretty sloppy North America order pace for climate for the next three, four months. I'm of the opinion that it is going to bounce back and we're going to see a recovery there and we'll get back to some normality. Clearly, that inventory build is not for one quarter. It was meant to be for 18 months and we'll see what happens there.
Operator
We'll go next to Deane Dray with RBC Capital Markets.
Deane Dray
On slide 3, I may have missed this, the favorable currency transaction at $19 million, was that a year-over-year or was that a comp? What was the factor there?
Craig Rossman
Yes, so that's the year-over-year.
Deane Dray
Was the impact a year ago? What would have been -- I'm not used to seeing anything currency being favorable in this environment.
David Farr
This is a cost -- this is different type of --
Craig Rossman
In transactional currency, we have the number of contracts, long-term contracts mainly in process that get marked to market for currency. Given that they're heavily into some currencies that are depreciating where we have strong currency contracts, those get marked to market. It's called embedded derivatives. We had a big pickup there in embedded derivatives in the quarter and you're right, it is unusual to see it go in that direction.
David Farr
What will happen is that will zero out over a time period, typically within 12, 18 months it will zero out. One quarter, you'll get it. Next quarter, you lose it. It will zero out. That's why say flag it, so you see it because we know we're not going to keep that forever.
Deane Dray
Now, in the comment on slide 5 regarding higher working capital needs, so with the expectation of some of the softening maybe you can just point to which business specifically you'd see the higher working capital.
David Farr
That was for the quarter because we had underlying growth of 6% and so one of the things we saw was a little bit of higher working capital. As our underlying growth comes down, we'll start taking capital off the balance sheet. So that's not unusual for us to go up and down in a quarter, but that's what he's referring to. He's referring to higher underlying growth rate in the first quarter. That 6% level we actually built a little bit of working capital typically. Even though we had good conversion, it still went up dollar-wise and hurt us in the quarter, that's all it was.
Deane Dray
Just last question, I don't want to front run too much of your Analyst Day.
David Farr
I'm working on that, I'm really starting to get it fine-tuned here. I don't want to give all the facts to you, yet.
Deane Dray
Not looking for facts, but just in terms of thematically, it sounds like you'll give us more color on the oil exposure. Is there anything else thematically you might be touching on?
David Farr
I think we’re going to break up in the process side. We're going to try to figure out if as I said, the market's going to be negative for a period here for 12 or 18 months, how we're going to grow and we're going to talk a little about that. It'll be a big issue there. We'll get into a little bit -- I've asked Ed Monser to talk about international. I think there's going to be a period here now with the currencies reshuffling out there.
You see a lot of currencies, international currencies, devaluing and there is going to be a changing mix right now relative to what's competitive out there in the marketplace and you're going to start moving production around the world. We're going to talk a little about that and how we're positioned and where you see the pockets of growth. I think we're going to give you a little bit of insight there.
And then I'm going to have Charlie talk a little about Internet of Things and where we continue to invest to change our business models that will evolve over time. In this industry, it's a very slow process, but we're going to have Charlie talk about that. We've got some fun things to talk about. We're making investments. We're going to figure out how to grow this company. We've got some good things to talk about.
Operator
We'll go next to Jeff Sprague with Vertical Research.
Jeff Sprague
So just back to process, I think someone, perhaps Shannon, was trying to get at this a little bit, but I'm just trying to understand kind of the mix effects in the business. And in particular I believe, although I'm not 100% correct, that kind of the strength in North America oil and gas has been very, very mix positive for you. Maybe in general, things have been mix positive because the big projects have kind of been looming but not really kicking into gear. Is that right? Should we be thinking about a kind of meaningful mix down as we roll forward here the next, I don't know 3, 4, 5 quarters?
David Farr
You're exactly right. We're very strong in North America, we're very strong in oil and gas and we've had a good run in North America. Our North America percent of sales for process has gone up the last couple years because of the oil and gas investments. Clearly, one of the things we're dealing with right now on restructuring and the process guys will be restructuring is how to protect our profitability with the changing mix.
Steve's going to go through that with you relative to what we see happening. But clearly, things are going to go on in North America on a negative side, but also things on the positive side. If we have less oil and gas investment in North America, we think, at the appropriate time, you're going to see improvement in downstream investments which are also very good for us in North America.
The problem is not going to be synced up properly. You're going to see a slowdown in the oil and gas upfront. We're not going to see a pickup in the downstream later on. We have to figure out how to get our cost structure in-line, protect our profitability and process with the changing mix. That is, hence, one of the aggressiveness we're trying to take right now from a restructuring standpoint because we've had a benefit in this the last couple years. You're exactly right.
Jeff Sprague
That strength you saw in Latin America and Canada, is that all oil patch related too or is there a little bit of diversity in that strength?
David Farr
In Canada, it's primarily oil and gas. The key issue for us is, I think Canada's not going to back off as much as people think on spending in protecting their oil and gas. They need that income. I think we had a very good quarter. I still think it will weaken but I don't think -- we'll see how much those oil companies protect Canada up there. Right now, we're still expecting Canada to have some growth this year. We had a very good Mexico and the investments have continued in Mexico, primarily not in the oil and gas, but other areas of Mexico and the wild card for us does Mexico hold up for us in 2015? But we had a he very good start in Latin America and that's helped us quite a bit. I think people are probably surprised at how good our process business was in the first quarter and our backlog, by the way, did not really drop in process in the first quarter. So we shift what we knew business. We had a very good first quarter.
Jeff Sprague
Just one quick one, if I could. On climate, the margins are not as high as I would have guessed given the volume surge. Did that pre-buy or prebuild cause you a lot of inefficiencies in overtime and the like? Any color there?
David Farr
No, it didn't cause us a problem there. The issue is just a mix business within the type of pre-buy, the type of product that our customers were buying would be at the lower end of our mix and so, therefore we didn't get as much flow-through in the profitability. We still made decent money because we did get some profit improvement, but you're right it was not what I would call in the sweet spot of our compressor type of business.
Operator
And we'll go next to Nigel Coe with Morgan Stanley.
Nigel Coe
Dave, so the $50 million serve up in restructuring, it sounds like process is going to account for the bulk of that. Is that the right way to think about it?
David Farr
No, we're going across the whole company. I'm particularly looking at Europe which will mean I might be hitting network power. I'm going to be hitting industrial automation, I'm going to be hitting process. I'm going to be looking at -- I'm a little bit nervous about Europe. I think Europe had some fundamental cost issues. I don't think those governments are really dealing with it. Devaluing the currency is not going to help them as much in a real cost structure standpoint. They have a lot of inefficiencies there. The fact they're not getting growth is a concern for me. So you're going to see us take some across the board, but it's going to be across all businesses, process and network power will be the two biggest and industrial automation will be the third.
Nigel Coe
Which leads on to [inaudible] power because if we adjust the prior year for [inaudible], then margins are still down year-over-year. I'm wondering obviously your restructuring, additional restructuring will help in the back half of the year, but what is your line of sight in terms of mix or other factors to drive margins back into expansion?
David Farr
There are two issues. There is restructuring from the cost standpoint. We have the new products out. We're selling the new products. The key issue for me right now is continuing to right-size and readjust that organization for the new business model, the new marketplace and that will continue to happen throughout this year and then continue to work on the cost structure of the new products and the new organization relative to deliver that business.
So we're going through a process right now. We're going to have to sort of rebase that whole business. We've got the ability. We've got the products. The question is how do we change that cost structure to get the levels of profitability and I want -- Scott Barber's going to talk about that in New York. That's the key issue for me going forward is we know where this marketplace has gone, we have the capability for dealing with it now, how do we make acceptable profitability?
Nigel Coe
A quick one, Dave on Russia. Sounds like Russia was still up for you in process which is remarkable given all the news flow in Russia. Is that correct? Maybe just a bit of color in terms of what you're seeing over there.
David Farr
Russia was still good for us. Now, we got hit pretty hard with the ruble. But we have a very strong local manufacturing capability and service capability in Russia and given the fact that we have this local capability, it's given us a pretty good competitive advantage.
So we're seeing the company still spending money and so our business in Russia has held up and we had a decent quarter. The question, will that continue to be able to do that from the standpoint of where can they come up with the money? But right now, we had a very good start to the year and we see our customers' spending money.
Operator
We'll go next to Mike Wood with Macquarie.
Mike Wood
Given how many questions we're getting from investors on process, can you just give us a sense of what declines you're expecting particularly in the upstream business and how you're thinking about it from a sensitivity standpoint versus even periods like 2009 when you saw pretty significant declines in that business?
David Farr
I would rather wait on the 19th to talk about that. I think you're going to -- I'll give you an idea. Right now, we're looking at the market declines because of what we see out there probably in the 2% to 3% range, overall total process market declines about 2% to 3% which is a little bit less than the last one with the shifting going on relative to some of the downstream investments and other investments going on around the world.
That's where we see. We'll talk more about that. But overall, the oil and gas number obviously is going to be a lot bigger decline and we'll talk about that, but I think the market overall is going to be down 2%, 3%.
Mike Wood
I'll wait to hear more on that, then. Just regards to your balance sheet, how are you thinking about where your leverage is now? Why not take a more aggressive balance sheet stance through buybacks or more aggressive, larger M&A given just the share performance over the past few years?
David Farr
Clearly, not happy about the share performance in the last couple of years. From my perspective right now, we're going to buy back at a minimum, $2 billion worth of stock this year. We're also trying to keep our balance sheet ready if the right opportunity comes along from an acquisition standpoint, but we have not seen that opportunity at this point in time that makes sense to create value. We're keeping that balance sheet and if necessary we'll continue to increase share repurchase at the right -- appropriate time. But I don't see us changing the leverage on our company at this point, because I would like to make sure that we have the ability to do a significant acquisition if the right one comes along.
Mike Wood
And then just finally, can you give us any more color on the Intermetro size of the business?
David Farr
It's a little too early to talk about that, but it's more than $200 million.
Operator
We'll go next to Mark Douglass with Longbow Research.
Mark Douglass
Dave, can you talk about some more of the challenges in China? For you, are they more general economy specific to certain market exposures? Frankly which segment has the most China exposure?
David Farr
We're pretty strong in China on all segments but clearly process, network power, climate and then industrial. Network Power is number one, then Process is number two, Climate's number three and Industrial's number four, off the top of my head. I think it's market. There is a general slowdown as they look at where they want investments to happen.
We had a very good period last year across the board and I think right now, what we're seeing at the highest level in China is sort of re-evaluation of where money's going to be spent and how they're going to fund it. So what we're expecting is a step back up as you get into the springtime in China and so we'll get a better feel. Right now, we're still pretty optimistic based on the type of transaction and bidding going on that we're going to see growth this year, but albeit I think it will be a little lesser growth. It's all about where money's being spent and not being spent right now. That's what it is.
Mark Douglass
Okay. And then on Network Power, the big project in Sweden, how much did it help you in the quarter? Is there still some leftover, still over into say the second quarter? Does this imply maybe that Network Power is flat to even maybe down underlying by the time we get to the back half of the year?
David Farr
The product is going to spread out over the year. Actually, some of the project might go into next year. I think from our perspective, the project's spread out and the key issue for us is we've got the capability to win. The question is how do we change that cost structure to win the type in the marketplace we see today. That's what Scott Barber and his team is all focused on at this point in time. We know how to sell. We know how to make money. The question is how to make acceptable levels of profitability. That's why we have them take a hard look at the restructuring. Given the products, given what we need, let's deal with this issue now and get on with it.
Operator
We'll go next to Steve Winoker with Stanford Bernstein.
Steve Winoker
Listen, on the slide 11 when you talked about guidance, you talked about modest profitability improvement. We've talked around that a lot. But just the puts and takes, if restructuring sounds like $100 million or call it 180 basis points, I've got FX which sounded like you said 15%, so $25 million or $30 million. I've got price versus commodity which sounds still positive and then productivity and then you've got normal incremental leverage on the volume which is something like $67 million or so.
So I'm just trying to understand what am I missing or how are you guys thinking about the puts and takes? Frankly, what I really want to know is just what is the modest profitability improvement you're look for all-in, net?
David Farr
1/10th, 2/10th [ph], that will be the chart. With the puts and takes we've got going on right now, we're going to be fighting for profitability and that's the game plan.
Steve Winoker
Okay. And then secondly on restructuring, Dave, Emerson has done an extraordinary amount of restructuring and cost takeout for certainly, both before the downturn and through the downturn, up until now. I'm as big a believer in lean and benefits of cost takeout -- it never stops. That being said, it's a pretty decent size number we're looking at this year. How do you sort of think about muscle versus fat on this one and protecting the growth?
David Farr
Any company as large as Emerson, you do acquisitions, you make investments, you can get a little less lean. We're going after this pretty hard. We're looking at of all the capital investments we make in the last couple years, sort of which ones can we get more out of it productivity-wise? We're not going to cut anything that's crucial to growing this company, but we have ability to lean this company out and I fundamentally believe we could be facing extended time period where I want to lean it.
We're going to lean it. You're right, we know how to do that. The business leaders have done a great job of reacting to this. I came back from a trip to India in the middle of January and I met with the OC. I said, we need to lean out. That's what we're doing. So Ed Purvis takes over and it's all he's talking about right now is figuring out how to lean this thing out, working with Frank and other guys. We're not going to damage ourself. Always room to get better. Always room to get leaner and meaner just like you are, Steve.
Steve Winoker
One more thing, you talked about downstream chemical opportunity. And I understand the feedstock point, but the spread between oil and gas matters a lot with regard to ethylene and ethylene linking to butadiene, propylene, benzene, et cetera. What are you guys seeing? You're not concerned about the shrinking gap between oil and gas inputs potentially putting new investments on hold?
David Farr
We haven't seen any of that, yet, but that's obviously clear. It's clearly a key issue. I think that's why there is going to be a pause here where people evaluate where everything's going to stabilize, that's why a gap's going to open up. It's pretty easy to put things on hold on upstream. I think they're going to take a little longer to evaluate downstream. We do know some of the gas liquification and those type of materials are going to move forward and things like that at this point in time.
Clearly, there is a lot of evaluation going on and I'm very concerned about it, that's why Steve Sonnenberg and his team are going to be pretty aggressive here to rebalance their cost structure knowing they could be facing an 18 month headwind. So you're right, Steve, we don't know exactly yet, but we do know that it's going to be tougher and we do know there's still going to be huge capital out there being spent. How do we get more of that capital? How do we use our people to get more of that capital?
Operator
We'll go next to Steve Tusa with JPMorgan.
David Farr
Hello, Mr. Tusa. If there's a million unit pull up, what's the total number? You know the total, what is it?
Steve Tusa
For what?
David Farr
If you had a million unit pull up in the quarter, what's the total industry in a year?
Steve Tusa
Five and change.
David Farr
Six, yes.
Steve Tusa
So just on oil and gas, you're talking about a market, you said being down in the 2% to 3% range, is that a 2016 comment?
David Farr
The total process marketplace, I think we're going to have a window here of the 12 months going to be down 2% to 3%.
Steve Tusa
Over the course of calendar 2015?
David Farr
Correct.
Steve Tusa
You sound pretty negative, rightfully so. There is a lot of cross-currents going on out here, but 2% to 3% doesn't really sound that bad. Is there a quarter or two here that could get pretty ugly and how should we be prepared for the coming string of orders reports here? Should we be kind of prepped for a couple double-digiters in there for you guys or what's the story on that front?
David Farr
Based on history, Steve, there is definitely going to be two quarters that are going to be tough. Is our next quarter going to be one of them? It's hard for me to tell right now from the reaction around the world. But clearly, we're going to have a couple tough quarters here from an orders standpoint; second, third quarter or third and fourth quarter and I think leading into early next year.
So there is no doubt about it, there is going to be a transition here and the question is how fast we see that transition which markets hold up which industries hold up. But clearly you're exactly right, you're going to see a couple tough quarters and I don't know which ones they are. They're coming.
Steve Tusa
Will you guys be negative, do you think on your core? I would assume, if it's going to happen, it'll happen in the second half and into the first half of next year. Do you see a quarter where you're negative? I would think that if it is negative, it's not going to be more than a negative mid-single digit type of number. Is that the right way to think about it?
David Farr
You talking process or total, Steve?
Steve Tusa
Process.
David Farr
Yes. I think we do not see that yet, but you're exactly right. I would say you could have a negative 5%, 8%, 6%, 7% quarter, yes.
Steve Tusa
This year?
David Farr
Maybe not this year. My gut tells me if I was going to put a gut call right now, based on my knowledge of the industry, it's first quarter of FY ‘16 which is the fourth calendar quarter.
Steve Tusa
Okay. So we can kind of do the linearity on where the 6% you did this quarter and then kind of march it down from there and then maybe march it back up, depending on what our view is on what our call is on where it's going to be?
David Farr
I think yes. I wish I was that good. If I was, I would [inaudible] right now, as would you be, too. But you're exactly right, that's what's going to happen. It's going to march down and march back up. The question is how big does that hole get and right now I know it's coming.
Steve Tusa
The key is pretending to be that good, I think.
David Farr
You telling me I'm pretending to be good? Is that what you're saying?
Steve Tusa
I'm saying for the rest of us.
David Farr
Okay.
Steve Tusa
On the rest of the business, the orders for Climate, some parts of Industrial Automation, I mean, I can't imagine that over the next quarter those are going to look that great either because of the pre-buy impact and then obviously industrial automation you have some oil and gas exposure and then on Network Power you've got the comp to Facebook. Again, I think getting out in front of these orders numbers, I mean, am I missing anything on that front or is the next couple months kind of for the company in total going to be pretty tough too from orders perspective?
David Farr
I wouldn't be a shocked CEO if we don't have a negative second quarter order quarter. I wouldn't be shocked. These things happen. I have a little sign here, I can't swear but blank happens. That's why we're being pretty aggressive right now, looking at the restructuring because we know it's going to happen and the question if it's not the second quarter, it will be the third quarter. Clearly, you're going to have a downdraft here and we have a good backlog and we've had good order pace, but clearly, we're going to have a downdraft. I think the U.S. is going to have a downdraft.
Steve Tusa
One last question on -- you talked about the company in transition. It doesn't sound like there is any -- these divestitures are chunks of the business, not necessarily a big kind of strategic split or anything like that. And then you talked about doing acquisitions, but you said you're kind of holding your fire power for a bigger one. On either front, should we expect something major like a $5 billion-plus type of thing on either side, the divestiture or deal front?
David Farr
Right now, there is nothing of that substance, however clearly, I evaluate the businesses at all point in time. If I feel like a business cannot fundamentally get back to the performance that it needs to get to and we've talked about this, Network Power is one of them that would be a strategic repositioning. However, I also said that we were going to play this out over three years. We're 18 months into that, almost, not quite 18. But so right now, that clearly is a business if I'm not able to deliver value for my shareholders, I will figure out how to get out of that business and create value another way.
Steve Tusa
That's not something you're going to do at the Investor Day. That's not at the Investor Day.
David Farr
Yes, no. We're not talking about something big like that, no.
Operator
We'll go next to Joe Ritchie with Goldman Sachs.
Joe Ritchie
So just staying on process for a second, Dave, I appreciate all the --
David Farr
Go figure, process.
Joe Ritchie
What's that?
David Farr
I said go figure, something on process.
Joe Ritchie
Exactly. But I do appreciate all the color you've given us. The question I have is really around the resiliency of your margins in Process. Last cycle, you saw your EBIT decline about close to 20% in the business and Process is a lot bigger today than it was back then and so just trying to get a sense for how you guys are thinking about your cost structure when this downturn actually happens?
David Farr
The big issue will be is we clearly are going to try to figure out how to get ahead of our cost structure, how we're going to cut back where we need to cut back, but we will not damage the business. So historically, if I have a couple quarters of down sales for Process, we will obviously take a cost action to minimize that down profit, but we will not -- this is a very strong value creator for the company.
So we could have a couple quarters like we've had in the past where the margins deteriorate, but I also put pressure on the organization to make sure that we maximize and not waste our investment. So if we do have a couple tough quarters, most likely late this year and going into early 2016, I would say you're going to see a margin deterioration and what we're trying do right now is get ahead of that to minimize that margin deterioration without damaging the core company.
Joe Ritchie
Is there an opportunity for your -- given you've got a larger installed base, is there an opportunity for MRO investment to help soften some of the blow?
David Farr
We'll talk about that. If you look at how many billions of dollars of equipment we shipped the last five or six years, our install base has grown dramatically. So the answer is yes. However, it's always about timing and what comes on and comes off, but you're exactly right, our installed base is much larger. As you well know, part of our investment the last three years has been building out stronger and stronger global service organization.
So we actually have the assets in place to take advantage of this, but the question will be is can you execute on that to offset the other areas? That's our game plan. I'm not going in and allowing my Process guys right now say they can drop their margins, that's not the game. We're figuring out how do you hold your margins, but I also will not damage that company if I see a sudden drop-off.
I will not do stupid things for that business because it is really a strong value creator for Emerson. We have the right position to protect profitability, it's just a matter of can we execute?
Operator
We'll go next to Andrew Obin with Bank of America Merrill Lynch.
Andrew Obin
Just a question on oil and gas exposure in Industrial Automation and specifically, beyond the breakout, how much of the cat exposure do you think is related to oil and gas?
David Farr
I don't want to give you a rough number off the top of my head, but it is a significant number and you've already seen the bookings get impacted by that the last couple months. If you looked at our alternator businesses, the orders have dropped off. I'll give you an exact number, Craig. If I had to take a wild guess, I wouldn't say a wild guess, but a guess, I would estimate, I would say it's around a quarter.
Andrew Obin
A quarter of the [inaudible]?
David Farr
Yes and we're starting to see it already and we'll talk about that, but they react pretty quickly because those are long lead time-type of products.
Andrew Obin
Just to clarify, it's the quarter of the cat exposure or the quarter of the industrial automation business? Sorry about that.
David Farr
I would say a quarter of the industrial automation. The business would be tied to oil and gas total.
Andrew Obin
Just a question on capital allocation, it seems that other companies that are active in capital allocation are bringing up the fact that private equity is capped in terms of the leverage they can take on for deals these days. How does it change your thinking on, A, sort of making acquisitions because it seems both [inaudible], I think, stated that there's just more opportunity now. But B, also given that private equity is capped, how does it change your view on divesting businesses, if you could talk about that?
David Farr
We got a very good price for our power transmission. I think it was a good deal for both of us [inaudible] and I think we got a good price. We laid out what we wanted to divest. Right now, we know what those do businesses are and I don't think it's changed from the standpoint of what we're looking at right now. We try to find strategic buyers and we'll continue to work that, but I don't think it's changing anything. It's just the amount of assets out there right now. There is not a lot of assets to buy and there's not a lot of assets being sold either. That's why we had a lot of interest in the power transmission business when we sold it.
Operator
We'll go next to Jeremie Capron with CLSA.
Jeremie Capron
David, it sounds like you have pretty high confidence in your ability to grow 3% to 5% ex-currency this year, despite this weaker outlook globally and I appreciate you've had a good start in Q1. We've got a solid backlog, but after all that's been said on the call today, particularly on the Process side of things, where do we get the growth from? Which segments of the company are you seeing are taking us to that 4% to 5% for the remainder of the year?
David Farr
Our largest market's still North America and we still have a very strong business in North America across a lot of Emerson. That business is right now is holding up. We have not seen any deterioration in North America. I still see very good growth for us in Mexico. I see very good growth for us in India. From perspective of China, we're expecting growth. I have markets around the world that are still growing.
There will be a lot less growth than originally thought, but I still believe that we can still have that underlying type of growth we're talking about with the mix of businesses that we have and the strong business presence we have in North America. So that's where I come from at this point in time. If I start seeing North America weakening from an economic standpoint, then obviously that will change because that will hurt us, given our strong presence we have here in North America.
Jeremie Capron
Okay. Maybe finally, going back to the balance sheet, in this environment of slow growth and cheap debt, what do you think is the optimal capital structure for Emerson? I understand the discussion around potentially going after bigger acquisitions etcetera, but outside of this, what do you think about capital structure?
David Farr
We have a very flexible capital structure. Right now, we're running around the mid-30% debt to capital right now. We've taken it down as low as the mid-20%s. I think right now the mid-30%s is an area a that gives us the flexibility we need to deal with and we can flex down quite easily. So I think from our capital structure right now, I think it's a decent capital structure and gives us the room we need.
At the same time, it's given us -- we're sending a lot of money back to our shareholders. In the last four years, we've almost sent back $10 billion to our shareholders. So we're very shareholder friendly and we'll continue to spend money back for our shareholders if necessary and use our capital structure appropriately. So we try to keep it flexible. I think at the same time, we're paying money back to our shareholders. This year, we'll give to our shareholders over $3 billion. I'll say that over $3 billion to our shareholders this year. Last year, we gave them over $2 billion. Year before that, we gave them over $2 billion. So we pay back to our shareholders.
Operator
We'll go next to Rich Kwas with Wells Fargo Securities.
Rich Kwas
Process, the 2% to 3% down for the industry, does that assume any offsets in other areas of process? Because if you talk to some of the industry consultants, they say oil and gas is 20% of the market and there is growth in other areas because of lower energy prices. Chemicals, obviously, is one. But does that assume just -- does that take into account you're overweight on oil and gas? Is that referencing that? Or are you just looking at how you define process and coming up with that?
David Farr
We define the process. We'll show you when Steve's talking about how we go at this. Clearly, it means a much stronger down oil and gas spend number and you're exactly right, there's offsets that minimize that. Overall we still believe, probably the next 12 months, the total process marketplace as we see it today will be negative driven primarily because the oil and gas clearly drop off, coming off very high levels.
Still a lot of money being spent and the key issue for us is how do we get more than our fair share of that money being spent? That's where my focus is for all my team. How do you get more of that spending dollars, even though it's shrinking out there how do you go get some more of it? That's the whole market and I think that is waiting it out. That's just today.
Rich Kwas
Right. On the downstream piece, do you think you'll see orders late in the calendar year early? Late in calendar year 2015, early 2016? How soon does that translate? It would seem like there is some lag there.
David Farr
I think there is a hole opening up. My gut tells me we will be late, late calendar year 2015, maybe the last quarter and more like the first half of 2016 calendar year.
Rich Kwas
Right, but it takes some time for that to turn into revenue right?
David Farr
Correct. The key thing for us right now, as someone mentioned earlier, is we have a very strong MRO business. How do we take advantage of our installed base that we've dramatically grown the last -- if you look at the last 10 years of our capital, our money we've sold in this industry, how do we take advantage of that? That's going to be the key focus point for us because you're going to have a window here where you lose -- the projects aren't going to happen for you, you're going to have to go out and get that business day in and day out.
David Farr
I want to thank everybody for the call. I appreciate it. I look forward to seeing you guys in a couple weeks in New York City. Hopefully, the snow, and we won't have snow again, whatever that thing was called. The mayor called it, was going to be the worst snowstorm ever in New York and I must have missed that one. But look forward to seeing everybody and hopefully everyone stays healthy. Take care now. Bye.
Operator
This does conclude today's conference. Thank you for your participation.
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