Ingersoll-Rand Plc (IR) Michael W. Lamach on Q1 2016 Results - Earnings Call Transcript

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Ingersoll-Rand Plc (NYSE:IR)

Q1 2016 Earnings Call

April 26, 2016 10:00 am ET

Executives

Janet Pfeffer - Vice President-Treasury & Investor Relations

Michael W. Lamach - Chairman, President & Chief Executive Officer

Susan K. Carter - Chief Financial Officer & Senior Vice President

Analysts

Joshua Pokrzywinski - The Buckingham Research Group, Inc.

Joseph Alfred Ritchie - Goldman Sachs & Co.

Julian Mitchell - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Nigel Coe - Morgan Stanley & Co. LLC

Charles Stephen Tusa - JPMorgan Securities LLC

Jeffrey T. Sprague - Vertical Research Partners LLC

Jeffrey D. Hammond - KeyBanc Capital Markets, Inc.

Steven Eric Winoker - Sanford C. Bernstein & Co. LLC

Operator

Good day, ladies and gentlemen, and welcome to the Ingersoll-Rand First Quarter 2016 Earnings Release. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Ms. Janet Pfeffer. Ma'am, you may begin.

Janet Pfeffer - Vice President-Treasury & Investor Relations

Thank you, Lauren, and good morning, everyone. Welcome to Ingersoll-Rand's first quarter 2016 conference call. We released earnings at 6:30 this morning and the release is posted on our website. We'll be broadcasting in addition to this call through our website at ingersollrand.com, and that's also where you'll find the slide presentation that we'll be referring to this morning. The call will be recorded and archived on our website.

If you'd please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause actual results to vary from anticipated. And our release also includes non-GAAP measures which are explained in the financial tables attached to our news release.

And to introduce the participants on this morning's call, Mike Lamach, Chairman and CEO; Sue Carter, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations.

Please go to slide three, and I'll turn it over to Mike.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Thanks, Janet. For those of you who don't know, that's Janet's last time she'll be to read the Safe Harbor statement. She's retiring at the end of this month after a brilliant career at Ingersoll-Rand. We're going to miss Janet greatly. And, Janet, I want to wish you and Ron all the best in your retirement.

Janet Pfeffer - Vice President-Treasury & Investor Relations

Thank you.

Michael W. Lamach - Chairman, President & Chief Executive Officer

So with that, we delivered a very strong quarter that exceeded EPS guidance and reflected excellent execution across the whole company. The quarter really demonstrated the consistency we're seeing in our strategy, which is to deliver sustainable, profitable growth, and I'd highlight a few areas here. First, we're leading our markets in the innovation and development of energy-efficient, reliable and sustainable products and services. Second, we're deepening the penetration, the maturity of our operating system, and we're delivering operational excellence across our businesses.

Third, we're maintaining a disciplined and dynamic approach to capital allocation. And finally, as I said before, critical to any sustained cultural transformation, our employees are engaged, their scores are continuing to increase across the company. Employees continue to see Ingersoll-Rand as a great place to work, which in turn leads to a better customer experience, and that ultimately delivers shareholder value.

Our performance in the first quarter gives us confidence to raise our full-year guidance, essentially flowing through the first quarter operational beat. Now this morning I'm going to you an overview of what we're seeing in our end markets across the globe and use the opportunity to talk a bit about how we're performing against this market backdrop, give you some color on how we're progressing for the year.

I thought it would be useful to highlight where our performance maps specifically to our overall strategy, and then I'm going to turn it over to Sue and she'll take you through the quarter and our revised guidance for the remainder of the year.

So over the past 16 weeks I've spent the majority of my time on the road with leaders across the company, and during that time I've met with customers from many of our business units across vertical markets and regions of the world. I've spent considerable time with our customer-facing employees, from service technicians to sales teams.

And as always I've spent time inside our operations talking with the people who are building and engineering our products to gain their perspective on the maturity and momentum in our operating system. And I've witnessed good momentum in the deployment of our operating system and remain confident that there is still a long runway of opportunity in front of us.

With that, let's go to slide 4. And I'm going to note that all my comments are on an organic basis so they're going to exclude currency and acquisitions. And I'll turn first to the North American Climate segment, where our business remains strong overall and we expect this momentum to continue for the balance of the year. In commercial HVAC recent, put in place data continues to support mid-single-digit growth. And we believe this should continue through at least 2017.

We continue to see strong growth in the retail and office markets, within the institutional markets; education and government markets are also strong. We saw a low-teens revenue growth in the quarter coupled with high-single-digit bookings growth. I want to point out too that we expect to see a record for quarter two with commercial HVAC North American bookings, which should be up approximately 25% over quarter two as a result of some large institutional project awards.

We expect to continue to outperform the overall market for the balance of the year. Additionally, we're executing well on the volume and saw excellent operating leverage in the quarter. Growth here is a direct reflection of the constant investment we've made over the past years. And we've seen growth specifically in the areas where we have invested, whether in product growth teams, products or channel. As in 2015, we are beginning quarter one of 2016 with double-digit growth in our controls and service business. With over 4,300 company direct service mechanics and technicians, we believe we are now the largest provider of mechanical HVA service to commercial customers in the world.

Additionally, when we break out our critical growth programs from the base business, we are seeing mid-teens growth in these programs. Overall execution has been excellent. With clear discipline, the management team is running the business through our operating system. Like commercial, our residential HVAC North American business is likely to continue to outperform the market as well. We're proud of this performance and what's ahead for this business.

I'm occasionally asked what do investors misunderstand about Ingersoll-Rand, and in reading some of the sell-side reports I think there is some misunderstanding about the success we've had in the residential HVAC business, and so I want to lay out some of the facts for you. According to AHRI data, we have increased share each quarter over the past six quarters including the first quarter of 2016. For all of 2015 and continuing into the quarter one of 2016, we have a residential HVAC business with mid-teen EBITDA margins, which makes it accretive to the segment and IR as a whole. Quarter one brought mid-teen bookings growth for the second consecutive quarter and mid-single-digit revenue growth and very strong operating leverage. Our market outlook remains positive. We forecast 4% to 5% unit growth for the industry, and we anticipate our revenue growth to be in the high-single-digit range for the year.

The residential team has done an outstanding job implementing our operating system across its full footprint. The team is running the entire business in a full product growth value stream, and it's showing in the execution. And strategically, we've executed well on our complete product refresh, repositioning of our channel strategies, and in our connected home strategy, where we have a profitable business platform, robust diagnostic capabilities and nearly 200,000 Nexia enrollments to date. Additionally, connected home is a key driver of our residential Controls business, which has more than doubled since 2011 and continues to grow at around 25% annually.

Shifting to North America and transport refrigeration markets, as usual the management team did a great job in the quarter and managed to improve their margins with high operating leverage. North America continues to hold up well, especially in the truck and trailer market. Our current view of truck and trailer has improved from our original view of the market from earlier this year.

ACT raised its trailer units forecast to 47,000 units, which is up about 1% versus last year, and their prior forecast was for the market to be down 10%. We view this market data as being a bit aggressive, but we have raised our own forecast to approximately 45,000 units. And you may recall that our own prior forecast was 39,000 trailer units. So even though we do expect the market to be down over the record performance from last year, our view has improved from when we spoke in February.

Our truck refrigeration business was also solid, and the overall market for Class 3 to Class 7 trucks is showing moderate growth. And we continue to pursue growth strategies in rail, bus and auxiliary power units to continue to balance North American business into additional vertical markets.

As we look toward the HVAC and transport refrigeration markets in Europe, the Middle East and Africa, we plan to continue to outperform the market in the year ahead with additional new product and service launches planned in the year and excellent management teams executing on the ground, delivering good margin expansion and cash conversion growth.

We continue to do very well in Europe with organic bookings in the high-single digits against the flattish market backdrop. We are seeing excellent uptake of the new product introductions. And like North America, the service business also grew at a double-digit rate.

I visited our FRIGOBLOCK team and operations a few weeks ago. The progress made in the adoption of our operating system was absolutely amazing. With the FRIGOBLOCK acquisition, we've taken a step forward now in integrating hybrid electric technology into our product roadmap. The acquisition has been a great success for us.

Middle East markets are certainly softening. We're seeing a contraction in the number of building projects planned and we expect this to continue for some time as lower oil prices are driving an investment pullback. Moving to Asia Pacific, it is difficult to know if markets have reached an inflection point in China. The data is mixed and it's not that consistent month to month. Our performance though has been deviating from the market in a positive way due to investments in products and a focus we put on in increasing our direct channel market investment to achieve fuller market coverage.

Climate bookings in China were up mid-single digits in quarter one and up low-teens for Asia Pacific as a whole. Our strategic focus on growing the service business continues to be successful in Asia, too, achieving a mid-teens growth rate in the quarter. We're also seeing strong mid-teens bookings growth in transport refrigeration equipment as the market continues to grow, and our local engineering and manufacturing teams continue to tune the product to local preferences. Strong growth outside China is being driven by growth in Thailand, India and our performance in Singapore along with good transport refrigeration growth in Australia.

So concluding, the HVAC and transport refrigeration geographic update would take us to Latin America, where markets remain very volatile with strength in smaller but fast-growing markets in the Dominican Republic and Panama but deteriorating conditions in Brazil, Venezuela, Ecuador and Argentina. Conditions though in Mexico remain fundamentally sound. Organic revenue for the region was flat with low-teen increases in HVAC equipment. So we are pleased with our performance in the market. We have expanded margins in a very tough and volatile Latin American marketplace.

Let's move to slide five. And here we'll look at the end markets for the Industrial segment of our business, and I'll start with an overall comment that our compression technologies business bookings and revenue were down organically low-single digits in the quarter, with equipment essentially tracking the overall market but with service up mid-single digits. Again, we are focused in growing our service businesses across the enterprise and executing well on that strategy.

In North America, U.S. manufacturing capacity utilization remains relatively low, hitting 75% last quarter, which is the lowest point over the last 12 quarters. Now large equipment CapEx, typical for what we would see for large centrifugal and large rotary air compressors, historically rebounds at utilization readings above 80%.

On one visit I had the opportunity to meet with a major customer that's been around for decades building small-scale LNG plants that range from 50,000 gallons to 500,000 gallons per day. I asked this PhD physicist what the most reliable leading indicator he would look for in his end markets, and he responded very simply by saying it's when the telephone rings, and fortunately he did say the phone is beginning to ring, as is ours in that area.

So whether it's small-scale LNG systems or larger air compressors, our sense is to that even early activity in large machine quoting activity probably will have little impact on large machine deliveries in 2016.

To give you a little bit more color on this for the North American market, when you look at compressors between five horsepower and 400-plus horsepower, the market for small compressors, those between five horsepower and 15 horsepower, is off roughly 10%, while compressors larger than 250 horsepower are down more than 30% in the first two industry-reported months of the quarter. Smaller compressors quarter. The smaller compressors are quicker book and turn with inventory re-stocking occurring in that category.

We also believe we are seeing some re-stocking to the wholesale channel in our tools and fluid management business. Our material handling team has done a great job managing their business, essentially holding the business to breakeven on a 50% reduction in revenue. So again, across the business we have a management team doing a very good job exhibiting strong cost control, execution discipline on the backdrop of continued declines in projected global market growth.

In Europe we're seeing increased exports to industrial production across Western Europe. Eastern Europe continues to be fairly weak. And for Asia Pacific, the current environment continues to experience pricing pressure across the region, but we're cautiously optimistic to see if we have reached an inflection point as manufacturing indices signal pockets of improvement in countries such as China, Thailand, Indonesia, South Korea. And China's power consumption index has also shown growth in the first two months of the year, and India is seeing strong market growth in verticals like textile, pharma and food and beverage.

So rounding up the geographic update for Industrial segment, we'll go to Latin America where volatility in the markets there across the region continues to be driven by political instability, and this has contributed to reduced investment in verticals such as energy, oil and gas, mining and metals. However, other verticals like food and beverage, pharma and textile remain with positive outlooks.

So before turning it over to Sue, let me conclude by saying again we had an excellent quarter. We continue to invest in the products, service offerings and footprint of the company while using our operating systems to deliver well above industry average results.

Now I'll turn it over to you, Sue, to cover the financial review and guidance.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Thank you, Mike. Let's go to slide 6. Let's begin with an overview of the first quarter. Q1 was a strong operational quarter across all of our businesses. As you heard in Mike's comments, end markets continue to be strong in Climate and weaker than expected in Industrial. Our business operating system guided us through good execution in our factories and in our cost centers. Our focus was on good operating results in a low-growth environment. Our results show that we did not let costs get ahead of revenues in the quarter.

Revenues grew slightly on a reported basis and were up 2% organically. The Climate segment grew 4% organically. Industrial was down 5% both on a reported and an organic basis. HVAC revenues grew in each of our Climate businesses led by commercial and residential in North America. Revenue in our Industrial businesses declined in the quarter, with tough comparisons to the first quarter of 2015.

Large centrifugal compressors and other Industrial equipment were weaker than our estimates but Club Car performed as expected with low year-over-year growth. Our adjusted operating margins grew 140 basis points year-over-year with organic operating leverage of 75%. Adjusted segment margins grew 150 basis points, which shows the alignment between our operating performance and our Q1 results. Our strength was in price, direct material deflation and mix.

Earnings per share grew 32% year-over-year, exceeding our prior guidance. In Q1 our capital deployment actions included repurchasing $250 million of shares, and we increased our dividend by 10%. We completed the sale of our remaining interest in Hussmann on April 1, 2016. All impacts will appear in the second quarter.

Please go to slide 7. I've included a slide to reconcile our Q1 EPS actual results with our prior guidance. I've said on a few occasions this morning that our results were the result of good execution and operational performance. Price and direct material deflation were the largest drivers of the margin expansion in Q1. This is an area where everything went right in the quarter, i.e., there was no breakage. Price was positive in both segments, and direct material deflation was also very positive to our guidance.

Cost savings and controls were a positive $0.03 for the quarter. Each of our businesses and corporate functions had favorable variances to start the year as we controlled spending while we evaluated our end market volatility.

Currency, share count and other income were about $0.01 each. We opportunistically repurchased shares earlier in the year than we would normally, and currency was a bit favorable to our guidance range (18:44).

Restructuring was favorable to our guidance by $0.03 for the quarter. This is timing. We have identified projects to execute and continue to work on restructuring projects that have good returns and shorter paybacks and will spend the remaining $0.03 throughout the remainder of 2016.

Please go to slide right. Orders for the first quarter of 2016 were up 4% organically. Climate orders were up 6% organically. Organic global commercial HVAC bookings were up high-single digits, led by high-teens growth in North America unitary and double-digit growth in Asia applied.

We continue to see excellent growth in service controls, contracting and parts, with double-digit growth in the quarter. Regionally for commercial HVAC, we saw high-single-digit booking increases with a high-single-digit increase in North America and Europe, up low-teens in Asia, and with declines in both the Middle East and Latin America.

Residential bookings were up 17%. Organic transport orders were down low-single digits with low-teens growth in truck and trailer in North America and Europe that were offset by lower container orders. Orders in the Industrial segment were down 5% organically. We saw a low-single-digit order decline in compression equipment, a low-teens decline in other industrial products and a mid-single-digit decline in Club Car.

Performance in compression technologies was mixed in the first quarter. We had an improvement in small compressors while freeing (20:23) in some of our component businesses like dryers and filters. We also had a small improvement in our aftermarket business. These gains were offset by declines in core industrial compressors and by large centrifugal equipment.

Please go to slide 9. This slide provides a directional view of our segment performance by region. In our Climate segment, which was up 4% in the first quarter, we saw solid performance in North America and flattish growth across Europe, Latin America and Asia. The Middle East was the only region that declined within the Climate segment. We're seeing a contraction in the number of building projects planned in the Middle East and would expect this to continue for some time as lower oil prices are driving an investment pullback.

Our Industrial segment performance in the first quarter, which was down 5%, is representative of the volatility that continues across the globe in the industrials market. Strong performance in Mexico contributed double-digit growth in Latin America. We also saw growth in Europe while Asia was flat and North America was down high-single digits.

Overall, our regional performance for the first quarter trends with the end market summary that Mike provided us earlier with a strong start in North America. Industrial segment performance is expected to trend with the market. We're planning on expanding margins in a down market in the second half of the year through productivity gains and cost control.

Please go to slide 10. Operating margin on a reported basis increased 160 basis points from 5.9% to 7.5% from the first quarter 2015 to the first quarter of 2016. Mix was favorable for the quarter, 40 basis points, largely offset by unfavorable volume and currency. Net pricing versus direct material inflation was the largest driver of margin improvement in the quarter, favorable by 160 basis points. Price realization was achieved across both the Climate and Industrial segments, which was higher than expected, and commodities remain deflationary.

Productivity versus other inflation was positive 10 basis points, driven by ongoing productivity actions partially offset by other inflation. Year-over-year investments and other items reduced margins by 20 basis points. In the box, you can see that was comprised of 40 basis points from incremental investments, 20 basis points from higher restructuring costs, which were partially offset by 40 basis point improvement related to the absence of acquisition-related step-up costs incurred in 2015. Overall reported operating leverage exceeded 100% in the quarter as we expanded margins in a low-growth environment.

Please go to slide 11. Our Climate businesses had an excellent quarter in Q1. Adjusted segment income and EBITDA margins improved by 280 basis points and 260 basis points to 9.8% and 12.4% respectively. Increased volumes, favorable mix, price, direct material deflation and productivity offset other inflation and investment spending. The leverage for the Climate segment was 118% for the quarter. Revenues for the quarter were up 4% organically. Commercial HVAC organic revenues were up mid-single digits, led by mid-teens unitary equipment shipments in North America and low-teens parts and service revenue in North America.

Europe had low-single digit equipment growth and high-single digits in services and trucking and (24:00) parts. The Middle East had parts and services growth offset by declines in equipment sales. Residential revenues were up mid-single digits in Q1 with very strong leverage and significant margin improvement.

First quarter organic revenues were down slightly, but this does not tell the whole story for Q1. North America truck and trailer organic revenues were up mid-single digits, and European truck and trailer organic revenues were up in the mid-20% range. Marine container organic revenues declined more than 60% in the first quarter, reflecting a soft start at various box builders for 2016.

Please go to slide 12. First quarter revenues for the Industrial segment were $681 million, down 5% on an organic basis. Compression technologies and services organic revenues were down low-single digits versus last year. Club Car organic revenues were up slightly versus prior year. Organic revenues in the Americas were down high-single digits, while revenues in Europe, Middle East and Africa were down low-single digits and were flat in Asia.

Industrial's adjusted operating margin of 9.6% was down 230 basis points compared with last year. Price and direct material deflation were positive, productivity offset other inflation, and volume and mix were unfavorable.

Please go to slide 13. First quarter free cash flow of negative $46.3 million was favorable to prior year by $135 million. Strong operating income improvement and improved working capital performance were the primary drivers of the favorability.

For the quarter, working capital as a percentage of revenue was 6.2%. We had strong collections in the quarter, with our days sales outstanding improving 1.3 days over the prior year and days payable outstanding improving 0.7 days. Inventory is on plan for the quarter and we're well-positioned to serve our customers as we enter the heavier-volume second quarter. Capital expenditures of $40 million are lower than prior year due to capitalization of our ERP systems costs in the first quarter of 2015.

Please go to slide 14. Capital allocation is a key area of strategy for us. We continue to invest in our businesses and I think you'll agree that our results show the value of our product refresh strategy and our operational excellence programs, which are a part of our business operating system.

We raised the annual dividend 10% in early 2016 with a goal of maintaining a dividend payout consistent with our peers. We have an M&A pipeline that reflects our desire to add to our products, technologies and channels as outlined in our strategy. We are focused on building long-term value. We bought shares to offset benefit program dilution in the first quarter at an average share price of $51.10.

Please go to slide 15. As always, our intention is to give you the best view of what we're seeing in our end markets sitting here today and how that translates to our revenue guidance for 2016. We've broken it down by major end markets and geographies. As you can see by the variation of colors and symbols, our end markets are seeing a wide variation in trends. We also added a column to show you our current versus prior thinking on organic revenue.

North American commercial HVAC and residential HVAC as well as European transport and commercial HVAC markets are generally positive, while global industrial markets have declined. We are forecasting transport markets in North America to be flat. Our forecast for North American trailer volume has shifted from declines of 15% to down slightly for the year. Asian HVAC markets are expected to be flat to down, and industrial markets in Asia remain under pressure. Golf cart markets are slightly down, offset by increases in the utility vehicle markets.

Both the growth forecasts shown here are on an organic basis. We're forecasting mid-single-digit growth in commercial HVAC in total; high-single-digit growth in residential HVAC, which is essentially an all-American – North American business for us; and a small increase in transport. We expect compression-related products and other equipment to be down high-single digits. We expect Club Car to be up low-single digits.

Please go to slide 16. Aggregating those market backdrops, we expect our reported revenues for the full-year 2016 to be flat to up 2% versus 2015. Overall, foreign exchange will be a headwind of about two percentage points. While these revenue outlets do not show a total change, the segment numbers reflect important updates. We expect Climate revenues to be up 2% to 4% on a reported basis and 4% to 6% organically. For the Industrial segment, revenues are forecasted to be in the range of down 4% to down 6% on a reported basis and down 2% to down 4% organically.

For operating margins, we're excluding restructuring costs to get adjusted margin. We expect Climate adjusted operating margins to be in the range of 14% to 14.5%. We expect Industrial adjusted margins to be in the range of 12% to 12.5%. For the enterprise, we expect adjusted operating margins of 11.8% to 12.3%, a 30 basis point improvement from our prior 2016 guidance and a year-over-year improvement of 70 basis points. Operating leverage would be about 40% on an organic basis for the year.

Please go to slide 17. Transitioning to earnings, the reported earnings per share range is estimated to be $5.39 to $5.54. Excluding restructuring and the Hussmann gain, the range is $3.95 to $4.10, an increase of 6% to 10% versus 2015 and a $0.13 increase from the midpoint of our prior guidance range of $3.80 to $4. As a note, for 2016 currency is a headwind of about 2% of revenue. This reflects a full-year tax rate forecast of 24% to 25% and an average diluted share count of 261 million shares for the full year.

Second quarter 2016 revenues are forecast to be up 2% to 4% on a reported basis and 4% to 6% organically. We are projecting Climate revenues to grow mid-single digits in Q2 and Industrial to decline mid-single digits on a reported basis.

Reported second quarter earnings per share are forecast to be $2.75 to $2.80. Back out $0.01 of restructuring and the $1.49 Hussmann gain to get to an adjusted range of $1.27 to $1.32.

For the full-year 2016, we expect to generate adjusted free cash flow, which excludes restructuring and the Hussmann proceeds, of $950 million to $1 billion.

And with that, I'll turn it back to Mike for a few closing comments.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Great. Thank you, Sue. And I'll be brief. As I started out this morning, we had a strong quarter. We improved operating performance in a volatile environment. We realized price in both segments. We achieved outstanding leverage and improved our cash flow. We're growing in the areas we put a strategic focus. There's clear evidence that this won't be crated. (31:39). Our operating system is gaining momentum. And I'm confident in our management team, and we feel good about our forecast for the remainder of the year.

So with that, Sue and I will take your questions.

Question-and-Answer Session

Operator

Our first question comes from Josh Pokrzywinski from Buckingham Research. Your line is now open.

Joshua Pokrzywinski - The Buckingham Research Group, Inc.

Hi, good morning, guys.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Good morning, Josh.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Morning.

Joshua Pokrzywinski - The Buckingham Research Group, Inc.

Just on the price-cost equation here, clearly a pretty strong contribution in the first quarter. Can you help us with how that dimensions out, just based on purchasing agreements and hedges you already have in place, over the balance of the year?

Susan K. Carter - Chief Financial Officer & Senior Vice President

Absolutely. So you're right. The 160 basis point spread between price and direct material deflation was a strong start to the year. What we expect for the first half of the year is strong performance on a year-over-year basis because last year we were still in an inflationary environment in the first half of 2015. So I think the second quarter will be slightly less favorable than the 160 basis points.

But what we've adjusted the full year to now, Josh, is 80 basis points of favorable spread between price and direct material deflation. And so the first half-second half reflects basically the year-over-year compares to last year. And then as we look at the 80 basis points, though Q1 performance was driven by strong price performance, and we expect some of that to continue in Q2 and also strong performance from the material side. Price is one of those areas where I think you never want to reach out and assume that you can continue to get price at a big execution level throughout the year in a strong deflationary environment.

But as it comes to the commodities themselves, here's what we expect. So we have about 70% of our copper locked in for the year through our contracts. We expect that copper and aluminum are going to be fairly stable in terms of what happens throughout the rest of 2016. You'll see some ups and downs. But generally I think those are going to be pretty stable.

We're seeing a slight uptick in steel, but I don't think that's going to impact us in 2016. Because of the way that our contracts are written we wouldn't start to see that until the very end of the year. So I think our supply base and our commodity teams have done a great job of getting us the deflation that you're seeing in the results. I expect that to continue. All of the tier 2 pricing really seemed to come in in Q1 also. So I think we had a great environment and I think we'll have a great result.

So if you recall, we had given you a look at the full year I think 30 basis points to 40 basis points when we last gave guidance. And as I said, we took that up to 80 basis points favorable spread for 2016.

Joshua Pokrzywinski - The Buckingham Research Group, Inc.

Great. That's helpful. And then, Sue, just as a follow-up, I remember last quarter you talked about some of the toggles for the tax rate and specifically mentioned intercompany debt. Could you just maybe update us where we're at on the total tax strategy in light of some of the Treasury rulings?

Susan K. Carter - Chief Financial Officer & Senior Vice President

Right. So I think the first way to start out that question, Josh, is to say that we've looked at all of the proposed Treasury regulations, and we don't expect those regulations to have an impact on our effective tax rate in 2016.

As we think about the tax strategy that I talked about, getting us into a low-20s% type of tax rate on an ongoing basis, I also don't expect those regulations to have an impact on us getting into those areas. And the reason that I say that is when we're looking at our tax strategy, intercompany debt is one element of some of the things that you can do – trading hubs, procurement hubs, making sure that your transfer pricing is absolutely aligned, and other tax-efficient projects can help us get to where we want to go.

We've also been looking at a project that helps us look at effective tax rates by each of our SBUs so that we're all working on taxes, we do our plans, and we do our forward looks. And I think that'll help us with an overall tax strategy that doesn't get impacted by the proposed Treasury regulations. We'll obviously continue to look at those and make sure that we understand all of the sort of derivative impact that might be out there from the regulations, but no impact on the rate and no impact on our strategy going forward.

Joshua Pokrzywinski - The Buckingham Research Group, Inc.

Perfect. Thanks for the answer.

Operator

And our next question comes from Joe Ritchie from Goldman Sachs. Your line is now open.

Joseph Alfred Ritchie - Goldman Sachs & Co.

Thanks. Good morning, guys. Nice quarter.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Thanks, Joe.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Thanks, Joe.

Joseph Alfred Ritchie - Goldman Sachs & Co.

I guess my first question, maybe starting on Industrial where you did see decelerating trends. I noticed that you didn't take up the restructuring at all for the quarter, and if I recall correctly there were some cam shipments that were expected to be released in the beginning part of this year. And so I'm just wondering is there still opportunity for further action in Industrial and I guess what's the strategy at this point?

Susan K. Carter - Chief Financial Officer & Senior Vice President

Yeah. So the $0.02 of restructuring that we spent in Q1 was related to Industrial. We are continuing to work on restructuring actions for the remainder of the year, and those are going to primarily be in Industrial. So we called out in the guidance about a $0.01 for each of the next three quarters. I think what's important about the restructuring and the way that we look at it is that the restructuring really does have a payback within 2016. So we fully expect to realize the benefits of that $0.05 of restructuring, and that is also what will help us with my comment earlier in my prepared remarks about Industrial margins improving in the back half of the year. So some of that productivity kicks in and some of the restructuring actions that were actually started almost a year ago are going to kick in.

Now on the ECC side, we did have some shipments that had pushed out of Q4. We actually had some shipments that pushed out of Q1 also into Q2. But the ECC story is an interesting one. So if I look at first quarter bookings in total, bookings in total for the ECC business are actually up significantly in the first quarter. The majority of that is going to be in the products that are outside of the large centrifugal compressors. Those are really coming down, so bookings are up, which is good.

The revenues that we're seeing are really being impacted by the large centrifugals. But also importantly as we think about ECC and that business is we expect to really be on track with the revenue and the cost synergies for 2016 that we had outlined.

So lots of moving pieces in the business, but I think you see some strengths in the normal product and in the aftermarket and some bigger weakness and some shipments moving around in the large centrifugal compressors.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Joe, remember, too, that I think that we've been serial restructurers now for years, and that's both qualified and non-qualified. So we're always improving the cost base there. When you look at the type of paybacks that we are seeing in this business, we're getting numbers like seven years, which is indicative of doing a good job around running plants, utilization that we've been able to achieve in our plants.

If you couple that with the lead time to bring on new capacity when the markets return, that's a 24-month to 30-month process, particularly in the machining centers that we would be moving or upgrading to do that. So we don't want to get whipsawed in doing any larger restructuring when this thing turns around because the margins come back very strong when the business volumes come back as well. So we're being cautious.

So we're always looking at the ideas that are on the table. If the underlying real estate values change or if tax incentives change from one location to another, it could swing something like that. So we're very cautious about looking at an upswing in the lead time to bring capacity on when you need it. And we don't want to ever be in a situation at an upswing in the market to not have sufficient capacity at that point in time.

Joseph Alfred Ritchie - Goldman Sachs & Co.

That makes sense, Mike. I guess maybe my follow-on question, I just want to make sure I heard this correctly. Did you say that 2Q North America commercial HVAC bookings were expected to be up about 25%?

Michael W. Lamach - Chairman, President & Chief Executive Officer

Yes, that's correct.

Joseph Alfred Ritchie - Goldman Sachs & Co.

And is that the reason for the organic revenue guidance raise?

Michael W. Lamach - Chairman, President & Chief Executive Officer

That's more of an impact in 2017 and it's got a little bit of a positive in 2016, a little bit of a positive in 2018. But the bulk of that would be 2017 shipments. So it's really the strength of the business across the board. Unitary continues to be strong. The pipeline looks strong for us. Europe has been a great success story. I think it will continue as well. And of course the residential business continues to put up some very big numbers.

And so all of that combined has got more to do with the guidance increase than the large booking number in quarter two. By the way, quarter three should look pretty good for us as well. Although I don't have a prognostication on the percentage rate, it should be a good quarter for us.

Joseph Alfred Ritchie - Goldman Sachs & Co.

Helpful. Thank you.

Operator

And our next question comes from Julian Mitchell from Credit Suisse. Your line is now open.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Hi. Thank you. I just want to say thanks a lot to Janet for all the help, and all the best. In terms of the first question, that would really be back on the Industrial margins. They used to be at sort of 16%, 17% of the odd quarter here and there, and they are down to 9% to 10% right now. And the guidance embeds that by the end of the year I guess they climb back into the sort of low-teens in the next three quarters. So maybe just help clarify what's driving that sort of 400 point-plus margin recovery. Is it just about productivity or is there something going on with the mix as well of Industrial versus compression?

Susan K. Carter - Chief Financial Officer & Senior Vice President

So Julian, great question. On the Industrial margins, your math is absolutely correct that in the back half of the year we do have the operating margins for Industrial improving into the low-teens. And as we look at what's going to happen in the back half of the year, it truly is productivity, still lower inflationary type of rates. So you've got productivity offsetting other inflation. You still have positive price in the back half of the year. And you have just a skosh more volume in the back half of the year than the front.

I don't want anyone to think there is a lot of volume recovery that we've built into this; we have not. But there is by virtue of how the quarters pan out roughly $50 million of additional revenue in the back half versus the front half. But it's productivity. It is the restructuring actions that are kicking in, and it is the continuation of the actions that the management teams are taking to work through this low revenue and market decline.

Michael W. Lamach - Chairman, President & Chief Executive Officer

There was also, Julian, the cost control there is exceptional. So even though you were seeing kind of a headline $0.02 restructuring, there's at least that much, maybe more than that which would be non-qualified restructuring. So it's sort of restructuring in place, not replacing or fulfilling spending. So there is a cost for that in the first half of the year and a benefit to that in the back half of the year, which is broadly in line with Sue's productivity comment, but a big piece of that productivity is literally the cost control around head count, some of which is qualified, some of which is non-qualified in terms of how we would actually account for it.

The longer-term question that you asked about the profitability of the business, Sue did a little bit of analysis on this, and it might be useful to kind of walk through when we would see a 17% margin business.

Susan K. Carter - Chief Financial Officer & Senior Vice President

All right. That's great. So when I look at it – so the first thing that we did is we went back and said at the time that we gave the original 17% margin guidance for the Industrial business, the revenues in the business were in the range of $3.6 billion to $3.7 billion. If I look at where we're at today, we're roughly in the $3 billion type of territory.

So I think as we look at the business, we're doing all of the right actions today to get the costs in line, but I think what we need is market recoveries and I think the revenues to return to sort of that upper $3 billion range for us to get into the 17% margin. We think that's doable, but I think the timeframe is really highly dependent on when the markets come back.

Right now, we haven't seen the markets actually stop falling. So we need to stabilize first and then the markets to return, but again I think the way I'm thinking about it is once the revenues get back up into the $3.6 billion, $3.7 billion area where they were when we gave that guidance, that we'll be nearing those 17% type of margins for Industrial.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Remember, when you look at the gross margins of that business and look at the fixed cost of that business say relative to the Climate segment, you can see very easily why that business snaps back very strongly on volume. So when volume returns to that business, we'll get very aggressive incremental margins out of that. In the short term, we're controlling the heck out of costs the best we can. However, we're not going to spite our nose to save our face as it relates to capacity.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Thanks. And then just my follow-up quickly would be, on your overall firm-wide margin bridge, Q1 you had about 10 points or 10 bps from productivity and other inflation. I guess based on what you just said, should we think the number for the year ends up somewhere between that 10 bps and the sort of the 90 bps tailwind that you had last year for the year as a whole?

Susan K. Carter - Chief Financial Officer & Senior Vice President

I do think that you will – we do see other inflation to be higher in the first half versus the second half is when our salary increases takes place. That's when a lot of the benefits take place. So when I look at what we plan for the full year, I would say it probably looks more like 40 basis points to 50 basis points for the full year, Julian.

Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker)

Perfect. Thank you.

Operator

And our next question comes from Nigel Coe from Morgan Stanley. Your line is now open.

Nigel Coe - Morgan Stanley & Co. LLC

Yeah. Thanks. Good morning.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Good morning, Nigel.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Good morning.

Nigel Coe - Morgan Stanley & Co. LLC

Hi. I really hope Janet isn't calling a peak here. I don't think she is. But thanks for all the help.

Susan K. Carter - Chief Financial Officer & Senior Vice President

She is fine.

Nigel Coe - Morgan Stanley & Co. LLC

So this North American auto expenses is really interesting, Mike, and I'm assuming that's really driven by these large-type projects, finally some big spend (49:04). I'm just wondering what's changed here. I mean is it just a case of old equipment we're seeing here, so the extended replacement cycle can move through? Is it budgetary? I mean any color there would be helpful.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Yeah. Nigel, I think all that's true, but the constant persistent investment we've made over five years, six years, seven years in that business, the constant investment in the channel and the service footprint is really paying off. And I just think the focus we've had on all of that development being around energy efficiency, sustainability, new refrigerant development, all of that is such a powerful story when you look at it.

This is what we were waiting for. This is what we hoped to have seen, which is outsized growth relative to the market and outsized profitability or margin expansion relative to the market. So this is a huge effort by lots of people all the way through to the technicians providing service on the street for us. This is a real accomplishment.

Nigel Coe - Morgan Stanley & Co. LLC

Okay. And obviously very early to call 2017 at this point, but if you just look at your North American commercial HVAC operations based on the backlog of pipeline, is it reasonable to assume that perhaps you might see some acceleration next year?

Michael W. Lamach - Chairman, President & Chief Executive Officer

Well, the thing you have to think about though is what happens to the office and retail business. As an example, our national accounts business has been doing extremely well into retail. Office building is doing really well, as you can see, kind of the high-teens bookings rate again. Unitary, that's been strong again.

Some point you'd think that that would begin to subside and be replaced by stronger applied growth, which I think will happen. So I think what you end up with is maybe a change in the mix between unitary and applied, but I do think continued strong performance through 2017.

Nigel Coe - Morgan Stanley & Co. LLC

Great. Thanks, Mike. That's helpful.

Operator

And our next question from Steve Tusa from JPMorgan. Your line is now open.

Charles Stephen Tusa - JPMorgan Securities LLC

Hey, guys. Good morning.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Hi, Steve.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Good morning.

Charles Stephen Tusa - JPMorgan Securities LLC

On the Climate side, I mean just a very big margin number, obviously, and I'm trying to just wrap my head around the seasonality dynamics, 1Q to 2Q. In the last couple years you've had increases, like in 2014 you guys saw a doubling or almost a tripling of the profit number in Climate. Can you just maybe speak to maybe what you expect seasonally there or maybe just at a high level what you expect for the margin in that business as we move through the year? And my guess is the seasonality is a bit muted because you're now seeing the onset of commercial, which is a less seasonal business than some of these other things, or just maybe help us square that, just with the first quarter basis so high that just having trouble kind of getting low enough in Climate.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Yeah, Steve, so I think that looking at something certainly in the 16% margin range for the entire segment is going to make a lot of sense for us. Again, to Sue's point, price I think subsides a little bit, material inflation kind of clips along pretty much at the same rate, bookings look good, pipeline looks fairly strong. We're not seeing – the container business on the transport side being down of course is not all that problematic for us in terms of margins as long as European trailer and North American trailer are doing well. So you put that all together and you're probably dealing with something in the 16% range.

Charles Stephen Tusa - JPMorgan Securities LLC

Can you at some point soon kind of get to that 17%? Will you kind of hit that at some point this year?

Michael W. Lamach - Chairman, President & Chief Executive Officer

I don't know. I mean, really looking at Q3 and Q4 at that level of granularity around guidance, Steve, I don't know. I mean Q2 is seasonally a pretty good quarter for us. Quarter three can be. So we've got an outside shot at something like that.

Charles Stephen Tusa - JPMorgan Securities LLC

Okay. And then just on the kind of go-forward leverage, so you had this nice pop off the bottom on margins. Should we continue to expect that if this kind of current mix holds, that if commercial HVAC does really continue to roll on here and we have a bit more of an extended cycle than I think most people were expecting probably three months to four months ago, can you still leverage that business really well, or do you have to add cost or anything like that? I mean I feel like you got to have plenty of capacity here to let it rip a little bit before you start to throw money at the business from a capacity perspective, right?

Michael W. Lamach - Chairman, President & Chief Executive Officer

Well, the service business and the controls business are growing so well, too, and our margins are obviously much higher. So it's a little bit distorting about how we might think about fixed costs being factory costs. So I do think that there is some capacity we have even in our field service and controls capability that wouldn't require incremental investment. Obviously it's feet on the street, but we stay in front of that, and we typically hire long in the service business. So I don't see why having leverage for the full year – it starts with a 4 – would be a problem in the Climate business.

Charles Stephen Tusa - JPMorgan Securities LLC

Okay. And then one last quick one. You guys took up the price cost year-over-year by I think 40 bps you said, but you only took your margins up by 30 bps. Anything – that's just volume and mix at Industrial, is that kind of that moving part?

Michael W. Lamach - Chairman, President & Chief Executive Officer

Well, inflation kicks in just in terms of wage increases beginning in April for the full year, and we kind of see sort of the cost increase there as well. Puts a little bit of a squeeze...

Charles Stephen Tusa - JPMorgan Securities LLC

Okay.

Michael W. Lamach - Chairman, President & Chief Executive Officer

...on margins there. But fundamentally, Steve, there's not anything really changing other than the fact that it's hard to believe that price would stay high as it normally is, and material inflation should stay about where it is, but we're looking at just closing that gap a little bit probably from the price side.

Charles Stephen Tusa - JPMorgan Securities LLC

Great. Okay. Thanks a lot. Appreciate it.

Operator

And our next question comes from Jeff Sprague from Vertical Research Partners. Your line is now open.

Jeffrey T. Sprague - Vertical Research Partners LLC

Thank you. Good morning.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Good morning, Jeff.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Good morning.

Jeffrey T. Sprague - Vertical Research Partners LLC

Hey. Mike, can you just elaborate a little bit more on kind of the bookings strength? And was that a – that 25% number, is that global or are you speaking to the U.S.?

Michael W. Lamach - Chairman, President & Chief Executive Officer

It would be the North American commercial business.

Jeffrey T. Sprague - Vertical Research Partners LLC

North American commercial. It does sound like Europe, though, is fairly strong for you on share gain. How do you see that playing out over the balance of the year?

Michael W. Lamach - Chairman, President & Chief Executive Officer

I went – probably I saw five, six of our factories and operations in Europe a month ago. I met with the engineering teams. I saw product launching between August and December, Jeff. It's one of the best stories I've seen, absolutely the fastest cycle time between ideation and product launch. They're hitting it right on the money in terms of what the customers are looking for. It's been a great story for us on the ECC side in Europe.

But I'll also tell you, switching over to FRIGOBLOCK, FRIGOBLOCK was a family-run German company. If you put sort of a paradigm around that, you might think slow to change or difficult to incorporate in the operating system. What I found there was one of the fastest implementations of an operating system that we've put in place across the company. It's very exciting. And the openness around that – and then the openness of our transport refrigeration team to include that hybrid electric technology into the truck platform is also very positive. So I left Europe feeling very bullish.

Jeffrey T. Sprague - Vertical Research Partners LLC

And then could you address what's going on in 14 SEER? Probably still early in the season to know for sure, but does that price gap versus legacy 13 SEER holding in that 10% to 15% range?

Susan K. Carter - Chief Financial Officer & Senior Vice President

Yeah, Jeff, it is holding. And I think the great news about the 14 SEER is what we saw was the balance of 14 SEER and greater product is still about 80% of the revenues in 2016. So we're seeing price, we're seeing the favorable mix that we expected out of the product. And we're also seeing that the balance between 14 SEER and even the 15 SEER and above has not really changed, which does create a good environment as you alluded to with the price and cost differential.

Jeffrey T. Sprague - Vertical Research Partners LLC

So is that 40 basis points of positive mix, Sue, that you elaborated all in residential? Did you actually have more than that in residential than you saw somewhere else?

Susan K. Carter - Chief Financial Officer & Senior Vice President

So it was not all residential. It was a combination of residential and also Thermo King. On the Thermo King side, and one of the things that we saw was we saw more strength than we expected in truck and trailer both in North America and in Europe. And then the big declines on Thermo King came from the marine container business that I said was down about 60%. So the 40 basis points of mix was primarily from res and from Thermo King. And my recollection is it was split pretty evenly.

Jeffrey T. Sprague - Vertical Research Partners LLC

Thank you.

Operator

Our next question comes from Jeff Hammond from KeyBank Capital Markets. Your line is now open.

Jeffrey D. Hammond - KeyBanc Capital Markets, Inc.

Hey. Good morning, guys.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Hi, Jeff.

Susan K. Carter - Chief Financial Officer & Senior Vice President

Good morning.

Jeffrey D. Hammond - KeyBanc Capital Markets, Inc.

Hey. So what's driving the 1Q order growth in residential, and what gives you the confidence to kind of move that forecast up ahead of the selling season?

Michael W. Lamach - Chairman, President & Chief Executive Officer

Well, I mean first and foremost the product line really at this point has been fully developed, and we've hit stride, all the good success with the furnace product, all the good success with the new launches, the variable speed, growth in Nexia. All these things have just been really kind of coming together.

Operationally, we just find the pipeline for projects and productivity and quality to be improving. Deliveries have been exceptional in terms of on-time delivery and having product available where you need it, when you need it, really investing in the warehousing and investing in the product availability. So just a sense here that things have gone right for a long time here and that we'll do better, particularly as the mix moves up north of 14 SEER, which it is. So as the mix moves north of 14 SEER, we do better anyway. And as the mix moves more toward replacement and away from new construction, we'll do better.

Jeffrey D. Hammond - KeyBanc Capital Markets, Inc.

Okay. Great. And then how's the M&A pipeline kind of informing how you're thinking about buyback through the balance of the year?

Michael W. Lamach - Chairman, President & Chief Executive Officer

There is no doubt we want to grow the company and grow value over the long run. So we said we're looking at ideas and businesses that we know and run and are successful with. FRIGOBLOCK and Cameron were great examples; different examples but great examples of being able to take businesses, put them into an operating system, improve the businesses and deliver essentially what we said we were going to deliver from an accretion perspective. So we feel good about our capability in doing that.

We also feel patient. We feel like we don't have to – we're not compelled to do anything around M&A. We've got great positions in the marketplace, and there's not a compelling need for us to go do something and potentially do something where we pay too much in that process.

So, Jeff, we'll continue to evaluate that. When we see opportunities that fit the criteria we'll pull the trigger. And we clearly want to grow long-term value to the shareholder, and that's probably the best way to do it.

With that being said, you couldn't pass up in January. The stock price dislocated 20% from the peer group. I mean we jumped in on that and acquired $250 million in January at $51 a share. So we're going to be dynamic, we're going to be opportunistic, and we're going to grow shareholder value. If that means we find the right bolt-ons to do that, we're going to jump on those, too.

Jeffrey D. Hammond - KeyBanc Capital Markets, Inc.

Okay. Thanks.

Operator

And our next question comes from Steven Winoker from Bernstein. Your line is now open.

Steven Eric Winoker - Sanford C. Bernstein & Co. LLC

Thanks, and good morning. And also appreciate the additional detail in the disclosure today. It's helpful. Let's see. So first of all, Mike, how are you reconciling all of this discussion about commercial HVAC strong growth relative to what is pretty lackluster Dodge data, ABI, all these macro data points? Are you attributing it all to share, renovation, control, service? Just maybe a little clarity on that would be helpful.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Well, it's sort of all of the above, Steve, which is probably hard to give clarity on that. But if you take Latin America, we're up mid-teens in Latin America. That's clearly our people out in the street creating demand, making it happen. Mid-teens bookings growth in Asia. I mean Asia is not that strong. Again, our team is hitting the street.

Europe, we talked about product development, and the pace of product development there is best-in-class in the company and product management, best we have in the company around getting exactly right on these product growth teams and understanding where we're competing, how we're going to win against very specific competitors in the market.

These products launched, and they do exactly what they were supposed to do. That's a positive for us. So there's a lot of self-help here happening and the backdrop on the markets, with the exception of the Middle East, isn't bad. So you've got decent markets and really strong execution.

Steven Eric Winoker - Sanford C. Bernstein & Co. LLC

Okay. And how are you doing on – what's the growth rate on VRF in the quarter, progress, any developments there?

Michael W. Lamach - Chairman, President & Chief Executive Officer

Last year we were about 30% growth. This year we're about the same, Steve. We continue to do well on the market. We continue to sell VRF. We're beginning to also see interest in what's referred to as four-pipe chiller. So this is simultaneous heat and cooling around water circulating through buildings versus refrigerant. It's big in Europe, picking up a little bit of interest in the U.S.

The idea here is we're going to have whatever products are demanded in the marketplace, and then we're going to work with our customers to figure out what the best solution is for the building. And that's why our business was up 30% last year. It's why our business is up about the same this year as well.

Steven Eric Winoker - Sanford C. Bernstein & Co. LLC

Okay. Great. Thank you.

Michael W. Lamach - Chairman, President & Chief Executive Officer

Okay.

Operator

And that concludes our Q&A session. I would like to turn the call back over to Miss Janet Pfeffer for closing remarks.

Janet Pfeffer - Vice President-Treasury & Investor Relations

Thank you. And thank you, everybody. Joe and I will be available for follow-up calls later today and it's been a pleasure to work with all of you. Have a great day. Thanks.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.

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