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Ingersoll-Rand plc (NYSE:IR)

Q1 2012 Earnings Call

April 20, 2012 10: 30 am ET

Executives

Janet Pfeffer – VP-Business Development & Investor Relations

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

Steven R. Shawley – Chief Financial Officer & Senior Vice President

Analyst

Jeffrey D. Hammond - KeyBanc Capital Markets

Stephen E. Volkmann - Jefferies & Co., Inc.

David M. Raso - International Strategy & Investment Group, Inc.

Deane Michael Dray – Citigroup Global Markets (United States)

Nigel Coe – Morgan Stanley & Co. LLC

Jeffrey T. Sprague – Vertical Research Partners, LLC

Terry Darling – Goldman Sachs & Co.

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

Andrew Millard Casey – Wells Fargo Advisors LLC

Joshua C. Pokrzywinski – MKM Partners LLC.

Shannon O’Callaghan – Nomura Securities International, Inc.

Stephen Tusa – JPMorgan Securities LLC

Robert F. McCarthy Jr. – Robert W. Baird & Co.

Operator

Good day, ladies and gentlemen, and welcome to the Ingersoll-Rand First Quarter 2012 Earnings Conference Call. 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. (Operator Instructions) As a reminder, today’s conference is being recorded.

I would now like to introduce your host for this conference call, Ms. Janet Pfeffer. You may begin, ma’am.

Janet Pfeffer

Good morning. Thank you, Kevin. Welcome to our First Quarter 2012 Conference Call. We released earnings at 7 AM this morning, and the release is posted on our website. We’ll be broadcasting, in addition to this phone call, through our website at ingersollrand.com, where you will find the slide presentation that we will be using this morning. The call will be recorded and archived on our website.

If you would please go to slide 2. 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 Securities Laws. Please see our SEC filings for a description of some factors that may cause actual results to vary from anticipated. This release also includes non-GAAP measures, which are explained in the financial tables attached to our news release.

Now, I’d like to introduce the participants on this morning’s call. We have Mike Lamach, Chairman, President and CEO; Steve Shawley, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations.

With that, please go to slide 3, and I’ll turn it over to Mike.

Michael W. Lamach

Thanks, Janet. Good morning and thank you for joining us on today’s call. Earnings per share from continuing operations for the first quarter were $0.31, $0.08 above the midpoint of our guidance range of $0.20 to $0.26. As this is usually the case, there were some puts and takes in the quarter.

The tax rate and other income expense went favorable by about a $0.01 each. We had a favorable stock-based compensation adjustment of $0.03 that was not in the forecast. Restructuring spend was about in line with our estimate, higher than expected inflation was offset by favorable overhead spending, the margin associated with the higher revenues was essentially the difference between the midpoint of our guidance and the $0.31 we reported.

Although, it was somewhat better than our expectations, markets were generally in line with our outlook with slow growth environment. In the first quarter, we saw revenue growth of 3%, excluding the Hussmann refrigeration business from the 2011 comparison. We experienced moderate growth in revenues in Industrial and low growth in Climate and Security.

Residential revenues were down year-over-year as residential HVAC revenues declined high single-digits, but residential security revenues were up high teens. As a reminder last year’s first quarter HVAC revenues were strong up 12% from channel restocking.

Excluding Hussmann, the orders were up 6% and 7% excluding currency. Operating margin for the quarter was 6.7%, down 30 basis points versus prior year. If we exclude Hussmann from last year, margins in Q1 were down 90 basis points from the first quarter of 2011.

Although, margins improved from pricing and productivity, they were depressed by higher planned restructuring and investment spending year-over-year as we discussed in the February earnings call. All of our businesses continue to realize positive pricing and in the first quarter, our pricing outpaced direct material inflation for the fourth consecutive quarter.

Please go to slide 4. Those of you that attended our recent Investor Day are aware of our ongoing focus in investment and innovation to accelerate our revenue growth. We steadily improved the flow of new products and services to the market over the last several years. Our goal for 2012 is 25% of revenue to come from new products and services introduced in the last three years, which we equal approximately $3.6 billion in revenue. We are on track to reach this goal and we expect to introduce new products in all of our businesses during the year.

The health and vitality of the portfolio is in excellent shape and we’ll continue to build our organizational capability and increase our investments to faster innovation over the next few years.

We also continue to make progress in our operational excellence initiative, which is our long-term approach to a lean transformation of the company. This is the multi-faceted effort that will reduce working capital, expand margins, and ultimately increase market share across our businesses.

We have expanded all 19 value streams to include the entire value cycle from [clot] to cash and we will add five more value streams during 2012. As we indicated in February, we have won several restructuring programs and therefore restructuring expenses are frontloaded in the first half of the year in order to accelerate the benefits during 2012.

And now Steve will take you through the quarterly results in more detail.

Steven R. Shawley

Thanks, Mike. Please go to slide number 5. Orders for the first quarter of 2012 were up 6% overall, 7% excluding currency. During the quarter, we saw positive year-over-year bookings in all sectors, global commercial HVAC and residential HVAC bookings were up high-single digits.

Transport demand was up slightly, with strong demand in North America offset by soft European truck trailer orders and significantly lower marine demand. Commercial Security orders in the quarter were up 3%. Industrial orders were up slightly with strong growth in the Americas offset by weaker activity in Europe and Asia.

Please go to slide 6. Here is a look at the revenue trends by segment. The revenues excluding currency, shown on the bottom of the chart, give a better view of our organic growth. Note, the Climate and the total data for the first quarter excludes Hussmann from the comparisons.

First quarter revenues were up 4% excluding currency. Climate revenues increased 4%. Industrial had a strong, but moderating growth at 9%. Residential was down 3%, as well our HVAC revenues more than offset residential security with revenues.

Commercial Security revenues were up 2%. On a geographic basis, revenues were up 4% in the U.S. and up 1% in the international markets, up 4% internationally, excluding foreign exchange.

Please go to slide number 7. This chart walks through the change in operating margins for the first quarter 2011 were 7.6% to first quarter 2012, which was 6.7%. This data excludes Hussmann for comparison purposes. The positive impact of volume was more than offset by a negative mix particularly in the residential HVAC business and foreign exchange creating a 50 basis points headwind in the margins.

Our pricing programs continue to outpace material inflation adding 140 basis points to margin. Productivity offset by other inflation was neutral for margins. Year-over-year investments and other items were higher by 180 basis points including a 70 basis point impact from higher restructuring.

In the box, you can see incremental restructuring by sector with most of the impact in Climate and Industrial as anticipated. Total investments includes other cost reduction and growth investments, as well as restructuring.

Please go to slide number 8. The Climate Solutions segment includes Trane commercial HVAC and Thermo King transport refrigeration. Total revenues for the quarter were almost $1.7 billion. That is up 3% from excluding Hussmann from last year. Revenue was up 4% excluding foreign exchange. Global commercial HVAC orders were up 9%, with global equipment orders up mid single-digits and parts and services up mid-teens.

Trane’s commercial HVAC first quarter revenues were up 4%. HVAC revenues in North America were up mid single-digits. Revenues in Latin America and Europe and the Middle East were also up, while revenues in Asia were down slightly. Commercial HVAC equipment revenues increased low single-digits. HVAC parts, services, and solutions revenues were up mid single-digits versus prior year.

For the Thermo King transport business, revenues increased low-single digits. Worldwide refrigerated truck and trailer revenues were up mid-single digits, with strength in North America and flat volume in Europe. Thermo King orders were up slightly in the first quarter. Global APU and aftermarket revenues were also increased during the quarter. The marine container business however was down significantly versus last year.

The operating margin for Climate Solutions was 5.7% in the quarter, a 40 basis points decrease versus first quarter of 2011, excluding Hussmann. Pricing and productivity were more than offset by inflation, higher restructuring and spending on investment initiatives.

Please go to slide 9, Industrial Technologies first quarter revenues were $689 million, up 8% on a reported basis and 9% excluding FX. Air and productivity revenues increased 9% versus last year, air and productivity orders were up slightly.

Club Car revenues in the quarter were up 2% and orders were flat in the prior year. Industrial’s operating margin of 13.3% was flat compared with last year, this higher revenues, pricing and productivity was offset by higher restructuring and investment spending, inflation and mix.

Please go to slide number 10. In our Residential business, first quarter revenues were $422 million, were down 3% compared with last year on both the reported basis and excluding foreign exchange. Bookings were up 10% with increases in both HVAC and Security. Our Residential HVAC revenues were down 8% and the sluggish housing market depressed the market for HVAC systems, however, we did see an improving trend as we move through the quarter. We estimate that the first quarter industries unit shipments were down low teens versus the first quarter of 2011 with declines in all major equipment categories.

Revenues for the residential security portion of the sector were up high teens with the increases in the new builder channel, big box and the South American customer volumes. Sector operating margin was negative 2.5%, was down 4.3 percentage points compared with 2011. Improved pricing and productivity were more than offset by lower volume, adverse mix and inflation.

Please go to slide 11, revenues for Security Technologies were $379 million, up 1% and up 2% excluding currency. Americas’ revenues were up slightly and overseas revenues were down slightly. Global bookings were up mid-single digits. The Americas were also up mid-single digits.

Operating margin for the quarter was 18.5%, down 50 basis points from last year, as productivity and price realization were offset by inflation and unfavorable revenue mix.

Please go to slide 12. We finished the first quarter with working capital of 3.4% of revenues, an improvement of 1.9 percentage point versus the first quarter of 2011. Given the seasonality of our businesses, we not only use cash in the first several months of the year. Available cash flow in the first quarter was an outflow of $36.5 million, an improvement of $68 million versus last year’s first quarter.

Please go to slide number 13. We continue to execute according to our balanced capital allocation strategy, which is unchanged from what we’ve discussed at the Analyst Meeting in March. This week we paid off the maturing convertible bonds. We also issued shares to settle the convertible premiums that were attached to those bonds. The impact of the converts has been, in our dilution calculation since issuance. The settlement nearly includes the dilution impact for the basic share count.

So with that I’ll turn it back Mike to take you through the forecast.

Michael W. Lamach

Great, thanks Steve and please go to slide 14. Our revenue outlook for 2012 is essentially unchanged from the guidance that we gave you in February. Activity to date and our outlook continue to indicate low-to-moderate growth across our portfolio.

Europe has been weak as expected, Asia has been somewhat within our expectations year-to-date, U.S. is a little bit stronger in commercial HVAC and as expected we saw moderate growth in transport markets in North America with some contractions in Europe.

We think continuation of the current conditions in residential markets as single-family housing starts and consumer confidence remain at low levels. We expect R-22 and lower SEER units to remain at significant portion of the flattish market in 2012. For commercial security we expect to see a continuation of challenging conditions in the U.S. non-residential new construction market for the remainder of the year, particularly in our key institutional markets.

Foreign exchange will be a headwind in 2012 adversely impacting growth by about two points. We are maintaining a revenue range for full-year 2012 of $14 billion to $14.4 billion, that’s flat up 3% compared with 2011 revenue, up $14 billion excluding Hussmann. Excluding FX the organic growth rate is 2% to 5%.

Please go to slide 15. Similarly we are maintaining our full-year EPS from continuing operations guidance range of $2.90 to $3.10. We continue to expect to generate available cash flow of about $1.1 billion. Second quarter revenues are forecast to be $3.8 billion to $3.9 billion.

Revenues on a comparable basis excluding Hussmann are forecast flat up 3% versus second quarter of 2011 that includes FX which will be a headwind of about two points. And then excluding FX, revenues will be up 2% to 5%.

Earnings per share are forecast to be $0.85 and $0.90. In the second quarter, restructuring spend will be about $0.03 higher year-over-year [to] implement cost reduction programs. Additionally, recall that in the second quarter last year, we got a $23 million gain from the sale of assets from the factory consolidation, we are assuming a share count of 315 million shares and a tax rate of 25%.

Please go to slide 16. We started 2012 slightly ahead of our forecast, delivering revenue and EPS above the expectations, but as you know the first quarter is a seasonally low quarter for us at $0.31, first quarter earnings represent just a bit over 10% of our 2012 annual guidance range.

So far, we’ve seen a few growth areas that were better than our expectations, while others started the year a little lower. So unbalanced things still look about how we expect it.

We are focused on continued change and improvements to ensure that we’re managing our business optimally across the spectrum of economic conditions. Our focus on positioning the company to see growing revenues, earnings and cash flow by employing tailored strategies across diverse markets.

We continue to feel good about our company and our progress. We have portfolio of outstanding market leading brands; we continue to demonstrate our ability to generate high levels of cash flow even in the face of a challenging backdrop.

The long-term attractiveness of the end markets in which we operate and our competitive positioning will allow us to benefit as those sectors of the economy improve and a strong penetration and positioning in emerging markets provide us with significant growth potential.

As said last quarter, we realized that we cannot rely solely on these fundamentals to achieve our goals and our management team is committed to actively managing the company to generate sustainable profitable growth. With a setback in February, we are not waiting for macroeconomic lift to improve our business instead we’re proactively working to reduce costs and invest in our growth markets.

With that Steve and I’ll be happy now to take the questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from Jeff Hammond with KeyBanc Capital.

Jeffrey D. Hammond - KeyBanc Capital Markets

Hi, guys. Good morning.

Michael W. Lamach

Good morning, Jeff.

Steven R. Shawley

Good morning, Jeff.

Jeffrey D. Hammond - KeyBanc Capital Markets

So just trying to understand the moving pieces a little bit better in 2Q, so your share counts weigh down and the offsets are the China gain and the higher tax rate. But how should we think about your incremental margins on the modest revenue growth relative to some of the negative leverage you signed in 1Q?

Michael W. Lamach

Jeff, we will just give you a bit more of a Q2 bridge share and then we can talk about the pieces inside that. But last year second quarter, of course is $0.92 and it included $0.7 from Hussmann and $0.5 from the gain on sale we mentioned about the plant in China, which brings us $2.80 starting point. The share count, you’re right. $3.50 to $3.15 is the share count, which add back $0.09.

The restructuring spend will be about $0.03 higher this year and then if you add volume price mix, it adds about $0.05, assuming a 50% conversion on that. And then if you look at higher investments, productivity and inflation, lower interest and taxes and FX and that’s about $0.03 negative and that gets you back to the $0.88 midpoint. When you pull out sort of the one-time last year and look at the leverage in Q2 we’re estimating at about 20%.

Jeffrey D. Hammond - KeyBanc Capital Markets

Okay, that’s helpful on the bridge. And just quickly on residential, can you talk about what’s driving some of the improvement, is it weather related or you are seeing some traction from R-22 in Ameristar?

Michael W. Lamach

Yeah, our mix of (inaudible) level system which is up quite a bit, we would have been running at about 62% in the past, we’re running at about 66% today. So as strategy we’re trying to play across, the whole portfolio is working in terms of unit volumes for us. Actually, January and February were very slow for us, March was a very big, important month for us. And so it’s tough to look at a trend there up one data point in March, but there are some signs that you are seeing, some progress here in the market. In addition, we’re in the market with product at a price point that’s competitive and the fact within supply chain are working as they should. So that’s really kind of where we are right now in that business.

Jeffrey D. Hammond - KeyBanc Capital Markets

Okay. Thanks guys.

Steven R. Shawley

Thank you.

Operator

Our next question comes from Stephen Volkmann with Jefferies.

Stephen E. Volkmann - Jefferies & Co., Inc.

Hi, good morning, guys.

Michael W. Lamach

Hi, Steve.

Steven R. Shawley

Good morning.

Stephen E. Volkmann - Jefferies & Co., Inc.

I’m wondering if you could just comment a little bit, it sounds like the raw material cost inflation has been a little ahead of what you’ve been expecting, what surprises me a little bit. Can you just sort of flush that out or maybe I’m just reading it wrong?

Michael W. Lamach

Yeah, actually material inflation for us has been fairly well behaved so far this year, in fact first quarter material inflation was actually somewhat below our original expectations, and our material forecast for the whole year 2012 is not significantly different from what we told you in February. What we’re seeing is some other inflation, and that’s going to be in areas like trade and logistics, fuel for our service vehicles, and some benefit related costs.

Stephen E. Volkmann - Jefferies & Co., Inc.

Okay, good that’s helpful. And then, can you just sort of remind us the way that the restructuring is likely to kind of go through, I think most of it’s coming in the first half and do we expect it to still be a headwind in the second half or actually turn and be a tailwind in the third and fourth quarters?

Steven R. Shawley

Our first year forecast for the full year is unchanged, what we said back in February and the spend, you’re right it’ll be front-end loaded, so versus prior year it’s about $0.07 higher for the full year, despite being favorable year-over-year in the second half.

So, we commented about $0.07 in Q1, we essentially we’re on track with that. We got a bit more to do here in Q2 and then we’ll get favorably in the back half of the year. So, in total it’s about $0.07 on the year.

Michael W. Lamach

When I speak about the tailwind in the second half is in fact we’re spending it in the first half, we’re also getting the productivity and cost reduction in the second half. So, it’s less spend and more savings in the second half.

Stephen E. Volkmann - Jefferies & Co., Inc.

Great, that’s helpful. Thanks very much.

Michael W. Lamach

Welcome.

Operator

Our next question comes from David Raso with ISI Group.

David M. Raso - International Strategy & Investment Group, Inc.

Hi, good morning. On the second quarter revenue growth ex-FX, ex-Hussmann, it’s modestly slower than you saw in the first quarter. But your orders accelerated the year-over-year growth rate. Can you give us an update what you’re seeing so far quarter-to-date or square up why an acceleration in order growth in the first quarter given you slower core growth in 2Q than 1Q?

Michael W. Lamach

Yeah Dave, I’ll give you some puts and takes on that relative to what we’re thinking, last time we were on a call. One of the surprises for us in Q1 was the strength of the North American unitary business and there we had bookings in the quarter North America, up 17%. That’s also one of the value streams we’ve been working on now for a couple of years, mainly around cycle times and quick ship on products. And so, in a lot of ways the orders that we took in January and February in that business, we were able to ship in the quarters. So the turn on that business was very quick for us.

We also had similar event happening with products and service where we sell products and service booking and the Climate business up about 15%. Again very quick turn ship on that in terms of the ability to deliver services in that area of the business. So, some of what we saw in terms of the high bookings in quarter one were evidenced in the revenues in quarter one, where we’re able to book and ship that pretty quick.

Probably a third one that comes to mind is the security business in the Americas, where we actually had a quarter which was a little bit better than we expected in the Americas and for a lot of that business we’re able to ship that in a matter of hours and a few days as opposed to weeks or months, so that’s relatively quick ship as well.

So, I think it kind of normalizes back down to a view, so that we had initially for Q2. On the flip side of that saw a slower activity in China, up tick in HVAC. We saw slower than a pretty negative outlook that we had in the container business globally. So that was a little bit of a slowdown for us beyond what we anticipated. So in that we think it’s a pretty realistic forecast for Q2 revenue.

David M. Raso - International Strategy & Investment Group, Inc.

Well I guess that quick turn of order into shipment in the quarter, basic question, would you mind giving us the backlog year-over-year, March 31 versus the year-over-year backlog growth at the end of the fourth quarter?

Steven R. Shawley

Yeah, Dave, I don’t have the backlog numbers in the front of me, but we can get to the backlog numbers here probably offline.

David M. Raso - International Strategy & Investment Group, Inc.

Okay. Then last question is the back half of the year, you touched on it earlier about some of the tailwinds you’ll have year-over-year, but obviously, the implied second half year-over-year growth is also pretty modest and you expect to turn on to some pretty big margin improvements? Could you quantify the savings Steve, you mentioned some of the actions you’re taking now, which businesses are they in, and how quick it turn, I mean, do you quantify it?

That is not the only issue around the guidance, maybe the revenue is conservative potentially maybe not debatable, second quarter margins don’t look that difficult, but the back half is asking for some expansion in margins that we haven’t seen in 1Q nor we expect in 2Q? I’m showing a real better clarity around the cost savings you expect in the back half in some of these first half actions?

Steven R. Shawley

Yeah, I think if you look at the productivity piece of (inaudible) first half to second half, we would see at least $60 million to $70 million pick-up in additional productivity. It is because of the early spending of restructuring, cost effect just getting traction on everything we’re working on. So we definitely see that type of a jump in just productivity or savings first half or second half. And if you look at the amount of restructuring spend, there is probably another at least say probably about $20 million, $25 million less. Restructuring spend in the second half or the first?

David M. Raso - International Strategy & Investment Group, Inc.

Okay. Yes that’s the big number Steve. The $65 million alone on the implied second half sales would almost be 90 bps right there and then the productivity lower, I mean, that’s the lower spend you decided of $25 million nor the 30 bps plus a 120 bps right there, it’s really that 65 of savings is the amount if you want to see it play out if you really can get it. But that $65 million is a big number, that’s only about 100 bps margin right there. So the question about where is that? Which businesses you expect that [figure] save after first half?

Michael W. Lamach

Yeah, Dave it’s Mike. One of the things we’re going to see is that, what we will do in the residential business essentially, we have a plan profit increase in the second half of $27 million more than last year on lower revenues there. So that is really working itself out over time as well, back half of the year as well would have a couple hundred million dollars in revenue for us. So that would leverage up particularly coming into the Climate business I would assume.

David M. Raso - International Strategy & Investment Group, Inc.

Okay. That’s really helpful. Thank you.

Operator

Our next question comes from Deane Dray with Citi.

Deane Michael Dray – Citigroup Global Markets (United States)

Good morning, everyone.

Michael W. Lamach

Hi, Deane.

Steven R. Shawley

Hi, Deane.

Deane Michael Dray – Citigroup Global Markets (United States)

I was hoping to get more color and how March actually played out, because one of the surprises pleased to me at that Analyst Day was how the last two weeks of March can really drive up to 40% of the quarter sales. So, how did that actually play out and longer-term how might you change either the sales incentives to get a more level loaded quarter or is it just the nature of your end markets?

Michael W. Lamach

Really in the residential HVAC, Deane, I don’t think that incentives are going to drive the different behavior there, although it’s interesting to think about that from a dealer and distributor point of view. But the dynamics in the industry are pretty well set in that regard. Yeah, that was a place that we really saw the most res, so we would have started January kind of down around 20% but it seems February down around 7% and March is just the phenomenal month up more than 40% in terms of the overall booking.

So, you can get a feel for the kind of risk that goes into a quarter particularly in the back half of the month of the, I hope March, and even the last week or so.

So if we were together at the meeting, we were looking for a big March and we got a little bit bigger March than we even thought, so that was a positive sign for us. The other business is a lot more linear than that. The exceptions are going to be those that are either Climate related, which would be like commercial, office space, where we have unitary product going into that market it would be a bit more seasonal, as well as the construction cycles, for some of the institutional market schools in particular would drive little bit of non-linearity for us in our outlook.

Deane Michael Dray – Citigroup Global Markets (United States)

And then over on the Climate side, in the marine market this quarter, you saw high profile competitor enter the marine controls market. Now, this is not a captive player, but does it change any of the dynamics from your perspective?

Michael W. Lamach

Yeah, we are aware of that. There are suppliers to us in a few areas, I don’t think it changes the dynamics much on that that we both have our own controls and we partner with Emerson or before that JCI in that business. So I don’t think it changes a whole lot.

Deane Michael Dray – Citigroup Global Markets (United States)

Great, thank you.

Michael W. Lamach

Welcome.

Operator

Our next question comes from Nigel Coe with Morgan Stanley.

Nigel Coe Morgan Stanley & Co. LLC

Thanks guys, good morning.

Michael W. Lamach

Good morning.

Steven R. Shawley

Good morning.

Nigel Coe Morgan Stanley & Co. LLC

So I just want to dig into the sense that you quote out in the North American new entry market, do you think that’s a fundamental turn the market versus a little bit of weather impact?

Michael W. Lamach

Yeah, Nigel it’s really, it is interesting because the dodge even data were support in the non-institutional markets that was an area of growth in the quarter. I think, it’s a combination, it was really in our office and retail and that’s going to effects that include sort of aging systems much like you see in Res business as well as some seasonal factors as well as the of course warm winner and a little early spring and summer. So I think all of that kind of combined.

Our focus has been on really trying to look at some that discretionary quick shift business we’ve been targeting that. I think we have some success there as well and being able to convert some of that business and they compete little differently on cycle times there, but I think that contributed as well.

Nigel Coe Morgan Stanley & Co. LLC

And how would you characterize your applied market?

Michael W. Lamach

It is very interesting Americas were strong in terms of a bookings, EMEA was okay but expected, Asia was weak and Asia for us whereabouts with 50% China, 50% rest of Asia. Rest of Asia was okay, China was very weak. But I was in China and India couple of weeks ago and China actually early April and we picked up an order there from a customer for 100,000 tons (inaudible) on a single order. So that is spread over the course of the year, so this was the large orders that can swing us still are therefore I think that the market is going to recover in China. I think by the end of the year we’ll see sort of a recovery take place, but the first quarter was very weak.

Nigel Coe Morgan Stanley & Co. LLC

But then going from 1Q to 2Q, some companies we cover I am talking about visibility in China getting better, growth rate is picking up in 2Q, are you seeing that in your markets?

Michael W. Lamach

Yeah, I mean, I’ve evidenced the order that we got when I was there, we would be decided. But also just going through the reviews inside the company there was a lot of visibility that was happening in the market. I didn’t get a sense of the activity level was down. I walked away feeling good about balance of the year.

Nigel Coe Morgan Stanley & Co. LLC

And then just quickly digging into the upper leverage with 2Q, you talked about 20% underlying incremental margins in 2Q, if we take away residential, I’m sure that will be impacted. How does that look for the rest of the businesses?

Steven R. Shawley

Well Res is a contributor, no question about that but the security is the one where we probably get the most of our restructuring going on there.

Nigel Coe Morgan Stanley & Co. LLC

Yeah.

Steven R. Shawley

So security alert, you know, the idea I think if you pull out restructuring they’re doing there, they are actually going in the right direction there, but that will be the one where we will see the restructuring that takes place and of course the high margin business that will hurt.

Nigel Coe Morgan Stanley & Co. LLC

Yes.

Michael W. Lamach

In final it will be a little less than you would expect because of the mix shift we will see more obviously Trane commercial equipment in the quarter, which benefits the mix down a little bit.

Nigel Coe Morgan Stanley & Co. LLC

Okay and then just finally potential margins in 2Q?

Michael W. Lamach

Yeah, 2Q margins, I think you’re going to be kind of in that 7% maybe to 8% range in the quarter. We will look at some growth there probably 1% to 4% for us that that support little bit of what we saw in March continuing through here in early April.

Nigel Coe Morgan Stanley & Co. LLC

Okay, thanks, Mike.

Michael W. Lamach

Yeah.

Operator

Our next question comes from Jeff Sprague with Vertical Research.

Jeffrey T. Sprague – Vertical Research Partners, LLC

Thank you, good morning, everyone.

Michael W. Lamach

Hi, Jeff.

Steven R. Shawley

Hi, Jeff.

Jeffrey T. Sprague – Vertical Research Partners, LLC

Hey, Mike, I’m wondering if the March order strength you saw constitutes any efforts to rebuild the inventory at this point or Steven, kind of early warrants in April kind of starting any kind of figures probably too strong order, but kind of urgency around channel inventories as we look into the season.

Michael W. Lamach

Jeff, I’d say rebound now for about a year trying to work on a whole different sort of inventory model for our wholesalers and for the dealers and for our wholly-owned wholesale teams. And so the replenishment rates that we’ve got is much faster than ever used to be in a high design. So, we are not a good judge of looking at sort of channel inventories and being able to engage the model restocking that’s going to take place, but I don’t see any additional comments in it.

Steven R. Shawley

Yeah, what we had to do, Jeff, is look at our independent distributors and we looked at the inventory levels in that channel that’s probably flat. So we think there were some pull through in even March for what’s all true. So, right now it didn’t look like there’s any problem on the horizon in terms of inventory build in the channel.

Jeffrey T. Sprague – Vertical Research Partners, LLC

All right. And then, can you give us a little color on what you are seeing in the energy retrofit markets incline and I’m wondering if you’ve seen the public spending fall off and if there is any pickup as it relates to kind of more commercially driven activity?

Michael W. Lamach

Well, institutional markets in general has been weak, total markets have been weak, but healthcare and education aren’t too far behind. Interestingly, we’ve had couple of large wins in the performance contracting area, in the area of education. So this is that our dynamics that happens when funding gets little tighter, but do see some of the vertical markets particularly education and healthcare, which tend to result more to performance contracting to services to pay for the retrofit.

So we saw some of that in the first quarter and there is some large active proposals in those verticals, outstanding in the second quarter. So, I do think that there is a little of bit of shock absorber in that as it relates to performance contracting and we did see a little of bit of a pick up in the size and in volume, our proposals in that area relative to straights that retrofits.

Jeffrey T. Sprague – Vertical Research Partners, LLC

And just finally, can you give us just a little more granularity on how weak marine was and kind of what was going in the Europe truck, trailer market to Thermo?

Michael W. Lamach

Yeah, I know that container was down, I think, not sure of the number here.

Steven R. Shawley

About 30%.

Michael W. Lamach

30%.

Steven R. Shawley

Revenue.

Michael W. Lamach

Truck and trailer were up a little bit better than we expected, (inaudible) was above what we expected. Container was down to offset the favorability in the Americas.

Jeffrey T. Sprague – Vertical Research Partners, LLC

Okay. Thanks, guys.

Operator

Our next question comes from Terry Darling with Goldman Sachs.

Terry Darling – Goldman Sachs & Co.

Good morning, guys.

Michael W. Lamach

Hey, Terry. Hi.

Terry Darling – Goldman Sachs & Co.

Hey, Mike. Sorry for the confusion here. Did I hear you say that the quarter has $0.03 favorable from lower compensation expense that you expected?

Michael W. Lamach

Terry, stock-based compensation, yes, there was $0.03 of favorability that we had not forecasted. You are correct.

Terry Darling – Goldman Sachs & Co.

Okay. And so we should not think about repeatable or are there some positive on a full-year basis, they extend forward?

Michael W. Lamach

We’ve actually just changed the run rate going forward. We were calculating it differently and so we made the adjustment in the quarter. So going forward, just part of run rate going forward, but no, will not be an incremental pickup year-over-year.

Terry Darling – Goldman Sachs & Co.

Okay. That’s helpful. Jumping back to the Resi business on the down for the HVAC fees, wondering if you might break that out, unit versus price?

Steven R. Shawley

Terry, I missed the first part of your question. What particular part of HVAC?

Terry Darling – Goldman Sachs & Co.

Resi solutions.

Steven R. Shawley

Yeah.

Terry Darling – Goldman Sachs & Co.

In fact revenues down 8% in the quarter, so I want to get a feel for price versus units there?

Steven R. Shawley

Yeah, price is still positive. We’re getting a couple of points of price across each of the businesses. So I think gas volumes were down probably about 10%.

Terry Darling – Goldman Sachs & Co.

Okay. And I guess you will take out…

Steven R. Shawley

That would be the total motor bearing unit market, okay. That would be our piece of the total motor bearing unit in the whole thing, okay, all equipment lines. We were down about 10% in volume, okay.

Michael W. Lamach

The market was down 13%. We were about down 10% and we picked up a couple of points back up in price. So that’s how I got (inaudible)

Terry Darling – Goldman Sachs & Co.

Maybe you just answered my next question, but we are picking up that just on the resi side that you are seeing some increased price discounting or some of the increases from the last fall. We’re not speaking here, maybe it’s just March reactions at a weaker volumes in January, February, people hedging their client load as you look into the second quarter. How do you guys feel about the price dynamics in that market right now? And is there a chance for some upside on the unit side as well as you see what’s going on in April so far where you just not have an update on April so far to go that far?

Michael W. Lamach

Sure. One thing I think that hopefully is going to play a lot for us in Q2 is the fact that last year we didn’t have a competitive product, the 13, 14 SEER and so, what we’re doing was doing with that through some price. Now it is as we find is competitive situations out there, we got competitive 13, 14 SEER products. So we are not having to switch Trane brand or Ameristar brand into the opening price point where they will be able to (inaudible) so there is an advantage there that I think we got Q2 and how we deal with that. So the substitution would have been last year what occurred to the same extent this year.

Terry Darling - Goldman Sachs & Co.

Okay. And just how you’re feeling about the approach competitors are taking with price?

Michael W. Lamach

Well, I’m not hearing a lot about sort of people dropping price from the marketplace. It’s been competitive for two, three years to this point really. So, no new ways coming out or ways to panic around anybody dropping price. There is lots of price adjustments going on, I think, as people are fine-tuning what would have been a 2009, 2010, more of a blanket approach for pricing. So I have heard particular models and combinations going up or going down based on just fine-tuning now that approach to the marketplace. Everybody took more of a (inaudible) spread around price to move it quickly into the marketplace and again anything that’s fine-tuning takes place now I think.

Terry Darling - Goldman Sachs & Co.

Okay. And are you just using the Ameristar brand and R-22 or are you using the Trane brand as well?

Michael W. Lamach

Now we’ve got Ameristar and both 410A and R-22.

Terry Darling - Goldman Sachs & Co.

Okay. Thanks very much.

Michael W. Lamach

Welcome.

Operator

Our next question comes from Steven Winoker with Sanford Bernstein.

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

Good morning.

Michael W. Lamach

Good morning.

Steven R. Shawley

Hi.

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

I’m just trying to make sure I understand the guidance question for the full-year. Since you didn’t [flow the B through] from the quarter at all, you held your full year guidance relative to the B. Just help me understand what again is either you’re spending more in the investment side, where is the disconnect that I’m missing, why didn’t you flow it through?

Steven R. Shawley

Well, the revenue was quite a bit above the midpoint, $75 million above the midpoint, and I see that moderating, Steve. I just don’t see that really. I don’t see that as a trend. I wouldn’t call the month of March a trend here. We’d want to see more data points before we would gotten away and then say that we’re seeing a sustained recovery in the residential or in commercial HVAC. I really need to see at least from a quarter of that sort of recovery and indeed before I would really want to take a range off or change things.

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

Okay. So it’s really a top line. It’s not additional investment, additional restructuring or additional – or a lower conversion or any of that?

Steven R. Shawley

No. Everything pretty much stays the same. It’s just we felt like we saw a lot of volume and we don’t want to get carry away here at a sustained recovery.

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

Okay, great. And then, just again as always trying to make sure that I have a handle on the beat of traction in productivity and how that’s progressing across the business units. I know you do reference it in a couple of spaces in detail, but if I look at that chart again on page seven, and I’ve got a zero, how big was the – you talked about mostly just the other inflation side being a little bigger than you expect. By my view of the marketplace, I am expecting that other inflation to be about 3% or so. Am I way off on that?

Steven R. Shawley

No, you’re not.

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

Okay. And therefore that would sort of imply the same thing around productivity. Are there any other, I mean, do you see accelerating, but Mike can’t see, are you seeing accelerating improvement on that productivity metrics that we used to watch?

Michael W. Lamach

There is so much investment in Q1 and Q2 there to see that, absolutely have to accelerate Q3 and Q4. The restructuring we signed up for the investments we made whether it’s specific to productivity or a pay back that we expect to get is late in the fourth quarter, but we expect to get them.

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

But even this past quarter, if you just take out the restructuring, all that and just look at the value streams, look at the impact of those, are you seeing the financial impact?

Michael W. Lamach

Yeah, I mean, we are seeing that. We are operating within our capability here. We’re pretty accurate at this point in time about being able to forecast that. So there were no surprises in Q1 around, I would say productivity, when you pull out the investments in the restructuring. I think that we’ll see additional material productivity towards the back half of the year. We just want that team fully in November, to get the feet underneath them going forward that that plans or strategies didn’t impact. But that takes time to actually make those changes both whether at [this current price or at this prior] change itself and that typically will be more backend loaded, but I don’t see any breakdown or surprise in Q1.

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

And that material productivity did that show up in the price material inflation segment or the productivity other inflation segment? And …

Janet Pfeffer

Price material inflation.

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

Okay, great. And are you [tie up]? I know we see no. Are you making progress on the [tie up] side and for example Resi (inaudible) when you talk about March in the quick, or in the light commercial and quick ship that means that you [tie up] processes have got to be getting better, also is that your perspective or…?

Michael W. Lamach

Yeah, so I mean we’ve really from a (inaudible) process were sorting out the sourcing organization, was put in place, an independent separate materials organization throughout the business, and then work on this whole set, planning with the materials organization. So we’re definitely seeing that. We’re seeing in a working capital. We’re seeing that as well in just our days outstanding the customers in terms of (inaudible) and days past there we’re seeing. It’s a benefit. It’s a primary focus across all the businesses. Obviously, the Resi HVAC folks are working on that very diligently. Ameristar is a good sign for us. We began taking orders in March. We began shipping in April and we are able to match that up fairly well.

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

Thanks. Okay.

Steven R. Shawley

If you look at the growth balance sheet statistics, our inventory returns in the quarter were six times of returns better than they were in Q1 last year.

Michael W. Lamach

Yeah.

Steven R. Shawley

So it’s going well through the enterprise.

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

Yeah, I saw that. That’s great. All right, thanks.

Operator

Our next question comes from Andy Casey with Wells Fargo.

Andrew Millard Casey – Wells Fargo Advisors LLC

Good morning, everyone.

Michael W. Lamach

Hi, Andy.

Steven R. Shawley

Hi, Andy.

Andrew Millard Casey – Wells Fargo Advisors LLC

Just a couple of quick questions, on the order data that you provide, are you including pricing in that, could you remind me?

Michael W. Lamach

Yeah, that would be as reported. Yes.

Andrew Millard Casey – Wells Fargo Advisors LLC

Okay, thank you. And then within the Resi Solutions in your outlook, you kind of provided something. I forgot to ask the question 1% to 4% for the growth in Q2 margins of 7% to 8%. Could you provide that for the rest of the business units?

Michael W. Lamach

Yeah, Climate, we look for a growth of 1% to 3%, OI in the 10.5%, 11.5% range. In Industrial, I think, you will see kind of a minus 1% to 2% in the quarter, so slowdown there that we will see. Full year, I expect we’ll still 110, 130 basis points of improvement in that business. As we talked about Security, flat to minus 3% for the full year, minus 3%, minus 5% for Q2, and then net of restructuring all and it should be flat in terms of operating margin.

Andrew Millard Casey – Wells Fargo Advisors LLC

Okay. Thank you very much.

Michael W. Lamach

Welcome.

Operator

Our next question comes from Joshua Pokrzywinski with MKM Partners.

Joshua C. Pokrzywinski – MKM Partners LLC.

Hi. Good morning, guys.

Michael W. Lamach

Hey, Josh.

Steven R. Shawley

Hi.

Joshua C. Pokrzywinski – MKM Partners LLC.

Wanted to follow-up on [Ameristar] and kind of early traction there. The way I understand is that is you guys actually use third-party manufacturing for that and just correct me if I’m wrong and I guess if that is the case, how is conversion on that versus the Trane model?

Michael W. Lamach

Josh we use the combination. So there is these parts and assemblies that we outsource, some are retained, quite a bit of flexibility even in these outsourced relationships to build a product we choose to do that. So it’s very dynamic in terms of how do you want to do this. It’s actually a bit exciting because we’ve been able to think outside of box, I think about what’s possible in terms of some of these relationships. But, so that’s the way we’re handling that aspect.

While it’s pretty early March, I think, orders and April shipments is a little fusing to tell in terms of anything around real traction, the margins, gross margins are lower than what we would normally see. The core costs are very low compared to what we would see. So the contribution is actually accretive to the full year margins that we’ve laid out. Okay, but it’s a different model. It’s a lower gross margin, much lower support model, contribution again accretive.

Joshua C. Pokrzywinski – MKM Partners LLC.

Got it. Thanks guys.

Michael W. Lamach

Welcome.

Operator

Our next question comes from Shannon O’Callaghan with Nomura.

Shannon O’Callaghan – Nomura Securities International, Inc.

Good morning, guys.

Michael W. Lamach

Hi, Shannon.

Steven R. Shawley

Hi.

Shannon O’Callaghan – Nomura Securities International, Inc.

Hey. Can you just walk through? You had the $0.07 of restructuring in the quarter and you talked about that, I guess, as the $23 million, but it was suppose to be a total $16 million with the cost reductions and the growth investments. Do you have the other numbers that roll up to the total?

Michael W. Lamach

I missed again on $16 million.

Steven R. Shawley

Right now what we can tell, we were pretty close to what we expected to spend, Shannon.

Shannon O’Callaghan – Nomura Securities International, Inc.

All right. And then, so, well in Q2, so you had the $0.07. I guess in the 1Q, you’re going to have $0.03 in Q2 right. What about the cost reductions and growth investments in 2Q?

Michael W. Lamach

Yeah, there is definitely more on top of restructuring in Q2 in the investments lines, probably based on what I target by probably another $25 million something in that range. Primarily, two areas there, I guess the biggest pieces would be the systems component, getting that really moving now and second building out in our industrial business and continuing to build out in our train business, the service organizations, particularly internationally.

Shannon O’Callaghan – Nomura Securities International, Inc.

Okay.

Steven R. Shawley

System spend is going to be picking up, so if we talk about putting an integrated systems around the world that will be a significant piece of that going forward.

Shannon O’Callaghan – Nomura Securities International, Inc.

All right and then, so on the industrial piece, you just mentioned kind of slowing down into 2Q when you see the orders have come in, what do you see there happening in 2Q and then sort of where does it go in the second half?

Michael W. Lamach

Well, in ITS in Europe, in their equipment business, Q1 was actually a pretty solid quarter for them, low teens kind of in the quarter because of the backlog. We saw that backlog change, we saw the bookings rate change and so we see that going kind of negative single-digit type numbers in Europe as well. Club Car had a pretty good quarter, it was a positive territory. I think that might go negative in the quarter as well for that group. So that sort of the pressure that we’re seeing.

Shannon O’Callaghan – Nomura Securities International, Inc.

And then do you have any view to that changing sort of in the second half after 2Q or?

Steven R. Shawley

Well, we think it’s going to slowdown to moderate. We thought that the industrial business, we’ll probably see in an overall growth of 2% to 4% (inaudible) will be about 5% to 7%, so even imply lower quarter. So, I think quarter three, quarter four, we’d probably see more of a pickup again in Asia and a bit more of a pickup in Latin America, which was a litter softer as well. So that will kind of moderate your backups and some of the Q2, very low kind of zeroish number, a flat number to the up and something to give us a full-year about 2% to 4%.

Shannon O’Callaghan – Nomura Securities International, Inc.

Okay, all right. Thanks, guys.

Steven R. Shawley

You’re Welcome.

Operator

Our next question comes from Steve Tusa with JPMorgan.

Stephen Tusa – JPMorgan Securities LLC

Good morning.

Michael W. Lamach

Hi, Steve.

Stephen Tusa – JPMorgan Securities LLC

Yeah, I think what Shannon was trying to get out of it, I just want to kind of maybe go from a higher level. So you guided to $50 million in the first quarter of restructuring and other investments, correct?

Steven R. Shawley

Right.

Stephen Tusa – JPMorgan Securities LLC

So that number came in at what?

Michael W. Lamach

Right about that.

Steven R. Shawley

Very close to that.

Stephen Tusa – JPMorgan Securities LLC

Okay. So then what would that number be in the second quarter?

Steven R. Shawley

We got restructuring of about 14.

Michael W. Lamach

14.

Steven R. Shawley

So the balance of that would be investments.

Stephen Tusa – JPMorgan Securities LLC

All right. So, in total about $40 million in the second quarter?

Michael W. Lamach

Yeah.

Stephen Tusa – JPMorgan Securities LLC

Okay. And then that would step down kind of as we move to the third and the fourth quarter, you’re kind of pulling that stuff into the first half year?

Michael W. Lamach

Right. Restructuring looks positive, right.

Steven R. Shawley

Particularly, restructuring, yeah.

Stephen Tusa – JPMorgan Securities LLC

So, when you say the $65 million in kind of productivity benefits that you highlighted in the second half or whatever that was, does that include the favorable year-over-year impact from assuming you run your inventory at more of a normal level? Does that include that impact or is that kind of over and above where we should see in the fourth quarter from when you shut your plants down last year?

Michael W. Lamach

If I understand your question, the productivity we would get in the fourth quarter in res business would be in the productivity number, in other words the loss absorption would be in the productivity number.

Stephen Tusa – JPMorgan Securities LLC

Right. So you say that would be, it wouldn’t be additive to that. Okay.

Steven R. Shawley

Right. It’s only the reason why we think is reasonable way to look at it, okay, because you’re right that benefits from res is predominantly in the second half.

Stephen Tusa – JPMorgan Securities LLC

Right, right, right. And then just on the resi I mean you’re plus 40% in March, that’s obviously in orders number correct?

Michael W. Lamach

Right.

Stephen Tusa – JPMorgan Securities LLC

Okay. You talked about how quickly these orders turn into revenues, but I mean 40% up in March obviously, didn’t convert because your revenues in the quarter was still down 8. So, I mean how come that not make you feel a little bit better as we kind of moving to see, I mean you think that like low single-digits in the second quarter is, maybe just a bit conservative, I mean I understand all of a sudden we’ve gone from having no inventory, people concerned about it having too much inventory. I just can imagine it. The inventory dynamics are that dramatic, the sell through it’s actually been pretty good.

Michael W. Lamach

I hope you are right, Steve, but the bookings order last week, 10 days of March, we saw a dry January and February where so, gosh the same thing happens here with June and July okay, in this business and so. We really need to see something more constrained here than a weeks worth of bookings, but I hope you’re right.

Stephen Tusa – JPMorgan Securities LLC

Okay. And then one more question, how much of Thermo King now is Europe, truck on a quarterly basis, or (inaudible) whatever or whichever works?

Michael W. Lamach

You just want the European truck numbers?

Stephen Tusa – JPMorgan Securities LLC

Yeah, yeah, European trucks. Whatever is levered to kind of the European economy there, I guess?

Michael W. Lamach

Yeah, Steve, so rather than to give a global container in there as well rather than just kind of (inaudible) why don’t we follow-up with you that one?

Stephen Tusa – JPMorgan Securities LLC

I mean it’s not a predominant, it’s a driver of the business, but it’s not a make or break part of the business, correct?

Steven R. Shawley

Are you talking about the numbers in the $35 million to $40 million range every quarter?

Stephen Tusa – JPMorgan Securities LLC

I mean in revenues?

Michael W. Lamach

That’s for truck, just truck.

Stephen Tusa – JPMorgan Securities LLC

Right, right. In revenues?

Michael W. Lamach

Yeah, trailer is going to be more that kind of $80 million range.

Stephen Tusa – JPMorgan Securities LLC

Right, so on those $3 billion quarterly revenue base that’s kind of sound like peanuts.

Michael W. Lamach

Possible.

Stephen Tusa – JPMorgan Securities LLC

Okay, yeah, perfect, thanks a lot for the color.

Michael W. Lamach

Good peanuts.

Janet Pfeffer

This will be our last question.

Operator

Our last question comes from Robert McCarthy with R.W. Baird.

Robert F. McCarthy Jr. – Robert W. Baird & Co.

Thanks for taking my question. Glad we got the investment spending question straightened out. I wanted to ask about price versus inflation again. You’d talk coming into the quarter, you thought you get about 90 basis points spread, you got 140, but you’re talking about not seeing any better relationship for the full year?

Can you tell us what kind of spread you expect to see in the second quarter and can you talk about, I mean as this rapidly comes down is this a function of inflation comparison getting worse or is it that price realization declines dramatically, sequentially, as we go forward?

Steven R. Shawley

Yeah, Robert there is various sets of pricing first I will turn to (inaudible) the pricing we saw of full three points across the business in the quarter.

Robert F. McCarthy Jr. – Robert W. Baird & Co.

Yeah.

Steven R. Shawley

Which was a little bit above our initial forecast and then we would think going forward, we expect lavation keeps you about 1.5 and that should moderate down to a point for the back half of the year, of course, you’re starting to laugh now pricing increases, so that’s what obvious.

The material inflation was fairly subdued, so that was good news, but other inflation is higher for us. But if you’re looking just for the relationship between price and material inflation, I think Q2 would be about a 120 basis point positive.

Robert F. McCarthy Jr. – Robert W. Baird & Co.

But you are leaving other inflation out of that categories.

Steven R. Shawley

We normally talk about it as price versus direct material inflation, but you are right, other inflation is where we get a surprise the other way.

Robert F. McCarthy Jr. – Robert W. Baird & Co.

Yeah, okay. The 3% number that you talked about earlier.

Steven R. Shawley

Yes.

Robert F. McCarthy Jr. – Robert W. Baird & Co.

Okay, very good. Thank you.

Janet Pfeffer

Okay, thank you everyone. And Joe and I will be around for any follow-up questions. Have a good day.

Operator

Ladies and gentlemen, that conclude today’s presentation. You may now disconnect and have a wonderful day.

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