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Executives

Gregory J. Hayes - Chief Financial Officer and Senior Vice President

Unknown Executive -

Analysts

Jeffrey T. Sprague - Vertical Research Partners Inc.

Joseph Nadol - JP Morgan Chase & Co, Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Carter Copeland - Barclays Capital, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

David E. Strauss - UBS Investment Bank, Research Division

Terry Darling - Goldman Sachs Group Inc., Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

George Shapiro

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Deane M. Dray - Citigroup Inc, Research Division

United Technologies (UTX) Q1 2012 Earnings Call April 24, 2012 8:00 AM ET

Operator

Good morning, and welcome to the United Technologies First Quarter Conference Call. On the call today are Greg Hayes, Senior Vice President and Chief Financial Officer; and Maria Lee [ph], Director, Investor Relations. This call is being carried live on the Internet and there is a presentation available for download from UTC's website at www.utc.com. Please note the company will speak to results from continuing operations except where otherwise noted. They will also speak to segment results adjusted for restructuring and onetime items as they usually do. The company also reminds listeners that the earnings and cash flow expectation and any other forward-looking statements provided in this call are subject to risks and uncertainties. UTC's SEC filings, including its 10-Q and 10-K reports, provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. [Operator Instructions] Please go ahead, Mr. Hayes.

Gregory J. Hayes

Okay, thank you, Stephanie, and good morning to everyone. As you saw in the press release this morning, first quarter earnings per share were up 24% year-over-year to $1.31. That includes $0.21 of gain in excess of restructuring. Excluding these items for both years, earnings per share grew 2% to $1.10, which is a little better than we expected back in March. Keep in mind, these results include $0.13 per share of headwind from higher pension costs, higher E&D and negative FX.

Stronger sales in our U.S. Residential HVAC business towards the end of the quarter drove better-than-expected operating profit at UTC Climate, Controls & Security. On the other hand, while we know the urbanization trend will drive continued long-term growth, as we said in March, our business in China is off to a slow start. Otis new equipment sales in China were down 9% in constant currency in the first quarter.

The ongoing government effort to bring housing prices down has negatively impacted the higher end of the residential sector, which represents about half of Otis' China sales. We've also seen some pricing pressure in China and a temporary impact as a result of the Beijing Metro incident last year. We've addressed the root cause of the incident, and we're confident it's been corrected.

As we all know, the global economy remains uneven. We have seen some encouraging signs in the U.S. over the past few months with an increase in residential construction and an improvement in consumer confidence. However, with continued weakness in Europe and the short-term slowdown in construction activity in China, we'll continue to focus on what we control, as we usually do.

In the quarter, we invested $111 million in restructuring, and the businesses continue to find ways to reduce structural costs. As a result, we're taking up our estimate for restructuring for the year to $450 million including the Goodrich-related restructuring actions. That's up $100 million from our expectations in March.

We also continue the process of evaluating and reshaping the UTC portfolio to position the company for long-term sustainable growth. And just as we did through the 2008, 2009 recession, we continue to invest in E&D, spending an incremental $77 million or $0.06 a share in the first quarter over the prior years, as we continue to develop innovative technologies like the GTF and S-97 RAIDER that will give us a sustainable competitive advantage and deliver real value to the customers.

So despite the uneven economic outlook, we remain confident in the full year expectations for earnings per share of $5.30 to $5.50. That's 0% to 4% growth on sales of $61 billion to $62 billion, and that guidance includes the sales impact in net $0.25 EPS dilution from the proposed Goodrich acquisition, which we still expect to close at mid-year.

As you heard from the business unit presidents in March, much of the operating profit growth will come in the back half of the year. As the year progresses, we'll see more normal year-on-year comparisons across our businesses, and we believe that the Chinese government will continue to pull back on some of the tightening measures, which should lead to improvement in the high-end residential construction market in China.

Okay, turning to first quarter results on Slide 2. Total sales were down 2%. Organic sales growth was 1% and in line with our expectations after a strong 9% organic growth in the first quarter of last year. Hamilton Sundstrand led the way this quarter with 10% organic revenue growth on strength in both commercial and military aerospace. Sikorsky sales, on the other hand, were down 15% organically following 15% growth on the first quarter of last year due to the absence of international development aircraft, as well as lower-than-expected shipments at the end of the quarter. Total segment operating profit was down 2% driven by the commercial businesses. The slow start in China and ongoing weakness in the European markets drove Otis' operating profit down 6% on flat sales.

UTC Climate, Controls & Security's operating profit was down 5%. In March you'll recall, we had expected CCS to be down around 10% after 70% growth in the first quarter of last year, but a strong rebound in residential cooling orders at the end of the quarter provided some unexpected upside. Hamilton Sundstrand had another strong quarter with 15% operating profit growth from solid conversion on organic sales growth.

Segment operating margins were down 10 basis points. A continued focus on cost reduction and productivity nearly offset the $0.13 of headwind we talked about from E&D, pension and FX, and about half of that headwind is actually in Pratt's results for the quarter.

As I mentioned, earnings per share were $1.31. That's up 24%. A $0.23 gain from the 2006 through 2008 tax settlements and a $0.16 gain from the sale of a controlling interest in a CCS joint venture was partially offset by $0.09 of restructuring, $0.08 of impairment on assets held for sale at CCS and an additional $0.01 for the legal reserve for the previously disclosed export licensing compliance matters.

Excluding restructuring in all these onetime items in both years, earnings per share grew 2%. As I said, FX had a negative impact of $0.02 in the quarter. On top of that, deal cost from the Goodrich acquisition was an additional $0.02 of headwind.

Free cash flow in the quarter was 95% of net income. As you saw in the press release, net income also had the benefit of noncash items, so once again, very strong free cash flow generation as you've come to expect. We spent $72 million on acquisitions in the quarter and there is no share repurchase. You'll recall, we decided to suspend share buyback last September as a result of the Goodrich transaction. With our domestic pension plan 90% funded at a discount rate of 4.6%, there will be no additional contributions to the domestic pension plans in 2012.

Slide 3 now on orders briefly. You see selected order trends. Pratt & Whitney large commercial engines spare orders were actually down 3% following the 33% growth in last year's first quarter. Hamilton Sundstrand's commercial spares were up 1% with strength in 787 initial provisioning, and this follows 23% growth in the first quarter of 2011. Obviously tough compares, but still confident in our outlook for the year. We're keeping a close eye on oil prices due to the impact on airline profitability. Of course on the flip side of these higher oil prices, this just enhances the value of the GTF offering, which will provide a 16% better fuel efficiency than current engine design.

On CCS, North American Residential HVAC orders were up 10%. It's obviously better than we expected with a robust activity late in the quarter. At Otis, new equipment orders were down 10% at constant currency. Otis' new equipment orders in China contracted 21% at constant currency after growing 7% in the fourth quarter. And we continue to believe in our emerging market strategies, which allow us to leverage our worldwide scale to deliver innovative products in a cost-efficient way and deliver real value to our customers from Mumbai to Chengdu to São Paulo. We continue to see strong but moderating growth in these emerging markets, consistent with our expectations and, of course, well ahead of the growth rates in the developed markets. Although China orders were down 15% in the quarter across UTC, we saw a good traction in the other BRIC markets with Brazil, Russia and India each up over 20% in the quarter.

So the first quarter results, a little better than we expected from what we told you just a few weeks ago. I'll come back and talk about the year a little bit more detail but first, let me turn it over to Maria [ph] to take you through the business unit results.

Unknown Executive

Thanks, Greg. Turning to Page 4. At Otis, operating profit was down 6% in the quarter on flat sales. Operating margin was 21.4%, 140 basis points lower than prior year. Foreign currency translation reduced both sales and profit growth by about 1 point. At constant currency, new equipment sales were flat, as a 9% decline in China was offset by continued growth in other emerging markets. On the same basis, service sales were up led by growth in modernization and contractual maintenance. Pricing pressure in Europe, higher commodity costs and a slow start in China more than offset the benefits of cost reduction action in the quarter. At constant currency, new equipment orders were down 10% with China down 21%. Consistent with guidance from the March Analyst Meeting, we expect the new equipment market in China to be up low- to mid-single digits for the year.

Otis will aggressively pursue restructuring actions this year. Otis' full year guidance of $50 million to $75 million of profit growth on mid-single-digit sales growth assumes savings from further cost reductions, as well as improvement in the top line especially in China for the balance of the year.

On Slide 5, UTC Climate, Controls & Security profit contracted 5% in the quarter on 6% lower sales resulting in margin of 11.4%, up 20 basis points from prior year. Organic sales were up 1% following 12% growth in the first quarter of last year. Mid-single-digit organic growth in Europe and automation and controls businesses was partially offset by modest contraction in Asia and Transicold as well as the impact of our Thailand factory, which resumed operations in March.

As Greg mentioned, better-than-expected profit performance was driven by strong U.S. Residential HVAC orders in the second half of March. This drove low-single-digit growth in split systems unit shipments for the quarter as CCS benefited from warmer-than-normal temperatures across much of the U.S.

About half of the $25 million year-over-year profit decline is driven by the absence of a gain on the sale of the U.K. guarding business last year. The balance is largely in the Americas business primarily lower furnace volume. For the full year, CCS continues to expect operating profit growth of about $225 million on 4% organic sales growth, but given the recently announced portfolio transactions, reported sales will be down low single digits.

Turning to aerospace on Slide 6. At Pratt & Whitney, sales were up 6% in the first quarter including 1 point of unfavorable currency at Pratt Canada. Sales growth was driven by higher Military and Pratt Canada engine sales and higher industrial volume at Power Systems and was partially offset by lower commercial aftermarket and engine deliveries. Large commercial spares were down 4% year-over-year.

Operating profit in the quarter was down 1%. Higher E&D, pension costs and unfavorable currency at Pratt Canada were partially offset by the benefit of net higher sales and restructuring savings, as well as the benefit from a contract termination of about $0.02. For the full year, we continue to expect Pratt & Whitney operating profit to be down $25 million to $50 million on high single-digit sales growth.

Hamilton Sundstrand posted a strong quarter with profit growth of 15% on 9% higher sales. Sales growth came from both OEM and aftermarket, each up high single digits. 787 provisioning sales drove the aftermarket growth. Profit growth in the quarter was driven by the benefits of increased aftermarket volume and lower E&D. This was partially offset by higher pension costs. Operating margin was up 90 basis points year-over-year to 16.2%. For the full year, we continue to expect Hamilton Sundstrand's operating profit to be up $75 million to $100 million and sales up high single digits.

Turning to Sikorsky on Slide 8. Operating profit declined by 2% on 15% lower sales. During the quarter, Sikorsky shipped a total of 39 aircraft. 34 aircraft were based on military platforms and 5 commercial. Sales were lower driven by 19 fewer aircraft deliveries, including the absence of international development aircraft and lower U.S. government deliveries. On profit, benefit from strong aftermarket performance and the absence of one Canadian Maritime Helicopter was offset by lower military aircraft deliveries and higher E&D spend. Of note during the quarter, Sikorsky signed a contract with Bond Aviation Group for 16 firm S-92 helicopters, marking the largest onetime order of S-92 aircraft ever received. For the full year, we continue to expect profit growth of approximately $50 million to $75 million on mid-single-digit sales decline.

With that, let me turn it over to Greg for wrap-up.

Gregory J. Hayes

Okay, thank you, Maria [ph]. But before we get into the full year, let me just give you an update on some of the other activities going on at UTC, and there is a lot of things going on. And so the good news is they're all on track. Our 2 new organizations, CCS and PAS, are both in place, and we're encouraged by the results so far. First, at CCS, Climate, Controls & Security, Geraud and the team are progressing well with the integration of our new organization, and they've begun the portfolio transformation of the legacy Fire & Security business, with the divestiture of the U.S. branch operations announced earlier this month. CCS has also formed a joint venture with Watsco for distribution in Canada, building on our successful partnership in the United States. All of this comes while CCS continues to innovate and produce the most efficient solutions for both our residential and commercial customers.

On the aerospace side, Alain and the team at Propulsion and Aerospace systems continue to make great progress on the Goodrich integration planning. We've also fine-tuned our financing plan, reducing the need for an equity issuance from $4 billion to only $1.5 billion. And we've made good progress on the divestitures that we announced last month, and we're on track to complete these divestitures before year end. Whereas proceeds from these divestitures will help finance the Goodrich acquisition and more importantly allow us to focus on our core business of aerospace and commercial buildings. We expect to sign a contract shortly for Rocketdyne, and initial bids show a very strong interest for the industrial businesses. As you saw on the press release this morning, we recorded charges in the first quarter in discontinued operations, but we expect net gains for the full year as the sale of these businesses is completed.

Okay. At Pratt & Whitney in the quarter, we secured an additional 156 firm orders for the A320 engine. The GTF engine continues to validate performance characteristics in testing with now over 2,100 hours complete and the first flight of the Mitsubishi Regional Jet engine scheduled for later this month.

So a good progress in our new organization, and we continue to execute on the transformational changes to the UTC portfolio.

As for the outlook for 2012, we remain confident in our guidance of $5.30 to $5.50. That's 0% to 4% growth, as I said, on sales of $61 billion to $62 billion including Goodrich. Q1 was a little better than expected but as we told you, most of the operating profit growth will still be in the back half. Sikorsky shipments are weighted towards the back half with about 1/3 in the first half and 2/3 in the back half. CCS faces easier compares and will realize more benefit from the integration and portfolio transformation. At Otis, still expects improvement in the new equipment market as the year progresses.

As for other elements of our guidance, we have visibility of an additional $100 million of gains, so we now expect $600 million for the full year. And we expect the excess of $0.21 gain from the first quarter will be offset in the back half of the year with restructuring in both Goodrich and the core business.

We expect engineering development to increase by about $150 million primarily at Pratt & Whitney. And our first quarter operational tax rate came in right where we expected at 32%, and we continue to expect an operational tax rate for full year of 29.5% although, of course, there's volatility across the quarters. On cash flow, we continue to expect free cash flow to equal or exceed net income for the full year.

With our transformational deals, the new organization, industry-leading franchises and a sustained focus on structural cost reduction, we are well-positioned for long-term earnings growth.

With that, let me stop and open up the call for questions. Stephanie?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jeff Sprague from Vertical Research.

Jeffrey T. Sprague - Vertical Research Partners Inc.

Greg, can you give us a little more color on where you're actually going after the additional restructuring with the gains that you're finding and some color on kind of resulting benefits from restructuring in 2012 and 2013?

Gregory J. Hayes

Yes, I think, we did about $111 million of restructuring I think in the first quarter. That really was spread out. With Otis, there was about $28 million; CCS, about $35 million; Pratt, $37 million; and a little bit of Sikorsky and Hamilton. I think you're going to continue to see spending in those 3 businesses primarily. Certainly as Geraud continues with the CCS portfolio transformation, you're going to see additional restructuring actions there. Otis, again, continues to look for ways to reduce some structural costs, so I think you'll see additional restructuring at Otis and the same at Pratt & Whitney. So I think the 3 big businesses will probably get the bulk of it. And also keep in mind, there'll probably $150 million of restructuring associated with the Goodrich acquisition. So again, that's all back half.

Jeffrey T. Sprague - Vertical Research Partners Inc.

Should we expect those restructuring costs to pay back in similar dollars into 2013, or what's the payback look like?

Gregory J. Hayes

The payback on the programs that we're looking at today are between 1 and 2 years. I think some of the -- the Goodrich payback will be very quick and will be SG&A overhead as we eliminate some duplicative functions. Some of the bigger restructuring as we're looking at capacity will take a little bit longer. But I'll tell you, usually 1 and 2 years is the average payback we're seeing. Some of it -- some of the quicker SG&A stuff like we did at CCS earlier this year, again, we're seeing that benefit this year. And you recall, as Geraud's roadmap to $225 million had savings in there from restructuring in it.

Jeffrey T. Sprague - Vertical Research Partners Inc.

Right. And can you elaborate a little bit more on the magnitude of price pressure at Otis, and is there any way to kind of measure how significant kind of the fallout on the Metro accident actually has been? And are you confident that, that cloud is fully lifted at this point?

Gregory J. Hayes

Well, let's talk about pricing first, then we can touch on the Beijing Metro. I think last year in July, we saw the spike in rare earth metals in China, and Otis, I think, reacted very quickly to try and raise prices. In fact, I think we raised prices about 5% last July. Unfortunately, that price increase did not get much traction in the market and in fact, resulted in some of the declines that we've seen in orders even into the first quarter of this year. One of the things that Pedro and team are doing right now is going back and relooking at pricing. Obviously, the headwind from the rare earths has abated. So I think there is a good case to be made there to adjust pricing, but it certainly hurt in the last quarter of last year and the first quarter of this year. The Beijing Metro incident, again, I think that's behind us. Again, it was a tragic accident. I think everybody is aware of an escalator incident in Beijing. Again, we've been working with the Beijing government. Again, I hope that's behind us. It's one of these difficult things, obviously, when you have an accident, it gets that kind of visibility. But we're doing the right things in terms of working with the customers and working to make sure that the brand has not been damaged in any way. The other thing you keep in mind, I think, in terms of the Otis China situation in the quarter and even into last year is the mix issue. Again, we are strongest in the residential construction market. And obviously, where the growth is coming is primarily in the social side, where we're not as strong, so been hurt by mix, we've been hurt by pricing and hurt a little bit by this Beijing Metro. So, again, all of its correctable. I think as the year progresses, we expect to have better results in China, plus you're going to see some of the tightening measures loosen there to, again, hopefully improve the outlook to get back to kind of a more normal growth rate.

Operator

Our next question comes from Joe Nadol from the JPMorgan.

Joseph Nadol - JP Morgan Chase & Co, Research Division

First question is on drilling down to Otis. Just I want to drill down a little bit more into these margins, which were a bit below our number and certainly, I think, below where they've been for a few years on a quarterly basis. And sales were flat overall for the business and the mix, from a service and OE standpoint, even improved a little bit. I understand China is good margin on the OE side. But Greg, is there any way of -- maybe, I don't know, explain a little bit more clearly what's happening there? And if you think maybe this is a blip this quarter, or we should maybe expect margins to come off a little bit from what we've used to expect -- used to expecting here?

Gregory J. Hayes

Yes, margins are still pretty good. I'll give you that, but they were down 140 basis points. I think, yes, there are really 2 big pieces here to the margin decline. First of all, we saw commodities, and this is as we continue to bleed off the inventory, some of these rare metals, you saw about, what, 60 basis points, I think, of margin deterioration just from commodity at the quarter, so that's a big number. The other -- another 40 basis points of contraction came from the pricing that we talked about, so that's really the biggest piece of this. And we're also -- we're continuing to make investments around the world. We're continuing to build out the CLC in Shanghai and as well as consolidated the factory down in South Carolina. So just some unusual expenses. So I'd expect, again, margin should get better, but certainly, we're not really surprised that we're contracted in the quarter.

Joseph Nadol - JP Morgan Chase & Co, Research Division

And so the margin erosion was exclusively on the OE side, and service margins were flat or up a little bit?

Gregory J. Hayes

No. In fact, a little bit of that pricing that we talked about actually came on the service side, and most of that came in Europe, where we continue to see a little bit of pricing pressure on service, I think Pedro mentioned that back in March.

Joseph Nadol - JP Morgan Chase & Co, Research Division

Okay, and then switching over to CCS. So I guess, the reduction in the sales expectation is due to the divestiture you announced. What exactly is in there now for incremental divestitures over the remainder of the year? And then additionally within the same segment, there was a nice surprise in -- I guess, in the second half of March. You got a nice surge of orders in U.S. residential. How much can we read through for the season and for Q2 specifically, and how much might this continue?

Gregory J. Hayes

Let me take the second part of that question first, which is the res market improvement. Obviously, we stood up in March and we talked about CCS being down about 10% in earnings after being up 70% last year. Actually came in only down about 5%, and that was really on the back of this surge in orders that we saw in the residential side and really on the cooling side. Yes, I think orders were down in the first 2 months of the quarter, and then really came back, so I think overall res orders were about -- up about 10% and we think cooling was up almost 19% in the quarter. So again, all of that strength really came in the back half. Obviously, there is no heating season, so there's not much to talk about on the heating side. So again, I think we picked up a little bit of share maybe in the quarter on really a strong rebound. I guess it's not surprising. Again, we did see a pickup in the residential construction markets in the first quarter with the warm weather. It was a pleasant surprise. As far as the year in terms of what's in, I don't know, Maria [ph], do have the...

Unknown Executive

So yes, we have -- the organic growth for CCS remains about 4%. So the -- yes, 4% growth. FX probably account for about a 2% headwind and then acquisitions net is probably about 5% to 6% on sales.

Joseph Nadol - JP Morgan Chase & Co, Research Division

And what do you have done right now in terms of the deals you've already announced, how much would that reduce sales at this point?

Unknown Executive

So the AFSS announcement was about $200 million for the rest of the year divestiture impact, and the Canadian distribution was about $100 million. So that's about $300 million incrementally from what we would have had in the prior guidance, and that's included in the sort of 4%, 5% acquisition divestiture net.

Gregory J. Hayes

So yes, we talked about $750 million of divestitures around this portfolio transformation. We're getting towards that number, but we still have a little ways to go. So there's probably another $250 million or so that might get divested. We just won't see a full year impact of that. We'll be out in front of that with you, Joe, as we get those deals done.

Operator

Our next question comes from Myles Walton from Deutsche Bank.

Myles A. Walton - Deutsche Bank AG, Research Division

Question back on -- clarification, I guess, on the CCS business. The divestiture lowered sales expectation for the year. You left EBIT intact. Is that having the resi upper in there, or were the divestitures not really contributing?

Gregory J. Hayes

Divestitures weren't really contributing. Yes, we're still on track, I think, for res in terms of sales, up about 3% to 5%, and the guidance is still up $225 million. And I would tell you the res although was good for the end of March into early April here, we don't want to get too far ahead of ourselves with the cooling season here. We saw this play out last year. We had a very strong first quarter and then a slowdown throughout the year. So right now, the $225 million is still the guidance, and there is still a task out there to hit even that number, and Geraud has got line of sight to do that through additional restructuring. If there is some upside related to the res business, we'll certainly see that in the next quarter here. But for right now, I think we're not anticipating any big upsurge beyond that 3% to 5% that we talked about.

Myles A. Walton - Deutsche Bank AG, Research Division

Okay. And then, the other one was on Otis in terms of the full year outlook for sales. Can you talk about what you're expecting for Otis versus the market, and if there's any share gain built into your expectation and kind of how were you in the first quarter? And if you didn't have a share gain, what would that mean to kind of the EBIT outlook?

Gregory J. Hayes

Yes, I think in the quarter, obviously, sales were flattish with earnings down 6% and we probably lost a little bit of share in China, probably held share around the rest of the world. Clearly, we're expecting to get a little bit of traction. I think we have new equipment up in the mid-single digits from a guidance standpoint. And that assumes, again, a little bit of improvement here in North America, flat in Europe and normal kind of growth rates around the rest of the world. So a little bit of share loss in the first quarter, but yes, we're expecting we'll get that back as the year progresses.

Unknown Executive

And one more thing just specifically on that China market. I think, we talked about the pressure that we're seeing on the high-end residential side. And we think that was sort of down double digits in the quarter. And we do think that, that will likely, with the pullback on some of the tightening measures with the China government, that will likely not be down as much for the year. So that would help the overall market in China improve.

Operator

Our next question comes from Cai Von Rumohr from Cowen & Company.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

So could you give us some more color on the spares orders at Pratt and Hamilton Sundstrand? How -- were they at all impacted by kind of prebuying in the fourth quarter? And maybe some color on what you're seeing here in the early days of April.

Gregory J. Hayes

Yes, spares, Cai, as I said, we were down 3% at Pratt after being up 33% last year in the first quarter. So in my own view it's just a tough compare. We seem to -- we're on track, we think, at Pratt for kind of mid-single-digit growth in spares for the year. I think we've got line of sight to that based upon the shop visits that are scheduled and our talks, dealings with the airlines. So, again, first quarter was tough. Again, part of this, again, you never know how much prebuy goes on at the end of the year with price increases, so first quarter sometimes light. But yes, I think we're pretty much on track at Pratt. At Hamilton again, up 1% versus 23% last year in the first quarter, so again, a very tough compare. Repair inputs were actually down a little bit in the quarter more than expected, so that's just a timing issue. We still know that flight hours are way up. The RPMs are up, ASMs are up and capacity is up. So the airlines are still making money despite the oil prices where they are. So we're going to see the repairs come in at Hamilton. And yes, I think we've got up nearly 10% in the expectation for spares, and part of that will be the benefit from additional 787 provisioning, which continues to be robust, as well as a recovery, I think, in this repair activity.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Okay, so some of that really looks like it was just largely timing then.

Gregory J. Hayes

Yes, I believe it is.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

R&D was up year-over-year. I guess, you're going kind of at your annualized run rate. Is there anything in terms of the timing there? Is that going to be flat throughout the year, or how should we think about that?

Gregory J. Hayes

So if you think about it, we were up $77 million in the quarter and a little more than $50 million of that was at Pratt, and really Pratt is now on the run rate that we expect for the rest of the year. You recall we had a slow start to last year but eventually, they were up more than $225 million in E&D. So this is really just getting Pratt on the run rate, so you'll see the increases slow down. Obviously, the $150 million expectation of increase, half of it was in the first quarter. So, again, you'll see a little bit more increase in the second and then flat now towards the back half of the year. And keep in mind, the CSeries engine should be certified by the fourth quarter, so there'll be a step-down in spending there, making good progress on the other engines as well. So again, this is the peak year for engineering spending at Pratt & Whitney. I know Mr. Bellemare, Mr. Hess are keenly aware of the commitment to you all to make sure that this is the peak year, and that still should be the case.

Cai Von Rumohr - Cowen and Company, LLC, Research Division

Last quick one, Goodrich, you said you still expect to close at mid-year. And yet given that the EC is gone into Phase 2, I mean, is it maybe more likely that mid-year would be late July or early August, which is still near mid-year? Maybe you can update us there.

Gregory J. Hayes

Yes. I really can't comment, Cai, on where we are with the regulators. We're obviously working with the DOJ. We're working with the EU, and we believe we're still on track, and I said mid-year. Whether that's plus or minus a couple of weeks, I couldn't handicap at that closely. But I would tell you, we're still highly confident that we're on track for -- to close the deal.

Operator

Our next question comes from Carter Copeland from Barclays.

Carter Copeland - Barclays Capital, Research Division

Couple quick ones. One, a sort of point of clarification on Joe's question relating to the Otis margins. I guess, so you called out 40 bps of headwind from pricing and 60 bps from the rare earth impact. But given that they were down a little bit more, it sort of implies a profit differential in China versus the other emerging markets that you called out that were growing that would be pretty substantial. Is that right? How big should we be thinking the margin differential is between China and the rest of the BRIC countries?

Gregory J. Hayes

The margins in China are probably -- they're comparable to overall Otis margins. Again, it's mostly a new equipment business there. If you think about it, earnings in China were obviously adversely affected and hurt margin as we lost some sales. Again, sales were down 9% in the quarter. So that obviously had an impact, but I wouldn't diminish the impact of what's going on in Europe either with a very slow start there on the service side. So yes, there's really -- it's Europe and China, I would say, are the 2 pieces of the puzzle here in terms of where we saw the earnings decline and the margin decline.

Carter Copeland - Barclays Capital, Research Division

Okay. And on Pratt, you called out a favorable contract termination. I presume that helped the margins in the quarter. Can you quantify how big that may have been in Q1?

Gregory J. Hayes

Yes, it's about $0.01.

Unknown Executive

$0.02

Gregory J. Hayes

I'm sorry, it's about $0.02.

Carter Copeland - Barclays Capital, Research Division

Okay, and one last quick one on the 787 initial provisioning for Hamilton. Do you have a sense of how much that's contributing to your full year growth guidance for spares at Hamilton?

Gregory J. Hayes

The 787 provisioning?

Carter Copeland - Barclays Capital, Research Division

Yes.

Gregory J. Hayes

Yes, I think it's -- last year, we contributed about, I don't know, let's say, $70 million of provisioning benefit last year from 787. We probably expect a similar amount this year, so it's a meaningful piece of the growth year-over-year.

Operator

Our next question comes from Shannon O'Callaghan from Nomura.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Greg, can you go through, in terms of Otis for the rest of the year, when you think about getting to your numbers, can you break it out a little bit kind of between this high-end resi piece, the public housing piece and commercial, and just give kind of a sense of what you expect for the different components?

Gregory J. Hayes

Yes, I think what we would expect, as again we said, the social housing piece, we continue to see decent growth in that market in the first quarter. We would expect to see the residential pick up in the second quarter from what we saw in the first quarter. And the commercial side is really -- it's slowing growth but still growing. Really, this is really a story about the residential, kind of the high-end residential. And as the government there has started to ease, and we have seen prices come down in the market, we continue to expect, again, the growth will come during the back half of the year, probably not going to see a lot of growth here in the second quarter. But again as the year progresses, we should see good growth. And again, China, it's a huge market for us. Obviously, most of the growth is starting to come now in the western part of the countries in places like Chengdu and Chongqing and all of those, and we've got good positions there. We've got the new Gen2 low-cost elevator in our factory in Chongqing that's going to be opening later this year, which should, again, provide some emphasis for growth and to help us attack even more of the low-end social housing.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

And I mean, in terms of the higher-end resi piece, I mean, are you seeing any evidence of this loosening starting to feed through yet? And I guess, if it doesn't -- if not, I mean, is there sort of a Plan B?

Gregory J. Hayes

Yes, I would tell you, right now, we have not seen much of an impact. Again, we still see prices, I think, last month were down about 1%. We think we saw the loosening start in the first quarter. We expect that's going to continue, but we really don't expect to see any significant movement in the market really until the second half. If that doesn't happen, obviously, there is a risk to Otis' guidance for the full year. I think about first quarter, we're down 6%. For the full year, we're talking about $50 million to $75 million. So there's obviously some need for improvement as we go throughout the year. Overall though, again, all of the risk out there in Otis, I think, is more than covered by what we have in terms of the contingency at UTC level. So we're still highly confident in the guidance. Even if Otis China doesn't recover as fast as we expect, it's still should not be an issue at the UTC level.

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Okay. And just I maybe have missed it, did you go through the -- what commercial equipment and container actually did in the quarter, truck/trailer and some of the subcomponents of carrier?

Gregory J. Hayes

We did not.

Unknown Executive

No. We did not. So it's from -- let's see, if you look at commercial HVAC orders, let's see, for new equipment, overall, they were up high single digits at constant currency with North America up about 20%. That continues to be strong. EMEA, up low single digits and Asia down mid single digits, so that's commercial HVAC. Did you also ask about the other pieces, Transicold?

Gregory J. Hayes

Yes, so Transicold. Yes, Transicold transport refrigeration as expected, that was down about 15%, kind of mid-teens range as we had expected. Again, weakness there was primarily in Europe truck/trailer as the European economy continues to sputter. I think one of the good news pieces, on commercial refrigeration we actually saw some decent kind of sales growth, so up high teens organically, which was good news. Also on the ACS business, the automated controls business, that was up revenues kind of high single digit. So a little bit of weakness at Transicold as we had expected, but pretty good on the commercial HVAC and strength in ACS and refrigeration.

Operator

Our next question comes from David Strauss from UBS.

David E. Strauss - UBS Investment Bank, Research Division

Greg, CCS obviously outperformed the bid in the first quarter down on the operating profit side, down about 5%, and I think you had said down 10% to 15%. You had said you guys had talked about a flat first half. Is that what you're still looking at, or is the second quarter a little bit better?

Gregory J. Hayes

So, I think the second -- yes, we have said a flat first half with first quarter down 10%. Now with first quarter only down about 5%, I think second quarter will continue as we had expected, which means it will actually start growing earnings in the second quarter, so a little bit better first half than what we had expected.

David E. Strauss - UBS Investment Bank, Research Division

Okay, sorry to go back to Otis China, but I guess a couple of questions. First of all, the down 9 on new equipment, how did that compare to your expectations for the first quarter? And then looking at comps, it looks like the comps are very difficult for China in new equipment in the second and third quarter and the even in the fourth quarter. Is that correct?

Gregory J. Hayes

Yes, that's right. I think we saw in the second and third quarter last year was like 20%, 30% growth, then it slowed down to about 7% growth in orders in the fourth quarter of last year. As far as our expectation, obviously, we came in a little light to expectations in the first quarter, down 9% on orders that were down 21%. We went into the year with a strong backlog, up about 20% year-over-year. But again with these slowing measures out there, what are seeing is that just deferral and delay in some of the shipments from the factories to the job sites. So a little disappointing there from what we had originally expected. But again, it's only one quarter, so I'm not going to get too excited about it.

David E. Strauss - UBS Investment Bank, Research Division

So based on the tough Q2 comps, is it fair to assume that China new equipment would be down and your expectation is down again in the second quarter?

Gregory J. Hayes

Well, I think just based on the order rates that we saw in the first quarter and the comps that you have to last year, you're probably going to see a pretty tough compare. I don't know that we have a really solid estimate for second quarter in terms of the shipments. But I would think just from 50,000 feet, it's going to be tough with the order rates where they were in the first quarter.

Operator

Our next question comes from Terry Darling from Goldman Sachs.

Terry Darling - Goldman Sachs Group Inc., Research Division

Greg, maybe just a couple of clarifications. When you're talking about commercial HVAC up high single digits, was that revenues or was that orders?

Unknown Executive

That was actually both.

Terry Darling - Goldman Sachs Group Inc., Research Division

For both.

Unknown Executive

Yes.

Terry Darling - Goldman Sachs Group Inc., Research Division

Okay. And then on the -- back in the Pratt spares, are you expecting that to turn around in 2Q? I guess we're picking up a little bit of some European OEMs destocking. Maybe that has to do with the cadence of other OEMs we're thinking of in that context in terms of their pricing and you're not seeing the same thing. But sounded like you hadn't changed your full year forecast, and just wondering what the confidence is behind that.

Gregory J. Hayes

Yes, I think the order rates, we look at them every week. Pratt, probably looks at them every day, continue -- it's lumpy. First quarter, we started out strong in January, then it slowed down a little bit. But overall, again, I think what you're going to see, as the year progresses, the compares get a lot easier. I think we are up about 22% in the second quarter last year, 33% in the first and then it slowed down in the back half. So I think what you're going to naturally see is as the year progresses, the comps get easier. We ought to be able to pretty easily hit that kind of 5% growth rate in spares at Pratt.

Terry Darling - Goldman Sachs Group Inc., Research Division

Okay. And sorry to jump back to CCS here, I forgot one there. And that's just do you have an organic all-in on the old carrier and old Fire & Security basis as we used to know it?

Gregory J. Hayes

I don't. I think we've given you most of the elements there. I'll tell you, the one piece we probably didn't talk about was fire products. That was up globally about 5% in orders. Now the fire service in Europe, that was actually down a little bit, down mostly in Northern Europe and offset by a little bit of strength in Southern Europe surprisingly. I think the business in the U.K. continues to stabilize, still not fixed, but at least it's not continuing down. So again, I think pretty much on track with where we expect it to be.

Terry Darling - Goldman Sachs Group Inc., Research Division

Okay. And then, Greg, anything else you'd want to highlight on 2Q either from the standpoint of Sikorsky shipments or tax rate? Anything else you want to call out there?

Gregory J. Hayes

We're going to -- I think gains will equal restructuring here in the second quarter. We've got a line of sight and some additional gains. I think the tax rate will be about what we had forecast for the full year. You're not going to see, like the first quarter, we had a higher rate. Other than that, I think it's going to be a solid second quarter. Again, the trends that we saw in the first quarter at Sikorsky should get a little bit better. Keep in mind, though, at Sikorsky, I think we had shipped 90 helicopters in the first half and so almost twice that in the second half of the year. So still a little bumpy down at Sikorsky in the second quarter. In Otis, again, we should see a recovery again. I talked about the CCS before you're getting good traction. In Pratt and Hamilton, again, pretty much on track with what we saw in the first quarter.

Terry Darling - Goldman Sachs Group Inc., Research Division

Okay. And sorry one more in the weeds here. On the North America Resi HVAC order strength, are you confident that pricing on that unit acceleration is at a level that is tracking in line with your profit expectations? I guess, we're picking up a little in the channel some price discounting going on by a number of OEMs on that volume lift in March.

Gregory J. Hayes

Actually we did not see that. In fact, we raised prices last October in the res market, and that price is pretty well stuck. Again, we raised on the back of commodity prices. We're actually seeing good pricing trend. And the inventory in the channel was really well going into the year, so some of this is restocking. But we're also seeing some good sell-through from distribution out to the field, so we have not seen much pricing pressure this year at Carrier.

Operator

Our next question comes from Howard Rubel from Jefferies.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

Greg, could you talk about cash a little bit and where you're going? Could you kind of touch base on your line of sight to funding Goodrich? How do you feel today versus earlier in the year?

Gregory J. Hayes

We feel really good, Howard. I think we've got line of sight to -- on the financing. We're looking at rates today and the 10-year treasury less than 2 looks pretty attractive. And I think the financing plan that we've laid out, we're not going to have any trouble in the marketplace, absent some big macro event. But that's why you have the bridge in place just in case. But I think we feel really good about the ability to place the debt and the rating, which we're going to be able to place that debt, so I feel very good. Cash in the quarter was strong. If you think about -- we have these couple of noncash gains. You need take those out, we're over 120% of free cash flow of net income. So the business continues to generate solid cash. Without share buyback, of course, the business' funding is really pretty robust. So I don't see any issue at all going to market here in the second quarter ahead of the deal to replace all this debt.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

So have you brought the cash back from Europe yet or wherever to fund part of transaction, or is that TBD?

Gregory J. Hayes

No, I think all the cash movement will happen this part of the deal or towards the end of the years we'll use some of the international cash obviously from the IAE transactions as well, which is also scheduled to close mid-year. But a lot of moving pieces and you'll see us in the debt markets here shortly, well, at least, probably a few 3, 4 weeks ahead of whenever we think Goodrich is going to close. So I think that's all good news, and international cash flow, we'll access what we need to throughout the back half of the year.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

And then the other item, as I recall on the March 13 Analyst Day, Mr. Pino addressed the Canadian helicopter item as just a small software glitch and yet, we're still not seeing deliveries of that helicopter. Could you bring us up to date on where you are with that program, please?

Gregory J. Hayes

Yes, so the CMH, I think we're going to deliver 5 helicopters this year. We've got a couple of the interim configuration to deliver yet and then we'll actually have final configuration helicopters towards the end of the year. Of course, we'll deliver the bulk of those helicopters next year. The plan was always to deliver these things in the second half of the year. I think one may have slipped from June to July, but I think we're still on track on the interim version. And then the final version, the final software configuration version, we're still working that to get those out before the end of the year to meet the contractual commitment to the customers. So again we're on track. We're working with the customer all the time. The helicopter continues to perform well. It's a great helicopter. We have flight testing. No issues with the air frame. This really is just about the mission equipment, as Jeff talked about.

Howard A. Rubel - Jefferies & Company, Inc., Research Division

And then just following on that, I mean, as you talked about readjusting the portfolio, in some cases you'll sell things like Rocketdyne, but then you're investing money in Eclipse. Can you sort of explain how you're making some of these portfolio decisions?

Gregory J. Hayes

Can I make it very clear, we're not investing any more money in Eclipse. We bought -- we did make a small investment, less than $25 million in Eclipse really to service the aftermarket of the aircraft. I think there's about 300 of those airplanes that have been delivered. But we are not in the light jet business if you will. We're in the aftermarket business supporting the planes that are out there. But we're not in the manufacturing business for light jets. So again I think if that's -- we haven't made that clear before?

Howard A. Rubel - Jefferies & Company, Inc., Research Division

You made it crystal. It's crystal.

Operator

Our next question comes from Sam Pearlstein from Wells Fargo.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

You talked about the additional restructuring and onetime items. You mentioned Q2 that they're going to line up. Can you just talk about how those progressed through the year, if there's any other mismatches?

Gregory J. Hayes

Yes, what's really happened, that $0.21 of net good news that we saw in the first quarter, that will play out in the third and fourth quarter. A big chunk of that actually is going to be third quarter as we start to accrue some of the restructuring related to the Goodrich acquisition and the remainder will be in the fourth quarter. I can't give you an exact number today quarter-to-quarter -- third quarter versus fourth quarter, but as we get towards the end of the second quarter and we get to the close of Goodrich and we know exactly what the restructuring dollars are, we'll lay all that out for everybody.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Okay, and then on CCS you talked about the container move in the Europe. Has there been any improvement from this point forward just because I think that was the number for the year was about down 10% for container. Should we see growth in future quarters now?

Gregory J. Hayes

I think, again, the compares will get easier as we go throughout the year on containers, so we should see a little bit of improvement. I think, what, we were down low single digits, I guess, in terms of actual shipments in the quarter but down mid-teens in terms of the orders. So, again, we should see a little bit of an improvement as we go throughout the year.

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

All right, and then just on the Pratt aftermarket, how much of that 5% growth is from the IAE joint venture versus the organic side of the business?

Unknown Executive

That's actually -- that's all organic. That does not include the IAE transaction.

Operator

Our next question comes from George Shapiro from Shapiro Research.

George Shapiro

I wanted to ask Coney had orders up 27% in the quarter versus you're down 10%. Greg, do you think that's all due to the mix issue you talked about in China, or is something else going on or haven't you looked at the numbers yet?

Gregory J. Hayes

I just -- as we were coming down this morning I saw the Coney report come across the board. I haven't really had a chance to study or talk to the folks about it at Otis, but I think it's really -- it's to all those issues that we talked about with China in terms of the pricing, the mix that we saw over there. So I think again, we obviously lost a little bit of share. I think Coney had a pretty good quarter it looks like from an order perspective in China.

George Shapiro

Okay, and then just the book-to-bill at Hamilton and Pratt, I know you gave the spares in orders, but without knowing the exact numbers how were the book-to-bill numbers in the quarter?

Unknown Executive

Yes, at Pratt it was about 1.

George Shapiro

And Hamilton?

Unknown Executive

And Hamilton was slightly below 1.

Gregory J. Hayes

It was a little over 1 -- less than 1.

Operator

Our next question comes from Doug Harned from Sanford Bernstein.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

On Pratt and Hamilton, can you say what the spares did if you go sequentially from Q4?

Gregory J. Hayes

I don't know if -- give us just a second. I think we can probably figure that out. So sequentially, spares sales were down mid-single-digits at Pratt, down about 5% sequentially. And sequentially I don't know that I have the -- I don't have the Hamilton numbers, so we can get back to you on that.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Okay, great. Then if you just pull up, you said at the beginning that the results for the quarter were better than a little better than you had expected but there's a lot going on here. If you were to pull out the 2 or 3 things that you thought were clearly better for the quarter when you look at the whole year and the 2 or 3 that you would say did not come out as well, how -- what would you highlight?

Gregory J. Hayes

I think the things that you'd highlight naturally, of course, CCS. I think the res business there was better than what we had expected. I think the Hamilton business also, again, a little better than what we had expected, really a strong start to the year, so really solid organic revenue growth and good conversion with 15% profit growth. So I think those were both pleasant surprises. I'd also tell you even in CCS, the traction that we're getting on the restructuring there in the consolidation of the F&S business continue to pay dividends. So margins were strong, in CCS, I think you're going to continue to see that throughout the year. Yes, on the downside, there's just a lot of stuff going on. Obviously, China was a bit of a surprise although it was really -- we've talked about it back in March we knew it's going to be soft in China. Sikorsky, a little bit weaker than we expected, but again that's just timing. I think they missed 5 helicopters at the very end of the quarter due to a small supplier quality issue. Those helicopters have all shipped, so not really any bad news at Sikorsky and I think at Pratt, things continue on track. We're -- development engineering is up but it's up in line with expectations. We continue to make good progress there so, this is very atypical for UTC given all of the moving pieces here. We've got acquisitions. We've got divestitures. We've got markets that are a little bit choppy. But I think long-term, we're doing the right things from a portfolio standpoint, aligning the portfolio with where we want to be with the growth markets, and it's going to be a tough year this year but I think it will be a solid year. We're going to be able to deliver on the commitments.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

And then lastly, when you look at China in both from an Otis standpoint and from a Carrier standpoint, and you see shifts in expectations for commercial construction growth there, how do you approach that? In other words, what changes do you make to those businesses operationally when you're looking at different types of outlooks?

Gregory J. Hayes

Yes, that's a great question. In fact one of the things that we've done in China is actually realign the geographies from a leadership standpoint. China, as part of Otis, used to be part of the North Asian operation under Charles Vaux [ph]. Charles is retired, and then we've brought in Thomas Vining to take over China as a stand-alone region. And the recent we've done that is because the aftermarket opportunity remains the single biggest opportunity across the Otis business for future profit growth. It's only 7% of the business in China today. We think within a few years, it's going to get back up towards a more normal 50%-50% kind of business. A few years might be 10 years, but really the focus is going to be on growing the aftermarket when you see moderating growth as we see today on the commercial construction side. So long-term focus there is to grow the aftermarket. I think Pedro talked about that in March, and you're going to hear us continue to talk about that in the coming months in orders as the real focus of the business is to grow the aftermarket. Quite frankly, that's where the beauty of Otis is, is in that 1.8 million elevators and service around the world every day. It's that annuity. It's a wonderful thing, and we need to grow it in China.

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

But it sounds like what you're saying is that when you see quarterly or 6-month changes in outlooks for China, that doesn't cause you to react very much in terms of your China strategy and your operational approach.

Gregory J. Hayes

No I think, again, the focus is still going to continue to be on China. And we continue to do the right things for the long term. As I said, we're opening up this new factory in Chongqing with a low-cost Gen2 elevator, and we continue to make investments in China, and China's going to be a growth market for years to come. The urbanization trends that -- they aren't in a onetime thing and again, we've seen this thing play out before where you see quarter-to-quarter you'll see ups and downs in China. But a couple of quarters of China being down doesn't dissuade us from the opportunity that's there.

Operator

Our final question comes from Deane Dray from Citigroup.

Deane M. Dray - Citigroup Inc, Research Division

I know we touched on this on Carrier residential, but the idea here is that you've got this big surge of orders the last 2 weeks of March and a number of OEs have reported seeing the exact same thing. So it's really important if we could some color regarding how that transitioned into April, because that way we get a better sanction about is this real demand coming back, or these dealer incentives? But any color regarding the demand you've seen so far in April would be helpful.

Gregory J. Hayes

I can't -- I'm not going to give you weekly order trends. I know you look at this every week, but I would tell you the season is up to very good start and the strength that we saw at the end of March has continued into April a little bit slower rate than, March but still pretty strong as we move into April here.

Deane M. Dray - Citigroup Inc, Research Division

Do you run any risk of components shortages, because if you do get that perfect storm and you do get a resurgence in demand, supplies inventories are really lean here, including compressors. Is there an issue where you might get some inventory stockouts or is that -- you don't expect that is a scenario?

Gregory J. Hayes

In fact, I asked Geraud that same question a week ago as we saw this surge in orders. It's a short cycle business, and we see this all the time. But I know that Geraud and the Carrier folks have been working with all the suppliers. I know that they've been working with Emerson to make sure there's adequate supplier compressors, and we have not seen any shortages so far, although, again, we're -- something to keep an eye on as these trends continue. Again, we've got the capacity in our factories to do -- to ramp up pretty quickly and I believe also the supply base does as well.

Deane M. Dray - Citigroup Inc, Research Division

And then the last one is within the resi orders that you received, has it been skewed towards the lower price point entry level, 13s here, or has there been any step up in terms of the higher price points?

Gregory J. Hayes

I haven't really seen any skew. I think, again, last year, we saw a big -- last couple of years, we've seen kind of down and dirty where everything is entry level, SEER 13. Orders look to be pretty good in the quarters. We got a little bit better news there, including some of the, I think, the R228s, the shipments were kind of in line with the market still. So yes, that don't see any big macro change there in terms of the buying patterns.

Thank you so much. All right, everyone, thanks. So to start the year is a little bit better than we expected. We're confident of our full year outlook. Of course, we're positioning the company for earnings growth both this year and beyond as we continue our focus on cost reduction and the transformational changes to the portfolio, as well as the continued investments in these game-changing technologies. Thanks for listening today. We look forward to seeing you throughout the remainder of the year. Maria [ph] and team will be available for calls throughout the day, so thanks very much.

Operator

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.

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