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Executives

Kyle McClure - Director of Treasury and Investor Relations

Kirk S. Hachigian - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

David A. Barta - Chief Financial Officer and Senior Vice President

Analysts

Nicholas P. Heymann - William Blair & Company L.L.C., Research Division

Jeffrey T. Sprague - Vertical Research Partners Inc.

Richard M. Kwas - Wells Fargo Securities, LLC, Research Division

Deane M. Dray - Citigroup Inc, Research Division

Nigel Coe - Morgan Stanley, Research Division

Carter B. Shoop - KeyBanc Capital Markets Inc., Research Division

Ahmar M. Zaman - Piper Jaffray Companies, Research Division

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

Jonathan Shaffer

Cooper Industries (CBE) Q1 2012 Earnings Call May 2, 2012 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2012 Cooper Industries plc Earnings Conference Call. My name is Andrea, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd like to turn the call over to Kyle McClure, Director of Treasury and Investor Relations. Please proceed, sir.

Kyle McClure

Thanks, Andrea, and good morning, everyone, and welcome to the Q1 2012 Cooper Industries Earnings Call. With me today is Kirk Hachigian, Chairman and Chief Executive Officer; and Dave Barta, Senior Vice President and Chief Financial Officer.

We have posted a presentation on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investors section of our website at cooperindustries.com.

As a reminder, comments made during this call may include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which are outside the control of the company, and therefore, actual results may differ materially from those anticipated by Cooper. A discussion of these factors may be found in the company's annual report on Form 10-K and other recent SEC filings.

In addition, comments made here today may include non-GAAP financial measures. To the extent they have been anticipated, reconciliations of those measures to the most directly comparable GAAP measures are included in today's press release.

That being out of the way, let me turn the call over to Kirk.

Kirk S. Hachigian

Great. Good morning. We're very pleased this morning to report that our team's got off to a very solid start to the New Year, delivering record first quarter revenues, earnings and solid operating leverage. We were certainly well aware of investors' concerns in the fall of last year where our execution was less than expected, having issues around work transfers, price/material economics and increased SG&A spending on core growth initiatives. As you can see from today's release, we've put those issues behind us and are again able to deliver a nice balance of growth and operating leverage.

If you turn to Page 2 of the web pages, let me give you a little bit more details on the quarter specifically. Our total revenues were up 10% to $1.4 billion, with our core up 7%, which is a terrific performance considering last year we were up 16% to core. The ESS group revenue was up 10% core and EPG was up 4% core. Our earnings per share were up 8% to $1 a share, and that's inclusive of this $12 million -- $11.7 million legacy environmental liability that dates back to the '50s. If you exclude that from an operating performance, it turns in about $1.06 per share, up 14%.

When you look down below on the adjusted again for the environmental cost and the acquisitions, our operating margins for the quarter were 16.4%, up 90 basis points from last year. ESS operating margins were 18.6%, up 180 basis points and EPG margins 15%, up 20 basis points. So a very, very nice performance on the operating side.

The tools equity earnings were $14.3 million or $0.07 a share, about flat with last year, and we had a terrific bookings with our backlog now up 15% year-over-year and all of our businesses up over 100% in the quarter on a book-to-bill. So again a nice start to a terrific -- what we expect to be a terrific year.

Turning to Page 3 of the handout, I'll give you some comments now on the end-market conditions. Obviously, continue to be very volatile and unpredictable. The U.S., as you know, slowed in the third quarter of last year, gained momentum in the fourth quarter, and we saw that momentum continue into the first quarter. Total Cooper was up about 8% on the core in the first quarter for North America -- for the U.S., excuse me.

But Western Europe and Canada, in Europe, we were able to offset overall negative economic activity, with great performance on energy and overall industrial to produce flat core growth across the company. Canada was a nice performance, up mid-single-digits. And in the developing markets, roughly 21% of our sales, we're in again another real mixed bag. We saw China and South America slow to single digits, while Australia, Southeast Asia, Russia and the Middle East were all up nicely, netting to an overall performance in the developing markets for the company up 8% at the core.

If you turn to Page 4, I'll give you some commentary now on the end markets. The industrial continued the momentum that we had seen throughout 2011, with very solid activity in the energy markets, strong overall ISM numbers and a stable North American factory utilization. Utility markets continued solid investment trends in T&D, with emphasis on replacement of aged infrastructure. Commercial construction still remains in stall mode, reflecting broad global economic uncertainty and high unemployment, with the national office vacancy rate still stuck at over 17%, well above the 12.5% we saw in 2007. And then lastly, residential continued the momentum we had seen in the fourth quarter. With housing starts up nicely, in particular, with multiple family home starts, and we expect this segment to be up 10% for 2012.

In summary, the positives for the quarter were North American, and what we'll call the secondary emerging markets with energy, industrial, utility markets holding firm, with then concerns continuing around Western Europe, China and Brazil and obviously, the global construction markets. As I said, a terrific job to all of our global teams generating 7% core growth on such difficult comps of 16% core growth last year. As a company, we continue to find ways of capitalizing on global transformational trends facing our industry. Energy demand in the utility upgrades, energy efficiency and sustainability, global energy and infrastructure construction and safety and protection of people, equipment and facilities.

If you turn to Page 5 now, I'll comment on the 2 business segments. Energy & Safety Solutions had a solid core growth of 10% on top of last year's core growth of 16%. We benefited from the strong global investments in energy, capitalizing on the growth initiatives from the new products, acquisitions, and the key and global investments we've made in our global sales teams.

Our overall utility business was up mid-single digits, with strength in transformers, line components and distribution automation solutions. We did experience weakness in AMI PLC technology, demand response and switchgear, which was up against very difficult comps from last year. Our book-to-bill for the group was 111%, with all 3 businesses, of course, up over 100%. And our margins were very strong at 18.6%, excluding the environmental and acquisitions, driven by good mix, productivity and nice price recovery.

Turning to Page 6 for the Electrical Products Group. We managed a 4% core growth on top of last year's 16%. Obviously, the commercial construction markets remain the real challenge. Our retail business was up 10%. Our North American MRO and industrial businesses were strong, electronics was flat, and the book-to-bill there for the group was 106%. Again, with all 4 divisions up over 100%. Margins were slightly up to 15%, again, reflecting good execution on productivity and price material inflation.

Now let me turn the call over to Dave to give you some more details on the quarter and update you on our full year guidance.

David A. Barta

All right. Thanks, Kirk. And we'll start with Slide 7. I'll provide some more color in addition to the comments that Kirk's made. Revenues, Kirk mentioned, for the first quarter was $1.4 billion, which is a 9.8% increase over the first quarter of 2011. As Kirk mentioned, core revenue increase was 6.8%. Revenue decreased 0.5% as a result of the impact of currency translations, and acquisitions increased sales by 3.5%.

For the quarter, price was positive and increased sales by approximately 1.9% and a positive certainly versus last year, price did offset our material inflation in total. Our book-to-bill was 108% for the quarter, and as Kirk mentioned, ESS segment at 111% and EPG group at 106%.

Sales outside the U.S. were 40% of our total sales in the first quarter. And core U.S. sales were up 7.8%, with core sales growth for emerging markets a positive 8.1%, and Western Europe core growth positive, albeit only at 0.4%, which demonstrates a very challenging macroeconomic environment in Europe. Core growth in Canada and Latin America was also positive.

As shown in this morning's release, we reported GAAP EPS of $1 per share from continuing operations as compared to $0.93 per share in last year's first quarter. This quarter's $1 per share included expense of $11.7 million related to legacy environmental issues dating back to the 1950s.

Turning to Slide 8. Gross margin was 34.3% in the first quarter as compared to 34% last year. We'll look at some of the margin drivers in a few slides. However, we were pleased with the improved execution around pricing, spending controls and productivity, which all contributed to much improved leverage as we'll discuss. SG&A expense for the quarter as a percent of sales was 20.2%, including the environmental reserve adjustment, 19.4% excluding the environmental expense as compared to 19.6% last year.

As we communicated last year, while we'll continue to support investments in new product development, marketing and sales, we don't plan any significant and incremental initiative-based spending that would impact the SG&A leverage. As well, we remain focused on reducing non-value-added SG&A and overhead, and have several productivity projects ongoing to reduce those costs. Corporate expense was $21.4 million as compared to $21.8 million a year ago.

Now turning to Slide 9. GAAP operating earnings increased 7% to $211.5 million, inclusive of the environmental expense. Our operating margin decreased 40 basis points to 15.1% from the first quarter 2011's operating margin of 15.5%, again, including the environmental expense, and I'll provide more clarity on the margin change in a few slides.

Continuing to Slide 10. Interest expense was $14.6 million, down from the $16.3 million reported a year ago, and the effective tax rate was 18.4% as compared to 14.1% a year ago, which included a discrete tax benefit. Our first quarter continuing income increased 3% to $160.7 million from $155.8 million a year ago.

I'll touch also on some of the segment information so turning to Slide 11. From a segment standpoint, sales for the Energy & Safety segment were $751.7 million, which is an increase of 10.4% as compared to the same period last year. Core sales growth was 9.7%, with acquisitions adding 1.5% and FX reducing sales by 0.8%. We continue to see solid demand across the utility, heavy industrial and energy markets.

Segment operating margin decreased 30 basis points to 16.8%, as the environmental reserve adjustments occurred in this segment, along with the dilutive impact from acquisitions. These factors in total reduced the segment margins by 180 basis points.

Turning to the EPG group in Slide 12. Sales increased 9.2% for the quarter. Currency translation decreased revenue by 0.2%, while acquisitions added 5.7% to sales. This segment continued to benefit from strong demand for MRO, industrial and energy-efficient lighting products, while our residential and commercial-facing businesses continue to see a difficult end-market environment. As well, our electronics-related business was soft again in the first quarter. The Electrical Products Group operating margin decreased 60 basis points to 14.2% as compared to 14.8% last year. The most significant drivers, as we'll see in the next slide, were the impacts of acquisitions and restructuring.

With regard to tools, we had a solid quarter resulting in equity income of $14.3 million versus $14.5 million last year. The performance was driven by the realization of operating synergies, resulting in the business posting a record gross margin. And at this point, I'll anticipate a question that we likely would get and note that in accordance with our policy, we will not comment on any external rumors. The JV was structured with a very flexible framework for the future. We're extremely pleased with the team's execution and have a great partner in Danaher, and we will, as always is the case, remain flexible with regard to what is in the best interest of the Apex customers, the employees and the shareholders of the JV partners.

Turning to Slide 13. The ESS segment margins were positively impacted by volume, price and productivity but negatively impacted by the acquisitions and the environmental reserve adjustment. Leverage on the face of the financials for this group was 14%. However, excluding the acquisition and environmental reserve impact, leverage was 36%.

With regard to the EPG segment, the negative impacts were from acquisitions and restructuring activity. Price and productivity were a push. Leverage for this segment was 19%, excluding the impact from acquisitions, demonstrating in part the fact volumes are still well off peak levels, in particular for our Lighting business. So we certainly expect that leverage to increase as volume returns to those businesses.

So in total, operating margin leverage on the face of the financials was 11%. However, if you exclude the impact of acquisitions and environmental reserve adjustment, leverage was 32% and obviously, we're very pleased with this performance to start the year.

Turning to Slide 14. Cash flow was a positive $18.2 million as compared to a $25.6 million use of cash last year, and our balance sheet remains in terrific shape with net debt to total cap of 17.9%.

Touch on the elements of working capital on Slide 15. Although we had an increase in the absolute amount of working capital, we did improve working capital turns from 6.1 last year to 6.3 turns this year. DPO improved from 55 days -- to 55 days from 51 days a year ago and remains a significant focus area moving forward. Our inventory turns improved slightly to 7.4 turns from 7.3 a year ago. The DSO was flat with the prior year as the teams again did a nice job offsetting the impact of more international business with better collections activity.

We'll turn to Slide 16 and address capital expenditures for a moment. In addition to updating our earnings guidance, we're also updating our capital spending forecast for the year. We're increasing our forecasted capital spending by $30 million versus our prior guidance. So the new range will be $160 million to $180 million. Of the $30 million increase, approximately $27 million of that relates to capacity to support new Bussmann electronics business awards that will begin shipping in the coming months.

And then we'll look at our guidance on Slide 17. Our second quarter and full year guidance outlooks. For second quarter, we are forecasting total revenue to increase 6% to 8%, with core revenue up 5% to 7%. We expect the ESS segment up 7% to 9%, reflecting the solid utility and industrial end markets, and the EPG segment up 5% to 7%, reflecting continuing strength in industrial products and energy-efficient lighting products. Both segments obviously also reflect the impact of the businesses we acquired in the past year.

We believe this outlook is very prudent and reflects the continuation of many of the positive drivers we've experienced, but I would say also reflects the macro concerns present in many of the regions in which we operate. As well as I would say -- characterize April certainly supporting this outlook.

We're projecting GAAP earnings per share to be in the range of $1.09 to $1.12 per share for the second quarter. But we do expect continued strong execution reflecting our stated goal of 20%-plus leverage, at the same time, do remain concerned about material inflation, and we're certainly feeling pressure in certain areas like freight, steel and certain petroleum-based inputs.

Additionally, we remain cautious regarding the competitive price dynamics for large projects. And for pricing in general in markets that are experiencing the macro challenges. Also sequentially, restructuring-related expenses will also increase by about $3 million versus the first quarter.

The second quarter tax rate assumption is a range of 18% to 20%. We're expecting the income from tools equity investment to be approximately $14 million as well for the second quarter. For the full year, we expect total sales to increase 6% to 8%, with sales for the ESS group increasing 7% to 9% and sales for the EPG group to increase 5% to 7%. We expect full year EPS to be in the range of $4.25 to $4.40. And given the increase in forecasted capital spending, our cash conversion target certainly becomes that much more difficult. However, at this point, we certainly remain committed with the 100% cash conversion goal.

Now I'll turn the call back over to Kirk.

Kirk S. Hachigian

Great. Thanks, Dave. Very happy to report again record earnings, record revenue at $1.4 billion, and our core up 7% in the first quarter. We continue to be able to successfully navigate a very precarious global economy because of our breadth and end-market exposure, our global geographic balance and the core investments that we've been able to make.

As you know last year, we stepped up our investments in R&D and global SG&A, and we're able now to get the leverage off of the core, with ESS leveraging in the quarter at 36% and EPG leveraging at 19%. So a terrific result. And again, the increased capital spending, more than happy to fund the core growth initiatives. As most of you know, these tend to be our highest IRR investments for the company, and we certainly have a balance sheet that would support that.

So better execution driving a terrific start to 2012. And with that, I'll turn it back to Kyle.

Kyle McClure

Thanks, Kirk. Now that Kirk and Dave had finished their prepared remarks, we are going to open the call to question and answers now. So Andrea, first question please.

Question-and-Answer Session

Operator

[Operator Instructions] Please standby for your first question, and it's coming from Mr. Nick Heymann from William Blair & Co.

Nicholas P. Heymann - William Blair & Company L.L.C., Research Division

I was curious if you could spend a little bit more time investigating this incremental leverage of 32%. I know that some of that was attributable to excluding the environmental charge, but there also were dilution associated with acquisitions. I was curious how you see that basically improving as the year progresses, as well as whether or not there were any unusual year-over-year elements with regards to price increases from the last year that weren't sustainable this year?

Kirk S. Hachigian

Good, Nick. Yes, what I would say, look, if you go back over to the last 7, 8 years, I think pretty consistently, our performance has been to be able to get the kind of leverage north of 20%, 25-odd percent of the core. And so our base model is material inflation with offsets on productivity on sourcing activities, but being able to offset that inflation through pricing with leading brands and specified technical products to the customer base. Our distribution is aligned with us on taking price increases when necessary to the marketplace. And then we have put together and assembled this core productivity program across the company for many years. And we shoot for somewhere between 4% and 5% core productivity on labor, et cetera, to offset labor inflation and overhead inflation on utility costs and such. I'd say last year was unusual. We didn't execute well on some things and they kind of caught us. We had intentionally stepped up some spending on R&D and global investments on the sales force. You combine that with a couple businesses that didn't pull price effectively and some bad transfers of some work and some factory lost productivity opportunities, it just didn't print very well. And so I think you should come back to this quarter, I think it's going to be more of a traditional kind of a performance for us. Now the SG&A and the R&D levels, we ought to be able to get base cost productivity out of those as we grow revenue. I think the productivity programs across-the-board, everybody had a solid first quarter, not terrific but solid. And I think if you look at the material/price economics, we did a terrific job in the first quarter netting that off and not having any pollution in the margins on that side. Dave, if you have anything else to add?

David A. Barta

No, I think as I mentioned in my comments, as we look forward, certainly some concerns around material inflation. I think everyone knows on a market basis, first quarter was pretty good for everybody that deals in the commodities and materials we do. But as we look forward, certainly pressures in freight, a lot of that due to fuel costs, some of the steel producers have come out with increases, we'll see if those stick or not. We're seeing again some petroleum-based materials, plastics, resins, so forth. So that's certainly something we're, I would say, somewhat cautious around. Certainly, I think better positioned this year to anticipate that and react as we need to with pricing. But again, those are some things that as we look forward, we're certainly concerned about. And then lastly, I think the good job by the teams in terms of price disciplines, but as you start seeing some of these markets contract a bit, oftentimes, that's where things get a little more competitive in terms of project and just base business in those tough markets.

Nicholas P. Heymann - William Blair & Company L.L.C., Research Division

Okay. And as a follow-up question, I just was just curious, you're generating cash, you have a very under-leveraged balance sheet. How does your acquisition opportunities look? You focused on smaller, relatively accretive opportunities or buyback. How does it look to be able to make sure that you just don't accumulate cash that could be dilutive to your overall return on capital?

Kirk S. Hachigian

Yes. So we think the size and scale, Nick. That's been a big theme of ours. This year, if you look at our estimates on the revenue side, we ought to get back up to record revenues on the electrical side. But we have spent the better part of 6 to 9 months getting a very productive pipeline of deals. Most of them have an international flavor to them, and most of them are pretty lined up with the 12 growth platforms that we've talked about historically. Several of them are a little bit larger so that would be positive for us to try to scale up a little bit quicker with some larger deals. And so I'd say, it's better, couple close to the finish line, but it's tough. I mean, sometimes, you end up with an environmental issue. Sometimes, you end up with some different things that kind of bubble up the last minute. So we are focused on sort of the size and scale issue and levering up, and that's where we prefer to use our capital at this point.

Operator

The next question is coming from the line of Jeff Sprague from Vertical Research Partners.

Jeffrey T. Sprague - Vertical Research Partners Inc.

I was wondering if you can shed a little more light on what's going on in EPG on the price side. Dave, from your granular walk, it looks like as opposed to ESS, it's a little tougher slug on price there, I'm sure volume is part of that equation. But if you could give us a little color on what you're seeing there, the ability to get some pricing maybe in lighting? Is that -- how is that trending? Just kind of a general lay of the land in EPG, if you could.

David A. Barta

Yes, I would say the good news is all of the business -- there's not any outliers, all of the businesses did a pretty good job of offsetting any material pressures they had. So we don't have any glaring issues. As you know, last year, we had a couple of our businesses that -- one in each segment that kind of let things get away from them, and actually 2 of them in the EPG segment. So I would say a much better job. The difficulty you have there, as you know, that segment is certainly more exposed to commercial and residential. So while, as Kirk mentioned, we certainly see some encouraging trends, it's obviously slow. The Lighting business is still well off its peak level as all lighting businesses are in this environment. So the ability to really try to improve margins through pricing is just tough. You don't have the volume push. We certainly have one good thing, we have great customers, but they're all very well disciplined, and they're seeing the tough end markets too. So tougher discussions. So that's the situation until the volume comes back. I would say price is not going to expand margins. I think our hope there is to continue to offset an inflationary pressures we have.

Kirk S. Hachigian

And then also, Jeff, when you think about those factories there, their utilization is way low versus what they can run through them. And so you just don't get the absorption of the overhead and the productivity on the fixed cost side until we get those volumes up. So the dilemma is, do you want to take out capacity at this point in the cycle? And the answer is not. We want to be able to serve the market when it comes back. So we have a lot of stranded capacity in the Lighting business, Wiring Device business that we think is going to come back, and we're going to be a little bit patient and waiting on it.

Jeffrey T. Sprague - Vertical Research Partners Inc.

Okay, great. And then speaking of capacity, so the $27 million investment for Bussmann, is that industrial Bussmann, electronic Bussmann? Can you give us some color on what's going on there?

Kirk S. Hachigian

Yes, it's a bunch of new products on the electronic side, for consumer electronics, that type of space. They've been working on it -- this is again where we put the R&D in, and what we expect that R&D to produce for us is a pipeline of new products with new customers. And that's exactly what they've done. And so it's different kinds of products that need different kinds of equipment. We've got some blanket orders on some of this sort of stuff, so we feel pretty confident on being able to move the volume once we get the production ramped up. So it's just a huge opportunity for us, and we'd be fools not to fund it. And so it's exactly what we want them to do, and they've done a nice job with it.

Jeffrey T. Sprague - Vertical Research Partners Inc.

So we should think consumer electronics, handsets, that sort of thing?

Kirk S. Hachigian

Yes, that sort of stuff. It's all Asia sort of based production. It's different kind of customers across that space. I don't want to talk too much about it because when it gets out there for a little while, we'll talk more about it. But it's products around the core that we've been doing, which is the overvoltage protection, and we've had about $130 million, $140 million, $150 million business there. It was our interest in Laird a year ago in that same space. And so, what we've done is just poured more money into the core new product opportunities for us.

Jeffrey T. Sprague - Vertical Research Partners Inc.

And then just finally, could you elaborate a little bit on what you're seeing in AMI and demand response? You said it was light versus a tough comp, but in general, what's the activity level like for that space looking into the rest of the year?

Kirk S. Hachigian

It's a tale of 2 woes. It's almost like a dumbbell. I mean, on 1/2 of it, you have a lot of slowness, Jeff, on the AMI side. And in particular, where we are is on the Power Line Carrier technology. That's really slowed down. And you've seen a lot of the peers in that space report some pretty tough numbers. And then on the distribution automation, on the substation side, on the Self-Healing Grid side, booming, up magnitudes of 4 or 5x year-over-year. The problem is our demand response and our AMI business is just larger, and so that drops a little bit, the other one jumps a bunch. It's just the math doesn't work out. So we are slightly down year-over-year, but a lot of good activity going on and still really happy about the space.

Operator

The next question is coming from the line of Rich Kwas from Wells Fargo Securities.

Richard M. Kwas - Wells Fargo Securities, LLC, Research Division

Kirk, just big picture on Europe here, you had flat performance here in the first quarter. How are you thinking about that for the rest of the year? Are you seeing trends worsen there? Is it going to be more of an effort to, where you have to gain share to keep that flat? Or how are you thinking about that? What's embedded in the guidance?

Kirk S. Hachigian

So we think it doesn't get -- right now, we're thinking about it not getting significantly worse than it is. We are in the industrial space, we've done a nice job of several acquisitions getting more into the energy side of the market. We're doing more in Russia, Eastern Europe. This is another area we've added these resources last year on the SG&A side. We do have a commercial emergency lighting business that goes into new construction and retrofit. I was just out at Frankfurt at the Light+Build Show, which is a giant lighting. And every 2 years, they do this big show in Europe. We have LIGHTFAIR next week in Vegas around the same space. But I would say, it was extremely well attended, but -- and we're bigger in France, Germany and the U.K. You're seeing the same economic numbers coming out of there that we are. Spain is falling back, we don't have a big business in Spain. So we're in the right countries. I think we're in the right end markets, but it's going to be an uphill fight for the better course of the year. But I think we're thinking about flat for the full year as you think about it.

Richard M. Kwas - Wells Fargo Securities, LLC, Research Division

Okay. I know your mix was pretty favorable there on a relative basis.

Kirk S. Hachigian

And the guys have done that, Rich. I mean, that wasn't always our case. I give that team a lot of credit. They used to whine and moan when we did these peer comparisons several years back. That these other companies have a bigger industrial, I said, "Well, go get an industrial base. Why would you not?" And so they've done about 5 or 6 acquisitions. I think they've built over $100 million business on the industrial side in Europe through acquisitions over the last 5 years over there. So they've done a real nice job.

Richard M. Kwas - Wells Fargo Securities, LLC, Research Division

Okay. And then just follow up on non-res. I know the guidance at the beginning of the year assumed low single-digit growth really driven by retrofit, renovation activity. What's your sense for the construction markets now? We've seen a little bit of pickup, a little bit of optimism, but what's your sense of whether it's real versus a head fake because we've gone through this before where we've had a head fake and -- do see any real activity or sense for real activity?

Kirk S. Hachigian

We do. The retail business now for 2 quarters in a row has been up double digit for us. If you talk to our guys, and I was just at the NAED was in D.C. last week with all our big North American customers there. I probably met with over 30 customers in the course of 2 or 3 days. I would say, by and large, people feeling generally a lot better about multifamily. Things in Arizona seem to be going -- multiple bids on homes now. I saw a note the other day that said the foreclosure numbers are starting to come down. So I'd say on the housing side, we think 10% will be achievable this year. On the non-res side though, Rich, I don't see any real activity going on other than the energy efficiency, retrofit, stimulus stuff that we've been seeing for the last couple years on all the LED packaging and controls, and I think that still has significant legs to it, significant legs to it. And again if you guys get out to Vegas to the LIGHTFAIR, I'd encourage you to go by our booth. We're going to have a bunch of new products and some new technology, and the prices continue to come down, the paybacks continue to get more and more attractive on that side. So you're going to see more activity in retrofits on lighting than you've seen even in the last couple years.

Operator

Our next question is coming from the line of Deane Dray from Citi Investment Research.

Deane M. Dray - Citigroup Inc, Research Division

I wanted to follow up on Jeff's question on the capacity at Bussmann. And Kirk, you mentioned the interest related to Laird, which makes me think that this is more of building out the adjacent space in some of the electronics that Laird offered. So is it fair to say this is a bit of a build versus buy strategy here?

Kirk S. Hachigian

No, we're still interested in buying, Deane. We'll continue to look at that space to broaden out the breadth of what we offer. There was some stuff on thermal shielding and on some different products that Laird would've brought us. It's a huge space, there's a lot of opportunities out there for us to continue to look. And that space is one of our growth platforms. This one is more of yes, it's -- I wouldn't call it a different product. It's around the same technology that we have been experts at, and it's just finding some new applications with some slight tweaks. And what the capacity really is about is that we've been running and saw pretty good bookings in electronics in the quarter, and we think we can just organically go out and grow this space significantly with these existing capabilities that we have, but we just need more capacity to service it. So when you get on these platforms for these TVs and consumer electronics, the volumes are just huge on these things, and so you have to be able to service them, Deane. If you don't have that capacity in place, and you get the order and you tell me, you got to wait 3 months, you're just going to lose the business.

Deane M. Dray - Citigroup Inc, Research Division

Understood. And you mentioned the bookings and the uptick in the book-to-bill. Can you give us some color around that? How much of this was the timing of the orders in the quarter versus maybe the timing of the projects? And Dave kind of in his prepared remarks put in a quick comment that about conditions in April and hopefully you can expand on that too.

Kirk S. Hachigian

Yes. I think that if you have to look at the silver lining in anything though, the booking number is the best booking number for a quarter, Deane, we've seen in 3 years. And if you come out of a quarter like we just had with the shipping volume at record levels on revenue, and you have a book-to-bill of 108%, if you look down, well I mean, some of the best ones, of course, were the Crouse business, the Power Systems business, the pretty good margin, the pretty good mix infrastructure types of stuff. So I couldn't be more pleased with that. And again the breadth of it, the strength of it across all businesses has not been what we've seen in a long time. So from that keyhole, you'd feel pretty confident about at least the next quarter or 2. But again, and you go back and you read the newspapers, you look at what's going on in the material inflation, you look at what's going on in China, in Brazil, there's still a enough reasons to be cautious out there that we'll take a conservative tone, I guess, to the back half of the year just because of this volatility and choppiness. But you look to the book-to-bill, it's pretty healthy across the board. Hard to find fault in anything there.

Deane M. Dray - Citigroup Inc, Research Division

And the comments on April?

Kirk S. Hachigian

I think kind of consistent with -- we're kind of late in the announcement this year because of our board meeting and because of the couple of these conferences that I wanted to attend. So we pushed everything back. I actually like going late like this. We get see everybody else's numbers. But I'd say April's kind of right in line with the guidance we just gave you, nothing to be surprised about, not robust but consistent.

Operator

Our next question is coming from Nigel Coe from Morgan Stanley.

Nigel Coe - Morgan Stanley, Research Division

So Dave, your comment on Apex, sounded like a lawyer's sitting next to you there.

David A. Barta

I am a lawyer, Nigel.

Nigel Coe - Morgan Stanley, Research Division

See, you sound like it. But just was interesting, in the income projection for this year, I mean, is that a function -- I know you had a lot of [indiscernible] trends last year, but is there some more restructuring coming through there? Is there some inflation pressures there? Just wondering why we're not seeing slightly better full year outcome there?

David A. Barta

Yes, they certainly -- the plan when we formed that was really a 3-year plan in terms of realizing those synergies. So there's certainly more to come as you would guess as you move down the path some of the restructuring and so forth, you tackle some of the easy things first and save the harder things, sometimes more expensive things. They still have more opportunity there. There's margin opportunity. There's certainly sales opportunity. And their numbers, if you would dissect it, very consistent with what you would see from the marketplace. North American hand tools, a little softer. You'd see that out of the comps out of the big-box guys. China, very strong for them. Their professional power tools side of their business very strong. But again, certainly more runway, so I wouldn't read a lot into that. We think again just tremendous opportunities to be realized there yet.

Nigel Coe - Morgan Stanley, Research Division

Understood. And then looking at some, I think, just sticking to your March, your guidance in a bit more depth. Obviously great performance, underlying performance at E&S this quarter. But if I look at your 2Q guidance and full year, it seems to suggest that your margins sequentially downtick in both 2Q and full year. I understand there's a lot of uncertainty right now, but is there any reason why that would happen? Because normally your margins would -- I mean, I guess from a volume perspective would benefit in 2Q and 3Q from higher volumes. I'm just wondering, is there a reason why your margins would downtick in 2Q and for the full year?

David A. Barta

I think I've covered a few of those points. I think we certainly are being very watchful around material inflation. So obviously, with our products, where materials go is a big deal for us when you got 65% to 70% of your COGS is materials so -- and we are. We're seeing because of diesel prices, pressures in freight. That's something that's what we've seen to date is a couple million dollar type pressure on freight costs in the back half of the year. We've seen steel producers, as I mention, try to push price increases so that's out there. Petroleum-based products and general resins, we've seen issues. We've seen issues on pricing on transformer oil. So there's certainly, from an inflation standpoint, I would say, reasons to be somewhat cautious if some of these markets slow. We have seen in this quarter -- we didn't really call out anything, but fourth quarter, we saw some real tough pricing around some of these big projects in the energy space. I think if some of these markets slow like Europe, you're going to see some of the competitive pricing dynamics come out again. So I would say we're being, I think, prudent in terms of the expectations for leverage. We're watching our balance sheet. So the first quarter's an inventory build quarter for us. We've got the businesses being very cautious around inventory build. So they're not going to see inventories building in excess of sales levels. So that throttles their absorption rates a bit. And we're going to continue to execute our productivity plans, and I mentioned restructuring up $3 million sequentially. So we're continuing to look at facility consolidations. We have a couple more of those untapped. Again, we're going to execute those well. So you won't hear about those in terms of an excuse, but there's costs related to those things and all good payback projects and some of those due to the acquisitions we've made and the opportunity we have post-acquisition.

Nigel Coe - Morgan Stanley, Research Division

And then finally, just you called out good growth in LED despite challenge in non-resi markets. Could you maybe just go into that in a bit more depth? And maybe Kirk, could you maybe comment on in terms of where you think we are on that price curve and where do you think we'll see that tipping point where penetrations relatively pickup?

Kirk S. Hachigian

Nigel, I'm not sure I understand the question. I want to be sure I understand the question before I -- can you just say it again?

Nigel Coe - Morgan Stanley, Research Division

Yes, I mean, you mentioned good growth in LED despite weak underlying markets. I'm wondering on the LED pricing curve, where do you think we are on that curve and when do you think we'll hit the tipping point where penetrations out there really ramp up LED?

Kirk S. Hachigian

Okay. Yes, I'm sorry, I misheard. I thought you were saying ED, electrical distribution is a term we use. So LED, yes. So if you went out to LIGHTFAIR in Europe, Nigel, it was 100% LED. I tell you, you couldn't find a compact fluorescent, a halogen lamp or really anything else displayed in probably 300,000, 400,000 people walk through that show in the course of a couple of days. My guess is if you go to Vegas, if you look at our booth for sure, it'll be almost 100 -- I think 100% LED. So I think you're getting there, and you're seeing we're well north of 10% of our total sales now LED. And if you look at the Vitality Index of new products, I think Mark was saying that it was 80% of everything new that he's out with now is all LED-based. So you're getting into linear fluorescent, you're getting into roadway, you're penetrating all your recessed. The color, the optics, it's all there. So it's moved so quickly in the last 2 years that again, I think you're right at that inflection point now. And I think as you go forward, this could even be at a faster clip than any of us had expected over the last couple years of forecasting this thing.

Operator

Our next question is coming from the line of Carter Shoop from KeyBanc.

Carter B. Shoop - KeyBanc Capital Markets Inc., Research Division

The first question has to do with your implied second half guidance, which as Nigel was touching on, is a bit cautious. And I was hoping for you guys to help us understand how much of that has to do with what you're reading in the papers and the economic releases you're seeing versus actual order trends that you're receiving today?

David A. Barta

Yes. As I think as we've talked about before, I guess most of our businesses don't have a tremendous lead time or backlog. Power Systems probably has the most visibility in terms of bigger orders, non-stock type orders. But beyond that, pretty good visibility of backlog in the current quarter. Beyond that, you've got to unfortunately listen to your customers and pay attention to what's going on, on the macro side of it. So certainly, what's going on in the newspapers, what you hear, what you see factors into our view. You just can't ignore it. I think if you go back to a year ago's Outlook Meeting, we in some cases unfortunately were pretty good on our calls on commercial, residential. And I think it's just prudent to be smart and take in all those data points when you develop your outlook and guide the team because our teams certainly react to this in terms of spending and what they're doing in terms of market access.

Kirk S. Hachigian

Carter, I'd also say when we were in Europe, we had met with several large global French distributors, when I was at the NAED in D.C., I mentioned about 30 different odd customer meetings, and what I'd normally would do in those meetings is ask about their business and how they're feeling about things. So it's a little bit more granular than just reading a newspaper. It's a little bit more voice of the customer and how people are feeling about their own businesses. And I would say the unpredictability or the volatility is pretty consistent with everybody's seeing right now.

Carter B. Shoop - KeyBanc Capital Markets Inc., Research Division

That's helpful. And when we think about order trends the month of April relative to March, February, have those been pretty consistent or have we seen this slow down a little bit?

Kirk S. Hachigian

Little bit of a slowdown. So a little bit of a slowdown. March, we were up against a very difficult March last year, and that was just a huge March. But I would say not off the mark, but I would say -- and this is what you're seeing. I mean, our month-to-months do tend to move back and forth a little. We had some price increases in the first quarter. So you could explain some of the volume being pulled forward a little bit. But I would say it's a little bit softer, but we'll be on track for the first month of the quarter, I would expect.

Carter B. Shoop - KeyBanc Capital Markets Inc., Research Division

Okay. And then 2 housekeeping questions, if I may. What's baked into your full year guidance for restructuring? And then do you have the breakdown for LED sales? What percentage of total lighting sales those were in the quarter?

David A. Barta

Yes, I think restructuring, we're currently sitting around $25 million, I believe, give or take a few bucks.

Kirk S. Hachigian

And then the percent of sales, I'd say it's north of 10%, less than 15% right now.

Operator

Our next question is coming from the line of Ahmar Zaman from Piper Jaffray.

Ahmar M. Zaman - Piper Jaffray Companies, Research Division

Just to expand a little bit on LED. Can you tell us how much of your LED sales grew year-over-year and quarter-over-quarter?

Kirk S. Hachigian

I don't have it in front of me. We could probably pick it up and get that. We don't report that in and of itself. It's a little bit of a competitive number. But it will be huge. I mean, it's going to be 20%, 30-odd kind of percent number. It's growing at that rate. I mean, it's significant.

Ahmar M. Zaman - Piper Jaffray Companies, Research Division

Great. And we're hearing from our checks in the LED industry value chain, upstream from you guys that utilizations are going up. They have been going up fairly strongly throughout the quarter. What are you hearing from your suppliers in terms of lead times for your components? Are there any issues there?

Kirk S. Hachigian

No, we haven't seen any issues there. We're working strategically with key partners, and so when we design a new family of luminaires, we work with specific guys that we're going to embed their LED technology, and we design the drivers and the electronics and the optics around their package. So we have pretty good coordination with different people in the industry depending on what we're looking for, for performance. But we haven't seen any disruptions or any issues with availability.

Ahmar M. Zaman - Piper Jaffray Companies, Research Division

And then if I may, finally on I think throughout this quarter, throughout the March quarter, there was some disruption going on at one of your competitors on the agent side in lighting. What are you seeing there? Has that settled down or is it still ongoing?

Kirk S. Hachigian

Well, I mean, I think our agent base is a key asset of what we have out in the industry. As you probably know, your agents generally are out there -- not generally, but they're writing the specification around projects. They're facilitating distribution on carrying inventory to satisfy the needs. They're working with lighting architects and designers to specify product. Our agent base is probably the best in the industry. Our agent base is probably 50% the Cooper package, and our agents then would carry ancillary products that we don't offer to complement their package. And being able to have new products, cost competitive products and offer a specification in a package around an entire job gives our agents a huge advantage in the industry. So it's not surprising that people would try to hire our agents or steal our agents. We're out there looking at different markets and different options at different times. We've lost some agents to different people over the years, and we picked some agents up over the years. So it's part of what we do. Some guys sell direct to projects and will take orders direct. We don't do that. We protect our agents. We protect distribution. And there's some people out there trying to fool with the model. It'll be interesting to see what comes of that, but you need to be able to go out with a full package and offer a value-added proposition. And we work very hard at giving that and the ability for these agents to make money off of our package. It's core to our success in the marketplace, and that's kind of what we value and how we work with our agents. We've been doing that for 50-odd years now. So I don't see too much different out there. I heard some noise about that. I think there's all kinds of problems with them trying to mess up the channel or go direct and have a model that sells all different ways, and they keep calling it disruptive technology. The only thing that's disruptive to me would be shareholder value creation. But that's a different discussion, I guess.

Ahmar M. Zaman - Piper Jaffray Companies, Research Division

Appreciate that. And just to clarify, I think you just responded to a question about your percentage of sales at LED. The 10%, is that total sales or just lighting sales?

Kirk S. Hachigian

It's percent of lighting, just lighting, not percent of the company, no, no, no. North of 10% of the Lighting division now is LED-type products, and that's going to grow dramatically over the next 12 months.

Operator

Our next question is coming from the line of Shannon O'Callaghan from Nomura Securities.

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

So Kirk or Dave, on the sort of follow-up to the pricing in EPG, I mean, not getting better until sort of the market comes back and you get better volumes. I mean, does that mean that this price economics productivity bucket should stay at around 0 for EPG? Or are there other things via your restructuring, or other things that could make that better?

David A. Barta

Yes. I think from a price inflation standpoint, [indiscernible] with that being included in there netting to 0. So a lot of emphasis on productivity across the businesses and so certainly an opportunity there. I would expect to see that improve over time.

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

Okay. And then maybe a little more color on just sort of oil and gas markets and Crouse. I mean, I know you did some spending to kind of build out the vertical there and Crouse looks like it's really strong. I mean, is that building and getting stronger or just staying strong? How would you maybe characterize that and give a little more color?

Kirk S. Hachigian

I'd say it's strong and continues strong. I mean, I -- no reason to see – I mean when you look at the book-to-bill and if we look at the global project activity, Shannon, all robust.

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

Okay. And in terms of your leverage there, some of the investments spending you made, I mean, are those now sort of delivering what you would consider to be optimal incrementals at this point?

Kirk S. Hachigian

Yes. If you look at where we've added the resources up in Russia, Turkey, Australia, all the places Dave and I have walked you guys through at Outlook, up 30%, 40%, 50%, 60% kind of revenue growth, off of small numbers, but I would argue that we've almost probably gotten our payback on some of those investments already. And I think you're just touching the tip of the iceberg. We put some resources in Kazakhstan. So I think you're going to see much more of us being able to get our hands around the global EPCs and global projects. We put this group together at the beginning of the year. There's a lot of benefit coming out of that already. The guys at the oil and gas show here in Houston are here, we had a consolidated booth at the show here this week in Houston. So again, I think we're just beginning to squeeze the lemon here of what the state of the possible is there, Shannon.

Operator

Our next question is coming from the line of Julian Mitchell from Crédit Suisse.

Jonathan Shaffer

This is Jon Shaffer with Crédit Suisse. Sorry to hammer this point, but just to go back to your material cost for a second. Do you think -- I heard you say that pricing in Europe is partially being challenged by competition, you have the challenge of kind of material cost. Do you think that pricing will be able to fully offset both the competition and the material cost? Or will it kind of be a drag on incrementals going forward?

Kirk S. Hachigian

No, Jon. We don't expect it to be any drag at all on incrementals. If you go back over the last several cycles and if you take out some of the unusuals that we pointed to last year, especially in your businesses where demand is up. And so when you look at the Bussmann, the Crouse, the Power Systems, all those spaces, we'd expect for the full year for us to be able to pull enough price to offset any incremental material inflation. And that's sort of what we've done historically, and that's what we'll do this year.

Kyle McClure

Okay, that concludes the call this morning. Everyone, have a great day. Thank you.

Operator

Thank you very much. Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Thank you.

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