Emerson Electric Co.
Q3 2019 Earnings Call Transcript

Published: 6 Aug 2019

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson’s Investor Conference Call. During today’s presentation by Emerson management, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, August 6, 2019. Emerson’s commentary and responses to your questions may contain forward-looking statements, including the Company’s outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson’s most recent Annual Report on Form 10-K as filed with the SEC.

[Tim Reeves:]

Thank you, Allison. I am joined today by David Farr, Chairman and Chief Executive Officer; and Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer. Welcome to Emerson’s Third Quarter 2019 Earnings Conference Call. Please follow along in the slide presentation, which is available on our website. I’ll start with the third quarter summary on Slide 3. Sales in the quarter of $4.7 billion increased 5%, and underlying sales were up 2%. Growth was below our guidance across both businesses. Underlying orders were up 2% in June, also below the 5% to 7% expectation we discussed during the second quarter earnings conference call on May 7. Automation Solutions’ underlying sales were up 3% and orders up 4% in the quarter. We had expected global discrete channel inventories to clear and demand to recover, but instead discrete end markets further decelerated in the quarter. North American upstream oil and gas demand have yet to improve. Demand in process and hybrid end markets, however was stable in North America and continued to be robust elsewhere. Commercial & Residential Solutions underlying sales and orders were down 1% in the quarter, primarily driven by cooler wet weather conditions in North America. GAAP EPS was $0.97 and was $0.94 up 7%, excluding discrete tax items in the current and prior year. Through the third quarter, we’ve returned $1.9 billion to shareholders and completed our $1 billion 2019 share repurchase target. Today, we announced an additional $250 million of share repurchases that we will target to complete in the fourth quarter. Turning to Slide 4, third quarter gross margin was down 90 basis points and EBIT margin was down 80 basis points. EBIT margin was up 50 basis points excluding the Aventics, Tools & Test and GE Intelligent Platforms acquisitions. Tax rate in both years benefited from several favorable discrete items in the quarter. Turning to Slide 5, third quarter underlying sales growth was led by Asia, Middle East and Africa, which accelerated from flat in Q2 to up 3% in Q3, primarily driven by sequential improvement in the Commercial & Residential Solutions business. However, the Automation Solutions business also ticked up sequentially. The Americas was up 1% and remained positive across both businesses but with slower compared to the second quarter growth of 7%. Europe was up 1% and remained positive across both platforms.

[David Farr:]

Thank you very much, Tim. I want to welcome everybody. Thanks for joining us. I’d say also want to let you know that, this is Tim’s next as last earnings call. I go through this process of training semi-professional Investor Relations people.

[Tim Reeves:]

They never get there.

[David Farr:]

They never quite get there. But Tim has a unique opportunity that we can’t talk about, but he’s going to be going to it later this year. And I have breaking in another person, by the time, we get into the November timeframe. But Tim most likely will join us for that call. And I want to thank everybody for joining us today and I want to give you an update and what we see. I want to thank the employees for joining us today. Also want to remind everybody, we actually have an extensive number of people in the queue close to 20 people in the queue to ask questions. So I definitely need to keep you to holding to the two questions rules, we’ll extend the call a little bit maybe a minute or hour, 15

[Tim Reeves:]

Okay.

[Operator:]

We will now begin the question-and-answer session. Our first question today will come from Andrew Kaplowitz of Citi. Please go ahead.

[Andrew Kaplowitz:]

Good afternoon, guys.

[David Farr:]

Good afternoon, Andrew.

[Andrew Kaplowitz:]

This – so how do we think about the longer-term roadmap for you guys in the more difficult macro and particularly as we go into Slide 20, it might be difficult obviously to achieve the target in 2021 of $450 m. But if we are in this longer prolonged slowdown, can you still grow double-digits in EPS off the 2019 base. If not, that stabilize a bit here given a high level of restructuring and repurchases, how should we think about that?

[David Farr:]

From the perspective, our underlying growth rate based on the model we presented in February, it was close to 5%, $4.5% to 5%, I believe the cycle here. If that number is going to be closer to 2% to 3% because of the slowdown, we’re going to have to have bolt – more bolt-on acquisitions to allow us to be able to get that tougher earnings growth. It’ll be very – it’ll be challenging for us. But that the key issue for me is, can we drive to make amount of roll through penetration, if that’s possible and we’ll try to do that while also going to have to be a little aggressive on the bolt-on acquisitions that allow us to integrate some more sales and profits to get that number up. But that’s the game plan is going to have to be is where do we get that top line growth. If we lose about a point or two from underlying from this core business, then the acquisition games can be even more important to us on the – from the bolt-on standpoint. And then we’re going to have to be aggressive on the integrating those acquisitions. That will be the key issue for us is as we look in the next couple of years and that target we laid out in February because of, as you said, it’s a much different macro environment. Let something happen relative the trade early on in 2020, we spend what accelerate growth potentially in 2021 that would be another scenario, but I’m not banking on that right now. We’re looking at an environment that’s going to be a little bit less growth in rapid deal with that.

[Andrew Kaplowitz:]

Yes, that’s helpful. And then obviously, in Automation Solutions, you’ve talked about 30% incremental as the target. How should we think about underlying instrumentals? If we do have this slower growth environment, given all the restructuring you’re doing, could we still do 30% plus on lower growth?

[David Farr:]

That’s the game plan. That’s why we’re going after the incremental restructuring now Andrew. We’ve made a commitment to get that profit margin back up. These are quality assets. We’ve made a lot of acquisitions within this asset space and we need to make sure from our shareholders standpoint that we get those margins back up to eyesight are that reasonable range. It might take us a little longer to get back to that what I think the appropriate number is now in this combination of companies that run 19% even, but we’re not backing off that number incrementally, that’s our number for next year and Lal and his team understand that. And that’s why we’re going after from a restructuring standpoint, from the perspective of what we’re trying to get done. And if we need to, we’ll do it more incremental restructuring in early part of 2020.

[Andrew Kaplowitz:]

Thanks, Dave. Appreciate it.

[David Farr:]

All the best, Andrew. Thank you.

[Operator:]

Our next question today will come from Steve Tusa of JPMorgan. Please go ahead.

[Steve Tusa:]

Hey guys, good afternoon.

[David Farr:]

Good afternoon, Steve.

[Steve Tusa:]

Congrats to Tim, unless you’re like sending them to some God for sake in part of the world like, I don’t know where you send these people, but hopefully its going more nice.

[David Farr:]

Tusa, I can willing to – I’m open for suggestions. I mean you might have to talk to his wife a little bit about this. She is the St. Louis girl. But you might – if you got an idea, it’s not going to be gut to Georgia. I can tell you that right now.

[Steve Tusa:]

No. I’m just going to say that you stole that one. I’m just going to say that.

[David Farr:]

Not going to be a gut to Georgia. Most likely, it could be like, so what the tough place in Nevada? We get some get valley or something like this. Now he is going to be going most likely in the Northeast somewhere.

[Steve Tusa:]

Got it, got it. I love the red exclamation points on the order trends. I think that, that really pops stands out. But how bad was kind of your discrete business on order rate or revenues either one like are those down double-digit. And then as a follow-up to that, within power specifically and then a little bit less in LNG, how do you think you’re doing share wise, because power, I would assume that’s more kind of attacking competitor installed base and selling digital and that kind of stuff. So it seems like there’s a bit of a share gain there in power.

[David Farr:]

So on the discrete side, we’re not down double-digit. I mean it’s a solid single-digit, but…

[Steve Tusa:]

Okay.

[David Farr:]

I mean I would say, Tim and I are going back for the somewhere between 5% to 8% mid-single digit down in the discrete side. The inventory has not come out of the system at all. Obviously, the demand slowed down as you’ve seen Steve, and therefore it’s going to take a little longer. It could last all the way to the calendar year now to get that out. But that’s where we see at that point in time. The process side where it’s been pretty good within the channel, but just right now its oil and gas related down around Texas and the Permian has been pretty tough. On the power side, we are very committed to this space. And we’ve continued to bring out the next generation control system ovation. We continued to bring out new services. We’ve continued to be highly committed to supporting the power generation both renewable, primary power, all different types of power, particularly around colder gas. So based on what we’re seeing right now, I would say we are winning against our key competitors out there. But obviously, we’re not going to back down. I think there’s a unique window of opportunity as we look at this. And overall this year, year-to-date, we’re up a solid single-digit in orders. And I think we’re going to have a good fourth quarter and good start to next year. The industry needs to go through some reinvestments and upgrading systems, taking old systems down and bringing out the new power plants, bringing up new gas, get rid of coal. These are all opportunities for us and we’re out there fighting for it. And I would say we’re doing pretty well at this point in time. And again, I don’t look at a quarter per share. I mean, let’s wrap it up as we finished this calendar year, but I feel good at the trend line as I look at the last 12 months to 18 months versus our primary competitors in the space.

[Steve Tusa:]

Right. But that’s the OEM installed base, correct, that you’re going after?

[David Farr:]

Correct.

[Steve Tusa:]

Yes. And then one last one just on the macro, you seemed confident that this isn’t getting worse, but then you said things extend, I mean, through the election next year. I mean how are your customers and you guys going to not at least pause a little bit before all the uncertainty around the election and let you just have, I’m sure you have confidence in the outcome, but like how are you going to integrate that into your kind of plans and your thinking?

[David Farr:]

From our perspective, we’re going to work multiple plans here from my perspective. I think we’re going to look at an environment where there’s very little growth in environment. There’s some moderate growth. Clearly, we still see our international business doing better than the U.S. at this point in time. And that’s going to allow us to see a little bit better growth. But we’re going to factor in that. We could be in a slugfest with real low-single digit growth for the next 12 months and therefore you got to get that cost line in line and really prioritize we’re going to spend money. It’s not going to be – in my opinion, I’m being very, very, let’s say cautious or negative, but I’m very concerned about business was like you said, keep pausing and they keep reevaluating their investment and that’s going to drag the business investment to a weaker environment. If it doesn’t happen that way and things get better, we’ll be okay. But I’m more worried about that it will happen and they’re fine, we’re structuring the company to be in that environment.

[Steve Tusa:]

Got it, okay. Thanks a lot.

[Tim Reeves:]

Thank you.

[David Farr:]

Thanks, Steve. All the best. If you’ve got ideas, we’re going to send Tim, send him to me.

[Operator:]

Our next question today will come from Jeff Sprague of Vertical Research Partners. Please go ahead.

[Jeff Sprague:]

Thank you. Good afternoon, everyone.

[David Farr:]

Good afternoon, Jeff. How are you doing?

[Jeff Sprague:]

I’m doing well. Thank you. Fighting through it all so.

[David Farr:]

Good. It’s always fun at slugfest system. You get to meet, he gets boring.

[Jeff Sprague:]

No, exactly. Well, hey, I want to just to pick up on your last point. You’re – you kind of indicated you didn’t use the term, but maybe kind of the risk of just stall speed. And if we get there, what really kind of keeps us from kind of tip in lower. I guess no one has a crystal ball, right. But how would you handicap kind of a worse outlook than what you portrayed in your opening comments there?

[David Farr:]

The key issue there is, I think there’s a good chance of economy, next year it gets the global economy gets real close to that stall speed. And I think that, as we finished the rest of this calendar year, which I think will be okay relative to investment then people then really start reevaluating in 2020. We have to – if we sense we’re going to get pretty close that stall speed which we’ve seen the economy before, then we got to think about, okay, do we have the right things done relative to our restructuring and our position the company. Right now I mean I think we’re going to get close to that stall speed, but I don’t think it’s going to go all that way. We also, as you understand around the world, we have the every Fed – Federal Reserve around the world really pushing accommodation to make sure the economies do not get to that stall speed. So I think that’s one thing we have gone for us. That the European, the Japanese, the Chinese, the American, Federal Reserve banks where they’re called around the world are working very, very hard to make sure we don’t go into that stall speed. But I think there’s a good chance we’ll get real close to it. And hopefully the financial reserves out there can figure out how to make sure we don’t go in there, because that’s a little bit different environment and it gets pretty ugly for a lot of companies at that point in time.

[Jeff Sprague:]

Yes. And then just separately, just thinking about the automation margins, right, so it actually ended up being kind of peculiar looking quarter, right. Your actual OP dollars are down, right. So we’re not just talking mixed effects of deals on margins, but OP dollars down. So now as we look into Q4, right, we need to see a pretty significant step up in the OP dollars to get to that forecast. You had talked on the last call about some of the sweet things on price cost and other levers. Could you just give us a little bit more visibility on how we bridge to that Q4 automation margin number?

[David Farr:]

Yes. I think there’s a couple of things going on from the perspective we have, obviously the price cost continues to move our way in that fourth quarter in a positive way. They did have a pretty good sequential margins improvement in the third quarter. The other thing is the restructuring actions that we took back a couple months ago. I believe in April and April, May and also some of the core restructuring that we started in the beginning of year, our start up flow through. So the automation business is things slowed down. As you remember, we started taking actions earlier on with that business, so some of those benefits are coming true. In the last couple months close and even June, which was a tough month for Automation Solutions from a sales standpoint, they did very well with leverage and in profitability. The month of July, which we’re starting to see right now the same things flowing through again. So my gut tells me right now, I feel pretty good about where they flow. The key issue there is do they – can they continue to get some of that the backlog out that’s been built over the year and/or do the customer start pushing that out. But right now I think they’ve got the cost structure in line for where they sit in for this calendar year. Jeff, and I feel pretty good about the margins in the fourth quarter for these guys.

[Jeff Sprague:]

Great. Thanks, Dave. I’ll pass it.

[David Farr:]

All the best to Jeff. Thank you very much. Have a good rest on that.

[Operator:]

The next question will come from Deane Dray of RBC Capital Markets. Please go ahead.

[Deane Dray:]

Thanks. Good afternoon, everyone.

[David Farr:]

Good afternoon, Deane.

[Deane Dray:]

Hey, may be a good place to start, Dave would be the game plan where you would augment slowing growth with bolt-on acquisitions. And when I hear you say that, it kind of suggests that there’s – you’re still willing to play offense here and which is a good sign. But just how do you do you marry the idea of going after acquisitions during a period of high uncertainty and clearly a pause and closer to stall speed.

[David Farr:]

From the perspective of some of the bolt-on acquisitions, which we worked pretty aggressively all the time, fundamentally we believe as we go into this time period, as we move into 2020, early 2021. Some of the companies that we’re interested in, we’ll want to – we’ll got – we’ll want to get out and we’ll have the opportunity to do those bolt-on acquisitions. Historically and times that things like this slowdown, things that gets kind of sloppy, near that sloppy, we see some of these product lines pop out. And so, we’re bank yet, we’re going to try and push the pressure point up on this thing. And see if we can get a couple of these pop and give us some incremental growth, the top line. Obviously work on the cash flow and obviously work with the earnings, but it’s just going to be one of these gains that we know where we’re going to go and we’re nowhere pushing right now and does our – the place we’re going to, are they willing to now to sell because of the sloppiness in the marketplace from their perspective. So that’s how the game is going to work. What is put a little bit more tension on it and from the top level down and I know every company is going to be going through a repositioning, restructuring and hopefully, we’ll be able to convince them of our sellers. They’ll let a couple of these small product lines grow. That’s how it’s going to work.

[Deane Dray:]

Got it. And then as a follow-up, but just to continue along the lines of this pause versus an end of a cycle, can you comment on the power or the influence of this negative feedback loop, because you’re saying right now you’re slowing down your investments, you’re pulling back, you’re seeing customers push out projects. How does that not feed on itself and become a more of a power slower, faster? And to a certain extent, can you share with us how much you’re seeing from your customer and being influenced by what your customers are doing versus what you are hearing from Washington, because you are privy to a lot more specifics than anyone on this phone gets to hear. But maybe share with us some of that, that insight that you’re getting from those channels.

[David Farr:]

So a lot of projects we see in particular on the LNG world, from the perspective of these LNG investments need to go forward. There’s been major commitments made from a lot of our customer base relative to around gas versus coal versus oil. From the standpoint of what we call less carbon, the carbon – they’d been commitment. So from my perspective, these projects are going to go, they just a matter of what time they’re going to go and when things get resolved. And I firmly believe we will get things resolved relative to discussions to China. It could take a lot longer than my initial comments were always around August, September time period and now that’s obviously off the table based on what we’re seeing at this point in time. And so I firmly look at the projects, the under investment in the gas side, leaving the under investment in the liquids and some of the under investments in some of the downstream work that needs to be done because we definitely need that downstream product. I see that those have to go forward. The question is when they get my customer base or our customer base gets visibility relative to where they can do these transactions and where they can sell and not sell, and you’ll see these projects gone. Now, the other issue is if the projects in United States stall, then you’ll start seeing some acceleration in projects in the Middle East, because of the demand for gas. China’s still going to grow. China is going to need gas or they’re going to get it from the Middle East. They’re going to get it from other parts of the world or they’re going to get it from the United States. So as I look at right now, as I look out the next 12 months, I think as a customer base, we’re all fine tuning a little bit. But if this thing dragged on for a long time, and let’s say the long time being 12 months to 18 months, then I think you start seeing what you talked about this that self fulfilling prophecy. And then we start whining backwards. But I think it’s way too early to see that at this point in time. And maybe from my perspective things do get resolved sooner than we think. But at this point in time, it’s prudent for me from the perspective where I’m in the – we, Emerson on the pipeline, we need to dial things back after three quarters of very moderate growth in the automation business. We need to dial back and reset for a little bit growth in different of growth environment and look and see what happens rather than waiting, because we’ve been waiting now for a couple of quarters and now it’s time to ask. That’s where we sit. I’m still, again, I’ll say it, I’m still optimistic. I still believe that the world needs it the energy, they need this type of products. The question is the timing of it more than anything else at this point in time.

[Deane Dray:]

And can you add anything about the color from Washington?

[David Farr:]

Yes. Right now nothing at all. I can’t add anything other than what’s going on is obviously very challenging negotiations and a lot of pushing back and forth. Again, I still believe this is something that’s important and I do support it. It creates a lot of pain for me, and obviously for our company. But from my perspective, it’s – I do support 100% of what we’re trying to get done in Washington on the long-term trade benefits. But we’ve got to get this thing done. We can’t let this thing sit out there for another 12 months, 18 months dragging around, because it will definitely do what you talked about with some negative self fulfilling prophecies.

[Deane Dray:]

Thank you.

[David Farr:]

Thank you very much.

[Operator:]

Our next question today will come from Josh Pokrzywinski of Morgan Stanley. Please go ahead.

[Josh Pokrzywinski:]

Hi, good afternoon, guys.

[David Farr:]

Good afternoon, Josh.

[Josh Pokrzywinski:]

Dave, can you talk a little bit about this ballooning funnel of projects or I guess stuff that has been committed but not booked. How long do those typically stay out in that state? Is there any kind of leakage in that closed process where it’s something where you think there’s a commitment, but until the ink dries, it tends to back down. So how confident are you in that booking over the next few months, quarters, whatever?

[David Farr:]

So if we look at the funnel where their funnel growing is growing right now, it’s growing outside United States. So we’re starting to see, we had not seen a lot of growth of the bigger projects outside the United States, primarily in North America driven large funnel project business. So we’re now starting to see some of the international be at Asia, be at the Middle East, be in Latin America, where some of the larger projects are now starting to come into the funnel enhanced. That’s why that funnel is getting a little bit bigger. Now going back to the one but not both situations, the big issue for us is, it is like product that’s been – food has been picked and put in the shelf. There is a shelf life. And from my – historically when we see this grow like this, we have seen it before. Typically that shelf life, you’re looking at 12 months to 18 months on these projects, these are massive projects. These are projects typically they are going to last three, four, five, six years. So if they get delayed, 6 months to 12 months, if not unusual. From my perspective, if you get out there past the 12 months, 14 months, 16 months and these things really start changing and nothing happens, then you’re going to see so reconfigure. It’s way too early to say that, because this number until recently it was pretty normal. And now with this number getting up or more $1.1 billion, close to $1.1 billion, it’s starting to get to a number that’s got my attention. And so I think the key issue for me is watch them and see what these customers start doing. These are a lot of gas projects and a lot of U.S.-based projects at this point in time. And so I think we got to watch it is nothing that don’t get overreact to, but it – from my perspective, these things sit out there for 12 months, 14 months, 16 months, then you’re going to start seeing a reevaluation of what’s the magnitude of this project do we want to downsize it.

[Josh Pokrzywinski:]

Got it. That’s helpful. So it sounds like we need to stay on top of that as a number to talk about. And then just looking at the projects that have shifted out of the pipeline, and I know that there’s difference between orders and sales, but if I think about that $350 million shifting from 2019 to 2020 and the $450 million to 2021. You were already kind of losing maybe a point or two of sales as it pertains to that. You talked about kind of a two or three-point downshift. It seems like on the shorter cycle into that or some of the projects that are in this pipeline that, that doesn’t assume a very a whole lot more downside. Does that just speak to no excess in the system or the absence of destocking or I guess why couldn’t we decelerate more given that the project piece already speaks to maybe half of the deceleration you’ve talked about?

[David Farr:]

Yes. I think it’s hard to measure on a couple of months on projects moving in and out, because they move a lot. Historically, we never gave that number and there was always a lot of moving, anyway, there’s always a couple of hundred million dollar projects moving around. So I would say the number is a little bit higher than normal. To be honest, Josh, but there was always a number that moved in and out of a couple of hundred million dollar. So now – so I think I would definitely say the movement higher than normal. So therefore I would say does adds taken about a 1, 1.5 off the underlying growth rate of the cycle right now. And that’s the number we’re going to watch and see if there’s been a bigger movement from the next time we talk as we close out this calendar year that’d be a good feel for it. I think you got to wait till the end of the calendar year if you get a good feel. But right now there’s always noise and I would say it is about a point that’s been taken off the underlying growth. And it’s moved up a tad, but I wouldn’t panic, yes, because there’s always that number sitting in there.

[Josh Pokrzywinski:]

Got it. That’s good perspective. Thanks, Dave.

[David Farr:]

Okay, good. Thank you.

[Operator:]

The next question will come from Nicole DeBlase of Deutsche Bank. Please go ahead.

[Nicole DeBlase:]

Yes, thanks. Good afternoon, Dave.

[David Farr:]

Good afternoon, Nicole.

[Nicole DeBlase:]

So I just want to start with Commercial & Residential. So you guys have kind of guided for flat organic growth for the year. It implies a little bit above flat, maybe like 1% in the fourth quarter. And that’s a step up. Now I know you saw a little bit of improvement in July, which is encouraging. But I guess how much confidence do you have in that outcome and could there still be some risk to the downside there, particularly since the comp – beyond your comp does get a little bit harder in the fourth quarter.

[David Farr:]

Yes. Definitely it gets harder because of our U.S. base last year. So there are a couple of things that we’re watching very closely. One that the fact that China now and Asia-Pacific now has stabilized and come above the line that’s a good sign for us. So my concern would not be there. My concern would be in the USA. If all of a sudden, this – we’ve had a pretty good, what I would call heat wave, humidity wave go through, that would be my concern right now. Not in the AC side, but more on the retail side. But we’ve got it pretty, pretty well dialed down. I feel pretty comfortable about that. Europe seems to be coming back. Europe had a very challenging June, because it’s extremely hot there, but it’s bounced back nicely in July. So I feel pretty good that we’re going to be around the 0% to 1% growth rate in Bob’s business in the fourth – our fourth quarter, which is the third fiscal or third calendar quarter. I think we’ve got a doubt pretty close to where we see it right now. And the fact that July came in decently and the orders came in decently. Even I think that was the one month order pace positive, the one month order pace was positive. So its positive real close to that 1% I think. And so I think we’re okay there, but we’re – we’ll people – we’ll put our 8-K at orders and we’ll keep a communication around those three things, Asia, China and North America and as you’re keep holding in there for us. So those are the three things I’m watching right now in Commercial and Res.

[Nicole DeBlase:]

Okay, got it. Thanks, Dave. And then just on Automation Solutions, you talked about things getting a little bit better in July. I mean, maybe it’s my eyesight, but the charges doesn’t show a lot of improvement. If you could just talk a little bit more about the early stages of July and then what’s driving that better result.

[David Farr:]

I tell you what, after a tough June, if it goes ticks up a notch, it’s better. And so I think what we were underlying with what 4.5% goes last quarter.

[Tim Reeves:]

Right, 4, yes.

[David Farr:]

4, so it picked up a little bit. You can’t see that in a chart, because I probably had younger eyes, Nicole, come on. So it’s a little bit better. What’s interesting, it’s not the U.S. We saw Asia, we saw China as probably the ones that something about China that’s interesting. We saw a pretty good impact in China. We saw a good impact in Latin America. So our international markets actually grew order wise, I think double-digit. And in North America, the U.S. business – Canadian business was still the weakness point. So our international held up nicely. And therefore that right now we see that holding up for the year. That will give us a little bit of momentum as we go into this. And I think we’re going to bounce somewhere between 4% to 5% in this – in orders in this fourth quarter. So and July was not a short month, I think it was a fairly long month for us normally. And this month, and so it’s a good representation of what – I think, what’s going on in the marketplace. So I feel reasonably well about that 4.5% now. Given the fact, I thought we’d be at 6% or 7%. I don’t feel that exciting, but it’s better than going to the other way, let’s put that.

[Nicole DeBlase:]

Definitely. Thanks, Dave.

[David Farr:]

Thank you very much, Nicole. See you soon.

[Operator:]

And our next question will come from John Inch of Gordon Haskett. Please go ahead.

[John Inch:]

Afternoon, Dave.

[David Farr:]

Good afternoon, John.

[John Inch:]

Afternoon. So hey, the – I wonder if you could comment on the profitability of the large project pipeline. Is it accretive to the 16% AS margin run rate here?

[David Farr:]

Typically large project will be 10% lower than that. And so what we do obviously a hybrid. Now you’re talking about large. Now if you look at the, what I would call the smaller circles in there, the medium and small sized circles those typically are – those are accretive to us. So it’s a bigger ones that are typically will be the lower-double digit or 10 – tied 10 times number there. So right now given the fact that projects have slowed down, the bigger projects does help us a little bit. But I want to get those projects going, so we can get the installed base. But the mix of funnel right now, it looks pretty decent, because I look at that funnel, I mean if you look at that funnel we put out there, if you can see it. You can see there’s a lot of small, medium size projects. The bigger projects, there’s only one big project left in this year. And so that’s a good mix. As I finish off the fourth quarter, going back to our comments on profitability and a good start for 2020. So based in that funnel that tells me I like the mix.

[John Inch:]

So these deferrals aren’t necessarily putting incremental price pressure on kind of the bid quote, that sort of thing. It’s just a pure deferral, right?

[David Farr:]

Yes, correct. Typically, if you have the chart in front of me, on Chart 11, if you look at the bigger bubbles, you probably even black or white, but I’m looking at that big bubble sitting at the end of 2019. That’s a fairly large project. That would typically be a price pressure type environment. When I look at the smaller, medium sized ones, typically those are going to be KOB2 – KOB2 type projects and typically those are projects you already have the install base. And therefore the profitability is going to be around that our margin or normal margin.

[John Inch:]

And then Dave, just as a follow-up, your comments around doing some more bolt-ons, here to maybe supplement some of the earnings. Can you remind us what percent of your sales are, say embedded software. What percent might be standalone software? And would you be looking to kind of software – industrial software types of companies as part of your frame for doing more bolt-ons?

[David Farr:]

Well, if you look at the acquisitions we’ve done this year, a lot of them were software companies. And so the answer is, yes. So we’re looking at – we did a lot of smaller – we’re doing a lot of smaller deals this year and most of them have been tied around software, standalone software, embedded software. Again, that is a key issue for us. And we’re trying to find the type of deals that we’re doing for the

[Tim Reeves:]

We should slide at our investor conference $400 million standalone software on the As side and that doesn’t include the embedded piece.

[David Farr:]

It doesn’t included. Yes. So we did $400 million. The standalone is about $400 million and then we have a lot of embedded, which we don’t break out the systems business. But yes, if you look at the deals we’re doing right now, there are lot less products, but they’re more software based. And I think that’s a common trend within this automation space as we drive into the control and drive it into the – to our customer base, around specific industries. Again, it’s not a lot of them out there. So you have to quarter for a long time. And we’ve done quite a few this year. They’re smaller. And the acquisitions to me are important relative to gives us opportunities to add sales, profits and as Frank points out, operations have to deliver the earnings and as soon as you plan to make them creative, but that’s going to be a key issue for us to drive, we can get top line organically. We’ve got to get them through bolt-ons and they’ve got to deliver the profit.

[John Inch:]

But it sounds like those deals would be more of the strategic nature, right, versus trying to find stuff that would supplement the earnings that…

[David Farr:]

Yes. Yes. Yes. When I talk about – okay, yes. Yes. Okay, I hope you’ll take that. I’m not talking about going out, I’m talking about bolt-ons within our core business, within the core business of automation, within the core mix. I’m not looking at going out and to do any type of acquisition to get sales, earnings and cash flow or EPS. Now these are within the core – clearly from my perspective, things really get slow, get to that stall speed. I think we’re going to see opportunities for more of these smaller bolt-on deals coming forward. And we’ve got to be very aggressive and going after them and figuring out how to integrate them pretty quickly to get little bit more growth in that 2021 time period, going back to the first question, somebody asked me early on, do we have a path to get the EPS closer to what we said back in February. Because the sales aren’t going to be there right now, organically unless we have a big pop in 2021, so we’re going to have to figure out how to – in bolt-on deals within our core space to that.

[John Inch:]

That’s a good point. Thank you. And I sent him to Canada.

[David Farr:]

Calgary, Alberta, where’s the worst mosquito problem.

[John Inch:]

I think, it’s everywhere.

[Operator:]

Our next question today will come from John Walsh, Credit Suisse. Please go ahead.

[John Walsh:]

Hi, good afternoon.

[David Farr:]

Good afternoon.

[John Walsh:]

I guess, maybe a first question around the hybrid markets. We’ve heard a little bit of mixed commentary out of that market. Sounds like you’re still doing very well there. Do you think it’s because of your mix, because you’re taking share just hybrid covers a couple of different end markets there maybe what we’re seeing.

[David Farr:]

Yes, exactly. So from our perspective, our hybrid business clearly, we’re pretty strong into the life science. And so we’ve had a pretty good run in the life sciences. From the perspective, I’m not – in that hybrid space, we don’t have automotive, we don’t have semiconductor, we have the life sciences, we have some food and beverages. We have some mining in that. And so that’s been doing pretty good for us. The food and beverage has not been that strong for us, but it’s primarily been the life sciences and the mining area that has been good for us relative to our hybrid business.

[John Walsh:]

Got you. And then maybe just as a follow on, I think in maybe to Jeff’s question earlier around margin levers. I think you said, price cost will be positive again in the fiscal Q4, but how do you think about that kind of price cost balance, as you run it forward?

[David Farr:]

Right now, the key issue for us is, commodities have come down, excluding any additional aggressive tariff action other than the 10%, which is not primarily aimed at us, industry is more of a consumer care approach. I think, our price cost balance going into 2020 right now is pretty good. It’s green. Now those things could change and those are the things we have to deal with. But last year at this time, you thought about tariffs were coming in, we had material still going up. People thought we’re going to see faster growth. And so we are looking at a little bit different type of place in our environments. So this time, it’s moving in the opposite way. And the key issue for us is to keep our costs in line and obviously make sure we have price discipline around the price cost. But right now as we look at the early stages of 2020, it’s green and we feel good about it and should be okay as we start the year out.

[John Walsh:]

Great. Thanks for taking the questions.

[David Farr:]

All the best, John.

[Operator:]

Our next question will come from Julian Mitchell of Barclays. Please go ahead.

[Julian Mitchell:]

Hi, good afternoon.

[David Farr:]

Good afternoon, Julian.

[Julian Mitchell:]

Maybe a first question on Automation Solutions in China. You’re coming up to the end of what’s been a very good three year up turn. Historically, my guess this industry in China tends to have three or four year up turns and 18 month downturn. So just wondered how you’re assessing the market outlook in China, in terms of that risk of turning down next year. And whether you’d seen any more evidence of U.S. companies, perhaps being pushed down the priority list on orders, which is something I think you’d mentioned back at EPG.

[David Farr:]

Yes. So on the cycle through this month, the cycle is still pretty good. We’re looking at a very solid 8% to 10% Automation Solutions orders growth and sales growth. As I look at the industries, we’re serving, there’s a lot of industries that Chinese customer base is trying to become more self sufficient and so obviously less imports of final goods. So that’s where they’re aiming their investments. I do not see that changing as we move into 2020. As my initial look at 2020 right now for Asia or for China is, the 8% to 10% most likely is going to turn into, let’s say, six to eight, maybe five to eight type of growth. So we’re looking at a slower growth to your point, Julian. But I’m not looking for that drop off yet, because they have not, they really haven’t finished building out what they need to build out relative to the infrastructure. They’re trying to become more self sufficient in the industries we serve. Relative to – what I called nationalistic tendencies for the Chinese relative to foreigners. It’s not just U.S. companies, it’s all companies. I mean, it could be European companies too. The trend has continued for the standpoint we’ve seen some pressure points relative to some of our customers being pushed about, you need to look at alternative sources not just foreign companies sources via European or American. I think that trend will continue as long as trade discussions are underway. And hopefully, the trade discussions will be finalized before, the foreign companies are really pushed to a smaller piece of the marketplace. Right now, obviously, we’re still okay, but it’s something that we spend a lot of time. We have people going in and supporting our customer organization – our sales organization, our customer’s organization. Lal Karsanbhai was just here, Mike is going in next week. And I’ll be going in about within a less of the month. So we’re spending a lot of time with our sales and with our customers. Because we’re very concerned about the negative trends of nationalism and clearly it’s something we’re fighting. Right now, I haven’t seen anything, I mean, there’s a little bit more, but not astronomical more or we would not be growing as we’re growing right now.

[Julian Mitchell:]

Very helpful, thanks. And then my quick follow-up would just be around your assessment of inventory levels among your channel partners and customers. How much destock do you think is needed across automation and CNRS?

[David Farr:]

It’s still too high. Given the fact that – if look at Emerson’s inventory, with the slower June, our inventory did not come down as it normally would in June. So we’re a good indication of that. Julian, I mean – there’s a balance sheet out there. So you could see, our inventory level did not drop like normal from quarter-to-quarter. And – from my perspective, as I look at the channel right now, I think – I thought the channel would be done by the end of this third calendar quarter. I think, we’re going to be well into the fourth calendar quarter before that destocking is done. And we sense that, people are being very cautious and so I think, it’s going to take a little longer. Because the demand is weaker, therefore the demand is not going to drive the destock and it’s going to have to take it down very slowly. That’s how it looks to me.

[Julian Mitchell:]

Great, thank you.

[David Farr:]

All the best to you, Julian.

[Operator:]

And our next question today will come from Robert McCarthy of Stephens. Please go ahead.

[Robert McCarthy:]

Good afternoon, everyone. Thank you for fitting me in.

[David Farr:]

Good afternoon, Robert. Clearly may the cut offline, I mean…

[Robert McCarthy:]

I guess, we’ll see in Arkansas a little bit later in the month, right, in any event. The first question, Dave, obviously you’ve been focused on niche and bolt-ons, particularly in discrete side and kind of make your number over the longer term. But the question remains in a down cycle, you might have opportunities to look at other larger properties. How do you think of the state of the balance sheet from your ability to do a larger deal absent the use of equity? What is your outer bound at this point?

[David Farr:]

From the perspective of deals we’re looking at right now and we show the board, obviously, we made the decision to do a little bit more share repurchase. From the standpoint, our deals, our acquisitions this year, where it’s not going to be as high there. First say the, first six months, we didn’t see the pipeline being strong. So we’ve made the decision to a little bit more share repurchase. Now, clearly we started this process before the stock get whacked in all the trade discussions, but if I look at our leverage point, we can do a $4 billion or $5 billion type of transaction and completely around that debt to EBITDA margin of up a little bit over that. So we have plenty of room and there’s not a lot of $5 billion, $6 billion, $7 billion, $8 billion deals out there. So I think we could get through the key issue is, Frank knows, as we’ve got to obviously dial back share repurchase a little bit. And then we had actually demonstrate to the rating agencies that we’re going to get our ratios back now, which we have in the past.

[Frank Dellaquila:]

Yes. I mean, Rob, there’s nothing that we can reasonably foresee that would cause us to contemplate issuing equity. We can do everything within the balance sheet that we can foresee.

[David Farr:]

The type of deals we see – the biggest type of level deal, we’d see as a $4 billion, $5 billion. So we show the board that ratio as we go through this whole process of capital allocation, which we did last month, our last June – in June. And also we did today and we did in the finance committee this morning with Frank. And we are comfortably well within the brand of acquisitions we see an ability to continue to do pretty good level with the share repurchase and have the opportunity to do the deals if necessary.

[Robert McCarthy:]

Two smaller questions, if you’ll forgive me. One, CapEx assumptions going forward, have we put a cap on that or a modest reduction on that given what you’re seeing in the prevailing environment. And then number two, any sideways look at kind of the midstream and refiners intentions around IMO and whether they’re going to look to build capacity for the low sulfur distillate or what is the intentions for spending there if you could share any.

[David Farr:]

Yes. Relative to capital, we’ve scaled capital back this year. We’ve asked, we’ve had sessions here the last 60 days. So capital this year is going to be around $600 million. From the standpoint of next year, we have to take capital up. We have, as I’ve said, I think in 8-K and also in the press release. We have some issues from our standpoint of – as we’ve now had some on the acquisitions for two or three years. We are now doing the optimization of where we want to do some best cost manufacturing. So we have some investments that we need to make in 2020 getting ready for actions we want to take in 2021 and 2022. So from my perspective right now, our capital spending for the next couple of years are probably up around the 3.5%, 3.6% level, as we prepare for this move into this – sort of better manufacturing locations and then allows us to move as we go into 2021 and 2022. So, we’re evaluating everything around the capital structure right now. Do we need to do it in 2020 or can we push it out. But I – if I look at the numbers right now, because of what we see the needed for 2021 and 2022, we will be taking capital back up in 2020 little bit higher than it as this year. And I think same thing will happen 2022. So we try to balance this. We spend money all the time, as you well know, but I’m shaving it now and then we’re going to have to put some money back in next year.

[Robert McCarthy:]

And then the on IMO real quick.

[David Farr:]

I don’t have, I can’t give you more insights. I don’t know. I haven’t talk in recently about that. I do know by look at the project investments on the refineries today and KOB2. It’s still pretty high on the list of projects we’re going after and projects we’re winning. But I’ve never – I can’t give you a specific number to say, these guys, yes, they’re going to keep doing it, they’re going to take it up. But I can tell you right now, my folks that tell me the field refining bidding is still going on. So they appear to me moving forward and spending in the space. That’s what I see at this point in time now. Will that be something they scale back if they really start scaling capital back later this year, as they move to 2020. But if I look at the project list right now, there’s a lot of good refining type of projects out there.

[Robert McCarthy:]

Thanks for your time, David.

[David Farr:]

Okay. Take care. You’re forgiven for ask them two and half questions.

[Operator:]

Our next question will come from Joe Ritchie of Goldman Sachs. Please go ahead.

[David Farr:]

Hey, Joe. How you doing? I was trying to Rob, before you got off and tell me – you tell her – tell Hail Mary’s couple of hours prayers. But Rob ran off to the church too quickly.

[Joe Ritchie:]

He’s already doing them, Dave.

[David Farr:]

Yes. How you doing, Joe?

[Joe Ritchie:]

Doing great. Great. Thanks for fitting me in. So obviously, you look the backdrop is challenging or it’s been a little bit more challenging than we all expected. I guess, at what point do you guys think about revisiting your longer term targets for 2021. I know, it’s still ways away and lot can happen between now and then. But how are you thinking about that now just in light of the backdrop being a little bit more challenging?

[David Farr:]

As we told the board – we had a board meeting today as we told the board today, we’ll, grind 2020 here for the next three months. And during that process, we’ll grind 2021 at the same time, because of this very issue of – the things slowdown is a bump – could it be bump in 2021, as we grind what we hear from our customers as they finish their calendar year. So we’re going to be going through a two year window here basically, because of that issue. Going back to question, it’s just a pause and then acceleration or is this going to be a grind in stall speed and then things really slip away as we go into later 2020 into 2021. We’ll be doing that here as we finish this year out. And then we have a very good view by the time we finished the calendar year 2020 or 2019. So that’s how we’re going to go at right now. I want to get a feel for my customers. Am I being too cautious or am I being realistic. And so we’ll get a feel for it.

[Joe Ritchie:]

Yes. I mean it sounds like potentially maybe an update then by the Investor Day next year.

[David Farr:]

For sure. For sure. I will not lose – leave this calendar year without myself have an update and communicate my board. So I have a sense, because I do go out and talk and I want to make sure I’m not looking at some crazy thing for 2021, that doesn’t make sense. I got new Investor Relations guy and I can pin the other guy and blame him for all that crap and so, there works job, you’ve see some Investor Relations guy. Never to be surface to get. It seems better good one, seems better good one, I have to tell you, he is a good guy.

[Joe Ritchie:]

If I could fit maybe one more in, I thought your comment…

[David Farr:]

You could fit one more in.

[Joe Ritchie:]

I thought your commentary Dave earlier on, seeing a slower like U.S. Gas/Canada Gas environment was interesting. I’m just wondering like, do you think the trade environment is impacting off take agreements from happening with Asian partners and that’s impacting LNG investment. Or what is it that you see that’s kind of driving that slower gas investment here in the U.S. and Canada.

[David Farr:]

100% trade discussions, 100%, because that’s once will not move forward in North America. And I’ve told the White House there, I’ve told anybody in Washington is that they will not move forward. Because the – our Asia in particular, China need these – needed to off take, the processing, semi-process stuff. And without some agreement, these investments will sit there. Now they can move forward pretty quickly, because of where they sit, but without the agreements going forward in some clarity around the trade discussions between the United States and China. These natural gas investments will not move forward. Because even if 50% of that investment is going to be for exporting, 50% internally, your whole process is going to change. So that’s very important. So I think what I see in Southern Texas and Southern Louisiana, and it goes back to my comment about, they’re going to sit there for a while for 12 to 14 or where that number is and then they’ll make that call relative to we reevaluate or do we go back to the drawing board?

[Joe Ritchie:]

That makes sense. Thank you.

[Operator:]

And our next question will come from Andrew Obin of Bank of America. Please go ahead.

[Andrew Obin:]

Hi, how are you? Good afternoon.

[David Farr:]

Good afternoon.

[Andrew Obin:]

Just a question on your investment strategy, because I know part of the strategy was to investment service capability, flow control capability, also discrete investments to sort of update the product. So how should we think about your internal investment product processes given to slow down?

[David Farr:]

We’re going through a very serious prioritization of where we’re going to go on the investment and the discrete through the investment around the GE bolt-on acquisition and invest between our process side and the ovation side, the power side. That’s very important to us. And we’re going to try – we’re going to figure out how we get that done over the next two years, as we planned originally. On the service side, given the opportunity we’ve been seeing in KOB3 and I think KOB3 will come in at a very good number this year, because we’re trying to keep that number well above 50% in that cycle. We’re going to figure out how we can continue those investments going and that stopped them. But again, it goes back to a reprioritization of what we can do and we cannot do. And I would say in my discussions will allow and my discussions will run, the OC members. That’s one area that I would say, we need to figure out how to protect. Now we may modulate a little bit Andrew, but that’s an area I think we continue to have opportunities for growth and penetration for the long-term. And I don’t want to be short cycle, blinded and missed this opportunity. So I think you’re going to see us continue to modulate and continue to move forward in that area. It’s been very good for us so far.

[Andrew Obin:]

Thanks. And just a follow-up question, you always have a very good sense of what Global Macro is doing, what Global GFI doing, et cetera. Just looking at the world today, what would you guess as U.S. GDP and China GDP are growing at right now?

[David Farr:]

U.S. right now is growing low-2s. I think there’s – I think, it will continue to slide again. You could easily go below the 2 at this current point in time until we get some clarity around trade, it actually go below that 2 level next years – we move into next year. I think China is continue to grow, but I think it’s more of a like a 3 % or 4% type of growth rate in China. And we seem pretty good pockets of growth. And if Bob’s business, the commercial residential business has back to back, you say, two or three or four months of slightly positive growth that tells me that things have stabilized. So the global economy is definitely slowed. And from my perspective right now, we’ve got the Feds around the world and trying to figure out how to keep that growth rate up from hitting the stall speed. But the trade issues right now are quite a big negative and being pushed back that growth rate down. So that’s the key offset and going on at this point in time.

[Andrew Obin:]

Thanks a lot Dave.

[David Farr:]

All the best to you. Take care.

[Operator:]

And our next question will come from Deepa Raghavan of Wells Fargo Securities. Please go ahead.

[Deepa Raghavan:]

Good afternoon, Dave.

[David Farr:]

Good afternoon, Deepa.

[Deepa Raghavan:]

Automation Solutions, Dave, so China continues to invest in infrastructure and that’s been helping a lot of companies there this cycle. But what are some of the verticals within AS, that have been performing better than you’d have thought in that region. And which are the ones that are losing some steam versus your expectations? I have a follow-up after that.

[David Farr:]

So you’re talking about China and specific Deepa, that we’ve said there China.

[Deepa Raghavan:]

Yes, China Automation Solutions, yes.

[David Farr:]

Yes. So from the power standpoint, we’ve seen China lose some steam that they’re underperforming, I thought they would underperform. There’s been a shifting around of priorities within the power industry. So that one has underperformed inside China from what I thought would happen that’s earlier this year. On the – so the chemical side, I think, that process I’ve seen those are held in there pretty well nicely, some of the refining investments that held in there pretty nicely. I would say that, if I look at some of the pipeline investments, they’ve held in there pretty, pretty well. In the beginning of year, I believe if I went back and looked at when I gave a first forecast in China and we were talking around a 6% to 8%, 9%or something like that, 6%, 8%, 10% – 8% to 10%.So that’s basically where we are right now. So I would say chemical is little bit better, power is little bit worse and refining is little bit better. So that’s where it is. We’re pretty close to where we thought we would be. And it’s – as you said, it’s shift around industries a little bit. And that’s how I see it right now.

[Deepa Raghavan:]

Got it. Thanks for the color. My follow-up is on cost controls. Are you taking costs down along the verticals that are weak? Or is that more broad based across Emerson?

[David Farr:]

Broad based across Emerson. So we’ve set in motion Bob’s business in the commercial residential Bob Sharps, he’s gone through its process with his team and looking at places that we can take out layers, we can take out in situations – not necessarily needed anymore. Lal is doing the same thing, we’re trying to accelerate some of the integration and some of the acquisitions and we’re looking at the corporate structure and the same thing. So we’re looking at areas that from the standpoint of things we can do simpler without as much overhead. We’re trying to figure out how to do that right now and that’s how we’re going at it. So it’s very people focused in the near – that we started in April and we’ll run all the way to in this calendar year to make sure, we have things tuned the way we want them tuned for this type of environment.

[Deepa Raghavan:]

Great, thanks very much. Thanks for fitting me in.

[David Farr:]

You’re welcome, Deepa.

[Operator:]

Our next question will come from Gautam Khanna of Cowen and Company. Please go ahead.

[David Farr:]

Gautam, you’ve got the last question. You just got – you barely

[Gautam Khanna:]

Well, lot of questions have been asked and answered. One thing I was curious about is the June board meeting, I’m just curious what the high level framework is on buybacks. I recognize the 250 you mentioned in Q4, but is there an appetite if there’s not much in the way of M&A over the next 6 to 12 months to really pump the repurchase activity higher?

[David Farr:]

I don’t think – we show the board a range of – what we see cash flow doing, what we see our capital allocation from the standpoint – from the balance sheet, the leverage we have. We try to keep enough flexibility. If we had to do several medium larger site types of deals being – a couple of billion to $3 billion, $4 billion. So I think that right now the board feels very comfortable in this range of $1 billion to $1.5 billion per year in share repurchase. Assuming that the deal, whether we’re looking at is moderate of somewhere between $0.5 billion to $1 billion per year. If we alter that and we start moving back into that $1 billion to $1.5 billion to $2 billion, you would see as modulate back down towards, I would say a little bit under $1 billion in share repurchase. So we show the board that flexibility, but I don’t see if the deal would really – it’s not going to stop. And I mean, I don’t see us pop and everything, all our capital into share repurchase. I think, we’ve consistently bought stock back over the years. As Tim knows, it’s close to 300 million shares that we bought back over the – since 2000. Now the net impact not quite that high, but we bought back 300 million shares. And so we consistently are in the marketplace, but I don’t see us changing the strategy of buying on a consistent basis. And I think the board feels very comfortable in a 750 to $1.5 billion based on what our acquisitions is. Hence, that’s why we talked the board about taking up a little bit higher this year. And now with 2020 hindsight, the fact that the market’s gotten weaker, it gives us some flexibility by some of reasonable prices.

[Gautam Khanna:]

Appreciate the color, thank you.

[David Farr:]

Take care, Gautam. I want to thank everybody for your time. I appreciate it. As you guys know, I try to be very candid about what’s going on. And I do want to let you know that Rocket’s one year birthday is today and doing is about five, I think he’s four months old. And Doon is a little bit different than Rocket. Doon is a little bit more aggressive. And so Rocket and Tim go together. I got to get a breadth of Investor Relations guy now. So that’s what it is. I want to thank everybody for your time and I want to thank the organization for everything you’ve done and will continue to do for the company. All the best.

[Operator:]

The conference is now concluded. We thank you for attending today’s presentation and you may now disconnect your lines.