Johnson Controls International plc
Q4 2017 Earnings Call Transcript

Published: 11 Nov 2017

[Operator:]

Welcome to Johnson Controls Fourth Quarter 2017 Earnings Call. Your lines have been placed on listen-only until the question-and-answer session. [Operator Instructions] This conference is being recorded. [Operator Instructions] I will now turn the call over to Antonella Franzen, Vice President of Investor Relations. Please go ahead.

[Antonella Franzen:]

Good morning, and thank you for joining our conference call to discuss Johnson Controls fourth quarter and full year fiscal 2017 results. The press release and all related tables issued earlier this morning as well as the conference call slide presentation can be found on the Investor Relations portion of our website at johnsoncontrols.com. With me today are Johnson Controls Chairman and Chief Executive Officer, George Oliver; and our Executive Vice President and Chief Financial Officer, Brian Stief. Before we begin, I would like to remind you that during the course of today’s call, we will be providing certain forward-looking information. We ask that you review today’s press release and read through the forward-looking cautionary informational statements that we’ve included there. In addition, we will use certain non-GAAP measures in our discussions, and we ask that you read through the sections of our press release that address the use of these items. In discussing our results during the call, references to adjusted EBITA and adjusted EBIT margins exclude transaction and integration costs as well as other special items. These metrics are non-GAAP measures and are reconciled in the schedule attached to our press release. All comparisons to the prior year are on a combined basis, which excludes the results of Adient and includes the results of Tyco, net of conforming accounting adjustments and recurring purchase accounting. GAAP earnings per share from continuing operations attributable to Johnson Controls ordinary shareholders was $0.93 for the quarter and included a net benefit of $0.06 related to special items. These special items primarily related to mark-to-market pension and postretirement gains and discrete tax items partially offset by restructuring, impairment and integration costs. Adjusting for these special items, non-GAAP adjusted diluted earnings per share from continuing operations was $0.87 per share compared to $0.76 in the prior year quarter. Now, let me turn the call over to George.

[George Oliver:]

Thanks, Antonella, and good morning, everyone. Thank you for joining us on today’s call. Let me begin with a look back at our first year as a combined company. And the message that I hope you walk away with is although our financial results came in at the low end of where we would have expected in fiscal 2017, we made significant progress on the integration of a historic merger with Johnson Controls. I’m extremely proud of the work our teams around the globe have done and what we have accomplished throughout the year. We completed a major reorganization of our operating structure across the globe, most recently in North America. We made significant strides in aligning our cost structures, generating $300 million in incremental cost synergies and productivity savings, driving 90 basis points of margin expansion for the year. Despite the substantial amount of integration taking place, we also maintained rigor around optimizing our portfolio and capital structure. We completed the spin-off of Adient and divested ADT South Africa and Scott Safety as well as several other small noncore assets. We redeployed the proceeds from those divestitures into paying down a substantial portion of the merger-related TSARL debt. Additionally, we pursued opportunistic share repurchase in an effort to offset the coming dilution related to the Scott Safety transaction, and we finished the year with approximately $650 million of share buybacks. That said, as we have identified on the right side of Slide 5, there are areas in our performance where we need to improve as we move forward

[Brian Stief:]

Thanks, George, and good morning. Let’s start with our new segment structure within Building Technologies & Solutions on Slide 10. As you can see, Buildings has two main components

[George Oliver:]

Thanks, Brian. As I mentioned earlier, we have made significant progress over the past year related to the merger integration, but we still have plenty of work to do. Fiscal 2018 will be a year of change. We will intensely focused on driving execution. Turning to Slide 18. We expect total sales to be in the range of $30.1 billion to $30.7 billion. Based on current exchange rates, this includes a $265 million tailwind related to changes in foreign currency as well as a $70 million tailwind related to lead prices. Additionally, the impact of recent divestitures are expected to be a $700 million headwind to sales. We expect overall organic sales growth to be in the low single digits. Going through our expectations for Buildings and Power, let me start with Buildings. Based on current backlog, we expect organic growth in the low single digits as we begin to ramp our sales capacity in fiscal 2018. From an adjusted EBITA margin perspective, we expect the benefit from synergies and volume growth to be partly offset by gross margin pressure within our North American field business backlog, which I spoke to earlier, as well as continued incremental investments in our products and channels. Overall, we expect adjusted EBITA margin expansion in Buildings of approximately 10 to 30 basis points, including a 40 basis point headwind related to the divestiture of Scott Safety. Underlying margins are expected to increase 50 to 70 basis points. In Power Solutions, we expect organic sales growth in the low to mid-single digits, driven by volume growth in the aftermarket. We expect volume mix and productivity benefits to be offset by higher lead prices and incremental investments including launch costs. We expect adjusted EBITA margins to be relatively flat on a year-over-year basis. As Brian mentioned earlier, we expect to see continued reductions in corporate expense and are targeting an incremental 5% to 9% reduction, which would bring our adjusted corporate expense down to a range of $425 million to $440 million. Overall, we expect adjusted EBIT margins to increase 30 to 50 basis points to 12.2% to 12.4%, which includes a 30 basis point headwind related to the divestiture of Scott Safety. Underlying adjusted EBIT margins are expected to increase 60 to 80 basis points. As we move to the below-the-line items, we expect to see a tailwind to interest expense related to the pay down of the TSARL debt from the Scott Safety proceeds. This decrease is expected to be mostly offset by an increase in variable interest rates. In total, we expect net financing charges to be in the range of $460 million to $475 million. Additionally, we have seen very nice growth from our joint ventures, particularly Hitachi over the last few years and expect to see our noncontrolling interest increase to $200 million to $210 million. Based on these items, we expect adjusted EPS to be in the range of $2.75 to $2.85, which represents a 6% to 10% increase in earnings per share versus fiscal year 2017. As Brian mentioned, we expect adjusted free cash flow conversion of 80-plus percent, which includes CapEx of up to $1.3 billion. Consistent with prior years, we expect our earnings per share to be stronger in the second half of the year due to the normal seasonality of our businesses. We expect our quarterly EPS cadence to be similar to last year with a slightly lower percentage of earnings in the first quarter, given the ramp-up of our sales force and lower margin backlog in Buildings and the lead price movements in Power. With that, let me turn it over to our operator to open the line for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeff Sprague of Vertical Research. Please go ahead.

[Jeff Sprague:]

George, just first on the portfolio and maybe putting Power aside, which is a whole other discussion. You’ve only been in the CEO seat for 2.5 months or so but obviously, you’ve been evaluating the portfolio as COO all along. I wouldn’t expect you to name names on what might be a candidate to be divested, but can you give us a general assessment of your view? Is there 5%, 10%, 15% of the portfolio that’s kind of a question mark in your mind? Just some way to kind of frame how you’re thinking about that. And if you do have some additional thoughts on Power, would love to hear them, too.

[George Oliver:]

So what I would say, Jeff, starting out is certainly over the last couple of months the opportunity to really take a fresh look at the portfolio, I’ve been working very closely with the business leaders and really understanding the core businesses, adjacencies and complementary type businesses. We’ve got incredible platforms in both Power Solutions and Buildings. But as we look at the portfolio that there are opportunities for potential divestitures where we could take those proceeds and double down on some of our core businesses. And as I’ve always demonstrated in the past, as we do this, we certainly will continue to focus on how do we create the most long-term shareholder value in the remix of the portfolio. So what I would say is starting out here, just with the type of businesses that you’ve seen us looking at here, in that kind of high single-digit, mid- to high-single digits potentially as some opportunities here that we see that are kind of outside of our core that would raise capital and be able to position us to be able to double down from an investment standpoint in our more core HVAC and building system businesses within our Buildings portfolio.

[Jeff Sprague:]

Mid- to high-single digits within Buildings not relative to total?

[George Oliver:]

That is correct.

[Jeff Sprague:]

Yes. And I was wondering also, just shifting gears on tax and cash flow and the like, really kind of a couple questions, or related, anyhow, for Brian. How do we get comfortable that it’s Mexico next year and it’s not something else the year after, so to speak? And I wonder if you could just elaborate a little bit more on the magnitude of pressures you see on U.S. tax reform relative to your initial analysis.

[Brian Stief:]

Yes. So let me start with U.S. tax reform. And I think the two areas that I commented on providing the most headwind are probably the limitations on interest deductibility as well as the repatriation taxes on foreign earnings. And we are in the early stages, Jeff, of taking a look at the implications of the proposal, and we’ll see what comes out from the Senate as well. But those two items certainly do put pressure on our effective rate in the mid-teens where it is today. But I’d also say that until we really sit back and study all the provisions of it, we really aren’t in a position today to comment on what the ultimate effect will be because I’m sure there’ll be tax planning opportunities that we’ll have in front of us as well. So I think this is one we’re going to probably just have to keep front and center with you and everyone on the call. And the more information we get and as ultimately the regulations come out, we’ll address it at that time. As far as your comment on Mexico, the calculations that were completed on the specifics around deconsolidation of Mexican returns, I mean the tax law changed, just to give you a little bit of color here, was that in Mexico, no longer can you file a consolidated return and get group tax relief, but you’ve got to file individual returns. And that payment is required to be made for us in our first quarter of fiscal ‘18, and we didn’t finish the calculations on what that net payment was going to be after unpacking all of these individual returns until just recently. And so the one thing I would point out there is that the payment that we’re going to make of $200 million, the way these regulations are working in Mexico, we will recoup that payment over a period of time of up to seven years. So it’s something we’ll get back over time, but it was a onetime payment that’s large enough that we called out in our commentary here.

[Operator:]

Our next question comes from Steve Tusa of JP Morgan.

[Steve Tusa:]

So just wanted to kind of dig into these first half margin dynamics. You said you’re adding some new salespeople. The backlog margins are down. So can you just give us some color on kind of how that -- at a higher level, just perhaps in an operating margin level, how that will play through here in the first half to make sure people are kind of level set on the expectation as these costs and this lower margin revenue rolls through?

[George Oliver:]

Sure. So let me start with North America. As I said, we have about $5.2 billion in backlog there. And as that flows through, there’s probably about 75 basis points of headwind in that and combined with the investments we’re making in the sales and we’re making good progress there, that certainly is going to create some pressure in the first half as we’re ramping up the orders and that begins to convert to revenues. So that’s the -- that’s one big part of it. And then the other is when we look at our reinvestment, we are -- last year, we had about $0.06 of reinvestment mainly into our products. And that’s beginning to really start to show performance as we look at our products organic growth, and that will continue here through ‘18. And we’re estimating somewhere around $0.06 or $0.08 of reinvestment into our products. Those are the two large pieces as we think about 2018 guidance. Brian, maybe you want to comment?

[Brian Stief:]

I would just comment on Buildings, that’s correct, George. And then when you look at Power Solutions given the spike up that we have seen in lead over the last few months here, there’s probably a bit of headwind as we look at just Q1 impact. But as we’ve kind of commented on before, when it spikes like that, we can have an individual quarter impact based upon the arrangements we’ve got with our customers to pass on those lead increases over the course of the year that tends to normalize, and we wouldn’t expect that to be a big number for the year. But there could be a little bit of an impact in Q1 from the spike in lead prices as well, Steve.

[Steve Tusa:]

Got it. So when I look at this kind of EPS growth trajectory for the year, $0.06 to $0.10 off of the $0.48 in 1Q -- or sorry $0.53 in 1Q ‘17, I mean will you be growing earnings here in the first quarter?

[George Oliver:]

Yes, I think the way to think about this is we’ve historically been around 20% in the first quarter. And then it’s probably been maybe slightly less of that in the second quarter. And so I think, for the first quarter, you can probably dial it in maybe a little less than where we’ve been before, but that’s kind of the general guidance we’d give.

[Steve Tusa:]

Okay. And then one last question for you. The whole comp discussion around what you’re getting paid for, I guess it’s EBIT, organic growth and conversion, is there any -- so if like tax rates go up and your net income is impacted by that and your free cash is impacted by that, that doesn’t impact your -- the kind of incentive package you guys have. Is that correct?

[Brian Stief:]

On the AIPP side, that’s correct. On the long-term side, it could have some impact. But the short-term bonus here, it would be 1/3 on EBIT growth, 1/3 on organic revenue growth and 1/3 on free cash flow conversion. And then there could be some modifiers that might also address things like EBIT margin improvement to ensure that we aren’t just chasing revenue dollars, that we’re chasing profitable growth.

[Steve Tusa:]

And that’s adjusted conversion?

[Brian Stief:]

Correct.

[Operator:]

Your next question comes from Deane Dray of RBC Capital Markets.

[David Lu:]

This is David Lu on for Deane. So on the cash flow for 2018, could you parse out sort of what the increase or the ramp-up from 2017 and 2018 will be? Is it more on the working capital side? I know you gave some color around CapEx, but how should we think about the different buckets that leads to the sequential increase in cash flow?

[Brian Stief:]

Yes. So CapEx is going to be still in the range of about $1.3 billion -- up to $1.3 billion. The way to think about that is if you look at where we are this year and adjust for the items that we talked about in the third quarter, what happened in the fourth quarter here, we were able to flush through about $100 million or so of the inventory build that we saw at the end of the third quarter in Power Solutions, and we also saw about $100 million reduction in receivables. So if you recall at the end of the third quarter, we talked in terms of a couple of hundred million dollars in inventory we thought we could take out and $100 million worth of receivables. So $200 million to $300 million, we were able to take out in the fourth quarter here. So there’s really $100 million more that we expect in the inventory side. And then I would tell you that would get you up to that 80% plus range. And beyond that, it would be the additional effort that our cash management office team is going to put in place to continue to drive trade working capital improvements and look at payment terms and billing terms to our customers. So right now, we’re looking at around 80% plus.

[David Lu:]

Great. And then for my follow-up, can provide an update on the nonresidential sector either in the U.S. or globally, how has it trended? How do you expect it to trend in 2018, is it accelerating or decelerating? Just any color around that would be great.

[George Oliver:]

Yes. So when we look at our nonresidential, we get pretty good presence across all the regions. If you break it out into regions, North America is going to -- as we said, we see lots of opportunity there. We’re expanding our sales force here to be able to capitalize on that. If you look at the metrics, there has been plus or minuses here recently, but we’re starting to -- we still see a very strong pipeline for growth and that’s what we’re ultimately positioned to do to accelerate orders through the course of the year and then begin to turn that as we go through the year. Regionally, when you look at EMEA/LA, our businesses in EMEA/LA, we’re actually performing pretty well. We’ve seen some nice progress in Continental Europe offsetting some little bit of pressure we’ve had in the U.K. And as we plan for 2018, it’s still going to continue to grow low single digits. Latin America has been pretty strong for us in -- with the investments and the expansions we’ve been making there. That’s been a bit better than the EMEA region. If you look at -- in Asia Pac when we look at our business there and the investments we’re making, we see nice progress here in 2017 with the new products that we’re bringing into that market and the footprint expansion. And so I would say that we are continuing to look at kind of mid-single digits opportunity there with the market continuing to play out as we expected and then with the investments we’re making. So overall, a fairly solid position as far as a market standpoint. And then with the investments we’re making, we’re going to be positioned to capitalize on that on a go-forward basis.

[Operator:]

Thank you. Your next question comes from Andrew Kaplowitz of Citi. Go ahead, please.

[Unidentified Analyst:]

This is [indiscernible] on for Andy. So Building Solutions was down 1% in the quarter and orders were flat. So can you talk about your outlook for Building Solutions business within the low single-digit organic growth for Buildings overall?

[George Oliver:]

When you look at our business here, let’s looks at fourth quarter in Buildings, we are seeing some nice progress in our products businesses pretty much across the board. And that’s an output of some of the fire and security markets coming back and those businesses performing well in the fourth quarter. And then with the investments we’ve been making in HVAC and controls and the regionalization of some of those products, we’re beginning to see the pickup, and that also would include the work we’ve been doing with Hitachi. So we see that with those investments continuing in 2018. When you look at the field businesses, that’s where the pressure has been. We were down about 1%, and that was driven by our performance solutions business in North America as well as we did see some timing of some of our projects in Asia, we saw a little bit of slowdown there, but we got a very robust pipeline of opportunities and we’re seeing the orders coming through there. So don’t believe that that’s a longer-term concern. So when you look at what we’re doing from a sales capacity standpoint, where we fell short in 2017, we’ve now, over the last few months, picked up our activity in being able to add salespeople not only driving projects but also service. And so as we now project what that’s going to mean, we’ll see accelerating orders through the course of the year and start to see better conversion of the backlog that we have in place. Backlog was up 4% year-on-year so that does give us confidence that we’ll begin to see the acceleration of revenue through the course of 2018. And while we’re driving increased secured orders, that also gives us confidence that, as we plan for 2018, we’ll be in a much better position to continue that acceleration of growth.

[Unidentified Analyst:]

And then in terms of synergies, can you talk about any progress you’re seeing on the revenue synergies with any cross-selling opportunities that continue to progress?

[George Oliver:]

Sure. I mean what’s happening is we -- within our business, we have very strong relationships with the customers that we’ve served historically, whether it be HVAC controls or whether it be fire and security. And we’ve seen nice progress here in the first year with pipelines, pipelines developing and then the conversion of those pipelines across the board. And what I would tell you is most of these projects are in -- it’s anywhere from less than $1 million to $5 million or $10 million. These are customers that have expansion that -- they’re executing on expansions that we’re bringing in, our combined capabilities to truly differentiate how we can serve their needs within the new space, and we’re starting to see some really nice traction. And so on a go-forward basis, when we originally laid out the longer-term plan, we did say that the first year was going to be about securing orders and that the second and third, we’d start to see the conversion of revenue. So that’s what’s going to happen. We’ll start to see a pickup of the -- now that we’re beginning to see orders, we’re going to start to see the acceleration of the turn of those orders into revenue here in 2018.

[Brian Stief:]

And I would just comment, I would just add to that, that we’ve got -- there is a lot of momentum that we’ve got in the back half of this year. So we aren’t seeing benefit in ‘17 from the revenue pull-through. But given the third and fourth quarter activity, we’ll get some benefit on the top line in ‘18.

[Operator:]

Your next question comes from Rich Kwas of Wells Fargo. Go ahead please.

[Rich Kwas:]

On CapEx, so up to 1.3 billion, what does that imply for the Power CapEx? I thought there was some expansion of facilities in China. So what’s the latest on that?

[Brian Stief:]

So for Power Solutions next year, we’ve got 500 million in the plan, and that would include the construction of the facility that will be part of our Bohai Piston joint venture. The other facility that we’ve talked about in China will be starting late in ‘18, maybe even into ‘19. So the second facility in China will probably not have a big impact on the cash flows in fiscal ‘18.

[Rich Kwas:]

So Brian, I know as we think about ‘19, is this still kind of the peakish year for CapEx as you look out the next couple of years or is there still bit of a ramp in ‘19?

[Brian Stief:]

No, I would say this is the peak. I mean, I could see depending upon levels of the Buildings investments, I would say that we’re probably looking at the 1.3 billion being a peak. I mean, it would have to be something very opportunistic for us to not have a peak at the 1.3 billion. Even at that level, we end up with the reinvestment ratio that’s 1.4, 1.5, something like that. So we’re working to get that down into the more 1.1, 1.2 range.

[Rich Kwas:]

Okay, good. And then just on the synergies, so 300 million for ‘17. It was better than expected. The guide includes 250 million. Is that a conservative number? Or is it a reasonable number? I mean, how should we interpret that, considering you had upside last year? And I know there’s moving parts with regards to projects and whatnot, but how do you feel that in terms of potentially delivering some upside to that later in the year?

[Brian Stief:]

I’d say we guided 250 million to 300 million last year. We ended up at the high end. I would tell you the 250 million is a number that’s pretty much what we’ve got road map for fiscal ‘18. I mean as we go through the year, could there be some upside? Maybe. But right now, we’ve got the teams focused on the 250 million, which is exactly what we’ve got in our trackers, and we’re working toward delivering that. So I think that’s where we are, Rich.

[Rich Kwas:]

Okay. And then quick last one. What’s the lead price assumption for the year?

[Brian Stief:]

2,100.

[Operator:]

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

[Gautam Khanna:]

Congratulations, George, on the new job. So two questions. First one, if you could expand upon why pricing in the backlog’s softer in North America. Is it a function of chasing worse projects or is it just the demands conditions warrant that? And if you could just expand that comment to pricing in the applied market abroad as well? And as a follow-up, Brian, will adjusted free -- will actual free cash flow, all in, in 2019 exceed adjusted free cash flow? And if so, by how much, given the $700 million Adient tax recovery? Any color there on both of those questions?

[George Oliver:]

Sure, Gautam, I’ll take the margin pressure. As I said in my prepared remarks, the incentive systems that were in place were incentivizing purely sales in the past. And what we’ve done, we’ve changed that now on a go-forward basis that its sales and margins. So we weren’t consistently applying that concept across the board. And so over the last -- it’s really been over the last 18 months, there certainly was a deterioration of book margins. And as a result, that backlog then plays out over the course of 18 months, and you’ve got pressure in gross margins. That all being said, we’ve got the discipline in place, the accountability that’s going to ultimately drive improvement. And then with all of the other cost actions that we’re taking, we’ll get benefit also in addition to the pricing to be able to improve that gross margin through the course of the year. And so -- and then the other element is service growth. As I talked about, making sure that we’re getting the right mix of service growth, which as you know is higher profit growth within those field businesses, we had -- it was very low single-digit growth in 2017. I believe, and we’re working across the board to accelerate that service growth, which is going to be a very attractive part of the business on a go-forward basis. So it’s really those two elements that contribute to the overall margin rate. And I have confidence with the actions that we’ve taken that we will be positioned to execute well on that.

[Gautam Khanna:]

Pricing outside the U.S. as well? Just on pricing outside the U.S. as well?

[George Oliver:]

Yes. So we’ve been -- we have had a little bit of price cost as it relates to some of the HVAC equipment, and you’ve seen that with some of our competitors. We’ve been very disciplined around price and continuing to put a lot of intensity and driving out cost. And so what I’d say is the price cost in the fourth -- it was in the fourth quarter, it was about $20 million or 30 basis points within our building segment, we’re going to see a little bit more of that in the first quarter. But based on all of the reviews and the details I’ve seen, with the price actions that have been taken, with the other cost actions, that we’ll start to see that improve in the second quarter and beyond within 2018.

[Brian Stief:]

Gautam, so on cash flow for ‘19, I mean it’s a bit early to talk about ‘19, but I guess I’ll give you my thoughts as we sit here today. That $600 million refund from the Adient tax payment is now $700 million that we’re going to get in ‘19. And I think we’ve talked in the past, we hope to get that in fiscal ‘19. Whether it’s fiscal ‘19 or calendar ‘19 really depends upon how quickly we can get it through a joint committee because, given the size of the refund, it’s got to go to joint committee. But obviously, we’re targeting to get it in fiscal ‘19. So that $700 million, when we look at the other onetime items that could be out there, it’d be restructuring and integration, and I would expect those to be well below that $700 million number as we move into fiscal ‘19, there’s probably a bit of a wildcard, right? Relative to tax reform and what that might mean. I guess we just need to sort through that. But I guess the short response is I would expect adjusted free cash flow or reported cash flow to exceed adjusted free cash flow in fiscal ‘19.

[Operator:]

Your last question comes from Josh Pokrzywinski of Wolfe Research.

[Josh Pokrzywinski:]

Just to continue on some of the comments that you guys made on the margin pressure, gross margin pressure in the backlog. George, I think at Tyco, you went through a similar phenomenon when you took over there trying to bring up backlog margins and enhance some bidding discipline. I think there was a period of time where that selectivity showed up in growth. Is that something that you guys are anticipating in the current outlook? Is that something that over the next couple of quarters could be kind of a slow or uneven handoff as you just work that through the system?

[George Oliver:]

Not at all. We’re doing both. I mean -- I think what’s different is that during that period of time, maybe the markets weren’t as strong. And when we did the selectivity, it resulted in a net decline obviously with margins significantly improving. What I would tell you in the current environment is the market is pretty strong. We’re adding salespeople, talking to our customers. We’re getting a lot of good feedback that there’s a lot more we can do for our customers and making sure that now we got the capacity to go after that and staying focused on projects that ultimately create the most amount of value. And then certainly from a price standpoint, we get the proper return for the projects that we actually deliver. And so I think it is different than what we went through in Tyco. Some of the same principles apply. It’s more focus and discipline and making sure that the incentive systems are aligned to ultimately what we’re trying to achieve both in growth as well as margins.

[Josh Pokrzywinski:]

Got you. That’s helpful. And just a follow-up on the cash flow, it seems like the mix of growth that you guys are projecting for ‘18 between more growth in Asia, more growth in Power or Asia on the -- or on the building side, those would be, I guess, your lower cash generating businesses since Asia has Hitachi, if that’s a big component of the growth and obviously Power is a working capital consumer. Is that something that factors into maybe a suboptimal mix of cash flow growth this year and that could normalize something better than 80%? I’m just trying to calibrate. It seems like the mix of growth is not your best case scenario for free cash generation.

[Brian Stief:]

I don’t think that’s going to impact it in a big way. I guess the way to think about this right now is we’re looking at the Buildings business globally. Target’s about 85% free cash flow, and Power Solutions is around 70% today with the growth investments we’re making. I think as we work through some of the growth investments that we’ve talked about on this call at Power, I think moving toward the 90% target we’ve got in 2020, that’s still where we’re headed. But I don’t think the mix that you’re referring -- the geographic mix you’re referring to is going to be a -- is going to impact that in any significant way.

[Antonella Franzen:]

Operator, I’d just like to turn the call over to George Oliver for some closing comments.

[George Oliver:]

Thanks, Antonella. And again, thanks, everyone, for joining our call this morning. As I mentioned earlier, I’m even more excited about the future opportunity as we look at 2018 and beyond and certainly look forward to engaging with many of you here over the next coming weeks. So, operator, that concludes our call today.

[Operator:]

That concludes today’s conference. Thank you for your participation. You may now disconnect.