Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's Investor Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, May 1, 2012. 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. Now I'd like to turn the conference over to our host, Patrick Fitzgerald, Director of Investor Relations at Emerson. Please go ahead, sir.

Thank you, Vince. I'm joined today by David Farr, Chairman and Chief Executive Officer at Emerson; and Frank Dellaquila, Senior Vice President and Chief Financial Officer. Today's call summarizes Emerson's second quarter 2012 results. A conference call slide presentation will accompany my comments and is available in Emerson's website, at emerson.com. A replay of this call and slide presentation will be available on the website after the call for the next 3 months. I'll start with the highlights of the quarter as shown on Page 2 of the conference call slide presentation. Second quarter sales increased slightly to $5.9 billion with mixed results across businesses and geographies. Underlying sales were up 2% lead by strong recovery from the Thailand flooding supply chain disruption in Process Management. Climate Technologies had another difficult quarter, but a recovery appears underway in the U.S. and China. Gross profit margin increased 10 basis points from the prior year and expanded 80 basis points from the first quarter. Operating profit margin of 16.5% increased 330 basis points from the first quarter, which was a decrease of 40 basis points from the prior year quarter. Earnings per share of $0.74 increased 48% from the first quarter and 1% in the prior year. After robust sequential profitability improvement in the quarter, Emerson is well positioned for a strong second half of 2012. Next slide, P&L summary. Net sales increased 1% and underlying sales increased 2% despite continued product line rationalization in the Embedded Computing and Power business. Operating profit decreased 1% as volume deleverage, unfavorable product mix and other cost increases exceeded cost reductions and price increases. We repurchased 1.7 million shares for $84 million in the quarter and earnings per share increased 1%. Next slide, underlying sales by geography. Underlying sales in the U.S. grew 3%; Europe…

Thank you very much, Pat. Thank you, everybody, for joining us today. I appreciate that. First, I would like to say that on behalf of the OCE and myself and the business leadership, we are clearly not very happy or pleased with our first 6 months of this year. We've had to fight, as you all know, several both internal and external issues as we've gone through the first 6 months. And yet, the second quarter results were not as strong as our expectations just 3 months ago. The first issue I would say, looking at it, Emerson Process Management, we have begun a recovery. The order pace has been very strong. We have actually added to our shortfall relative to what we built in the first quarter on the loss at the Thailand board and the supply chain, another $50 million, primarily because in the month end of February, early March, we had to put several of our businesses back on hold as the supply chain basically had some quality issues that we refuse to ship when he had to deal with those. By the end of the month and, as we gone through the whole month of April, we're back up and running full out and we will recover. As we look at it right now, we'll recover the sales which is approximately $300 million that we've missed in the first half of this year. Most of that will be recovered by the end of the fiscal year and we should recover the remaining part of that by the end of this calendar year. The key issue for me is, we will not ship and create quality issues out there, so we want to make sure that it maintains the highest quality integrity of the product. But we…

[Operator Instructions] Our first question is from the line of Steven Winoker with Sanford Bernstein. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Can I just start off with a question around the extra costs you actually had in the quarter on the supply chain and inefficiencies that -- how much was there really in that result and how much do you expect going forward, so in terms of expediting airfreight, line ramps, things like that?

I mean, it's a number we have. I don't have on the finger tips of my hands, but I mean I would -- Frank, what do you say?-- about $35 million. Around $35 million, so between $30 million and $40 million in the quarter. Well, it's more than that-- is that for -- I'm sorry it's about $12 million for the second quarter, I apologize, what's the number there? Frank just showed me the numbers, and about $5 million. It's around -- I'd say around $40 million for the whole year. Therefore, we're going to be running around $10 million, $11 million for the second half of the year, per quarter. We'll be eating that cost. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. so, $10 million, $11 million run rate for the next 2. And then presumably, you're saying that you're finished at that point, right?

Right now, based on the fact that we put some things on hold, I mean, there's no way I'm going to allow quality problems. We've already hurt our customers once. I'm not going to hurt them twice, and so I would say that we'll probably have that -- probably somewhere between $5 million and $10 million in the fourth calendar quarter. It'll take us all the way after this calendar year to get this done. It's pretty even now, I mean we're going to get the biggest chunk out in the first -- of the third and fourth and we'll get some leftover in the first fiscal quarter next year? Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then the second question is on the underlying core growth assumptions that you've talked about. My math tells me somewhere between 6.5% to 10% implied underlying growth for the second half to hit the 3% to 5% for the full year. So I'm not sure how close that is to what you're thinking. But if that's true, that's telling me I've got to have or you've got to have a pretty big take-up in Climate, in Network. Hopefully, PM has got to continue growing strongly and IA has got to be positive, I think. So how are -- maybe you could just walk for your expectations then?

Frank, do you have your chart there? Where's the number? I'll get the number here. Give me one second, Steve. Okay. You're approximately right. They can probably be somewhere between, it's going to average between 6% and 8% depending on which quarter. Some-- 1 quarter can probably be 7%, 1 quarter would be about 8%, something like that. I mean, that's our current expectations, I'd say 6% to 8% per quarter. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: And across the business units, what -- how you're sort of...

The big drivers are going to be, from our standpoint, you have Commercial & Residential Solutions has been averaging about 7% in the first half of this year. Climate Technology does go positive and we see the order pace that haven't gone positive. I'm a little bit concerned about how fast and how sustainable, so -- and you're looking at mid-single digits here from my perspective. Industrial Automation is going to be low to mid single digit. Network Power will actually stabilize and be in that mid 5%, 6%, 7% type of range, and Process is going to be obviously very strong in the second half of the year, above where it was in the second quarter. So -- I mean the second quarter's around 14%, so it's going above that. It's going to be somewhere between 15% and 20%, somewhere in that range. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And I guess I'll speak one last one in. Just thinking about the last 60-plus days, and what is it that's sort of -- what's been the most surprising to you both on your internal information flow and externally, if you think about where you step in and where you're sitting now, that sort of changed?

I mean -- from my perspective, there's 2 things that happened: One, I did not plan to have to shut down some of my Process business again for a quality board. We moved a lot of boards, and the board that go into some of the instrumentation businesses, and when I moved that board, we had a very strict quality control and, unfortunately, had some time there that they were producing bad boards. I did not anticipate that unfortunately. We've got that corrected, but when you move that many board that quickly, one would have to expect that. But that hurt us. I wasn't surprised internally. And secondly I did actually expect to see more. I actually saw -- expected to see some recovery in the month of March. Typically, our -- this industry has always built a little bit ahead of time, but there's been no build at all, in fact, there's been continued liquidation almost all the way up to the end. And so we're obviously operating in a different norm now. We're basically going to be operating as orders book and go. I mean there's not going to be any build at all in this industry and the climate in the industry around the world. So those are 2 different things that really impacted us in the second quarter and I mean that's where we are. It's just the fact of life that climate business is at a very difficult year and you would expect it with the consumer spending, that we'd see more business spending in the climate area which we have not seen. And now we're starting to see some -- but the automotive -- if you look at where there is support in the second quarter, half the U.S. GDP was automotive sale a.k.a., not housing or air conditioning for housing.

Our next question comes from the line of Deane Dray with Citi.

Dave, in Embedded Power, back in February, you talked about launching a fix or exit strategy. And hoping you could give us an update. We saw on the slide comments about aggressive product line rationalization. But any color in terms of where you are in that evaluation would be helpful.

There's no change, and the strategy right now is we are on an aggressive restructuring fix of business, and that's where we are this point in time, and there will be nothing other than that focus internally and with that operation, and -- so there's nothing new to add there this point in time. The key thing for me is to fix this business, and I saw progress in the quarter, which is a positive, and I expect to see continued progress here as we move into this quarter here. And so we will start seeing a better result within that business as we get into this quarter. That's where we are.

Great, and on the process side, the recovery out of Thailand, while it's -- just to clarify, have there been any cancellations of size in that backlog?

No. In fact our backlog and order paces continue to be very strong. We've been working with our customers. We're spending an extraordinary amount of money to make sure we support our customers and shift stuff around and expedite. I mean it's really difficult even though we have an estimate of like $35 million, $40 million for the year, the cost of doing this, it's really hard to estimate that. So the key issue to me is that's why we should -- I mean, we'd put the word out very clearly. Any question on quality, you shut it down and confirm it. Because you do not want to have 2 hiccups here and we have not had any. And from my perspective, that's very important in our backlog and support happens to be very strong at this point in time, so we've got to get back in.

And last question for me. On China, you had talked earlier about an expectation of a soft landing, but then perhaps a reinvestment by the government in the second half. Are you seeing any of that, just mentioned discussion about some investment in nonres and energy be interested, if you're seeing it and how you might be positioned for that.

We are seeing some improvement in business environment spending right now, Deane. It's not nearly the type of the recovery that we had seen historically when they turned this on. I think there's still a lot of issues relative to the government. There's a lot of issues internally going on in that country right now. And so I think from the perspective of how much money is going to reinvested in trying to revitalize a weaker economy, I didn't see -- I have not seen the magnitude of investment. Though we are seeing from the Industrial Automation, the Process stand, the Climate standpoint, the Network Power standpoint, the orders for the last 45 days and continued this month have been good. So I do anticipate a stronger second half, so I do not see the same second half that you would normally expect in the top of mode that we would see from a recovery standpoint in China. So it's better, it's still growing, but it's not going to be anywhere close to what I thought it'd be. We'll take an underlying sales die. Just -- I can't bank on this at this point in time.

Any lift from the energy investments they're making?

Yes. We -- I mean we see that. We do see that benefit right now in the Process and also in the Climate area. So the answer is yes. But it's not going to be -- the investment that's going in is not anywhere close to magnitude of investments that we've seen historically.

Our next question comes from the line of Julian Mitchell with Credit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: Yes, I guess the first question is really on the incremental margins. I mean, you mentioned sequentially those were about 45%. In the March quarter that was a similar run rate, sort of incrementally and decrementally in the prior 2. So I guess if we think about the June and September quarters, you're guiding for that to be about 40%. When you look at the next 2 quarters versus what you had seen in March, just looking at Page 3 of your slides, I mean you call out a bunch of factors there around the operating profit line. I guess volume deleverage, we know, goes away from the order book. Other cost increases you've already quantified that around $10 million, $11 million a quarter, so there's no big change there. Cost reductions, they're sort of in the back from prior restructuring. I guess the 2 things that are left unfavorable for that mix and the price increases. So could you talk little bit about those 2 points and how you think they're going to affect the second half versus the other which you just had?

Our price increases in certain businesses -- we have from a pricing increase standpoint that goes in, in the middle, early part of the second quarter, so there are price increases are holding at this point in time and they're in. So we should start seeing the benefit of those in the second half. I feel very good about that at that point in time, if the volume holds up. I mean, clearly, if you don't get volume, you don't get the price. Relative to -- from my perspective, mix at this point in time, we are -- I mean, when -- if you look at the very businesses that are going to start coming in to play here, the Climate Technology turns positive, given the fact it's around 18% profitability margin, that will help us from that standpoint. The fact that they've been negative and they've held their deleverage recently well, and those model scales haven been down, but that's going to be a positive standpoint. Commercial & Residential Solutions are going to be positive for us in that standpoint and then Process Management will continue to be a positive for our standpoint. On the cost reductions and restructuring and in Industrial Automation, that benefit is starting to flow. We saw that in March and I feel better that we will continue to see improved profitability in Industrial Automation the second half of the year, which we forecasted and we'll continue to forecast. I will update everybody relative to an EPG, relative to the underlying sales and profitability of the segments when we're together in EPG and we'll stand relative to what we said in February. Julian Mitchell - Crédit Suisse AG, Research Division: Sure. And then just a quick follow-up, keeping it at the overall sort of Emerson level, I mean your sales about flat year-on-year. Your earnings about flat year-on-year. I mean, does that -- when you see that, does that make you want to accelerate the restructuring or accelerate portfolio change? Because I guess, you don't want to be a company that's just relying on volume leverage. With flat sales, it would be good to have some sort of earnings growth through price or cost savings or -- are you sort of thinking about the restructuring and maybe you are trying to accelerate that or...

From a restructuring standpoint, we are accelerating already. We're trying to do as much restructuring as we possibly can and particular in Western Europe. And we've got some underway here in North America. But I think from a restructuring standpoint, we've now got -- we've got to geared up at a level as we go into -- finish the second quarter going the third quarter as highest level as we can handle at the company. Relative to our repositioning assets, at this point in time, I mean we've just gone through what I would call 2 or 3 very good challenging quarters. I want this things to stabilize before -- I mean get a better sense of underlying business before I make any more shock treatments. But I still believe the mix of our company still has a very good underlying growth rate and we're just going through a couple of shocks here, so I'm not ready to overreact based on 1 or 2 quarters, Julian.

Our next question comes from the line of Shannon O'Callaghan with Nomura.

So on Process, I mean, how far from optimal would you say was operating in the quarter? I mean, you talked about being at full strength it began in April. I guess, one, how far were you from optimal in the March quarter? And what's your confidence that this April rate can sustain?

I mean, if you look at optimal, we are probably $50 million to $75 million below where we should have been in the second quarter. I mean, it was a pretty good quarter. I mean we're up 14% and we had pretty good profitability. And so from my perspective, if I look at the second half of the year, if I look at third quarter, I mean I feel very confident based on what I see right now, based on the plant structure, based on the inputs going in, the order of pattern which again continues to stay ahead of those. I feel pretty confident that these guys are going to be running pretty close to full out. I don't think they're going to be running 100% full out, but I think they're going to be running a lot closer than they did in the second quarter. I feel -- I mean everyone's focused on this and we've got the management team focused and the quality of the boards have held up and the quality of supply chain. We don't make them in Thailand anymore. We're out of Thailand, but we've gotten in started around -- different places around the world. And so that chain is working pretty well at this point in time.

Okay. Dave, I wanted to ask you a question about taxes. I mean your tax rates got up another point, so you're at 32%. I mean you're now about 7 points above the peer group average. I mean, you have any updated views on corporate tax reform or if you plan to do anything to work on the tax rate?

What's going on right now is our U.S. business is stronger. And from a standpoint of -- if you look at our mix of business, our U.S. actually had a couple of very good quarters here relative to our profitability in some of the -- we've given China, given some of the other marketplaces has a lower tax rate like Europe, that's hurt us. Right now, we're very eagerly working with tax reform because we clearly are a player that has been impacted by this and we do not have offshore deals. And that right now, we'll work with that and we're going to keep working that and that's where we are.

Our next question comes from the line of Mike Halloran with Robert W. Baird. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: So first on the guidance and just trying to parse out downside from this quarter versus the outlook side, it certainly sounds like you're expecting still the acceleration at the back part of the year. How much of the downward guidance move was really just part of the 2Q underperformance versus actually pulling it down at the back half of the year?

I mean, from my perspective, and in Q2, I mean, the underperformance, depends what you call -- people have forecast out there for us in Q2, that's not -- I don't give guidance forecast and that necessarily would have ticked an 80% -- $0.80 guidance for the second quarter. So I would say that a couple of pennies on an average are from the first quarter -- from the second quarter and the remaining comes from the second -- back of the year as I pulled down both China, Europe and a little bit of Latin America. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: Makes sense. And then on the climate tech side of the things, I obviously, saw the improvement. Could you just talk a little bit about the inventory levels and then also whether or not you're seeing similar trends in the hermetic side and your Industrial Automation business?

The inventory levels in the channel are extremely low. Our inventory levels are extremely low. The order pace is picking up, and we'll see -- this is going to be now 1 month thing. We've got to see sustained improvement in North America, so I'm very concerned about how sustainable that is given the fact that the residential numbers have been improving, but it hasn't been improving all that well and it actually has been kind of choppy, so we'll see what happens here. And what was -- what's the other part of that question? Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: Just whether you're seeing the same trends under Hermetic Motors side?

Well, Hermetic Motors move exactly with our compressor business because that's what it is, one in the same.

Our next question comes from the line of Scott Davis with Barclays Capital.

Dave, we haven't talked about cash reinvestment and all, I mean you got a stock that is probably at the level now where share repurchase starts to make some sense. I mean, where do you have -- What are you thinking there?

We talked that we've been doing share repurchases. As you know, we have a set, type based on where the stock price goes. If the stock price goes down, we buy more. And as it goes up, we buy less. So right now based on our communication working with the finance committee today, we will be increasing it and we will be increasing it here as we go into the second half of this year.

Okay. Dave, I'm still trying to get a feel for how you feel about guidance. Maybe this isn't fair, but you view it as realistic, conservative, optimistic. I mean it still feels like there's a back half recovery baked in, particularly in China that may or may not come to fruition. So how do you think about that?

I think I've told you this before, at my level of guidance, I do not say guidance out there so low that I'm trying -- that my dog, Zorro, can jump over. I set a guidance, what I believe based on -- talking to my business leaders and the OCE that I feel is a realistic balanced guidance, that's the way it is. And I'm not a CEO; I've never been a CEO that set guidance so low that anyone can beat it. It's not the way I do it. I run the company based on pushing the guidance as hard as we can. Sometimes, we make it, sometimes we don't make it. So that's where we sit. And yes, the forecast is -- has a second half recovery. Our business always has a second half recovery. And so from my perspective, it's a little bit more this year than normal, but I do not feel uncomfortable with this based on where I see the global economies both from China, Europe and the United States at this point in time. So we have to execute, and so do I feel comfortable I gave you guidance that we can make? Answer is yes. Do I give you guidance I think that I could trip over? The answer is no. I believe that we have a fair balanced guidance right now. That's where I am. That's been that way for 12 years.

Yes, yes. Now, I get it. Can we just really quickly move to climate in China? I mean there's been -- I think you guys and most of your competitors added a fair amount of capacity and that the growth really hasn't come through. Have you seen any price leakage or any kind of structural changes there that make you nervous for the recovery?

No, there really hasn't been. From a price standpoint, our pricing stays in line with inflation and we price accordingly. Our product is not a commodity. And so from my perspective right now, I see nothing that's changed in the fundamental of business model of proposition that we have in China and it continues to be very good business for us.

Our next question comes from the line of Nigel Coe with Morgan Stanley.

So Dave, I get the comment about the guidance being balanced. The achievability of targets is important to a lot of your investors. Where do you see you're most confident in your guidance? Is it top line acceleration? Or do you feel most confident in achievability of your margin targets?

Obviously, I feel very confident that we'll deliver the margin target. I feel pretty confident we'll deliver within that. Obviously, margin is more confident than the sales. But within the range sales, I feel very confident we'll deliver that.

Okay. In the second half margins, my calculations suggest that margins need to be 19.5% or above at the OM level. We haven't seen that level absolutely before. What is driving that? I understand the Process Management is going to have a very strong second half of the year, but it seems -- Climate needs to be in that range as well. I mean, do you endorse that Climate in that 19% range and Process Management in the low 20s?

I mean I've not calculated the 19.5% range. I mean I can't tell you that's the right number, not the right number. I mean, I do know that profitability will be stronger in the second half of the year because of the mix and because we're running basically $7 billion quarters. And so from my perspective right now, the 40% incremental margin looks fairly realistic, and I think that I feel very good that we'll deliver that number.

Okay, that's great to hear. And then finally, Dave, when you talk about inventories in the Climate business, can you maybe talk about where else you see in inventory headwinds. It sounds like Network Power has been an area we've seen some of it as well. But if I look at Industrial Automation, U.S. down 1%, this is IP growth about 4%. It sounds like you got some issues there as well. Can you talk about that as well?

I mean, from the standpoint out there in the industrial segment, I think they've been working some inventories off. Some of the issues that we're such a strong growth last year and I think now that the slowdown -- it's been a very spotty recovery. In certain industries, we have done well. In certain industries, we have not done well. I don't sense a lot of it in inventory in the industrial areas, but there are some and I think that, that's being worked off. From my standpoint, the Network Power business, I think that you're seeing -- we had a strong business in North America. We had a strong business in Asia-Pacific. Europe is really -- is very weak and continues to weaken. I think that there's probably little bit of capacity issue we have here in North America, where people build up. And if the economy continues to muddle along in this 2% to 2.5% range, I think you could see some issues relative to what I would say capacity in that industry, too much capacity, but the inventory levels are starting to come down across North America. I think they were built -- if you look at GDP in the first quarter, inventories did help GDP. I think the industry will continue to bring some inventory down as we go into the next 2 quarters.

Our next question comes from the line of Josh Pokrzywinski with MKM Partners.

To dig in on, not to dwell on U.S. HVAC, but it seems like some of the OEMs there have been pretty positive exiting March and entering April. I understand there's a bit of a delay, but some of them have been talking about orders, order of magnitude, strong double-digit 20% or more and you seem to be talking about a more tepid recovery than that and inventory is still being lean. Are you guys still waiting for those orders to come through further down the supply chain or there's no inventory draw at the OEM level?

There's no inventory draw at the OEM. From our perspective, we work day to day with our OEM customers, and you can go for a week, strong 10%, 20% growth. But then you could go for a week where there's no growth. So I wanted to see sustained growth in this -- in order pattern. Two weeks doesn't make a quarter to me based -- and after just the last 9 months we've gone through with these OEMs. So from our position, we have a very strong position in North America, and the industry basically performs and we'll perform right with it. So I know what's going on in the industry. And from my perspective right now, the order pattern has picked up. It's gone positive and we'll see that sustained through May, June, July. The year's now shorter. With March gone, the year -- what I'd call the AC year has now gotten shorter. That's the negatives-- that's one of the negative takeaway that we did not see any recovery in March. We saw the -- last couple of days going into early April. But we'll see how that -- those orders sustain as the whole quarter goes forward.

Great. And you mentioned at the Analyst Day maybe a bit of a pinch on that supply chain if the OEMs wait too long. Is that still a concern of yours?

The only concern I have was if they try to turnaround from 0 to 50%. I don't think from the capacity, they have a lot of extra capacity and we have lots of extra capacity. They are bringing it up and we're communicating with them. They communicate with us very nicely. I commend them on -- towards the end of March, they started talking to us about -- they're bringing line rates up, which is very important, and we start adjusting with them. So I think we've been in sync. We've had our discussions, we're in sync and we're going up very nicely together. There's lots of capacity out there in North America. I mean, the housing market in the investment and the housing market has got a long way to go before it comes anywhere close back to where it was just 4 or 5 years ago.

Understood. And if I can sneak one more in on Process Management, should we expect kind of normal seasonality in the 3Q to 4Q margin bump?

We're going to be screwing up here for -- I mean I explained this to my board. With what's happened to us in the first quarter, what's happened in the second quarter, what's going to happen on third and fourth quarter. Seasonality comparisons, unfortunately, again I apologize for our mess up the first half, but that's going to be very difficult. And so you're going to see extraordinarily high profitability coming through. Because as we've got things ramped up both in the Process side and our total consolidated numbers, I think something that Scott just pointed out to me or someone else just pointed out to me the question, and so you can't pattern seasonality here right now. It's very difficult.

Okay. So I get -- does that mean that in Process margin, 3Q and 4Q should look similar or -- I guess I'm just trying to understand...

Right now, I'm looking at pretty -- I mean the fourth quarter typically will be a stronger quarter for Process. I still think that will be the case. And the only thing will be different, the profitability will be the mix of any big systems or big projects slip out the door. But typically, Process has a stronger fourth quarter. And I would expect that would still be the case, but it's going to be very difficult to pattern out a seasonality. Typically, the fourth quarter profitability and fourth quarter sales for Process is bigger. It's the way it's always been.

Our next question comes from the line of Terry Darling with Goldman Sachs.

I'm wondering if you might talk a little bit in terms of the second half improvement in organic revenues at Network Power, a little bit of color between what you're expecting for Data Center versus Embedded versus Telecom and sort of any color in terms of the visibility you have on that acceleration, whether it's backlog and Data Center or just comps in the other businesses or whatever else is giving you the confidence there?

Well, as I look at the embedded, we are looking at some moderate growth from the standpoint that -- one, we've some of the pruning done and we actually have some underlying business as some of our customer base actually sees a little bit of growth. I'm looking at what I would say, low single-digit type of growth there. As I look at the telecom, we are starting to see some orders, though it's not been really strong. If you look at the telecom spend in the quarter that we just went through, around the world, it was not good. We are starting to see some stability and some improvement there. So again, we're looking at some recovery in the telecom. And I'm hoping it's going to be north of 5%. I mean, right now, we don't have a lot of visibility. That business is -- it's pretty tight from the standpoint of what our customer base does go there. So it's very tight relative to 30-day, 60-day type of numbers, and that's about how we get there. On the data center marketplace, I think the U.S. will continue to do reasonably well. I think Asia could you do reasonably well. I think Europe will continue to weaken. And so we're looking at, what I would say, solid single digits in the space, with the Data Center being our best; telecom probably the next best; and embedded being the weakest of the 3. The telecom right now, we need to make sure the telecom customers continue to order and build out the inventory of their infrastructure and then they're just starting to do it. That's the wildcard there.

That's helpful. Just couple of follow-ups there. Is there any inventory dynamic here in any of these 3 businesses, probably not Data Center, but maybe in Telecom or Embedded that was in the context there.

The inventory has been worked out in both those spaces. The telecom was worked out over the last 9 months and embedded has been worked out over the last 9 months, big-time worked out. So I think the inventories are in pretty good shape and both those space, and the Data Centers, too. The Data Center capacity comes in place if they get ahead of what the needs are in the corporate world. And they say, slow it down, we don't need it anymore. That's where inventory comes in.

Can you remind us how big Europe as a percentage of the Data Center business is now? I mean is it just the L Chloride business essentially?

We have -- if you look at our European -- let me get a number here, I'll give you an idea. Give me a number for the whole -- do you the other European number for your Network Power? Our European business, and I wouldn't have guessed about 1/3, but it's still pretty significant.

And when you say getting worse, I mean in terms of rates of change, are we going from single digits to double digits?

No, no. I think you're looking at -- I mean, if you look at -- I want to look at the total Europe for the first, second quarter, total year for the second quarter, Network Power. Network Power is around here. Network Power is about $200 million, plus embedded. That was $200 million. It's a significant piece of our business. This is around $200 million in a quarter. And you asked the question on -- pardon?

Where you see those rates in Europe?

I think from my perspective, we were looking at some improvement, so we're looking at moderate growth there. I think we're going to be looking at probably flat type of growth, that there's just been no improvement at all and it's been slight negative. I think Europe right now, you're going to be looking from 0 minus 5 to plus a couple of points in a couple of our space outside Process. It could depend on a couple of orders, depends on exports and stuff like that, but it's not a magnitude chain, if that chain -- if that's what you're trying to get at.

Okay. And then in your prepared remarks, you threw out a $25 million number. It sounded like that's where you saw profitability, operating profits for the Embedded Power business in 3Q, 4Q?

No, no. What I threw out there is what I call pruning. It doesn't look at what I would call underlying pruning in the second quarter of Embedded Power, Computing sales, that was about $25 million.

Okay. And then just quickly shifting over to Industrial Automation and again the same question, if we get a little bit of color on the segments with regards to the second half acceleration growth, that'd be helpful.

I mean, from our perspective right now, we're seeing our second half improvement in North America, Latin America, and Asia in Industrial Automation. We had a very strong first half last year, so the comps are very difficult, there's a little bit easier comps now and we're starting to see a little bit of old momentum. I look at Europe being down in the second half in Industrial Automation. I see no recovery from that standpoint.

Sorry I was thinking more about of the businesses, so electrical distribution versus power gen versus fluid Automation, et cetera.

I would say -- I mean I'm not going to give you numbers for each businesses, but I would say the power gen business is going to continue to be pretty strong both in North America and Asia. And electrical distribution is okay because of the channels, so I would say, it's going to be a mid single-digit number and the automotive type -- so we have business that goes in automotive, that's doing pretty well, too. So Europe is the one area that it's going to be negative. The rest of the world's going to be positive. So I think it's going to be okay.

Our next question comes from the line of Eli Lustgarten with Longbow Securities.

Just a question, I always have to play with numbers. You took guidance down by a $0.10, of which looks like the tax rate is $0.05. You gave us $40 million of costs associated with trying to catch up, which is another $0.03 or $0.04. You've got pruning of inventories and restructuring of businesses. I mean, is it basically the whole guidance change reflecting these ongoing side course embedded with the U.S. profitability tax rate.

I mean Eli, I don't know where you come up with those numbers. That's not how we built that. Our tax rate did not move that much to create $0.05.

Well, you got 31% to 32% of guidance, and that's $0.05 on a year.

We didn't move a full point at a tax rate.

Yes, we didn't move -- I mean the numbers you're talking about -- I mean, with the guidance change, and by the embedded costs, we actually have been looking at that cost ever since we started the recovery so we had embedded in some that cost already from the Process standpoint. Primarily, the underlying sales, the lower sales. And with that lower sales, a tad lower underlying profitability from the business and a little bit of disruption of the business, that's how we got that and maybe a tad, a little bit from tax rate, but it wasn't $0.05 for tax rate.

Okay. So these are more rounding as opposed to major changes. And excluding Process, how much of the business is European across the company, fitting process how much [indiscernible]? Your process in Europe is not a real threat, but the rest of the business...

I mean, I wouldn't call it a threat. I just don't see the recovery. I think that Process -- the European business was down in the first half of the year. I think excluding Process will be flat or slightly down. Our total European business is how big, I'll give you a total number, $6 billion approximately; and Process is -- $5 billion and process is $1.8 billion, Europe.

And that $1.8 billion is in the $6 billion.

$1.6 billion is process. $1.6 billion of the $5 billion is process. And -- so if you look at the second half of the year, I think outside of Process, that will be flat to down as it was in the first half, too. I just don't see any recovery. We did see some recovery, but I see no momentum and I see nothing in Europe that's going to give us that.

And can you make some comments on Latin America, and particularly Brazil, you said it was down. But that's a one market that will try to accelerate in the second half of the year?

Well, we have a lot of big projects that were held back and we do expect those projects to come forward. I mean the economy in Brazil has definitely weakened. And obviously, the impact of some of those raw materials has definitely weak in that economy. So I do expect -- Latin America, we had a very good quarter and I expect us to have a really good quarter, but I don't think Brazil is going to be playing a stronger role as it originally was. So I think Brazil economy is weak right now and I don't see it strengthening all that much.

Our next question comes from the line of Rich Kwas with Wells Fargo Securities.

Dave, on the European outlook, at the beginning of the year, you talked about sales growth in Europe and the market is worse than what you originally thought. Based on -- I know some other people have asked questions that you've given some color around it, but it sounds like though, the market share gains that you were expecting in Process and, to a lesser extent, in Network Power, have those materialized? And are you thinking just Europe's going to be flat for you for the year at this point?

I mean I can't tell you, market share gains in the quarter. I think you've got to wait a year, you're going wait for a little bit after the year to see if you actually gained share. But right now if I look at Europe in total, I do expect a little bit of growth because of Process, but not much. I mean I expected some of our businesses that were export-driven to have a little bit of growth coming out of Europe. That has not materialized because of the overall weaker economies. So right now I would say we still expecting some moderate growth in Europe and -- but not anywhere close to where it was. I originally thought -- because I thought there have been more export. But that's where it is right now.

And then on Network Power, are you seeing in Europe specifically, are you seeing any more competitive pressures there or is this just a function?

No, I mean, ever since, the competitive environment's gotten extremely challenging and tough since we bought Chloride, and that is expected when Schneider bought APC, everyone mobilized against them. The same thing -- this industry when someone does a movement like this, that's a window open to attack, and that's what's going on. It'll take a couple of years first thing to stabilizing them. We're going through restructuring right now in Europe and so I think the European market is unfolding for us in Network Power which I thought it hasn't made any big change.

And our final question comes from the line of Jeff Sprague with Vertical Research Partners.

Just a couple of things. A lot of questions about guidance. Just 2 things. And the prior question caught it a little bit. I mean there's so much movement around obviously with macro and then these internal issues. But there is an element, though, that it feels like there's share loss going on and it is hard to pinpoint in a quarter or anything, but your comments on like fluid automation sounds tougher than Eaton and Parker. The Electrical Drives comments sound tougher than Rockwell and ABB. I mean Telco, TI sounds a little better. Is this kind of feels like there's a bunch of stuff moving around and maybe there's too much noise and all the macro that really ascertain exactly what's going on, but just stepping back and kind of thinking about the portfolio and what's going on competitively, do you feel like you're holding your own? Are you seeing some fresh competition from people that stepping it up relative to what you might have seen historically?

I don't think that's changed that much. I don't think you can look at a quarter or 6 months. Those businesses -- all those businesses you mentioned had extremely, extremely strong 2011 numbers. Different customer base from the standpoint of what we serve and the other guys you mentioned serve. I do not sense based on our business performance looking at the underlying macro or individual markets basis that we've had competitive issues, different than we've had before, and I don't sense -- I mean it's all said and done that we'll have anything changed that dramatically from what the market's doing. So I don't sense that, Jeff. And as you know, I'm pretty close to that stuff and I don't sense that.

Okay. I mean just one last thing, your comments on China were pretty clear. I think you also said, though, in your opening comments that you expected China to continue to weaken in 2013. So just some thoughts on that you are expecting a little bit of a stimulus bump and you think it might stay into next year?

Yes. I think that if you look at the global marketplace, if you look at their export markets and there's not a whole lot of recovery and it's basically stagnant type of growth, I think that China will continue to have weaker -- just fundamental economic pace as you go into 2013. If the U.S. stays at a very moderate growth in the 2% to 2.5% and Europe stays basically at no growth or negative growth, those are very, very important markets for China. And yes, I know there's a lot of talk about turning this into a consumer-led economy there. But from the standpoint -- the capital spending, the export business is still very, very important for the China marketplace. So as I look at the onetime money they put back in there, they still have some structural issues they have to deal with. So I think -- I firmly believe they're going to allow the growth to modulate down a little bit more again next year to allow that working off some of these issues that have built up over several years, Jeff. That's my call. I mean it's my feel and I have a pretty good feel for China. And again, I want to thank everybody for the call and I appreciate the questions and hopefully we gave you some insight. If I confuse people, I'm sure Pat, he wrote everything down, he'll unconfuse you and -- or try to. So thank you very much and take care. I'll see everybody soon.

Thank you, sir. Ladies and gentlemen, this does conclude and Emerson's Investor Conference Call. Thank you very much for your participation. You may now disconnect.