Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's 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, February 6, 2018. 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. I would now like to turn the conference over to your host, Tim Reeves, Director of Investor Relations of Emerson. Please go ahead, sir.

Thank you, Denise. I am joined today by David Farr, Chairman and Chief Executive Officer; and Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer. Today's call will summarize Emerson's first quarter 2018 results. The accompanying slide presentation is available on our website. So I'll start with the first quarter summary on slide 3. Sales in the quarter of $3.8 billion increased 19% with underlying sales up 7%, reflecting continued favorable trends in our end markets and a strengthening macroeconomic environment. We closed out the quarter with December trailing three-month underlying orders up 7% and we expect to stay in a 5% to 10% range as we go forward. Profitability was strong. In the base business, excluding Valves & Controls, gross margin was up 170 basis points and EBIT margin was up 70 basis points. GAAP EPS increased 9% and was up 18% excluding current and prior-year tax items. We accelerated share buybacks, as discussed on our November 28 conference call. And in total, we repurchased over 7.8 million shares in the quarter. And together with dividend payouts, we returned over $800 million to shareholders in Q1. Overall, the first quarter performance was stronger operationally than we had anticipated a few months ago. Turning to slide 4, first quarter gross margin was up 170 basis points excluding Valves & Controls. Margin improvement was driven by operating leverage and the benefits from prior-year restructuring actions. Price/cost in the quarter was approximately flat. Other deductions increased $55 million due to Valves & Controls' first year acquisition accounting charges, foreign exchange losses and higher amortization expense. Turning to slide 5, from a geographic perspective, demand was broad-based with both mature and emerging markets accelerating in the quarter. Mature markets grew mid-single digits, led by the U.S. and robust growth in Canada. Europe…

Thank you very much, Tim. I want to welcome everybody, and I truly appreciate you joining us for this conference call. I also want to thank the global Emerson organization for their tremendous performance and a very strong start to the new fiscal year of 2018, with sales, underlying sales up 7%; the margins improving, underlying margins improving; EPS up 9% of GAAP at $0.61, truly having a very strong start to the first quarter of our new fiscal year; and cash flow up 9% at approximately $450 million. So a very strong start. And as Tim just explained, we're raising the total guidance for the year and we will be going back to the measure that I believe in quite strongly and it's called GAAP. And with the tax reform activity and our performance now and the repositioning running through the company, we now can return back to reporting and discussing GAAP earnings, which I think is a relevant measure for our corporation. Again, I want to thank the global team for tremendous execution in particular around the final control team under Mike Train and Ram and with support of that, which we'll update you a little bit about at the conference next week, but clearly doing a great job of integrating and getting some great momentum around the orders, the sales and profitability. So a really good job, well done. As we look at the world today, I feel very good about the trends we're seeing. We always knew our order pattern would have to slow down from the very fast pace coming out of big hole, in particular around the automation business, but the pace of dollars of automation orders are maintaining a very high level of actual dollars, well over $2.35 billion per month on a…

Thank you, Mr. Farr. We will now begin the question-and answer-session. Your first question will come from Robert McCarthy of Stifel. Please go ahead. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Hey, Dave. Hey, everybody. Congrats on the strong quarter.

Hey, Rob. Thanks. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Looks like decent momentum across the board and you called some turns in some areas. So I guess the first question I would have is, with respect to China, you've put up some great growth recently and after there's been very volatile data set probably in the last 18 to 24 months. But given what we've seen with the market pullback here, I mean obviously, there's some concerns about rates, but there's also concerns about overheating in China. And could you talk about maybe the risks you see in China throughout the course of the year? How you feel about the pace and momentum of the business there? Just give us some comfort and color around any kind of China risk.

Yeah. Given I'm an expert in what's happened in the marketplace in the last three days, I'm sure I can help you here. But from my perspective, clearly, we've seen a very good investment in the two businesses. On the Commercial & Residential, it's been tight around refrigeration, it's been tight around the environment, and the issue around trying to improve the quality of air. And from the perspective – can it get overheated because of the government trying to push an issue too hard? The answer is yes. As we see it right now, we do not sense that. I'll be back over there in another month. I feel good about it right now, but there is a concern from the standpoint of the investment period that maybe is a little too aggressive. And historically, what's happened is that they would dial it back, but we don't sense that at this point in time. But that will be a concern for us as we look at this. On the Automation Solutions side, it's very broad-based, so it's not just one type of technology. It's not just one type of industry. It's a very slow, steady type of investment that they're making both for improved quality of their products and quality of their facility inside their country; not only for their own country but also for some of the exports around the world. So I don't sense any overheating there at this point in time, but the one area I do concern about is the government trying to – on the Commercial & Residential side, trying to drive the environmental issues. And at some point in time, they'd say, hey, we drove it too hard. Let's back that off. And that could create that downturn. But right now, based on…

From the U.S. manufacturing base, we were given a very, very generous tax reform package. It's very much focused on investments in this country from a technology standpoint, capacity standpoint, something that we have not seen in this country for over 30-some-odd years since the mid-1980s. From the perspective of the companies that we communicate with and we obviously serve, they see this as an opportunity to be encouraged to make those investments and they're going to make those investments. The underlying demand in the U.S. right now is good, so from a demand standpoint, for the first time, we see both the demand and then we're also seeing incentives to make investments. So, what we're hearing and seeing is the upward pace of investment will continue to go in a positive way, and that will – as long as the demand stays here, both here and internationally, you're going to see these investments continue across our customer base. Now you're going to see in different industries that investments will be stronger than others. Seems like the oil and gas industry and some of the pipeline industries you see in the United States. That's a good thing. You're seeing some downstream. We're seeing a lot of good projects down in the gas, in the downstream marketplace right now in the Gulf region. So in general, we're seeing a lot of our customers are talking about increased investments. We're still seeing a strong focus right now in the short term, what I call quick payback-type investments, especially since you get fast depreciation in the United States. We're starting to see some of the small or medium-sized projects start getting on the books, which will be more for the second half and later part of this year and early next year. And…

See you next week, Rob.

The next question will come from Andrew Obin of Bank of America Merrill Lynch. Please go ahead.

Yes. Good afternoon.

Good afternoon, Andrew.

Just a question on Automation Solutions. You highlighted MRO and small and medium-sized projects. I would imagine these are very good for margin. What kind of visibility – you've sort of highlighted you're starting to see big investments coming up in the U.S.? What kind of impact will these projects have on your margin?

The normal cycle – our margin – when we have funds (25:40) scheduled out for the 35%, we're looking at the 35% flow-through profitability on the Automation Solutions. It takes into consideration that balance between as we go into those projects, into the larger projects. So we're well into tune that they're very large projects, which won't really start hitting until late 2019, 2020. They will obviously put more pressure on margin. But by that point in time, our facilities are running a little tighter, a little more productive. And so typically we can absorb that. There's nothing unusual in the cycle right now, Andrew, other than, I would say, the sustained period here we're going to have because of the tax law relative to small or medium-sized projects. So I don't worry about the margin and the business. Especially if we see strong investment in North America, which is our core market, the actual – the pressure will be in the positive side of the margin, not in the negative side of the margin.

Got you. And just a follow-up question. I think in your press release, you sort of highlighted that you would consider looking at, I guess, wages in North America. But how should we think about inflationary pressures in 2018, given that a lot of other companies actually are also announcing wage hikes and you have raw materials going up? How should we think about inflation and price/cost? Thank you.

Yeah. We've been – and I think you guys heard me. We've been seeing underlying salary and wage increases going up now for the last nine months. At a trend line, we're above 3%. We are not a minimum wage company. We are a company that pays for high skills. And so we have to make sure that our compensation structure, from a wage and salary standpoint and benefits standpoint, we stay competitive and we will have to adjust. We are in a period here that clearly it's very important for us to keep our price/cost in line and make sure we keep ahead and we start having to tweak our prices on upward basis. As we see the commodity pressures building up, we see the wage and salary pressures building up, which are all good things from a mild form of inflation. But clearly, what we have to do is stay ahead of this. And the sections that Frank and Steve will be having with the two platform leaders is we're going to have to be talking, okay guys, you've got to keep putting the pressure on the price increases because we will see the upward pressure on the commodities, the upward pressure on salary and wages. And we must make sure we keep our pricing in line as we go through this time period. We've gone through a period where we were behind the eighth ball. And right now we are in sync. And it's very, very important now as we stay, and we stay in sync here over the next couple of quarters. And I think, Andrew, this is an issue that I ultimately talk about it. And at this point in time, we are ultimately talking internally because we see the pressure is increased material, increased salary and wages. And therefore, we're going to have to slightly bump up our prices. Now that will create, obviously, a higher growth rate at the top, but also we have to make sure we have the resulting cost reductions and price actions around these. So this is an interesting time period, which we have not seen for a while. But we do know how to operate in this time period, and I feel good that we are well inside the scope of where we need to be right now.

Thank you very much.

Thank you. Very good. Good questions.

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

Hey, guys. Good afternoon.

Good afternoon, Steve.

So just on kind of the cash flow and the dynamics around CapEx, when do you expect to kind of hit this run rate? And you look like you'll a little be under the kind of 3.5% this year. Will you be above it for any of these years over the next couple of years as a percent of the sales?

Yeah, I think that if you look at – okay, if you look at our capital spending, if you go by quarter, we typically start slower and we build up in the year-end. It's how we decide. It's the way the company is set up and what goes on inside the company. If you look at the overall, I would say that our capital will be – is lumpy. We could – this year, we could be a tad under 3.5%. Next year, we could be a tad over 3.5%. We have similar projects that we might be looking at new capacity, a new facility somewhere, that we'll start working on late this year and make your capital occur in 2019. So I think on average we'll probably be somewhere in the 3.3%, 3.4% range over the five-year time period. But the key issue for me is, as I told my board, unlike the government which clearly had shovel-ready projects all over the place, we don't have shovel-ready projects inside Emerson. If we have a project that we need to do, we do it. But what I'm looking at right now with the stronger demand in our key couple businesses and a shifting where that demand is coming around the world, we're going to need to make some different type of investments here in North America, in particular the United States, to be more productive and have a lot more flexibility around our facilities which we haven't built into them in the past. So I think this is going to build and I would expect 2019 and 2020 will be bigger capital than this year as I look at it based on what I see and feel right now, Steve.

As a percentage of sales, right, you meant?

As a percentage of sales, correct. And the dollars are still going to go up, yeah.

And so – and when you look at your cash flow statement, there is this kind of other account. I think there might be some – that's where you kind of adjust for perhaps your cash taxes versus your book taxes. I don't want to be knit picky, but is there anything now with the lower book tax rate? Anything in that kind of other account that's been a couple hundred million bucks in the last few years and would the new portfolio have – does that shrink in size or does that go closer to zero, is it less of a factor? I am just trying to kind of get to what the run rate conversion is here going forward.

Yeah. Let me – I'm going to try to grab the chart, Steve, that you're talking about, okay? So I know what I'm talking. Is that in the press release or is it in the slides?

No, just from your 10-K. It's 2015, 2016, and 2017 from the 10-K.

Oh, from the 10-K. I'll look at it.

I'm just trying to get at what the sustainable conversion is here because you guys – you've talked in 2021 as it being like 105% to 110% or something around that. Now CapEx is bumping up a little bit. You've got some of this tax coming through, so maybe just a little bit of clarity on that.

Steve, I think what you're talking about in that add back is mainly the GAAP pension expense gets added back and then we have the cash contributions that come out of the cash flow and then it's equity comp that gets added back as well. So, no, I don't expect...

Okay.

I don't expect there's going to be...

So, that's sustainable?

...a change in that as a function of tax reform or the different configuration of the portfolio.

Great.

So let me – Steve, it's a good question, given all the challenges around this world today about quality of cash and earnings, so let me – as we get ready for next week...

I don't know what you're talking about.

Me either. I just made a statement. You know me. I just made a statement. I got my rally monkey. I've got my bull here. I got a baseball bat and these guys – it's amazing what they say when they're thinking. But let me – let's take a look at what we're going to – because we're going to give you a cash forecast and we're going to give you obviously P&L forecast next week, and let me take a look at what we think the sustainable rate is going to be. As you point out, and you've pointed out to me numerous times, I have a unique window here right now because I have the final control cash opportunities, which we are obviously starting to execute on, which is going to run now for three or four years. I have some increased amortization because of software companies coming on board from that perspective. So, that helps us from a cash flow standpoint. So the question is, as we go through this cycle, we're going to be able to run at a little bit higher rate on a conversion basis than I have historically, and I think that's a very fair question. It's also a very challenging question for me to answer, but I think that I owe you that and the shareholders can we run 110%, 115% conversion? This year, we're talking about running around 120% again, which is a good number. And I do have some things helping me right now, but the question, as we go out of this cycle, is the number going to be 105%, 110%, or 112%? And I think that's a very fair question to ask.

And then one last quick one just on R&D. Are you kind of full up there on R&D investments, or RD&E? Or is that going to tick up and trend up as well?

I think the key issue for me, as I've talked about the trend line of our orders, our trend line of the sales, is in the two key areas. If I see Automation Solutions really starting to take on some bigger projects, they want to bring in some new technologies, then we're going to have to ramp up some R&D. But that will be commonplace if I start seeing our – our sales order would mean this year, we're going to be more in the 8% range, and I see a pretty good filler relative to projects coming at me. Then we might start ramping up at a couple of new technologies to make sure that we can satisfy that demand that we see coming from our customer base for 2019 and 2020, in particular around our Plantweb Internet of Things. So I think that right now, we're good. But if I start seeing this growth rate pick up a little bit, which could possibly happen, then you're going to see me tweaking a little bit more engineering moneys into here because I want to get ready for the next-generation technologies that our customer base will be going towards as they go into 2020 and 2021. That's what we're going to be watching now. That's the next pivot point that we should be at, and that's the place you should be pushing me. Relative to Bob Sharp's business, I think at this point in time we've continued to give Bob the moneys he needs as he is running at very high levels of profitability. He had an unfortunate situation of a quality issue in the first quarter that we had to deal with and we dealt with it and one of his products, I think, in the thermostat area, and we've dealt with that. But we're giving him the money he needs relative to that next-generation investments to really – to pull through his digitization in the cold change stuff which you'll hear him talking about and – so I'm making sure he's got the money he needs right now because there's some good growth opportunities there for that business. So, that's what I see.

Makes complete sense. Thanks, as always, for the comments.

Thanks, Steve.

The next question will come from Steven Winoker of UBS. Please go ahead.

Hey. Thanks and good afternoon, all.

Good afternoon, Steve. Are you legitimate; we can talk to you? Or what – are you back in the game here or are you still on vacation?

Come on, Dave. I assumed you'd read every single page of that report.

Oh, oh, that one. That – oh, I used that one to put myself to sleep with over the weekend, I'm sorry, I did read that.

Oh, thanks for that big eye. I've got to consider that next time.

Oh, gosh, Steve, I look forward to seeing you next week. Come on up and say hi to me for a change. You've been a stranger for a couple of months.

Yeah, yeah, yeah. Just following compliance. Anyway, out and good and all that.

I am full compliance. I mean that's why I got my rally monkey. I got my dog here. I've got a bull looking at me right now. I'm full of compliance.

Yeah, yeah, yeah, I'm straight and up, straight up in the air. So listen, I just wanted to chase up the cash flow discussion a little more with regard to 2018, not the longer term. On page 16 on the presentation, you just give the 150% operating cash flow conversion on GAAP, right, step-up from 130%. So I just want to make sure that...

Operating cash flow.

Yeah, so I just want to make sure that that – the key drivers are there in terms of the change or to what extent – what are the biggest components of that step-up?

That's – you're going to have taxes there.

Yeah.

Yeah, you've got taxes there.

For our guidance.

Right.

So the – yeah, that's the differences primarily. There's two things going on with the taxes and a little bit improved profitability overall. Those are the two numbers right there. As you know, given our level of profitability, if we grow a little faster and our margins are – obviously we're saying we're going to have a better earnings, that helps us. But the big chunk there is the taxes.

Okay. Great. And then as you said, you'll give us some more color around that hopefully in terms of longer term. Yeah.

We're going to try to make sure, Steve, because there's two big moving parts in what's happening to Emerson versus last year at this time is we have stronger underlying performance from a sales standpoint, economic standpoint, and then we have a tax reform. So I'm going to try to be as I thought, Tim worked very, very hard to be transparent with you guys on it. You guys may not think that was transparent in all his charts he gave you, but we're trying to be transparent relative to how these numbers are impacting. We'll try to do that again next week for you, so you can get your models set up because there's a rebasing going on right now you're going to need.

Okay. Great. And then secondly, maybe diving in a little bit to the Commercial & Residential side of things, on compressors, you're talking about pricing and the need to keep pace on pricing versus cost and how hard that is. And you've been through this multiple times before. Some of the folks in that area are certainly saying that they believe they have a little more, I think a little more pricing power themselves and comfort level with their supply base in terms of their ability to kind of hold costs as well. What are you seeing in that part of the area relative to competition and your ability to get price in that area?

We're in it for the long-term and our customer base know that. And so we work very closely with them. We do get the pricing and we clearly have to make push shoves back and forth, sometimes in and out of sync, sometimes in sync. I think, overall, this will be – with the – when you look at copper, you look at steel, you look at the continued commodity increases going on, on the Commercial & Residential side, there's going to have to be a trend line upward across the whole industry. And they have to be very careful from the standpoint – and we understand that. And that's why we work closely with them. We don't want them priced out of the marketplace either in the end market. So I think that there's some pushbacks always, but I think, over time, we figure out how to make those tradeoffs with changing our products to get them the price point they need and then we can change our products to make sure that we get the cost price points that we need. And as you know, there's not one – just talk of compressors, there's not just one compressor. We can make changes within a compressor to get what they need and to change that price/cost structure. So there's a lot – there's going to be a lot of give and take. I think the industry knows right now we're looking in the period, as someone pointed out earlier, potentially we could have higher inflation here. And so we're going to have to start making tradeoffs for both of us to make sure that we both don't get eaten alive in this whole price/cost situation. I think that being a major supplier in this industry, we have that ability to do that with our customer base, and we'll continue to work that.

And you forced mixed up in the past as well, which has helped. So I'm not sure if you see opportunity there too, mixing up the...

We have a window here again with – in the commercial standpoint in refrigerant that we will mix up in that space as the transition happens. And the residential side, it's a little bit different this time. I think we're going to see more of a mix up on the commercial in the channel in the next 12 to 18 months in North America. So it's going to be a hybrid approach here. We're going to be making some pushes and shoves. And in the end, we want to come out this ahead, just like they want to come out ahead.

All right. Thanks, Dave. I'll see you next week, and I want to hear the critiques on that report.

Definitely. I will dust it off. It must be underneath my pillow right now.

Good. As long as you have it.

Hopefully, I didn't get too much drool on it.

That's all right. Better than most.

Okay. See you later, my friend.

Thanks.

The next question will come from Rich Kwas of Wells Fargo Securities. Please go ahead.

Hi. Good afternoon, Dave.

Good afternoon, Rich.

So on Automation, with regards to investments, with oil where it is, it's up much higher than a year ago and investments have picked up, but you talked about being able to maintain the incrementals at a pretty healthy level without having to make significant investments. When do you see that starting to play out? And I guess that gets into some of the KOB1 projects starting to get booked. And so any color around KOB1? What mix of the orders it is right now? And then, how you see these investments getting layered in over the next year or so?

I think what we're seeing right now – and we're going to share with you basically our project business and what that funnel looks like. We're going to give you the snapshot, which clearly is going to be bigger than the last time we shared with you, which I think – Tim, when was that? The last conference call, wasn't it?

Yes, it was in November, I think we did.

End of November. So we're going to give you the snapshot and basically, it's consistent measurement across the board. What we're seeing right now are the initial phases around the world of larger KOB2 type of projects where people have done initial expansions or part and now they're going back and they're dusting that off. And that's coming back in the funnel on a rebid or just moving forward depending on where they feel comfortable relative to the cost of the project and the timing of the project. That is already starting to flow. We're starting to see that. And I would expect to see more and more of those bookings as you go forward here this year. On the larger KOB1 projects, which we're starting to bid and talk about, and I know Ed Monser is going to try and talk about one project that he sees going on right now across the final control in particular, we're going to start seeing more and more of that come late in 2018, early 2019. Yes, there's going to be one or two projects out there, but I think that those projects really won't – starting to play into 2019. So when I'm talking about higher incremental investments is if I start seeing our growth rate sales – and I see sales, and obviously, orders before the sales, if I start seeing that number clearly looking like it's going to be at the high end of the 6% to 8% and potentially have a chance to cut across that, then we're going to have to start this year. Now, the question will be is, if we're growing faster, we're going to obviously leverage. And obviously, the numbers will look okay in the short-term and when it will come back to haunt us will be in 2019. But if we're starting to see this happen and we're starting to see the larger KOB2, that's what I'm going to trigger off, not the KOB1, because if I start seeing the larger KOB2, which we're going to talk a little bit about next week, that's where we're going to have to start putting some money into play to make sure we protect ourselves from a customer perspective, both from a manufacturing, sales and service organization, because this business, as you know, comes up. And these aren't small products or projects. And so we've got to make sure we can produce them and then deliver them.

So the earliest is really next year is when you would start to see the impact?

Yeah.

Okay.

Yeah. I mean you're going to see – you'll hear us talking about it, but the dollar, that will be next year.

Okay. And then on V&C, outside the amortization, you're still tracking to exit the year in the near double-digits on an EBIT margin basis or is that coming in better?

Yeah, I think we'll be there. I have no reason to say we won't be double-digit as we -- this year. And I want Ed to talk a little bit about that. Ed Monser is going to give a presentation on what he sees. The team's doing a great job. We are this month starting – in January and February, we're moving off of the Pentair OMT system, which is – that's sort of like jumping off the top of this building in a corporate here without a parachute and hoping you can land without breaking a leg. And that's going on right now. So, that's my concern this quarter is to make sure that these guys can get off that into a normal operating system and get away from that Swiss model. But overall, I like where they are from a margin standpoint, sales and order standpoint. And they're starting to talk, which I'm really excited about, technology and where they can bring some new technologies and make some investments in technology, which that business hasn't made in a long, long time.

And then, how about working cap, real quick on that piece? Anything...

They're slightly ahead of schedule. I would say that – I would say for the year, they're going to deliver – my gut tells me that final control will deliver very good cash flow number for us this year. I fundamentally believe that we will have a $2.9 billion. It could be a $2.92 billion. I think we're going to have a good operating cash flow this year. And it's going to be driven off of the work final control does. I mean everyone else is important in the company, but the real delta is there. And I think that Mike Train and his team and Ram Krishnan and his team have a focus on that. They know they have a chance to deliver cash flow to us and we'd really like to see that happen because that makes a big difference in the returns. It also gives us the flexibility that we need from a standpoint of dividends and then share repurchase.

Right. Great. All right. Thank you. See you next week.

See you next week, Rich.

The next question will be from Jeff Sprague of Vertical Research. Please go ahead.

Good afternoon, everyone.

Good afternoon, Jeff. How are you?

Doing well. Hey, just a couple more things on V&C, Dave, if I could.

Yeah?

Could you just give us a sense of what's going on with their orders? Are they primed and ready to take orders, so to speak? Or you're more focused on integration here in the near term?

We're focused on orders. Clearly, there's things we want to get done from an operational standpoint. But we – if you look at our V&C business right now, we're growing. It's the combination of final control and V&C. It's around 10%. And what's very important to us right now is getting them into the site, which goes back – I think it was Rich asked me the question. On the projects, so what I'm trying – we're trying to get them engaged on the KOB2 projects on a full capability. And that's what we're trying to do at this point in time because the early stages of projects are starting to happen. We are building out, as we've talked about, a final control solutions package. And now for the first time, we are going out to the global customer base and saying we have, here it is. And if you look at the projects, some of the biggest componentry is typically around the final control package. So, that's pretty important to us. We don't want to miss the initial phases, those upticks. So, yeah, we're focusing on restructuring, repositioning and making sure we're delivering the profitability and the trade working capital. But in reality right now, what we're also out there working really hard and why Mike Train and Ed Monser and Ram Krishnan – Ram works so hard on trying to make sure that we got the global sales organization in place. This is so important to us right now, Jeff, because this cycle is happening and we want to get back on track and it'll make a big difference for us relative to recapturing market share that, unfortunately, was lost in the last downturn when the lack of attention in this business. So I like what we see right now and if we can maintain this level of growth in underlying orders, the projects are coming and this will really set us up for a very strong 2019.

And then just on the V&C financials, Dave, the $25 million of acquisition charges, is that inclusive of the run rate amortization or is that more like step-up in other type of...?

The last piece of the step-up of the word counting rule I've ever seen in my life, as Frank knows, where you have to re-mark or write-off the profit and inventory and the backlog. And so they had a lot of backlog and they clearly had a lot of inventory. And this is the last phase, the last piece – Frank said I maybe have a couple of more million left next quarter, but I'm not talking about it. This is the last piece of that. That's what that is right there. That's the last piece of that accounting revaluation of backlog and profit and inventory.

And then just one more for me. I think some folks are viewing the strength as almost a glass half empty. Demand is good, therefore you need to spend capital, therefore that's a negative. I think I heard you say at the beginning of this call that even with higher spending you're quite comfortable that your incremental margins can traffic in the mid-30s. Does that hold looking out into 2019 and 2020 when you're looking at these higher levels of CapEx?

Yeah, we're going to – we're on track to get back to the levels of profitability, the 19% EBIT margin that we talked about last year with the V&C. We are on track to get that in the same cycle, so even with a higher growth rate, I still feel very good at the stronger growth rate, we're on track to get the mid-35s, the mid-30s on the incremental margins. We feel good about that at this point in time. The only place I see that we'll have to start spending money is that growth rate goes up, but given the fact that what's going to happen is if growth rate goes up, our spending will always be behind the growth, so we're going to probably have pretty good leverage. It's when those rates start coming in sync. So I feel very good about the margins, incremental margins out of the Automation business for the next couple of years. The cycle started, and we have bumps and things in a quarter or two, yes, but overall I see no reason right now that we're slightly ahead of last year for margin, we're slightly ahead this year and I think we'll get to that 19% that we talked about in the Automation Solutions with V&C by the 2021.

Great. Thank you very much.

Thank you very much. Appreciate it, Jeff.

The next question will come from Christopher Glynn of Oppenheimer. Please go ahead. Christopher Glynn - Oppenheimer & Co., Inc.: Thanks. Hello all.

Hello, Chris. Christopher Glynn - Oppenheimer & Co., Inc.: Hey, Dave. You mentioned hybrid as a good source of growth in the press release today. Kind of an interesting call-out given, I think, that was part of the rationale on the Rockwell look. But how efficiently would you say that market served today from the discrete and process sides respectively? And are you seeing any separation among the people that have been focused on it on the past 10-plus years?

No, the reason we called out the hybrid is because if I look at the underlying industries that use a lot of the hybrid technology, those industries have been the strongest places for investments, say for a classic example would be a pharmaceutical. Now from my perspective, I think that you have a clear group of leaders in the hybrid space today. There's three or four of us that are pretty strong. I think there's – if you look at the – and we'll talk a little bit about, as you look at the breakdown of others in this industry, I think there's some consolidation efforts and some squeezing that could happen here. There's room to grow for the four major players and to take out more share within that space, and I think that you're hearing a lot of the key guys in this space talk about it and I think there is plenty of room here for the next three, four, five years for us to gain into that space. But from my perspective, I think the initial phase is some of the hybrid investments underway are good and you're going to start seeing some of the old line process automation areas of investments happening later this year or going into next year, but right now the hybrid space is what took off earliest and I think that's good and there's room for it to run. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. Great. And then a bookkeeping question. On the walk from the prior adjusted EPS, you have the $0.05 to $0.15 adjustment for operations and repurchase, but you add the low end of that $0.05 to $0.15 to the high end of the prior range. Is that just conservative or if you're seeing the stronger markets will you fund more restructuring or something?

No. We'll pay for (54:12). We just had a good first quarter. We beat and we raised more than we beat the first quarter. I want to make sure that we're not setting ourselves up to some number we can't make happen. So that's what's going on here, Chris. I think that there's no additional restructuring underway. If we have – there's nothing hidden in here from the P&L. If we can get a little faster growth and margin conversion, you're clearly going to get the earnings. There's no hidden. There's no incremental investments I'm trying to hide here. I'm trying to make sure that we put a forecast out for you that we can deliver, plus or minus the pennies that we talk about every quarter, and that's all it is. And it was a good beat and we raised. And I didn't feel like I have to go crazy on a raise.

And mechanically, we're bringing the bottom end up, so that's a bigger number.

Yeah. Christopher Glynn - Oppenheimer & Co., Inc.: Right. Got it. Thanks.

The next question will be from...

No good deed goes unturned. Okay. What was that? Sorry. Go ahead.

I'm sorry. The next question will be from Joe Ritchie of Goldman Sachs. Please go ahead. Joe Ritchie - Goldman Sachs & Co. LLC: Thanks. Good afternoon, guys.

Hi, it sounded, no good deed goes unpunished on Joe. Joe Ritchie - Goldman Sachs & Co. LLC: No, that is true.

I guess if I don't want to be the heat, I should quit being CEO, but I sort of enjoy being CEO. It's a lot fun. Joe Ritchie - Goldman Sachs & Co. LLC: Yeah, you must enjoy it. It's been some time.

Almost it's 17 1/2 years. Joe Ritchie - Goldman Sachs & Co. LLC: So maybe my starting question here is on just this incremental margin discussion specifically around Automation Solutions. If I pull out the V&C impact this quarter, I get to like a high 20s-type incremental margin, which is a little bit lower than I would have guessed just given you've got sort of...

No, I think it's more like 40% – 35%, 40%. Joe Ritchie - Goldman Sachs & Co. LLC: More like 40%?

Yeah, I mean we could take you through that. Frank, you've got the numbers there. We've seen it. I saw people talk about that. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. Yes.

If you take out the acquisition impact and some currency headwind that we have in there that's not obvious, it's mid-30s – mid to high-30s. Joe Ritchie - Goldman Sachs & Co. LLC: Okay. All right. Okay. Got it. So, that ticks that box. And I guess in terms of just you guys have been talking about price/cost being neutral for the quarter. I think, Dave, going back to like last quarter, I think the initial assumption was that it was going to be slightly negative in the first half of the year and maybe making it up in the second half. So is there a chance then that price/cost can be positive as we progress through this year?

Well, I thought – I wouldn't bet on that one. I think going back to, it was a very good question somebody asked me but if you look at the pieces that go into the cost side of this, there's more pieces on the cost side that are going up than we've seen in a while. So we're going to have to make sure we keep that price piece moving up with it. It's not going to be big dollars, but we're going to have to – we had pretty good mix from the standpoint of some of the KOB3 type of stuff. We had some pretty good mix in some of the businesses in Commercial & Residential. Right now, I think if we can – I will consider this a win for us this year if we're $1 green. I mean, I'll buy everyone a drink on that one because this is what's going to be, I think, the most challenging thing for us, Joe, this year because of the fact that we see a lot of moderate inflation pressures coming at us, but I feel very good that we could offset that because we've been getting ready for this for a while. And I'll repeat it again. We're going to have to work very closely with our customers here to be doing some mix and the matching and some changing here to help them solve their cost price, and they're going to have to help us solve our cost price because this is not something that's going to be a brute force effort here or that'll come back to haunt both sides, which I don't want to see happen, as you can imagine. Joe Ritchie - Goldman Sachs & Co. LLC: Yeah, that makes sense, Dave. If I can maybe fit one more in here, we haven't talked about...

Go ahead. I ain't going anywhere. I'm still CEO. Joe Ritchie - Goldman Sachs & Co. LLC: 17 years and counting. If you take the $3 billion or so that you have on your balance sheet right now and you talked in the past a lot of that is international, are there any – is there any hindrances to bringing that cash back and getting it invested? Is there some type of timing that we should be thinking about on that cash?

No.

I'll let Frank answer that first and then I'll give you my two cents.

No, Joe, we're expecting to bring back little over $1billion of it this fiscal year. I would expect to bring back a substantial chunk in the second quarter and then probably another amount that'll take us over $1 billion later in the fiscal year. So, no, there are no impediments. We'll be bringing almost half of what we have overseas back in the next year or so.

Yeah. So we – one of the good things the tax reform does for us is it gives us that freedom to make that call when we want to do it. We only have a couple markets in the world that really our cash will get trapped. It's hard to move it around into one of those markets. In China, basically every about 12 or 18 months we get cash out. We've brought out over $3 billion since I've been CEO out of China. And so we've a lot more freedom, a lot more flexibility under this whole new tax reform. That gives the U.S. companies a lot more competitive opportunities here which we have not had in the past, and that's one of the advantages. And I'll say it again, if U.S. companies don't take advantage of what Congress passed in this tax reform, then we're flaming idiots. Joe Ritchie - Goldman Sachs & Co. LLC: All right. On that note, thanks, guys.

Thank you.

All right, Joe.

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

Thank you, and good afternoon, everyone.

Good afternoon, Deane. Where you hiding out today?

Just downtown Manhattan here. Living the dream.

Living the dream!

Yes, sir.

You got like your feet up on the desk having a drink, Mai Thai or something like that right now, Deane?

No, no, no. That's for later.

Okay.

No, still – we got to drill down in something as exciting as the tax reform and just to follow up on Joe's last questions there. Were there any surprises as you kind of work through the angles on tax reform? We had you pegged coming in around 27%, and it looks like that benefit is significantly better for you. So, what were the kind of puts and takes as you went through that? And what's that step-up and further benefit in 2019?

Yeah. I mean as you know, I was a very much engaged in this process as the Chairman of NAM and working with the Congress and the White House. And then also, Frank's team was right with me the whole time. I think that from our perspective, we've always felt it was going to be around 5 or 6 points of just pure rate benefit for us and there was – in fact at the 11th hour, they took a little bit away from us where we – from the standpoint. But overall, we – it pretty well came in line where we thought it was going to be. I was pleased, and we've been positioning ourself now for the last 12 months. So from the pure payment, we're going to have to pay the government over the next eight to nine years. I think that number, we can minimize that number a little bit. The overall sort of restatement off what I'd call fixing the deferred tax on our balance sheet, I think that's – we're clean there. We didn't have anything hidden in there that we had to write off. And then the other benefit that Frank and his team did is when we did the sale of the two – the businesses, we made the decision to go ahead and book the tax costs. So, that gave us a big benefit that when we waited to bring the money back that we're actually saving about $125 million of actual cashes on taxes here because we waited because of the lower tax rate. So overall, Frank and his team, they knocked this one out of the park. And so from our shareholders' perspective, they've got a lot of benefits here both this year and then next year, we're going to obviously get a lower tax rate. And then you look at my competitors which are international companies, we're going to be – on a tax rate now, we're right there. We're competitive to anybody, and I'll take my cost structure and my flexibility on anybody any day. So I like where we are right now, Joe (sic) [Deane], and I think we're in a pretty good shape.

And then if you could just clarify on the CapEx spend increase, how much of that might be influenced because of the tax advantages on CapEx?

I'm sorry. I'm sorry, Deane. I thought it's Joe. I apologize, Deane.

No worries.

From my standpoint, there's two things going on. Long-term, the way I went in and I was pushing so hard working with Congress is we have a aging workforce in North America right now. And as we see the underlying demand come into the next generation of products in Automation, we're going to have to invest to make sure our facilities are more competitive from the flexibility and the type of stuff we want to do with our manufacturing. So the increase in capital we're going to see is mainly around Automation and some incremental capacity and flex-type of capacity that we're going to need to serve this U.S. marketplace because our strategy has always been we stay local for serving. So we manufacture here in the region here just like we do in Europe, just like we do in Asia. So I think what we're seeing we're going to have to do is spend a little bit more money on the Automation side of this company and that means we're going to have to spend some incremental capacity. And I would say that we'll also bring some bricks and mortars because we're going to have to reconfigure our facilities, which always means new bricks and mortars at the same time. So I think it's going to be pretty good for non-res here for the next couple of years.

Good. We'll see you next week.

See you next week, Deane. I apologize for calling you Joe.

No worries.

Okay.

The next question will come from Gautam Khanna of Cowen & Company. Please go ahead. Gautam Khanna - Cowen & Co. LLC: Yeah. Thanks. Good afternoon, guys.

Good afternoon, Gautam. It's good to talk to you again. You've been hiding on me? Gautam Khanna - Cowen & Co. LLC: A little bit.

Don't comment on that one, Gautam. You just ignore me on that one. Gautam Khanna - Cowen & Co. LLC: That's fair.

That's fair. I just gave you the only thing I wouldn't take. Gautam Khanna - Cowen & Co. LLC: Yeah, yeah, I agree. Couple of questions. I guess, first, you mentioned one of the milestones you're sort of tracking on the V&C integration this month, but what else can we look for over the next 12 months? What are the big milestones we should be kind of paying close attention to as you integrate the business? Anything you can give us on that.

Yeah. There's three things I'm watching very closely. One is the ability for us to create the solutions packages in the final control that when we're going out to bid, it gives us a competitive advantage. And what that will mean is the order pattern opportunity within the final control should run higher rates than the rest of Automation Solutions. And that gives us a chance that means we're – from my perspective, that means we're regaining some of the lost presence that we got lost in the – they got lost in the last cycle. The number two thing we're tracking very clearly that you'll be able to see is the fact that we're talking about, from a margin standpoint, yes, V&C is still diluting to our margin, but a less dilutive impact. And therefore, as you go into the second half of this year, you start seeing the positive impact of the V&C as we wrap around it because you're going to start seeing that live now as we get in that second half. So another milestone we want to watch and something that I'm watching to make sure this team gets their job done. And the third issue, from my perspective, is all around the cash flow. If the cash flow at corporation continues to outperform in the upside, and it's a function of we're still growing nicely the profitability, but because the final control organization is able to get the trapped cash and off their balance sheet from the receivables and the balance sheet from their inventory, if they continue to do that, that will be the third thing. So you'll keep hearing us talk about better cash flow over a quarter or over six or nine months and that tells me that they're getting the job done. Those are the three things I'm watching for the final control organization out there. And that's why we want to see happen because that means they're really bringing a better flow of cash and return and growth to the corporation and hence for the shareholder, which two things are happening. Given the fact the tax rate went down and we're delivering on the savings and growth, that means the return for my shareholder is going to be better than initially planned. Gautam Khanna - Cowen & Co. LLC: That's very helpful color. And maybe just a last one to dovetail to your cash flow discussion. You've done a number of tuck-in acquisitions, Cooper-Atkins, you mentioned cold chain, and what you'll talk about next week. But can you characterize how the M&A pipeline looks right now? Do you have any – what does it look like in terms of size of opportunities, what you expect might actually transact over the next year in terms of dollars spent? Any sort of color around that.

Okay. Yeah, I'll give you some color. Right now, from our perspective, as we look at the transactions today, these are very much transactions which are private transactions. We are engaging with private owners. They're part of a private equity firm trying to come out. They're part of a large corporation. And so right now, we probably have $2 billion to $3 billion that we're actively engaged in. And what we'll report to you is we're trying to get another $500 million, $600 million done this year. What I'd like – in reality, what I'd like to see if I look at today versus the end of this calendar year, which is the end of 2018, I'd like to see us, in reality, get closer to $1.5 billion to $2 billion done. That's the type of magnitude we're working on right now. We have – because of where we've been through our repositioning, we probably got ahead of a lot of our competitors and where we are relative to our ability to absorb because we've got the divestitures done and we've got a good head start in V&C. So, what I would call the right number for me right now is not $500 million for the next – rest of this year. I'd like to really see a number, which is more like $1 billion to $1.5 billion to $2 billion type of range before the end of this calendar year. And that would be, to me, where we should see and that's the type of activity we're working on right now. Now, we may not get them done, but that's what we want to do. We want to try to get that done and that would make our plan all the way out to 2021 a lot easier to execute on because that's front-end loading the acquisitions. Gautam Khanna - Cowen & Co. LLC: Thanks a lot, guys. See you next week.

Take care, Gautam. And I'll see you next week and thank you very much for the time.

The next question...

With that, I'm going to wrap it up. Any more questions? Is anybody out there?

There are a few more, sir, if you want to take them, or we can move to the closing if you'd like.

I'll take one more question since you got me trapped. I'll take one more question.

I'm sorry. It will be from Andrew Kaplowitz of Citi. Please go ahead.

On second thought. Okay. Andrew, how are you doing my friend?

Yeah. Hi, Dave. How are you doing, man? Just getting under the belt. I like it.

Andrew, you got your tail underneath the door.

Absolutely. So, I just wanted to ask you about Europe in the sense that it was down, but you've mentioned that orders are positive there and it should be better. Europe has had very strong GDP growth, as you know. So is anything going on there, is any reason why it shouldn't grow low- to mid-single digits as you go forward here in 2018?

No, there's nothing going on. From our perspective, it's more of a timing. We had some very large businesses over the last couple of years and we're having to fill that backlog in the Automation Solutions side. On the Commercial & Res, we're doing okay in Europe. It's just a function of timing on the projects for us in Europe. And clearly, from a competitive standpoint right now with the dynamic change in the dollar, we had a slow start to sales in the first quarter, but the orders, I feel good about it. When we talk to the projects, we see things going on. I feel good about that, so nothing unusual. Now, if I have another quarter that I'm disappointed in Europe, then I'll be starting to say, okay, what's going on here. But the only other thing I could tell you that it probably created that weak in the first quarter in Automation Solutions in the first year, if we had our main distribution center in Germany went through an Oracle conversion in the last six months, I can tell you right now it's not gone well and so we struggle with shipments, but that's my bad and my mistake as a CEO and we'll fix that, but overall we're doing okay and if we have another bad quarter, then we're going to figure out what the hell is going on, but right now I feel okay because I think everything is being done right.

Okay, Dave, and that's helpful. So just in Commercial & Residential Solutions in North America, I just wanted to follow up. Last quarter, you had some hurricane impact and maybe there's some reconstruction work to be had here in 2018, so have you seen any impact from that and maybe just talk about the visibility into that particular market? I mean it was up, but it was up marginally. What do you see going forward there in North America?

We see a very good non-res marketplace from the rebuild going on. I think in the housing market, there's a lot of issues relative to around labor and ability to execute, but the timing of replacement market, the timing of the new technology, I mean we really have a situation for the next 12 to 18 months that should be pretty good for us in the U.S. marketplace both in non-res and residential, so I mean we have to continue to execute around that and I like where we are at this point in time in North America in non-res, and again as it wind up nicely for the Automation Solutions in North America, Commercial & Residential should be lined up nicely too for the rest of this year going into 2019 based on the factors that you just threw out there, Andrew, so I like where we sit at this point in time. We have to execute around that. The key issue for us at this point in time is we have to make sure we're starting to make those incremental capacities both in capacity from equipment and also in people, and that's something that we're decent at. We've written it down and now we want to write it up a little bit here, so I like where we are and we should have pretty good winds to our back in this one.

Thanks, Dave. See you next week.

See you next week, and again I want to apologize for cutting you off there, Andrew.

Thanks.

With that, I'm going to wrap it up. I want to thank everybody. Tim, great job with the charts. I mean for Mr. Transparency, probably can't even spell transparency, but good job there, and Frank, thank you very much and the organization out there. Really good quarter and now we've got to deliver the second quarter, folks, because our shareholders are expecting better and since they've said I sandbagged them on the upgrade, I hope they're right, but we'll see what happens after that second quarter. So everyone, you take care and I'll see you in New York next week, and pray for no snow unlike Boston a few years ago when we moved to Boston and got five feet of snow, what a heck it was and so you all take care and we'll see you next week at the Stock Exchange. Bye.

Thank you. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.