Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's Second Quarter 2018 Earnings Conference Call. Following the presentation, the conference will be open for questions. This conference is being recorded today, May 1, 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 our host Tim Reeves, Director of Investor Relations at 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 second quarter 2018 results. The accompanying slide presentation is available on our website. I'll start on slide 3 with the second quarter summary. Sales in the second quarter of $4.2 billion increased 19% with underlying sales up 8% and strong growth across both of our business platforms. Demand conditions remained favorable and were consistent with our first quarter. The U.S. and China led growth and trends were favorable across all world areas. Underlying orders have trended in the 5% to 10% range that we expect to continue through the year. Profitability continues to be strong. In the base business, excluding Valves & Controls, EBIT margin was up 170 basis points on solid incremental margins. Price cost remain neutral in the quarter. GAAP EPS increased 31% to $0.76. We continue to buy back shares. In Q2, we repurchased 3.6 million shares. And in the first half we've repurchased over 11.4 million shares and returned almost $1.4 billion to shareholders through both dividends and share repurchases. Q2 wraps up a strong first half for Emerson. And overall, the quarter was stronger operationally than we had anticipated a few months ago. Turning to slide 4. Second quarter gross margin was up 40 basis points, excluding Valves & Controls and EBIT margin was up 170 basis points. A quick note on our first half profitability. In the first half, gross margin excluding Valves & Controls was up 100 basis points and EBIT margin was up 130 basis points driven by operating leverage, the benefits from prior-period restructuring actions and execution around normal ongoing cost reduction efforts. Price cost in the first half was…

Thank you very much, Tim. I appreciate it. And, first of all, before I talk about the slide, I want to welcome everybody. And I want to thank everybody across Emerson for a tremendous quarter, the Emerson people around the world, including our new acquisitions from the Valves & Controls and the Paradigm and the Cooper-Atkins, I want to thank all those people as they've integrated very quickly and understand the core principles of Emerson. We had a very strong quarter and a very strong first half of our fiscal year. I also want to let you know that with me today I have a brand new Stan Musial autograph bat from a longtime friend and also a shareholder who figured I needed a new baseball bat given that Tim's been taking the brunt of the other baseball bats for a while and he keeps breaking them. But I do have a new Stan Musial bat with my rally monkey holding on to the handle for good luck. Now, back to the chart on Tools & Test, I wasn't here for this acquisition, but you have to understand these are two unique brands Greenlee tool and Klauke that we've wanted to acquire for many, many, many years. As you all know, I ran Ridge Tool at one time and we used to talk to the folks at Textron about these two acquisitions. These are unbelievable unique brands, very powerful brands. And like the Valves & Controls acquisition, we see unique capability of integration, unique capability of taking these brands and along with our core brands in this area here and making it much stronger and creating significant value for our shareholders. Yeah, some people might say it was an expensive acquisition, but there's not many assets like this out there.…

Thank you, sir. Ladies and gentlemen, we will now begin the question-and answer session. Your first question will come from Jeffrey Sprague of Vertical Research Partners. Please go ahead.

Good day, everyone. Hello, Dave.

Hello, Jeff. Good to hear from you. And hopefully, you're having a good weather. It's beautiful here in the Midwest.

Sun has finally come out. I think spring has finally arrived here on May 1, a month later.

God, it's been a long cold wet spring here, or I guess you can't call it spring, I guess a pre-spring.

Hey, I ask this question almost kind of tongue in cheek but there's a lot of people out there that are kind of saying the cycle is over and this is as good as things get.

You must have listened to catcall. You must have listened to Caterpillar phone call.

Yeah. No, catcalls on this call right?

No catcalls, this call.

So how do you feel about the longevity of the activity that's unfolding in front of you? And is there any particular thing that you are concerned about from a macro standpoint?

I mean, I don't think the cycle is any different than I've been talking about over the last 6 to 12 months. I think that 2018 is going to be a good year for us. I think 2019 for the automation space could be slightly better depending where we finish, Jeff. Because you know, I've always talked about, if we have a stronger 2018, that will take a little bit away from 2019, but I still see a very good 2019 based on the project business at this point in time. I'm always worried about any type of trade wars. I'm always worried about any type of confrontation in the Middle East or something like that. But right now, the customer base has the money. The pricing is staying up relative to the commodities and they need to invest. So I feel good about it. And we have a lot of great new technology coming out. The timing and the integration of Valves & Controls and that support of that organization as they've come in and leverage across what we're seeing across Emerson right now has been very, very positive for us. So I'm very optimistic. I've said that I thought that Automation Solutions could have a stronger growth year in 2019 than 2018. I still believe that. The cycle has not peaked.

Interesting. Thanks. And then just on V&C. Obviously, you gave us the margin progression ex-V&C and we've got the acquisitive effect on sales. But there is a little bit of other M&A going through Automation, now like Paradigm and the like. Could you just put a little bit of finer point on the underlying V&C margin execution in the quarter, kind of where it's at and where it's at at this point?

I'll let Tim answer that. I'll let Tim answer it because he thought this would come up and he's got the numbers here. He talked to Ram up in – but it's progressing like we thought it would. The orders are extremely strong. I just saw some orders from Europe and they're doing well. But Tim, why don't you tell him where they are progressing?

So the history since we closed on the business last April, it's been in the sort of 4% to 5% range and that excludes restructuring and the amortization. And so what we saw through this first quarter was kind of still in that range and we expected Q2 to be up and start to track toward the double-digit margins in Q4. And we did see that. So it was up. It's high-single digits in Q2. We expect high single digits Q3, and then we should be into those double digits Q4.

It's getting harder and harder for us to be able to manage it. I mean well, we're going to try to give you an indication where it's going. It's definitely moving that way, but the integration is going and it's getting tougher and tougher. But it's progressing. Well, I mean, if you look at the overall profitability of the Automation business, if we were having problems with V&C, it's big enough to move it. The Paradigm is not big enough to move it. But right now I like, from a working capital standpoint, a sales standpoint and the profitability standpoint, we're making great progress. We got to visit a lot of sites around the world. Frank was with me. And so we got to spend some time with them. So Jeff, I think we're in the slot there right now and the business has picked back up. So our timing is pretty good in this one.

Great. Thanks a lot. Very solid, appreciate it.

All the best to you, Jeff. Thank you very much.

Yeah. Take care.

The next question will be from Scott Davis of Melius Research. Please go ahead.

Hi. Good afternoon, guys.

Good afternoon, Scott. Where are you hanging out today, New York or somewhere? Where are you going?

New York. It's where I hang my hat. But, no comment. Anyways, Dave, you said you were...

There is nothing wrong with New York. I'm from New York and Frank's from New York.

Why don't you pay our taxes?

Well, I don't. I can't change – I pay my fair share.

Aren't you one of those states that pay half the taxes and collect more than you pay.

It's really tough when you cross the 50% pay level. I know that, it's a hard one for all of us to handle. I'm not quite there. You might want to move to a lower tax state.

Well, I would take 50% of what you make Dave, but 50% of what I make may not do much for you.

What is this? Get live.

All right. I'll focus on work here for a sec.

Okay. Let's focus on this. Okay.

You said you were just in the Mideast and your orders were, or your sales actually were pretty darn strong. And have we officially seen a turn? Do they have any money over there for projects?

Yeah. They have turned. And it's been turning now for three or four months. And I was little bit more cautious late last year it's turned. The money is coming. You got money in Saudi, you've got money in Kuwait. We're seeing money coming out of Africa now, even the North Africa. They're having to put money back in. For them to get the revenue, they have to invest and get the oil and the gas out. We're seeing Qatar starting to put some money back in. So the answer is, yes, and our KOB3 and then KOB2 business right now is very good. So they're putting the money back into repairing and upgrading and trying to get little bit more out from productivity. And the bigger projects are coming, and the bidding, then that will again be coming down the road, but very active right now. And I think that we have a good couple of years here, I think, at this point in time.

Okay. And, Dave, one of the things that got us more positive on your story, it was just the utility market and Ovation. You'd made some positive comments about utility, but give us a sense, I mean it feels like that market's been dead for many, many years. Is there some real legs behind an upgrade cycle, automation side and the utility side globally?

So when you break it down globally, if you look at the emerging markets, there's a lot of new capacity and upgrades going on and so we're seeing that. But in the mature markets, primarily North America, what we're seeing is enhancement investments into the current capacity. There's not a lot of new capacity going into the U.S. right now, but they're investing in trying to make their facilities more productive. And given our installed base in North America of all the power plants, we have a very good inside run there. And then also, with our new embedded PLC, which we're going after, that's a very active products – project for us inside the utility marketplace too. So right now, we're seeing positive orders, as we did last year in North America and on a global basis. We have continued to invest in this space. We have continued to make the necessary new product investments. And I think that a lot of our competitors have been backing off. And I think they're giving us an opportunity here that – and you know me, Scott. You've known me for a long time. I seize opportunities. And we're – I was up in Pittsburgh last week and spent a whole day with them. And we're looking at how we continue to widen the gap of our penetration around the world. And I think that – I feel good about the next couple of years in our power industry. And it's a very – it drives a lot of other core products at the same. So every – I mean, from a transmitters to control valve and instrumentation, it really drives other good businesses for us. So I'm more optimistic than you are.

Good. Good luck, Dave. I'll pass it on.

Thanks.

The next question will be from Steve Winoker of UBS. Please go ahead.

Hi. Good afternoon, Dave. How are you?

Good afternoon, Steve.

It's good to hear your conviction to the cycle. That's great. Hopefully, you offset the negativity.

I've been around a while and I've been through three cycles. This cycle has not ended. Period.

Right, I get a brand new baseball bat.

Now, I'm not trying to talk to you on numbers or anything. I'd just say, it's not ended.

Dave, on the cash flow side, so you obviously addressed it in your comments, but I want to maybe hone in there a little bit on your conviction around hitting that $1.5 billion plus, I guess, it's $1.5 billion to $1.6 billion in the second half. You took the guidance on cash flow down just a little bit, a tick. It's growth related. You got the working capital moves. You guys are great on cash normally. I guess, any risks that we should be aware of in you making that number?

No. I mean, not at all. I think that the conversion rate will move around based on the growth of earnings coming up and what we're seeing. If we're going to have, as we took the growth rate up a tad for the whole corporation, as I've talked and I openly talk about it, once we start crossing around at 6.8%-plus range, it's a tougher line for us to continue to take – keep that working capital totally, totally in check. So from my perspective, we can deliver the hard cash and yet the commercial rate is going to be a little lower, because the earnings, it's just the way the cycle is going to be and the timing of say, the September sales. So I don't have a – I'm not less convicted – I feel good about the cash flow. If I grow faster – let's say, we grew 7.5% for the whole year that will – puts a lot more pressure on us. But I'll take the growth in the sales, I'll take the growth in earnings and we'll get the cash off – we'll get the working capital off the balance sheet when things slow down a little bit. So it's – we're in that cusp right now Steve, of these growth rates where we actually have to put some money on the balance sheet versus when we take it off. So that's – we're in that fine line right now, but I wouldn't worry about our cash flow. I mean, the cash is good. It's just – we're growing a little faster, which is good.

Right, a good problem to have.

I'll give you a choice, more cash or less growth. What do you want? Give me a choice.

Yeah. Dave I want both. All right? Come one, you know that.

Do you really want to run a business? I agree, because I want both too. But I also have to be realistic.

Yeah, yeah. Well, just you're hitting it out of the park right? So pricing versus inflation...

My new bat.

...you've been worried about this? Pricing versus inflation, you've been worried about that. Are you less worried...

I don't worry about them.

...these days or are you going to be green?

I think that right now we're under control. We're under control. I would say right now we're probably flat. I mean, as we said all year long, we're flat. I always felt that it'd be slightly plus or minus a couple of million dollars in this, we're flat. The whole issue around the tariffs, around the disruption, around the steel pricing, the prices ran up, they've drifted back down. We're all out there working. It's part of the reason we're probably moving products around the world a little bit right now trying to get position for this. I worry about it more in 2019, Steve than I do now. Because I think we have to make sure we understand where things are trending and then we're going to have to get the pricing action in place. In certain cases, we're putting double prices in this year. We're having to tweak because of material costs. But I think we've been waiting for this upturn in inflation for about four years, after having five years of negative. And so now we're moving pretty quickly. So I think we got this under control. I mean, we're going to be plus or minus a couple of million dollars. I'm not too worried about it. But there's a wildcard out there. And all of a sudden tariffs come in and we start seeing kind of knock-on effect on tariffs. That could cause problems for all of us in the industrial world. But right now, it's under control, but it's a wildcard that I worried about, to be honest.

All right. That's my two questions. I'll hand it on.

All the best to you, Steve. You take care my friend.

You too. Yeah, you too.

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

Hi, guys. Good afternoon.

I've got my rally monkey here, so don't be mean Tusa.

I'm not. I'm not. I'm not. I'm not going to be mean. I'm not. I'm not that kind of guy just calling as I see it, Dave. I always just try and call it as I see it.

Well, I'm thinking about getting a new dog to just keeping you at bay.

So just to be clear on that power commentary, you talked about you're taking market share. I mean the big installed base of market share...

I didn't say taking market share. I said, I think people have walked away from the marketplace. I didn't say – but I think we're doing pretty well, yeah.

Well, obviously, if they're walking away from the marketplace and you guys are winning business, that means you're taking share. And it's – I mean, my understanding that most of the controls are kind of like OEM related. I mean this is not something that Rockwell necessarily has a huge presence in especially in the U.S. So like I would assume that the share gains are coming from some of the legacy OEM controllers here in North America, at least that's what we've seen in the channel from meeting with your guys at power gen. Is that the correct assumption?

Yeah, that is correct assumption. But the other thing out there the aisle into automation and power plants are out there and so we're going after that. And so we have parts of a power plant where it's been a PLC-type structure and a skid. We now have our OCC 100, which we're able to embed and hook up to our control system. We're bringing a lot more cyber security into play here. So there's a lot places that the power companies are investing. And we've been positioning ourselves from just being a control system to have a much broader product offering. So therefore, we can serve these power plants. And we're actually investing in our organization to go out to power plants where a lot of companies are backing away from that. And on a global basis, you're still seeing power – original power going in. You're seeing power plants. You're going to see enormous amount of power plants going in, in Asia over the next five to 10 years. So right now, in North America, we're winning in a good way.

Yeah. It's good to be the control systems guy in that scenario. On climate, what's going on in the U.S.? I mean, all these guys put up pretty good numbers all the OEMs. I think they talked down a bit the second quarter given weather comps. How are you kind of explaining the channel dynamics there? Is this kind of – Goodman is the only one we really haven't seen this quarter. Is that kind of a customer-specific timing dynamic reflected in your numbers?

It's more of a timing. And when them ramping up the new production on the A/C unit system and versus the heating. It was a very cold wet Spring early cycle. And so we didn't have an early ramp up like we had a little bit more last year. So I mean it's more of a timing issue for us. As you know, we're not always in sync with the OEMs, the manufacturers here. So right now, the function for us is we need some good production and we need some good building going on in the housing markets or our residential piece will be kind of low-single digits this year. But I'm not too worried about it right now. I think that a lot of it is – will keep coming. If I get into May and we get down to EPG and I'm starting to see that things are still weak on it, then we're going to have a tough year in North America. Fortunately, our European business, fortunately our Asia business is still going well. Fortunately our other – the other markets, the refrigeration market, the client – those markets are going well. But the one market that has been weak over the last couple of months has been our North America A/C. And so hopefully we'll see a little heat come in here and a little dry weather and we'll see some orders pop in. But that's what we see right now. I'm not too concerned about it. We've had this before Steve. You know that.

Right. Okay. Take care. See you at EPG, I guess.

See you at EPG. Yeah, thank you very much, Steve.

The next question will be from Robert McCarthy of Stifel. Please go ahead. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Good afternoon, Dave.

Good afternoon, Rob. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Two questions. One just in terms of the cycle, particularly on process, could you just kind of walk through kind of what you thought the trough was? Just give us a little bit of a history lesson. And how long this cycle could really go here, just given what we're seeing in underlying oil prices and demand? I mean is it fair to say that we could see this go for several years beyond what may be more early mid-cycle for an underlying economy?

So it peaked globally around 2014. It troughed in mid/early 2017. It was – as you all know, we had a very good run. It went on for several, several years. We had very high levels and then it dropped pretty hard as people cut way back. What's different in the cycle is because I think people are going to be very, very cautious about committing new capital for new production from the oil and gas and areas like that. But they're going to invest in the core business they already have if they already have some wells out there how to expand that without going out and spending for the big, big finds and things like that. And what I see right now is people are being much more cautious and they're going to try and incrementalize this a little bit, adding a little bit of a time to the point that one of them may break and say okay, I've got to put more money into it. But it's – I mean, that's why I think that we can have a good solid two years here with 2019 being pretty good. But right now, my visibility in the cycle is solid at least three to four years. And from the perspective I think there's been some underinvestment and the question is, does the demand stay there in the world area for the energy? And does the price of energy stay at a good price like it is right now? So it's hard to go beyond three years, Rob. But I see two solid years and I see a good third year. And that's about as far as I can see at this point in time. The key thing for me is going back to the large projects are…

The working capital is happening. I mean, on the Final Control business, and its Ram and his team, right now, they're doing extremely well with this integration. I would say a couple of places we've had in the Automation where we've had tougher working capital challenges, but Ram's team is doing very good job of getting this out and cleaning it up. And we feel good about that. The integration is going well. We're very deep in the process right now of exiting a business we had in Europe, which we knew we're always going to exit. It's going to cost us some money. We're in the process of getting that done. Hopefully, we'll get it done before this fiscal year and maybe before the end of this quarter. Relative to the project work and relative to the integration of sales that is actually going much faster than we anticipated. And as we've said in February, I think that's been one of the pleasant surprises of the organizations of the Pentair Valves & Controls business and then our Automation business coming together. And we're getting acceptance and we're hiring people to start working jointly together. So I thought that maybe we would have a little bit more of a pause this year on growth and I think we're going to have a better growth mode out of this – the Final Control business seriously than I thought. And I think a lot of that's going to be tied around the co-selling and the synergies. Relative to the Kingdom and Aramco, we've been – the Aramco to their credit has been working extremely hard to get – they have to go visit all the facilities and they have to sign off on all the facilities. As I look at the progress because I'm going to try to meet with the CEO of Aramco next week. They pretty much have visited every facility now. And we're now getting down to anything they've asked us to clean up and do like that. So we're starting to get bids. So I think we're going to see more of an impact on that in 2019, which again is a little bit faster because Aramco historically is pretty slow at getting back out. So net-net, great integration on the costs, working capital, but pleasantly positively surprised on underlying growth rate in orders, which is great to see from the perspective of Ram and his whole team around the world. I'm very pleased with that. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Thanks for the answer. See you at EPG.

See you. Thank you.

The next question will be from Julian Mitchell of Barclays. Please go ahead.

Hi, good afternoon.

Good afternoon, Julian. How are you doing?

Very good. Thank you. Maybe just a first question on Europe. Yeah, that have been sluggish for you and many others in terms of fixed asset investment for a while. The soft data there looked a lot better for 12 months. Now that's started to slow in your own numbers in terms of orders in Automation for example are pretty sluggish still. So I just wondered, do you still believe there will be a fixed asset investment recovery in Europe, or are you're still going to think maybe that is pushed out.

I feel very strongly. Julian, I feel very strong that we will deliver 5% growth in Europe this year, underlying sales growth this year. I see the projects. I see the winning going on. It took a while. I think that on the commercial res sides, we've been doing pretty well there and they're doing well. They're pretty well in line for that. The Automation – and we were there and Frank was with me and we were talking about this. We had a European review. We see the projects. And so I firmly believe that the orders are coming and we're going to see this, around a 5% underlying growth rate in Europe. It just, it took them longer for it to gear back up. They had some very strong first half 2017 Eastern Europe projects that we won and did well on and it's just taking longer for us to get geared back up in the Western Europe part. I agree that the overall economy, the numbers are slowing down a little bit. But I don't think it's going to impact what we see going for both 2018 and 2019. I think the investments are starting to happen. The money is starting to flow. And so I think the industrial world in particular has struggled this quarter in Europe, in Western Europe, but I think it's going to start – the investments are going to start flowing back out, and I feel good about the orders and sales at this point in time. I could eat my words on this, but that's, after meeting with this team and going through a battle with them for about a day and a half, I feel good about it.

Understood. And then my follow-up would just be around the, I guess the sort of orders trajectory within Automation. I mean, is most of the strength you're seeing in that March figure for example, that's still MRO related, I guess. When you're trying to think about the larger projects, what's your latest view on when you think those might start to hit the orders rate rather than just being part of conversations and quotations activity?

We'll start seeing some happen this quarter. We'll start having some bookings coming in on some good sized projects, which will create a lumpiness in our order pattern. The reason our order pattern has been pretty stable for the Automation business for the last several months is because we're still booking the small/medium-sized projects which are good, but we're starting to book our bid and win and also lose larger projects which I think we'll start seeing them being booked in the third quarter, some in the fourth quarter. Again, most of that is not going to help us this year, but it's going to help us build the 2019 which builds a stronger 2019, which I feel will be there. The other thing I see in 2019 is I see the emerging markets playing a key role for us and that's why I feel good about 2019 in the Automation business. But you're going to start seeing some – I wouldn't be surprised if you don't seeing some spikes in some orders and some project wins here in this quarter.

Great. Thank you.

Take care, Julian.

The next question will be from Gautam Khanna of Cowen & Company. Please go ahead. Gautam Khanna - Cowen & Co. LLC: Yes. Good afternoon. Thanks. Good quarter.

Good afternoon, Gautam. Thank you very much. Boy, two quarters in a row I get to talk to you. Gautam Khanna - Cowen & Co. LLC: Yeah, yeah. No, it's all good. So in fiscal 2019, I know you're not guiding fiscal 2019, but.

Definitely not guiding fiscal 2019. Gautam Khanna - Cowen & Co. LLC: Right. But just to be clear.

I'm still kind of one of these crazy CEOs that will talk about even more than two quarters or two months. Gautam Khanna - Cowen & Co. LLC: No, that's right. I appreciate that actually. 2019, obviously you're going to have some lift in margins at the Valves & Controls business. But you are facing this mix dynamic with more project activity growing presumably at Automation.

Yes. Gautam Khanna - Cowen & Co. LLC: So just wanted, should we expect incremental margins at Automation Solutions to dip down? Or do you think they can stay in the mid 30s as we transition the mix?

(41:26)

Doing the logic, and connecting the dots, you just put out there Gautam, which are very relevant dots for this connection. I firmly believe the margin pressure will be in this 30% to 35% range. This year, I think we're going to be probably a little, around closer to 35%. So I think that what's going to happen is the pressure will be to push that margin down because of the project business. And then what we have to make sure is that we manage the incremental investments as we grow. And that's what the challenge is going to be for 2019, because the projects will be kicking in. Some of the MRO business will probably slowing down. I'm hoping we'll have some, still some good mix in North America investments going on. So we maybe have a better mix going our way. But that's going to be the pressure point we have. And then clearly, we're going to be pushing real hard on V&C to get that double-digit margin that we exit 2018 with to move it up quickly as possible so it help offset some of that dilution. But that's the game we're going to be facing there. But I still feel good about the margin progression that we laid out getting to that 19% that we, I think it was 2020, 2021? I still feel good about that. But the gain next year is exactly what you said, the projects come in, we got to start figuring out how we squeeze as best as we can to maintain the margin improvement record as we go forward. Gautam Khanna - Cowen & Co. LLC: Got it. But north of 30% incremental, is it still kind of stable for next year?

Yeah. For all the Automation guys out on the phone or listening to this call, Mike Train and team north of 30%. Gautam says it. You have to deliver. Gautam Khanna - Cowen & Co. LLC: Right, right. Of course. And then -

Ignore the CEO of Emerson, but talk to Gautam. Gautam Khanna - Cowen & Co. LLC: Right, right. I was going to say Latin America's still lagging. I was wondering, maybe if you could parse which – I thought we were getting some strength in Mexico and else in Brazil. But I wanted to know like what specifically is kind of holding that region back? Are you seeing any pockets of strength within Latin America? And what sort of is the last one to come back.

Yeah, we are. We actually, last quarter, we saw good progress in Mexico, down in Chile and Argentina. This quarter, Brazil kicked in and Mexico dropped off. Our Mexican customer base has struggled a little bit relative to some projects and some business and small projects. So this quarter Mexico hurt us. So I've gone from – I was a believer they were going to come through to now I'm starting to doubt it again for a while here until this election gets done. But right now, it's Mexico's the one that held us back. The rest of the region, be it Brazil, be it Chile, be it Argentina, they're doing much better. So if we can get Mexico back online and growing again, right now, I'd say maybe fourth quarter we'll see some growth return to that marketplace. But that's the last of the global region, although our emerging markets turned back up. Fortunately, it's not the largest. I mean, we have other markets much larger than they are now. But it's still, I'd like to see them all come back into sync. And I think it will because there's been under investments down there. Gautam Khanna - Cowen & Co. LLC: Appreciate the color. Thanks a lot, Dave.

Take care, Gautam. All the best to you. Gautam Khanna - Cowen & Co. LLC: Thank you.

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

Thank you. Good afternoon, everyone.

Good afternoon, Deane. Good to hear from you.

Hey, and I like the choice of the Stan Musial bat too. Stan the Man.

He was a very nice investor and I won't mention his name. I've known him from a long, long, long time. He is a close friend. And he knows I love baseball bat. He also knows I like Stan Musial a lot. And I have lot of autographed stuff from Stan. And it's sitting here with my rally monkey and he is swinging it hard right now. So I appreciate that.

Good to hear.

What can I do for you today, Deane?

So hopefully, you can expand on the comments on China being robust for Automation. And so to see and hear the comment strong across process that's not surprising given the context of everything on this call and even hybrid. But in your answer, you can also touch on where strength is in discrete markets. We don't often hear you talk about that. So maybe some color, or maybe some applications if you could?

So from our perspective in the downturn, we worked – in the sort of a global downturn, we worked very, very hard to go after – continue to go after the mid-tier Chinese customers in the chemical area, the refining area, the pharmaceutical area and the natural gas area. And we are seeing them investing in a big way at this point in time. So when we're going in we're selling – and also the power area from the standpoint they're upgrading their power systems, to make them cleaner. So we're seeing broad investments in our marketplace around – the markets we have chemical area, the mid-tier markets and they're taking our total package, be it systems, instrumentation, they're taking discrete products with them. We're seeing investments going on in the pharmaceutical right now as China is investing in their own pharmaceutical industry. And we are continuing to see very strong investments in refining as China is trying to become more of a self-sufficient on refining the finished product and for their own marketplace. But across the board, if you look at the industries and we just had a review in Singapore on what's going on in China right now and Dominic and he is doing a great job. He is the Head of – President for us in China. Most of the markets are very strong across everything we serve at this point in time. And it's a lot of the smaller emerging players and our end-customer base that are investing in the space. And they're investing in smaller type of projects, but we're winning on broad-based projects, which is good. And the reason that discrete is coming through is because pharmaceutical, some of the chemical and some of the power area, we're starting to see some of our efforts of new product generation is starting to have a pretty good penetration. So when you grow 20% in a quarter in China in both businesses, you know you're doing something right. And that's what we did in the last quarter.

Good to hear.

And I think we're going to have a very good – I think – I talked about having growth this year, most likely around 10% to 12%. I'm now looking at China being very strong this year, being north of 15% for Emerson. And because we have – we've really invested in people, we've invested in innovation and we're really pushing hard in this market space right now and our customers are liking what they see from us. So we're in a good zone and I'm sure people are going to start gunning for us here real soon. But I like where we are at this point in time.

Got it. And that 15% is for fiscal 2018?

Correct.

Got it. And then, just a follow-up on the Valves & Controls question. You hinted that there is a divestiture coming and I know you can't give a lot of specifics, but I'd be interested in, kind of, directionally how material is that business to the overall Valves & Controls? And will you benefit from this addition by a subtraction? Is it a lower margin business? So will that help you get to your double-digit target?

It will help us more next year. Let's put it that way. It is a small business. You're talking less than $20 million in size, and you're talking about business that breaks even. And it's – and we've had – this has been in the market from day one, and the technology and product line, it's not interested – in the marketplace, we're not interested. We have a couple more that we've been working on where we're trying to sell them. And – so this one will be done. And we'll probably get a little bit of help this year, all honestly, Deane, but it's going to help us more next year from the standpoint as we start running the year into 2019, it will help give us a nice margin, because we won't have that dilutive impact in there. But it's – that's very – it's very small. It's not that big. But, overall, what I'm really hoping to see is, when it clears, and see the business is growing this year, when I thought we might not grow this year, we may actually go backwards. So that's the good sign right now of the integration process. But small divestitures that we have to deal with and we're hopefully getting them all done this year or early first – the first quarter of next year. But Frank and his team are working hard on it right now.

Great. See you in Sarasota.

Thank you very much. Thank you, Deane.

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

Hey. Good afternoon, Dave.

Good afternoon, Rich. How are you doing? You're in St. Louise today, you're in the Midwest? Where are you hanging out today?

I'm in Baltimore.

Baltimore.

Still in Baltimore, yeah. Yeah. Hanging in here, wearing my armor suit, so.

Yeah.

Question on cash from V&C, unlocking it, so referencing some of Rob's question earlier. So couple hundred million dollars was kind of the target over a multi-year timeframe. But where are you right now? How do you feel about that in terms of pulling out any sooner? And any thoughts around timing around it, pulling that in?

I don't think – I mean, I think our goal is north of $200 million in this by 2020. I don't think we're going be able to go any faster, Rich, because, right, we're going through right now is, I have a lot of pressure on Ram and his team. I think we're going to get over $50 million this year. The goal for me is really to get their manufacturing regionalized and globalized, which is a new concept for them. And that's important to me. So I want to be able to manufacture. Our business in Asia right now, and China has taken off, and they don't manufacture the product in Asia. They ship it around the world. So my focus right now is, okay, guys, give me the manufacturing strategy with investments we have to make for the next couple of years, so we can localize. And that allows me then to get – to be a little more aggressive on the working capital. I mean, we'll get the $200 million out of it by 2020, but the issue really – the gold mine for me is to be more regionally located, manufacturing located, which allows me to run with less working capital. And that would make a much bigger number on a combined basis down the road, which is that's my goal from that statement, from a cost and just the working capital basis. But I feel good about it. I mean, we're going to end up getting north of $200 million off this and we're going to do it in a very systematic approach. And I think we're getting to cost structure and the competitive nature and the sales force is working hard. And now we're talking – we talked in Italy, Frank was with us, we're talking about new products and innovation for the first time in a long time with these guys. And so we're working to help each other try to accelerate innovation, which is something that you know that's a mantra of with inside Emerson. We work very, very hard at innovation. And so this is something I -they're exciting me with the concepts and opportunities for me right now and not just from working capital, but just from growth opportunities, which will be great to see.

Right. So it sounds like there's some tail, even some tail opportunity beyond 2020 with regards to working capital though. It's just going to be kind of grind it out.

Yeah, I think so Rich. From my perspective, they are running around 50%. I want to get them down to 30%. In reality, I think that Ram's business should be thinking about low 20s.

Right.

And so – but this was going to take a more regional manufacturing approach and that will take time. But that's a lot of dollars when you start thinking about it. You take that percentage of sales. And so that's the way I think of the model I see for these guys, if they want investment, this is why I want back from them. But I know it's going to take me capital, which I'm willing to put in. But if I can run that business in the low 20s would trade working capital on a global basis with better margins, I'm going to create value for our shareholders and our customers too.

Right. And then early returns on Paradigm; I saw some interesting stuff then at OTC and with regards to some of the software and folding that into the system and whatnot. What's been – has it expanded share of wallet early on here or what's the early read?

Not much has changed. I think this one's probably 12 months out. This one is, you do need to – going back to my comment on one of the earlier questions about the bigger projects, this is where you need bigger projects where they start investing in bigger chunks of software and those are still to come. I mean, what they're going on right now is they're looking at existing fields, existing investments. So that's only small amounts of investments going on. What we're looking for is to gear up, and it's okay, let's go look at a new location and really do some more software work. So I would say that one is going to be more helpful for us in 2019 and 2020 when the bigger projects come, but still doing okay. And then it gives us time to get integration underway. And we had an organization session last week, talking about some new teams and some new ways we want to manage this business. So Paradigm, the timing is good. And we'll make good money in this one over the long-term.

Okay. Great. Thanks. See you in a few weeks.

Thanks very much, Rick. I look forward to seeing you at EPG.

Yes.

The next question is from Simon Toennessen of Berenberg. Please go ahead. Simon Toennessen - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Yes. Thank you. Good afternoon, everyone.

Good afternoon, Simon. Simon Toennessen - Joh. Berenberg, Gossler & Co. KG (United Kingdom): My first question is on Automation Solutions in Asia. Obviously, very strong China numbers, you had again there. But it seems, Asia grew 7%, which is probably mostly China. So can you talk a bit, what's holding you back in Asia ex-China, and how you see that panning out in the second half?

Our Asia businesses grew a solid single digit outside of China. And I mean, China is important, but I mean, it's still – it's not – it's probably only half of our business if that all right now. I mean, I couldn't tell at the top of my head. Historically, it's around anywhere between 45% and 52%. So they're grabbing numbers for me Simon, so I can make sure I'm not – yeah so – we had good – first half growth is single-digit type of business for us good growth. What's holding us back primarily is the initial investments are just starting to happen in Southeast Asia and Australia. So Australia had gone through a very difficult time period and they're just starting to invest. So that's – the two weaker markets we're seeing right now are Southeast Asia, Singapore, Malaysia, Thailand and Australia/New Zealand. And so what we're starting to see is that's starting to pick back up. And I would expect us to see that moving into a solid single digit, which is normal for a mature – the more mature emerging market for us. So that's what's holding us back right now but the projects, the business is starting to happen. And I would say they're going to see a stronger second half than they did in the first half. And I expect China to hold in there very nicely for us Simon. Simon Toennessen - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Got it, Dave. And the second question on C&RS in China. Obviously, again a strong quarter. Can you maybe give us a bit more color on the development of the heat pumps business and how you're seeing that for fiscal 2018?

The heat pump markets it's pretty strong. I think we're now on our seventh or eighth double-digit growth China business for Commercial Residential. That is a good record for us where you have seven straight quarters. And I think that will probably have eight or nine. So what's going on right now? What we're starting to see is it's starting to move over into the industrial marketplace, the heat pump versus the coal or versus the gas and starting to move into what I'd call the commercial marketplace. So the first wave has been around homes or the consumer marketplace. Now, it's starting to move into the industrial space and it's starting to move into the commercial space. And we're also starting to see where some potentially some hot water space where they're heating water for the industrial applications or restaurants. So we're starting to see the application of the government is trying to encourage companies to get away from coal, try to get away from heating oil to either to heat or warm water. And we're now starting to see growth starting to happen outside the residential market. So that's why this is sustained a little bit longer and we're encouraged by that. And we're hoping this will take hold as we leave this year so we can have growth in 2019. Because clearly after eight or nine good solid double-digit growth quarters in Asia, or China for these guys we're going to have some really difficult comparisons. So we're trying to drive a broader marketplace right now Simon. And we're the only one that can do this because of the size of our compression and our sizes, electronics and scale capabilities here. So, so far, it's going well. I'm going to be there in June. I'm going to a couple of sites and I'm going to do a site review in Xuzhou. I'm hoping to see some of these new products and some of those market expansion going well and (59:00) and his team are doing a great job in trying to get this to the new markets. We've got to get away from just the consumer, the individual homes to the industrial and to the commercial space, which is starting to happen. Simon Toennessen - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Very helpful. Thanks a lot, Dave.

Thank you very much, Simon. All the best. Hope to see you soon.

The next question will be from Joe Ritchie of Goldman Sachs. Please go ahead. Joe Ritchie - Goldman Sachs & Co. LLC: Hey, good afternoon, guys.

Good afternoon, Joe. Joe Ritchie - Goldman Sachs & Co. LLC: So Dave, maybe just talk about capital deployment a little bit. When tax reform got passed you were one of the few CEOs to talk about additional CapEx investment, so I was curious to see if there was any update there on internal projects? And then secondly just on the M&A side, obviously there Greenlee-Klauke acquisition recently. Be curious like how the pipeline is going today, what you're seeing perhaps on the process side, whether there's any opportunities there. Any color there would be great.

Good. So as we talked about, I did come out and I've talked to my board about this a lot on the capital allocation. Given our balance sheet, given the cash flow generation and the benefit of the tax rate for us as we get into 2019 and 2020, we have obviously tremendous flexibility here. So from our perspective right now, our share repurchase program, we're going to be looking at $1 billion this year in our fiscal year. From a capital spending standpoint, we took it up and we're targeting to get up towards – what is it Frank? $575 million. I think that no more increase to that. I mean, I think that's right now, that's where we are at this point in time. It could slip a quarter or two, but we're ramping up. And as I talked earlier, we're trying to encourage investments relative to our globalization standpoint. So we want to invest capital to become more productive and faster and more efficient. So we're going to keep doing this in the next couple years. At the same time, this year, I mean right now, Frank are we close to $2 billion? Where are we sitting on acquisitions at this point in time? We have $1.4 billion, $1.5 billion? I firmly believe that we have opportunities this year Joe to get over $2 billion. We do have a couple we're working on it right now in the automation space. So we're trying to frontload this. As we talked about trying to get certain amount of acquisitions done incremental, bolt-on acquisitions done within the couple years, the first three years, we're trying to get them as close as possible to give us a chance to work them. We are seeing opportunities for companies like the Textron situation…

We are much more of intense company relative to footprint optimization than Textron was. And from our standpoint, I mean I'm running this business and being internally involved with this, the business internally right now. There's no reason why the Greenlee and Klauke couldn't run better. I just think they need to optimize the manufacturing. They need to optimize the investments that are already there. It's not going to be necessarily the channel per se. We do have some channel leverage. I just feel that we can run this business a much better way than they ran it from an operational standpoint and it's right into our wheelhouse, which is what we're good at. I also think they have some businesses in there they should not be in and they're not the leaders in and we're going to quickly evaluate what we're going to do with those businesses. Joe Ritchie - Goldman Sachs & Co. LLC: That makes sense.

We've got Frank over here worried about that because, but I'm just telling you what I think. I mean, I know what's inside that and I think we have some opportunities to tune it better and make them – I mean, make sure they're worth being in. That's what I'm saying. Joe Ritchie - Goldman Sachs & Co. LLC: Makes sense. Thanks, Dave.

Thank you very much, Joe.

The next question will be from Andrew Kaplowitz of Citi. Please go ahead.

Good afternoon, Dave. Thanks for running longer. Appreciate it.

Okay Andy, you're my last question.

Thanks for running a little longer today. I appreciate it.

Well I went just to make sure could I harass you Andrew. That's why I mean, I saw in the queue and said I got to get up and harass Andrew a little bit, because he doesn't like me right now.

I understand. I welcome it. I welcome it.

Okay.

So let me ask you about Commercial & Residential Solutions in the context of your margin performance. You had mentioned for the company relatively flat price versus cost. Margins were down, slight bad year over year, but you had the cause of the divestitures, a tailwind. So maybe talk about what was the impact from inflation or mix. You talked about slightly weaker U.S. residential. Are you investing more in the business? And how should we think about margin moving forward?

We are definitely investing more in the business right now. We are investing in some next generation technologies that are going to be hitting here in the U.S. and also hitting very heavily in Europe in the next couple years. So we've ramped up some investments around technology, some innovation. As you know, the space from the commercial standpoint, there's going to be some new regulations coming to play and we have to be ahead of that from the standpoint of offering a solution to our customer. And if we do that, then we win that space. And then we win that space for quite some time and we're trying to add more value to that. So the actual value proposition is higher for us. On the price cost business within the commercial, residential, we're basically off a quarter or two right now, so. And this space we're being squeezed a little bit, but I know that we will, within two quarters we'll get that back and back in line. We trade back and forth with – from our customer base. We go back and forth on this issue. So I think that we're getting closer, but we'll be under the pressure for the next quarter in this space too, it's hurt us a little bit. But it's not a big number but I just know it's a negative pressure not a positive pressure and so – from that perspective. And the other thing is just from the mix within our global businesses where Asia is a good business, but it's not nearly as profitable let's say our U.S. business or our European business. So we have a lot of – some also mix going on. But I'm not going to complain at the level of profitably. We're still going to raise this margin up over the next couple of years, but it's going to come from the investments and the growth of these new technologies not by driving a ton of cost out. We're continuing to optimize it but I really want to drive a little bit faster growth and drive a faster mix towards that profitability.

Yeah, that's helpful, Dave. And then Automation Solutions orders, you talked about March has still been good. You told us not to be concerned last quarter when they do slow a little. But you told us on this call that large projects could start to kick in sooner rather than later. So are you still thinking about 5% to 10% range is sort of right for the year? And any indication on how April looks at this point?

I don't have any April numbers at this point. But the Automation Solutions numbers is really holding in there solid – a very solid 7% right now. And I would expect a couple of months. I mean, if we start getting larger projects as I mentioned earlier that could pop up towards that 10% range. Again, starting to get tougher comps, but the orders are holding in there such we feel very good about this 7% range for the whole year for all of Emerson. But I like where we sit right now. The trend lines are ticking up a little bit and on both businesses which is a good sign. And so as we get into EPG, I'm going to try to give you guys a little bit more color down at EPG of what I see after – we'll have April on-board, we'll have the early indication in May and we'll see what's going on here in the U.S. But, right now, the trend lines are going the right way and that's why we felt good about taking that number up to 7% underlying growth at the high end. And I'm hoping that Automation Solutions does a little bit better too in the second half this year.

Appreciate it, Dave. See you at EPG.

Thank you very much.

Yeah. With that, I'm going to wrap up. I want to thank everybody. Again, I want to thank all the Emerson people, all employees around the world for their effort. And I also want to thank the shareholders joining us today for this call. Again, a very good second quarter, a very solid first half this year. And now we just have to deliver the second half of this year. But as we look at the third quarter, we're looking somewhere – again, I'll repeat it, 7% to 7.5% underlying sales growth. We're looking at our earnings of around $0.85, plus or minus a couple of pennies. That's what it looks like to us right now. And I really can't call it any closer than that. But it's again another good solid quarter for us. And hopefully that will continue as we move into the fourth quarter. Thank you.

Thank you Mr. Farr. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.