Rockwell Automation, Inc. (ROK) Q1 2012 Earnings Report, Transcript and Summary

Thank you for holding, and welcome to Rockwell Automation's quarterly conference call. I need to remind everyone that today's conference call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations. Ms. Rohr-Dralle, please go ahead.

Thank you, Quanda. Good morning, everyone. Thank you for joining us for Rockwell Automation's First Quarter Fiscal 2012 Earnings Release Conference Call. Our results were released this morning, and the press release and charts have been posted to our website at www.rockwellautomation.com. Please note that both the press release and charts include reconciliations to non-GAAP measures. Additionally, a webcast of this call is accessible now at that website and will be available for replay for the next 30 days. With me today are Keith Nosbusch, our Chairman and CEO; and Ted Crandall, our Chief Financial Officer. Our agenda includes opening remarks by Keith that will include highlights on the company's performance in the first quarter and some full year outlook commentary. Then Ted will provide more details around the first quarter and our guidance for fiscal 2012. We'll take questions at the end of Ted's remarks. We know this will be a busy earnings day for all of you. I'm sure it's been a busy couple of weeks already. So we'll try and get through the call in less than an hour today. As is always the case on these calls, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings. So with that, I'll hand the call over to Keith.

Thanks, Rondi. Good morning, everyone, and thank you for joining us on the call today. I appreciate your time and interest in Rockwell Automation. The first portion of my remarks will cover the highlights for the quarter, so please turn to page 4 in the slide deck. Quarter 1 was a story of great earnings growth on good but uneven sales results. On the sales front, in a continued uncertain global environment, we were pleased with 8% year-over-year organic growth. But there were mixed results by region. Europe, the region you might expect to be the weakest, was strong. And Asia, the region you would expect to be strong, was the weakest. I believe that during this period of moderating sales growth rates, we will continue to see mixed growth rates by region, as uncertain economic conditions, solutions, lumpiness and prior year comparisons have a greater impact on growth rates. Earnings per share in the quarter increased 22% compared to Q1 last year, which is pretty remarkable given sales growth of 8%. Don't expect earnings conversion that strong every quarter, but we'll take credit for it this time. And return on invested capital, on an after-tax basis, continues to be very strong at 31.5%. On balance, I call it a very good start to the fiscal year. That was a quick summary. So let me share some highlights of the quarter, a few other highlights of the quarter. It was another great quarter in Latin America. The team there continues to successfully execute our growth and performance strategy, mining and oil and gas opportunities remain strong, and we are on track to start up production at our new facility in Brazil in the fourth quarter. In spite of deteriorating economic conditions, we had 13% sales growth in EMEA in quarter 1. About 4 points of this growth is from our recent acquisitions, which are performing well. We continue to see a divergence in the economic climate between Northern and Southern Europe, but we are well positioned throughout the region to outperform the underlying markets. On the other side of the coin, Asia sales were flat in the quarter. Some of that was due to tough comps from quarter 1 last year and some from the hole that we dug in our solutions business with the great fourth quarter that we put on the board. In emerging Asia, in quarter 1, inflation concerns and liquidity issues dampened investment. However, quarter growth in the quarter outpaced sales growth, and we did build backlog in our solutions businesses. We are optimistic that China and India will take action to stimulate growth in the remainder of the year. So even though underlying growth rates have slowed, we remain confident that over the long term, emerging Asia will be the highest growth automation market, and we will continue to invest there. I was really pleased to see 22% growth in process this quarter. We are gaining traction with PlantPAx and are winning larger process orders across a broad spectrum of applications in all regions. Process remains our greatest growth opportunity and we are executing well. Orders were very good in the quarter, and the book to bill in our solutions business was almost 1.3. I don't talk to investors a lot about our operations and engineering services organization, but they are doing a great job. We have a number of metrics to assess their performance on dimensions like on-time delivery, productivity and quality, and they are delivering on all fronts. I want to take this opportunity to thank them for their contributions to improving our customer's experience, which leads directly to higher levels of customer loyalty. And customer loyalty is one of the most important measures of our success. Let me share our thoughts on the remainder of the year. The global economic picture is still cloudy. Economic indicators in the U.S. are mixed and forecasts for Europe are deteriorating. Growth rates in the emerging markets are moderating. Customers’ CapEx spending plans vary widely across industries and regions. Despite this uncertainty, we expect the recovery to continue in 2012. We feel great about our market position and our growth opportunities, and we will continue to invest in innovation and differentiation. With one quarter behind us, and given our current assessment of global economic conditions, we are not changing our sales outlook for the year. Based on fiscal 2012 projected sales of $6.2 billion to $6.5 billion, we are reaffirming fiscal 2012 earnings per share guidance of $5.05 to $5.45. Although we may see uneven results throughout the year, sales and earnings in our guidance range would represent another record year for the company. I'd like to close by thanking all of the employees and partners of Rockwell Automation. I am pleased by how well our ecosystem, that is our partners, businesses, functions, regions and cultures, how they all come together to serve our customers and deliver great business performance. We know how to be flexible and collaborative and responsive to customer needs. That is what will enable us to grow and deliver superior returns to our shareholders. Here's Ted to provide more details on the financial results for the quarter and our outlook for 2012. Ted?

Thanks, Keith. Good morning, everybody. My comments will reference the slides that have been posted to the website. So I'll start with Slide #5, which is the Q1 results summary. Revenue in the quarter was $1,474,000,000, as Keith noted, up 8% compared to the fourth quarter of last year. The year-over-year impact of currency fluctuations reduced sales by about 1 point, and we experienced about a 1 point contribution from acquisitions. Segment operating earnings were $284 million, an increase of 28% compared to $222 million a year ago. General corporate net expense was $20.9 million compared to $15.7 million in Q1 last year. General Corporate net expense was lower in the first quarter of last year, primarily due to the sale of an investment. The effective tax rate in the quarter was 24.5%. Diluted earnings per share was $1.27, a 22% increase compared to $1.04 last year. Average diluted shares outstanding in the quarter was $143.9 million. And we purchased approximately 122,000 shares in the first quarter at a cost of about $8 million. Moving to Slide 6. This is the total company results for the first quarter. As I noted on the prior slide, the year-over-year sales increase in Q1 was 8%. Sales declined sequentially by 11%. Currency translation accounted for about 2 points of that sequential decline. It's pretty typical for us to experience a sequential decline from the fourth quarter to the first quarter, but the 9% decline excluding currency is more significant than usual. We had unusually strong sales in the fourth quarter, particularly in the solutions businesses. And as we've discussed at the last earnings call, and as Keith mentioned, that created something of a hole in shipments for us in the first quarter. If you eliminate the currency impact and normalize Q1 for the unusually strong fourth quarter shipments, you get to a more typical sequential decline. Moving to the earnings side of the chart, a very significant improvement year-over-year. Operating margin expanded by 3 points. The margin improvement reflects a very strong contribution from volume leverage. We also experienced lower performance-based compensation expense year-over-year. We talked about the tailwind from that when we provided guidance in November. We realized a modest positive impact from price, pretty much as we expected. And these improvements were partially offset by increased spending. Conversion margins for the quarter was 57%, and that's extraordinarily good. But to echo Keith's comments, don't get too excited, this is likely to be the best quarter of the year for conversion margin. As we expected, lower performance-based compensation expense helped to boost the conversion margin. But also, in the first quarter, currency effects improved conversion margin. Currency caused a 1-point sales decline but with a small positive net operating earnings contribution. The quarterly earnings impact of currency variations can be very variable, and this was an unusually good quarter. You might recall, we had a couple of quarters last year where currency was a drag on our conversion performance. Spending didn’t increase at the rate that we had reflected in our guidance. That was another important factor in the conversion performance. And for the balance of the year, we're expecting lower conversion margin based on increased spending, less favorable mix going forward and a more typical impact from currency effects. On a different note, though it's not displayed on the chart, our trailing fourth quarter return on invested capital was 31.5%. Now please turn to Slide 7, which summarizes the Q1 results of the Architecture & Software segment. Looking at the left side of this chart, sales increased 6% year-over-year. Currency translation reduced sales by 1 point. Sales were down 5% sequentially, but currency accounted for about 2 points of that decline. Operating margins for the quarter was 28.6%. That's up 3.7 points from Q1 last year, a very strong incremental margin performance, basically reflecting the items that I discussed on the previous slide, but also a more favorable sales mix in this segment compared to fourth -- first quarter last year. The next slide, 8, covers our Control Products & Solutions segment. Sales in the quarter were up 10% compared to last year. The increase included about 2 points of contribution from acquisitions, offset by about 1 point reduction due to currency. The product portion of Control Products & Solutions grew year-over-year at about the same rate as the Architecture & Software segment. The solutions and services businesses grew about 11%, excluding currency and acquisitions. Sales declined 15% sequentially, about 2 points due to currency, and with solutions and services declining substantially more than products as expected given the very high solutions shipments in the fourth quarter of last year. Segment operating earnings increased 42% year-over-year with a related 2.6 point improvement in operating margin. Switching to the next slide, this provides a geographic breakdown of our sales in the quarter. I'll focus my comments on the far right column, excluding currency effects. A very good growth in the U.S. and Canada at 8% and 11%, respectively, and continued high growth in Latin America at 14%. EMEA came in at 13%, that would be 9% excluding acquisitions. And this was the only region significantly affected by acquisitions this quarter. And then very unusual to see Asia basically flat year-over-year. Looking across the regions. I think it would be fair to say that Canada and EMEA outperformed expectations in Q1; EMEA especially, given the macro economic challenges in that market, and Asia Pacific underperformed. Keith talked about some of the reasons for the underperformance in his comments. Maybe the one thing I would reinforce is that we do expect to see improvement in Asia Pacific sales performance in the balance of the year, and in the longer term, we continue to believe that the emerging markets in Asia remain one of our best growth opportunities. I'll turn now to Slide 10, free cash flow. Free cash flow for the quarter was a use of cash of $211 million that included a $300 million pretax discretionary contribution to our U.S. pension trust. Q1 is typically a weaker cash flow quarter. First quarter this year was particularly low due to the pension contribution and the payout of a larger-than-normal performance-based compensation that was earned and expensed in the last fiscal year. You can see that impact in the compensation and benefits line on this statement. Despite the slow start in Q1, we continue to expect free cash flow conversion of about 75% for the full year, including the impact of the discretionary pension contribution, and we would expect conversion to be about 100%, excluding the pension contribution. And that takes us to the final slide, which addresses our current outlook for fiscal '12. As Keith mentioned, we're reaffirming guidance. We continue to expect sales to be in the range of $6.2 billion to $6.5 billion. Excluding currency effects, that revenue range represents growth for the full year of between 5% and 9%. We expect currency to reduce growth by about 1 point for the full year. That's the same as our previous guidance. However, if rates remain and if currency rates remain at the current level for the balance of the year, we have some risk to the sales outlook. In that case, we would expect to face an additional sales headwind of about one more point. We still expect segment margin to be about 18%, and we expect diluted EPS in the range of $5.05 to $5.45. We continue to expect a full year tax rate of about 24%. And finally, we continue to expect General Corporate net expense to be about $86 million for the full year. With that, I'll turn it back over to Rondi.

Great, Ted, thanks. [Operator Instructions] So Quanda, I will turn it over to you to open the line.

[Operator Instructions] Your first question comes from the line of John Inch with Bank of America Merrill Lynch.

I'm wondering, is there a way we could quantify the impact of lower comp expense this quarter versus last year? I'm not sure if this -- Ted, you could put some sort of numbers around that.

Yes. I mean, you might remember in November we talked about that being a $50 million tailwind for the year. And I would say the first quarter was reasonably represented with that full year result.

So like, is the first quarter disproportionately high versus the year or you just divide the $50 million by 4?

I think it's pretty close to dividing the $50 million by 4.

So your commentary, Ted or Keith, about expecting lower profit conversion, why again is that likely to be realized? I mean, you've got kind of the impact of the price, and assuming solutions don't have the sort of air pocket necessarily or the benefit -- the impact of the air pocket is going to get kind of less over the course of the year, why do profit conversions then -- I realize it’s a high number but is there something else that is obvious here?

Well, no, I would say I talked about this a little bit in my comments, John. But it is basically, going forward, we would expect less favorable mix. We think we’ll have a richer solutions content in sales going forward. We do expect to ramp up spending. And we got a little bit of a slow start in that regard in Q1, so we think it's going to ramp -- likely ramp at a rate that exceeds the sales growth as we go forward. We think we're going to have a less favorable currency result in the future quarters as well. And then the last factor, I think, would be that our merit increase will kick in beginning in January.

Okay. That make sense. But can I ask you about EMEA? Given that -- I mean, obviously the results are terrific, and probably match what the hard data says today about the German economy. But then, Keith, you called out the expectations of -- I think, Europe's slowing, and clearly, the German leading indicators look down. I mean, what are your thoughts with respect to your guidance for EMEA over the course of the rest of the year?

Yes. With respect to Europe, we would expect Europe to basically be flat to slightly down as the year progresses based upon just what you commented on and that's the economic environment there. Certainly, we benefited in the exporting parts of the economy, which are still strong in Europe, and that is a plus for Rockwell Automation. So that's -- we do see the slowing. We expect it to slow as the year progresses. And that's what is baked into our guidance.

And, Keith, just lastly, are you worried about price-based competition in Europe as the macro slows?

Well, I mean, I think, we're always worried about price-based competition. That's basically -- the fundamental strategy of Rockwell Automation is value-based selling, and that may become a little more difficult. But it's the total cost of ownership that we focus on. And of that, the acquisition price is the smallest piece. So we continue to focus on differentiation, and that's driven by the innovation that we have in our technology and our differentiation in our go-to-market -- market access model. So it's always there. It's real, but we think with the innovation and the differentiation, that we can offset the natural tendency for just having a competition on price.

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

On the geographic discussion in terms of how the regions played out versus expectations. I'm wondering if you could give us a little more color on how you felt the U.S. performed up 8% versus expectations. And any timing issues that may be related there?

Sure. Well, the U.S. was strong, and we certainly think that at this point in the recovery, 8% year-over-year growth is very solid performance. We believe that MRO spending and medium and small project spending remain strong. There is also a continued strength of the OEM business here and their backlog continues to be strong, although limited in duration, but still continues to be operating at a reasonably high level. And we're also seeing some strength in the heavy industries, oil and gas, in particular, and a little bit, although it's a small market today, pulp and paper, has a little bit of strength in it. And transportation continues to remain strong, and we believe that will be a strong market throughout the year. And I think you're seeing that in some of the commentary, particularly around the investments, that General Motors is planning to make over the short to mid-term.

So overall, in line with your expectations on the Q1, I guess, is what I hear. And can you call out what auto was just in the U.S. on a year-over-year basis in the first quarter?

I don't think we have a specific auto number. I would say it was probably slightly better than the same quarter of last year, and that's just based upon looking at the number of projects and the wins that we had previously. So at this point, I think auto is probably a net positive on a year-over-year basis.

So Keith, I guess, where I'm going with that -- I think our CapEx work across all the auto OEMs would suggest about a 10% year-over-year CapEx increase. If you're just slightly positive on a year-over-year basis, does that imply that you might see an acceleration in the rate of improvement in your auto business over the balance of the year?

Yes. When I say slightly positive, I mean above company average.

Above company average. That's probably in line with that 10%.

[indiscernible] about that rate that you identified. And unfortunately, the automotive is one of the examples of the definition of uneven. And that plays out mixed over the year. And each quarter is just that, a quarter, but we certainly are optimistic about the industry. And the timing is always something that is very difficult to call in the automotive sector.

Okay, that's helpful. And then, Ted, on the incremental margin discussion, where are we on price cost at this point in the first quarter? And are we fully seeing the September 1 price increase, number one, sticking, and number two, reflected in the incrementals at this point?

Well, I mean, as we talked about -- I think, it was the last earnings call, when we implement that price, we've got a lot of customers who are under contract that renew over the course of the year. So it's kind of a progress through the year in that regard. We were anticipating, realizing about a point, maybe a little bit less than that this year price. I would say we think we're on track with that in the first quarter.

Okay. And then the -- within the pieces of guidance, the about 18% segment operating margin, I mean, I think to get to 18% for the full year after a 19.3% first quarter number, you've got to be sub-25% or so for the rest of the year. And you've got a very easy comp in the March quarter, as you know, because of all the issues with Japan and price cost in that quarter. So is the right way to think about where your thinking is on calibrating the guidance, you're still in that 5% to 9% range. Maybe you've come off the high end there and you're thinking segment margins about 18%. There's the sort of an implicit plus on the other side of 18% or am I missing something there?

Well, I mean, I think, instead of thinking about conversion margin in the balance of the year, think about total operating margin. And to get back to 18%, given the first quarter performance, would have to be in the high 17s on average, the balance of the year, or close to 18% maybe. And so we've gone through the factors that we think are going to result in lower operating margin in the balance of the year. But all of that being said, starting off with a 19.3% quarter, if anything -- maybe we're likely to do a little bit better in operating margin performance for the year, so about 18% now maybe means a little bit better than 18% instead of a little bit worse than 18%.

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

Can you just comment a little bit more on what was the favorable mix within A&S in the quarter? I mean, I get the solutions points on the Control Products & Solutions. But within A&S, it sounded like there was also favorable year-over-year mix. What was the driver of that?

Well, the majority of the driver of that was stronger controller sales and weaker, or I should say, lower motion sales. And that's something that really worked against us the first couple of quarters of last year. And this year, with the introduction of some of the new controllers and the expansion, some of the geographic expansion, we're driving a little higher growth. And with OEMs starting -- not starting -- at a saturation level, we're not seeing quite a strong a growth in motion as we did at the earlier point in the recovery. So it's really simply within the controller software area of the business versus more of the product -- heavy electrical product side of the segment. So...

Okay, thanks, that helps. And then, just in terms of you mentioned traction on PlantPAx and your positive, obviously, quarter again for process. I mean, coming out of the Automation Fair, et cetera, I mean, what have you heard from customers or what are you seeing incrementally that makes you feel good about the traction you're getting there?

Well, a couple of things, the continued expansion of the applications that we can address with the platform. So as we talked at the fair, the evolution of PlantPAx 2.0, and that is starting to now be utilized more and more in projects and in applications. So the expansion of applications, the continued buildout of our capabilities in each region with our sales organization and our solutions organization and the capabilities that we've developed with our partners, additional system integrators that are using the products in there to meet their customer needs as well. So I would say the continued expansion of the product capabilities and functionality, the maturing of our sales organization and the execution of the sales organization and then further expansion of our partners, and then as we have talked, meeting system integrators, and then as we have talked, we continue to work with other partners such as E&H with the capabilities in instrumentation, and that combination creates the opportunity in addition to replacing legacy DCS systems which continues to be a opportunity for us, given the age of that installed base and the growing capabilities of our platform.

Your next question comes from the line of Julian Mitchell with Crédit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: So I just wanted to catch up, I guess, on what's going on in your Asia business and maybe China in particular. Because I guess there was a sense in which -- I think previously you had been saying China might see an accelerating growth rate in December versus September in terms of sales because of the backlog that you had. But it does seem as if there were some maybe pushouts, maybe some projects, recognition issues or something around working capital. I think ABB several times late last year talked about some working capital issues in markets like China. So could you perhaps just give an update on what your main sort of customer segments are doing in China? And you did say orders obviously did grow stronger than sales in the December quarter and maybe how you've see the kind of short-cycle business trend in the last couple of months there.

Sure. Well, as we said, and as you commented, China was a tough comparison in particular in the quarter because of the 40% growth that we had last year. And so what we're seeing there is -- let me just start with some of the macroeconomic to just characterize it a little bit. The PMI there, which is a sentiment indicator, over the last quarter and a little over a quarter has been hovering right around 50%, which means basically limited growth. And so I think what we're seeing is we're now starting to feel the reflection of that indice [ph]. And certainly, that's something that we've talked about, and obviously, what else is going on there is a little bit of a tightening of the fiscal and monetary policies that are create -- that have a negative impact on growth. And now we see the government talking about changing that around to reignite their industry. So we continue to see good strength in the automotive sector. We continue to see positive OEM business in China. And certainly, oil and gas is a growth area going forward. So I would say it's a combination of some of their activities in transportation and then a few of the more heavy industries are well. But we're also seeing a slowdown in some of the government specter, government spending areas, the infrastructure, and some of the metals and cements. So in some of those areas, less optimism, but continued strength in some of the core areas for Rockwell, which is why we believe the remainder of the year will drive growth in China and in emerging Asia. Julian Mitchell - Crédit Suisse AG, Research Division: And so I guess for China, you still think you can grow your sales sort of mid-teens in fiscal '12?

I think mid-teens will be difficult now. I think we're talking now probably high-single digits, low-double digits would be what our expectation is at this point given our Q1 performance and the ability to ramp up. We have very good solutions orders, but those will take a while to move through the system. So it'll be hard to get all of that into the remainder of this year. So we think high-single, low-double digit is what we have baked into our guidance for China. Julian Mitchell - Crédit Suisse AG, Research Division: And then just very quickly on the sort of the -- on a global basis, your kind of the products business, obviously mostly in Architecture & Software, I mean, have you seen any kind of notable gyrations in that sort of on a monthly basis in the last sort of 3 or 4 months or it's been fairly stable?

I think our products businesses have been reasonably stable and typical for the period. And what I mean by that is, obviously, there's the typical slowdowns as we exit the month of December. And we didn't see anything unusual in that regard. And I would say they're operating as we would have expected and no surprises at this point in time.

Your next question comes from the line of Winnie Clark with UBS.

So you talked about currency potentially being a bit of a bigger headwind for the year, around 1%. Is there any way to give us a comparable earnings impact?

Yes, I mean, I think, roughly, it's probably about $0.05.

And then in terms of buyback. I mean, you repurchased a little bit less than you had been over the course of fiscal '11. Obviously, you had the pension contribution. Is there a way to think about potentially going back to the run rate you saw last year over the next few quarters?

Well, I mean, coming into the year, we were expecting to get at least enough shares to offset dilution from equity-based compensation. I think, we believe we're still on that track. Q1 obviously is a slow start for us. But in part, that was because we knew we had the large pension contributions plus the payout of incentive comp and it was going to be a relatively negative cash flow quarter, and so we just went a little bit slower at the start of the year. But I would say we're still on track generally for repurchases that we were expecting coming into the year.

Okay, great. And then, lastly, on terms of cadence of CapEx spending. You talked about the potential for some CapEx delays early in the calendar year as customers go through their budgeting process. Is it fair to say that you're just not really seeing that or is there still some expectation given uncertainty that you could see some of that as we progress through the year?

Well, Winnie, I think when we talked about that, it was in reference to our Q2, which would be the first quarter for many -- most of our customers who are on a calendar year. And so it's a little bit early to make the call on whether we're going to see that or not.

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

Keith, I just wanted to dig in to the strength you saw in the EMEA. You seem to -- you said it came in large part in some export markets, which suggests some of the machine OEM sectors, and I'm trying to square the circle with weakness we've seen in Asia yet strength in the export markets. I'm just wondering, does that indicate an acceleration in Asia or are there other factors there. Again, you seem to indicate you gained some share there, so maybe if you can just comment on that as well.

Well, I think there's a lot of factors in Asia that are playing out. And I certainly don't believe the exporting power of Europe and Germany is core to the, I think, the bigger issues inside of particularly emerging Asia, which really boils down to inflation and tightening of the money supply or I should say, raising interest rates. I think they've managed to slow growth, and I think that was the strategy. And they've been successful. And now their concern is perhaps they went too far. And I think at least we're hearing the conversations of more stimulus and more government intervention, particularly in China, less so in India, but it's a similar situation. So I think it's more of those financial and economic areas that are impacting emerging Asia at this point in time. And then your other question was with respect to market share. We do believe we are growing share in the machine OEM market in Europe. And I think our growth in both our controllers and our motion platforms, as well as the continued expansion of our customer base there, is a positive sign of that, and basically, a continuation of the strategy that we started a couple of years ago. And our team in Europe is executing very well in that regard.

Okay, that's helpful. And then maybe, Ted, as we go through into 2Q, 3Q, EMEA slows down to a flat cadence covering Asia Pacific. Obviously, a lot of moving parts. Solutions has bounced around as well. But how does that shake out in terms of the 5% to 9%, 8% this quarter. Do we weaken from here and then re-accelerate? I mean, can you just provide some color on that?

Well, I mean, I think we have -- sequentially, we will have to see some incremental growth to each quarter in order to get to that 5% to 9% range. Obviously, it's not a lot of sequential growth at the low end of the range.

But that's normal, isn't it? You normally see sequential growth from 1Q?

Yes, I would say that's normal.

And any suggestion that you wouldn't see that at this stage?

Well, I mean, obviously, not because we left the guidance as it is. I mean, we have gone through at the end of January our normal process of debriefing the sales organization and kind of doing our assessment on each of the regional markets and each of the vertical markets. And right now, all that we are hearing leads us to believe that, that sales guidance is still appropriate.

Okay. And then just, finally, just another crack at the balance sheet question. You're virtually net debt free right now. The pension issue is behind you. Do you plan to become a bit more aggressive in terms of redeploying capital?

Well, I mean, I think what we do in terms of specifically share repurchase or even dividend in the balance of the year is going to be partly based on what we are doing in terms of acquisitions and what we see on operating cash flows. But I think the expectations we set in November around share repurchase for the year -- we believe that's still a very appropriate level, given what we're expecting in cash flow for the year.

Your next question comes from the line of Richard Eastman with Robert W. Baird. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Keith, I wanted to double check the solutions' book to bill you mentioned about 1.3 in the quarter. Was that for the overall business or was that specific to Asia?

No, that was specific for our solutions businesses at total for -- in global. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Total. Have you seen any pushouts of -- there were some -- you alluded a little bit to Asia. And some of these bookings on the solutions side, do they have longer deliveries? Or are you seeing any pushouts in terms of expected delivery days?

No, we have not seen pushouts anywhere in the globe at this point in time. My comment about Asia was strictly given that the orders came in, in the first quarter, they would not all be shipped within our fiscal year, and that would be a normal cycle. So nothing unusual was intended for my commentary other than a typical -- some projects are within 6 to 9 months, others are 12 to 18, and they tend to flow greater than just 1 fiscal year, particularly when you get them in that fiscal year. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Sure. So would you just define your front log? When you’ve talked about it in the past in terms of taking the pulse of customers and sales force, how would you define the tone of the front log at this point in time?

We would define it as customers are still talking about opportunities. They're still talking about projects. They're still looking for quotations. We have not seen a change in, I'll call it the presales activity, whether it be in our project or our product businesses. So -- and I think that goes back to Ted's comment that he made about the normal quarterly reviews that we do. There was really nothing that said danger on the horizon. We're going to go off a cliff, obviously, cautious, which is typical at the start of a new calendar year for many of our customers. And I think that's certainly something that we'll stay close to. But all of that analysis is what went into us reaffirming our guidance for the year. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just lastly, Keith, when you look forward, there's been a change in the government of China's kind of tone toward subsidies especially on the auto side, kind of favoring local Chinese auto companies over multinationals or foreign companies in terms of tax subsidies and just subsidies in general. Does that have any impact on your business over the next couple of years? Are you...

Well, I mean, I don't know exactly how that will all be integrated into their activities. But what I can say is we've made a very conscious decision to work with the leading Chinese auto manufacturers and it’s core to our automotive strategy in Europe -- in China. And we certainly expect -- and we already are doing business with the leading indigenous manufacturers. So we don't see that as a fundamental change in the way we've been operating or expect to be able to be successful with the leading Chinese car manufacturers. So...

Okay. Quanda, we're going to take one last caller.

Your final question comes from the line of Rich Kwas with Wells Fargo.

Ted or Keith, on the solutions mix, as we think about this year, I think the guidance assumed a little bit of a headwind from solutions. Is that more significant now or about the same relative to your thoughts in November?

Yes, I mean, I think in November, we were expecting solutions growth to outpace product growth in the year maybe by 1 point. I think as we look at it now, we think it might be more like a couple to 3 points.

Okay. That's helpful. And then your comment on Europe, Keith, regarding flat to down. That's the assumption for the macro, right? I know you have a fairly difficult comp in Europe year-over-year in terms of sales and you had a very good growth number here this quarter. But the flat to down, the comment, that's the macro comment, right, you expect to grow?

That's correct. That's a correct statement. We still expect to grow.

Okay. And then just, Ted, on accelerated depreciation in the quarter, was there any benefit that was noticeable?

This is -- we're having this discussion in the last couple of quarters. There's nothing that we saw either in the order trends in the quarter or that we heard when we debrief the sales organization that would lead us to believe there was a significant impact in the quarter.

And final one is on the FX comment. So coming off a point if exchange rates stay the same, so that hurts top line growth, but doesn't it potentially support margin a little bit? Just because you have that impact this quarter whereas it turned out to be a little bit favorable. So if it hits the revenue line a little bit, does that actually be a little bit margin positive for you?

Well, I mean, actually, I think what I was trying to make clear was I think the result we got in currency this quarter was unusually favorable. I would say typically, what I'd expect to see on the drop from sales to earnings related to currency translation is a conversion of about 15% to 20%. So to the extent that our underlying conversion is higher than that, you're right, that would help conversion margin a little bit. But the other point I want to make is that currency impact can just be very variable quarter-to-quarter.

I would now like to turn the conference over to Ms. Rohr-Dralle for closing remarks.

Okay. I really don't have any closing remarks other than just to thank all of you. And anyone that wants to follow up, please give us a call, and I'll be available all day. So thanks for joining us today, and that concludes today's call.

That concludes today's conference call. At this time, you may now disconnect. Thank you and good day.