Good day, ladies and gentlemen, and welcome to the Ingersoll Rand Third Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the call over to Janet Pfeffer. Ma'am, you may begin.

Thank you, Trisha. Good morning and welcome to Ingersoll Rand's Third Quarter 2015 Conference Call. We released earnings at 6:30 this morning and the release is posted on our website. We'll be broadcasting in addition to this call through our website at ingersollrand.com, where you will also find the slide presentation that we will be using. If you would please go to Slide 2, our safe harbor statement. Statements made on today's call that are not historical facts are considered forward-looking and are made pursuant to the safe harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause actual results to vary from anticipated. This release also includes non-GAAP measures, which are explained in the financial tables, which were attached to our news release this morning. With that, let me turn it over to Mike Lamach, Chairman and CEO; and Sue Carter, Senior Vice President and CFO. Mike?

Great. Thanks, Janet. Good morning, everyone, and thank you for joining us today. In the third quarter, we exceeded our EPS forecast, improved operating performance and delivered profitable growth through solid execution that more than offset headwinds from the global economic environment. Our operating income and operating margin percent were both all-time records, particularly good performance in the face of a slowdown in the Industrial segment and in the Asian and Latin American regions. Our team responded well to the challenges. We were able to overdeliver on our commitments despite lower-than-forecasted revenues. Adjusted earnings per share were $1.21. That's up 10% versus the third quarter of 2014. That compares to our guidance range of $1.15 to $1.19. So adjusted EPS for the quarter was $0.04 better than our guidance midpoint. Revenues were approximately $50 million lower than the midpoint of our guidance forecast, about half of that from more unfavorable FX and about half from lower volume. And that translates to a couple of cents headwind versus our earnings guidance. The tax rate was also a little higher, and that was another $0.02 of headwind. These headwinds were more than compensated for by higher productivity and lower spending as well as a slightly lower share count driving the $0.04 earnings outperformance. Organic revenue growth was 6%, led by strength in the U.S. and European Transport and Commercial HVAC businesses as well as Residential HVAC. Europe and the Middle East, excluding currency, remains strong. Ex currency, Latin America was down low single digits, as strong results in Mexico partially offset weakness in Brazil. Excluding currency, Asia revenues were down 3%, reflecting continued weakness in China and emerging markets. Climate organic growth was 8%. Industrial markets were weaker in the quarter. Organic revenue and Industrial was down 2%. As you'll see when I get to the forecast, we adjusted our fourth quarter down slightly to reflect slower Industrial markets and currency. Organic orders in the third quarter were up 1%, impacted by tough comparisons in Transport against record orders in 2014 as well as a slowdown in Industrial. Commercial HVAC bookings, excluding foreign exchange, were up low single digits, and were up mid-single digits in North America. Adjusted operating margins increased 1 full percentage point as stronger productivity and pricing, combined with deflation, more than offset negative currency, investments and other inflation. We repurchased about 4 million shares in the quarter and have completed our announced $250 million of share repurchase in early October. And now I'll turn it over to Sue, and then I'll come back to you to take you through the fourth quarter outlook.

Thanks, Mike. Let's go to Slide 4, please. Orders for the third quarter of 2015 were down 2% on a reported basis and up 3% excluding currency. On an organic basis, which excludes both currency and acquisitions, orders were up 1%. Climate orders were up 3% excluding currency. Commercial HVAC bookings were up low single digits, and Residential HVAC bookings were up mid-teens. Transport orders were down, primarily due to difficult comparisons with record 2014 bookings in North American Transport and in Marine. Organic orders for Industrial were down 4%. Organic orders decreased by mid-single digits in Air and Industrial products and improved by low single digits in Club Car. Please go to Slide 5. Here's a look at the revenue trends by segment and region. The top half of the chart shows revenue change for each segment. For the total company, third quarter revenues were up 3% versus last year on a reported basis and up 6% on an organic basis, which excludes both foreign exchange and acquisitions. Climate revenues increased 8% on an organic basis. Industrial revenues were down 2% organically. I'll give more color on each segment in just a few slides. The bottom chart shows revenue change on a geographic basis, as reported and organic. Organic revenues were up 7% in the Americas, up 10% in Europe, Middle East and Africa, both led by strong HVAC and Transport performance, and Asia was down 3%. Let's go to Slide 6, please. This chart shows the change in operating margin from third quarter 2014, up 13%, to third quarter of 2015, which was 13.6% on a reported basis and 14% on an adjusted basis. Volume, mix and foreign exchange collectively were a 20 basis point headwind to operating margin versus prior year. Within that, about 40 points negative…

Great. Thanks, Sue, and please go to Slide 10. North American institutional markets continued the recovery in the third quarter. There's no change to our revenue forecast there. We also continue to see growth in Commercial and Industrial buildings and retrofit. We still expect mid- to high single-digit growth for 2015 in North America and Commercial HVAC markets. The regional standards change in Residential HVAC is going as planned. We expect motor-bearing unit shipments for the year to be flat, up low single digits in 2015, reflecting the prebuy that occurred in the back part of 2014. To round up North American Climate Segment markets, we expect North American transport markets to be up double digits in 2015, reflecting good trends in trailer, truck and APUs for most of the year. North American Industrial markets have remained fairly weak. Gulf markets are expected to be up low single digits. We expect Latin American, Asian, European and Middle East HVAC equipment markets in the aggregate to be up low to mid-single digits at constant currency, but flat to down after considering currency. Within those regions, Europe and the Middle East have been relatively strong for us, excluding currency. Asia had slowed since July, and we now expect Asian markets to be down for the year. We expect European transport markets to be down, including FX, but up at constant currency. Industrial markets in Europe and the Middle East, Latin American and Asia are more challenging, and we expect these markets to be down for the full year. Aggregating those market backdrops, we expect our reported revenues for full year 2015 to be up about 3% versus 2014. Our prior range was 4% to 5%. So in total, we're reducing the back half revenue forecast by about $140 million. As I said…

[Operator Instructions] Our first question comes from the line of Nigel Coe with Morgan Stanley.

So I just want to start off with the change of management for the Industrial segment. So congratulations to Todd and Keith on their new roles. I'm just wondering what, if anything, changes in terms of the margin orders for Industrial tech? And the reason I ask the question, Mike, is that -- the margins there attract a lot of investor attention, and I'm just wondering is there a recognition, given Todd's background, that perhaps there's a -- should be a sharper focus on productivity and cost containment there?

We're looking at the opportunities, Nigel, and we're dead committed to the 17% to 19% operating margins that we've communicated in the past. We want to accelerate that as quickly as possible. And for the segment to achieve that, we've got to achieve that in the Compressed Air business first and foremost. So the effort here would be certainly on all of the growth and Operational Excellence activities in the company. We see great opportunity in the value stream work in accelerating that, reaccelerating that. So it's really, I think, a tribute to Todd's leadership, but also to a commitment to being on-track and getting ourselves on track for that business.

Okay. Fair enough. And just a quick follow-on there, Mike. the 50 bps of price cost benefit this quarter are consistent with commentary, but I think probably a little bit better than certainly what we expected. Does that continue to get better as the hedges start to roll off on the copper and aluminum? Or is this a pretty good run rate from here?

So Nigel, let's think about the cost -- or the price and material from a longer-term perspective. So what we would have as a goal is we'd have a goal to have a spread between direct material inflation and price of about 20 to 30 basis points for the year. What we said when we talked in July was that in the second half of 2015 we would see wider spreads because the material deflation was really kicking in, which is exactly what we saw in that 60-bp spread. But in general, we're still targeting about 30 percentage points of spread for the year. And then as we look at going forward, we'd hang onto that goal of having a positive spread of 20 to 30 basis points. So I don't think that as you look forward, at least in the near term, that 2016 commodities are going to increase. We've got about 50% of our copper for 2016 locked in. However, I think it's more realistic to think about the overall spread being 20 to 30 basis points rather than a 60 basis point spread being a new normal. I don't think that works.

We might have give [indiscernible], Nigel, more than we thought, really. But we kind of thought 50. It was 60, so it's pretty close to the number that we had thought.

And our next question comes from the line of Jeffrey Sprague with Vertical Research.

Just quickly on Cameron and just the M&A impact. Just wanted to check my math. It sounds like you've actually held your Cameron forecast, if I'm assuming a 3% acquisition contribution, that would imply about $380 million in revenues in the back half with FRIGOBLOCK, so the end was -- we end up with, like, $340-ish million for Cameron. It sounds like no change there, but then, Mike, you also made a comment about derisking Cameron a little bit. So can you just reconcile that? Or am I missing something in that math?

Jeff, great question. Let me walk through -- so I talked about the fact that we reduced the back half of the year in total for the company by $140 million. $50 million of that would have happened in Q3, so $90 million relating to Q4. Also, so we have that, the attributable change to Climate, really, let's call it, $30 million, leaving $60 million in the Industrial businesses. We think about the Cameron piece of large machines, and we took a $20 million to $25 million view of risk on that saying that we know of some instances, and perhaps we'll know of some more, delays for, often times, customer acceptance or readiness on those sites. So think about $20 million, $25 million being associated with big machines. The balance of that could be split 50-50 between all of what the short cycle replenishment is in Industrial and FX. Again, so if you look at sort of the Cameron piece of this on the large machine exposure, $20 million, $25 million. And then if you look at just short-cycle recovery, some of that would be plant air for both Ingersoll Rand legacy and Cameron, it would be the normal smaller plant air. We're not seeing the order rates returning there. We're seeing some slowdown with capital spending from Industrial customers in Q3 and Q4, and so there's a bit of that in there as well.

Okay. And then just shifting gears, on TK, orders, down on tough comps, but the comps are going to stay tough, right, in North America, in particular, in trailer. How do you see things playing out? Should we still be thinking about double-digit-type decline or more in trailer in North America in 2016?

So Jeff, let me give that a shot. So you're right, as we look at the order rates for North America for trailer in the third quarter, they declined again. We expected that. We talked about some of those orders being roughly at peak in the second quarter, and it really is a tough compare to 2014. So when we look at the fourth quarter, so first, I'll take fourth quarter, we expect the trailer orders again to show negative year-over-year comparisons, again, based on really strong 2014, actually, record order levels last year. And so what we're looking at is the tough comparisons on TK in total, orders for the third quarter in overseas markets were actually down, and ex currency, we're roughly flat. But you also asked a question about 2016. So if we look at what's out there in terms of ACT data, so we're not talking about our forecast, but we're looking at ACT data, we still are seeing forecasts for that to come down in the ranges of probably some of those double digits. But we're closely assessing the markets, especially in trailer, and looking at the record volumes. So not really a precise answer, but the tough comps are really the big part of the story, and in 2016, ACT doesn't see much change from their prior outlook.

Jeff, if you took that 10% or 15% kind of as sort of the market for North American trailer and recognize it's a little bit less than 25% of our business, we're probably going to see pretty good markets in Europe and Middle East. We're seeing probably good markets for Marine, rail, bus and for our air refrigeration businesses. So we talked about the scenario last time that a 10% to 15% decline in North American trailer is something where we think we could still grow margins in the TK business and potentially actually grow the top line, but that's not to be concluded until we finalize the plan.

And our next question comes from the line of Steven Winoker with Bernstein.

Just to clarify that answer for Jeff. On the Cameron deal, you had originally promised $0.08 to $0.10 of gross accretion for 2015. So bottom line, like, where is that -- what number looks like you're going to achieve this year on that?

So cash accretion is at about $0.08, maybe a little bit better, but about $0.08.

Okay, great. And then on the restocking impact in resi and destocking across Industrial, what are you seeing? What kind of impact do you think that's happening -- having on the business?

Well, Residential is lumpy, Steve. So that's hard for a quarter-to-quarter compare with Altap [ph] and with the change in SEER regulations, but -- our global Residential business was up mid-teens but our North American Residential bookings were up high teens. I wouldn't put a lot of stock into the booking numbers and just some of the anomalies from quarter-to-quarter. The industrial restocking is just more of an indication of slowing industrial markets and the fact that companies like ours are probably pulling in a bit on CapEx, and we see our Service businesses growing. So one thing you see in a typically mild pullback in either Commercial or Industrial space is the Service business should grow, and our Service business grew mid-single digits in Industrial, which is pretty good performance.

Okay. And then just following up your point about 30 basis points ongoing price versus raws. And if I think about same growth rate, maybe, next year as this year for the overall business, if that were to be the case, do you think you can hold these kinds of mid-40s organic incrementals?

I think, Steve, we'd look at really more along the lines of what we've said longer-term, which is we're more comfortable with looking at incrementals that are at our gross margin levels as opposed to trying to project what happens to all of those. And I understand the comment on deflation and the productivity that we've had, but I think there's going to be some other areas that are going to have tougher comps in 2016 going forward. So I think, the price spread of 20 to 30 bps and our incremental leverage being at the gross margin levels are probably better longer-term ways of just thinking about the business.

And our next question comes from the line of Deane Dray with RBC Capital Markets.

I was hoping Sue could clarify the comment on expectations for, you say inventory increasing in the fourth quarter, just -- and its impact on your free cash flow conversion.

Right. So I'm hoping that our inventory does not increase in the fourth quarter. What I meant, and hopefully what I said is right now, our inventory level are higher than what we would have seen a year ago. Part of that is because of the buildup of the air compressor inventory for Q4 shipment, part of that is the prebuild for the ERP go-live and some other impacts from, actually, revenue decreasing. But what I expect to see in the fourth quarter is I expect to see the inventory come down, but the comment is that I don't really expect it to get back to the previous levels. So a year ago levels at the end of 2015. So we'll continue to work all of that off. It doesn't mean it's an issue. It just means it's just going to be slightly heavier. And what we've done, to answer your question, on a free cash flow basis, is that we did -- our original range was $950 million to $1 billion. We said roughly $950 million at this point in time. And what we're doing from a free cash flow perspective is everything that you might expect us to do, which is we're overdriving performance on receivables, we are looking at all of the things that make sense in terms of being tight on all the other elements of free cash flow to make up for the fact that we've got a little bit more inventory than what we had a year ago. So I don't think any of this is an issue. I think our free cash flow, being at 98% of sort of projected net income, is right in line with where we'd like it to be. So I don't think it's a problem. I think it's just going to be a little higher than it was a year ago.

So that's that -- I appreciate that clarity. And Mike, I was hoping you could comment on the European strength in Climate. Did that surprise you at all? Is -- how much mix is a factor there? And it looks like you could be getting some share gains.

Well, it's been surprising us for a couple of years in terms of just the success that I think we've had with there. But as I've said in the past, we've got an excellent team leading the business and a lot of new product and services being launched into the marketplace. So a continued good performance there.

And our next question comes from the line of Julian Mitchell with Crédit Suisse.

Just a question on Industrial. I think you're guiding for Q4 organically to be down about the same degree in revenues as Q3, so maybe down about 2% year-on-year. But the orders progression has got worse Q3 versus Q2, and the organic sales hurdle is higher in Q4. So maybe just confirm if that's really the case. And maybe talk a little bit about how you're seeing industrial demand trending kind of within the quarter and in the last couple of months, specifically.

The widest area now, Julian, that we have, I think, is really in China, which really runs a pretty wide range of worst case, best case. And so -- we're taking something on a more conservative range in China at this point, and that's really the wild card. The balance of it is really just sort of the booking turn we know of and some conservative views now on restocking for some of the stock businesses.

Yes, and I would think, Julian, that you're right. We -- when we talked to you in July, we had seen some short-cycle markets recover in June, some but not all, certainly. And that re-acceleration didn't continue in the third quarter as we had anticipated, and so we did lower our Industrial organic growth outlook for the second half from plus 2% to minus 2%. So you're absolutely right.

Got it. But I guess, you're not expecting the decline to get worse in Q4 even though you have a tougher comp in Industrial?

Yes, a little -- we had a little bit of a surprise -- favorability in bookings in Latin America in the compressor business, a bit of a surprise. And again, we think we've taken a conservative view, and China team has a road map on some larger orders that could close, but I think we've got this tackled with the $90 million in the back half, $60 million of it really being attributed to -- I'm sorry, back in the fourth quarter, $90 million for the company, $60 million in Industrial. We think we've got it covered here with what we know of today.

And then just a quick follow-up on train in Asia. I think that, obviously, the trends even back in July were pretty unsteady in China. Maybe just talk a little bit about how you've seen the order intake and the backlog moving there.

So let's just kind of talk about China in general. So obviously, economic growth rate significantly below the historic rates, with the government attempting to rebalance the economy and all of those different pieces. Some of that's not smooth. Some of it's lumpy, and so some of the comparisons get a little volatile if you just go from quarter-to-quarter. But if we look at HVAC bookings in China for the quarter, they were actually up low single digits versus last year. And for the quarter, HVAC revenues in China are expected -- or I'm sorry, for fourth quarter, the HVAC revenues in China are expected to be down low single digits as -- and part of that is applied systems and the growth there being more than offset by lower unitary revenues and currency. And so there's a lot of different pieces that are moving around. If we just looked at nonresidential construction market starts in the fourth quarter of last year, some of that continued into the second half of 2015. Some of the areas of strength or verticals where we do see some growth would be data centers, healthcare and mix development opportunities.

The good news there, Julian, was the fourth quarter positive bookings in HVAC in China.

And our next question comes from the line of Shannon O'Callaghan with UBS.

Mike or Sue, just on the -- to clarify the leverage point in the fourth quarter, I think you said corporate going down $15 million to $60 million. Is there some other maybe offset below the line in other income or anything that we should be aware of? It just seems like I end up a little high, if that's -- if corporate goes down $15 million.

Well -- so when you think about the fourth quarter leverage and the different pieces, in the spot where you're going to look at what's happening is, if our organic growth is going to be in the range of 2% to 3%, so you've got $75 million to $80 million of revenue, if you've got productivity and direct material inflation with still continuing to get price. And if those are the primary drivers of productivity in the fourth quarter, and you have lower corporate, to your point, the math does work out to be in the 75% to 80% range for the fourth quarter.

And, Shannon, another way to look at it, it's $75 million of revenue at the midpoint. $40 million in OI on that. Take $15 million off for corporate. Now you're talking about really $25 million on $75 million. You've got 33% leverage. And look at the price deflation spread, look at the productivity of other inflation spread, and it's really a doable number.

Okay. And then there's nothing -- I know your other line moves around. There's nothing funny -- or different going on there, I mean, it's been bouncing all over the place. It's tough to know how to model that. it's mainly currency, but do you have anything moving significantly down the other line?

No, so the fourth quarter should be relatively flat. So not really a lot of movement there that we're looking at.

Just on the Commercial HVAC bookings, up mid-single digits in the Americas. Do you have the, sort of, North America split of that, I think you used to give? And is there any parts of North America that you see getting better or worse?

Applied is trending as we said, applied mid-single. It's sort of the institutional piece of that large unitary that applies to institutional is -- the larger unitary is doing clearly well. The open-quote backlog sort of matches what the booking trends looks like, which give us some sense that, if you think about open-quote log pre-dating bookings by 3 to 6 months, the rate stays fairly consistent going into 2016. So I think that it's shaping up like we thought, which is this mid-single-digit institutional recovery that should last a few years. Dodge data still is quite a bit more aggressive on that. They're showing institutional put in place '16 versus '15 up 14%, starts up 10%. But I think as you well know, it's historically been fairly high and it comes down throughout the year.

And our next question comes from the line of Steve Tusa with JPMorgan.

On -- just following up on Shannon's question, what -- can you just give us kind of the approximate margins? There's some rounding dynamics here, and you guys have some squiggly lines next to the numbers annually, and so I'm just having a little bit of trouble, again, getting kind of low enough for the fourth quarter. Can you just give us a rough -- more rough approximation of what the 4Q is for the segments, margin-wise?

So if we're looking at the total year for Industrial being in the range of 13%, or roughly 14%, so you're right, we've got a little bit of a squiggle in there. What would that would imply for the fourth quarter on Industrial is margins in sort of the 15.5-ish type of range. And part of that gets driven by the compressor shipments in the fourth quarter, as well as continued productivity and a lower inflationary-type environment.

Okay. And then for Climate, I think we're backing into something of around 13.5%. Is that about right?

So Climate, with the sort of 13% that we're looking at for the full year, would be -- if you backed into a Climate midpoint, would just be a smidge under the 13% range for the fourth quarter.

Okay. That makes more sense. And just last question, just on the Resi dynamics, what will mix contribute this year? I don't think you guys had great mix in the second quarter like maybe some others did. So there's maybe different timing dynamics around how much 14 SEER you're now selling, how much of that 14 SEER transition is booked this year? And then how much is kind of still yet to come for next year?

So we've had some negative mix, Steven, in the year with 14 SEER, which works itself out this year. But we think that, generally, '14 is accretive to '13, and we're seeing really good margin expansion in the Res business. So in spite of the mix down, '14 for us good -- good absorption, good expansion and it works itself through in 2015.

And then for '16, is there still some benefit to come there?

I think there's -- I don't think we've got the issue of mixing down in 2016. I mean, there could be a quarter, 4 or 5 months, but you have to think, with the dynamics of the change this year in terms of stocking -- 13 SEER. But for the most part, no, I then we should be having a pretty clean year next year in terms of mix.

And our next question comes from the line of Robert McCarthy with Stifel.

I guess, the first question I would have is just, taking into account some of your comments around the state of the U.S. nonresi and the limited visibility on the Industrial side, I mean, how do you think about, just directionally, about '16 in terms of EPS growth? And what can you provide, or what can you provide in addition, maybe for CapEx, or you have provided something I think on the margin side, what can you provide about '16, how we should be thinking about it?

First of all, remember we'll do this in February, so I'll give you just some general sense as to where things are going. But before I do that, step back for a minute, and if we look at 75% of the company as being the Climate Segment. Of that, really 60% of the company is HVAC, and more than 60% of that is in North America. So you've got, really, 40% of the company with pretty strong growth dynamics going into 2016. I think HVAC in Europe, Eastern Europe, even potentially the Middle East, will be growth organically for us, probably not the same rate, of course, as North America, but we've got that growing. So in essence, a large part of the business is growing for us. We think about Industrial, look, I think that Asia and Latin America, is going to continue to be a bit of a struggle, and maybe some currency headwind coming at us, but not -- we see that even with low growth next year will expand margins nicely. I'm not going to give you an EPS number today, but we certainly feel like there's an opportunity, with the pockets we're seeing of growth in 2015, to grow the company.

Okay. And then just one follow-up. In terms of just capital allocation and then just reinvestment in the business, given the prevailing environment, is there change or nuance at the margin in terms of M&A or other forms of capital redeployment or internal reinvestment?

No, Robert. When we look at it, we expect to continue the balanced capital allocation that we've got with investment in our businesses. We can expect to continue having a strong dividend payout, so in the 30% to 35% range. We'll continue to, at a minimum, offset dilution with share repurchase activities. And then the remainder of it, we'll basically continue to toggle between value-accretive M&A and additional share repurchase and just evaluate what makes the most sense at any given point in time. Now you had also asked about CapEx. And so generally speaking, our CapEx is usually in a range of about $250 million, which is roughly equal to depreciation, and we don't expect that to change going forward either.

Both the CapEx and investments are a number that, Robert, we can work with during the year depending on what we see in terms of the environment. So there is some flexibility for us to spend less if we need to, to help bridge some of the EPS commitments that we'll make.

And our next question comes from the line of Josh Pokrzywinski with Buckingham Research.

Just a couple of questions. First, on Cameron, obviously, backlog is typically weighted to the fourth quarter, but can you give us maybe an indication how order trends and visibility or coverage in the next year looks, maybe versus what normal seasonality should look like? There obviously, don't have a known end of the year yet, but just kind of any color on orders would be helpful.

Sure, Josh. One of the interesting things about the history in what happened in that engineered compressor business is that not only are our shipments back half loaded, but generally, orders in the large engineered compressors are also back half loaded. So we're seeing real time what's happening in the different places in the market. So let me give you a little color on what I think we're seeing and how that translates into what we see for 2016. So, in general, you're going to look at this space being negatively impacted by all of the oil and gas majors are going cutting capital 20% to 30%. There's industry consolidation. EPC activity has slowed. And so when you think about projects, there's probably, in general, fewer projects, same number of competitors, which means that you need to be a really sharp, you need to be really focused and really work at the orders. Now having said that, if I break down the different pieces of the business, so on processed gas, which is roughly a quarter of the business, there's still some growth from the natural gas side of things and LNG. There are some Middle East project delays. However, you've got petrochemical doing okay, power gen, particularly in Europe, being an area where there's some projects and things that we can look at. And so when we think about the processed gas, one of the things that you can start to think about is on the chemical side, or petrochemicals, is does the lower gas price give you a lower feedstock price and does it change some of those dynamics? I don't know. But still a tough environment with, as I said, fewer projects and some things happening. On engineered Air, so another quarter of the business, you've still got air separation, particularly in the China market that, to be honest, I don't see changing anytime soon. There's going to be some activity, but there's going to be a lot lower activity. And if you looked at just what's happening from industrial gas businesses and activity, you'd see lower activity in the first half versus 2014 and 2015, and I'm not sure that, that changes. And again, that's an industry looking at projects where we might take plays with some of that engineered air product. With again, air separation, you've got overcapacity, lower steel demand and all of that. On plant air, which is a book-and-turn piece of the business, it's roughly flat versus 2014. There's still some good markets out there with auto, food and beverage. Europe's a little slower on that side, and Asia is down. And then the aftermarket for the business is where opportunities still exist. And so in general, you've got softer markets, still some projects moving forward, but we're in the period when a lot of the orders take place and so we're -- we've got our eye on what happens in 2016 with all the different pieces.

Synergy-wise, too, Josh, we're really on track there with, as an example, just sort of the plant air, the revenue synergies, the cost synergies. And if anything, over the last few months, we've gotten an sort of even more conviction around the opportunity for the engineering, supply chain and manufacturing synergies that could exist in the business. So I think that we'll continue to make the business accretive. And in 2016, we'll make sure that if we've got the weakness that Sue's talking about, now that we've got a response to keep the margins at or better than where they were this year. We have a roadmap to do that.

Yes, and I think the bottom line of all of that is it's still a great business and it's still great products for us. And like I say, in spite of all of the things that I said about the market, it's accretive in 2015, and we're getting the synergies. So there's more to come on this one.

That's great detail. And if I could just ask a follow-up on TK. I've heard that some of the trailer guys have opened up the order books maybe a month or so early than they normally would, for the following year. Is that something you guys have seen? And is any of the strength in North America this quarter maybe a month or so pull-ahead from what you might normally have seasonally?

Well, it's very spotty on which customers open up their order books and whose customers they are. So you could take the top 10 in customers, they're going to order at different points in time. But yes, I would say in the third quarter, you had some customers open up their order books, and we've seen the same thing happen in the past, where there's a little bit of an anomaly between who's ordering. So we're aware of who's ordered and who's left to order, and I don't think we're seeing a lot of dynamic shift in that. But you will see differences in book rates and revenue rates depending on when that occurs. Some of these guys will buy 1,000, 2,000 to 3,000 units, and so it makes a difference when you're looking at a 7,000 to 9,000 -- a 6,000 to 8,000-unit month, which is what we've been seeing the last few months.

And our next question comes from the line of Andrew Obin with Bank of America Merrill Lynch.

Just a question. There was some debate inside the company about how to look at the value stream process, and at the Analyst Day, you had indicated that you are reassessing your approach because you've sort of touched a lot of low-hanging fruit. And then we seem to have had a pause in execution last quarter, and this quarter, operating leverage just seemed to have come through very nicely. Can you describe to us what internal operating changes you've been implementing over the past 6 months to address this next level of operating improvement?

Yes. A lot, Andrew. I'm not sure I'll cover it here. It would be a great discussion that we could have when we're together for our review this spring, in general. But we've used these product growth teams as a basis to expand the effort across the company. We've continued to now touch really all of the business with their value streams. Sourcing has become, I think, mature across the company. We have got really good productivity the last 3 quarters, really, in general. If you look past Q2 and kind of look at the last 3 quarters, we're seeing productivity accelerate. It's never really that linear. I know we'd all like for it to be, but it's not. We'll have projects and ideas that, at a certain point in time, pit in a quarter, and those make a difference. Higher volumes would make even a more positive difference, of course. So we're doing this all with actually quite sort of low volumes in some of our businesses. So we're excited that if volumes do return, we'd see even better productivity on the changes that we've made. And so, look, I think that we haven't really changed the operating system in 5 years. We've just really looked across as product growth teams that now have touched most or all of the company in one way, shape or form.

And just a follow-up question, I apologize if you've answered it already, but can you comment on cadence of industrial orders throughout this quarter?

Cadence throughout the quarter. I -- there really weren't any sort of high spots in the quarter to say that they were choppy. They were just sort of low in the entire quarter. We had pretty good growth in our Fluids Management business, obviously, which was a highlight for us, kind of a double-digit grower there. That's a good sign. But Material Handling, which is really our only oil exposed business, significant declines. We're off 50% in bookings in that business from prior year. So -- inside Industrial, when you move the compressed air business out of the way and you look at some of the smaller businesses, there's some high and low points, but generally speaking, pretty explainable. If you look at Material Handling, that's a good example of that.

And our next question comes from the line of Joe Ritchie with Goldman Sachs.

So a quick clarification, Mike, you mentioned earlier the Dodge data on the institutional side and the expectations for next year, but there's been a lot of noise in the data, especially on the Commercial side. I'm just curious, what, if anything, you're seeing, and what you're making of that noise line on the unitary side of your business?

Well, I think that the large unitary business continues to do well because there's also a lot of large unitary that's put into more of the institutional environment. So that continues. Actually, the commercial activity has been fairly strong. The -- if you split up Commercial and Industrial, Industrial has probably been just a little bit weaker in North America, but not a bad environment, frankly, at all for us. So we continue to think it's a pretty good North American market for both Institutional and Commercial and Industrial. But in terms of strength going forward, it's really Institutional, then Commercial, and then Industrial HVAC kind of trending in that direction.

Okay, that's helpful. And maybe following up on that, how do you think about mix then as you head into next year? Clearly, we've talked a little bit about some North America headwinds on TK, but some of the mix headwinds on resi should subside. How are you guys thinking about mix, particularly in light of the Climate margin target of 13% to 14% for '16?

Well, I mean, on track, in a nutshell, Joe. I mean, TK still gives us really good volumes from a profitability perspective, we're working with pretty high volumes across-the-board. Even though the year-over-year decrease in the market will be there, we've got plenty of gas left there in growth parts of the business that we didn't have last time around. So we feel pretty good about being able to hold our head up on the TK business. As you look at Climate, great expansion in margins in the res business. I've said before, I'll say it again, mid-teens, mid-teens plus EBITDA. The Commercial business, particularly in Europe, is doing well, and we're hitting some critical mass there that I think will begin to contribute more to the op margins across the business. And then in general, North America just does a really good in terms of share and consistent margin expansion there, and so I feel pretty good about that. The wild cards are really Latin America and Asia for us as it relates to the HVAC businesses. And here, we talk about pricing in China, but it's not sort of an environment that's impossible. It's just more difficult for us. So we're persevering in China. And again, I feel good, at least about the quarter, bookings going in the right direction. Would love to see the next couple of quarters look the same way before I'd feel more constructive about China, about Asia, in general.

And I would now like to turn the call back to Janet Pfeffer for any closing remarks.

Thank you. Thank you, everyone. Joe and I will be around if you have any follow-up questions, and have a good day.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude the call. You may all disconnect. Everyone, have a great day.