Welcome to today’s Emerson Investor Conference Call. During today’s presentation by Emerson management all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, May 5, 2015. 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, Craig Rossman, Director of Investor Relations at Emerson. Please go ahead.

Thank you, Robert. This afternoon, I am joined by David Farr, Chairman and Chief Executive Officer of Emerson; and Frank Dellaquila, Executive Vice President and Chief Financial Officer. Today's call will summarize Emerson's second quarter 2015 results. A conference call slide presentation will accompany my comments and is available on the Emerson's website at Emerson.com. A replay of this conference call and slide presentation will be available on the website after the call for the next 90 days. I will start with the highlights of the quarter, as shown on slide two of the presentation. Net sales in the quarter decreased 7% to $5.4 billion with underlying sales flat. As a result of lower oil prices, capital spending reductions by global customers in oil and gas markets, particularly upstream were faster and more significant than expected. A broad slowdown in industrial spending, particularly in North America and China, and most pronounced in energy-related markets affected order rates and resulting sales in the quarter. The strength of the U.S. dollar continues to be a significant headwind. Order rates reflected economic conditions -- difficult economic conditions in the quarter beyond oil and gas, continued weakness in European short cycle spending impacted demand. However Europe is beginning to show signs of movement, benefiting from the depreciation of the euro. We expect European competitors to continue to use the weaker euro to their advantage. Global Telecommunications customers continue to expect capital spending across all geographies and Climate Technologies order rates were affected by the U.S. residential air conditioning pre-built in the previous two quarters. Turning to slide three, gross profit margin declined 110 basis points to 40.1%, driven by volume deleverage resulting from the sudden drop to flat underlying sales growth after two quarters of moderate growth. Specifically in the U.S. which turned negative…

Thank you very much, Craig. Welcome everybody and thank you for joining us today, both shareholders and investors. I will probably be longer than normal. I had some things I want to get out and discuss with my shareholders. Clearly, we had a very challenging tough quarter and the market headwinds that we’re facing today has become much stronger in this over the last 60 days. But you know, we know how to deal with it. We’ve been here before and the necessary actions, reviews, executions are underway and there will be more on this in a few minutes. We will continue to execute the tactical and strategic actions required to create long-term shareholder value of this company. The Board, the OCE and the senior management team fully understand and fully debate what needs to be done, the timing, the actions and when and how we go about it. Our actions clearly have been underway since February. We talked about this at the investor conference, but given the stronger and broader headwind, we’ll now need to be deeper, broader and even more properly measured against where we’re trying to take the company long term. April, underlying orders appear to be shaping up to be down 5% to 8%. So let’s step back and review the where we’ve been, where we’re up to, the actions and with the discussion that we’re having internally and basically how I see this as we’re going forward. Now consistent with what we’ve been seeing in our monthly orders, we had a tough second quarter after underlying sales for corporation been nearly 5%, the last six months before this quarter hit us. The dramatic slowdown for the precise accountants out there is probably 4.75%. But for today it’s nearly 5%. The slowdown in capital spending in…

Thank you. [Operator Instructions] And we will take our first question from Julian Mitchell with Credit Suisse.

Hi.

I can’t wait for that first question. I got my baseball bat out. I got my Rally Monkey here. I’m getting the sword out. Who’s first? Julian?

Yes. Hi, Dave. Just a question first on the operations. And I guess your revised fiscal year guidance implies operating margins bounced back quite a bit in process and in Network Power in the second half from Q2. Just wondered if there was some one-off or mixed issues that hurt margins in those two businesses that you think go away?

Yeah. The big issue, Julian is if you step back and look at what hurt the second quarter in a big way and we obviously have some hills to climb in the second half, is that our underlying U.S. sales were over 7.5% in the last nine months. Process is very strong in that time period. We went from underlying U.S. sales of 7.5% to negative 3% in one quarter. As we announced in February, we knew things were getting weak but they happened very quickly in a couple key markets -- U.S. and China and Latin America. We are sitting in a situation where our facilities have been repositioned in the last couple years in the U.S. We moved position, production into the U.S. and now with the stronger dollar, we will have to move things around and we are sitting absorbing some fixed costs that we have to deal with, which we have started initiating in early February. And we will start getting some payback on that in the third quarter and the fourth quarter. But still we will be facing this headwind because of the dramatic drop-off in our core businesses here in the U.S. and the market mix. So what we are banking on right now is that we are quickly tackling the fixed costs, we are quickly tackling the costs and what we are seeing is we'll see some profit improvement as the year goes on. That’s the measurement we are going after right now and Am I got exactly, right or we’ve got exaggerated? It really depends how fast things drop-off. But right now that fixed cost hit us real hard in the second quarter and we are aggressively going after it. We spent, I think around $45 million in restructuring in the second quarter. We will try about spending another $65 million to $70 million in the third quarter. So, we will start getting payback on that as we go forward. So that’s what the game plan is, is we’ve got absorb that de-leverage. The other issue we’ve got going on right now is we are going to quickly tackle the working capital, which means we take the production down and that will have a little deleverage impacted. So we are playing this game. We know how to play this game but I know that it’s going to take us three, six, nine months to get through there to get that effect. But we will get the profitability back. There is nothing wrong with the core business as the profitability can’t come back on.

Thanks. And then just you talked on the call and the release about tactical and strategic actions and at the same time, the need to avoid a knee-jerk reaction. So maybe just clarify the timeline of how you are looking at businesses like Network Power in that regard, please?

I put my sword in the ground. I think almost 2.5 years ago I said 3 years so I don’t think the timeframe has changed one iota. I do think that -- what we tried to do at the Board level is talk the day-to-day how do we get our cost of line quickly to deal with the price cost issues, to deal with the lower volume. And then strategically, you just don’t want to ignore the strategic issues that we face as a company from a portfolio mix and we will do that on a systematic approach that makes sense. I mean, as you well know, my focus is if we are going to decide to get out of the business, I want to get out of the business that creates value for my shareholders. I am not going to cut and run just to cut and run. I think that is the wrong thing. I think my shareholders would be very mad at me if I did that. They expect me to manage the assets that we have here profitably and to create that value the best we can or to realize that value and that I am no different. Genetically that is how I built and you know that.

Right. Thank you.

Thank you very much, Julian.

And we will take our next question from Shannon O'Callaghan with UBS.

Good afternoon.

Good afternoon, Shannon.

Hey, Dave, on the process, maybe a little bit more on what you’re seeing in the different geographies, I mean North America obviously gotten a lot of the highlights, that you know China, LatAm, just what are you seeing and what’s your current view on where this might head?

I do. I can give you a sense of that. Just generally from the businesses worldwide, the U.S. looks for us is kind of shocked, I would say shakier for the next -- from an industrial standpoint for the next two, three quarters. Europe is slowly getting better. We had a better Europe as you know. The one place that I am really concerned about is China in the lack of investments and the slowdown and I will get to specific business in a second. But clearly overall macro right now, U.S. is a concern to me. China is a concern to me. Latin America is a concern to me. Europe I think is getting slowly getting better. And then outside of China, we are doing pretty well. And then Canada continues to invest as they are trying not to lose market share in the oil and gas market. But if I look at the various businesses and I am trying to get the chart here which has it broken down by ordinary. I would say process right now is seeing a tough time -- a tougher time in China. They are seeing a tougher time in the oil and gas companies in Southeast Asia. They are doing better job in India. The Middle East has held up for us, because we had a lot of orders and they have not backed off and orders have held up what surprises me a little bit. Profit outside of Western Europe has seen an improvement, and I think we are going to start seeing an improvement out of the Western Europe export business. So I think that will get better. Latin America I think right now is going to be a tough year for process control. Just Mexico, Colombia, Brazil, so that’s right now I see it. I think we haven’t reached bottom in certain markets and that includes the U.S. And I think that we haven’t reached bottom in probably China or we haven’t reached bottom in Latin America. The rest of places seem to be stabilizing and you notice we are coming up a little bit.

Okay. Great. And then just on this telecom piece, I mean obviously it’s hitting you very hard right now, maybe just -- is that net neutrality related stuff or what else are you seeing there? And aside from, I mean it seems like that’s kind of the near-term driver, are you happy with the way the data center piece of the business is performing, just maybe a little split between the pieces?

Yes. I think from my perspective, it is really hard in the last four months is the dramatic cut in spending from the standpoint of the impact of net neutrality. And also there is some shifting going on in the industry rather world and where money has been spent, not being spent. That’s hit us pretty hard. That one to be honest really caught us, I mean, a little bit surprised in the dramatic cutback and how fast these guys can cutback as they reshift their priorities and that hurts us quite dramatically. And we are about going after the fixed cost there and taking the capacity out and down, but that takes us a couple of quarters. In Europe right now, our Network Power data center enterprise business, I like the improvement we are seeing. I see slow gradual improvement. I would say in North America right now there has been very little improvement. It goes up and down quarter to quarter. The customer base is not really moving forward relative to spending money and a big part of that customer base also excluding the telecom power but also the enterprise side of that, we sell lot into the telecom space and enterprise side too and they have really cut back in spending. And then the other place we’ve seen a dramatic cutback is in China. The rest of the part of Asia is doing pretty well. So there has been another hit here and we are significantly taking restructuring across Network Power from a technology and the products we have today are likely have that’s not an issue. It’s just the fact of where we see it coming out at this point in time.

Okay. Great. Thanks a lot.

And we will take our next question from Nigel Coe with Morgan Stanley.

Thanks, Dave. Good afternoon.

Good afternoon, Nigel.

Yeah. So, Dave, I appreciate all the extra detail on the actions. You mentioned a number of times in the prepared remarks that you’ve seen European and Japanese competitors using the currency advantage. It sounds like that’s done to cut price or done to be more aggressive on price, is that true? And how are you responding? Are you going to respond with discounts? So maybe just describe a bit more on that, Dave.

I think the short-term -- in the second quarter, the price cost issue other than price cost maybe issues around outside United States have been little. There has been some price cost issues relative to say eastern European businesses where we are sourcing and the movement on that. The price cost issues coming out of Europe and the Japanese competitors, we see that hitting us more in the second half and going into early next year. So that’s why we got to get ahead of this curve, because we know they will, we know that we’ve been here in this case before. It wasn’t in my first two or three years as CEO that we had the euro at parity when we actually ran down at 85. I saw how the European competitors acted at that point in time. And I would say they are going to pick up the competitive nature of this. The amount of project opportunity out there is still I think still shrinking, so it’s going to be more competitive and they have an advantage with the euro and the yen where it is right now. So we know their actions will be very I would say sharp on the pencils and sharp on the price. And we obviously will do what is necessary to protect our share, but we will also not going to do stupid things from the standpoint of having to give away price where we have the unique technology. So over the last several years we have the dollar helped us quite a bit and now we have it flipped. And we have to get our cost back in line relative to where we source things and where we position stuff which we will do to be able to compete and protect our margins. But it will take us six to nine months. Don’t be surprised, it will take us six -- and we know how to play this game. And in the meantime, we will see them coming at us. It will be more the second half of the year on the pricing actions.

And where do you think you are going to see the bulk of this pressure, do you think it’s pretty broad based or do you think it’s more centric within Network Power and Automation?

I think it’s going to be broad-based. I think you will see across the industry. I think you will see it. U.S. companies have had a unique situation where I would say you go across the U.S., I don’t care what companies you talk about be it industrial or consumer, U.S. companies have done very well in the last 10 years and gaining market participation in the U.S. marketplace. And I think you’re going to see some of the foreign competition taking advantage of this dramatic shift in the dollar -- euro, dollar, yen situation. This is no doubt about it. This is just the Emerson Electric, trust me.

No, I think you’re right there. And then just a quick one on process margins, it sounds -- it seems like your guidance is baking in the sequential improvement in process margins, which is what we normally see seasonal. But as process goes negative in the back half of the year, which creates a bit more pressure. You mentioned you had to cut inventories. Do you think the process margins have bottomed in 2Q, or do you think there is a bit more pressure in the second half of the year?

What the margins face in Q2? I mean, I think I would say they got hit pretty hard this quarter and I mean based on what I see, they normally would come back up. We’ve taken -- Steve Sonnenberg and the whole management team have worked extremely hard very earlier on the restructuring side, I would say they are going to get a little bit better. From my perspective, I want to figure out how to get their margin back up and so they have for the whole year to get back more online to where they should be. But there are a lot of things moving in that first -- in that second quarter, even including relative to selling a litigation suit. So I think that we’ll get the margin back up in the third and fourth quarter. But clearly, these guys are taking action. Right now, I would say the action is underway. Process Management and the Network Power have been the big, big spenders of restructuring both in the second quarter and in the third quarter. So the Steve and his team knows what it means to get to that margin, they’re going to get it.

Okay. Dave, good luck.

Thank you very much. I appreciate it.

And we’ll take our next question from Steve Winoker with Bernstein.

Thanks. And good afternoon, Dave and Frank.

Good afternoon, Steve.

I like that enthusiasm.

I mean, if we decided -- I can’t decide -- is there any reason to come to New York? You already asked all the questions. You probably did your good afternoon.

There is always more, Dave. We can really get into it, right.

I am going to allow you to take two questions from you, no. Who all is going to talk, okay. And I’m very slow answering questions.

Just bring in the baseball bat, okay.

I got right here partner.

So listen, I’m trying to -- there was a time when you used to talk about the strength of the dollar being good for Emerson or a stronger dollar being good for Emerson.

Strong dollar good for the country I said.

Okay. So I just want to talk about the cost base so for you. I mean as you’ve gone international here on the dollar, what are the things that you can do beyond just restructuring on the material side? Are there other things that you can do that could actually change the margin story a little bit and help you on the pricing front as well?

Yes. One thing Emerson does have, as you all know we have a very global manufacturing base say for process. So we can shift where we make the product, either into Mexico, either into Eastern Europe, either into Asia and rebalance that to take advantage of where the currencies have weakened along like the euro or like the yen. So we have very strong manufacturing facilities in Mexico and we have manufacturing facilities in Eastern Europe. So you’ll see us already in the capacity sitting there. So you’ll see us merely moving in. We had just gone through a process over the last 12 months of moving manufacturing back into the U.S. And now with the capacity we have in certain and like all cost locations versus the dollar and the euro, we’re going to quickly move there. The other thing we have to start moving our sourcing for the standpoint of both internally and externally and that takes six to nine months. And there we can get our cost back in line to get our margin back up both through the restructuring effort and moves but it takes us time. And then that allows us the pricing flexibility necessary to compete against countries that are playing the currency game against us. We do as a nation -- we as a nation and that’s why you believe in the strong dollar. I think we cannot have the nation as a weak currency. I believe quite strongly that we will take the actions necessary to move stuff around the world and we’re going to have the flexibility to do it. And we will do it and it’s already underway.

And what’s baked into your planning and thinking, your best thoughts about trough volumes here. I mean, what do you think about oil prices? How important is that at this point to you sort of calling and volume starting to get better in two or three quarters or what are you thinking on that front?

My plan right now is that there is no growth. And you can say two quarters, three quarters, four quarters, five quarters, six quarters and what it takes for us to have increased earnings as we move out into that 2016 time period is what I’m focused on. What actions we need to fix the cost structure to compete in no growth environment to allow us to show earnings growth and make 2015 the bottom of this one, my game plan.

But when are you thinking things don’t get any worst, maybe that’s the way to say it from a volume perspective?

If I was that good, I wouldn’t be a CEO anymore because I can go out and can run that and you wouldn’t get quiet the same publicity that you have every time you open newspaper about how overpaid we are and how we tried to hurt people and I don’t know. I mean, from my standpoint right now, I think as I look at the U.S., I look at what’s going on, I look in Europe, I think you’re probably talking early 2016 before you start seeing you can say things are turning back up even on the underlying volume basis.

Thanks, Dave.

You’re welcome.

And we’ll take our next question from Mike Wood with Macquarie.

Hi. Thanks for taking my question, Dave. Just at a high level, you spoke about oil prices a bit, but WTI did fall to 45, now it’s back above 60 today. Curious what type of lag that you see when you’re taking to customer with bidding or quoting activity and how you might think that recent improvement could impact the orders?

I think the people -- I don’t think that our customer base will move much in the thought process and going from 40 to 60. I think these guys -- our customer base is now, they have been shocked, they have been hit, they are reallocating capital. They have their own thing, they’re looking at -- I think there is going to some prior consolidation in this industry. So there is some capacity could be coming out. So I think this space right now is set at price expectations that it could easily get hit again. And so these guys were managing their capital allocation such that they are going to cut spending probably for at least 12 to 18 months. And that’s my view of it right now. And I don’t -- I think there is more downward potential on the price of oil given what’s happening in the world to slow down, what happens maybe in the Middle East if there is an Iranian deal. And let’s say that there is more potential oil coming in the marketplace. So I think they need to be very cautious and I think they will be very cautious.

Great. And the $0.09 restructuring that you had cited, should we think about that paying off on one to one dollar ratio and have you taken a look at your CapEx, R&D goals or any areas respond there as well? Thanks.

Yeah. I think, our -- historically when we -- our restructuring is one to one. And so right now, the number we’re looking at is about $140 million. I would say, as the year goes forward that number is going to move towards $150, $160 for the fiscal year. Most likely as you look at -- if you look out beyond that and total price of cycle paying is spending over $200 million in setting the cost structures its corporation. And capital right now, based on what I see, we are going to try curtail little bit, but I have set motions on redeploy the capital that we have started about 18 months ago and so in Eastern Europe and also in Mexico. And I also have what I would call risk hedging and capital from the standpoint of what I manufacture things. So I don’t see our capital take a dramatic drop-off, but I would say as we get into 2016 and 2017 that capital number as a percent of sales will come down.

Thank you.

You’re welcome.

And we’ll take our next question from Christopher Glynn with Oppenheimer.

Thanks. Good afternoon.

Good afternoon, Chris.

Hello there.

I have got [indiscernible] doing.

Oh! God. I think I want to go back two years ago. You get any start as you concerned that way.

We need a couple pictures. I think we have got it -- we need a picture we lost our base our ace.

Sorry to hear that.

Yeah. Actually, Chris, no sorry for that, that didn’t sound very real, Chris.

The trade deadlines are ways out, you got sometime. Dave, in the past and today you’ve kind a described the accordion aspect of your global cost structure and ability to respond to things like currency. Guessing, maybe there is a pretty big magnitude of opportunity to leverage that in process, but wondering if you could describe sort of the scope of what can be done there?

I mean from our perspective, we can move it around and it takes us time. We can both not only Process, but Network Power, Network Power has the same flexibility both in Mexico as they do in Eastern Europe, as they do in China. And so the Network Power has the same capability as does Process, as does Climate, as does most of all the industrial businesses. So from my perspective, we are going to go after that moving, where we source the biggest opportunity for us is actually sourcing, where we know the dollar base sourcing had become very competitive for us for about two or three years. Now we are going to start shifting out and that will create non-dollar base sourcing, which means there is probably less job in the U.S. and more jobs other places around the world. So we are already underway here and our cost of goods sold, pressures -- our SG&A pressures, we can deal with those things. And I mean that's the game plan we know how to play. We also know that it is going to take us six to nine months and we’ll slowly get some benefit as we move into the second half of this year. It’s -- that accordion is still is very workable and we’ve had a lot of tactical meetings here within the corporation in the last five or six days and as we are try to expand thing and taken a real serious look at what we think is going to happen in the next three, four, five quarters. So accordion is moving right now and it’s going to be moving pretty rapidly.

Okay. And then just going back to March, it seems like April didn’t get any worse or maybe a touch better you mentioned something, we know is trending up? But what about -- what happened in March was maybe one-time in nature whether its channel flush or something else?

Don’t believe that.

Okay.

I don’t believe that. I think if you look at the underlying -- I think my personal opinion. I think inventories in the U.S. are still too high given the pace of business. I heard numbers were small for all my directors that imports, it took a surge in the month, I don’t know if it’s March or April, that tells the imports are already starting to come in and so, you want to borrow pen?

Yes.

You have incorrect, okay, he is already shaking his pen. But I think that this thing is got some lives to go, because I think there is a shift going on as people adjust relative to weaker demand and they also adjust as we look at this whole issue relative to imports going up and also the impact on the sourcing, which we just talked about. So there’s two or three layers here that you guys are through and I think that’ll have an impact on U.S. operations of all companies.

Got it. Thanks. Have a good day.

You’re welcome. Take care. And for me a pen, shaking god damn pen around.

You cut call, Frank, I am trying to use as long as I can.

Okay.

And we will take our next question Deane Dray with RBC Capital Markets.

Thank you. Good afternoon, everyone.

Good afternoon.

Hey, Dave. I’m actually at the OTC show in Huston today at the Offshore Technology Conference and I was just at the Emerson booth, there was some good traffic there? But what I did notice was big emphasis on reliability consulting, maybe less on trying to sell equipment but more on a differentiated sale regarding efficiency and as you say and so forth? Is that going to be the part of go-to-market strategy to process over the near-term?

110% correct. The issue here is there’s been such a strong expansion in the oil and gas industry that the capacity went in very quickly not necessarily looking at optimization and now what we see with our capabilities from the people resources in our technologies is that we can optimize what they’ve already invested in and we see the focus from a customer really shift hard that way and you clearly are seeing that in that trade show and you’ve see it across not only the oil and gas but also the chemical industry and the power industry in a big way. So you are seeing this, this is going to be the game plan in our solutions organization and Jim Nyquist is totally focused on that. In fact one of the acquisitions that we took the Board today is very, very much focused in that same area and so that’s where the game is going to be.

That's helpful. And with downstream being one of the brighter spots, maybe you comment on how resilient your MRO business for process has been and I know we had some refiner strikes, are you seeing deferred maintenance and what your expectation for the MRO side of process?

We haven’t seen any differed action yet in the MRO and that's another reason why we have a big third quarter, typically third and fourth quarter, because we see more MRO action around that time period. So right now, we have not seen a slowdown of that. That would be the key issue for me relative to how our margins come back if we get into the second half of the year and then the day-to-day MRO. Once the [indiscernible] business really disappears then we’ll have a lot more pressure versus the big projects. But right now it’s holding up -- it’s holding up from the perspective of day-to-day sales. So, I feel okay about that.

Great. Thank you.

You take care and stay in touch. And try not to hit anybody. You are not supposed to be driving around at the same time you are talking to the CEO of Emerson.

No, no. I am stationary. I am outside the conference.

Okay. You are on your feet. Don’t walk across the street and get hit or something like that, okay?

Yes, sir.

Okay. See you later.

And we will take our next question from Scott Davis with Barclays.

Hey. Good afternoon guys.

How you doing after, Scott? How you doing?

I’m doing okay. I’m trying to figure out the world and a lot of your comments are pretty bearish. So, I'm a little concerned. I mean, one of the things you mentioned, Dave, just the third kind of, I think you said down cycle since you’ve been CEO. And the Fed is still providing plenty of stimulus out there and you’ve seen the lending data and such. Are we walking into a recession here or is this a -- how do you define this, I guess? It sounds likes things are sequentially not getting better or in fact maybe getting worse to the exception of maybe Europe?

I think free money is running. Of course, we are already in the eight year of free money. Free money doesn’t do anything for us. I mean it’s a -- there’s plenty of cash out there. Cash is not the issue. The issue is trying to figure out how to get a sustainable type of demand. I think what really is going on is we’ve had a couple of major, major shocks to this industrial space that we operate in, with the price of oil dropping off dramatically and all that spending going on, with that shift in the dollar. And then also basically, there’s better jobs out there but the jobs numbers are really not that exciting relative to employment levels that we've seen just 10 or 15 years ago. I mean, the workforce participation is not all that exciting. And then you’ve seen the global China growth slowdown and Europe is getting better. But Europe’s getting better at 2% out of 1%. So, I don’t think we are in a recession. I just think just we are in this economic slowdown and if they are not careful here, you could bump this thing into a pretty tough period and that's my standpoint. I am calling the way I see it right now. I am dealing with an issue where business has dropped off dramatically and we are going to have to deal with that. And I don’t worry about calling recessions, not calling recession. I am taking action now and so where we are. And I’m not walking away from market share that we’ve gained over the years and we are going to figure out how to win that and protect it, so that's what I’m calling.

It makes sense.

I don’t call recessions. There’s a Fed that does that but I would say --

I guess just trying to get my arms at sequentially, how much worse things get and are you the only guy who has the guts to call a spade a spade or is everybody else just not seeing it yet or something? But I guess that's for another conversation but I guess the…

I just have to be a little bit straightforward on this guy.

Yeah. Historically, it’s correct. If you look at your stock price, Dave, I mean, based on your commentary, it sounds you can make an argument, assets are overvalued because earnings need to come down still. But based on your stock price, it's pretty depressed and how do you think about that versus M&A? I mean, the M&A market is still a little pricey right and it’s going to be a while the prices come down but your stock is acting a little piggish here. At what point do you say buybacks may be a better plan and we will buy our stock when nobody else wants it?

Well, we did buy as you well know. We are buying well over $2.5 billion this year and we’ll continue to buy next year, not probably at that level but we’ll continue to buy. Clearly, I don’t -- I think the stock has been hit pretty hard and there’s reasons for that. And people are challenged relative to our underlying growth. But I can't worry about that day-to-day. I don't like the fact that stock has been hit hard. I’m just dealing in the facts right now and the facts show that the underlying demand out there is weak and may stay weak for several more quarters and we are just going to get the cost to back down in line to compete against our international competitors. And if other companies don’t want to do that, that’s fine. Maybe other companies have better magic formulas, maybe they are doing a better job. So be it. But right now, I know what I am dealing with and I know we aren’t competing and we are not losing. And I have no intention of losing and we are just going to get across the line to make sure that we can compete and drive the levels of possibility. Even in a tough quarter, we still had a very strong underlying profitability in this quarter. A lot of companies would love to have that underlying profitability in the quarter but that's not what Emerson finds acceptable.

Well said. Okay. Dave. Thanks and good luck, guys.

You take care.

And we will take our next question from Jeff Sprague with Vertical Research.

Hey Dave. Good afternoon.

Good afternoon, Jeff.

Hey. Also just thinking big picture here about the portfolio and how you do drive growth going forward? I mean, if 2014 was peak cycle for Emerson, you just grew earnings kind of 3% peak-to-peak over kind of a six or seven year period of time and obviously a lot of different stuff happened but that's kind of the nature of my question.

It’s reasonable, Jeff that type of growth is not acceptable.

Right so.

This is why our stock is sitting where it is right now and I am not a fool. I understand that. I don’t need to be told that and I fundamentally -- we are a premium company and I do not like what we face right now. So, we are going to figure out how to get premium underlying growth, both at the topline and bottom line, both through acquisitions, repositioning and restructuring, that’s the game we plan. And I can’t be more specific than that.

So then just shifting to Network Power then, you did say in February that the business is restructured, you now just need to figure out how to drive profitability. Obviously, just keep getting fresh curve balls in this business. I mean, other than kind of the passage of -- so like the better term kind of probation period that the business maybe under, what is that that you are looking to see there in terms of a decision point?

I think that from my perspective and what we’re underway right now, I have everything I need at this point in time, trying to deal what I need to deal with. But it’s just a function as I said, if we’re going to drive our business, I want to figure out how to create the right value for our shareholders. I’m not just going to dump and run if that is the decision. So, I think pretty much we have a good understanding of the marketplace. I see what -- I think what we can drive the profitability level to. Yeah, we had a tough quarter but a lot going on there. So, I mean, I think it’s a pretty straightforward decision at this point in time. Now the question is what the best way of putting the execution to create the right value for my shareholders?

And then just one last one on this FX at the price, maybe wishful thinking but we hear a lot of other companies say, the Japanese and European guys aren’t going to do that because they’ve got global footprints like we do and what goes around comes around on currency. Do you think there is any merit to that? I mean, there is clearly nothing wrong with being girded for them to come after you. But do you think global footprints have changed enough that maybe the behavior does not get as egregious as you fear on price?

I’ve one simple answer, no.

All right

I believe they’ve changed enough.

All right. Thanks, Dave. Appreciate it.

And we will take our next question from Rich Kwas with Wells Fargo Securities.

Good afternoon. This is Deepa Raghavan for Rich Kwas. How are you today?

Good afternoon. How are you doing?

Very good. Thank you. We hear you on rate pricing or optimizing cost structure and M&A and return of capital. But question is do you have any thoughts on relating share buybacks at this point in time, given where we stand right now with growth or CapEx or next opportunities in M&A?

At this point in time, no, we’re going to spend $2.5 billions in share repurchase this year. I would expect right now we’re probably getting in the $1.5 billion range next year. Mike, our focus is we’re hoping to figure out how to find some asset as this marketplace is slowing down from an industrial space. There are some assets out there. And we’re obviously working that real hard to be able to try to do more acquisitions as we get into the 2016. Our preference is to figure how to -- if we’re going to position and move out certain assets, how to also try to get some acquisition. So we’re working that pretty hard right now. But at this point in time, the $2.5 billion of share repurchase this year set. And I do not see changing that and I see next year be in somewhere in that $1 billion to $1.5 billion range.

Okay. Question on METRO forward margins, I know it’s been talked about in Q&A. But you plan the 3% in this quarter, I mean, I know the target still remain 12% margins over a medium term. But how realistic is that that we model for high-single digit margins for the full year, for your fiscal ‘15?

I mean, from my perspective given the significant restructure underway in network power. I mean that you’re going to get hit at the EBIT line and so it’s going to be challenging. But we still believe that 10% to 12% is doable as we reposition as cost structure and we get some kind of underlying improvement in particularly telecom space, which they’ll come back within the next three to six months. So the business model hasn’t change in that. It is going in and out of quarter, so I don’t think it’s going to change.

Okay. Last question for me. Tax rate for the full year, I mean do I watch it on a normalize basis, its more 31%, 32% or 34%, 35% like last year?

On operational basis we are looking at around 31%. The tax rate is inflated because of the gain on the divestiture. Operationally, we should be in the same within a percent or so where we were last year.

Okay. All right. Thank you very much.

Thank you.

And we will take our next question from John Inch with Deutsche Bank.

Hey, good afternoon, Dave.

Good afternoon, John.

I want to ask about -- I want to go back to the currency issue and we’ve been in this environment where the yen is been weak for a while. And it didn't seem that the Japanese ever stepped up to try for perhaps various reasons, stepped up to try and do much about it. And then in the relative -- in the relative perspective, I mean the euro is only collapsing short period of time. So just curious, what do you think is going on kind of around the world to all of a sudden have this increasing price-based competition, which I don't believe is unique to you. All of a sudden happen if it didn't really happen for so long in Japan, why is it happening more rapidly, given the relatively shorter duration of the euros decline?

I think for the yen standpoint, it is a function of -- in the early stages, the Japanese recover. There is more internal focus for investment as we thought inside Japan. And as that recovery as sort of petered out from the standpoint of the economics and if you look at the underlying growth rates in Japan are not that strong right now. They've had a turn externally. And we’ve seen a ramping up in the last three to six months as they’ve become much more aggressive around Asia and Europe and then also here in the United States. And this is the function, I think they're doing internally and now they’re coming back out quite strongly. The European thing is a situation that we’ve been here before we know its like, we know it takes a lot of gear up. And they’ve been in a situation where they not had real underlying growth in Western Europe for a while. So now you’re going to see those European EPCs, the European small businesses, the European large businesses now be competitive, so they can go out and compete against all of the U.S. companies or other companies around the world. And I think that is the natural behavior to do that. They’re going to go and we’ve seen that before and everyone keep saying, the rebalance are not going to do that. But I don’t think they rebound that much. And from my perspective, you could see why they’ve played that hand. You also had got a 25%-30% of competitive advantage on, just on a pure translation side. I think the games were played before and I think will be played again.

Yeah. I know especially in a slow growth world, it makes perfect sense. I want to ask you more of a strategic question around restructuring. If you go back to the last recession, right, lots of companies were able to very successfully preserve their profitability despite the steep downturn because they all advanced their playbooks of restructuring. I guess one of the questions or concerns I have and it’s maybe less to do with Emerson but I’d like to get your thoughts on this is that as we go into what could amount to another downturn and obviously, probably won't be nearly as severe. But is there as much action to take to be able to preserve profits like, very simplistically, haven’t the lot of American industrial companies already downsizing and implemented lean and other tools to the point where they just isn’t as much opportunity to cut costs if in fact we go into a more protracted slowdown, what are your thoughts?

I think the answer is again, no. I think there are opportunities. I think there’s been a lot of new technologies. There has been new ways we can share technology innovation and innovation around the world. And I think, the companies can take advantage of that. And given the fact that the currencies don't move and the cost structures don't move, eke altogether allows companies that someone said earlier the firm that would balance. I think that there is opportunity that we see it today. And so I don’t think the game is over with. I think there is always room for this. It maybe not China play this time where last time was a lot of China play. This time you are playing with different spaces and different locations and there is different approaches. So my fundamental belief is that the answer is no. There's room to fix your cost structure and there is room to improve your profitability.

And one more Dave, do you believe your cost structure is more variable today, given sort of this technology in globalization versus pass-through that not really that clear because obviously, we’re more variable, you could preserve your profits far better than perhaps anyone anticipates, right?

I think we’re less manufacturing based than it’s historically been. So the people underestimate our software. They underestimate our systems, the solutions capability. I think, they all think that we’re just a pure manufacturing company in this readout. I think the company has more variable cost than in the past. I mean, for us dealing with this pretty quickly, I think we have a lot more variable versus just pure fix large, fix manufacturing plants.

Got it. Thank you very much. Appreciate it.

Take care, John. All the best to you.

You too.

From our perspective again, I want to reiterate it was a tough quarter. I appreciate it. I appreciate your patience. Thanks for all the excellent questions. And I look forward to seeing everybody. And again, we’re very much focused on execution right now in the company and in the discussion at the Board level as the last two Board meetings are very much based on the short-term tactical issues but also at the same time strategically, we want to return to our premium value growth company. And we will figure out what it takes to do that. And in the mean time, we have some other issues we deal with and we’ll deal with ourselves. Thank you very much. I look forward to seeing all of you in the near future. Thanks.

And this does conclude today's conference call. Thank you again for your participation and have a wonderful day.