Good day, ladies and gentlemen, thank you for standing by. Welcome to Emerson's Investor Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] This conference call is being recorded today, November 5, 2019. 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 Mr. Tim Reeves, Director of Investor Relations at Emerson. Mr. Reeves the floor is yours, sir.

Okay. Thank you, Mike. I'm joined today by David Farr, Chairman and Chief Executive Officer; Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer, Lal Karsanbhai, Executive President Automation Solutions; Bob Sharp, Executive President, Commercial and Residential Solutions and introducing Pete Lilly, the incoming and upgraded Director of Investor Relations, who will surely not mispronounce Frank's name. Welcome to Emerson's Fourth Quarter 2019 Earnings Conference Call. Please follow along in the Slide presentation, which is available on our website. I'll start on Slide 3 with the full-year performance report card. 2019 required our organization to be nimble and responsive to a lower growth environment than we had expected a year ago and we did respond. On our second quarter earnings conference call, we began talking about additional restructuring actions and we did so again on our Q3 call in August. In total, we executed $35 million of additional actions in the second half and on October 1st, we announced our Board's review of further actions appropriate for the lower growth environment we see over the next couple of years. Underlying sales finished the year up 3% versus our initial guide of 4% to 7%. We saw slower than expected growth across both platforms, Automation Solutions grew 5%, which was mostly driven by efforts targeting our broad installed base. We saw large capital projects start to push out in Q2 and that trend continued through the second half. Commercial and Residential Solutions saw a sharp decline in Asia in the first quarter and was a headwind to growth all year. Cooler weather hampered residential growth in North America and professional tools and cold chain markets began to slow through the second half as non-residential investment slowed. Despite slower growth, we delivered just above our EPS guidance helped by lower tax…

Thank you very much, Tim and thank you very much for your service as Investor Relations and going out sort with a bang. It's an interesting time we've been having here. But I want to thank all the employees around the world for their support through Fiscal 2019. They did accomplish a lot in a very challenging marketplace. And I want to welcome everybody on the call today, as we talk about what we're seeing in the marketplace and what we see going here going forward. But it's been a very dynamic time period as we all know. It's a challenging time period, but the management team across this Company, both here in St. Louis and around the world is very, very focused on delivering increased operational margins and a 0% underlying growth period. If the growth is better, better for us; if it's not, we're ready for it and that's what we're doing. I also want to thank all the sell-side analysts and the shareholders that have met with Tim and I over the last 60 days and talked to us as we look sought your inputs, which we conveyed back to the Board, as we've gone through this process to make sure the Board understood, where our shareholders stood today and what they expected of us. So if I look at where we're going right now, and you see that the order pattern in Chart 13, preliminary numbers for October, if I look at automation solutions, they drifted down a little bit but not much, running around I think around 3% underlying growth rate. Bob's business is sort of flat lining here around this negative 1 to 0% growth rate for the last couple of months. And overall, we are as a corporation looking at 1% underlying growth…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] First question we have will come from Julian Mitchell of Barclays. Please go ahead.

Hi, good afternoon. I wanted to say thanks to Tim for all the help over the past several years. In terms of maybe the first question, David. So there's been a lot of sort of back and forth between D.E Shaw and Emerson and we saw that press release this morning, how would you characterize where you stand vis-a-vis D.E. Shaw right now and also when you're thinking about the Board changes we saw the Mark playing announcement, should we expect further Board changes in the quarters ahead?

Okay. Thank you very much. So what I'd like to do here is sort of deal with this issue right upfront here and then not have that question come out to me for the rest of the day. I want to focus on Emerson and what we're trying to do here. But first of all, we get input as you all know from every shareholder and it's been part of Emerson DNA for a long, long time. It's how we operate and the Board review announced in October was the combination of discussion with the Board over the last six months and the consistent with how Emerson addresses challenging macroeconomic slowdown. The Board's decision was shaped by input from all our shareholders. That's why I went out and I asked so many of our shareholders. I talked to nearly 40% of our shareholders over the last two months. The Board members have joined me on several of these phone calls and meetings. It's important for them to hear it. The Board understands our strong position as a company and the Board supports that we have heard from our shareholders and the Board will continue to make the right decisions for the long-term for all of our shareholders. We appreciate your inputs, as I said earlier from everybody that I've talked to, over the last 60 days. It is important that we -- the shareholders to know that we are in control of our own destiny here. We are in control of what needs to be done with our strategy. Now, as I look at what we announced this morning and with Mark -- what we have been looking at for the last couple of years is we have two Directors, who will be retiring in early 2021. The Board Corporate…

Sure. Maybe looking at some of the other investor suggestions that have been floating around, I think on the portfolio you've made it clear that sort of many things are on the table, maybe on the restructuring aspect, how do you and the board think about balancing that need for cost efficiency against also the need to keep investing given a lot of changes that are going on in the automation world right now.

It's a very important point for the Board at this point in time, the Board is very focused on trying to make sure that we're not jeopardizing the future of this company. We've done several large acquisitions in the last 2 or 3 years. We're taking -- we're taking a very strong focus on how we can integrate those businesses, how do we get our cost structure, improved there. We're taking a hard look at the touch points between the corporate and the businesses and as I committed to the Board, both Bob and Lal had to commit to the Board yesterday because they asked the question, the same question is asked us how you making sure you're not jeopardizing the future of the Company, just because you're trying to get to the short-term type of goals. That's not something Emerson does. We over the time has been a technology leader, we've been an industry leaders, the industry and we have not -- have no intention to damage that going forward and these guys talk later on, you can ask the same question, but these guys are very much focused on the key strategic areas we have opportunities in the size of the Company to take our cost down and do things better. We have some excess facilities through acquisitions. We have a unique opportunity to do some best cost job moves by building some new facility. So, Julian, it's -- it's a very important issue for the Board, because they do not want to make sure that Dave Farr in his last two years, does things short-term orient and then hands it over to the next generation, say, oh, "shit" and so I guarantee. That's on the forefront of the Board and they will be challenging me, they'll be challenging Bob and Lal to make sure that they do that. Bob, you guys want to say anything or Lal, you want to say anything along those lines.

Yes, David, thank you. This is Lal Karsanbhai. We've been looking at this weaker environment for some time now in operating in a world that's changed since we last spoke in February. And we've been accelerating restructuring across the platform, as we executed to Q3 and Q4 and as we look at the opportunities today, we are focused around structure across the enterprise, we structure we're prioritizing enhancements in speed and execution. And the key priority for my management team is around protecting our customer touch points and protecting our technology and that's how we're working around the opportunity.

Bob, anything you want to add there?

Yes, I'd say -- Investor Call again in February, where we talk more. I'll show you several examples of programs will drive and we continue to drive both to expand the serve market we have and get growth and it is a challenging trade off when you get a situation like this , but we are continuing to fund those and from our restructuring and cost standpoint, we're very heavily focused on the gross profit side of things in the plants and product cost and such, so we're going to use that to also help fund some of the key sales programs.

Yes. I think the important point Julian, anything else before I pass it on the next person.

Maybe just one last one, you talked about slowing growth in North America, I think on Slide 6, just wondering if you could give a bit more update on within automation solution specifically is all the weakness in North America still focused on upstream and discrete or do you see it spreading.

I'll let Lal answer that question, since he is an expert in this and I'm just a CEO.

I got that. Thanks, David. Julian, the weakness that we experienced in the second quarter leading through the year on discrete continues and has continued through to the fourth quarter and then to what we currently see in the environment. Likewise, we continue to see stresses around the upstream and midstream, oil and gas value chain in North America with very little spending and more acceleration of spending in the, in those markets. I have not yet seen a broader slowdown in process, particularly resi relates to MRO spend. Having said that, the North America capital environment slowed down, it's been delayed, it's been impacted by the geopolitical and general economic situation.

Thank you very much, Lal.

Well, we should move forward who is up next.

Thanks. Julian. Thank you.

Thank you.

And the next question we have will come from Steve Tusa of JPMorgan.

Good afternoon, Mr. Tusa.

Hey, guys. Good afternoon. Just on the -- on the organic guidance, I mean you're starting the year up model was for the first quarter on organic your -- you know negative two to positive, I would think in climate at some point in the next, I don't know like 10 quarters you guys will have somewhat of an easy comp, at some stage of the game. What is really bugging you within Automation Solutions , especially given you have, I mean it is process, it's kind of a backlog related business and you should, the MRO business shouldn't be that the lack of visibility there shouldn't be that. What exactly is the driver that kind of gets you to below the flat line for the year on organic.

I think -- see, it's a fair question, given where we are in the -- from the backlog standpoint, in the order plan standpoint. I'll give you my perspective and let Lal and Bob give you two seconds on this too. From my perspective, what's scaring me is I look at the last couple of months starting -- I started talking about concern about 2019, late 2019, early 2000, back back in April, but in the last two or three months, I've seen the global GFI numbers really roll off and when I see a number that goes now GFI forecast for 2020 drop now below 1%, it scares me from the standpoint, okay guys. At the current pace, we see maybe says it doesn't do that, maybe should be better than that as you say, but I'm more concerned about the fact that the trend line between the geopolitical, the tariffs, the trade all these different discussions right now are driving this much weaker gross fixed investment number. When I see a number go below one, historically, we move really quickly toward a zero or a negative number on underlying sales, so what -- so from my perspective, what I'm doing right now is say guys, we are driving to zero or negative number underlying growth. I understand there's investment opportunities out there, but we've got to figure out how to get the cost structure set at that zero standpoint Steve, because I'm concerned, that's something is going to happen here from an election standpoint or Europe or something happens in the Middle East and the GFI forecast numbers are really going to happen. If that happens, we are going to be looking at a very low growth. So I would say I'm being driven by that caution and I think that until we see that catalysts that drives that back up, you're right It should be from a catalytic standpoint, at some point a balance. But I'm not willing to say we're going to see that balance yet until I start sensing, the underlying economic numbers get better or stabilize. I don't see that yet. So that's where it's coming from.

At the low end of that range, what does that imply for your short cycle discrete business, which I would assume is going to be the the leader of that kind of negative view in the context of your other businesses, what are kind of low end of declines in discrete?

Lal, go ahead.

Yes. On the broader -- on the broader process of the issue.

Yes and don't forget the discrete question.

I'll come back to that. Steve, the capital discipline that we see out there the spending disciplines, the way our customers are looking at where they put that dollar today is where we've got to really assess how that looks goes forward. We've seen that slowdown in North America in oil and gas. We've seen in the discrete globally. I have not seen and likely will not see tied to this economic cycle of turning the discrete markets as you -- closely tied to GDP and GFI trends and we are yet to see a recovery across the broad, discrete markets, whether that's automotive, semiconductor, packaging, textiles, et cetera. And I don't foresee that coming back. So as I think about discrete in that mix, it's somewhere in the mid-single digit negative at the low end of the forecast.

Okay. That's great. I'll leave it there. Thanks guys.

Okay. Anything you want anything from Bob. Anything want to ask Bob on?

I'll just pick few questions. I'll leave it there.

Bob will make a statement here then. Since you won't ask him a question, Bob, once you can make a comment because Tusa doesn't like you enough.

Well, I would just say I think you know that of my order visibility gives me about 12 to 14 days of outlook and so it's hard to see beyond that. Challenge right now is the softness is just so widespread whether it's general, industrial, commercial AC's pretty weak right now, cold chain is you watch the industry numbers right now, they are challenging. So it's hard to build a 2020 plan right now on the recovery of any sort, if it happens, that will be great. If it doesn't, what we're dialing in to do is improve margin without the growth and that's where all the focus is right now.

Thank you very much, Steve. I appreciate. Who's next.

Yes, sir. That question will come from Nicole DeBlase of Deutsche Bank.

Yes. Thanks. Good afternoon, Dave.

Good afternoon, Nicole.

So maybe just starting with a follow-on on the restructuring Slide. Let's say we do get like $200 million to $300 million cost of restructuring framework, should we think about that product like mostly dropping to the bottom line or would there be offset kind of going back to Julien's question, but in a little bit more detail.

It's going to be, from our standpoint, typically what we're trying to target here, based on the final numbers, we're trying to get back to a record level of EBIT, which was a little bit over 19%. We're trying to get back to our record level. EBITDA, which was around 22.3 and 22.4. So some of the investment will be longer term, the payback of a little longer, but I think that what we're looking at is a mixture of the long-term impact of short-term impact allow us to drive that profitability back those peak level margins with very moderate growth of underlying sales. So I would say that historically when we look at it, we get back a dollar per dollar, it may be over or 18 months period. But it's typically a dollar for dollar and we'll let you know as we lay this out, there are going to be some capital investments, which will be a little longer because we're going to -- we need to build some best cost facilities as we consolidate some our manufacturing and that will be a little bit different payback. But it's definitely, we still always look for dollar plus for that type of investment and that's what we're seeing right now.

Okay. That's really helpful. Thanks. And then just one on the first quarter. Just if you could talk a little bit about what you're embedding in that $0.02 of operational performance accretion maybe like looking at underlying sales growth and expectations for margins in 1Q.

Yes. So we're looking at basically about 1% underlying sales growth and we're looking at probably a couple of 10th operational margin improvement. The key issue here though is now that does include the 70 -- we're banking on a recovery on the cost investments for acceleration within the fourth quarter, if we get a decent mix, in different growth, hopefully, we'll have a little bit better margin improvement there , but in reality what we're really trying to get geared up for right now Nicole is we're trying to get the -- so it's fast and the cost reduction is done in this first fiscal quarter that's why we're trying to do $70 million, which will allow us to start getting some margin improvement underlying, as we get into that second and third quarter. So we're trying to get this game going faster. I think right now we're ahead of the wave. And I'd like to get a little bit further ahead of the wave and that's how you should feel about us right now.

Got it. Thanks. I'll pass along to someone else.

Thank you very much Nicole. Hope to see you soon.

And next we have John Walsh of Credit Suisse.

Hi, good afternoon.

Good afternoon, John.

I guess maybe a clarifying question first, so the $70 million of restructuring in the first quarter, is there any benefit associated from that restructuring in the current guidance construct of '20?

No. So what we've built in is no, no benefit improvements on acceleration of restructuring. So when we -- as we start doing this and we lay out the plan, we will tell you what benefit cost is going to be coming in for the cost structure and what benefit we'll get from profits in this year, because we will by getting going in the first quarter, like we are doing right now, both Bob's business and corporate Lal's business, we will get some benefit from incremental EBIT dollars this fiscal year. And so that's why we're pushing really hard to get as much done as possible in this first quarter. If it gets tougher and tougher, go into second, third quarter. So that's why we're trying to front load as much as possible. So the answer is no, we have not booked at any cost nor the benefits, which there will be benefits.

Okay. And then looking at the free cash flow, I mean obviously there is some moving pieces on the EPS guide, but free cash flow of $2.5 billion came in line with us in the street, I mean can you talk about some of the levers you have to pull to drive that $2.5 billion of performance and then expectations for that to grow going forward from here, I know you mentioned some capital investments may be to drive the larger restructuring program there?

So from the standpoint of this next 12 months, I think the best lever we have is from an operational standpoint, can we get our inventory back. I think our inventory has a room to come down a little bit in 2020, as we slowed in the sales growth and our inventory levels did not come down as much as I thought they did do pretty well. But they didn't come down as much, so I think we still have up to a $100 million inventory, we can get out of the Company in 2020. As you go forward, the key issue that is going to drive this is a continued working capital performance in Lal's business, as he continues to integrate his two recent big acquisitions. I think Bob's business is running pretty well tightly right now. I think you guys Tools business running pretty well to the first 12 months and then obviously if we drive our profit, profit drives that cash flow. So we're trying to drive free cash flow level back up, because what we're trying to get back to is, we're trying to get back to that $4 billion operating cash flow, which allows us to get spend the capital that we need up to $675 million to $700 million. We will be also altering our capital spend as we get to understand the restructuring programs, we may have to spend a little bit more than $600 million, which is embedded in that forecast, we may have to spend $6.25 million, but we're also going to keep trying to push the operating cash flow, because I really do want to get our free cash flow to dividend payout back down toward 48, 47 as soon as possible in 2020 or early '21 and so there is a lot of things going on right now, but we're very focused on that cash because we know that's how we drive value.

Great. Thank you for the color. And thank you to Tim, for all the help.

He been a decent guy. I tell you what we're going to find a good job for him. He has really done a yeoman's job the last 60 days and fortunately we'll -- I think well I've find a really good job to recast his skills. You can work out in the gym or something like that. Thanks, John.

Next to have Andrew Obin of Bank of America.

Yes. Good afternoon, gentlemen.

Good afternoon, Andrew. I would say the gentle at this end is very loosely described, so you know, we're from the Midwest. I wouldn't call it gentlemen in the Midwest.

Alright, well, first, I do want to thank Tim for all the help. And I do have a question for Mr. Sharp.

You still in Suzhou or have you left the property? You're in China?

I am in China. Yes. Yes I am. We're very exciting.

What city you're in?

I was in Shanghai yesterday, seeing our guys.

Okay. Good.

Yesterday my time.

Okay.

A just a question on lower end of CNRF guidance, what kind of macro scenarios and maybe we can walk what's happening in North America and Asia, would it take for you to sort of hit the lower end of your guidance, because you know comp seem to be fairly easy in Asia and to Steve Tusa's point that North American comps are not that hard either.

I think to hit the lower end of the scenario, Asia would have to keep going down and it's a little bit hard to tell right now. So I think you're getting a good read right now in the market, it doesn't feel like that's going to happen, but it's really hard to tell right now , month-to-month. And U.S. would have to we will be very difficult and that would probably be the broader industrial kind of a picture hitting the Pro Tools business, the commercial. It will be something more than just like a residential thing.

Got you. Thank you. And then question for Lal, just a couple of details, A do you include, have you gotten orders. I know that the Saudi facility wasn't Emerson facility, how much of the impact of the repairs was in Q4 and how much if any work you got for first half of next year and the second question, I think there was some talk about sort of a large, like there'll be one order slipping from Q4 into Q1. Is that correct. And are we going to see sort of any recovery from Q4 and Q1 or it's just steady rate from Q4 to Q1 on Automation Solutions?

Sure, Andrew. So the Saudi facility was largely -- is largely and Emerson facility, both from a control system perspective instrumentation and valves, we saw repair activity, replacement activity through Q4 as the facility came back online very quickly within four weeks the facilities essentially back online. And, but the volume that we took in terms of our equipment to get it back online was not material to the quarter. Having said that, the modernizations that are going to have to take place within app CAG and their sister facility to get that facility modernized and safe with redundancies will have an impact to us. Those projects and are fully defined yet, Andrew, as we've gone through.

There is still got be multi-million dollar.

You're going to be very large. As far as the KOB one order that slipped, we had talked about one specifically, we're still working that, it's very much in the work site. I'm trying to close it here with a team in Asia, Jamie in that team, here in November, it may slip into the very much outlooks into Q1.

So, it did not happen -- still trying to get it. You'll see it, because it'll be a big order and pop.

Okay. Thank you, gentlemen.

Again, gentlemen.

I'll still call you gentleman.

Yes. Be safe. I know you're just a -- you're gentleman yourself, you be safe and get back to States soon. Okay.

Thanks.

Next we have, excuse me, Joe Ritchie of Goldman Sachs.

Thanks. Good afternoon, everyone.

Good afternoon, Joe.

Thank you, Tim. Welcome, Pete.

Your not in China, are you Joe? You not in China, are you?

I am not. Nope. I'm in New York City. I think, I mean, just kind of sometime soon. So, but maybe just talk in China for a second and this potential trade impact Our guys have been writing about peak trade pain today and basically that being behind us. If we get, if we get -- if we move forward in sign Phase 1, how long do you think it will take to kind of rekick-start the CapEx engine to start seeing a little bit better growth rates across your business Dave?

I think that I'll just take Bob's business first. I think there'll be a fairly positive impact pretty quickly for Bob just from a spending attitude standpoint. So I think that you would see a good business bounce in China. Bob has a lot of business in China, he is very strong there. So I think that way probably within a couple of months, I would say would bounce pretty quickly for him. The capital side, I think the CEOs would start, I would say within a quarter they start reevaluating. I think you start seeing some incremental spending starting to flow, a lot of work has been done, I mean, as you well know, Joe, we -- our book but not entered now our one but not numbers, how big Lal?

Over $1 billion.

Over $1 billion. So a lot of those projects are based around our China export type of market. And so I think that you would see some of those move pretty quickly. So I think that both Bob's and Lal's business would see a pretty good balance, we're obviously not assuming that right now because there is lot of uncertainty, but that would be one that would be the catalyst, as I said, that would create that second half recovery that would change us obviously to the plus two type of range and higher from that perspective, but I now be nice to see. In the meantime, we're focused on their cost. That's a good positive that would happen. The channel would move quickly as Bob said.

I guess, Dave, then in that context, right, you guys have said call it like a flat guide for the year, your order trends are maybe kind of slightly above that, I guess in what scenario do things kind of get worse from where we are today?

The scenario worse is that going back to my GFI numbers so that if this -- if we do not get an agreement with some improvement to get that, that tension out between the U.S. and China and it keeps grinding, I think you're going to see CEO's really continue to the curtail spending and that would drive obviously the GFI number down that would hurt us in the day-to-day spending. The other thing that would also that I'm really concerned about is the European economy does not see a recovery and the actions are trying to do with the new European leadership to try to get spending and investment going if this thing is still malaise in Europe that's a concern that we've built into that thing. So that's we -- we don't see the catalyst yet that being triggered. We know what they are, but we don't see them being triggered if you're right Joe and what you guys are talking about and that we do see some realistic change in the discussions between the U.S. and China, we do get some realistic movement coming in Europe. That will be two positive catalysts that would change the momentum of the curve and move it upwards and obviously move that thing from zero to a positive number in growing from there. But until we see that, I mean, I want my guys to focus on getting the cost down and if we get it down fast enough and this recovery happens, then obviously we'll make pretty good leverage.

Got it. That makes sense and maybe just one quick one for Bob. Bob and just thinking through the margin profile this quarter in your business, can you just kind of parse out what really drove the decrementals margins this quarter? What were kind of the key drivers among mixed pricing, what affected the business this quarter?

Right. Price-cost was positive for us as it was in the second half, turned a lot through the year. The deleverage of the sales and then with that you get some plant issues around productivity and turnover and stuff when you don't have the growth to work off of gets compounded as part of it and then as Tim said, for mix, Resi versus Commercial and AC and cold chain, the transport and some of the more profitable retail was off against other things. And then on the Pro Tools and the disclosures in the tools area very high margin product. So it was -- a number of things kind of lined up in the wrong side of mix in the quarter in the. We don't -- we don't see that as any particular long-term trend or something like that, it's just sometimes the stars align and sometimes things work against us in this quarter was just bad -- things just did not line up well at all.

Got you. Thank you all.

Yes. Take care. Hope to see you soon.

Next we have Andrew Kaplowitz of Citi.

Good afternoon, guys.

Good afternoon, Andrew.

Dave, so when you look at Asia, Middle East, Africa Automation Solutions, the growth was 10% in Q4, which did accelerate versus Q3. You mentioned it briefly, but it does seem like it reaccelerated here, so what new markets are contributing to the reacceleration and is your confidence level increasing that China is still going to grow 5% to 8% or 6% to 8% in FY '20 in Automation Solutions.

I think that from our perspective we saw some, some very good international growth in late in the second half of the year, as it was really good to see. I think the opportunities in China are pretty still significant, as they continue to invest in technologies in areas that are allowing them to become more self-efficient. They are clearly investing in next generation digital technologies and so we're seeing that, that's a positive. So we had a very good year last year and the year before in China, and so I think that we still feel very confident we're going to see sales in the orders in this 5% to 10% range. So, I think we still see that, now going back to I think Joe's questions if we did get some kind of settlement and the relationships did improve, I think that will be a big positive to us, because of our presence in the quick investment opportunity, but we've got to see that, because it's just something, it's soured and we need to obviously fix that relationship. If you look at the Middle East, I think the Middle East has huge opportunities, what concerns me about the Middle East is primarily is the fact that the geopolitical the turmoil, the other actions that are going on there, I wouldn't call it war, but the skirmishes that are going on and so I'm very concerned about this period right now and that's why I'm probably more cautious than the average person relative to the Middle East, because I'm really concerned about all the activity under way in the Middle East and the concern that I have around, as that disrupt the projects and that standpoint. Now, the bookings would say not, but I am a little bit concerned, so I'm little bit cautious in those two marketplaces and the other one I would say is Latin America. We've had a good run, and the question is, does the whole Argentina thing, the Brazilian thing and the lack of money, does that stall saw as we go into 2020. So, Lal, why don't you give your view of that.

Yes. Thanks, David. The China team did a phenomenal job serving what is for us a larger than building dollar market with very relevant customers who are willing and using our technology today and they want the latest and greatest technology, whether it's digital transformation, control systems, final controlled or instrument devices. So phenomenal job by the team to drive mid to low teens type of growth in China this year. And as David said, our expectation today given the environment is in that mid single-digit type of growth, 5 to 10 in that range would -- based on what we see in this space today. The only one I would add, David, I think you're right on, on the Middle East and Africa, I think Latin America is a concern right now given, the skirmishes and the unrest we have just basically across the continent. We had a phenomenal, a two-year run in Latin America and we're a little bit -- we're going to watch that one very carefully as we go forward.

Good. Thanks.

Thanks for that guys. And then just staying with China actually in the Asian heating and cooling market, it does seem like the issues there for you guys have dragged on a bit longer than you expected. Is there a competitive issue there at all? And then you do a much easier comparisons coming up in Q1 as I remember correctly, China, heating, cooling fell off quite significantly in Q1 of this year? So would you expect Asian sales to shift now to positive growth despite continuing with the markets?

Yes. It was improving. Like we said, it was down 30, actually in the first quarter last year and then it improved and getting pretty flat, but in Q4, it was down 9% again. So it's still been bouncing around a bit. We do have an easier comparison in Q1 October data point was solid. So you could see a scenario where China is positive in Q1. And again, the question is what kind of stability that has and keeps throughout the year is a little bit hard to tell right now.

I mean it has not been a competitive issue. I think Bob...

Yes. Sorry, I missed that.

It's they don't have the money.

The mix and from the standpoint of the driving right now with the commercial side of the business, it's frankly not Chinese competition. It's pretty specific competition that we know in quite in detail and we're doing well there, especially with some new 25 -- product layout and then our cold chain as well. So no, we don't see it as a competitive thing. Heating really fell away the heat pumps and stuff, there's still the green air policy and stuff like that, but I wouldn't say it was as actively being worked for a while, and as that funding and activity plays out, if that recovers, that's also a big part of the story.

I think if you think back for the people on the phone and Andrew, you talk about, I think there are a couple of big wildcard you guys -- it's China clearly -- China could be a very strong play for both businesses this year, it could be a dud, but it could be a very positive. If there is -- if favorable discussions happen between the two Presidents of the country, and we do come to some kind of terms of initial phase agreement that would create a positive mode, both in China and also in the U.S. for us. And so those are two wildcard that I see that had the biggest impact potential for us in the upside, as we look at the Company today and that's why we're trying to work as quickly as possible on the cost because if we get this thing gone, we can get that cost down, that'll be a nice bounce for us, but those are the two wild cards, you guys are focusing on pretty hard and the questions and I agree with you on both of them.

Thanks guys. I appreciate it and Tim, appreciate all the help.

Okay. Thank you, Andrew.

Next we have Robert McCarthy of Stephens.

Good afternoon, everyone.

Good afternoon, Rob.

Thanks again.

Did you ever get out of that taxi I saw in -- did you ever get out of that taxi?

Eventually. Yes. Eventually, I did.

You were banging the window and kept saying, help me, help me.

Absolutely.

You're from some place not from the East Coast, you can get confused.

Yes. I just wanted to honor the quiet period. That's all. You look like you were in a hurry and you're wearing the suit and got yourself shaving, I do not know, you were looking little nervous.

You got it.

All right. Okay. In any event, thanks Tim for everything. Really appreciate it. I think a couple of questions. First, if Bob wouldn't mind just talking a little bit longer-term about the HVAC markets from what he is seeing, clearly at a competitor conference this week, some admittedly smaller cap players have been talking about perhaps a flattening out of trends, particularly in housing or housing related consumer replacement like HVAC water heaters et cetera, where you could be seeing some pronounced weakness that could point to kind of end or pause in the echo boom of housing that we saw in late 2000 timeframe. I didn't know from what Bob seeing over the longer term and the installed base of what he deals with the players he serves, whether there is some concern that we could be seeing a longer-term secular step down and and what has been a very strong market over the past call it 10 years.

Yes. I'd say, I think for 2020, our outlook on the U.S. market is quite modest and in the commercial probably a little bit of different dynamics within the residential and the commercial side, you see it now, I think I just saw that were for last week, the average person hanging on their health 13 years now, so they're not turning over as much which triggers a lot of the remodels, and 80 or so percent of the HVAC sales are on replacement as opposed to the new stuff. So on the housing starts has been lumbering along in the low-1's, and we don't really see anything different about that. On the replacement cycle..

Yes. Let me give it. Bob, you know I've been involved in this business for longer than Bob has here. And I would say there are a couple of things going on. I think there is a fundamental flattening and one of my concerns is these guys have a deal in its issue, it's a cost of the new efficiency standards and the fact that people are now replace units or repair units versus replacement because to avoid the efficiencies change-ups in the price point of those units. So this trend has been going on for some time. I personally believe and as Bob's company structure thing, I think this is going to continue. And there's not going to unit growth, you're going to be price growth as a dollar value to growth, and that's what we're going to see as you guys go forward with your new replacement and that's what's going to happen here is to make technology value play because I think the cost of the new efficiency units, the refrigerants are going up and it drives down the underlying unit volume and that's what we did see for quite some time. And I think that's going to continue to your point.

As we move into the next refrigerant standards for 2023 with the '18 of the mildly flammable that's going to also require some mitigating stuff on the systems, because of the flammability and they'll probably prolong some of the place or...

I think people are looking to replace and 20 years -- I think they're going to try to drive these units as long as possible. To your point, I think that's what's going to happen. I mean, between the refrigerants and efficiencies. I think people are going to drive a lot of the news, as long as possible and that's going to drive our unit. Therefore, you're going to make out and costing to make up and price points.

Okay. Now, thank you for that color. That's very helpful. I think the only other question I would have is just in terms of the free cash flow, I think, if my math is correct, which is often wrong, we're talking about $4 of free cash flow for next year and from that standpoint, what do you think you can drive it in the out-years and obviously given what's occurred in terms of the global economic environment and other issues, I don't think we need to talk about the target of 450 in earnings per se for fiscal '21, whether that's on or off the table, I think more importantly, what could we be expecting to see in the kind of that free cash flow number in the out years? What do you think it could compound that and maybe, and maybe just talking to the segment leaders, what can they can kind of tweak up or control, whether it's through the continued Final Control and Valves integration or other parts of the business to improve cash going forward, so that you think you can continue to compound here and a pretty higher rate because a key differentiator to the story is clearly your free cash flow conversion.

So I'm going to -- we're going to buy on the same because these are things that as we look at the profitability as we change in our capital mix, as we do the capital allocation, Rob as we look at the capital investments and the change in the structure of the Company that's going to have an altering to the free cash flow. So we'll make sure that we will cover that at the February meeting because that is one of our objectives can we -- we as a company has always been a very good cash flow generator. The question is, as we drive our margins as we rebase and we look at excess capital employed in the Company, we take that out, can we make that capital, our cash flow number even better. So I'm going to push on that until we finish our work here, because that's one of the outcomes of the work we're doing and that is clearly one of our objectives because we believe strongly cash will drive the value of our company and also allows us to give money back to our shareholders.

I'll leave it there. Thank you.

Thank you very much, Rob. All the best to you. Be safe.

And next we have Jeff Sprague of Vertical Research Partners.

Thank you. Good afternoon, everyone.

Hey Jeff. Are you in some place. Please tells you're in China, you're in Antarctica, where are you?

I mean the city that works, Stamford, Connecticut.

The city that taxes or did you work, I can't even say it's taxes or works -- go ahead. Go for it Jeff.

All right. Two things. So Dave, the $0.08 of EPS growth for for 2020 of the operational improvement that's effectively I guess on zero organic growth. Right?

Correct. Correct.

So implicitly that's restructuring savings, so that $0.08 is $65 million bucks or so is that carry over from 2019 actions you said earlier you have no benefit from Q1 in your guide, but it would seem like perhaps there is some restructuring coming through?

Yes. That means there is a couple of things going on there. It does the carryover for the second half, because we accelerated restructuring in the second half of the year, that's helping us in a big way and will see that from the incremental margins. Two, the price cost has definitely helped us in this scenario, a little bit better, more favorable from a price cost that's helping us. And we clearly look at the different type of mix and we had some tough mix of second half, so we're basically we always go back to normal mix, we don't plan on same top mix. So I think that those are three things but clearly a biggest chunk of that would be the restructuring benefits we got from the acceleration from June, July, August, September and I would say that's the biggest benefit. And then when we flow out the restructure in the first quarter, we'll tell you what that number is, we'll start laying out the benefits and you'll start seeing those incremental benefits come forward in the second half of 2020.

But what should we expect Dave, you haven't put them in your guide, but there should be some payback from that $70 million and...

Yes. There is going to be -- Yes. There will be some payback and I mean I don't think it's going to dollar for dollar because it's -- because we are not going full year, but I would say at least $0.50 per dollar would be estimate right now in this year.

And then, just thinking -- right in this year. And then just thinking about what we might hear in February. So it sounds like you have full Board approval for this restructuring right you -- you know what you need to do. You're going to do $70 million in the first quarter, that's, call it 30% of a grand total of $250 million or so. So you're coming out of the gate with apparently Board approval and company buy in on the whole restructuring so putting aside kind of portfolio questions, I mean, is there some further deeper discussion on cost or other metrics or regardless of the portfolio changes or not, this is -- this is the restructuring number?

So I do not have full Board approval yet on everything we're trying to do what I told the Board is that we are still working, the broad plans at each of the businesses are that first passes. I also have some initial work looking at from the corporate standpoint and what we can do at the corporate, but it's not done yet. So what we -- what I told the Board is there is $70 million of activity, we can do pretty quickly this quarter and I want to get on with it and they need a trust me as a longtime CEO as a leader of this company that we are not doing things that are damaging the Company, going back to what the earlier question. So I do not have full Board approval on the total plan, but what I push these guys pretty hard is what can we get done in the first couple of months of this year to really gives us some headroom and some flexibility if things get sloppy. And so that's what the $70 million is and you're right, I push pretty hard, but the Board does trust me that I'm not going to do some stupid and then they'll see the whole review of all the plans as we go forward here. So they have not approved it, they is allowed me to take a big jump and jump on the first start here based on my credibility and leadership of running Emerson for the last 19 plus years. So that's what it looks like Jeff.

Yes. So that makes sense. And so that would then mean that if you do the -- the full $250 million or $300 million, there is a heavier structural lift that these actions would clearly carry into 2021, you would not be able to get all that stuff, started in 2020.

What the stuff I'm doing -- the stuff up front right now are very quick. These are very quick actions both Bob, Lal, and we are corporate doing. So the stuff that we're trying to do right now, it will be quicker and faster payback and the really structural things will take longer in the second half of the year and more into '21. So you saw what I -- what I ask the guys is find me the things that we could get on to very quickly that we -- that make a lot of sense from that we would do normally, but let's go as quickly as possible and it gives me some time to deal with the longer structural issues and how we go about looking at that. We want to prove -- I want the Board approval on those things. And so I think that's how we're looking at it for the first 3, 4, 5 months, I'm looking at quick things we can do by going after on the quick cost structures, which don't really take a lot of of a Board approval process from the standpoint of going forward. So that's what we're look at. I'm trying to get things quicker that give us a little headroom, from the standpoint of what's going on in the economy.

Great. Thanks for the color and good luck.

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

Next we have Josh Pokrzywinski of Morgan Stanley.

Hi. Good afternoon, guys.

Hi, Josh, you're going to be my last guy here and I apologize everybody else, but you know I have the longer questions, I have more people on the phone today, so I apologize that I will work very, very hard to get the rest of people next time or working around, but we've been already past an hour and 20 minutes. So, but I want Josh, you got your three questions. Take your time. Your closing it . You're staying between all of us from getting a drink. Don't screw it up now. Come on.

Well, I'd have more time if Rob McCarthy wasn't such a storyteller, but we'll If you say anyway. Just on the restructuring, if you could kind of help us with maybe the framework that you're adopting or as you're bring in some of these external folks to work -- to look at the organization, is it more kind of looking at some of the structural costs, things like G&A, where maybe there duplicate functions or is it more on trying to benchmark businesses to say like Final Control could take it to the next level, we can compare that to a competitor or something like that. Is there a specific track that this is going down or is it a little bit of all the above?

It's more of we're looking at G&A expenses that may be that we don't need to do and we have duplication. We're looking at things that both the two businesses do and the corporate do are the things that we do from a frequency standpoint and in the process, we're sort of overdoing them and maybe we're spending a little bit more money, as we shrunk the Company into two platforms and we trade off back and forth, where could we go after from a G&A standpoint. The structure stuff that we're working on very much is around the structure between the individual businesses, our facilities and maybe where we have too much capacity to make facilities or maybe where we have too much overlap from an organization standpoint, we may want to put organizations together. So we're looking at more of a structural from that perspective. And then we're looking at the cost structures in between all the G&As benchmarking, what we do as a company and what other companies do. And we make sure that we are -- we consider ourselves best in class. But are we doing things too much and can we look at cost, we can take out. I mean, fundamentally we run very high levels of profitability as I pointed out, but I think we can run higher levels of profitability and how do we make sure we do that without jeopardizing the control and the discipline, our planning process in the credit billion and that we have as a company. So, those are things we're looking at, Josh.

Got it. That's helpful. And then shifting over to the demand side. And Dave, the last time we had a slowdown, you had a big set of customers in oil and gas to kind of learn capital discipline for the first time. So maybe there are levers that got pulled that wouldn't get pulled again, how would you compare some of the decisions are customers are making around timing are curtailing spending and kind of how rational those seem in the current environment or how sustainable some of those decisions are?

Well, first, Josh, this cycle just barely got started and I don't think there has been any level of excess spending or capital that we've seen. From my perspective, I think they've been very rational, what they're doing right now is they're spending more money on short-term paybacks, you saw the KOB 3 to KOB 2. So I think there's a lot more discipline within this segment, I'll let Lal talk here in a second. But I think it's a better process for us and if they get some clarity around what's going to happen in China, some clarity what the -- let's say the trade discussions are going to be, I think you'll see some of that capital flow out and I know they have pressures on them relative to their capital allocation, but I also think they have the capital flexibility to invest for the future and so I think the disciplined standpoint has been much better here in the last 2 or 3 years and this cycle has been truncated and pushed down and I think it could pop back up in a nice way. So, Lal, anything you want to add there?

No. I think that's well said David. The discipline around the capital is there, the discipline around the operational dollars there as well. But ultimately the plants have to run safely, the fuels have to run safely, and there is a degree of investment that goes along with that and $118 billion type of installed base that we do have leads us to gain -- continue to gain customer relevance and trust as we go through the slower periods of time.

I want to thank everybody. Tim is not going to go away. He'll be still with us. I think he'll still be with us in early February. He may be in a transition mode, but he is not going anywhere anytime soon. So, you guys at least have a chance to be nice to him one more time. I wouldn't overdo it, but I appreciate everyone's -- I appreciate everyone's patience and I also want to thank all my shareholders and the sell side analysts for giving me the time to talk about issues what's going on, what you think about the Company and what the Board should be thinking about those are very, very important inputs to us and the Board truly appreciate them, and they were summarized by Tim, Mark, and myself and they got them, and they read them. And I want to thank everybody and I will look forward to seeing you guys real soon. Thank you. Bye.

And we thank you sir also and to the rest of the management team for your time today. Again, the conference call is now concluded. At this time, you may disconnect your lines. Thank you again everyone. Take care and have a great day.