Eaton Corporation plc (ETN) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2011 Cooper Industries Earnings Conference Call. My name is Tony, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Kyle McClure, Director of Treasury and Investor Relations. Please proceed, sir.

Thanks, Toni, and good morning, everyone. Welcome to the Q4 2011 Cooper Industries earnings call. With me today is Kirk Hachigian, Chairman and Chief Executive Officer; and Dave Barta, Senior Vice President and Chief Financial Officer. We have posted a presentation on our website that we will refer to throughout this call. If you'd like to view this presentation, please go to the Investors section of our website at cooperindustries.com. As a reminder, comments made during this call may include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which are outside the control of the company, and therefore, actual results may differ materially from those anticipated by Cooper. A discussion of these factors may be found in the company's annual report on Form 10-K and other recent SEC filings. In addition, comments made here may include non-GAAP financial measures. To the extent they have been anticipated, reconciliations of those measures to the most directly comparable GAAP measures are included in the press release. Now, let me turn the call over to Kirk.

Thanks, Kyle. I'm happy to report this morning that we reported our best quarterly and full-year earnings in our 178-year history. And again, given the global uncertainty, this is no small feat. We've communicated to the investors over the years that we're 100% focused now and one of the best global industries in the world with significant long-term growth trends. We've worked hard over the years to refine our business model and to enhance our competitiveness, reacting faster to changing market conditions and to accelerate our growth through innovation, globalization and a relentless focus on the customer. We also have 26,000 of the world's most honest and dedicated employees, many of whom have served this company for 30, 40, and some even over 50 years. It's very rewarding to work with such a team and a company of such great heritage and history. We'd like to welcome also the newly acquired companies in 2011, there's 7 of them, and also I'd like to recognize Grant Gawronski who came to Cooper in 2002 after 18 years with GE and has run Corporate Operations International, Europe and is currently the President of Cooper Crouse-Hinds; and Ivo Jurek, who joined us in 2007 after 10 years with International Rectifier and is presently the President of Cooper Bussmann. Both gentlemen have recently been promoted to group executives and have made significant contributions to the company over the years, and will play a much broader role in globalization, innovation and M&A as we move ahead. If you turn to Page 2 of our handout, Dave and I will now give you some details on the quarter, the full year and update you on our 2012 outlook. For the quarter, revenues were up 9%, core up 4.7% and that's on top of last year's core growth…

All right. Thanks, Kirk and we'll start with Slide 9. Revenue for the third -- fourth quarter was 137 -- $101.37 billion, which is a 9% increase over the fourth quarter of 2010. Core revenue increase, as Kirk mentioned, was 4.7%. So it was certainly above the high end of our core guidance. Revenue decreased 0.2% as a result of the impact of currency translation and acquisitions increased sales by 4.5%. For the quarter, price was positive and increased sales by approximately 1.9%. And in fact, as we said it would, price did offset material inflation in total for the quarter, so we were able to neutralize inflation in both of our segments as well. So a nice change-up particularly for the EPG group. We still have a few divisions that have more work to do. Our book-to-bill in total was 99% for the quarter and 101% for the year, and our ending backlog was up almost 12% versus a year ago. Sales outside the U.S. were 40% of total sales and -- which is a new record for the company. That's for the quarter and for the year. The core U.S. sales were up 6.7%, core sales growth for emerging markets was a positive 2.9%. And as Kirk mentioned, Western Europe core growth was also positive, a little over 1.7%, certainly in a very challenging macro environment. And core growth in Canada and Latin America was slightly negative. As shown in this morning's release, we reported record EPS of $1 per share from continuing operations. It compares to $0.85 per share in last year's fourth quarter. Turning to Slide 10. Gross margin was 32.2% in the fourth quarter as compared to 33.1% last year. We'll look at some of the margin drivers in a few slides. On an incremental…

Great. Thanks, Dave. As we step back and take a look at the full year, we're very pleased in our ability to deliver record short-term results while we continue to invest in our long-term future. EPS at $3.87 exceeding our peak earnings of $3.59 in 2008 in a much tougher economic environment, in particular, with the construction market still being significantly down from the peak in '08. Our capital allocation model and flexibility continue to reflect our strategy. We invest in the core via CapEx, R&D and accelerated SG&A spending and we delivered a record Vitality Index at 29% and record sales outside the U.S. at 40%. We continued our disciplined process around bolt-on acquisitions, again completing 7 for $305 million. We continued to grow our dividend, up 57% now in 5 years, and continued to use the share buyback with excess cash with our share count now down 16% over the same 5-year period. And lastly, with our 2 new group executives, we continue to build our internal bench and provide broader capability to manage future growth. In short, our company has never been in better shape to take on the global challenges that lie ahead and continue to execute our growth strategy leading into 2012. With that now, I'll turn the call back over to Kyle to take your questions.

Thanks, Kirk. Before we open up the call for questions, I would like to remind the Investment community to join us for Cooper's 2012 Outlook Meeting which will be held at the New York Mandarin Hotel on Tuesday, February 28. We will be presenting around 8:30 and concluding by about 11:00 a.m. So as we did last year, we will have presentations from both corporate senior executives and divisional management. Okay, Tony, we're ready for our first question.

[Operator Instructions] Your first question comes from the line of Scott Davies of Barclays Capital.

There’s a couple things I wanted to dig into and one is a little bit of a further look at Western Europe. I mean you were up 2% in 4Q. I would've probably expected it to be flat or even slightly down. I mean, what's your outlook more specifically for Western Europe in 2012 and maybe another way to approach it is what are you seeing so far in January?

Well, January, not much different than we saw in the fourth quarter. We've got a couple pieces over there, Scott, that’ll – I mean, two combinations. One is we're bigger in France, Germany and the U.K. So we're not in the southern Mediterranean in a big way. So Spain, Portugal, Greece, they're small for us. Second thing is we've got a nice mix, right? A big piece of what we've done over there is built up the oil and gas piece of it and the other piece is the Bussmann industrial piece. And so they’ve performed pretty well and I have to tell you also we got a very good team of people. They're all locals over there, they're Europeans and they've done a real nice job running those businesses. That would be -- I think for next year, Dave, I think we've kind of got a flattish outlook.

Correct.

Okay, and then moving on to the Tools JV. I mean that was a pretty nice quarter. I mean, 2 questions. I mean, where did it come from? I don't think your end market demand in 4Q was anything special on the tools side, at least not from where we've heard. So I'm assuming a fair amount of that came from cost, but maybe you can talk to that. And then the follow-up to that would just be, as you look to 2012, I mean is that $22 million per quarter run rate, is that at all realistic or is there going to be a moderation down from that level?

All right. With regards to your first question, I think the team, really their performance came from 2 areas. One is you kind of alluded to North American kind of big box retail, tough environment, very consistent with the kind of comps you've seen at a lot of those guys. So they saw a nice lift as they have really all year. Hand Tools outside the U.S, Power Tools Internationally. And then some of their emerging market exposure. So the sales were a positive, but as you again suggested, really seeing the synergy benefits. As you recall, 18 months ago when the JV was born, we talked about $50 million of synergies and the team there has done an excellent job over 18 months actually combining and integrating 2 businesses and at the same time, driving those kind of synergies and driving the growth. So really came across the board sales strength outside the U.S. and those operating synergies rolling through. We used the number $14 million in the first quarter and I would say for the year, think of it in terms of right now a range of $65 million to $70 million. So again, they'll certainly be facing continued tough construction and big-box markets here in the U.S. but still realizing some of the benefits of their synergies and certainly more to go.

Your next question comes from the line of Rich Kwas of Wells Fargo Securities.

Quick question on the cadence during the quarter. Kirk, specifically in the U.S., seemed like things picked up as the quarter went on. Was that the case for you guys? And could you give us some more color on what you're seeing here at the outset of Q1?

Yes. I mean, I think -- almost a little bit shocking how fast these trends are shifting back and forth, Rich. So normally, things kind of go over a couple of quarters, but absolutely saw things a lot more negative in the U.S. in the third quarter and I would tell you across the board, all the businesses had a pretty easy close in December. And throughout the quarter, things came in a lot better than we had forecasted, certainly on the top line. So on the factory utilization side, on the automotive side, on the Bussmann side, on the oil and gas side, on the retail side, pleasantly surprised. Now the question is, is that a trend or is it going to shift back the other way? Hard to predict. But yes, I would say we were favorably surprised about the momentum and how smooth things came in, in the fourth quarter.

Okay. And then, when you look at the non-resi markets, your outlook is consistent with what you outlined in September. I know you're kind of later in the game in terms of non-res, but given what we've seen with ABI and I know it's only 2 months in some of the inquiry stuff, on the ground, are you seeing any signs we’re to be more optimistic? I know your guidance is flat but I mean are you -- do you have more of a positive bias, negative bias or you truly believe that it's going to come in flat?

So I think I don't see anything getting worse. And so, I think that's the first time maybe in 2 years, on the construction side you can almost say that. I see housing getting better; no question that we're seeing some benefits on that side of it. And then, I think there's lending -- on the local board of the Federal Reserve. I mean there's some things going on, on lending that would give you some optimism and there's some other conditions that you’d sort of believe are turning a little bit more favorable. But I still think it's early to predict a rebound on the non-res side on the construction. So built into our model next year, you still have retrofit. You still have the growth in LED and energy efficiency and lighting controls, but I just -- it's still a little early for us to predict that you're going to actually see end market growth on non-res.

Your next question comes from the line of Jeff Sprague of Vertical Research.

Kirk, could you give us a little more color on what you're seeing on the T&D side, both -- I mean, primarily, U.S. but what you have going on internationally as you try to maybe add a little bit of scale to that business outside the U.S.?

Yes, that's an area -- so the U.S. is still going strong, especially on top of some tough comps. And again, Jeff, I didn't give you a lot of color in the quarter about picking product lines, but transformers was up kind of low single digits. The pricing environment is good; really good quarter on capacitors and switchgear and some of the automation stuff that we've done. The Smart Grid business, in particular, you can see some of the comps that are coming out of some of the publicly traded guys, still a pretty tough space. Some of the adoption rates have slowed. But again, we've got pretty good breadth in our product offerings there. So we're looking at a lot of different spaces there. Internationally, Asia was very strong for the year. We had really good business out of that JV that we have out of there on switchgear; saw some good pickup in Southeast Asia across the board. And I’d tell you, you're spot on. I mean, we're looking for M&A opportunities just to continue to broaden out and round out our offering around the world. We've got the new factory going on in Brazil as well on capacitors, and they just kind of broke foundation, and I think they probably have a cement skeleton of that facility up. So we expect to close that by -- or finish that, building that by kind of midyear or early summer. So pretty good overall. I mean, I think there's a lot of spending. Rates are cheap and so utilities love this environment and you can continue to see the frailty of the grid in the U.S. and I think that's going to continue to bode well for the business.

And could you just, picking up on that M&A question, could you just kind of modulate us between your thoughts on R&D and growth spending versus what the M&A pipeline looks like. Is that, with R&D as a percent of sales, has that peaked? Is that coming down a little bit?

Yes, it's probably, peaked. We went from about 1.5% to north of about 3.5%. We've had a big push on that. You can see the vitality index climbing forward. People kind of got a little upset with us during the year maybe that we overstepped our spend rate on that and on the SG&A on the international, but we're good. I mean we held it flat in '09, Jeff. If you looked at our R&Ds as an absolute dollar spend and when the market tanked in '09, we held it flat. We continued to add in '10 and '11. So we feel really good about the breadth of products coming out and the vitality index of all the businesses. So I'd say that the spending does not increase there, either as a percent of sales or in absolute dollars. I think we ought to be able to hold that and get some productivity from the revenue growth. That's the old GE model; get a little base cost productivity there. And then I'd say on the M&A, we're very motivated to continue to look at new technologies and companies that offer us a different vertical and a couple of the acquisitions that we completed, of course, the one in Brazil gave us a foundry in Brazil and a couple of the other of smaller ones were directly at specific product lines. One was a Chinese, a CCTV camera business that bolts on to the Hernis product line. It's a lower end, kind of midrange, industrial range on that. So that's the model; that's what we'll continue to look for and keep going down that path. We've got a very good product or pipeline of deals that we're looking at. It's always an issue of pricing and valuations that leads us not to complete or not to get done what we'd like to get done maybe.

And just finally, price cost parity. Are you there in that T&D business at price cost parity?

Yes, we are.

Yes, I mean, I think we've finally caught up on that whole piece and we don't expect to get behind on that again as we head into the new year.

Your next question comes from the line of Deane Dray of Citi.

Just to pick up on Scott's questions on the geographic exposures, just like European being up a couple of percent raised some eyebrows, be a little more positive. I thought emerging markets would've shown more strength especially given your outlook for next year. So what's going on there? Is there any share loss? It looks like you may have underperformed the market a bit.

Yes, that was -- I mean, if you ask me about the surprises in the quarter. I had a lot of positives I mentioned. I would say that, that one was a little bit surprising on the downside, that where we had great momentum for the course of the year, I mentioned we were up 15% core in the emerging markets for the full year, that the fourth quarter did slow down on us. I haven't figured out a better answer other than that it's sort of an aberration or sort of a one-off. We talk to our people overseas once a month; we get on the phone and drill through all the details, and I don't think anybody is less positive. We still have double-digit growth baked into our plan. We'll walk you through all those assumptions, Dean. But again, I just think it's typical of the shifts and migrations around the world, in this volatility and I think you just have to kind of live with some of this a little bit more. We continue to plow money in. We added 3 new people in Central America. We added resources over in Eastern Europe, still adding resources in Australia, Southeast Asia. So it hasn't changed our formula in how we're going to spend money and where we're going to go attack these markets. But I say it's an area that we're going to keep an eye on as we head into the new year.

And I'd also add that if you get into the details, emerging markets, can't look at them all the same. As I roll through the list I would say that the results are very consistent with what you might have heard kind of on a national news level. So Brazil, lot of chatter about Brazil, kind of slowing a bit. We saw that. Other areas in Latin America, up nicely. China, a little bit slower but Southeast Asia, outside of China some of the Vs are up 40%, 50%. Some of the developing -- emerging markets around the Middle East also up significantly. A lot of that related to, again, where we’ve put the resources and investments. I wouldn't say all the emerging markets are the same. I would say very consistent with some of the headlines that you've seen as well on some of these markets that did -- slowed a bit here recently.

Okay, that's helpful. And then in the release, there was a reference to a write down on a business in Europe going to disk ops and then some higher restructuring. Those are both included in your operating results. Does that suggest there's also, on that write-down, some potential divestitures that you're looking at?

It actually, in your Europe, was a very small, truly product line within a business, so nothing significant. I mean, it's just beefing up the portfolio with some of the interest in that product line, and this one we can see as core.

Your next question comes from the line of Christopher Glynn of Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Just want to look into the linearity forecast a little bit. We've got full year growth a little stronger than the first quarter guide but a little more contribution from the acquisitions in the first quarter. So just wondering how you kind of built up to that shape?

I don't think significantly different. You're right, there's the noise, a little bit of acquisitions in there, but we are expecting the year to be, I would say, overall, in line with kind of our normal seasonality, which is a little bit of that. Also some of the market, I would say, challenges that are out there, such as I just mentioned, China being flattish. We see some of that continuing early in the year. But actually, our folks expect that to get better as the year moves on. So we see some of these emerging markets actually picking up a bit as we move forward. But certainly, we expect to see a nice step up into second quarter -- in second quarter and third quarter, usually pretty similar level for us and then fourth quarter, I guess traditionally, particularly with the acquisitions, better than the first. So we certainly do see a little bit more of a second, third, fourth quarter spread to the year than just a straight divide-by-4. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay. And Dave, the general corporate expense and the interest expense dipped pretty noticeably versus earlier 3 quarters of the year. You gave some comments on the year-over-year, but can you comment on how to think about run rates or trend in those?

Yes, the interest expense, actually, we did get a benefit from a interest hedge we had of $1 million to $2 million. So there's a little bit of a one-time there. So take that out and I think the run rate, assuming kind of current levels of debt and the fact we can't earn much of anything on our cash, your prior assumption on run rates, probably pretty good going forward. And then in terms of corporate expenses, again, benefit of some cost reductions. We've got our plan, a little higher rate probably $20 million to $22 million per quarter in terms of corporate expenses. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay, and then lastly, you grew earnings a lot faster than the dividend hike this year. I know visibility was slight at the beginning of the year. But 30% payout ratio, it looks like -- where do you want that to be? Would you be looking to accelerate the dividend growth?

Yes, I mean, we take that to the board normally in the February cycle. We have a board meeting coming up here, shortly. So we'll make a recommendation to the board and then the board will decide. But I think I would agree with this, especially with the share count down as well and with the capacity of cash that we have. I think there's certainly some room in the dividend.

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

I just wanted to pick up on Dean's point on Europe. The plus 2 is probably better than most of you expected. Can you maybe comment how Europe trended during the quarter? I mean, some indicators seems to suggest that we found some stability towards the back end of 4Q. Did you see that?

I mean, we don't really divide it out, Nigel, in that kind of granularity. I think they held up pretty well for the whole quarter though, pretty consistent. Again, you kind of got to look at our mix over there. We have no residential exposure in Europe and we have a modest or small exposure to non-res. And that would be a piece of safety. The Bussmann business, of course, is all industrial and the Crouse-Hinds business and then 1/2 the safety business or a big chunk of the safety business, all those recent acquisitions MEDC and Hernis and Raxton and all those pieces over there, all industrial businesses. So I think if you look at the product mix, and then you look at the geographic spread, a big piece of our market is Germany, France and U.K. held up pretty well.

And do you think about book-to-bills by geographies, do you have a book-to-bill for U.S.?

We don't record it that way either. You could look at Safety's book-to-bill. Let me try to pull that up for you, Safety's book-to-bill, just to give him some feel for that. Yes, so they were at 95%, and 100% for the year. So we're pretty consistent. Nothing unusual there.

Right. And then you called out some product mix headwinds in the E&S segments. It looks like it was about a point during the quarter. Was there anything on product phasing this quarter that caused that or do you see that as more of a function of where we are on the cycle?

Some of the international, larger international products – projects’ a little tougher on the margin side, Nigel, but I think that straightens itself out as we kind of go into the new year.

Okay. And then Dave, can you just call out what the structural tax rate was in 2011, X one-time benefits and I'm sorry, I missed what you expect for 2012?

Probably in the 18 to 19 range excluding all the kind of discrete items, which is consistent with our general guidance for next year.

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

Dave, wondering if we might start just sort of breaking apart the revenue growth forecast for '12, 6% at midpoint. I think we would guess that you've got 3.5% to 4% from acquisitions that have already been completed and maybe 1.5 points to 2 points of headwind from FX leaving core at 4% to 5%. Is that about the right way to break it down?

Yes, I think the acquisition is a little less than that, probably more like 2.5% versus your 3.5% and FX maybe a little stronger there, but it would be a little bit of a hit.

So the core of 4% of 5% still about right?

Yes, I would -- yes, roughly.

And the first quarter, I guess on core kind of close to 0, tougher comps and the book-to-bill sub one. Anything else to think about around how you're thinking about core for the first quarter?

Yes, the core is more in the 3% range. We still seek core growth there, so the acquisitions certainly help but aren’t the whole store. But they are up against really tough comps. If you go back a year ago, I forgot exactly when it was but we had very strong comps in the first and second quarter, Terry, to your point and then it kind of faded off as you got into the third and the fourth quarter.

16% core in the first quarter of '11, definitely a different comp there. Kirk, on end markets, you mentioned Asia electronic stable. That sounds like a positive shift. Wondering if you can talk about whether that's just comps and inventory getting cleared out and then, secondly, in terms of M&A looking forward still an appetite to consider opportunities in that electronics area?

Yes, so I'd say that, yes, it was a positive that it’s the Electronics business that stabilized. The Electrical business stayed strong and the Asian markets, again, were sort of flat, but we viewed that as sort of a net positive. I'd say on the opportunities, yes, electrical transportation and electronics, all 3 platforms within Bussmann highly attractive. But again, Power Systems, Crouse-Hinds, lighting controls, we've got a very, very good diverse mix of a lot of different properties that we're looking at. So I think all 3 pieces of the Bussmann portfolio are interesting. Ivo will be, of course, at the outlook meeting and share some of that with you as well.

Okay, and then just lastly, I think on the non-res outlook, you're talking about the market overall kind of flat with Cooper benefiting from the energy efficiency activity. Two points there. One, we have seen a little bit of a pickup in some of the indicators, ABI. Is the core non-res construction outlook really not offering more than about a flattish kind of a look there? And then, on the energy efficiency piece, how do you see the rate of change in '12 versus '11 on that part of the non-res outlook?

So I think if you looked at our operating plan for '12, and we'll go in and talk to you about these different segments in the outlook. But I'd say yes, the upside to the plan of course, Terry, is you get any growth in non-res. We are forecasting some modest improvement off of the residential home starts. But again, off a very depressed number, so sort of a double-digit growth there, which in fourth quarter was up 9, so I think that's valid. But the upside to the plan would be, especially on the growth side, would be any recovery in the non-res market at all.

And your next question comes from the line of Carter Shoop of KeyBanc.

First question is on the EPG group. It looks like you're expecting a nice acceleration in the second half of the year based on your guidance for the first quarter. Can you help us understand where that's going to be coming from? Is that going to be primarily in the lighting group or possibly through the other lines?

So in the EPG group, you have the Bussmann Electrical business which, again, continues to play well. The B-Line business which has got some oil and gas. Some non-res continues to play well. Mentioned in the lighting upside on the retrofit piece of it, multifamily housing and LED adoption. That continues to grow well. And again within the Wiring Device business, we have the retail piece that is, again, starting to show some life across the board as a segment. And then we have this Interconnect business which is pure industrial; harsh, heavy-duty connectors. There's a little bit of defense business in there that was soft. So I think EPG, as you look at it, it's got some different pieces to it, but I think it's got some upside and starting to show some of that growth potential and a lot of new products come in the market, a lot of new things going on in those businesses.

That's helpful. And then drilling into the lighting a little bit and [ph] more so here. Can you talk a little bit about your agent turnover in 2011 and how that impacted the results and how you're looking at that affecting the results in 2012?

Yes, so I think it's an interesting dynamic. I mean, you saw one of the semiconductor guys make a big, large acquisition in outdoor, and they're trying to consolidate their agent base. There's poaching that goes on in the industry. We are very content with the agent base that we have and we're going to do everything we can. I mean, I think, generally, people would poach our agents because we generally have the 1 or 2 in every market and so some of that has happened. It's disruptive but we go back and swing back and make it disruptive for the other guys. So it's not productive but we're not going to stand by idly and watch people poach. So it's a dynamic of the industry. It's been going on for 10-odd years, nothing new there. And I would say in 2011, not much more turnover on the agent base than we have seen historically, frankly.

And then last question, $1.3 billion deployed in capital in 2011. How should we think about that in 2012? Do we feel comfortable with the net debt levels today, or can we take that a little bit higher?

Well, it would depend on acquisitions. I mean, of course, there will be no asbestos. The CapEx will be what it is. The dividend rate will go up a little bit. Share buyback, we've always used as sort of a throttle. We're opportunistic there, but we'll always buy back the creep. We shouldn't let the management comp dilute shareholders. So we'll go after the creep like we always do. I think the rest of it is somewhat opportunistic on the M&A and such. And I think cheap debt or excess cash to go do stupid large deals doesn't really make a lot of sense. So we'll be as disciplined as we always have been and just be patient.

Your last question comes from the line of Josh Pokrzywinski of MKM Partners.

Just trying to understand the incremental margins here, and I know that it was a bigger topic in 2011. But if you could just run through kind of the change in investment spending, '10 to '11 and then what's baked in '11 to '12 and maybe any other dynamics we need to keep in mind about mix or price cost, seems to be more soundly positive of late as we're framing up margin trajectory into '12.

Let me start I guess with your last subject and work backwards. But the price costs, we've got no excuses. We've got behind the 8-ball there, first quarter of last year. So we had a fairly large gap and it was across multiple divisions in both segments. So materials moved and we weren't quick on getting outlook price. We certainly addressed that quickly, bit into that in the second quarter quite a bit. Third quarter pretty much neutralized the price inflation issue. Having materials behaving helps that, but I think our disciplines around pricing, our disciplines around speed to the market with price increases also improved substantially. And we ended the fourth quarter ahead. Out of 7 divisions there was 1 that has some significant work to do yet, and there were 4 others that were neutral to positive and one that was just barely negative. So I think we have neutralized that. I think we're out in front of it much better than we've ever been. And a lot of time around material forecasts and, again, making sure that we have the speed we need to should we need to go back in market with pricing, which every business always has a playbook for that. So I think in the price inflation, we're -- again our plan, as I said, was predicated on neutral price inflation and that's from the first quarter forward. So there's not any issue there around a gap to start and us taking care of that later. Neutral for the year, neutral each quarter. In terms of an incremental type investment, I think we've been clear this year, investing in R&D, investing in commercial resources, particularly in geographies and certain vertical markets. We've said you should not expect to see some incremental step up that's…

Okay, and that's helpful. And if I can just sneak one in -- one more in. Any issues on inventory destocking in the fourth quarter; any changes at the distribution level that you're aware of, or any supply chain interruptions coming out of Thailand flooding that we should be aware of as...

No, we don't even have a factory in Thailand. It's a small customer sales market for us. We'll be able to sell some utility equipment to help them kind of regain their footing there. But there's nothing from a disruption side. I haven't seen anything from the component availability side coming out of Thailand that would disrupt our business well. And on the overall inventory side, with regard to retail and electrical distribution, nothing. No real comments from customers on resets or the end-of-the-year adjustments and people not taking anything because they're trying to recorrect inventory. So I'd say all positive there as well.

Thanks, everyone, for joining today's call. Have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.