Ladies and gentlemen, thank you for standing by. Welcome to the Eaton First Quarter 2017 Earnings Call. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Senior Vice President of Investor Relations, Don Bullock. Please go ahead.

Good morning. I'm Don Bullock, Eaton's Senior Vice President of Investor Relations. Thank you all for joining us for Eaton's first quarter 2017 earnings call. With me today are Craig Arnold, our Chairman and CEO and Rick Fearon, our Vice Chairman and Chief Financial and Planning Officer. The agenda today as typical will include opening remarks from Craig highlighting the results in the quarter along with our outlook for 2017. As we've done in our past calls, we'll also be taking questions at the end of Craig's comments. The press release from our earnings announcement this morning and the presentation we'll go through today after some initial technical delays were posted on our website at www.eaton.com. Please note that the press release and the presentation do include reconciliations to non-GAAP measures. A webcast of this, today's call will also be available for replay after the call. Before we get started, I do want to remind you that our comments today do include forward-looking statements and the actual results may differ from those and that any of those risks and uncertainties are outlined in our related 8-K that's filed. With that, I'll turn it over to Craig.

Thanks, Don. Hey, we're very pleased with our Q1 results. As you've seen, net income and operating EPS coming in at $0.96 per share and 13% above the midpoint of our guidance which was $0.85 a share. And we're especially pleased to see the return to positive revenue growth in the quarter. This quarter represents the first quarter in over eight quarters where revenue growth is positive and reflects improving market conditions in many of our businesses with real acceleration in the month of March. Organic revenues were up 2% with ForEx being a negative 1% in the quarter. Segment margins were 14.4%, and we'll speak in more detail about this later in the presentation, but excluding restructuring costs of $17 million in the quarter, segment operating margins were 14.8%. We also had very strong cash flow in the quarter of $463 million which was a Q1 record. And this does include a $100 million contribution that we made to our U.S. qualified pension fund in the quarter. In addition, we repurchased $255 million or 3.6 million shares in the quarter and increased our quarterly dividend from $0.57 to $0.60 per share and we announced this back in February. Turning to page 4, we've outlined the major drivers of the Q1 EPS results which exceeded our guidance which we, as you'll recall, was $0.85 at the midpoint. And the real story here is revenue. Organic revenues were up slightly below 2% but approximately 3 points higher than our original guidance. And as you'll recall, our guidance for net revenues were going to be down 1.5%. FX was also 1% less negative than our original guidance of 1.5%. Total restructuring costs in the quarter were actually $20 million, with $17 million of that in the reporting segments, which was about $6…

The operator is going to provide for us instructions for the question-and-answer session.

Thank you.

Our first question today comes from Scott Davis with Barclays.

Hi. Good morning, guys.

Good morning.

So it's nice to see the Hydraulics numbers pick up so quickly, but I have to ask, can you satisfy demand that quickly in a segment you've been restructuring aggressively? I mean, I assume your supply chain as well, and are you comfortable, at least, you can ramp up production fast enough?

Yes. I'd say the short answer to the question is Scott, it will certainly take a concerted effort and good execution by our team. But we're ready for this turn. We've been living as you know in down markets in Hydraulics for the better part of three years and so our team is ready, willing and able to take on the volume challenges that we're facing. And so at this point, we're comfortable that Eaton, and we're working obviously through our supply chain to make sure that they're ready as well. But our team is ready for it.

Okay. Fair enough. And just on ESS, when you think about the oil and gas markets, and specifically pointing to commonly oil and gas markets negatively impacting margin. I assume that's a big part of that's Crouse-Hinds. But help us understand the mix of your oil and gas onshore/offshore and if you expect that to come back in 2Q. So I think a lot of your peers have already seen a somewhat meaningful snapback at least in the onshore stuff that's short cycle like that.

Want to take it, Rick?

Yeah. Scott, it's Rick. Our mix historically has been more downstream than upstream and so we aren't as impacted by improvements on the upstream side. We have not really seen our upstream activities accelerate at this point. We're looking for it. We have seen a little bit of improvement in MRO in the harsh and hazardous space and even in the industrial controls that go into some of the onshore rigs particularly. But we have not seen any broad-based pickup yet on the project side.

Okay. Fair enough. Good luck, guys. Thank you. I'll pass it on.

Thank you.

Our next question comes from Joe Ritchie with Goldman Sachs. Evelyn Chow - Goldman Sachs & Co.: Good morning. This is actually Evelyn Chow on for Joe. Maybe just turning to ESS for a second, very encouraging to see maybe some incipient signs of stabilization or recovery. But it looks like the project business hasn't picked up much yet. Does your higher organic guide imply any acceleration there? Or is it sort of flowing through things as status quo?

Yes, at this point it does not. I mean, we came into the year with what we'd say is a relatively well-grounded assumption around the way large projects would unfold through for year and to date I'd say it's largely playing out the way we anticipated. So we do not have a return to growth in large projects built into the second half of the year. Evelyn Chow - Goldman Sachs & Co.: That's helpful context, Craig. And then maybe just turning to price costs for a second. Totally understand the dynamic of maybe things normalizing, but in the second half. Just wanted to see how that squared with your previous expectation of about $80 million of material inflation in 2017.

Yes, appreciate the question. Certainly, as you pointed out, we did come into the year anticipating about $80 million of let's call it uncovered commodity price inflation that we would experience in the business and we'd indicated that that would be largely a first half issue. And that's largely what we've seen. We saw it certainly come through in Q1. We came into the year with an expectation that commodity prices would start high and we'd see some mitigation in commodity prices as the year unfolded. That is still largely our belief that number one, commodity prices will probably mitigate as the year unfolds, but more importantly, we'll have some time under our belt and we will have essentially been able to offset this commodity price with price increases in the marketplace. And that is largely still our anticipation. It is mostly a second half event and that is the plan that our teams are currently executing towards. Evelyn Chow - Goldman Sachs & Co.: Thanks, guys. Congrats on a good quarter.

Thank you.

Our next question comes from Ann Duignan with JPMorgan.

Hi. Good morning.

Good morning.

Hi.

Could you just give us a little bit more color on the Hydraulics business? On the orders, if you could break out maybe by region, mobile or construction versus ag, mobile versus distribution, and then just around the world. And then a follow-up, Craig, you highlighted the industrial controls, Europe, as up. If you could just give us a little bit more color in that also, I'd appreciate it.

Yes, I'd say, Ann, if you think about Hydraulics orders and you obviously know this market well, and what we've seen is largely a relatively pronounced snapback beginning in the Asia-Pacific region, largely in mobile markets. Those markets have been down and down hard over a period of multiple years. And so clearly, the biggest strength that we're seeing today inside of Hydraulics is coming out of the China market and largely coming out of the mobile market on the construction side of the business. But having said that, Europe was also quite strong and stronger than what we anticipated. And there too, a lot of the growth was in the mobile segment. But also we saw strength in the industrial segment as well. And so I would say that in general, the recovery in Hydraulics has been relatively broad-based, but principally led by mobile, construction. But also I'd say equally balanced between what we're seeing today in both the OEM channel and the distribution channel, which we find quite encouraging. We also, in doing a bit of a channel check, we think today that the distribution channel is selling through, that we're not building inventory at this point in the cycle, so we're really encouraged by the outlook, so.

And then the comment on Europe industrial controls, Craig.

Yes, I think we see that more broadly, and as I mentioned in the commentary, what's really changed today in our Electrical Products business is the fact that industrial controls, we're seeing pretty broad-based strength in those markets. And I would argue that a lot of that strength quite frankly that we're seeing in industrial control is a function again of what's happening in the China market. As those markets continue to improve, we see industrial controls in Europe really picking up a lot of that equipment that actually flows into China. But even in the domestic market, we're continuing to see strength in industrial controls. Too early to say exactly how this unfolds longer term, but certainly a pretty broad-based basis of strength around the world in industrial controls in Q1.

Is that fair to say, Craig, just the ISM PMIs in Europe have been strengthening? I mean GDP in Europe's strengthening. Is that underlying what you're seeing over there?

Yes. And I'd say, yeah, we're certainly seeing perhaps even more underlying strength in many of our end markets than the PMIs would suggest, and industrial production would suggest, which tells us perhaps some of that is also tied to what's going on in markets outside of Europe, namely what's going on in China. But in general, what we've seen across each of our businesses, and I think what we've generally seen in industry, is that Europe turned out to be much stronger than most of us anticipated.

Okay. Yes. That's what I was thinking you would say. So I'll get back in line. I appreciate the color.

Thanks, Ann.

The next question comes from Julian Mitchell with Credit Suisse.

Hi. Morning. Just one more on ESS, I'm afraid. I guess this question would be really around the margin progression through the year. The margins were down a bit in the first quarter with flattish sales, so when you're thinking about your guidance for up margins for the year as a whole, is that because it's what you see in your backlog today, and that gives you six to nine months of visibility? Or is it really just basic stuff around the restructuring charges comp from late 2016, the commodity cost headwind abating in the second half? That sort of thing.

Yes. I think, Julian, it's more the latter of that today. We have been undertaking a fairly significant restructuring effort in our Electrical Systems and Services business, and those benefits certainly improve as the year unfolds. Secondly, we talked about the commodity inflation issue that we're dealing with, and so we certainly saw in our Electrical Systems and Services business, like we did for the balance of the company, we saw commodity price inflation that also that we were not able to offset with price increases or other cost-out measures in Q1. And that also begins to mitigate itself as the year unfolds as well. So we think it's largely, those are the reasons why we're confident that our margins will improve in Electrical Systems and Services. And also, volume tends to grow as well, and we tend to be more back end focused from a volume standpoint in Electrical Systems and Services. And that will help margins as well.

Thanks. And then just switching over to Vehicles, you had a nice sequential increase in revenue in the first quarter, so back to some kind of normal seasonality, perhaps. Could you discuss a little bit your expectations for the balance of the year in terms of truck versus light vehicle? I think a lot of companies had a very strong first quarter for light vehicle supply chain. To what extent do you think that persists through the balance of the year? And maybe give any color you can on the truck side, the build rate plans of the OEMs?

Yes. First maybe on light vehicle markets around the world, and I'd say they continued to perform and hold up very well. And quite frankly, we've been surprising by the size of the strength in certain markets, principally I'd say Europe, where markets were quite strong in Q1. And so at this juncture, we'd say there's no real reason to suggest that light vehicle markets around the world are going to turn out to be any different than what we anticipated when we set our plan for the year, which was to be essentially flat to up slightly. So we remain very much convinced that that forecast will hold to be true. With respect to the NAFTA heavy duty production, I mean right now if you take a look at the production schedule for last year, it was essentially a year where we started quite strong, and we saw weakness in the back half of the year. And today, most of the indicators are that the NAFTA Class 8 market is strengthening. And so we think, as I mentioned in the commentary, that Q1 represented the most difficult comparable where production was down 20%, and we think that things essentially begin to improve from this this point forward. And so our number for NAFTA Class 8 is flat for the year. There are a whole multitude of forecasts out there, some of which are lower, some of which are higher. But we remain convinced that flat is the right call on the North America Class 8 market for 2017.

And Julian, in the context of flat, this is how we think about the market. We think that, or at least ACT data is that production was 51,000 units in Q1, and by the time you get to the back half of the year, we think you're going to see production per quarter in the neighborhood of 60,000 units, and that's how you get to flat. Now, if you actually look at the straight build plans that we collect, they would actually total to a bit more than flat, but we think it's a little early to make that firm conclusion.

And then the build plan typically is above the market, so it would be very much consistent with pattern historically.

Yeah.

Very helpful. Thank you.

Our next question comes from Nigel Coe with Morgan Stanley. Nigel Coe - Morgan Stanley & Co. LLC: Thanks. Good morning, guys. Just wanted to dig into lighting. Obviously, we've seen a couple of your big competitors in North America report somewhat disappointing trends. Your quarter had low single digit growth, I think, in orders. I'm just wondering if maybe just shine a bit of light on lighting pricing, and maybe the impact on margins this quarter from any price pressure you saw.

Yeah, no, what we saw, the way I'd characterize the underlying performance of our lighting business and what we're seeing, Nigel, is this really continues to perform in line with the patterns that we've seen. A lot of lighting, it's going into non-res construction, into commercial buildings. It's going into residential housing. And so we think lighting to be up low single digits is very much in line with what we've seen from the market, and very much what we expect going forward. And if you think about the key industries that essentially drive that market, we don't expect it to perform any differently. To your question around margins, clearly we continue to see the price of LED underlying technologies come down. That's being – many ways being passed on to the marketplace, and so we continue to get cost out of lighting. That is largely in line with the underlying reduction in the input costs, and our underlying margins overall in our lighting business actually continued to improve. Nigel Coe - Morgan Stanley & Co. LLC: Yes. So I think the NEMA data is calling for lighting to be flat to down this quarter. I think actually down (32:17). Is there anything in your footprint, be it new construction versus replacement, or resi versus C&I, that would explain that performance? Or do you think you're gaining share like-for-like?

Right. If I could just make a comment, Nigel. The NEMA data is not inclusive of the entire market, and so it's a subset of the participants, and so you got to take that data with a little grain of salt. And so, as we create our own index of the lighting market, we use the NEMA data and then we use some estimates of what other participants likely have done, and our belief is that the market is growing in the low to mid single digit kind of category. Nigel Coe - Morgan Stanley & Co. LLC: Okay.

We'd be disappointed if we weren't gaining a little share. That's certainly the expectation. Nigel Coe - Morgan Stanley & Co. LLC: Right. Okay. That's interesting. And just a couple of quick ones. Rick, why would the second half tax rates be higher? I mean, that's obviously what's embedded in guidance. And then maybe just call out the impact of the warranty true-up this quarter in Vehicle.

The tax rate is, largely this year, a function of the mix, and so as we start seeing seasonally higher growth and also seasonally higher earnings in the U.S., that typically is what pushes the rate up a bit, as well as in Brazil. We expect that economy to improve as we go across the year. So that's the major impact. If you're asking about the – are you asking?

Warranty.

On the warranty in truck, the Vehicle impact in the first quarter was about $8 million – let me get you the exact number. $6 million. That was the impact in the first quarter. Nigel Coe - Morgan Stanley & Co. LLC: Okay. That's great. Thanks.

Our next question comes from Jeff Sprague with Vertical Research.

Thank you. Good morning, everyone. Just one little follow-up on lighting. Was there a distinction in your growth rate between non-res and resi, or between large projects and smaller projects on the non-res side?

Yes, Jeff. I don't really have the data. I don't believe there was, but we can certainly take that as a follow-up, and Don can follow up with you after the call. But I don't believe that we saw any significant difference in our performance. I mean, large projects in general are pretty much following the pattern that we've seen, and in general, there's fewer very large industrial projects in general. But I'd say that that's not what drives most of our lighting business. It's more the commercial projects and street lighting and resi, and we've not seen, I don't think, any significant difference in the pattern of sales or orders in those segments.

Okay. Great, and just talk to kind of the margin guide not moving. I'm just wondering if there's some headwind. My rough math, 2 points of organic growth at a 30% incremental is kind of 60 bps of margin, and your margin guide range for the year is 60 bps. So it does seem like the better revenue should have knocked you outside of the range. I mean, maybe 30% incrementals at this sales level is not the right number, or there's something else, but how should I think about that?

Yes. I'm not sure what, the calculus that you're doing, Jeff, but in our own calculus, which is reflected in our guidance, we think we are still within the range, and that's kind of the basis for the guidance that we provided. We don't think that the volume changes and the other assumptions take us outside of the range that we've indicated.

Okay. All right. Thank you. I'll follow up.

Our next question comes from Steve Volkmann with Jefferies.

Hi. Good morning. Thanks for taking the question. Curious about your thinking now that Hydraulics looks like it's clearly bottoming and getting better, how do we think about what sort of more normalized margins in that segment might look like given all the cost saves that you've done there?

What we said, Steve, about Hydraulics is that if you think about this business, we said that we established a range of profitability of 13% to 16%, and we said that even at the bottom of the economic cycle post restructuring – and I will point out that we're not done with restructuring yet; we still have the balance of 2017 to get through – is at the very minimum that you could expect this business to deliver at any point in the economic cycle 13%. And we're still very much convinced that that's the case, and then we said from that point forward, you could expect obviously margins to ramp from that point, and you could expect probably pretty good incrementals on that. So at this point, we're not prepared to go outside of those ranges that we've established. We have to, first of all, get into those ranges and demonstrate and prove that we can sustain that, but that's still where we're parked on the business. We think it's 13% to 16% through the cycle.

Okay. Great. And then I think, Craig, you mentioned in the outset that the cadence of the quarter was positive and that March was a big month for you. I don't want to put words in your mouth, but I'm curious as you look at that, it sounds to me sort of across the board that North America was kind of the weaker of all the geographic markets. And I'm curious if you're seeing signs that North America is actually sort of starting to participate in the green shoots that we're seeing here.

I think it's accurate, first, to say that we definitely saw an acceleration in the rate of growth in the month of March, and that really was pretty much across the board in all regions and in all businesses. But I will say to the point around the U.S. market, the Americas market versus rest of world, I'd say that we continue to see more robust growth outside of the U.S., and that pattern is really I think largely continuing.

Great. Thanks so much.

Our next question comes from Chris Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co., Inc.: Thanks. A follow up on tax rate, I think your long-term outlook is roughly for 1 point of increase a year. If the mix progression that you have into the second half outlook holds, would we be looking at a little bit greater magnitude of tax rate increase for 2018?

Wow that's, yeah, I haven't looked at that specifically. I mean clearly, the biggest mover on our rate is the mix, the geographic mix, the two biggest factors being the U.S. and Brazil, which are the countries that currently have the highest tax rate. I don't know what the tax rate is likely to end up with after the administration finishes its work in the States. And so really, that's how I'd have you think about it. To the extent that Europe and Asia continue to grow faster than the U.S., then no, you wouldn't have a negative mix impact on the rate. But if that flips around and the U.S. does start to accelerate, perhaps because of infrastructure programs or a tax cut that causes an increase in business investment, then yes. You might see the rate edge up a little faster. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. Thanks. That's helpful.

Our next question comes from Andrew Krill with RBC.

On the lower restructuring in the quarter, and I guess just specifically, which segments saw less than planned?

Andrew, we didn't catch the first part of your question.

Caught that in the middle. Can you repeat it?

Sorry. On the, back to the restructuring. Could you give some more specifics on I guess which segments saw less than expected, and if this kind of had anything to do with maybe trying to avoid interrupting any orders on the verge of a possible recovery?

Yeah, it's a $6 million delta from the original plan, Andrew. And I'd say that probably most of that delta was in the Electrical side of the house.

Systems and Services.

Systems and Services.

And really, it had to do with projects that we thought could get done but got moved into Q2.

Right. So really, it had nothing do with us interrupting orders. It was simply our ability to kind of get everything done and booked in the quarter.

Okay. Got it. And then just kind of with demand seemingly on the verge of a recovery broadly speaking, is there any chance that you may not need to do all the restructuring you currently have planned? Or could that be tamped down?

What I'd say, a lot of what we're doing, Andrew, as we talked about in the past, is that we're making structural changes to the businesses, things that will fundamentally lower our structural costs inside the company. That doesn't in any way prevent us from flexing our businesses and growing as volumes go up over time. And so, no, we think that this restructuring plan independent of volume is the right plan and really does position our businesses and the company to deliver just higher margins through the cycle and at all points of the cycle.

Great. Thank you.

Our next question comes from Rob McCarthy with Stifel. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Hi. Rob McCarthy here. I guess the first question is just an update on kind of your outlook for M&A as a whole, because I think Craig, when we spoke in the February timeframe, I think you cited expensive valuations across the board. That's continued, and you can see that in kind of the slow rate of global M&A overall. And then I think, Rick, when we sat down, I think there was some ambient concern around, well let's just say, achieving cost synergies, particularly in an environment where it seems globally people are a lot more zealous about protecting the raw material of cost synergies often, which is workers, unfortunately. So could you just talk about how you look at the M&A environment right now? Is it just incrementally worse? And does this kind of push you to really think about doing other things with your cash right now?

Yes. I'll take that, Rob. Clearly, valuations are still high. But of course, earnings growth is accelerating and that is definitely improving over time how you look at these valuations. Secondly, we have seen just in the last several months, we have seen more and more situations where it appears that a sale could be possible. And so we have become more active at looking at opportunities. Hard to know at the end of the day what, if anything, we end up getting done. But as you know, we have had a long history of completing a significant number of acquisitions and we think we're pretty good at it, and so we are now devoting more time to looking at opportunities. To the comment about synergies, it's very hard to tell to what extent there will be any institutional constraints on achieving cost synergies. It does appear that the commentary around that has subsided quite a bit and so we'll just have to look at each situation on its own merits to decide whether we're comfortable with the synergy possibilities. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Okay. And then just any kind of, and I might have missed. This might have already been covered in the context of the call, but any update from your perspective on the JV with Eaton Cummins and kind of the messaging there because I think there was an update today. Anything incrementally you want to add on this call?

Yes, and I'd say not really. I think we, in the call that we had, we laid out the strategic rationale for the joint venture and we're excited about the prospects that it will add and what it'll do to accelerate the growth rate in our automated transmission businesses. And at this point we do expect that the transaction will close in Q3. There's actually seven antitrust filings that we have to make and that's really the long lead time item that we're working through right now. But we remain optimistic that Q3 is the right timing and we think it really does strategically advantage our transmission business going forward. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Thanks for your time.

Okay. Thank you.

Our next question comes from Andrew Obin with Bank of America.

Yes. Good morning.

Hi.

Yes, just a question on the Hydraulics business, just a version of normalized margin question. A, do you think you can continue to post positive order growth through the end of the year? And B, if you look at the normalized volume for this business, where are we relative to normalized volume, 80%, 70%, 60%?

Yes, Andrew, I think that's the $64,000 question regarding the future and whether or not we're at kind of this key turning point in Hydraulics markets. I can just tell you, based upon history, for those of us who have been around this industry for a long time, you typically go through pretty long upcycles. And all indications are we're at the front end of an upcycle in Hydraulics. And so our expectation would be that orders continue to be positive throughout the balance of the year. But at this point, we think well, let's see how Q2 unfolds. But at this point, we are certainly optimistic that that will be the case. The other half of your question had to do with?

No, I think it was sort of where we are relative to normalized volume.

Yes. Sure.

And just – yeah, sorry.

No, I think on that question, I'd say relative to normalized volume, I'd say we're probably still some 25% percent below what we'd call the normalized volume for those markets. And so I think we have a long way to run before we get back to what we'd say would be kind of a normal level of market activity.

And just to follow up on Hydraulics, historically you've had very strong exposure to agriculture. Can you provide some color, what you're seeing in those markets and how much is contributing to the order strength? Because I think on the construction, it's more apparent.

Yeah.

Yes, we had strong orders in agriculture as well in the quarter, Andrew. But one other comment I might make just to talk about the order pattern across the year, that there is a question of the extent to which the very strong orders in China continue. You probably saw the data. Excavator sales, for example, are up very dramatically and so that is one factor that certainly you could see coming down a little bit. The growth still being very positive, but perhaps not quite as positive as it was in the first quarter. So that's one thing that we're looking out for as the year progresses.

Okay. Thank you.

Our next question comes from Andy Casey with Wells Fargo.

Thanks. Good morning, everybody.

Good morning, Andy.

Hi.

Near term question, and you may have just answered it, Rick, but the Q2 revenue guidance implies, well it includes 1% to 2% organic versus 2% in Q1. Clearly it's slight, but it implies a deceleration. I'm trying to understand the drivers behind that. Is it end market, like the China comment that you just made? Or is it something else, like fewer business days?

Yes, I guess the way I would characterize it, Andy, is that the first quarter rounded up to 2%, but it was between 1.5% and 2%. And so our guidance for Q2 really implies, essentially, very similar kind of organic growth in Q2 to Q1.

The other thing I would add, Andy, that part of perhaps the hesitancy that you're seeing from us and others is that March was a very strong month, and so that's a real question, to what extent did what we experience in March, was it a function of the fact that Easter fell in April this year versus March, and is there a normalization of what happened in the month of March? And so, at this point, we're a little bit hesitant to make a more robust call, because March was such a big piece of the quarter.

Okay, Craig. I'm going to take the bait within that response. It's kind of somewhat related. Eaton has a very diverse view of the U.S. market, and per your comments, March being very strong globally, we've seen some deceleration in PMIs in the U.S. in April. I'm just wondering if the company has seen any similar deceleration in April relative to March?

No, actually we haven't at this point. I mean the month of April is unfolded largely as we anticipated, but once again, as you can see from our guidance, what we anticipated was a Q2 that would largely look like Q1.

Okay. Thank you. And then squeeze one last in. Just a clarification on ESS. Understand large project activity in oil and gas, you called out as remaining weak. Just wondering, within that segment, did any end market demand actually get worse? Or is what we're seeing in that commentary more a function of comparisons?

I would say it's largely a function of comparisons. The three-phase power quality market had had some very large orders in the prior year. And so that, with ESS, you didn't see orders that totally replaced those strong three-phase orders. But other than that, there really wasn't anything that got worse.

Other than perhaps the Middle East was.

Well, okay. Fair.

We saw some weakness in the Middle East as well.

Yes, which is not a giant part of the business. But clearly in Saudi Arabia, for example, there is some softness.

Okay. Thank you very much.

Our next question comes from Jeff Hammond with KeyBanc.

Hey, guys. Just one more on 2Q guidance. It looks like you're calling for about segment margins to be flat, and you had a good lift in 1Q and your guide has a nice lift. So anything within the 2Q guide, whether it be restructuring, timing, or savings timing, that would support more flattish margins versus the lift?

The only thing I would say, Jeff, we talked about this issue of commodity prices versus price realization in the marketplace versus other cost out initiatives, and I'd say that's probably the one issue that we continue to work through, that is holding back margins being stronger in Q2. We have a plan. As we mentioned to you, that issue essentially mitigates and solves itself by the time we get to the second half of the year. But that continues to be a pressure point in Q2.

And if I could slip one more in, in ESS, you cited the strength in Asia. What's driving that, particularly?

Yeah, I'd say we're seeing broad strength across the board in the Asia market. And whether it's the stimulus spending that the Chinese government is pumping into the economy, whether it's the monetary policy, we are generally seeing across the board strength in the Asia market, and tough to tell exactly what's driving it, but it's pretty broad based.

Okay. Thanks, guys.

Our next question comes from John Inch with Deutsche Bank.

Thank you. Good morning everyone. Hey, Craig, the $80 million of raws headwinds, is there any – or (54:21) – is there any way to parse out how much was in the first quarter, and maybe a little bit of color by segment? Or was it more weighted?

And I would really – I'd say, rather not parse it. We're seeing it across the board in each of our businesses. The front end of the pressures were probably more electrical-centric. Of late, they're more industrial-centric, but I think we're really seeing it across the board in each of our businesses. And I'd, at this point, as we talked about the absolute size of the number, we said essentially it was about offsetting the restructuring benefits, and so it was certainly a material number.

And the reason, Craig, we're not raising prices in response is because we expect these costs basically to be transitory, is that how the market thinks? Or is there some other reason?

No, the way I'd say, the way you should think about it is that we are in fact raising prices, but it takes time, number one. And secondly, one of the big challenges was, as we talked about in the last earnings call and guidance for the year, commodity prices were highly volatile, and up and down from one day to the next, and so you have to get to a period of stability where you actually understand exactly where the commodities are going to settle before you can really have an intelligent conversation with customers around taking prices up. So we had to get to a point of stability before we could actually implement price increases. But, so we're going to, between price increases and other cost-out measures, we'd expect this commodity inflation issue to go away in the second half of the year

Yes, no. That makes sense. By the way, how did within Vehicle, how did auto do? And can you remind us what your auto build assumptions are for the year?

Yes. Auto did well by the way and largely on the back of continued strength in China and in surprising strength quite frankly in what we saw in Europe, where the, I read card registrations were up quite nicely in the European market. So I'd say by and large, the market's doing fine. The overall build assumption, we said it would be flat to up slightly.

Flat to up slightly.

Yeah.

And that encompassed the U.S. being down just modestly. And so things are playing out, if anything, maybe a little better than we thought because of the non-U.S. production.

And principally, Europe with more than anything. That's really the market that surprised on the upside in Q1.

Yes, no, that makes sense. And maybe then just lastly, there's a lot of attention focused on these oil and gas projects, and you've called out ESS for more than one quarter, right. The question I have is, do you think these, Craig or Rick, do you think these projects can actually come back with oil prices at these levels? In other words, is it a question of just the timing? So oil holds at $50, do the projects actually come back? Or do you need a little bit more of other things to sort of stimulate the activity? And maybe with the answer to that is, the discussions your folks may be having with people in the field, that sort of thing.

Let me take a stab at that. I mean, you have seen over the last couple of months several companies announce fairly significant downstream-type plans, and so I do think some of those projects are likely to move forward. On the upstream side, I think particularly for the very large offshore oil projects, I think that's the area that is not clear. Because unless an oil company really believes that prices are going to sustainably be at least at these levels if not a little bit higher, question, can some of those offshore, which are very big projects, can some of those make economic sense.

No, that's a fair answer. Thanks very much, guys. I appreciate it.

Thank you.

Thank you all for joining us today. With that, I think we're going to wrap up our call. As always, we'll be available to take questions and follow up for the next couple days. Thank you for joining us.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.