Ladies and gentlemen, thank you for standing by. Welcome to the Eaton Second Quarter Earnings Call. As a reminder, this conference is being recorded. Now, I'd 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 for joining us for Eaton's second 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. Our agenda today, as normal, includes opening remarks by Craig, highlighting second quarter performance along with our outlook for the remainder of 2017. As we've done on our past calls, we'll also be taking questions at the end of Craig's comments. A little housekeeping, the press release for today's earnings this morning and the presentation we'll go through have been posted on our website at www.eaton.com. Please note that both the press release and the presentation include reconciliations to non-GAAP measures. A webcast of this call will also be available on our website, and it will be available for replay after the earnings call. Before we get started, I do want to remind you that the comments today do include statements related to future results and are therefore forward-looking. The actual results may differ from those due to a wide range of risks and uncertainties, and those are all described both in the earnings release and in our presentation. Those will also be outlined in an 8-K. With that, I'll turn it over to Craig.

Okay. Hey thanks, Don. Hey, I'll begin by stating that we were pleased actually with our Q2 results, having delivered net income and operating EPS growth of $1.15, at the high end of our guidance for the quarter and a 7% increase versus prior year. And as you know, this was against our guidance of $1.05 to $1.15 a share. Organic growth was up 2%, partially offset by negative FX impacting sales by 1%. Margin performance we think was strong, especially in light of the continued commodity cost pressures that we experienced in the quarter. Operating cash flow of $574 million, and we repurchased $210 million of our shares or 2.7 million shares in the quarter. So, overall, we think strong performance and a good indicator that our strategy is actually working and we're focused on organic growth. We're restructuring our businesses to improve competitiveness and returning cash to shareholders. Page 4 is a look at our EPS bridge from the midpoint of our guidance. Our EPS performance for the quarter, as I mentioned, was $0.05 better than the expected midpoint and at the high end of our guidance. We had higher segment margins. They were up at the upper end of our guidance range, and that contributed $0.03 to higher earnings. We had a combination of higher organic revenues and modestly less negative FX, which combined to yield $0.02 a share. We spent $7 million less on restructuring in the quarter than our outlook at the beginning of the quarter. That added $0.01. And I would say that the lighter restructuring, though you should view as largely timing as a number of projects moved from Q2 into the second half. And lastly, our tax rate was 10%, and this was slightly above the upper end of our expectation for…

Thank you, Craig. At this point, we'll have the operator provide some instructions for the Q&A session.

Our first question comes from Julian Mitchell with Credit Suisse. Julian Mitchell - Credit Suisse Securities (USA) LLC: Hi, good morning. I guess my first question would be around margins. So the operating margins ex restructuring were down in four out of the five segments year on year. And also you talked about some slowdown in certain end markets during Q2, so I wondered why you're not planning to step up restructuring materially, if the top line growth is leveling out here and margins are down in most of your segments?

Yes, I'd say Julian, the way I would think about margins is we are largely on track in terms of the margins expectations. As we look forward, we're in a little bit of a transition period today as we're experiencing commodity price volatility. And in this highly volatile market, trying to peg the right point of how do you offset that with a combination of cost out and passing it forward into the marketplace has been a little bit of a challenge. But if we think about the margin progression for the company and for our businesses overall, we think we're largely on track to deliver what we've committed. With respect to restructuring, as you're well aware, we had a pretty sizable restructuring program that we're working through today. And it's going essentially well, and our businesses are delivering. I think whether or not that plan gets bigger or not, I think really becomes a function of what we see in the outlook. And at this point, we do think our markets are returning to stable growth, not breakaway growth, not the kind of V-shaped growth that we're experiencing in Hydraulics. But we do think we're going to be looking at a period of stable, predictable growth. And so we don't necessarily believe, barring unusual events, that the company needs to launch another very large restructuring program. Julian Mitchell - Credit Suisse Securities (USA) LLC: Understood. Thank you. And then just my last question on the operating cash flow, that was down, I think mid single digits or so in the first half. The year is guided to grow, so you've got a decent sort of I think mid teens growth or so in the second half dialed in. Some of that I guess is coming from net income or EBITDA growth accelerating. But is there anything happening special on the CapEx or working capital side that gets that operating cash flow sort of back up year-on-year?

Yes. Julian, it's Rick. Let me give you a little perspective on that. If you look at our operating cash flow for the first half of 2017 compared to the first half of 2016, and if you'll recall, we put $100 million into our pension plan in the first quarter of this year. We didn't do that last year. Our operating cash flow is almost identical. In fact, it's up a little bit in the first half of 2017, if you take out that pension contribution. So really what happened is we had extraordinarily strong cash flow in the first quarter. It was up about $90 million over the prior first quarter. And in the second quarter, we've given some of that back. And the reason we've given it back is really two reasons. One, we've had a different pattern of growth this year. And so we had to put more money into working capital in this second quarter. So we had strong growth from Q1 to Q2, and we're seeing growth into Q3. And if you'll recall last year, we actually had a sales decline from Q2 to Q3. And then the second reason is that we did have some expense, some cash usages in the second quarter of this year that were in other quarters last year. And there were two principal ones. We had a debt maturity right at the start of July. And so we, because of the way the calendar fell, we ended up making the interest payment in the second quarter of this year. Normally, that would have been in the third quarter. And then we also ended up making the rebate payment on our electrical distributor program in April, and it occurred in March of last year. And so those things are simply slight movements between quarters. And so we're confident as we look at our operating cash flow forecast that we're still on track to hit that. Julian Mitchell - Credit Suisse Securities (USA) LLC: Thank you very much.

Our next question comes from Ann Duignan with JPMorgan.

Hi, guys. This is Christie Wei on for Ann Duignan. Can you discuss Hydraulics demand by end market? You mentioned you saw strength in construction in China, but what are you seeing in other markets as well?

Yes, I mean, what we're really seeing I think mostly is a pretty broad-based improvement in our Hydraulics business. We're seeing certainly kind of the V-shaped recovery that I mentioned in China construction. But more systemically, we're seeing really increases in all regions of the world. And we're also seeing increases really in both mobile equipment and stationary equipment and then across both construction and ag. And so what we've really experienced I'd say mostly is a pretty broad-based recovery in most of the hydraulics markets and a really outsized V-shaped recovery in China construction.

Okay, thank you.

Our next question comes from Jeff Sprague with Vertical Research.

Thank you. Good morning everyone. Craig or Rick, I suppose you just explored a little bit more corrective actions you might be trying to take on price costs. I guess that would particularly play to pricing. We've seen in our survey results that it's tough to get pricing near term. But what actions are you taking and how do you see this playing out in the back half of the year?

Yes, so I'd say, I'll take the question. This is Craig. But certainly when we came into the year, it was our anticipation that we'd have roughly $80 million of timing of unrecovered costs that would flow through the business. And it was our original anticipation that commodity prices would start high, and then we'd see them essentially retreat a little bit as the year unfolded. And in fact, that's largely what has happened. Unfortunately, it hasn't happened to the extent that we anticipated. And then on top of that, we're ending up with these extraordinary events where you see spikes in various commodities essentially driven largely by maybe geopolitical factors and I'll cite copper as a prime example, where copper prices spiked last week due to not necessary a supply/demand issue, but more of a more political kind of issue around China. And so I'd say with that backdrop, we've tried to get out in front of this in general with kind of our view of the world and anticipate where commodity prices were going and working with our customers around efforts to recover these cost increases, and obviously working on a plan to mitigate some of it through cost out, and, but it's really our ability to call the exact timing on when things stabilize that's created the issue for us. But, the way I think about it is largely a timing issue. We'd had hoped that by time we hit Q3 and the second half of the year, that we were essentially balanced, that we'd fully recovered all of the commodity price increases. And we think at this point, we may be a quarter or so off, given some of the recent events and some of the slower retrenchment in some of the key commodities that we're buying. But we think once again longer term, as you think about kind of the implications is that, we will be able to offset via price and/or cost out measures the commodity price inflation that we're experiencing, and we're dealing with a bit of a timing issue today in our businesses.

Great. Thank you. And then I was wondering if you could unpack a little bit within the Electrical pieces, some of the larger end markets within EP, a little color on how lighting did. And then also curious on ESS, we saw some constructive commentary out of Schneider on data centers and Hubbell on utility T&D in the U.S. Maybe a little bit of color on how those markets are doing, or how they performed in the quarter.

Yeah, I'd say that for us, again just kind of a walk-through some of the major end markets. You mentioned utilities, we'll start there and we're saying generally speaking, the utility markets is, those markets continue to run a little bit better than flat, up slightly from kind of prior year, but not kind of in any way or shape a breakaway performance. But we are calling them, as when we set our plan for the year was that those markets would be flat to up 1% or 2%, and I would say that they're performing largely in line with that. Residential markets for us continue to do well, so residential construction, a little bit of a watch out in terms of housing starts in Q2. But by and large, residential products for us continue to do well, and we think that market continues to be positive for the year. A little bit of a turnaround on the positive side for us is industrial controls. That market certainly strengthened in Q2, and we think that's perhaps the beginning of a trend. Too early to call it, but we think that market continues to do well. The light end of commercial continues to perform well, a little bit of retrenchment from some really strong numbers that the market posted in Q1, but that market continues to grow mid single digit. And so we think light commercial continues to be positive for the business. The concern or the challenge continues to be in the large assemblies in the large projects. And that market, we really have not seen any material improvement when you think about the business around the world. A little bit of strength perhaps in North America, but that strength was really more than offset by weakness in Asia and Europe in the region. So in total, that business has really not recovered to any significant extent and continues to run, quite frankly, significantly negative year over year. Lighting, that market I'd say in the quarter, a little bit weaker than Q1. And we'd anticipated that that market would weaken up a little bit, and it did. We think longer term, we think lighting continues to be a positive market with mid single digit growth prospects, but it certainly was weaker in Q2. You saw where some, I've referenced some of the light commercial projects in the quarter that perhaps were the underlying factor. But we think long term, lighting continues to be positive. And our outlook for the year really hasn't changed from when we set our original planning guideline.

Thanks. Was the lighting down for the quarter? And I'll pass it with that. Thank you.

Lighting was relatively flat for the quarter.

Thank you.

Our next question comes from Tim Thein with Citigroup.

Great. Thank you. Craig, maybe just to follow up on that last comment there. In terms of systems and services and as part of the Analyst Day earlier this year, again looking further out to 2018 and beyond, you did cite that at least the expectation at the time that you would start to see some of those large industrial projects and oil and gas activity start to come back. Is what you've seen since then and just given your conversations with your major customers, does that give you pause in terms of that expectation? I'm not of course looking for 2018 guidance, but maybe just a little bit more context there.

Yes. No, I think these markets are always difficult to predict when the exact turn will occur. As I mentioned in my opening commentary, we were encouraged by the fact that our U.S. business, the North America business, showed very strong order growth in Q2. And so we still believe that, that market is poised for a recovery. We think oil and gas markets certainly will begin to pick up and already have picked up. And so no, our view from a 2018 perspective remains unchanged. And we do think that that business sees positive growth in 2018. And some of the early indicators we think are supportive of that.

And Tim, it's Rick. We did see some good orders in midstream oil and gas in the second quarter. So again, a glimmer that things are starting to improve, but it's really the very large type projects that still haven't really started to accelerate.

Got it. Okay. And then just on products, given the order strength you've seen for a couple of quarters now in Asia Pacific, does that pose any kind of regional headwinds in terms of from a margin standpoint to the extent that you are seeing faster growth in Asia? Would that put any pressure on kind of the flow-through, or is that not significant?

Yes, what I'd say, your supposition is generally true that most of our North America businesses are more profitable than our businesses around the world. But, and we're seeing a little bit of that dynamic in the Hydraulics business where we simply have a relatively speaking larger business in Asia. But I would not anticipate any material impact in Electrical from the relative growth patterns in Asia.

Okay, thank you.

Our next question comes from Nigel Coe with Morgan Stanley. Nigel Coe - Morgan Stanley & Co. LLC: Good morning. Just wanted to go back to the price cost. And Craig, you mentioned that you may be a quarter behind on the timing there. So maybe just comment on the $80 million, where that stands today, and is the bulk of that slippage in Electrical Products or is it a bit more than that?

We've actually, if you take a look at the basket of commodities that are important to our company and you go commodity by commodity, and I'd say almost every commodity today that we purchase is at a higher level than what we originally anticipated. And so I think it's a pretty broad-based commodity challenge across most of the baskets of commodities that we buy as a company. So it's pretty broad-based. And I'd say with respect to the timing, for us what we need and I think what everybody needs in these conditions is you need a period of stability where you actually know where these commodities are going to land. It's very difficult in an environment where commodities continue to bounce around, to go out to put a plan together to offset and have intelligent conversations with your customers. And so as I mentioned, we'd hope that we'd have behind us by time we hit the midpoint of the year. And we do think that it's going to be, it will take us another quarter before we are able to really get to the point where we're offsetting the inflation that we're seeing. Nigel Coe - Morgan Stanley & Co. LLC: Okay. But if we're trying to bridge between the previous guidance and where we are now, do we put in $120 million of unrecovered raw material inflation? I'm just trying to size the impact.

Yes it's, what I would suggest is if the exact number, we haven't necessarily quantified in terms of the impact. But if you think about order of magnitude, $80 million, $40 million a quarter, that kind of what's baked into the guidance that we provided. So it's fully baked into the guidance. And I think what you see when you look at our sequential incremental margins from one quarter to the next, I think yeah, I think you can see the evidence of the fact that we are in fact offsetting it. We are in fact recovering it in our sequential incremental performance. Nigel Coe - Morgan Stanley & Co. LLC: Okay. And then just a quick one on truck guidance. Does the outlook for margin, the 14.8% to 15.4%, does that bake in the impact of the Cummins JV? I'm just wondering if the unchanged guidance is apples to apples.

So our truck guidance, we actually, you say it's baked in to what? I am sorry what was the front end of the question? Nigel Coe - Morgan Stanley & Co. LLC: Because I think the nature of the JV is that it's revenue dilutive and margin accretive. I'm just wondering if the JV, if the guidance, the unchanged guidance is apples for apples.

Yeah, it doesn't really have much impact, Nigel, because it's only a $25 million reduction of revenue and virtually no change in profit. So it's not really significant to the overall margins.

But we have not updated the guidance specifically for the impact of the JV at this juncture. We intended to do that at the end of Q3.

But it shouldn't have a significant impact. Nigel Coe - Morgan Stanley & Co. LLC: Understood. Thank you very much.

Okay. Our next question comes from Jeff Hammond with KeyBanc.

Hey, guys. Just on the price side of this kind of price/cost dynamic, are you seeing any areas where you're struggling to get price? You've had some peers kind of talk about that. And then any areas where you're kind of going for another bite at the apple in terms of price?

Jeff, what I'd say is that I'm not going to talk about specific customers or business in terms of what our exact pricing plans are. But suffice it to say that to the extent that we are experiencing more commodity price inflation in our businesses than we originally anticipated, and we don't have clear line of sight to other measures to offset it with cost reductions, that the intention would be to go out and recover it in the marketplace. And that's fully our expectation that through the cycles of commodity prices up and down that commodity costs are neither a headwind nor a tailwind to our business.

Okay. And then can you just speak to what you're seeing on the auto side of the business. There's been some mixed SAAR data, and I notice you raised truck, but kind of left the overall unchanged.

Yeah, and it is to your point, it's really the weakness that we have seen in global light vehicle markets around the world. And that's really the offset to the strength that we're seeing in the North America Class 8 truck market. But we've seen the weakness largely around the world with the exception of let's say of Latin America, which is too small to matter. But North America, even China, European car productions, all of these metrics are running slightly below our original plan for the year. Not dramatically, but enough to offset the strength that we're seeing in North America Class 8 truck.

Thanks, Rick.

Thank you.

Our next question comes from Chris Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co., Inc.: ...transcript, but on the tax rate, it looks like we're backing into a bit of a spike, maybe 12% plus in the fourth quarter. Is that accurate?

Right now, Chris, we anticipate the tax rate will be higher in the fourth quarter than the third quarter. Obviously there's a range, and I'm not going to leave a precise guidance right now. But yes, we do think that for a variety of discrete item reasons, that it'll be slightly higher. Christopher Glynn - Oppenheimer & Co., Inc.: Okay, thank you.

Okay, our next question comes from Andrew Obin with BofA.

Hi, guys, good morning, guys.

Good morning.

Hi.

Just sort of bigger picture question. When Eaton was put together, the idea was to put a multi-industrial company. And if I look at the organic growth last quarter, if I look at the organic growth this year, and if I look at sort of your multi-industrial peers that don't necessarily have big oil and gas exposure, we sort of have a number this quarter organic growth, 3.5% to 4%. Last quarter also seems your 2% was good, but towards the lower end of your peer group. I was just wondering, as you look at the portfolio and if you look at the organic growth, is there one particular market that you feel is holding you back or does it just come down to these large projects on ESS? Is that what's holding you back? I'm just trying to understand how I should think about structural growth for Eaton in this environment relative to your peer group.

Yes, I'd say, Andrew, that the kind of thesis around the collection of the company and then our broad exposure to very thin markets is in fact the right one. And, but many of our businesses, I'd say more than anything are really tied to industrial production. It's one indicator of kind of the underlying growth prospects for many of our businesses. It's really what's going on with industrial production. And industrial production really over this period has been quite muted, growing sub 2%. And so I think if there's one indicator, yes, many different businesses tied to different end markets, but many of the same characteristics. And I'd say that we too have been disappointed that industrial production hasn't grown faster. And in any given year, there's been different reasons and different things that have fallen out of bed. But certainly, we like you have been concerned that we haven't grown faster over the last four years or so.

No, I understand it's a focus for you guys. Another question on Aerospace, just you're sort of citing defense headwinds in the second half. I think one of the larger themes at the Paris Air Show was that defense spending actually looks better for the second half, because of all the allocations that already taken place. Is it a specific program? Just want to get more color what's happening in Aerospace in the second half in the defense side.

Yeah, no, I mean I think in our case, what we've said with respect to defense spending is that we really haven't seen it yet. There's been a lot of discussion about appropriations, about fleet readiness. But what we've said is that we really haven't seen it. It didn't show up certainly in our order book in the first half of the year. And we're optimistic that it will come. There's a real need, but we've not yet seen it show up in our order book, and that's the reason for the caution with respect to our outlook. The other piece of our outlook that's not just defense, but also through the first half of the year, commercial aircraft shipments ran at relatively subdued levels. You obviously track the Boeing and Airbus deliveries, and those deliveries were certainly below what our expectations were through the first half of the year. So it's, yes, it's military defense, but there was also a little bit of weakness in commercial deliveries as well in the first half of the year.

Terrific. Thanks a lot.

Okay. Our next question comes from Joe Ritchie with Goldman Sachs. Joe Ritchie - Goldman Sachs & Co. LLC: Hey, good morning, guys. Maybe just kind of following along Andrew's question there. Craig, when I think about your businesses, there's got to be certain businesses, from a structural perspective, that you feel like have more competitive mode, better pricing power than others. And I guess, how are you thinking about that across the portfolio and the potential to do something with the portfolio in the future?

Yes, Joe, I'd say that we think about each of our businesses, it is our expectation that every one of our businesses, through a combination of our ability to pass through price in the marketplace and our ability to offset it through various internal productivity measures, that every one of our businesses have the ability and are expected to offset commodity price inflation. Our businesses in some cases are structured differently to do it. In many cases, we have contracts with customers that allow us to pass on commodity price increases based upon a formula. Those formulas work in both directions. And in other cases, it is a negotiation. And one of the bigger challenges that we have, as you can appreciate, is in our large project businesses. And so in businesses like Electrical Systems and Services where you are working off of a very large backlog, it does take time to pass through price increase. But we firmly believe that every one of our businesses have plans and are certainly expected to offset, through time, any inflationary pressure that they experience in their businesses. Joe Ritchie - Goldman Sachs & Co. LLC: That makes sense. I guess whenever there's any discussion around the portfolio, I feel like the focus tends to go right to Vehicle and maybe to a lesser extent Hydraulics. But I guess one of the major changes that's kind of happening over the next few years in the aerospace industry is what Boeing has been saying about their opportunity to really increase their services revenues moving forward. How are you guys thinking about that potential threat to your business and your ability to extract pricing?

Yeah, I'd say Aerospace, the dynamics are in many ways different than many of our businesses. And the thing that gives us a lot of confidence in our ability to maintain value and margins in Aerospace is the intellectual property around the components that we've developed that are on these aircraft, we own the IP. And so we will continue to work with Boeing and Airbus and others in terms of helping them in their endeavors to participate more fully in the aftermarket. But at this point, we're very confident in our ability to maintain our margins in Aerospace based upon our IP position and our position on the platforms that we're flying on. It's always a challenge and it's never easy. But our teams are very confident in our ability to continue to be paid for the value that we generated when we put our parts on these platforms and our ability to hold on to it. Joe Ritchie - Goldman Sachs & Co. LLC: Fair enough. Thanks guys.

Our next question comes from Deane Dray with RBC.

Thank you. Good morning everyone. Hey, you called out some additional spending in digital and R&D. Can you give us a sense of what areas specifically, any expected paybacks or augmenting products, software-as-a-service and so forth?

Hey Deane, the primary spending, though we're spending really across our entire business in and around digitalization. And for those of you who had an opportunity to attend our Analyst Day at our Pittsburgh facility had an opportunity to see firsthand some of the technology that we're investing in. So we're really spending pretty broadly across the company. The places where we've accelerated our investment and are spending more than what we originally anticipated is largely in our Electrical Products segment. And as we've said before, some of the spending will certainly fall into the category of you have to be ready, you have to be capable. And then in others are places where we're really in the midst of really developing what we think are unique and compelling value propositions around digitalization. Lighting is one great example of where we think today, we have a real value to sell and we think we can ultimately be paid for it. But these are largely upfront investments in core technology and core capability that essentially will have paybacks more in the medium term than in the near term.

Got it. And then as a second question, are you seeing any what you would describe as channel disruptions from e-commerce, maybe on the electrical side, business shifting away from some of the traditional distributors? Anything that you can comment there?

Yeah, no, the Amazon kind of factor is certainly out there. There's lots of discussions taking place. And lots of our distributors are looking at things that they're doing and investments that they're making to developing similar capabilities. And so for us, it's one that we continue to watch. And we recognize that many of our distributors see a potential threat and are working earnestly towards figuring out things that they're doing in and around their own business models to maintain competitiveness. One of the big advantages we think we have and one of the reasons we don't believe necessary that the Amazon threat becomes a significant threat in the electrical channel, is a lot of what we do is obviously safety driven and highly specified. And so the products that we're selling are not off-the-shelf commodities that are simply plug and play. They're typically highly specified. And when things don't work properly, lives are at stake. And so we think there is a measure of protection. But having said that, it is certainly something that we continue to watch and our distributor partners continue to watch. And they are making really sizable investments in having Amazon-like capabilities around delivery, which they should do.

That's helpful. Thank you.

Our next question comes from Andy Casey with Wells Fargo.

Hey, good afternoon. This is Jorge Pica on for Andy. Just two small mix questions. On that North American industrial projects growth, would you say the bulk of that was midstream oil and gas? I know you mentioned that previously. What end market was driving that 25% order growth?

It was a mixture of some was midstream oil and gas, some were more general medium sized industrial projects, even some switch-gear into utility applications. So it covered a variety of end markets.

Okay, perfect. And then would you say that that is similar to the Hydraulics comment that you made earlier on ag in construction? Was that kind of a 50/50 growth split between the two areas on Hydraulics?

No, I'd say in terms of Hydraulics, given the China outsized V-shaped recovery that we were certainly seeing bigger numbers on the construction side of the business than we are on the ag side of the business, but having said that, we are seeing growth in both segments.

Okay. And then I guess the last question is, can you describe what your end market exposure is on military aircraft, fighters versus rotorcraft?

Yes. No, I'd say that today, we have a presence on just about every military platform. Our business today is 60% commercial and 40% military. And today we have a very strong position on both rotorcraft and fixed wing fighters and transport. So today, we are very well positioned from a share standpoint on the military side of the house. And quite frankly, if you think about the new military platforms and programs, the F-35 and the like and CH-53 heavy lift, some of the bigger programs of the future, we actually have more content than ever on those new and emerging platforms. And so we're very well positioned in military.

Okay, perfect. Thank you.

Our next question comes from Rob McCarthy with Stifel. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Hi. Good morning everyone. I guess the first question I would have is just given the growth you've been seeing right now and kind of the commentary around channels and some of the risk you've been assessing, how would you think about the M&A environment right now? And could you comment on the balance sheet, your cash generation and kind of your capital allocation priorities?

Yes. We are clearly interested, Rob, as we've said, of getting back into an M&A mode, which we were out of during the years of Cooper integration. And because of that, we have spent a lot of time in the last three to four months systematically targeting areas and systematically starting to rebuild our pipeline of likely candidates. The environment I think is a challenging one right now. As you know, multiples, by most people's estimations are above average. And as you've seen, the prices paid in many of the acquisitions that have been announced, they've been very high. And so I think those of you who know us over a great many years know that we have been very disciplined in how we purchased companies, and we intend to remain disciplined. And so with the caveat that the environment is a trickier one than it sometimes is, we would hope that we would make some good progress over the next 12 to 18 months in hopefully achieving some acquisitions. The areas that we focused on are still the same, namely Electrical, and we also believe there may be some select opportunities in Aerospace. But those are the two industries that we've been spending most of our time on. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: And as a brief follow-up, I mean I think it goes without saying, there's been a widespread disappointment with just policy traction with this administration, to say the least. I mean I know we're not getting 2018 guidance, we're not. And we've talked about kind of the organic growth rate, what we've seen. But is there anything to give you enthusiasm that we're going to see anything from Washington that would create an environment where we could see a return for you guys to mid single digit organic growth in 2018?

I think to your point, difficult to really take much to the bank in terms of what we've heard from the administration to-date in terms of their ability to get legislation through. But certainly, there's a number of things that are being talked about that would be very positive for our company. Certainly, if we can find our way towards putting together an infrastructure bill, that would be very positive for Eaton, and something that we think, quite frankly, you would have bipartisan support on. As you think about what's going on in the world of tax, as you obviously know, Eaton has a very low tax rate already, but it would obviously be very positive for many of the end markets that we sell into. And I think more than anything, what we need is we need predictability. And I think in this environment of uncertainty, especially in the context if you think about making investments in large projects, large industrial projects, when you're trying to make an investment, a multi-year, in some cases, $1 billion investments into an environment of uncertainty, it simply freezes the investment community. And so I think more than anything, what the business community needs is some certainty around what the policies will be. And I do think that in some cases, there's pent-up demand and folks who are waiting to make a decision, pending the outcome of a lot of these potential changes in policy and other initiatives. And so we think on balance, we think there's more upside than downside in the event that the administration can get through some of these initiatives that they've been advocating for. But as you've seen, like we, it's very uncertain in terms of whether or not you're going to get kind of the type of bipartisan support that you need and cross the aisle kind of compromise that we need to get the country moving again. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Thanks for your time.

The next question comes from Josh Pokrzywinski with Wolfe Research.

Hi, good morning, guys. Thanks for fitting me in here at the tail end. Just on ESS, I think there was bigger, or a step up in margins in the second half. Could you maybe square that away with the order intake that you had in North America this quarter, the up 25%? Is that some indication about how backlog margins are looking? And then a follow-up on how we should think about that.

I think the way to think about the step-up in margins in ES&S, not only between the first half and second half, but very much evidenced in Q1 versus Q2, is that we're doing a fair amount of restructuring inside of the Electrical Systems and Services business, and those restructuring benefits are paying off. And so as we think about the first half versus second half, we're really not counting on any significant change in business mix to drive the improvement in profitability. A little bit of volume, but mostly, it's a function of just the restructuring benefits coming through.

And then I guess just on the backlog margins, Craig, we've heard from anyone who participates a large project that they're still in a flat capacity where pricing hasn't really picked up. Is that consistent with what you guys have seen?

Pricing is clearly always a challenge in large projects and project businesses in general. And I think until you get into an environment where you have more volume and more demand in the system, you're going to continue to face challenges around projects and decisions being made that essentially keep some of those businesses under pressure.

That's fair.

But that's all really factored in quite frankly into our forward guidance. And we're comfortable that the guidance that we provided is very much reflective of that reality.

That's good color. And just one more. I know you don't want to get in too deep into 2018, but any comments on how we should think about where Eaton is hedged or has purchases locked in, and how maybe the raw material climate shifts as we flip the calendar? Are you guys basically at spottish rates today and does that change as we get here closer to 2018?

Yes, the way I would think about it for our company in general is that we certainly do some hedging. And, but the way we think about hedging in general, it's kind of a bridge to a permanent answer. And so hedging is never going to be a permanent solution to deal with commodity fluctuation. Ultimately, you have to get price or you have to get costs out of your business. And so we do hedge. But once again, it's a temporary fix. It's not a permanent fix. And ultimately speaking, our expectation is that we have to recover it in the marketplace or we have to get costs out of the company.

Great. Thanks for the color, Craig.

It looks like it's a little past the top of the hour, so at this point, I think we're going to wrap up the formal portion of our call. We'll be available for question and answers for those on the call or those that are interested after the call and for the remainder of the week. Thank you very much for joining us today.

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