Ladies and gentlemen, thank you for standing by. Welcome to the Eaton third quarter earnings conference call. Also as a reminder, today's teleconference is being recorded. At this time, we'll turn the conference over to your host, Senior Vice President of Investor Relations, Mr. Don Bullock. Please go ahead, sir.

Good morning. I'm Don Bullock, Eaton's Senior Vice President of Investor Relations. Thank you for joining us today for Eaton's third quarter 2017 earnings call. With me today are Craig Arnold, our Chairman and CEO, and Rick Fearon, our Vice Chairman and Chief Financial Officer. The agenda today, as is typical, includes opening remarks by Craig highlighting our performance in the quarter, the third quarter, and our outlook for the remainder of 2017 and some preliminary comments or thoughts as we look into 2018. As we've done in the past, we'll be taking questions at the end of Craig's comments. Before I turn it over to Craig, a couple of issues. First, I'd like to note that the press release for today's earnings this morning and the presentation we'll go through were posted on our website at www.eaton.com. I'd ask you to note that both the press release and the presentation do include some reconciliations to non-GAAP measures, and the webcast for today's call is accessible through our website and will be available for replay after the call. Before we get started, I do want to remind you that our comments today will include statements related to expected future results of the company and are therefore forward-looking statements. Actual results may differ from those from a wide range of risk items and uncertainties that we describe both in the earnings release and in our 8-K. With that, I'll turn it over to Craig.

Hey, thanks, Don. Hey, if you had a chance to read obviously our results this morning, and so we delivered what we think are very solid Q3 results. Reported EPS was $3.14, and this included $1.89 gain from the formation of the Eaton Cummins joint venture. Excluding the gain from the joint venture, operating EPS was $1.25, and this included some $13 million or a $0.03 impact from the natural disaster, so up 9% over Q3 2016. Sales were $5.2 billion. That's up 4.5% in total, of which 3.5% was organic, and we had a 1% positive contribution from FX. The 3.5% organic growth was at the top end of our guidance range. And we reported segment margins of 16.4%, an all-time record for the company, up 80 basis points from Q2 2017. And adjusting for $11 million of restructuring costs in the segments, margins were 16.7%. And I also would add that margins were reduced by another 20 basis points in the quarter as a result of the recent natural disasters, and so really a strong quarter of operating results for the business. In addition, we had exceptionally strong cash flow in the quarter. Adjusted for the unplanned Q3 pension contribution, operating cash flow was just over $1 billion, once again, a quarterly record for the company. Also of note in the quarter, we refinanced $1 billion of debt that was maturing in November, and we're very pleased with the attractive rates that we've achieved. $700 million was financed with a 10-year tenor at 3.1%, and we had $300 million of 30-year debt at 3.9%. We also took advantage of the very strong cash flow and we decided to contribute $250 million to our U.S. qualified pension plan, which is now funded at 94%. Lastly, given the share price…

Thank you. Our operator is going to provide you some guidance on the Q&A. But before he does, I do want to note a couple things. One, recognizing that many of you have several calls today to address and deal with, we're going to hold the call to an hour today. What I'd like to do to make sure that we can do that and represent all the questions on the air, I guess that you please hold your questions to a question and a follow-up. And with that, I'll turn it over to the operator.

Our first question comes from Julian Mitchell with Credit Suisse. Julian Mitchell - Credit Suisse Securities (USA) LLC: Hi, good morning.

Good morning, Julian.

Hi. Julian Mitchell - Credit Suisse Securities (USA) LLC: Good morning, just a quick question. I guess if I look about your 2018 outlook, one of your peers recently talked about next year being a new normal. If we look at Eaton through that lens, would you think that all segment margins, assuming it is more of a normal year, should be within the corridor that you laid out last year, or are there any specific reasons around input costs perhaps why some of the margins may come in at the lower end?

We appreciate the question, Julian. I would say absolutely, as we laid out during our New York analyst meeting, we set margin expectations for each of our segments, and we would expect all of our businesses to be solidly in that range during the course of 2018. To the specific point around – I think you inferred how we're thinking about commodity input costs in 2018. We think while once again it's early to make a call on commodity prices, we don't think it represents a headwind to the business going into 2018. Julian Mitchell - Credit Suisse Securities (USA) LLC: Understood, thank you. And then my follow-up would just be around the ESS business. Back at the Analyst Day in February, you talked about an improvement in growth there, 2018 to 2020, based around oil and gas and broader global CapEx. The oil and gas piece seems to be coming back. I just wondered what your updated thoughts were on the global CapEx driver within the ESS top line.

Our point of view with respect to the outlook for 2018 as it relates to ESS really is unchanged. Certainly, if you think about some of the macro indicators, the Dodge data certainly indicates that large projects are coming back, and we're seeing that in our own business. We do expect that commercial projects growth to continue. Power systems, we think inside of our ESS business, we think it will be a low single-digit growth outlook for 2018. Maybe hurricanes provide a bit of upside at some point, but it's too early to call. And we believe that three-phase PQ markets are in the low to mid-digit growth range. And lastly, to your point, our Crouse-Hinds business certainly is setting up for a much better 2018. So our thesis with respect to 2018 being a better year and a growth year for Electrical Systems and Service we think still holds. Julian Mitchell - Credit Suisse Securities (USA) LLC: Very helpful. Thank you.

Thanks.

Our next question comes from Scott Davis with Melius Research.

Hi. Good morning, guys.

Hi.

Good morning, Scott.

I'm looking to your 3% market growth. I just want to be clear, you say leading to market growth of 3% in 2018. I assume you would imagine you would outgrow the market, so your forecast would be a little bit better than that. Is that how I should look at that?

That's exactly the way we would think about it. It's early, and we'll certainly provide more detailed guidance when we get to our Q4 earnings call, but at this point, that's meant to be a proxy for what we see in the end markets and we would certainly expect our businesses to grow faster than our end markets.

And if memory serves me right, I don't think you or your peers have really gotten price at all in probably the last four years. Is 2018 setting up as a year where you can go in with particularly some of your electrical products and January 1 price increases, catalog plus realized?

Once again, I think it's early to make a call on the net of price and commodity input costs for 2018. We're still working through our internal planning processes. But I would say that going into 2018, at least on the input cost side, we think the headwinds that we experienced in 2017 are not there in 2018. Once again, early to make a definitive call, and we would expect, like in every year that we go out and we work on getting price in the marketplace. And so I'd say too early to call. It's early in our planning process. But at this point at least, we won't have the big negative that we experienced in 2017.

Fair point. Okay. Thank you. I'll past it on, guys. Thank you.

Thanks.

Our next question comes from Jeff Sprague with Vertical Research.

Thank you. Good morning, everyone. Just back on ESS, wondering if you could elaborate a little bit more on what you're seeing in utility. Your business mix isn't exactly like Hubbell's, but this feels like two quarters in a row where you're lagging what they're seeing. You did call out APAC. I wasn't under the impression that was that big of a business. So maybe just give us a little bit of the lay of the land on what you're seeing on particularly the domestic utility side of things.

We do have a – with the acquisition of Cooper, we actually did in fact develop a pretty reasonable position in the utility market in Asia as well, and that's really where we saw the weakness during the quarter. Our North America power systems business, we actually saw low single-digit growth, I think pretty much in line with what you're seeing from others in the industry. And so the real weakness for us really was only in the Asia region, and principally China.

And maybe not to put you on the spot, but everybody on the call here this morning is distracted with this Rockwell-Emerson story. It's kind of interesting from an Eaton standpoint too, right? If you look at your big three electrical competitors, ABB, Schneider, Siemens, they're all big automation houses also. I just wonder how you feel about that strategically. Do you think automation is strategically important to Eaton, and any other comment about how you compete and differentiate in a market that might be consolidating here?

As you know, we're not really an automation company today, and so it's not a space that we participate in today. And as we've talked about it in prior years, we think our business as a standalone without automation as a piece of it, we think we like our prospects and our opportunities to continue to grow and to be successful. So we'll wait and see what happens with that particular potential announcement, but we don't think it has any material impact on Eaton at all.

Thank you.

Our next question comes from Nigel Coe with Morgan Stanley. Nigel Coe - Morgan Stanley & Co. LLC: Thanks. Good morning. I think Jeff was asking there if you'd have an interest in Rockwell. It sounds like the answer is no, but I'll leave it there. So just, Craig, you mentioned another $0.03 impact from the hurricanes in 4Q on top of 3Q. Is it fair to assume that most of that would – or ESS would be more impacted given the component supply chain than EP? And does that $0.03 include any insurance recovery, or is that more of a 2018 impact?

The way the business works, as I think you understand, Nigel, so today we make components and most of these components are circuit breakers, molded case circuit breakers, these are (28:26) circuit breakers are manufactured in Puerto Rico and they feed our Electrical Systems and Services business, but they also feed our distributors, and they go into the Electrical Products segment as well. And so it does impact both segments in Q4. And the reason we didn't see an impact, at least a material impact, in Electrical Systems and Services in Q3 is because we had inventory in the system. So that's really the way you think about that. It will in fact impact both businesses. And to the specific question around insurance, yes, we do have insurance. There is no insurance recoveries baked into our forecasts. We also have deductibles as well. And so we're still working through the whole insurance process. But at this point, we've not factored in any insurance recoveries into Q4. Nigel Coe - Morgan Stanley & Co. LLC: Okay, that's clear. And then just thinking about 2018 in a bit more detail but thinking about the pension and the impact of the $250 million discretionary contribution, and if we snapped the line today on returns and rates, how does that look into 2018?

Nigel, it's Rick. You're right to mention that we've added assets, $250 million in Q3, $100 million in Q1, so $350 million. Plus our asset returns as of yesterday were about 15% in the pension plans, and so that's a positive. Where the discount rate ends up is unclear. It might actually – it's hard to believe, but it's possible it might be slightly less than where we ended 2017. It's bouncing around quite a lot. And so as we look at it, we will clearly have pension expense dropping from 2017 to 2018. The precise amount will depend on where the returns and the discount rates settle out. I would note, however, that our interest expense is likely to go up a little bit. The reason is that we are 40% to 50% floating debt. We issue term debt and then we swap 40% of 50% into floating. And as short rates go up, and certainly most forecasts are that they will continue to go up across next year, that will cause a slight increase in our interest costs. And so that gives you a little bit of color on those two main items. Nigel Coe - Morgan Stanley & Co. LLC: Okay. Thanks, Rick.

Our next question comes from Andy Casey with Wells Fargo.

Hi, good morning. Thank you, another question on ESS. Can you help us understand what's going on in the power quality markets? Those continue to be weak. And I'm wondering if you're seeing any sign of improvement there, or if it's potentially a candidate for accelerate or restructuring.

I'd say to your point, Andy, we have in fact experienced a weaker year than what we anticipated in the power quality markets. And as we said on prior calls, we think this is largely timing as the large customers in this space consolidate activities from prior years as well as look at various architecture changes in the context of the way they configure their data centers. And so we do think it's largely just digesting and a bit of a transitional issue that we're dealing with. As we look forward to 2018, we continue to believe that this market will grow low single digit. Some other industry forecasters are out there with even stronger numbers than that. But we think low single digit makes sense from a planning perspective. And there's nothing that we've seen that would suggest that there's been any fundamental changes in terms of the overall economics in those markets and why those markets should not continue to grow.

And certainly, Andy, the data traffic continues to grow quite rapidly, as is obvious as you look around all of the online sites and video and corporate data. So that's really at the end of the day the key driver which says you need more data processing capability, and it is a little bit lumpy. It changes quarter by quarter a bit just depending on who's placing an order for a large new facility. And so hopefully that gives you some color.

It does. Thank you, and one last question. I'm skipping to Hydraulics. Have you witnessed any supply chain constraints popping up in that channel?

I would say the short answer really would be yes. This V-shaped recovery that we're living through right now in Hydraulics is on the one hand very welcome news and very much overdue, but it certainly caught everybody by surprise, orders up 22% this quarter, 32% last quarter. And so certainly coming into the year, we and our suppliers were not anticipating the kind of V-shaped recovery that we're experiencing right now in Hydraulics. And as a result, lead times, as I mentioned in my opening commentary, have pushed out a bit. We're obviously ramping up our hiring in our manufacturing facilities right now to deal with this increased demand. And so it's a high-quality problem to have, but certainly it caught the industry a little bit flat-footed, and we're all scrambling to recover right now.

Okay, thank you very much.

Our next question comes from Joe Ritchie with Goldman Sachs. Joseph Ritchie - Goldman Sachs & Co. LLC: Hi, good morning, guys.

Good morning.

Hi. Joseph Ritchie - Goldman Sachs & Co. LLC: So I just wanted to clarify, Craig, your comment on the 40% incremental margins for next year. If I think about the restructuring spending that's occurring and the benefits that you're getting, it seems like you should have at least a $40 million benefit from less spend, and I think roughly about $105 million in incremental benefits from all of the spending that has occurred. I just want to make sure that I have those numbers straight as I think about that 40% number.

You absolutely do, Joe. And the way we think about it, as I mentioned in my commentary, normally we would expect let's say a 25% incremental at this point in the cycle. For planning purposes, we think you should be planning roughly a 40% incremental, and that's fully inclusive of the lower restructuring spending and the benefits that we've committed to deliver. What we said about restructuring is that typically in our businesses, we have ongoing restructuring every year. And what we've talked about is that we'd only call out restructuring if it's an extraordinary program or an extraordinary event. But what we'd like to do is in the ordinary cost, just absorb the restructuring inside of our businesses and not call it out as a separate reporting item. And so we think as we go into 2018, we're really closing the chapter on the restructuring program that we've announced. Most of those activities become behind us by the time we end this year. And so what's manifested going forward are the benefits. And that's why we think you can plan on roughly a 40% incremental on the change in volume. Joseph Ritchie - Goldman Sachs & Co. LLC: Yes, that makes sense. And just maybe taking that one step further, assuming hopefully no natural disasters next year that impact operations, you should also get a tailwind from – about a $0.06 tailwind from that not recurring next year as well, correct?

Yes, absolutely, for all the operational issues that we experienced this year, that will certainly be a tailwind for 2018. Joseph Ritchie - Goldman Sachs & Co. LLC: And maybe my one follow-up there is can you guys tell us what the revenue impact was from the natural disasters, and then specifically on EPG growth because the growth there was really solid? It's probably the best levels I think that we've seen since the early part of 2015. And so maybe a little bit more color on what's driving the strength in that business as well would be really helpful.

Joe, let me give you the revenue impact. Our overall revenue reduction in Q3 we estimate at $12 million, of which $10 million was in products, and that's understandable. The facilities were shut down for 7 to 10 days before they started up. And while we did have product in our warehouses, there began to be some shortages as we went through the quarter.

Let me. To your point, we've covered a little bit of this in the opening commentary. But really as I've said, in general we really did see notable strength in the Americas. Industrial controls, as I mentioned, were strong. Commercial residential products were strong. Europe has really been a standout performer this year really across of many of our businesses. Europe was really strong across almost all geographies. And so I'd say it was really pretty broad-based revenue strength that we experienced in most of Electrical Products. Joseph Ritchie - Goldman Sachs & Co. LLC: Got it. Okay, great. Thanks, guys.

The next question comes from Jeff Hammond with KeyBanc.

Hey, good morning. Craig, you mentioned Crouse-Hinds lifting its head up. Can you just talk a little bit more about what you're seeing there and what the customers are telling you about the outlook into 2018?

As I mentioned, we saw revenue turn positive in Q3, the first time in quite some time, and orders as well. And so very much I'd say consistent with what we expect, given stabilization in oil prices and really what we think is probably a lot of pent-up demand. That business is starting to, as we expect it to, inflect positively. And at this point in terms of customer input, it's very much consistent with our view of the world that we think 2018 should be a better year. How much better, at this point it's premature to say. We're still in the planning processes, but certainly it will be a growth year for Crouse-Hinds in 2018.

Craig, could you give some color on how you think power systems shapes up into 2018?

We think power systems continues to be low single-digit growth. It's certainly baked into that assumption. There's not any major infrastructure spending bill. If we end up getting a major infrastructure spending bill in the U.S., that business could be a bit stronger. But at this point, we're not counting on it. And so we think there's the normal replacement CapEx cycle, and that business continues to deliver low single-digit growth.

Thanks a lot.

You bet.

Our next question comes from Steven Winoker with UBS.

Thanks. Good morning, guys.

Hi.

Hi. So just on that 2018 initial thoughts, a little clarification. Are you thinking about holding corporate expense flat for next year excluding all the insurance impact and things like that?

I would say we're still in the process of planning, but our general construct is definitely an ambition to hold it roughly flat.

Okay. So if that's true and I ignore the natural disaster recoveries that might come or the year-on-year impact, then based on what you ran through, and it rose a little bit faster than that 3% market growth that you put in and the 40% incremental, it seems like you'd be talking about north of 10% EPS growth if that were to all come together on that page. Is my math somewhere close?

That's close. And in fact, what we talked about is that we said 8% to 9% EPS growth through this planning cycle. And the implications of that is that between 2018 and 2020, it's 11% to 13%. And so you can certainly assume that we're very much on track to deliver that commitment in terms of EPS growth.

Okay, great, Craig. That's helpful. And then on the cash flow dynamic, which seemed to also be proving out well, any thoughts or a little color on what's driving the improvement there?

I would just say that we have managed our working capital quite effectively so far this year, and of course, our profits are growing as well. So it's really those two key factors. We're quite pleased with the cash flow and our ability to generate more than we had even anticipated at the start of the year, and so it leaves us in a very good cash position. We had net debt to total capital of right around 30% at the end of Q3, and it should go lower than that in Q4. And that's why we elected to put a little bit more into the pension plan, just to bring us up to levels that are pretty well funded.

And maybe just to follow that up, Craig, given the cash dynamic of the organization and you're already talking up some of the capital deployment, but now that you're completing both the share repurchase program, the restructuring is behind you, any initial thoughts on moving to the front foot on some of the things that were too early to talk about a couple years ago on the M&A side, getting more maybe aggressive of that front, or do you still think that's not really the right direction for the corporation?

What we said with respect to M&A is that, as we think about the priorities in terms of the call on capital, we've said number one, it's to reinvest in our businesses to drive organic growth because that's the first priority with respect to capital. We said we'll continue to pay a strong dividend, which we're committed to. And we also said that we would complete the share repurchase plan. And we have another year to go, $800 million of share repurchase in 2018. But then having said that, we said there's still plenty of cash left over to continue to add strategic assets to the portfolio. And so we continue to be very much interested in looking at opportunities to acquire strategic capabilities and with a priority in our Electrical and in our Aerospace business. That hasn't changed. And we're certainly in a much better cash position today to do so. Having said that, we obviously have nothing to announce. But we will commit and promise that we won't let cash build up on the balance sheet. In the event that we're not able to readily deploy cash into value-creating M&A, we'll find opportunities to put the cash to work in the form of perhaps more share buybacks. We have a debt maturity coming up next year. So we have some other options around effectively redeploying the cash in the event that the M&A opportunities don't materialize.

Okay, great. Thank you.

Our next question comes from Rob McCarthy with Stifel. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Good morning, everyone. Congratulations on a good quarter. Two questions, and I have a little bit of ADD as do others, so I do apologize if some of this has been covered. But embedded in your expectation for next year, how should we think about the state of play for U.S. non-residential construction? What are you seeing now or what's your prospects for growth? How are you just ring-fencing what you're seeing for 2018 and how that could play out?

Yes, it's a good question. It's obviously an important one for us as well and one that we're spending a lot of time internally thinking through. Perhaps, Rob, it would helpful at this juncture to just quote some of the external data that's out there. And I'd say that by and large, if we take a look at most of the consensus numbers and the consensus forecasts for non-res construction next year, you'd say it's centering around 3% to 4%, perhaps with a little bit of strength on the commercial construction side, a little less strength in industrial construction overall, but it's really centering around 3% to 4%. And we think that number is very much in line with what we're experiencing and expect for the year. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Okay. And just as a follow-up, if we think about the prospect, to Scott's question around market growth leading to maybe more mid-single-digit growth for you because you expect to outperform your markets, thinking about the leverage, I think you talk about incremental margins through the cycle 30%-ish range. But could we stack-rank where you'd expect to see maybe higher incrementals in 2018, if the growth materializes, how you would think about your portfolio in that regard, because clearly, you would think as you have a first spurt of material growth here after a while of weak volumes and deflation, you should see higher incrementals at least that year versus through the cycle. So any commentary around that would be helpful.

Rob, what we've said is that for the company we said yes, we'll absolutely see higher incrementals for Eaton overall. And that's why we said instead of what we would think would be normal at 25% at this point in the cycle, we said you can plan on 40%. What the specific incrementals are by business, at this point, we're really not in a position to comment on. We've not been through our internal planning processes yet. And we'll certainly be in a position to provide some margin guidance for 2018 as we discuss the outlook in our Q4 earnings call. Robert Paul McCarthy - Stifel, Nicolaus & Co., Inc.: Thank you for taking my questions.

Sure. Thank you.

Next question comes from Chris Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co., Inc.: Thanks. Just looking at Aerospace, the orders are starting to compound there nicely, double digits I think on double-digits orders in the prior year. Is that business starting to shape up to get into a higher growth profile as you look into 2018?

Yes, we certainly hope so. This has been a little bit of a flat year for our Aerospace business this year and we are very much pleased by the double-digit orders this quarter and last quarter, and it's certainly shaping up for 2018 to be a better year. Commercial transport continues to be strong. Commercial aftermarket continues to be quite strong. We think as we look at 2018, the one – a couple points of weakness that we experienced this year was in military aftermarket and in the biz-jet markets. And our order intake in both of those segments also inflected quite positively in Q3. And so we think once again, Aerospace is certainly setting up to have a better year in 2018. We're not in a position at this point to quantify and forecast a more precise number, but we certainly think it returns to positive growth. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. And then as you wait for the appropriate time to give an outlook for the segments and ESS in particular, could you remind us what the peak-to-trough revenue journey was for Crouse-Hinds in particular?

Yes, it was down about between 25% and 35% from the peak to the trough, and now it's starting to climb out. Christopher Glynn - Oppenheimer & Co., Inc.: Okay. And if memory serves, it started at around $1.3 billion maybe?

It was a little bit higher than that. It was about $1.5 billion. Christopher Glynn - Oppenheimer & Co., Inc.: Okay, great. Thank you.

Our next question comes from Josh Pokrzywinski with Wolfe Research.

Hi, good morning, guys.

Hi.

Good morning.

Just on the organic growth investment that you talked about, Craig, where are you guys specifically making some inroads and where can we see externally some of that progress? Because I would imagine that outside of maybe Electrical Products and Hydraulics, you guys haven't maybe been as enthused with the growth. So what underpinning that should we really be focused on going forward as maybe seeing that investment starting to pay off?

Josh, it's a big question for the time that we have. And most certainly, as we think about our analyst meeting in 2018, we'll once again take you through our key growth vectors that we're investing in, in our businesses, as we did this year. And if you recall, if you had an opportunity to attend our meeting this year, we spent a lot of time talking about investments that we're making in IoT and took you through our strategy there and what we're doing across the company but principally in our electrical businesses, whether it was smart home or smart grid, smart factory and the investments that we're making around embedding intelligence in all the components that we manufacture. But in every one of the businesses, I'd say it's a big question and perhaps one that I can't do justice to in the amount of time that we have on this call. But certainly you can look to us to really shed a lot of light on that at our analyst meeting that we're going to have in February of next year.

Okay. And then just maybe just shifting over to the incrementals, I know people have asked this a few different ways now. But I guess if you pull out the restructuring savings and the reduction in spend, you're looking at a sub-20% incremental margin here for next year as a high-level starting point. Presumably, mix starts to go your way, particularly with what's going on in Crouse-Hinds. Is there some other big plug that we should be aware of that changes as we get into out years? I'm not asking for 2019 guidance, of course. But I guess what I'm trying to understand is as restructuring becomes a smaller piece of the bridge, is there something that steps up to replace that field?

Josh, I'm not sure what numbers you're looking at. As we said, we see the incrementals overall being about 40%. And if you were to then adjust for the restructuring, it would be about 25%. And so you must be making some other assumptions, but that's our current view right now at this early point in our planning.

Okay. Maybe I'll just follow up offline then. Thanks.

Okay, thank you.

Our next question comes from Deane Dray with RBC.

Thank you. Good morning, everyone.

Good morning, Deane.

Hi.

Hey, Craig, I was hoping you could expand on this high-quality problem of this V-shaped recovery in Hydraulics and maybe touch on where are the end markets and applications. How much is mobile versus stationary, and how sustainable is this uptick?

The first thing I'd say, Deane, it's been fairly broad-based. It's really been all regions of the world, and it really has covered both mobile and stationary markets, with more strength in mobile than in stationary, but both markets performing quite favorably. And a lot of the growth, as you probably are aware, is coming out of China. If you take a look at some of the key end markets in China, markets like the excavator market or the wheel loader market, those markets in some cases have been up more than 100%. And so it's been a very broad-based recovery, a lot of it tied to construction equipment, to material handling. We also participate in the commercial vehicle market inside of our Hydraulics business as well. That market has been strong. And the one market today that's an important market for us that has started to build positively is also be Ag market. And we think that market perhaps returns to some more positive growth in 2018. And so we think that this point in the cycle that Hydraulics is setting up to be a multiyear growth story. And quite frankly, that's what's needed, given the fact that we've lived through the downturn over the last couple years. It's been since 2014 that that business has grown. So we think it's certainly setting up to be a positive growth story for at least a couple years to come.

Thanks. And then my follow-up is can you clarify the 2018 assumption if I heard it correctly that you're not expecting any material cost headwinds? How – if you could, frame for us where that stands today if you snap the line on copper, on steel. Are you doing any additional hedging or just advance purchasing? Anything would be helpful there.

I'd say that every commodity's got its own story. And we have in fact continued to see a bit of commodity price increases as we came through Q3, but it's very much in line what our forecasts have been. And so I don't want to suggest that we've not experienced commodity price inflation. We certainly have, but it's been very much in line with what we anticipated and expected in the business. In terms of hedging, we do some hedging in terms of our businesses. What we think about going into 2018, there is a change in some of the accounting rules that allow you to perhaps take down some additional hedges. We've not yet thought through exactly how we're going to approach that. We're still in the early planning stages. But there is certainly another opportunity as we think about 2018 to put some additional functional hedges in place that we've not been able to do historically.

That's right. You're able with these new accounting rules to hedge components instead of the raw metals, and that allows you to put on truly economic hedges as opposed to just accounting hedges. But broadly, Deane, our view is that if you look at the mix of metals, we think that they are not likely across 2018 to show significant increase. So there will be pockets, but on average, we don't see a significant rise likely.

Thank you.

Our next question comes from Ann Duignan with JPMorgan.

Good morning. Most of my questions have been answered by now, obviously. But maybe in Hydraulics, you could talk a little bit about whether you are the bottleneck that's driving the lengthy lead times, or is it your supply chain? Just where exactly are the bottlenecks building?

What I'd say, Ann, most of the bottlenecks, as you know this business fairly well, it always ends of being the long lead time components, castings and forgings and others, back throughout the supply chain where, in many cases, can be lead times are three months to six months. And so we're ramping up our hiring from a labor perspective. And at this point, labor tends to be much easier to put in place. But the big issues continue to be in the long lead time components, and I'd say especially in castings.

And there's no simple way around that, I'm going to assume.

No simple way around it. Obviously, we're working on some potential longer-term solutions and new technologies like additive and other things that we think hold a lot of promise to shorten those lead times. But at this point, it is a challenge that we're dealing with. And lead times have in fact pushed out in some case. But I'd say on balance, it's a pretty high-quality problem to have, and we'll work through it in relatively short order.

It is a high-quality problem to have after so many years. My second question is maybe one that's better for the Analyst Day, but I'll ask it anyway. I've been getting a lot of questions on the notion that Boeing is trying to grow its aftermarket business and obviously capture some of those nice aftermarket margins in Aerospace. How is the supply chain reacting to that and how do you expect it to change your business over the midterm?

We're certainly very much aware of the various initiatives that our different OEMs have to more fully participate in the aftermarket, and so we're working with them. We think today, there are in fact opportunities in places where Boeing and other customers can add value in that supply chain. And so our goal is obviously to work with Boeing and others towards a mutually beneficial outcome for both companies, and we're optimistic that we're going to be able to do that.

So net-net a positive, perhaps more volume, more original parts versus a negative, is that the way to interpret that?

We think in every problem, there's probably a win-win outcome there someplace, where there are things that we want and places they can help us and things that we can contribute to help them against their particular goals. And so we're confident that we're going to find a solution that works for both companies.

Okay, I'll leave it there. Thanks, I appreciate it.

Thanks, Ann.

We have time for one last question, and that will come from Andrew Obin with BofA Merrill Lynch.

Hi, good morning, guys. Thanks for fitting me in.

Hi.

Just a question on the inventory level in the distribution both on the Electrical side and the Hydraulics side. The past couple of years, we never got this restocking trend going on. Are you seeing anything that would indicate that at last with macro picking up, dealers are considering restocking inventory in the channel?

Yes, what I'd say probably largely in the Electrical business, we really have not seen a big change in inventory levels. Those markets are certainly improving, but not the kind of movements that we think at this point would result in any big changes in inventory levels. Certainly, what we've seen in hydraulics, we certainly have seen some replenishment of inventory in the hydraulics markets, although I will tell you that our sales into the OEM segment continued to outpace our sales into the distribution segment, and so hopefully that's a positive sign of things to come. But there certainly has been a little bit of inventory replenishment that's really taken place throughout the supply chain in the Hydraulics business, which is why you see that our order input is obviously up much higher than our sales output and much higher than many of our OEMs output as well.

Got you, and just a follow-up question on Aerospace. I know we talked about it. But is there a specific program? I'm just a little bit surprised that given your exposure that revenues were flat. I would have thought that was like 777 exposure, but you did not call it out. I'm just trying to figure out if there's a specific military program that's holding you back this quarter because I think by and large, defense companies that had flat revenues, there was a specific program in charge, and commercial guys generally posted positive growth. Just if you could, give a little bit more detail.

As I mentioned in my commentary, first I would tell you that we're about 60:40. 60% of our business is commercial and 40% is military. And where we saw weakness is we saw weakness in first and foremost commercial. The commercial side in biz-jet and the biz-jet sector continues to be weak. And we have relatively large content on a number of important biz-jet platforms. And then on the military side, it was the military aftermarket. And that we would say is largely a function of a number of large campaigns, mods and retrofit upgrades that we had in prior years that have not repeated. And so we think once again, transitional issues that we're seeing in the Aerospace business, orders are up nicely. And so we think that really bodes well for 2018 and beyond.

Terrific. Thanks a lot.

Thank you all again for joining us today. This will wrap up our call. As always, we'll be available for your follow-up questions this afternoon and the remainder of the week. Thank you.

Thank you, ladies and gentlemen. That does conclude your conference call for today. We do thank you for your participation and for using AT&T's Executive Teleconference. You may now disconnect.