Good day ladies and gentlemen, and welcome to Honeywell's First Quarter Earnings Conference Call. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions]. As a reminder, this conference call is being recorded. And I would now like to turn the conference over to your host, Mr. Mark Macaluso, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Dennis. Good morning and welcome to Honeywell's first quarter 2017 earnings conference call. With me here today are President and CEO, Darius Adamczyk, and Senior Vice President and CFO Tom Szlosek. This call and webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com/investor. Note that elements in this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change and we ask that you interpret them in that light. We identify the principle risks and uncertainties that affect our performance and our Annual Report on Form 10-K and other SEC filings. This morning we will review our financial results for the first quarter, highlight some exciting accomplishments across the portfolio and share our guidance for the second quarter of '17. And as always, we will leave ample time for your questions at the end. So with that, I'll turn the call over to President and CEO, Darius Adamczyk.

Thank you, Mark. And good morning everyone. Today, we reported our very strong start to 2017. We met or in most cases exceeded our guidance ranges and I'm pleased with our results in the first quarter. We recorded earnings per share of $1.66 normalized at our expected full year tax rate. This is $0.02 above the high end of the guidance we’ve provided in January, excluding divestitures and normalizing for tax EPS was up 11% versus 2016 or 10% on a reported basis. Organic sales were up more than 2% and we recorded double-digit revenue growth in advance materials with performance material technologies on demand for our Solstice product line and we saw continued strengthen UOP as the oil and gas end markets improve. In home and building technologies, our global distribution business continued to outpace the market, while the products business generated strong results at 3% organic growth. In Aerospace, we have strong performance in the aftermarket, particularly in air transport and robust repair and overhauled activity, and in Safety and Productivity Solutions we saw growth in most of the businesses, particularly noteworthy performance exhibited in Workflow Solutions, expensing in IoT as well as Industrial Safety. We expanded segment margins by 70 basis points, we’re delivering high value offerings to our customers and our execution is improving as the ongoing benefits of our HOS Gold operating systems materialize. We also continue to optimize our cost structure that I highlighting our March Investor Day. Driven by productivity initiatives and the restructuring actions we took through 2016. Driving segment margin improvement continues to be an ongoing focus for Honeywell. We delivered significant improvement in free cash flow year-over-year, largely driven by improved working capital performance. Free cash flow performance will continue to be a key priority for Honeywell. We have --…

Thanks, Darius. I'm on Slide 4. As Darius mentioned, we delivered more than 2% organic sales growth this quarter. Now truth be told, we were actually within inches of 3%, but it did come out at 2%. All of our segments were at or above the high end of the sales guidance we provided back in January, so a strong start from a growth perspective. Segment profit was up 8%, excluding divestitures and segment margins expanded 70 basis points from 2016. This accounted for the bulk of the EPS expansion as you'll see in a minute. The segment profit growth was driven by sales improvement, our ongoing productivity initiatives that benefits from the significant restructuring programs that were funded in 2016. And overall frontend commercial excellence. Reported earnings per share of $1.71 were up 10%, this $1.71 includes a $0.05 benefit from a lower than anticipated tax rate. So for proper comparability and to remove all tax favorability from our results, we’ve normalized 2016 to reflect the expected 2017 full year tax rate and to eliminate the $0.05 from 2016, relating to the divested businesses. On that basis, EPS was up 11% or a $1.66 and that’s as Darius said, $0.02 above the high end of the guidance range. Free cash flow performance was also encouraging in the quarter, as Darius mentioned, the entire organization at all levels is focused on our working capital performance. We’re breaking down our order to cash processes into myriad of sub-segments and we’re systematically measuring and improving the cycle time of each of those sub-segments. We’re adjusting incentives to foster more improvement in working capital and we have a standard operating cadence that culminates in a monthly review with Darius and me by each business. There is still much to do in this area,…

Thanks, Tom. Darius and Tom are both now available to answer your questions. So, Dennis can we open up the line for Q&A?

Absolutely Thank you. [Operator Instructions] Thank you. Our first question comes from Mr. Scott Davis from Barclays. Please go ahead.

If we can talk -- can you guys just remind us where we are with the European Solstice capacity adds. And when -- I know you’ve been taking orders, but when do you really see the lion's share of that revenue ramp from -- maybe each one of those is a separate question, but I'd just leave it at that.

Yes, so I would say that the biggest facility that we've been building for the last couple of year comes online at the end of Q2, early Q3, which is really the last portion of the capacity expansion. And as we saw starting early this year with the MAC initiatives kicking in in Europe we saw a nice volume ramp-up and our Solstice product line is up double digit so far this year and we expect that to continue and even accelerate further as we head into 2017 and further into '18 but. I think that the short answer here is that as we get into the second half of 2017 we're going to be exactly where we need to be from a capacity perspectives.

And I would add, Scotts to that, that the orders are supporting that, I mean we had, as we mentioned double-digit orders growth in PMT overall, it was across all of the businesses, but especially in the once where we're making those capacity investments and the backlog is that it's picking up nicely.

So help us just to understand, what kind of capacity utilization will you be at or how does that -- I mean are you profitable with those new orders in the first year or does it take until you get to a certain percent capacity utilization and just help us understand that and that'll be it from me? Thanks.

Yes, I mean I think remaining process start-up, I mean we are obviously not going to be operating at full capacity because and we had plans for that, and things are going to get ramped up. But I would say we're targeting well north of the 80% once we get into 2018 and beyond, and frankly we can bring even more capacity online as we secure new orders, we think that Solstice, we've done a really nice job securing orders and a lot of that is I would say our developed markets, but we see a lot of potential in our HGR markets as well given the acceptance of some of the, the payers outcome and we have some extra capacity that we can bring to bear to generate revenue and we also have plans for further expansions should some of those regulations be enacted, which we think that there is a very good chance that that will happen.

Our next question comes from Steve Tusa with JPMorgan.

So you guys did about $0.12 of kind of continuing ops improvement year-over-year in the first quarter. I think you had these OEM incentives and what were the OEM incentives in the first quarter I think you said 25 in the first half? Where were they in the first quarter?

Yes, they were minor. The year-over-year impact was minor on OEM incentives in the first quarter.

Okay, so that will be in effects, so that will be in the second quarter?

Second quarter you will see that.

Okay, when we look at kind of the second half of the year versus the first half of the year you are doing $0.12 year-over-year in these kind of core businesses in the first quarter of maybe it's a little bit less than that because of the OEM incentives in the second quarter although your guidance wouldn’t suggest that. Just remind us is there anything in the second half other than the OEM incentives that makes the year-over-year comp tougher? Seems to me like the second half kind of dropped off a bit, so you have easier year-over-year comps there. Is there anything we should consider whether its mix or orders timing or anything like that or should that kind of -- $0.12 of whatever you do here in the first half actually be better in the second half of the year?

Yeah I think the incentives, clearly as I said, a drag in the first half, a nice tailwind in the second half and that will continue into '18 and '19. We do get ramp up of repositioning in the second half. And then the we’re continuing to integrate the acquisition, we’re still actively integrating nine deals including the Intelligrated and those tends to get better as the year progresses in terms of operating margin improve when those synergies kick in. I’d say those are the major impacts, first half and second half.

So, those are good guide from a run-rate perspective?

Yeah. They should be helpful.

Okay. So, I think the, go ahead --.

Yeah, I was just going to say Steve that we can’t point to any specific headwinds other than frankly market uncertainty and although we're excited about frankly about the kind of a long-term orders performance we had in Q1. In most of our businesses is short cycle and the environment is probably fairly volatile, so we’re being a little bit tempered of our expectations for the second half and given that it's kind of weak into the new role, we’re being a little bit, I would say tempered around our expectations, but certainly excited about the kind of start we have here.

And I think -- yeah I would agree, I mean it looks like your guidance suggests really very minimal kind of run-rate improvement. So, a smart move only being in the seat for a few weeks. Thanks a lot.

And next from Morgan Stanley, we’ll hear from Nigel Coe. Please go ahead.

So, just want to pick up on Steve's last question about the sort of how its having a start here and Darius you mentioned the environment is uneven volatile. Is that a reference to kind of what happened second half of last year 3Q very weak, 4Q came back and then 1Q back for raises [ph]. Is that what you're referring to or you're seeing inter quarter volatility during 1Q. And then on top of that, maybe you can just kind of color in sort of the what you're seeing today versus what you saw back in December when we put the plan together?

Yeah. No, the answer to the first part of your question. No, I actually had nothing to do with Q3 or Q4 last year and I would say overall and I think consistent with what I said at Investor Day, the environment in 2017 is better than 2016. I think we certainly see that in PMT, we see it in HBT, SPS and so on. I would also temper that, but it's not dramatically better, but its better, but not it's certainly not the kind of recovery. In terms of comps versus December and how we deal today versus back then, I think maybe the only deal that that’s a little bit different is that I think Dave sort of called it kind of the expectations around what's going to happen around tax reforms, they've been tempered a little bit as well, we continue to remain optimistic that things will happen, but I would say that there was almost clearly expectations and now I think there is a little more hesitancy, we have the elections in France coming up this weekend. There is still quite a bit of uncertainty in terms of the geopolitical environment at the moment.

Yeah. for sure. And just to get into TS a little bit more detail, you referenced, Tom, that the commercial vehicle tails on highway and I'm assuming off highway to, and then as obviously we have a continued growth in penetration in gas, but then offsetting that we've got a little bit of LB production headwinds in the second half maybe even 2Q, and then diesel penetration Europe seems to be ticking down. So I'm just wondering how should we -- so to switch up together and thinking about the TS growth over the back half of the year?

Yes, and I think you've got all the factors laid out there Nigel, the overall global market will probably be flattish to up a little bit in terms of total production so when you look at the way we've modeled it out, I would say that the second quarter is not inconsistent with what you can expect for the rest of the year for TS.

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

Yes, so just the question on free cash flow, very impressive first quarter, can you just provide us was more insight as to what are the areas that you are looking for improvement what businesses you are targeting, what accounts and what should we see throughout the year?

Yes, sure. First quarter for us the biggest driver as we've said was improved working capital performance. We saw that in particular in PMT and in Aerospace. But I think we're just, we're at the outset so that's going to be the major area focus for us in terms of driving improved free cash flow conversion. You've also got the CapEx and as you know we were at that peaks in 2016 and the 2017 that's starts to the moderators the investments that Darius is talking about earlier ramped down and we get into the full run mode, particularly in PMT and with the combination of those two things we expect to continue to drive that conversion higher.

And just to add and I would just emphasize the point that, working capital is -- so the renewed level of emphasis in all Honeywell your question around which businesses, I think all of them have an opportunity. We're driving receivable, inventory in all of these businesses, I think PMT particularly is [indiscernible] they did a really nice job in they receivables, a part of that is due to the recovery in the oil and gas markets, where some of our customers are recovering and they've made really, really nice progress in Q1 and by the way there is more to do. So I accept progress in all four of the SPGs going forward?

And just a follow-up question than on PMT. Great commentary on UOP, but a generally what are you guys seeing on a large project discussions and maybe outside of UOP and maybe you could just go around the world just to give us some colors as to what you are seeing?

Yes, I mean overall actually nice orders performance, high-single digit up for HPS. Teens, high-teens up for UOP, so we're seeing the order activity returning. I would characterize the order as kind of the medium size, so we didn’t have the mega orders like we did in the last 12 to 18 months, which HPS has won. These will be kind of the medium sized, we actually didn't see the base business be as strong as we like it to. So this is being kind of the midsize order activities. As we look at the region-by-region, South America continues to be relatively soft, the Middle East has had a nice comeback, China very, very strong performance in the first quarter, won lot of work there and that continues to come back also the U.S., especially in our GPNH business in UOP which is well correlated to the extent of the unconventional segment and as you see the rig count being up 80% in the US and much more than in Canada. We saw a very, very strong order activity in our GPNH business with the cryo-plants. So, overall as the oil price stabilize here at 50, 50 plus and we’re encouraged that some of the news we’re hearing about the production freezes that OPAC is encouraging its members to do, I think that this is going to continue to be a tailwind for us for the rest of the year.

And our next question comes from Jeffrey Sprague with Vertical Research Partners. Please go ahead.

Thank you. Just a couple of things from me. I wondered if you could just elaborate a little bit more on what's going on with the Intelligrated? Obviously, I think we’re all aware kind of e-commerce effect on retail and it's knock on effects to distribution. But really my question is, how much of the strength that you're seeing relates to Intelligrated now being part of Honeywell and you’ve being able to open it up into other areas or should we think of this as a kind of truly organic Intelligrated as it stands now? And if the answer is, that’s really just kind of this just legacy Intelligrated, maybe a little bit more color on the integration of the business and how you see the growth going forward?

Yeah. I think it's both Jeff, because for example one is the elements we're investing in heavily right now is, Intelligrated is predominantly is U.S. business, and we’re globalizing that business, investing and let's say metricizing it and we see the international growth is a big opportunity for us in the future. That hasn’t come through in the form big orders yet, but I can tell you that a lot of the big customers that we currently have in the U.S., they would want us to have a much broader global presence and we’ve invested in that and we expect to materialize that. In terms of overall business performance, I think I would describe that in one word, terrific. This business has substantially exceeding any financial metrics we’ve had for it and continues to impress us of its rate of growth and we see strong double-digit growth rate both in revenue and bookings for this year and the more I learn about it, the more of the customers of this business I meet, the more excited I get. I think that we have a very exciting growth profile for this business both in terms of making it more global expanding our software solutions, expanding or playing robotics [ph] to a lot of different directions to go organically and potentially inorganically.

Yeah. And the other thing I would add in terms of the Honeywell value is the -- those aftermarkets types of positioning, I mean the install base, we've mentioned 20% sales growth, this quarter backlog is up strongly in the double-digits. We’re building a big install base there and that developing that aftermarket business model in addition to what Darius mentioned about the Europe it's going to be a nice driver for Intelligrated to grow.

And just maybe just one last thing to add and this is -- I've highlighted this before, but just to reinforce. The sweet spot of the Intelligrated business is ecommerce. It's high through, high speed package processing, which as you know is the segment it's growing in the fastest right now. So this is exactly in the sweet spot of where the big growth vector is at the moment.

And then just the separate unrelated question. On UOP can you just elaborate a little bit more on the licensing uptick you are seeing, what verticals is that and any color on what's going on in the refinery turnaround and chemical plant turnaround landscape? Thank you, that's it from me.

I would say the big uptick is in the petrochemical particularly in China is the place, I would point to, we've had a lot of recent success much larger integrated complexes and the combination of HPS and UOP is working very well, there are a number of wins there are in a very, very strong Q1 so as the economy grows so just the demand for the petrochemicals I would point to that as one of the highlights of the booking activity here in Q1 and certainly, China, India has been good but really strength across the globe. And even from activity returning in the Middle-East, which is really nice to see.

Our next question comes from the line of Deane Dray with RBC Capital Markets.

Your four priorities that you laid out at the outlook, we're not expecting you to touch and check off every box, every quarter, but we did see the accelerated organic revenues. You got that expanding margins. You got that certainly more excitement and traction around it being a software industrial. Maybe not hearing much here this morning about more aggressive capital deployment. So maybe you can just touch on that. What kind of expectations do you want to set over the near term?

I think on cap deployment as I promised, that is one of the core initiatives. Frankly, we continue to be very active. The pipeline for M&A deals is very, very active. As but things are little bit expensive out there, so we are being cautious because as I point out on our Investor Day, we do want to be active and secure the right deals, but we also want to continue to be prudent buyers not over spend and that's frankly why maybe we haven’t announced some of the -- any deals yet this year, but rest assured were very, very active. In terms of buybacks timing and we are committed to having the flat share count as we said and potentially to do even more later in the year. So timing is everything in that perspective. So yes it seems a little bit quite but you got also to remember that I'm only about three weeks into the tole, so probably I'm pleased at some of the leverage actually coming through in our results in Q1.

Got it, and then just as a follow-up. One of the goals that you've set is a new product Vitality index you expect to track to 20% in 2017 an uptick from last year. How did the first quarter play out?

I think it's played out well, but in full transparency I would say most of our new product launches are backend loaded this year. We have some things coming out in Q3, Q3 will be a very, very new product launch quarter. So, I think in fairness, I'll have to be in a better position to answer that question, as we get deeper into the year, because right now it's really too early to tell and I don’t want to declare a success until we see how some of the bigger even more exciting new product launches happen in Q2, and especially in Q3 which is going to be big launch quarter for us.

And our next question comes from Gautam Khanna from Cowen & Company. Please go ahead.

I wanted to ask if you can characterize any of the channels that may have any destocking still going on. Previously you talked about SNPS, wondered if that’s abated in, recently we heard some other aerospace companies talking about destocking on some of the aircraft programs, A7, 777, A380, et cetera. If you're seeing any of that or do you expect to? Thank you.

Yeah. I mean I think let me comment kind of SGS and I think we kind of see this continuation of destocking and frankly as some of our distribution partners are operating at lower inventory levels that what we’ve historically have seen, that's certainly true in SPS. In Aero I'm not sure that we notice that is much, I think that’s been fairly steady at least for us and that’s exhibited by that the fact that frankly this performed a little bit better than we projected for Q1 and especially in the aftermarket segment for business which is been very, very strong and we’re very pleased with the it. So I'm not sure that we’ve seen that in Q1.

Okay. And just a quick follow-up on the M&A question from the earlier. Are you seeing any areas that are more promising than others that you could comment on, where valuations are perhaps more stretched versus more attractive, when looking at your [indiscernible]?

Well, I guess unfortunately they are pretty stretch everywhere. The market is pretty warm right now, there is a lot of cash sitting around both on the private equity as well as strategic. I wouldn't say that anything is particularly cheap at the moment. Now, having said that we have very, very big pipeline and we have a lot of different options in terms of the segments that we’re looking at, and I can tell you that we have attractive deals that we’re looking through in every one of our SPGs. Now what actually lands and what happens we’ll see. But I would say overall things are a bit expensive there is no question about that and I don’t think that’s a comment that's end market specific, that’s true really across our entire portfolio.

The next question we’ll hear from Joe Ritchie with Goldman Sachs. Please go ahead. Your line is open.

So, Tom you mentioned interest this quarter on the organic growth side, it sounds like the -- it sounds like the order growth across a lot of your segments right now is going in the positive way. You've look at accounts for next quarter looks pretty easy I'm just trying to understand I guess the guidance, the flat to 2% organic growth guidance for 2Q. It just kind of seems like a layup based on the commentary and based on the comps. So maybe a little bit more color there would be helpful?

Yes, that's fine Joe. We sort of had a sense that that would be a question. When you look at our businesses overall, our long-cycle is about 40%, short-cycle is about 60%. So were still in an environment on the short-cycle side where the demand patterns are not quite consistent, the word volatility was used before. I mean it's not exactly something that we have a good extended sight into on that short-cycle side. But with that, if you look at it by each business, I mean Aerospace is more long-cycle oriented and the exception of the aftermarket, so fairly well grounded we did flat in Q1, we were calling minus 3 to minus 1 for Q2 and that's mostly OE related. You have those incentives coming through, as we mentioned that's at the bulk of the first half staff incentives hit us in that second quarter you've got regional and that's on the OE side that's been fairly weak and BGA continues to be kind of in that flattish range. From an HPT perspective, short-cycle we're a little bit more cautious. So yes, we did 3% in Q1, we're calling 1% to 3% in Q2, let's see how that -- let's see how the demand patterns emerge over this quarter. I'd said the same thing for SPS, although there are a couple of other things going on there. So SPS was 3%, first quarter we're calling 0 to 2 in Q2, we've got a change in our go-to-market model on the retails side and we're going more direct to our customers and as a result there was some timing patterns in the channels. We also had as I mentioned, significant improvement in the first quarter and workloads solutions supply-chain. There was strong demand, but there was some unintended backlog at the end of the fourth quarter, we worked our way through and that helped Q1 specifically and SPS. So that's tempers a little bit. But lastly on PMT, I think the -- it's fairly well grounded given the backlogs, so 5% in Q1, 3% to 5% in Q2, certainly Darius and I talked to Rajeev everyday about this, so we have the sort of the same expectation that we'll do a little bit better there, but we just want to be cautious on demand on some of the advance materials. It's been running like gang busters, as I said 150% improvement on the Solstice sale. I don’t want to just bank on that every single quarter going forward.

Yes, and Joe, maybe just add a couple of comments. I think as you look at our long-cycle business and our backlog, we are fairly encouraged by what we saw, in Q1 backlog being up pretty much for every one of those businesses, and certainly there is a level of confidence in what we’re seeing on the long-cycle. The short-cycles is a slightly different story and we are positive on that short-cycle too, but if you think about kind of the animal spirits that we saw overall in the markets particularly in the U.S. and let's say in January versus what we see now, I would say that's a slight down arrow versus what it was and I think some of that could be reflected in the short-cycle and frankly we're being a little bit cautions and measured in terms of our outlook and we hope to deliver to the upside of what we stated.

Got it. That’s an interesting observation on the bifurcation there. I guess the follow-up question I guess is maybe even slightly similar is really on the cash flow side. Seasonally incredibly strong, it didn’t sound like you guys called out any onetime items this quarter. What's stopping you from potentially raising the cash flow guidance for the year?

Yeah. I mean -- so we’re calling 5% to 7% growth in the -- for the full year guide, Joe. As you know the first quarter was 6x, first quarter is generally our most volatile quarter when it comes to cash. Now coupled that with these new initiatives that we’ve put in place around working capital. You did see some significant uptake, I guess we want to see a sustained level of performance. Let's see where we are at the end of Q2 and let see whether we're really sticking with the working capital improvements that we’ve seen. But I have a bias, like you do that that could get better as the year progresses. Yeah. I think [indiscernible], I mean we need to see sustained performance, one quarter doesn’t make the year and although we’re very encourage by what we saw in Q1, I need to see it continued in Q2 and frankly if we see continued sustain performance at the end of Q2 we're going to revisit our guidance at the conclusion of the second quarter.

And next question comes from Howard Rubel with Jefferies. Please go ahead.

Two things, first maybe you could talk a little bit about the progress with connectivity. How many installs you have and sort of what kind of customer feedback that you are now getting with that business, is it becoming a little bit more prevalent in the marketplace?

Yeah. No, I think Howard, we're building out of organization. We saw a couple of key higher and Que Dallara and Steven Gold joined us in very senior leadership spot, we’re building out our offerings and whether its connected aircraft where we’ve had a number of wins that we highlighted in their report today, whether its connected homes, buildings, connected plant, sign up multiple partners. So, I'm not sure that we really measure it yet in terms of the number of connections we have, we measure it by the number of customer engagements we have, kind of interactions we have. And frankly some of the connected enterprises are ahead of the others, I would classify connected aircraft, connect plant are a little bit further ahead and some of the other still a little bit more behind. But I can tell you that for all of them, we’re at a stage where engaging customers we’re optimizing our solutions and iterating, iterating quickly the way to grow this business is derive hypophysis, talk to customers, iterate and bring the value, because in many instances the customers don’t know -- they can’t define exactly what they’re looking for. So, we have a hypophysis that we optimize and optimize, but very, very big build out in this organization. So, we’re -- whether it's our Atlanta software COE or some of the senior people that I pointed out, we’re quickly building out our capabilities. But at the same time engaging customers there for revenue generation. And I can tell you that software business was, in total was up double digit in Q1.

I understand the challenge of doing that. I appreciate that. And then as a follow-up in the other area on HPT you've called out the profitability was a little bit below what you might have expected in meet us well, and kind of the two-part question and as part of it mix and can you elaborate on that, and then from a strategic point of view we've seen a lot of what I'll call retail struggle a bit and that has in fact been the benefit of the ecommerce world. So can you talk about that structural dynamic and then also the near-term issue?

Yes, I think Howard, you have it exactly right. I think the mix has been our biggest issue for Q1 in HPT both from a mix from a product versus distribution perspective, but also geographic perspective, where we saw tremendous rate of growth in some of the HGR regions, regions we've seen slightly less accretive versus some of the developed markets. So that was issue number one. Now in terms of the retails versus transitioning to more ecommerce, I'm not sure that was really one of the cases, frankly our North America business was the little bit softer than we had expected. But HPT, when I pointed out earlier, when I answered the question around new product launches, there isn’t a business out there that has more exciting product launches coming out in Q2 and Q3 and I expect that we're going to have a really, really nice strong second half of the year as well as a nice recovery here in Q2.

The other point I would add, Howard is that, in some of those -- some of the businesses that are growing faster than others, for example, as Darius mentioned the Americas region. When you have an OEM business, where we're providing parts and components to OEMs, that is growing quite strongly low to mid-single digit, the margins on the initial sale are not great, but we're building installed base. That's the business that we are in here. So creating an aftermarket opportunities. I think you are seeing a little bit of that in the Americas as well.

And our final question for today come from Christopher Glynn with Oppenheimer. Please go ahead.

I notice your comments on the several large smart meter project roll outs. Just wondering how much of that has developed since December and there are some complexion on how those came to fruition overall?

I mean some of them, certainly we secured those since December, overall, we were very bullish on this smart energy business for really the rest of the year. Those revenues tend to be maybe more lumpy than want to expect, we were kind of flattish in the first quarter, but I expect double digit growth in the second quarter and high single digit growth for the year, so we've been very successful in securing some of those larger wins. Really pleased with what we saw in terms of win activity in Q1. So overall very bullish on the Elster acquisition and what we're seeing in our smart energy business.

Thanks. And then the follow-up, just long-term pension income, kind of curious that if you could update the thought there? Its certainly a little bit arcane, if you could -- it's a nice income right now. What's kind of the long-term characteristic and sense of variability on how that P&L impact can swing overtime?

Yeah. As you know, I mean I like to simplify the model into two pieces, one is the assets and the other is the liability. The assets, you use the word archaic accounting model, I mean we just apply and assume return to the assets and that goes into our income. So as long as that assets pool that we have is performing and it has performed fairly well. You keep applying that same rate of income and you tend to grow your pension income. On the liability side, its interest rate related, so we're in a low interest rate environment and we apply that interest rate to the liability and that goes into our expense as well as one of our expense. As that interest rate rises, you would see a decline in the pension income. But its -- it overall is the flat, but the important part for us is that the plans are in very good shape, they are well funded we’re in the mid-90s or higher in most of our plans including the big one in the U.S. We don’t foresee any contribution in the foreseeable future. So, it just becomes kind of the book keeping things for us as we go forward here.

That concludes today's question-and-answer session. At this time, I’d like to turn the conference back to Mr. Darius Adamczyk for any additional or closing remarks.

Thank you. I'm pleased with our performance in the first quarter, especially our sales performance and overall execution. It was a clean quarter all around with every business either meeting or exceeding the top line guidance we provided. However, there is more work to do, everyone in the organization is focus in our key priorities, improving organic growth, maintaining our productivity rigor and becoming a best in class software industrial company. We’re going to continuously focus on outperforming for our customers, our shareholders and our employees and I look forward to sharing our continued success with you on futures calls. Thank you.

Thank you. That does conclude today's teleconference. Please disconnect your line at this time and have a wonderful day.