Hubbell Incorporated (HUBB) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hubbell Incorporated Third Quarter Earnings Results Conference Call. As a reminder, today's conference call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Ms. Maria Lee, you may begin your conference. Maria R. Lee - Vice President-Corporate Strategy & Investor Relations: Thanks, Tracy. Good morning, everyone, and thank you for joining us. I'm joined today by our President and Chief Executive Officer, Dave Nord, and our Chief Financial Officer, Bill Sperry. Hubbell announced its third quarter results for 2015 this morning. The press release and earnings slide materials have been posted to the Investors section of our website at www.hubbell.com. Please note that our comments this morning may include statements related to the expected future results of our company and are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Therefore, please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. In addition, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures and are included in the press release and the earnings slide materials. We also call you attention to the Other legends in the presentation, which note among other things that this presentation is not an offer to sell or solicitation of an offer to buy any securities or solicitation of any vote or approval. Now let me turn the call over to Dave. David G. Nord - Chairman, President & Chief Executive Officer: Okay. Thanks, Maria. Welcome, everybody. Thanks for joining us today. As you can see, we've – our story has gotten a little more complicated, so let me just try to simplify it as much as I can and really focus on a few highlights and what's the takeaway today. Certainly challenging markets that we faced, but despite that, our performance in the third quarter was better than we expected. As we look at it, it's probably $0.03 or $0.04 better than we were anticipating. And that's – we've got near-term market headwinds that we're facing. But we're taking the actions around those market headwinds, aggressive actions, which we're starting to some of the benefits on and we'll see more benefits going forward. Recall during the quarter, we launched a proposal for reclassification of our – and simplification of our capital structure and we've announced plans for more aggressive capital deployment around share repurchase and ongoing acquisitions as a part of our strategy continues. The market, as I say, has been mixed and some even very uncertain. The good news is non-res leading indicators suggest continued growth but even within the quarter there were some shaky data points in August when ABI bounced back low and came back, recently has come back, the Dodge data is up. So that's a positive. Housing market's continuing to show growth and homebuilder overconfidence I saw is at a 10-year high, it doesn't necessarily mean that the volume of activity is at a 10-year high, and I think there's certainly some constraints in that market around labor in particular. The utility market, performing as expected and it's the industrial trends that continue to be a challenge and suggest – continue to suggest weakening beyond the oil market's volatility. Our business mirrors that macro environment. I've spent a lot of time over the last quarter in the market with customers and I hear a lot of the same things that we were facing, a lot of softness, certainly in the month of August, like we experienced. I think the consensus view is it felt like the world took the month of August off on vacation and that was very concerning to us but fortunately that – while that continued into the early part of September, we certainly saw that begin to recover as the month of September progressed. Many of you had the opportunity to meet the heads of our lighting and Power businesses at investor conferences and hopefully you appreciated to get to hear from them directly the trends they're seeing in the business, including the LED penetration opportunities at lighting and the telecom fiber buildout that's fueling some of the growth in our Power Systems business. I recently spent some time at a training program for the Power Systems group and it's great to see not – what has historically been a very strong commitment to the organization, but it really was even more apparent that the level of energy and focus and really creativity that's coming out of that team is helping to drive their success. So, against this – all of this backdrop, we're reporting our third quarter results and despite the markets that we can't control, we're focused on what we can control, we're taking the actions on both the costs and investing in the business. So, you see – and I'll start on page four of the slides. We're reporting sales of $877 million, that's up 2%, acquisitions being a contributor – the sales are down 2%, but acquisitions contributing 2% of growth offset by currency headwind of two points and then the result of the organic decline of two points. Now, I think that's the simplistic view of the organic decline. Certainly, we think there is an element of that resulting from destocking in the channel. It's difficult to quantify precisely, but it certainly would be – we think it's somewhere in the range of at least a point or two. And then I think it's the first quarter that we've seen a price headwind, that took about a half a point off. So absent those, I think the core volume all-in is flat to slightly up, and that's around our mixed markets, that's what we've been dealing with. Some of the markets are good, some not so good. So the non-res and res – residential has been solid. The core C&I brands, lighting up double-digits and the residential business up mid single-digits, obviously harsh and hazardous continued to be weak and with the broader industrial markets continuing to slow. In Power Systems, performance was impacted by on the positive side, continued growth in telecom offset by some of the weakness in transmission because of project delays. So that's the top line. Our operating margin of – reported of 14.9%, importantly includes the impact of restructuring which is about 140 basis points. So on an adjusted basis, we reported operating margin up 40 basis points, despite the lower volume. A lot of that attributable to the material cost favorability, despite some of the price headwind, but we do have unfavorable currency and some of the acquisitions in the early stages have certainly come online and they're a drag to margin. So all that giving us diluted earnings per share of $1.27, obviously if you exclude the restructuring as well as the cost that we incurred in the quarter associated with the reclassification, those were $0.13 each, we get to $1.53 on an adjusted basis. Obviously that one item around the re-class is a new item, it's a cost associated that occurred to-date around our proposed reclassification, and we'll talk more about the impact of that on the rest of the year. Turn to page five, some of the highlights. We continue to invest in the business. We acquired a natural gas flow valve manufacturer in our construction and energy group, closed in September, nice complement to some of the existing product offerings in that energy sector. We're also continuing to invest in operational efficiencies, including preparing for the expansion of manufacturing capabilities in lower cost areas. And then, I've been walking a lot of the plant floors lately and one of the things that I've been impressed with – two things – one, is seeing the benefit of the lean journey that we've been on and a lot of the operating efficiencies that that has been driving and more importantly, seeing that there is even more opportunities from the continuation of that as well as our investments in restructuring. Examples have been where we've taken that lean capability, reduced the utilized footprint and made room for that – for a particular facility to absorb some of the operations from the facilities that we're closing. We've also been investing in new products, whether it's in our commercial construction business, an innovative product that incorporates fittings into the metal box, making it for a simpler product, more economical for installation. We're expanding on the lighting side, our LED product offerings into more complex applications, providing a lot more growth opportunity in that business. On the restructuring side, big part of the activity that we've been working very diligently on this year. In the quarter, we spent just under $12 million, $0.13 of earnings per share, bringing our year-to-date total to $0.37. We continue to exit facilities, bringing our total to eight for the year. And importantly, what's not exited, but certainly initiated in the third quarter, was the announced closing of one of the larger facilities in the lighting platform in Southern California, where we're going to move that capability down the road into a low cost operation that's a very highly efficient operation of ours south of the border. Continue to align our staffing levels with the weak market conditions in those businesses that have challenging markets. And we'll continue to make progress on our back office streamlining. And lastly, but certainly not least, we announced our share reclassification in the third quarter. The reclass is progressing as expected. We filed an updated S-4 yesterday, in response to SEC comments. Not substantially different from our prior filing, but addresses a tax question they had, and some additional disclosures that they were requiring. Schedule's on track with expectations, currently contemplates working toward a tentative record date of November 6. And so the timeline remains consistent, shareholder vote expected late this year or early next year. So before I turn it over to Bill, let me just add that earlier this week we announced a 13% increase in our dividend. This reflects a 12% compound annual growth rate in our dividend over the last five years. So with that, let me turn it over to Bill and you can go through some of the details of the quarter, Bill. William R. Sperry - Chief Financial Officer & Senior Vice President: Thanks, Dave. Good morning, everybody. Thanks for joining us, especially Mets fans who might have been up a little late celebrating last night. I'm on page six, talking about sales which Dave gave a good overview of. You can see at $877 million was a decline of 2%. As Dave said, the FX offset the acquisitions and the organic was down a couple points absorbing about a half point of price headwind in there which was borne most concentratedly in the Electrical segment. Just a word about the acquisitions, since they provided the 2% of lift. We had five different acquisitions contributing to that sales growth that have been acquired from November of last year through September of this year, and they're spread around the different segments and so I like how the business model is working where you're getting good non-organic growth from that capital deployment. Page seven we talk about gross margin and S&A. I want to just highlight for everybody the word adjusted that we're using in front of these measures going forward. We've got both restructuring and related costs as well as expenses associated with our reclassification that have been taken out in order to make sure we give you the best look into the core operations and how they're performing on a comparable basis. So our adjusted gross margin was up 90 basis points year-over-year to 34%. You see the favorable impact of material prices being really the big driver there for us. In order of importance, that's steel, copper and aluminum all helping to contribute to that tailwind. We also had productivity in excess of the cost increases and those helped us overcome the lower volume and the mix associated with the strength in the non-res side as opposed to the weakness on the industrial side that we mentioned. On the S&A side, you see a 60 basis point backup there to 17.7% of sales. The couple dollars of cost increase was really driven by our acquisitions and the decline in the sales denominator obviously helps bump up that percentage, but does highlight our need to make sure as we absorb our acquisitions we focus on cost management right away. On page eight, we talk about adjusted operating profit of $143 million. You see an improvement to 16.3% of sales, 40 basis points better than last year and again this is now just derived from essentially that gross margin improvement helped by the materials and productivity overcoming the acquisitions adding to the S&A cost. Page nine, we cover non-operating expense which is essentially for us interest expense, since we've got comparable levels of debt, you see quite a comparable level of non-op expense. On the tax rate, you'll see the 33% for the year, and again, I'll note the word adjusted there. We had the reclass expenses of about $7 million that we report in our non-op line. Those are nondeductible for tax purposes and so those would drive the effective tax rate up a couple points higher with those on a reported basis. Page 10 you see net income at $89 million, down about 1% from last year. The shares – adjusted earnings per share up 1% to $1.53 per share, driven by the lower share count. We had about 1.5 million fewer shares in this quarter's count resulting from the share repurchase activity that we did largely in the fourth quarter of last year and the first quarter of this year. I'm going to switch now to the segments on page 11 and we'll start with the third quarter for the Electrical segment. You see sales of $618 million down 4%. The Electrical segment is really seeing the pronounced mixed end market that Dave was highlighting. You see the fact that organic volume was down, FX was also down and the acquisitions provided a partial lift there. You really have the tale of both tapes here, where on the plus side you've got resi and non-residential markets doing quite well, the resi side being in the mid single digits up. The non-res, we're seeing our commercial construction business up mid single-digits and our lighting business had some of the core C&I lighting brands up about double-digits, while they had some of their national account and spec brands drag that performance for the whole down a little bit below those levels as those had some lumpiness and some project push outs in them. But on the downside, harsh and hazardous down about 27% for the quarter, in line with our expectations. I'll just remind everybody of the construct of our harsh and hazardous business, where it's about 50% domestic-international 50%-50%. It's about 80%-20% upstream versus downstream and it's about 60%-40% project versus MRO and I think those characteristics are quite important in dictating how well you can navigate the oil end market here. So a significant decline but as expected, the industrial business is also showing some softness. In particular, we're seeing differentiation between what we would call heavy industrial which was down mid single-digits versus the light industrial which is faring quite a bit better. So really mixed markets there for the Electrical segment, resulting in a net down organic. On the performance side, you see the maintenance of 14.4%, operating profit margins on adjusted basis, with OP at $89 million. That's basically the result of lower volume and mix, dragging that down, with the favorable impact of better prices – sorry, better material costs and productivity being in excess of costs, helping to overcome some of those volume declines. The Power segment on page 12, you'll see, had a very nice quarter, 2% growth to $260 million of sales. The acquisition side of the Power business really helping out, contributing four points to that growth, FX providing a two point offset there for a Power business that's influenced significantly by the reais in Brazil. And the organic business being flat, that's a little bit of a deceleration for the organic Power business, we've seen growth in the first two quarters and it's really the result, we think of some deferrals on the transmission side and the bright spot for Power has been the growth in the telecom where we've seen some of our enclosure businesses do quite well, in fiber to the home, the build-out of the last mile of that part of the network. The performance side, we see 100 basis point pickup to 20.8% of OP as a percentage of sales. Again, the material costs helping out our Power segment and their productivity program also kicking in. Our cash flow, for Q3 was about one-times net income, unfortunately, net income was lower than last year. You also saw working capital usage this year driven in large part by some investments we had in inventories as we try to keep up our service levels. And on the other line, you see some headwind on the cash flow side coming from the timing of taxes paid and deferred taxes. And CapEx you see that slight pickup which is supporting all the restructuring and productivity initiatives that Dave was highlighting. So I'll switch now on page 14 to the year-to-date results, you'll see a two point pickup in sales to $2.6 billion. Acquisitions were contributing 3% there, FX an offset of 2% and organic markets providing 1% of lift. You see at the OP line a 20 basis point decline to 15.4% of OP and at the adjusted EPS line, you see a 3% improvement to $4.21. The segments year-to-date have stories that are very consistent with the quarter. So I don't want to just overplay all the themes, but for the Electrical segment, the 1% growth at $1.8 billion of sales, but again the mixed market theme is the same, where we had strength in non-res and res and weakness in harsh and hazardous and industrial. So for the year-to-date period that harsh and hazardous business was down 20% and industrial was slowing a bit at minus 1% as compared to the non-res businesses which were growing in mid to high single-digits and the resi, in mid single-digits. So, mixed story, again the same as Q3. The operating profit line, see $243 million generated, 13.5% OP margin, decline of 80 basis points, resulting largely from the mix headwind that that differential in end markets causes for us as well as some of the FX impact on the transactional side. Year-to-date, again the Power story is very good, you see 6% growth, $758 million of sales, acquisitions continuing to contribute at 4 points. The organic through the first nine months at 3%, that fiber story in telecom helping as well as a little bit on the T&D side. At the operating profit level, you see 20% margins earned in the first nine months, 120 basis point increase from last year, helped significantly by the material cost benefit as well as leveraging the higher volumes. Cash flow year-to-date, $141 million of free cash flow, again the same story, lower income, slightly better working capital usage, you see there. And on the other, we had both deferred tax differential and pension funding that we had in this year that we didn't have last year. The higher CapEx is significant, again supporting the productivity initiatives that we've talked about and significantly, Dave mentioned the movement of that facility from Southern California into Tijuana was a big part of the increase of that CapEx. Capital structure, our net debt-to-cap going from a minus 4% net cash position to a 4% debt-to-cap. The $220 million decline you see there in cash largely driven by our acquisition and share repurchase activity during the first nine months of the year. So with that, I'm going to switch it back to Dave to go through our discussion of outlook and a quick preview of next year. David G. Nord - Chairman, President & Chief Executive Officer: All right. Thanks, Bill. So I'm on page 19, if you're following along. First, let me talk about how we see the rest of the year finishing out and what I like to say with nine months in the books, it should be pretty easy to predict. The fourth quarter is historically one of the more challenging just because of some of the dynamics that go on naturally in the buying channels, buying behaviors, order patterns and so it does make for a real challenge in forecasting some of our short cycle businesses. That said, we think the year is going to finish with sales, an increase of 1%, that would be with acquisitions to-date – done to-date contributing three points of growth and currency being a 2 point headwind. So end markets essentially flat, up a point. On the earnings per share side, we're tightening our range to $4.95 to $5.05 just taking $0.10 off the top, $0.05 off the mid-point. This includes $0.45 of restructuring related costs, so we've incurred – so, we'll have another $0.08 to $0.10 in the fourth quarter. It does (27:42) exclude, so that guidance does exclude the cost associated with the share reclassification. A couple reasons for that, one, it's clearly not an operational cost by any definition, whereas the restructuring and related has investments with future economic benefits that we can calculate. Secondly, it's uncertain, it's uncertain as to amount, and it's uncertain as to its conclusion, while we're working toward that plan, there's not a guarantee. If in fact, we do close, as we would hope on it this year, we think those costs – we estimate those costs currently at $0.35 per share, of which we had $0.13 in the third quarter. One of the things to note on those costs is, that the per share impact of it is fairly significant, because our current view of those costs is that we unfortunately don't get a tax shield on it as these are considered more capital costs, but we're working on that as well, okay. And then, our free cash flow, we're still targeting to be at 90% of net income. Let me turn now to 2016. Obviously, it's too early for specific guidance. We'll provide more detail as we typically do in January, but just a little sense of how we're looking at things preliminary, an early preview. I think, for the most part, most of our markets, end markets, we continue to see them to be up next year, continued improvement, and similar trends to what we've seen this year, but maybe with a little more moderation across all markets. The end markets are certainly mixed, but overall, I think they'll probably be up modestly 1% to 2%. Certainly, the construction related, both non-res and res continue to be positive and we see those in the 5% to 7% growth next year. The utility market, we think will still be a positive next year, up 1% to 2%. The industrial, we think will be flat to maybe up two points, certainly with the heavy industrial side of the equation down, but with light industrial still showing some positive growth. Obviously, that's something we're going to follow very closely as the year finishes to make sure that that still is valid. Then the harsh and hazardous business, we think is going to continue to be down next year but certainly at a more modest level than we've been dealing with this year, currently sizing that at around 10% down, okay, So modest end market growth in the aggregate. Acquisitions, certainly will remain a key part of our growth strategy. I think this year, as I talked about and Bill talked about, we've put up three points of growth from acquisitions, tell you that's lower than we had anticipated and that we typically would like to see. Some of that has to do with the volatility of the deals and the timing of the deals. We would normally like to see on a ongoing basis closer to twice that level. I think based on the level of activity that is going on in the market, I think we're certainly more likely to see that next year than this year, but as with all our deals, they're not final until we sign and close. But there is a lot certainly in the pipeline. Our operating margin, certainly, a lot of good stuff that we're going to be building off of. First the benefit of our restructuring investments. We continue to see that delivering about $0.30 of incremental profit next year. Of course, we're going to have to reinvest some of that in ongoing cost, as we've talked about. Currently, we're looking at that being possibly in the range of $0.25 to $0.35. The good news there is that, we've gotten a lot of attention, a lot of focus, a lot of energy in the organization, in identifying actions that need to occur to either respond to market weakness, but more importantly, take actions to set ourselves up for a more competitive cost structure, that will really support some of our growth objectives, certainly in key markets. Share repurchases, as we've talked about, $250 million anticipated next year. But all of the positives can't be left without, if I could draw the line there, it would be great, but certainly, there are some other things that we have to – that we're going to be dealing with. One is increased investment, certainly around potential investments to support growth initiatives and new products, still being evaluated, still being sized, may be able to be contemplated within our normal operations, that's our first objective. Unfavorable mix, we certainly have faced a lot of that this year, we don't expect to see that level next year; but I think there's still a little bit still to come, and we've got to work through that. Pension expense, some headwind there, we won't know until the end of the year; but if you snapped a line today, the lower asset returns offset favorability from a higher discount rate, so that would be a little bit of headwind that we'd face. And then then acquisitions, at least on the margin side, certainly deliver profit dollars, but not necessarily would be dilutive to the margin side. So, we'll provide more details as we report in January, for sure; but we're continuing to position our cost structure for the long-term sustainable earnings growth. The one thing that I would say as we're rounding the turn to finish this year, that it's clearer than it has ever been to me, in that our One Hubbell strategy and our focus on our four key objectives is really evident in everything that we're doing and is really helping to drive our performance, whether it's our focus on our customer and we see that in the recognition that we're getting from many of our customers as a key supplier, an excellent supplier, their best supplier – the operating discipline that we have around our cost structure, our lean activities, our back office operations, our focus on growth, the energy and effort that's gone into acquisitions, which you know, well at some point, start to deliver some real growth activity. And then our focus on talent, we've done a lot this year on organization changes and leadership, and I think that's setting us up for all things that give me great confidence that the investments we're making are going to continue to support our long-term value enhancement to shareholders. So, with that, let me, I'm sure, we've made it crystal clear, so you probably don't have any questions; but in case you do, we'll open it up for a few.

Your first question comes from the line of Rich Kwas with Wells Fargo. Your line is now open.

Hi, good morning. David G. Nord - Chairman, President & Chief Executive Officer: Hi, Rich.

Wanted to – on the harsh and hazardous, where do you – Dave, where do you think your cost structure is at this point and how do we think about that as it relates to the price of oil today. Are you right-sized for this sort of price environment or does the restructuring contemplated for next year include another adjustment to get that to an appropriate demand level? David G. Nord - Chairman, President & Chief Executive Officer: Yeah, Rich, I'd say, we're closer to right-size. I think from a staffing perspective, I think we're much closer. I think the thing that we're still evaluating is on our fixed cost structure, particularly around facilities, and I've talked about in the past, that's a more sensitive, critical decision because, you got to make sure that you are really planning for the future growth that will occur in this business, but that's – that's the one side. I wouldn't tell you that there is a bias that that's likely to occur, but that's something that we – could happen as we continue to evaluate. And depending on where the market ultimately settles out, okay.

So, is the assumption that the price of oil goes back up and I think you said you're right-size – you're sized for $60 oil last quarter, is that closer to $50 now or how are you guys thinking about it over the next couple of years? David G. Nord - Chairman, President & Chief Executive Officer: We've been working toward sizing ourselves toward $50 to $55. And we still have a little more work to do there, but I wouldn't say that there is a big investment to get to that size, okay.

Okay. All right. And then on the transmission piece, you've seen some warnings from other companies you've cited delays. How do you feel about the growth for next year, you're calling utility up 1% to 2% in this landscape, what's the comfort level around that, I should say confidence level around that given some of the comments coming from others here recently? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, Rich, our project list that we're quoting and working with our utility customers on shows us that despite some of this push out that we've seen recently that we should expect to see some growth. So our team has some confidence that we'll have some T growth (38:20) next year.

Okay. And then finally on the non-res piece, so the starts data, you referenced weak during the quarter, we just got ABI that would seem to be a little bit better of a forward indicator that bounced back in September, Dave you cited that September got better but how do you – broadly speaking, but how do you look at the starts data in the context of ABI at this point? You're assuming decent growth again next year, but what are the risks to that either way? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, I mean I think when we look at the way the public and private sectors are spending money, Rich. The strength of the private sector is obviously really helping to drive the non-res. The public is positive. Places like education on the public side are showing some decent signs of strength I think. And as we look across our businesses with non-res really affects both our C&I side of our lighting business as well as some of the commercial construction side of our – the rest of our Electrical business. We see some decent expectations for next year, and so that's how we're planning.

Thanks, Bill. Just one quick one, on restructuring, the $0.25 to $0.35 contemplated for next year. What type of environment do you have to take another significant chunk of restructuring going out above and beyond that? I know you do – you typically have done restructuring every year, it's been fairly modest up until the last year or so, but, in what type of environment, would you have to really scale that up again or above and beyond, what you're contemplating? Basically, I'm trying to get at where your cost structure you feel, your comfort where your cost structure is as we head in, look out a year from now? David G. Nord - Chairman, President & Chief Executive Officer: Rich, I would say, I mean, that, to have a big step up in that, would have to really be a broad-based recession, somewhat similar to what we saw in 2008, 2009. But, there's a lot that we are just trying to do in the normal course, I mean, certainly staffing levels if volumes fall down. On the fixed cost structure, there is certainly a lot more, if I could do everything overnight, there's a lot of things that we would do, but we're not going to do those. One, because they're not critical. Two, because we can't afford them, and three, importantly, we wouldn't be able to execute them effectively. So, we're doing that over the normal course and we have been, but – so I would look more at the $0.25 to $0.35 first and foremost, it doesn't go to zero in 2017 it goes to something less. So if you take $0.25 to $0.35 and you put another, say $0.15 to $0.25, you look at it on that kind of basis, but the more we do next year, the more benefit we get the year after just like we've seen this year. So I think there could be, that's why we've kind of moved it up from what we originally thought it might be 20% to 25% now. It could be in a $0.25 to $0.35, just because we're identifying more opportunities to adjust our cost structure not just for market weakness but also to make sure that in some areas we have a cost structure that makes us more market competitive, okay.

True. All right. That's helpful, appreciate it. Thanks Dave and Bill.

Your next question comes from the line of Nigel Coe at Morgan Stanley. Your line is now open. Nigel Coe - Morgan Stanley & Co. LLC: Oh, thanks. Good morning. Just wanted to, I mean, first of all, appreciate all the color in the slides and I forget the look at 2016, obviously recognizing it's a preliminary view. Just in terms of coming to 2016 expectations, how did you derive that, was that more top down or did you triangulate with customers and your leaders? David G. Nord - Chairman, President & Chief Executive Officer: It's mostly top down at this point, looking at some of the market indicators that we would typically rely on, but not just taking what those market indicators, trying to apply what has been our historical experience. But that's sort of the process that we take on an early look. Then we're going through a process over the next – as part of the difference between our preliminary look and what we ultimately end up in January between now and then. We're working very closely with our leaders as well as with our customers and doing a much deeper dive to validate whether that is true or not. Obviously, with the concern that we don't want to be too optimistic. On the other hand, we want to make sure we're not being too conservative and missing market opportunities. So it really works on both sides and you talk to our management team and they would tell you that that's exactly the conversation we have on both ends of the spectrum. And I spend a lot of time talking to customers over the next several months just to see how they are seeing things as sort of my independent check of what's happening in the business. As well, to be honest, we also listen to the investment community, both you, your colleagues, and importantly our owners who have some other insights into what's happening and we welcome that input because that is a very important element of what comes into play here. So between now and then there's a lot of discussion that comes up and welcome you guys' all input. Nigel Coe - Morgan Stanley & Co. LLC: Okay. I mean, it doesn't look unreasonable for us, but the 5% to 7% for non-resi is going to be a bit of a debate, there is – as you'd be aware, there is a debate about to the extent at which the industrial weakness has been through into general activity and just in terms of your daily and weekly trends through the quarter and into October, have you seen any evidence of that happening that your non-resi is starting to get impacted? David G. Nord - Chairman, President & Chief Executive Officer: Well, I think we saw some weakness start in the third quarter in August and September. And so, we're some of that, as I said, we attribute to inventory management and destocking. So, we're trying to determine whether, how much of that might be underlying market demand, but it certainly has some weakness right now, not broadly in non-res construction, commercial construction is still very solid, but that is an area that understandably it's a big part of our portfolio, so we're spending a lot of time. And that's where, I think, there is debate, because there is still some views that it will be even better. I'm not sure that we generally don't follow those views, we are more concerned about whether things are worse and making sure that we're anticipating and reacting accordingly, so... Nigel Coe - Morgan Stanley & Co. LLC: Okay. And then, just one – yeah... David G. Nord - Chairman, President & Chief Executive Officer: Go ahead. Nigel Coe - Morgan Stanley & Co. LLC: Okay. And just one more, you mentioned pricing 50 bps headwinds during the quarter, was that mainly confined to harsh and hazardous and LED. And I think, you mentioned that price-cost was still a benefit. Does that flip over at all, in your 2016 planning, does price-cost become a negative over the next 12 months? David G. Nord - Chairman, President & Chief Executive Officer: Yes, it does. It was largely in the Electrical segment, the Electrical businesses. It's still positive overall because of the lower commodity cost and material cost while we're still maintaining some price in some areas. So that's been a positive, but we expect that to rollover. It already has started and we'll see that continue into next year and that's one of the additional headwinds that we've got to size and manage against with some of our cost actions. Nigel Coe - Morgan Stanley & Co. LLC: Okay. Thanks, David. David G. Nord - Chairman, President & Chief Executive Officer: Okay.

Your next question comes from the line of Christopher Glynn at Oppenheimer. Your line is now open. Christopher D. Glynn - Oppenheimer & Co., Inc. (Broker): Yep, can you hear me? David G. Nord - Chairman, President & Chief Executive Officer: Yes, Chris. Christopher D. Glynn - Oppenheimer & Co., Inc. (Broker): Great. Good morning. So on the single class, I'm just wondering, how that plays into the scope of deals that you might contemplate, if that's opening up how you kind of view and process the pipeline and potential pipeline for acquisitions? David G. Nord - Chairman, President & Chief Executive Officer: Is your question about capacity or size? Christopher D. Glynn - Oppenheimer & Co., Inc. (Broker): Well, yeah, in the sense that maybe with a single class that shares become more of a currency option than historically? David G. Nord - Chairman, President & Chief Executive Officer: I mean, certainly that's a – that would be a consideration, although we continue to view our M&A activity around our core businesses and our typical bolt-ons with larger and we've talked about continually larger being in the $300 million to $600 million range. I don't think those would qualify as ones where our shares would be a worthwhile currency in that size transaction. Certainly, if there were bigger opportunities that would obviously be a consideration. But – and that – I won't say it's never on the table, but there is even fewer of those transactions than there are as we go up the scale, so. Christopher D. Glynn - Oppenheimer & Co., Inc. (Broker): Okay. And then oil and gas, as you look at orders backlog and revenue run rates. Just wondering if you're – you think that market's finding a bottom. I think that the down 10% for next year suggests that maybe it is on a sequential basis and the first half could absorb that down 10% to be comparable with what you're seeing in the second half, but maybe if you could talk about that specifically? William R. Sperry - Chief Financial Officer & Senior Vice President: It might be even a little more pronounced to the first quarter, Chris, rather than the first half, where we hadn't seen the kind of declines yet in the first quarter that we experienced in the next two quarters of this year, mostly because of some of the project stickiness that just kind of carried over. So, I think the toughest comp for us next year is Q1, but I don't disagree with your characterization of, kind of a sequential – we've talked about our expectation of a U. And I think we're starting to feel sequentially we're getting towards that U and that's how we see it. Christopher D. Glynn - Oppenheimer & Co., Inc. (Broker): Cool. Thanks.

Your next question comes from the line of Steve Tusa of JPMorgan. Your line is now open.

Hey, guys. Good morning. David G. Nord - Chairman, President & Chief Executive Officer: Good morning, Steve.

So, just some good details on, helpful on 2016. So, I guess the savings basically offset the restructuring to a degree. So, you've got that kind of $0.45 cost tailwind coming in next year. I guess share repos – I don't know, but depending on when you do it, maybe $0.20 to $0.25 of benefit, increase investments I get, mix I get. On the pension, how – I mean, I think you guys had as high as a maybe a $0.10 to $0.15 headwind in 2012 or something. The pension headwind, is it really that material for you guys, is it more than a nickel for you guys, if you just snap the line today? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, it's too early to know what it will ultimately be, but given some of the asset returns relative to depending on what happens to rates, you got both variables that are a little bit hard to predict. If you snapped it today, it would not be as much as what you said.

Okay. So like a nickel or something? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, let's say that ballpark.

And then – and you're saying the acquisitions are dilutive next year? David G. Nord - Chairman, President & Chief Executive Officer: To margins. William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, that's just the OP percent, not to... David G. Nord - Chairman, President & Chief Executive Officer: Not to dollars.

Okay. So just – so they are still contributory to the overall EPS number, absolute EPS number? So, there... William R. Sperry - Chief Financial Officer & Senior Vice President: Operating margin drivers, yeah...

Right, right. So there's not a lot of like real headwinds here other than maybe like, I mean, are you most nervous about kind of price-cost and obviously the growth variable, but it seems like you've got a lot of stuff to get you very easily to double-digit, pretty solid strong double-digit earnings growth next year, north of 15%, if you're looking at the growth you're expecting I mean, that's just the math on it. Is there something else that you're really worried about out there other than maybe the deflation dynamic? William R. Sperry - Chief Financial Officer & Senior Vice President: Well, just don't forget about mix, Steve, right. So as long as non-res and res markets are outgrowing utility and industrial that will create a mix headwind that we have to overcome...

Will you still, in that environment on core volume, be able to convert at a, I mean, reasonable level or will it be negative conversion, I mean how bad is that mix? William R. Sperry - Chief Financial Officer & Senior Vice President: We don't....

If you grow 2%, you know what I mean? Can you still convert that into operating profit growth at 2% in that kind of mix environment. I would think you'll be able to do that right? William R. Sperry - Chief Financial Officer & Senior Vice President: And again, we – I want to be careful not to go to doing the 2016 math with you, but I do like talking about the drivers, just so we're understanding them. And I do think you're thinking about mix the right way, and that as the growth rates – the growth rate differentials moderate, and some of the restructuring that we've been doing, helps close some of the gap on some of the margin differential. But the fact is, there's still a sizable margin differential on those businesses. And so, that creates a headwind that we have to manage. And that's just on the list, is all I'm saying.

Yeah, okay. I mean that's totally understandable. And then, sorry, I didn't quite get the answer on the non-resi stuff. I mean, you kind of said that, you were encouraged, but then, it was kind of weaker in August and September, I think, you referenced some Dodge data, obviously the starts is weak. Maybe, if you could just clarify, I mean, are you guys as bullish, more bullish or less bullish on non-res than when we last talked in July? David G. Nord - Chairman, President & Chief Executive Officer: I'd say, we're less bullish.

Okay. Got it. All right. Thank you very much. David G. Nord - Chairman, President & Chief Executive Officer: Okay.

Your next question comes from the line of Jeff Sprague at Vertical Research. Your line is now open.

Thank you. Good morning, gents. David G. Nord - Chairman, President & Chief Executive Officer: Hi, Jeff.

Hey. Can we just spend a little bit more time on price-cost. So your comments about it going negative next year, does that – I mean, just give us a little bit of color on both sides of the equation, I guess. I would assume, you're looking for some more price erosion, but are there some cost headwinds that are creeping in and working against you there too. Maybe on steel particularly? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, I think, Jeff, the basic trajectory during 2015 has been a decline in some of those core commodities that we buy; steel, you're right; copper, you're right; aluminum, you're right. And the way that our pricing mechanisms work, there tends to be a lag of a quarter or two in terms – and so as commodity prices come down and our inputs go down, that actually tends to create some margin favorability because the price that would come down in sympathy to that, it just lags that by a little bit. So, I think what we're describing is an inflection point. As those prices start to firm, they don't even need to rise, they just need to firm. And exactly as you said, the price continues kind of downward for another quarter or two. And so, then that flips and becomes a headwind. And it gets more dramatic if commodities actually inflect upward and then you start to create a more significant headwind. So, we'll have to see what the outlook for those key commodities are, but you're right to be focusing on steel for us, that's a big one.

Well, how much of your pricing is actually mechanically tied to cost as opposed to your customers just expecting price relief as cost comes down. And I ask that in the spirit of we're hearing in the channel that – and maybe it's wishful thinking, but people are trying to raise price right now. What's going on there and what's your view on that? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah. We have a mix of those things, some of the pricing is tied to input deflators, but mostly it's negotiated, which everybody knows the cost of metals and stuff, so.

Right. William R. Sperry - Chief Financial Officer & Senior Vice President: We're all sharing the same information.

Right. Should we assume that your 2015 results reflect $0.10 or $0.15 of restructuring savings from the $0.45 that you're doing this year. And therefore, that plus... William R. Sperry - Chief Financial Officer & Senior Vice President: No. I'd say the bottom end of your range not the top.

Right. And should we expect to get some fraction of that $0.25 to $0.35 in new spending in 2016 as benefit in 2016, a half, a third or is there any way to think about that? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, if we can get the projects in, in the first half I think you maybe start to see some of the benefit in the second half. So a little bit depends on the sequencing and timing of how we get things implemented.

And then just on buyback, given that you're forced out of the market by the share collapse, if the deals are not kind of ready in your sights there when we get on the other side of that, should we expect that you'd move quite actively on the repurchase, as quickly as you possibly can? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah. I think you should expect that, Jeff.

Yeah. All right. And then just one last one here I guess. Could you just – maybe you can reiterate because I'm not sure I got it all. But the color on lighting in the quarter and then I don't think you said anything about LED penetration specifically. But how did the individual pieces of lighting move around and where is the LED number now? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, so LED penetration is well up, over 50% overall. The penetration when you focus on C&I is in the 60%s, at resi it's lagging and kind of in the early stages of adoption I would say.

Okay. Thank you.

Your next question comes from the line of Mike Wood at Macquarie Group. Your line is now open. Mike Wood - Macquarie Capital (USA), Inc.: Hi. Thanks for fitting me in. Just a question in terms of more color on your industrial outlook, that appears to be the biggest kind of trend change with what you're experiencing in recent activity. Wondering if you could just give some more commentary in terms of your outlook there for the light industrial, heavy industrial and perhaps if you're seeing the same issues as last quarter when you highlighted some of the regional weakness in the oil and gas regions of the country? William R. Sperry - Chief Financial Officer & Senior Vice President: Yeah, I think, Mike, our outlook is reasonably cautious around industrial, flat to 2% and we're trying to indicate for you that we see some differential between some of the heavier sides of that industrial where we see some risk and the lighter side of that industrial where there may be a little bit of opportunity. Mike Wood - Macquarie Capital (USA), Inc.: And in terms of HVT, I haven't heard you comment on that, are you seeing any activity in the market or is that grouped in with the heavy industrial? William R. Sperry - Chief Financial Officer & Senior Vice President: We're still kind of trough – at the trough of that cycle. So it's – we're – we haven't commented because it hasn't added a big delta either way for us. Mike Wood - Macquarie Capital (USA), Inc.: Great. Thank you.

At this time, I turn the call back over to Maria Lee. Maria R. Lee - Vice President-Corporate Strategy & Investor Relations: This concludes today's call. Steve and I will be available following the call for questions and thanks again for joining us. I know it's a busy morning so we want to make sure you can get on your other calls as well. Thank you.