Good day and welcome to the Ingersoll-Rand second quarter 2010 earnings conference call. Today's conference is being recorded. At this time I'd like to turn the conference over to Bruce Fisher, Vice President of Investor Relations. Please go ahead sir.

Thanks, Tom. Good morning everyone and as Tom said welcome to Ingersoll-Rand second quarter 2010 conference call. As you know, we released earnings at 7 A.M. this morning and we'll broadcasting in addition to this phone call through our website at ingersollrand.com where you'll also find the slide presentation that we'll be using this morning. These materials from the call will be archived on our website and will be available tomorrow morning at 10:00 A.M. Now if you would please go to Slide 2 in the slide presentation. And I'd just like to remind you that statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor Provision with Federal Securities Laws. Actual results may differ. Please see our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. In addition, if you would please refer to Slide number 21, which covers the use of non-GAAP measures to describe the company performance. Now I would like to introduce the participants on this morning's call. We have Mike Lamach our Chairman, President and CEO. Steve Shawley our Senior Vice President, CFO. Janet Pfeffer our Vice President, Business Development and Investor Relations. Who is taking over my role and Joe Fimbianti our Director of IR. Before I turn it over to Mike and Steve, I'd like thank Joe for his support through the years. I'd also like to wish Janet all the best for her new role. I know our analysts and investors will enjoy working with her. Also I would like to thank Mike, Steve and other leaders and people I've worked with over the years of Ingersoll-Rand, Trane and ASV. It's been a privilege to know all of you. And I'd like to thank the folks from the investment community, it's been a pleasure working with you sharing the ups and downs of the markets and together gaining a better understanding of our businesses. Thank for your energy, your intellect and your curiosity. You made my job much more interesting, rewarding and fun. And so with that, if you would please go to slide number three and I'll turn over to Mike.

Thanks Bruce. So we're talking last night. It was 41 quarters, I think we've had the pleasure of working with you for nine of those. So, yeah, we want to tell you thank you and wish you all the best for you. So good morning to people on the call. Thank you for joining us today. In the second quarter, we continued our focus on driving top Tier operational performance. We delivered strong revenue growth with three or four sector achieving top line increases. We significantly improved our productivity for the sixth straight quarter and we expanded our margins, grew our earnings and generated strong free cash flow. Second quarter earnings from continuing operations were $0.76 per share including $0.04 of restructuring and productivity investments. EPS exceeded the top end of our project second quarter earnings guidance range of $0.62 to $0.72. For the quarter, revenues were $3.7 billion, up 7% versus prior year and above the top end of our guidance range of 3 to 6%. During the quarter, we continued to see strong bookings of a number of our early cycle businesses are showing good growth and the company overall, orders were up 10% and improved in each of our segments except for commercial security which continues to be hampered by the ongoing decline in North American commercial construction activity. Our backlog also increased significantly, up 15%. Operating margins for the quarter was 10.3% driven by productivity and higher volumes. All of segments improved operating year-over-year and total segment margins were up 2.8 percentage points for the second consecutive quarter. We also had a 49% leverage on our year-over-year revenue gains. We achieved a 4.4% increase in gross productivity as we continue to drive disciplined cost controls and operational improvements. This performance includes approximately $26 million of unplanned…

Thanks, Mike. Please go to slide number eight. The slide covers the Climate Solutions segment, which includes the Trane Commercial HVAC business and the Thermo King and Hussman refrigeration businesses. Total revenues of $2 billion for the second quarter were up 6% both on a reported and excluding currency effects. I'll talk first about the Trane Commercial HVAC business and provide a quick look at the markets. Globally, non-residentially HVAC equipment markets declined mid-single digits in the second quarter, following a decline in the mid-teens in the first quarter. Both, the Americas, and Europe, Middle East showed mid-single digit declines while Asia continues to demonstrate good growth. Based on what we see today, we believe the Americas market as bottomed, and based on market activity, we maybe approaching an inflection point. We also expect Europe Middle East markets to continue to decline at a slower pace and growth in Asia to remain in the mid-teens. Global commercial HVAC second quarter revenues of $1.3 billion were up 2% versus prior year on a reported basis and up 1% excluding the effects of foreign exchange. Total global commercial equipment revenues were inline with global markets, down 5% excluding FX. Americas' equipment sales were down close to 10%. Europe and Middle East were mid-teens and Asia was up high-teens, all excluding FX. Global parts, services and solutions revenues increased by 11% excluding FX. This is the strongest year-over-year increase we've seen since the fourth quarter of 2008 reflects to both improving demand and our ability to sell directly to building owners. Shifting to orders, global commercial HVAC orders were up 9%, and up 7% excluding foreign exchange. This is the second quarter in a row that total order growth was positive, following a string of five quarters of negative growth. The second quarter…

Thanks, Steve. Please go to slide 18. Our forecast for the balance of 2010 is based on mixed but improving markets. We continue to expect a slow recovery in the US and European economies, growth in Asia and mixed activity levels in our major vertical end markets. We believe recent activities indicate that we are seeing stages of recovery in refrigeration, industrial, club car, residential HVAC and residential security, as well as in commercial HVAC parts, contracting and service. We expect to see a continuation of the challenging conditions in the US nonresidential construction market for the balance of the year, which will continue to impact both Trane and security commercial business. We are certainly encouraged by our orders and backlog but economic turns can be choppy, so we believe the best approach is to be conservative in our market outlook and continue to relentlessly focus on achieving our productivity targets, offsetting material inflation through price realization and continued investment in our long-term growth through innovation. Based on this mix but the improving view of the world, we are raising our revenue range for the full year 2010 to up 4% to 6% compared with 2009. We expect industrial and residential to show gains in the upper single-digit range. Climate Solutions revenues expected to be up low to mid single-digits with low single-digit declines in HVAC equipment and gains in both refrigeration and contracting products and service. Security is expected to show a year-over-year decline due to its exposure to non-residential building, especially in North America. This results in a full year forecast of $13.7 billion to $13.9 billion, equal to a 4% to 6% full year growth for total Ingersoll-Rand. This compares to our previous revenue guidance of 3% to 5%. Please go to slide 19. As a result…

(Operator Instructions) We'll go first to Robert Wertheimer with Morgan Stanley.

Hi. Good morning, everybody. I had a couple of questions on the commercial businesses. On the commercial HVAC, are you seeing a lot of stimulus effect, if any, and if you're not seeing it, do you feel like it's ahead or it's not happening?

Rob, I'd tell you from the get-go it's been disappointing from what I thought it would be. It is not a subject of sort of major positive variances in any of the business reviews that we do. I think there is some effect to it, but actually do not see it as a major tailwind or driver for us.

Interesting. And do you have a sense to how this took people awhile to plan and get involved or you're just not seeing it in the pipeline either?

Just not seeing the flow of funds really. As opposed to go back to China where we had 30, 40% bookings growth and we had our factories filled with high efficiency equipment, chillers and airing units, which I would say was a direct result of the stimulus work there.

Right. So given that, the revenues are okay and the orders are trending up, which is positive. Are you able to say whether the repair and replace side of the business is sort of above trend as you're getting a balance from people not doing work last year or are you seeing strength in both. There isn't a whole lot of new build. I am curious whether you're seeing above trend line repair and replace or just back to normal?

I think it's a business that when we look long-term, we think we have the ability to grow that business 8% to 10% annually. So I think there is some catch up. I think there is some particularly early in the year where 2009 budgets were constrained. I think there was early spending by customers to make sure they were going to be able to spend. And in the event there would be a W shape recovery and maybe have budgets cut. So I think there is a little bit of that. But I expect long-term that we can grow that business 8 to 10%. It's an enormous business, very fragmented, with a lot of global opportunity for us as well.

If I can stick in one last one, your margins on your security business continue to be just very, very strong. Is that at all you didn't mention as one of the factors in the innovation, I don't know whether it's Schlage idea is big enough to matter, it's a brand new launch I guess. Is it innovation, is it aftermarket or again shift in mix or is it just improvements you made to the business?

It's interesting because the Schlage idea is ahead of the marketplace. It actually does sell at higher margins than our mechanical product. But I would also tell you, it's really outstanding operational improvement in Europe and Asia offsetting that mix.

We'll take our next question from Jeff Sprague with Vertical Research Partners.

Thank you. Good morning, everyone. First on the Q3 guidance, Mike or Steve, with relatively flat sequential revenues and presumably the absence of the repeat on the supply chain pickup, and presumably a little bit more time for just internal actions on costs to come through, why wouldn't conceptually earnings be high in Q3 than Q2?

Yeah. Good question, Jeff. What happens to us is there is a shift in the restructuring productivity investments. We pick up a significant increase in the third quarter versus the second quarter, and so if you look at the $100 million of restructuring productivity investments we have in the year, it's predominantly second half oriented, and we will be reloading the canon here in the third quarter pretty significantly, so just about offsets the $26 million of inefficiencies almost dollar-for-dollar.

And on that issue, Mike, probably relative to the kind of all the macro concerns just the internal execution on moving the plants around and all of that is kind of front and center on everyone's minds. The plants are still relatively empty I think is probably fair to say. What was the nature of the hiccup there and was it an IR execution problem or was it a supplier problem? Sounds like maybe it was a little bit of both.

I would separate the two issues here. One is the reduction of 11 roof tops for us, nine that we've announced, and two that we will divest. You know is independent of that I can tell you that the actions that we took there did not relate any of the issues we had in the supply chain. The issues that we had, had in the supply chain and this is something that I want to convey on the call. I will start by saying we're really trying to give all of you guys excellent guidance and of course just if we think we're going to miss it or potentially overachieve it. We're also trying to give you a lot of transparency on these calls as to what's going well and have a more balanced view. And certainly when you beat like we did, we probably could have buried that. And operational performance, don't know if there were too many questions on that. I think we see it as we had an entitlement for $0.04 and we missed it, and it came really down to what I would call the science of sales, inventory, operational planning, and how we material plan and work with the supplier. It was in the road side of the business primarily and I think we've got the issue addressed. In fact we brought in a leader working for Todd in the last couple of months who ran Dell IR program for them to head out this function. I think its still important going forward. But independent, Jeff, the closures and the announcements are going well. We made a series of announcements last Friday because they were European in nature. We tried to put those together and it actually delayed a little bit from the second quarter to the third quarter so that we weren't announcing closures in Europe sort of one at a time and going through debt by 1,000 cuts there, which isn't good for our people or the market. So that was the reasons for the pushout there as well.

And just one other quick one if I could. On the $0.15 to $0.20 of incremental spending on new products, is that number changed relative to the plan?

No. It has always been the same. It's the same number.

We'll take our next question from David Raso with ISI.

Hi. Good morning. Looking at the guidance for the second half, we don't have the exact year-ago with the divesture, but let's say, give the revenue growth of 6.5 going down about 4.9 in the fourth quarter, and I am just trying to think about the order book. You're up 10%. What's the visibility in that order book? Is it mostly 90 days? How much is into the fourth quarter? I'm just trying to think through, is it a generic macro conservatism and looking at the recent economic indicators or is there something in your order book that you're seeing for the fourth quarter to have that much slower growth year-over-year?

Dave, I think it's more the macro concern. Typically our order backlog is maybe three months. We only have several product lines that go out for maybe six, but it's very, very small percentage of our portfolio. I think when you look at this and still to quote our Fed chairman the other day, uncertainty in the markets, even if you look at the sequential bookings and revenues within month-to-month in the quarter, that you see those moves happening.

Can you help us with that? How were the orders trending April, May, June and…

Dave, this is Mike. One thing I would tell you that we think we have actually hit the bottom on some of the inventory business in the US, but it's so early to call that as a definite bottom but I would tell you it tends to be fairly conservative. It has been a little bit surprising that there has been some flattening here and sort of the order activity there would suggest that we may have reached that bottom. I just don't know if we really have and I think that's where the conservatism comes in.

Which businesses are you expecting the most if the conservatism proves to be just accurate?

To be actively inaccurate, it would be a benefit to the Trane, commercial and security commercial businesses. If it's inaccurate I think we've adequately forecasted, okay, and we're taking a middle of the road view here that it's going to be choppy.

All right so those are the swings. And then trying to think about the back-half loaded productivity costs, you had $0.19 for the $0.25 for the year in the back half. How should I think about, I assume you have those savings coming in more 2011 given the spending is back-half this year. We've got $634 million of total productivity for 2010. How should I think about the way its back-half loaded and then 2011 savings?

I think, if you look at the breakdown, $150-ish million plus $140-ish plus, so $300 million of the total is in the first half.

But then looking to 2011, a lot of your activity, your spends, which obviously been a future restructuring benefit is back-half loaded in '10?

Dave, this is Mike. Absolutely what we're doing here in the back half of 2010 is 2011 productivity, and the idea here is we're largely through phase I as we call it in terms of those actions and feel like we've executed against that, and what you see here is really the keying up and loading of what we refer to as phase II action

And last quickie for 2011, for the business segments, then where are those productivity initiatives most significant the back half of this year, when we think about quarterly 2011?

David, I'm going to defer a little bit. Because I mean these are plans that we haven't announced internally and haven't fully vetted, so I'm going to defer that for a quarter, okay, and I understand your question.

We'll take our next question from Eli Lustgarten with Longbow Securities.

Good morning, everyone. Nice quarter. Can you talk a little bit about your cost price issues as they came up through the quarter? I mean, in the presentation you had pricing down a little bit. Can you talk about what's going on there and you expect pricing through...

One moment. He has left the queue. It will just take me a moment to open up his line. Mr. Lustgarten, your line is open again.

Okay. I'm sorry. You didn't hear me before I guess?

Yeah, that's it. We heard about pricing, costs and you dropped off.

All right. I'm not sure what happened. Anyway, can you talk a little again pricing in the presentation was slightly negative. You expect pretty gain, can you talk about what's going on in pricing and going on a give some focus on where within the corporation you're having some issues? Can you also talk about material prices being a little less favorable, but inflation was more favorable? I guess you're separating it too out. So can you give us a cost price snapshot of what's going on?

Yeah, first on the pricing side, a couple of quarters ago, remember we started introducing something called top line margin expansion with an initiative to raise pricing systematically, program office, external resources and internal resources to focus on that. And felt like we would be seeing that late this year, some benefit late in the year in that regard, and so as you look into Q3 and Q4 there is a higher pricing expectation where the initial actions begin to come through in the marketplace. Sequentially from quarter one to quarter two relative to price, we improved slightly Q2 to Q1. I mean, Q1 was really flat. It was a 10 basis points decline. Q3 we picked it up modestly, you know, and maybe 60 basis points price improvement happening there, but we're also factoring in that we're looking at the possibility of higher inflation in Q3 and Q4.

And can you talk about the difference between you said material costs favorable but you said inflation was less, I guess you separate was difference between the two or what we were?

Eli, if you look at where we thought we were going to be in the second quarter, just kind of focus on that and kind of take it from the guidance in the second quarter by the pieces, what Mike just went through in pricing wound up our pricing wound up to be a little bit unfavorable. So where we thought we were going into the quarter. That's offset by the fact that inflation was less than we expected simply because we didn't see the increase in certain commodities like steel and others that we had forecasted at that point. So in fact, what happened was the favorable inflation we saw in the quarter relative to our guidance was slightly offset by price, so net between price and inflation we probably picked up a penny of improvement. Then you look at you talked about the inefficiencies, but we also were pleasantly surprised with the pull through on the additional volume relative to what we expect it to be in the second quarter. So those are the big pieces.

Right. And you have a little bit; it looks like you've picked up some market share at least in the second quarter probably into the third and also the HVAC business. I mean, HRI data so sort of the decline in the business quite a bit stronger in the North America than what the trade association was showing. Is that true? Is that what's going on?

Yeah. I think the HRI data says that. We agree. I think it's a lot of the new product introductions. We have the new 13 Tier product out, launching now, the 14 Tier product and sort of the new furnace products are in place, so I think that the pipeline is really starting to matter here.

Okay. And one final question is there anything that would prevent the security business from maintaining those wonderful margins despite the softness in demand?

No. We think that that's going to be a pretty steady perennial sort of around 20% OI business for us.

We'll I take our next question from Nigel Coe with Deutsche Bank.

Good morning. Just to kind of follow onto Eli's question on pricing, so it sounds like the price inflation gap of 2 points in the quarter was slightly better than we expected. Is that correct, and then secondly how does that then gap trend over balance of the year?

You are correct on the second quarter, Nigel. What we look at, what we have in the forecast for the third and fourth quarter is the pickup in inflation. It's primarily being driven by steel prices. If you look at steel prices in the marketplaces are coming up. Steel is not good because a lot of our sub component suppliers use steel and index us whenever the prices go up. So what we have in the third and fourth quarter is an increase in price realization to offset some of that pressure on inflation. So we're continuing to match the two in a way that says that we're driving price with the commodity inflations that we're seeing, but there is no question in the way we put this together there is more inflation in the back half and less than first half.

Okay. Can you then maybe describe the pricing actions you've taken so far and the kind of reception you've had of your customers and distributors?

I think the most success we've had has been in the security technologies commercial area. They were able to raise price this year and have it stick. I think what's going on across the league is that pricing, you know, price list level is remaining relatively flat, fairly stable. But we're focused on, and we talked about this several times, there's something that we call our top-line margin expansion program. It's not so much going out and increasing price list, but its taking the waste out of the waterfall of margin but it occurs between the customer price and what we actually take in to our net sales line. That would be things like volume discounts, it would be things like trade allowances, other things, freight recoveries, rebate programs that are more differentiated than they were in the past based on current volume and projected volumes. Those are the kinds of things, that's why it takes a little bit longer, Nigel, then it's not necessarily. We've had business that have done price increases, but necessarily across the rest of the company, its more around as Steve said this, the gross to net.

Okay. If I answer that correctly, pricing is say very flat, Mike, into 3Q, so if we got steel price inflation, does that mean that gap widens in 3Q?

If you look, we expect to get some price realization in Q3. Think about it maybe in the sort of half a point range, and I think a lot of that's going to be through, what I talked about as being gross to net top-line margin expansion programs. We would see that picking up even further into Q4, you know so to maybe around a point in Q4, we believe we should get full benefit of what we put in place now almost a year ago to that point. And for the year, it puts us up a little bit, maybe 40 basis points in total for the year. And again the only wild card I would tell you, Nigel is that we don't get the inflation, if we're able to either void that through component part prices or if we're able to actually see less commodity inflation, there is a little bit probably of relief that we'll see there as well.

Okay, Great. And then switching…

I just add to that very, very clear in the third quarter that gap between price and inflation is wider, i.e. more negative than is in the fourth quarter.

Okay, great. And then on residential, can you maybe just talk about how July started off in terms of HVAC shipments relative to your 2Q performance and maybe describe what you have seen in terms of inventory levels within the channel?

I'm going to hold off on July, Nigel, but I will tell you that from what we can assess, we've about nine to 10 weeks of supply out into the channel, which is about right. I don't think we're going to see major restocking. Hot weather, we can see increased sell-through, okay, but I don't think we're going to see restocking here. I think we're about right as far as that goes.

And how does that change during the quarter, Mike?

During the second quarter it was quite lumpy. You saw a really big April, May was actually little bit of a negative for us, and June was marginally positive. So it was very high, low, and then more moderating. Orders follow the same pattern, April we were up north of 15, May we were sort of north of 8, June closer to 7. So I think it's coming down into this view that we're going to see high single-digit for the year, but I don't think it's going to be anything north of high single-digit.

We'll take our next question from Alex Blanton with Ingalls & Snyder. Alex Blanton - Ingalls & Snyder: You mentioned or you made reference to macro concerns when talking about the second half earlier in the call. Could you elaborate on that? What are your concerns about the rest of the year and next year?

It's really around security and commercial. It's around commercial spending. It's not only speculative construction and retrofits, but its commercial office buildings undergoing renewal, and enough confidence in the owners of those buildings that there is an opportunity there to either track tenants or raise rates for these improvements. So, I think it comes down to consumer confidence, up at the sort of commercial investment level. I also think that later in the year you may tend to see some of the customers that we've got potentially trying to spend a little bit ahead again, but I think that that bubble's probably not sustainable. At some point in time I think customer budgets become more stable, more reliable, and you don't see the spikiness in that during the course of the year. I think too that a little nervous about and I don't have any, this is more anecdotal, but I worry little about, during this recession what would have happened to small business credit lines. And the fact that I don't know that small businesses in some ways are going to be able to restore those lines and have the working capital they had in the past to rebound. So, I worry a little about that. Hopefully we won't see that in our DSOs and we haven't seen that to date, but I do believe there are some constraints with some of our distributors out there.

And we'll take our next question from Bob Cornell with Barclays Capital.

Yeah, a couple of questions. The intrigue with the comment about approaching an inflection point in the commercial HVAC business, could you just expand on what you're thinking there and talking about orders, shipments, what?

Yeah, it's both, right. So it's a trend you can see where unitary is beginning at the shallow bottom closer to single-digit declines. Early I would say June, June bookings, we're showing actually even a little bit of favorability at one point, slight to prior year. You just get the sense that that market really has bottomed now into small to mid single-digit declines, spot and too close to call. You'd love to see one more quarter or a few more months really of booking activity there, but it just feels better in the activity we're seeing. I would also tell you the activity we see before a booking relates to the amount of proposals and the amount of activity we're doing with customers. And that just seems to be feeling better as well.

Well, the business was down 5 in this quarter. Are we going to see flat to up in the next quarter based on the tracking up on the other side of the inflection point?

Yeah. I think you could see, I would probably say break even. I'd say I'd expect something around flat, zero, which would be a pickup.

And on Thermo King you mentioned the revenues up 30%. Did they have the kind of flow-through in contribution margins as you would expect with that kind of a volume gain?

Yeah, they sure did, Bob. Quite frankly, we were also a little bit surprised because we saw some pickup in the Thermo King business in Europe, and it is one of the other wildcards here as what's happening in Europe, and some of our businesses we actually saw some up ticks in June.

Well, then on the analyst says with the stationary up 3 points, Thermo King up, does that what does that suggest for the commercial business in terms of profitability in the quarter?

Well, usually lead a little bit, Bob, so that's why I would say those are good trends for us relative to commercial activity, but that typically for three to six-month lag…

What I am driving at is you had a 2 point margin gain for this segment as a whole, right, and stationary was up 3 and I would imagine Thermo King was up more than that. I mean, that suggests commercial was down. Is that a correct read on the subject?

No. I think that Thermo King has been very profitable throughout this. In fact, if you look back at 2009 one of the things that really kind of under pinned what was happening is the fact that Thermo King looked a lot like security technologies in 2009, held their head up through that recession, so you didn't get that big of a pop at Thermo King.

Okay. So commercial equipment was up in margin?

Yeah it was up but was very small. I would say marginally up.

And just one other final question on price. You had a lot of price questions. The price question I have is, in the backlog, in the orders you are taking in, in commercial equipment, how is that pricing compare to the pricing in the June quarter shipments?

We focused a lot on pricing in regional markets. If you look at what was going on in China in the fourth quarter and the first quarter.

On the volume, didn't see much upside, but we fixed that and we have gone out and made sure that pricing discipline is in place with the quotations that we have out there, and quite frankly some of the leakage we saw in the first quarter was pretty well cleaned up in the second. Our challenge is going to be turning positive in the third.

All right. And that final question comes from Jeffrey Hammond with KeyBanc Capital Markets.

Hey, Mike, I know you said you didn't want to touch too much on July. But just in general can you give us a sense if you have seen any deterioration near-term? I know there is a lot of concern about Europe, slowing in China, I mean any pockets where you are starting to see things wane?

Jeff, I think the key to simple and you are relative to the guidance we just gave you and we feel like it is achievable, and so we baked in all that we know at this point, and I am not feeling or seeing anything different that would move us away from our guidance there.

All right. We can take Steve Tusa with JPMorgan.

Congratulations, Bruce, and we were missing on these calls. I am just kidding. So, can just guys walk through maybe I do mean that, but I just wanted to may be, walk through more on the commercial HVAC given that's obviously a massive lever for your company, I mean, almost 40% of your business is related to commercial HVAC. And it is interesting that you guys collaborated with Carrier talking about a North America business up high single-digits. It seems like the turn is coming a little sooner than expected. You mentioned unitary was flattish, I guess. Was that in orders or was that in shipments? I guess the quick turn business or maybe its both?

We haven't seen the flatness yet in orders, but I would tell you that the trending is looking positive. And when I was answering Bob's question, when we were trying to call a bottom here, it would appear that we're reaching an inflection point in orders, and that's not along slight slip for us. Typically that's going to be usually within a quarter, but a little bit might slip four months, from initial order, but relatively quick turnaround. Applied, we had plants in China, certain of our compressor plants were 100% wide open full capacity. Phenomenal activity going through those plants, both in terms of orders, ships, and obviously the activity going through the component plants applying those were strong as well. So that was a real positive for us.

So then what was applied in the US orders, orders or shipments, either one?

Yeah. So applied, much closer to breakeven at this, okay, than unitary, ahead of unitary. Unitary would be kind of high single-digit negative applied approaching low single-digit, okay.

So what is driving that? Is that building owners, government incentives, spurring building owners, I mean, it just seems a little bit early given what we're seeing in commercial real estate and the financial metrics in commercial real estate so if you can say that...?

One of the things is that the contracting and service business, which for us large turnkey contracts or performance contracts are way up. And that sort of demand creation where you pull through your own equipment, so that's actually playing through, now too, so big contracts that we would have booked are pulling through activity in the plants. These performance contracts are typically going to be applied projects, and that's what you're seeing I think coming through at this point.

Just talking about the applied cycle, last cycle was not that great. Everybody talks about pent-up demand in residential. Do you think there is any pent-up demand on the applied side, given that this installed base of chillers is now 10 years older than it was last cycle and maybe you're getting into the heart of the commercial real estate boom of the late 80s and the 90s? Have you looked at that at all?

Yes, Steve, it's not quite that way because again, if it's a 10 plus year-old chilled water plant we're going to be able to go in and if the customer is willing to do a performance contract, pay overtime savings, we're going to be able to find an opportunity for the customer to get what they want. A real big opportunity would be if administration were to put in effect, let's say a chiller in the residential program, a commercial program for energy efficient buildings, I think that would make these paybacks even sharper and create even more demand, so that would be an opportunity.

And then one last question. Last cycle, I remember ASD used to talk a lot about the very strong incremental margins on the commercial equipment side. Are commercial equipment margins, where are they today just in round terms and where could they go over the course of next cycle? Or maybe if you could give a spread as to from peak to trough, what the swing is, if you don't want to give us numbers on where they are today?

Steve, I don't have in front of me the margin breakdown between applied and unitary here.

No, just in general, total commercial equipment.

We would expect similar to what ASD talked about in the past and through all the work we've been doing around this re-footprinting work to get significant leverage off of that business similar to what we look for any other business. We're looking for the same couple of points of margin growth per year for multiple years here that we would in any of our businesses. So when we said, hey, this is a 14% to 16% business in the long run, I guess the hold that accountable to that, you ought to be looking for a couple of points of margin growth every year, clearly volume would make that happen faster for us.

Right. And none of this is in your guidance this year, correct? This is where you're being conservative? You see a little bit of a pickup in the back half.

Our guidance this year includes all of the footprinting work and restructuring we have done this year for sure, absolutely.

But not the sales volume?

Right.

Right. Okay. Congratulations again, Bruce. Good working with you.

Thanks, Steve. Take care. All right. If we could just, if I could close by saying, thanks again for joining us. There will be a replay of the call for the next month or so. So if you would, just check with our website and all of the contact information is there. If you have any further questions, please by all means call Joe Fimbianti or Janet Pfeffer. And it's been a real pleasure, and thanks again for tuning in.

This does conclude today's conference call. We appreciate your participation. You may disconnect at this time.