Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 SPX Corp Earnings Conference Call. My name is Deana and I'll be the operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the call over to your host, Mr. Ryan Taylor, Director of Investor Relations. Please proceed.

Thank you, Deana, and good morning, everyone. Thank you for joining us this morning. With me on the call today are Chris Kearney, our Chairman, President and CEO of SPX; and Patrick O'Leary, our Chief Financial Officer. This morning's call is being webcast with a slide presentation, which you can access in the Investor Relations section of our website, spx.com. The webcast will be available until August 17, and I encourage you to follow along with the webcast as we reference the detailed information on the slides. We have also included supplemental schedules in the appendix of today's presentation, these provide reconciliations for all non-GAAP financial measures we discuss today. Our earnings press release was issued this morning and can also be found on our website. I would like to point out that portions of our presentation and our comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings. The financial data that we discuss today relates generally to continuing operations. And additionally, some of the earnings per share numbers that we discuss this morning are on an adjusted basis. And with that, I'll turn the call over to Chris.

Thanks, Ryan. Good morning, everyone. Thanks for joining us on the call. This morning, we released our financial results for the second quarter and first half of 2011. On a year-over-year basis, during the first half of the year, our revenue grew 14%, EPS increased modestly and our backlog increased 10%. This was driven primarily by strong growth in the early-cycle businesses in our Flow Technology and Test and Measurement segments. First half earnings and margins were adversely affected by less favorable profitability in the reported results of our late-cycle power-related businesses. Going into the second half of the year, we're encouraged by the overall development of our backlog, particularly in our short-cycle businesses. And accordingly, we expect to see organic revenue growth accelerate. We also expect to see improved sequential earnings and margin performance over the balance of the year, particularly in the fourth quarter. From a strategic perspective, we completed the final phase of our credit facility refinancing in Q2. This has improved our financial flexibility to support future growth, and we now have no material debt repayment obligations until 2014. Looking specifically at the financial results for the second quarter. Adjusted EPS was $0.91, slightly better than our guidance. Reported revenue grew 16% over last year to $1.4 billion. This was modestly better than we had targeted. Our revenue growth was primarily driven by continued strengthening in demand for products in our Flow Technology and Test and Measurement segments. We also benefited from the recent acquisitions in the 2 segments. On a consolidated basis, organic growth was 7%. Acquisitions contributed 3% growth, and currency added a 6% benefit over last year. With 16% total revenue growth, we were encouraged that our backlog also increased by 10% over last year, and remained flat on a sequential basis. Our…

Thanks, Chris. Good morning, everyone. I'll begin this morning with earnings per share. For the quarter, we reported earnings per share from continuing operations of $0.62. This included a $0.29 non-cash impairment charge related to our SPX Heat Transfer subsidiary. The near-term revenue profile for this business no longer supports the carrying value of its goodwill. Last year, SPX Heat Transfer reported just over $90 million of revenue, and we are forecasting a decline in its revenue in 2011. Approximately 85% of the revenue for this business is generated from sales into the U.S. power market. While orders in this market have been below historical levels over the past several quarters, we still believe this business has good medium to long-term growth potential in the U.S. and globally. On an adjusted basis, Q2 EPS was $0.91 per share, $0.01 above the top end of our guidance. Year-over-year EPS declined 9%. In aggregate, our segment income was $0.04 lower versus the prior year. The decline was primarily due to reduced earnings in the power-related businesses reported in our Thermal and Industrial segments. Combined, these 2 segments reported a $0.26 decrease in segment income. This was largely offset by a $0.22 increase in segment income at our Flow and Test and Measurement segments. Increased special charges reduced Q2 earnings by $0.06. In total we recorded $0.13 of special charges including a $0.05 charge related to the integration of the Diagnostic Solutions acquisition. Our effective tax rate for the quarter was 27% , resulting in a $0.09 benefit versus the prior year. The reduced tax rate was due primarily to the favorable completion of certain field examinations. Other items netted to an $0.08 decline in year-over-year earnings with the most notable headwind being higher interest expense. On a consolidated basis, we reported $1.4…

Thanks, Patrick. In summary, we are encouraged with our revenue growth and backlog development in the first half of the year, and we're very focused on operational execution over the balance into this year. We expect organic revenue and earnings growth to improve sequentially, during the second half. We expect our financial performance in the fourth quarter this year to be particularly strong. We are at an interesting point with respect to the market trends across our businesses. We are experiencing very strong growth in early cycle businesses. However, the pace of recovery in our late-cycle power businesses has been mixed. Because of the late and the long cycle nature of our power businesses, we don't expect them to contribute meaningful revenue or earnings growth until late 2012 or early 2013. Our new credit facilities give us more flexibly to execute strategic actions, as we continue to focus on opportunities that fit with our long-term growth plan. So that concludes our prepared remarks this morning. And at this time, we'll be happy to take your questions.

[Operator Instructions] And the first question will come from the line of Shannon O'Callaghan, Nomura.

Can you talk a little more about some of the dynamics playing out in the quarter, and also in the second half in the non-transformer parts of Industrial?

Yes. We're seeing actually pretty decent performance in the businesses in the Industrial segment outside of Transformers, Shannon. We saw a really good, sizable crystal growing order that we talked about, worth about $27 million. Overall, we saw substantial double-digit growth in that segment year-over-year, for which transformers only account for part of that. So I think in terms of where we are in that segment, in terms of how we see the transformer recovery playing out, it's really not different than what we've been talking about consistently this year. And as we expected to see it going into this year. And with respect to the other businesses in that segment, we're actually very pleased with how they're performing.

Yes. You can tell from the backlog that we saw a significant improvement, overall, in the industrial backlog. And as the year goes on, in Q3 and Q4, we are seeing a really nice year-on-year leverage. In Q4, frankly, pretty much all of the businesses with some continued strength in hydraulic tools, which is very much a global business, and some very strong order dynamics in Communication Technology.

Okay. And then just -- can you give us a little more flavor I guess on the project timing, both -- I mean in Thermal and in Flow, in terms of the fourth quarter, how is that played out? I guess, relative to the way you guys might have thought it would play out yet a couple of months ago? And what drove the shift?

Well, first of all, I think with respect to the backlog we have and the projects that support the second half of the year, particularly in Q4, we feel better about it than we probably ever have, just given the percentage of backlog that we have relative to projected revenues in that segment for the balance of the year. It's a strong as it's ever been. I think with respect to Q2, Shannon, there has been some movement of projects into the second half. Some of those are higher-margin projects and help support the view that we have margins improving sequentially, in Flow in the second half of the year. But as we look at it, in terms of what we're guiding, and what we're outlooking, we feel, I think, in terms of what we've got in the backlog that supports that is good as we ever felt.

And as I mentioned in the prepared remarks, Flow's orders were particularly strong. Those orders were developing very strongly towards the end of the quarter. The acquisitions that we made in systems are driving 2 things. One is that, we are getting the bid on projects that we would not have gotten to bid on before because we offer a broader range of technology specifically in the dairy market. We're now able to offer the dehydration products as well as the wet end of the plant. And so -- and then for other projects that we would have been able to bid on, we're now able to offer a broader content. And so, as I also said, the amount of revenue we have or visibility on Flow is substantially above the prior year. I mean, if you step back and look at it, in terms of our general expectations, there haven't really been any significant changes to our expectations on project planning.

Okay. It just seems like you have, I mean you say across all segments, large projects concentrated in Q4, I mean, sounds like some of that was winning some more systems business, new business, I don't know, are there any large things that you have in place?

Historically there is a seasonal tilt towards the execution of construction projects towards the end of the year. And in terms of what's going on in Thermal, obviously, we're executing on the South African projects, and I would say, those are the significant items for the large project.

Okay. Just last one for me, it's just on the margin issues there. The systems mix, given your success there, it sounds like it might -- even though it's a negative mix, might persist for a little while. When do you feel like you get back to a mix and a price cost standpoint where you're getting the margins you want in Flow in terms of incrementals?

Well I mean, 2 things going on in material pricing. One is inbound surcharging, and actually, I think, we did an okay job of outbound surcharging. So the issue on raw materials, other than that, it is -- we've taken the pricing actions. It will take a few months to come through fully, but we expect margins to be sequentially, much stronger in Flow in both Q3 and Q4. With respect to the broader systems mix issue, generally, this equipment is run flat out by the customers, and within a relatively short period of time, we start seeing a replacement demand and the components are significantly higher profit than the systems business, generally speaking. But there's also other activities going on within the Flow segment. We also have that integrating the recent acquisitions and reorganizing on a global basis. So I think you're going to see very nice margin development in the second half versus the first half, with much stronger incremental margins for the incremental volume between the first half and the second half, something more like 20% to 30% on an incremental basis.

[Operator Instructions] The next question will come from the line of Steve Tusa, JPMorgan.

You said that you got 2/3 of your Thermal backlog booked. What was that last year at this point in time? The 2/3 of your second half revenue booked in backlog, what was that last year?

It was about the same.

Okay. So when I kind of look at the timing of the backlog, and just maybe correct me on my math if I'm wrong here, but last year, you had about 51% of your second half revenues booked, this year you have about 58% of your revenues booked in backlog. That implies that your kind of book and ship business is down in the second half? Am I looking at that the right way? Is there anything unusual that's going on here that we have to worry about as far as declines into the second half?

No. I mean, as I mentioned on the guidance, the rate is moderating but volumes are increasing on an absolute base over year, on a year-over-year basis. So if you look at the early-cycle businesses, they've been moving up very strongly. So the closer to 20% and what we're expecting is more like 10% in the second half. But as you look at the absolute dollars coming in there, they are significantly higher in Q4 year-over-year.

Right. And then -- and obviously, since your kind of visibility is stronger here, this really seems to be more like a timing issue between the third and fourth quarter. And then, the final question, on Thermal in the third quarter, what will that margin be? I mean, we can obviously do the math on the $0.24 of headwind, but what do you expect Thermal margin to be in the third quarter?

High single digits.

The next question will come from the line of Scott Gaffner, Barclays Capital.

I was wondering if maybe you can give us some commentary on some of your shortest-cycle businesses, what are you seeing there sort of in the order trends and the sales trends? Anything that you're seeing in those short-cycle businesses that would support some of the slowing macroeconomic commentary?

No, actually not. I mean, if you look at our largest short-cycle businesses are Flow and Thermal, and you can see the rate of organic growth in both of those segments. And the backlog trend in those businesses, particularly in Flow, where it's very meaningful. We don't see that changing. And so we've seen nothing as we sit here today, that indicate that's changing. The order flow and the backlog build in Flow is really as good as we've seen it. And we've now had consecutive quarters of pretty attractive growth in Test and Measurement. And as we look at the profile of that business going out over this year and the medium-term, with the new platforms rolling out and the air-conditioning equipment that we mentioned in the call earlier, we think that the forward-look in that business is pretty encouraging. Now -- it's the same as really true, when we look at some of the other short-cycle businesses that make up the Industrial segment. And as I mentioned in response to Shannon's question earlier, across that entire segment with some of those businesses, hydraulic tools come to mind as another short-cycle business and a good lead indicator. We're not seeing anything materially different in that business that we've seen over recent quarters.

As you can infer from the comments that we made, that the order trends towards the end of the quarter were particularly strong. So right now, we don't see any signs in the early short-cycle businesses of a change in the overall market dynamic. And also, you can see that with the way the backlog developed, despite the 7% organic growth.

Right. That's helpful. And then, what gives you confidence that we don't see some of these projects that are due to be completed in the fourth quarter sort of shift into the first quarter of next year? I mean, it sounds like you are maybe being over conservative and that you've got a lot of projects supporting the revenue growth there, but maybe if you could just help us out with that a little bit.

Well, I mean, there's always risk with the larger projects that there will be all kinds of execution timing delays that are not within our control. But in terms of the projects that we're working on, in Thermal, obviously, the South African projects are amongst the largest that we're working on this year. And they have experienced some delays through the process. Some of that activity of course, is still manufactured activity, and therefore, you can have changes in the actual site that don't affect the way we're contractually executing to create the components to contribute to the plant. And in the business broadly, we are a late-cycle, and not only are we late cycle with respect to economic factors, we're late cycle within the projects, meaning that -- for example, on some of these power projects, a significant investment has already been made in the turbine and the boiler before we are installing a lot of the peripheral equipment. And so, the likelihood of some significant change in that is actually quite low at the point that we are executing the piece of the project that's our responsibility.

And the next question will come from the line of Sheila Kahyaoglu, Crédit Suisse.

Two questions. On the selective efforts from the transformer orders, how's the overall industry competitive discipline? You saw a number of companies have filed formal complaints on large creative power transformers been dumped into the U.S. power market. Are you seeing any increased pricing intensity? And second question, on the non-large transformer orders in the backlog, what's the pricing like?

Well I would say, with respect to the heart and soul of our business, which is medium-power transformer what we've described is that the pricing in the open market is stable. With respect to some of our customer relationships that are booked through this year and into next year, and when we look at our business in general in terms of how pricing is trending, it is as we've described modestly better. So, stable in the open market, we've seen some modest increase in some of the contracts that we've taken into next year. And with respect to the large power transformer market, we are aware of the dumping case that's been filed. We're neutral on that matter. We are instead focused on running our business and completing the expansion of our large power transformer facility in Waukesha. We expect that, that market will continue to be competitive as it has been. But we also expect that we're going to have a meaningful role to play in that market. We've now booked about half of our projected capacity for the new facility and large power transformers for 2012, with some pretty attractive projects and opportunities out there that we think we'll continue to be competitive with. So all in, I would tell you that this point in time in the year, with respect to how the recovery of that market is progressing, it's as I said before, not really different than we had anticipated coming into the year.

Got it. And just one more question on Flow. The management has been to do a good job, the revenue numbers are pretty robust. I guess, when do you think the reorganization will be complete? And what could the teams be doing better with one point of criticism?

Sure, sure. We've done a fair amount of reorganization in that business over the last several years, and particularly focused and intense reorganization through the recession, as we move actively to integrate the acquisitions that we've done. There will be a little bit more of that in the European businesses in the second of the year, as we indicated. And that business has done, historically, a terrific job in terms of affecting price increases and surcharges to offset raw material input costs. They're dealing with a pretty significant ramp up in the business right now on a regionally based global organization that is still fairly new. And so, I think there are some adjustments that they've seen in the first half of the year with a pretty new organization dealing with a significant runup in revenue. And I can tell you that Don and his team have been very focused on making process changes and organizational changes to get that back on track. And they've already made significant progress. I think they have affected price increases that we'll benefit from in the second half of the year. And our long-term -- our long-term look at that business and the expectation for where it should operate from a margin range perspective, has not changed at all. I would also tell you that the strategy, as it is has played out in Flow, with respect to the acquisitions that we've done in that business, has been absolutely terrific. I mean, we're thrilled with the acquisitions going back to APV and Gerstenberg and Hydro, they've been just -- they've come together very nicely and we've built a terrific global platform for food and beverage. So we're on the right track there, and we expect to see improvement the second half for sure.

And the next question will come from the line of Ajay Kejriwal, FBR & Co.

Just following up on Flow, so as you integrate those newer acquisitions and get more revenues from larger projects, so what would the expectation for the mix going forward, systems versus the components business?

Over time the mix will obviously vary - one of the dynamics we're dealing with there, which I think will continue to be factor is that, we are participating on some much larger systems orders in terms of quoting in the dairy market. And so, I would say, you could have a bias on the upside towards -- in various quarters towards some larger systems business. But during the recession, there was a hiatus of replacement and service activity that was necessary. So we are seeing really sharp increases in demand for the components business as well. In terms of an overall trend, what we've experienced over time is sort of an 80% components, 20% systems mix, it's likely to be more like 75% component, 25% systems over time, and may vary from that on a quarterly basis.

Good. And then in the Transformers business, sounds like you're being more selective in your bid activity. I would imagine that as you pass on some of that business, it's filling up the backlog of your competitors. So any insight into what you are seeing with respected to that backlog? And at what point in time would -- as those backlogs get filled, would you expect pricing to improve?

Well, historically, a better pricing has coexisted with about a year's lead time, and we're getting close to that. We did step back from the public market bids, and we priced slightly above the market during the quarter. And so, we still feel that we probably have lead times somewhat above the market. We obviously don't see competitor backlogs, but we look at the open market activity that give us an indication. And so for this last quarter, demand continues to be very strong for release over the fourth quarter in a row. And I think what you're going to see here, in terms of what has happened so far, it is very similar to the historical development charts that we have -- that we published before. And I don't see any reason for that to be different this time. The trend looks very similar, and we've got modest increases in prices on the directly negotiated business in Q2. And I expect that, that will continue over 2012 and '13.

[Operator Instructions] The next question will come from the line of Deane Dray, Citi Investment Research.

One of the topics we had last quarter was the impactive events in Japan. I was hoping you give us an update both -- have you seen the expected push outs in some of the nuclear projects? And then, maybe an assessment of the auto impact, I know production is not a swing factor for you, but would there -- any catch-up in new platform rollouts?

Sure. Yes, with respect to the events in Japan, Deane, I would describe it that as mixed. We don't have, as a company, a lot of business directly in Japan, anyway. But certainly, we have seen an impact in Europe, specifically in Germany, where some projects that we would have been supporting have been delayed or pushed aside. So it's had an impact there. I think it's probably selective, region-to-region, in the projects that we're associated with, in China for instance, those are moving forward. So it has had some impact, not material certainly for the company, nor would I describe it as particularly significant. But I would also describe it as uncertain going forward, particularly as it relates to Europe and seeing where countries like Germany go. And I'm sorry, what was the second question?

It was just, was there an impact on auto from Test and Measurement?

No, not material. There may have been some minor component impacts, but it's nothing significant.

And then, on the guidance, this is now the second quarter where you've called out potential divestitures as a swing factor. Are you any closer to any announcements on any divestitures?

I mean, we've had divestitures in there longer than that, Deane. I mean basically, acquisitions and divestitures are clearly 2 swing factors in the forward earnings per share. We've don't, for all the obvious reasons, preannounced divestitures, 85% of what we're doing is in the core. And so, while divestitures may occur in the future, they're likely to be a lot less significant to the overall dynamic around earnings per share.

So don't interpret the fact you list that one first as making it more significant?

Exactly.

The next question will come from the line of Terry Darling, Goldman Sachs.

Patrick, I wonder if you could true us up on some of the below-the-line items relative to -- on your guidance, relative to previous, if any, change equity earnings, tax rate, corporate on the full year basis?

Sure. I mean, with respect to the midpoint model from the last time with the guidance, obviously both modeled there at 440. There are some subtle changes below the line. The biggest is probably about $0.07 from the tax rate edging down from about 31.5% to 30.4%. And interest expense is slightly better, maybe $0.03 offset by about $0.04 down in equity earnings and joint ventures, which is primarily our joint venture with Emerson Electric. And with respect to corporate expense pension, stock-based comp and special charges, they really wash to nothing.

And that number on a full year basis, the corporate line, is that you're still thinking in the $220 million range? Is it all in? Is that -- that's still the right place to be?

Let me just go back, I'm looking at my 6-month model. I've got like $105 million.

Okay, that's the general corporate piece. And then, I guess, wondering, you mentioned some restructuring in Flow in the third quarter. Is that in the continuing guidance or is that thought of as a special off?

Absolutely, it's in the continuing guidance.

In continuing guidance.

Okay. And then can we get an update on the potential for India orders within the Thermal business or just India broadly on the power side?

Yes, in the past quarter, we took our first 2 big orders that came out of the Heat Transfer business that totaled around $27 million, about $27 million. And a lot of the other quoting activity going on there, we still think it's obviously going to be important to us, Terry, and so, those first couple of orders were a nice total for us, but focused on developing those in the second half as well.

We are seeing Asian EPC particularly interested in the India market, obviously we have good experience selling direct into China. And so, there are opportunities there for us to leverage that experience and those relationships in the Indian market going forward.

And I guess, here just making sure that I'm square on kind of the high-level tone on the power recovery, it sounds like you're a bit more encouraged by what you see in the Power Transformers side, and maybe the Thermal side, just on the Power piece there is not developing, maybe as quickly as you had hoped. Is that a net-net you're about where you thought you were? Is that the right way to characterize it at the high-level?

I think so. I think that's fair. We're certainly pleased with it and pleased with what we see developing in the Transformer business, and it's really consistent with our expectations that we had coming into the year. So that's playing out pretty nicely. We're booking into the Q3 next year, 4 consecutive quarters of double-digit backlog growth there. We saw our first organic growth in the quarter, in the transformer business, in 2 years. With respect to Thermal, Terry, it's just the timing of that is difficult. It's a competitive field around the world, as we know. And I think the dynamic that you see there is probably pretty predictable for an industry struggling to come out of the recession, where you see a more intense competitive environment. What we tried to do, and what we'll continue to focus on in the second half of the year is be selective about those opportunities and find those opportunities that present a decent payback for us, in terms of the innovation and engineering investment and the impact that those projects can have. So we have probably been a little more selective about it, but I would also tell you that in the pipeline around the world, there's some attractive opportunities and we're going to compete for those.

And a lot of these projects are large projects, and so the outcome is obviously binary. We are frequently taking projects above $30 million to $50 million. And having said that, we do expect to see a higher order intake in dry cooling than we've experienced in the last couple of quarters.

Unfortunately, we've ran out of time. We still got a few analysts in the queue, and I apologize that we didn't have a chance to get to your questions. We certainly appreciate everybody joining us this morning on the call. I'll be in the office most of the day today. Please feel free to follow-up with me directly, so I can answer any questions that we didn't get to in the allotted time. Talk to you soon. Thanks.

Ladies and gentlemen, that concludes today's presentation. Thank you for your participation. You may now disconnect, and have a great day.