Good day, ladies and gentlemen, and welcome to the SPX Corporation Q4 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Paul Clegg, VP of Finance and Investor Relations. You may begin.

Thank you, Michelle, and good afternoon, everyone. Thanks for joining us. With me on the call today are Gene Lowe, our President and Chief Executive Officer; and Scott Sproule, our Chief Financial Officer. A press release containing our fourth quarter and full year 2016 results was issued today after market close. You can find the release in our earnings slide presentation as well as a link to a live webcast of this call in the Investor Relations section of our website, at spx.com. I encourage you to review our disclosure and discussion of GAAP results in the press release and to fall along with the slide presentation during our prepared remarks. A replay of the webcast will be available on our website until March 2. As a reminder, portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings. On comments today will largely focus on adjusted financial results, specifically we will focus on core operating results, which exclude the results of the South African projects, and we will separately provide an update on those projects. Other adjustments to our GAAP results this quarter include an impairment and intangible assets associated with our U.S. Heat Exchanger business and an adjustment for non-service pension items. You can find reconciliations of adjusted figures to their respective GAAP measures in the appendix to today’s presentation. I’d also like to point out the results presented and discussed on our call today exclude the effect of the European Power Generation business, which was sold at the end of 2016 and has been reported at this continued operations for all periods presented. Finally, we are holding an investor event in New York the morning of Monday, March 6, and will be on the road visiting with investors during the remainder of that week. And with that, I’ll turn the call over to Gene.

Thanks, Paul. Good afternoon, everyone. Thanks for joining us. During 2016, we achieved several of the transformative three-year goals, we set out to accomplish after the spin-off of SPX FLOW. These achievements have put us in a great position to drive value going forward. I want to thank our employees for the continued hard work and dedication and I’m very excited about the growth opportunity in front of us. On the call today, we’ll give you brief update on our overall results, segment performances and market conditions and guidance before going into Q&A. Starting with some brief highlights of the quarter and full-year. Overall, I’m very pleased with our operational execution in the solid margin in cash flow performance. In Q4, HVAC segment and our Transformer business recorded their highest margins in many years. We also generated Core Free Cash Flow of about $75 million for the full year, conversion of approximately 120% of our full-year adjusted net income and we maintained a solid balance sheet and liquidity position. As Paul said, this is our first quarter of reporting results without the European Power Generation business that we sold at the end of 2016, which followed the sale of our Dry Cooling business in Q1 last year. The sale of these two businesses together netted proceeds of approximately $27 million and significantly improved our earnings and cash flow profile. Turning to our results, for the quarter and full-year our adjusted earnings per share was $0.69 and $1.47 respectively. Adjusted operating income was $43.6 million for the quarter or 11.6% of sales, up more than 100 basis points from the prior year period, due to operational improvements in both our HVAC segment and Transformer business. Our full year adjusted operating income margin was 7%, an improvement of 70 basis points over…

Thanks, Gene. I will start with our net results for the quarter. On an adjusted basis earnings per share were $0.69 for the quarter and a $1.47 for the year. In addition to adjusting out the results of the South African projects, for Q4 we have adjusted our GAAP EPS to exclude non-service pension items and a non-cash charge to write down intangible assets associated with our U.S. heat exchangers business which we have been in the process of restructuring. The impairment charge associated with our heat exchanger business is connected to our overall strategic focus of reducing exposure to power generation markets. As we assess the near-term outlook for this business, we do not anticipate an improvement in the demand profile and plan to remain selective in our level of market participation. We will continue to take actions to improve the performance of this business, as with all of our businesses, we expect to generate returns above our cost of capital or we will consider other alternatives. As Gene noted, our Q4 results reflected generally strong operating performance for the company. Fourth quarter core revenues declined 15.2% to $378 million compared with the prior year period, reflecting the sale of our dry cooling business, as well as an organic decline at 10% and a 1% currency effect. I will get into the drivers of the organic decline as I review the segment results. Core segment income margin was 15.8% compared with 14.2% in the prior year period, with year-over-year improvement in our HVAC and engineering solution segments, partially offset by lower project related business in our detection and measurement segment. For the full year, total core revenues declined 9.3% to approximately $1.4 billion, including a negative currency effect of 1.2%. The remaining 9.1% decline was larger result of the…

Thanks, Scott. Turning to an update of our end-markets. Overall SPX is positioned to perform well over the coming year. In HVAC cooling, we continue to experience a healthy order pipeline and are pleased with the operational performance of the business. In HVAC heating, in the first several weeks of the year average heating degree days have been well below historical norms and even below the prior year, affecting market demand for heating products. As such, we have moderated our expectations for sales of heating products for the year. That said, we are confident in our ability to mitigate the effect of lower demand through operating initiatives. In Detection and Measurement, our short cycle product lines continue to see steady demand. While we have seen a lengthening of the sales cycle for certain communication technologies products, overall backlog for the segment grew in 2016 largely due to fare collection project orders. We would expect Detection and Measurement sales to be an important incremental profit driver in 2017. The market for Transformers has displayed consistent demand in medium power. Lead times are averaging 30 to 40 weeks, while the pricing environment remains stable. While our exposure to Power Generation end markets has declined materially, and it was only a single-digit percentage of the Company’s core revenues in 2016, demand in this end-market remains challenging and we continue to work on improving the performance of our business with exposure here. Today we are introducing our full year 2017 guidance for core revenues of $1.3 billion to $1.4 billion and an adjusted EPS range of $1.55 to $1.70. We expect core segment income margins of 12% to 13% and an adjusted operating income margin in a range of a 8% to 9%. Going through our segment guidance, we expect HVAC organic revenue growth…

Michelle, I think we’re ready to go to the phone lines for Q&A. Thank you.

You’re welcome. [Operator Instructions] Our first question comes from Ronny Weiss of Credit Suisse. Your line is open.

Hey, good evening, guys.

Hey, Ronny.

Hey, Ronny.

Hey, Ronny.

So the majority of the power business has been divested away now, still got a little piece left in there but you’re still expecting steep declines on the top line for that remaining Process Cooling business. Is this kind of just viewed as structurally declining, or is there a path that you guys see that you can actually get to some organic growth there in the kind of foreseeable future?

What I would say, Ronny, is the – on that portion of the business, we are migrating the business model there. What we’re doing is we are focused on high-value applications, and in particular building our service and our components business, which is a very – we believe is a very attractive opportunity. So we would expect some organic decline there. But as we go through this transformation we actually think this would be a more normal growth business going forward probably a GDP type business. As we have said all along we are really not concerned about top line. We are focused on shareholder value and we are focused on profitability. As we have shown that business was a $900 million business with 1% profit. Our targets would be to get this to be a very healthy, profitable, shareholder value delivering, portion of our portfolio and we think the changes that we have made to date are a very important part of that. But frankly, we see a lot of additional opportunities going forward. So some pullback I would say in 2017 but these businesses that we do serve I think do have a nice growth characteristics once we get our business model in place.

Got it. And then on the D&M business, the project delays in Q4, what does that kind of look like in Q1? Or is it expected to come back, and I guess what is embedded in that guidance for 2017 as Q1 is supposed to be weak due to some of these project delays or do they come back immediately? Just kind of talk about that a little bit.

This is, Scott. Really the delays we’re talking about we’re in a portion of the communication technologies piece, and it’s not projects in our backlog delays, these are delays on front log. So it’s the project timing of the front log keeps shifting to the right. But that said, the rest of the business portfolio if you look at more the run rate side of the business portfolio, which is really two-thirds of that, that is still healthy. We are looking at kind of a GDP type of levels of growth there. And on the transportations – fare collection side that is very healthy with – we have talked about the funding of the transportation bill and that has a steady front log there.

Great. I will pass it on.

Our next question comes from Damien Horth of UBS. Your line is open.

Hi, good evening, everyone.

Hi, Damien.

Hi, Damien.

Damien.

So first question, great job this past year in HVAC on driving margin improvement despite a little bit of top line pressures. Just curious on your guidance for 2017, the 16% segment margin target. It seems like you’re pretty close to that right now. Just kind of curious, what you kind of see the dynamics are there in terms of productivity. Some of your product innovations from this past year of 2016, I’m not sure steel prices are obviously up quite a bit since last quarter when we talked. So any color you can kind of provide on the segment margin target dynamics.

Damian, this is Gene. When you look at our businesses and where we are and the different segments and where we saw opportunity, and I would agree with you, the incremental improvements in HVAC are smaller. Probably in the neighborhood of 30 to 50 basis points versus the other segments where each of them will be north of 100 basis points, and overall probably 120 basis points at our midpoint at the segment income line. What I would say is that a lot of the productivity initiatives have been executed. A lot of the blocking and tackling and we are at record margins there. I don’t think we see any particular headwinds in front of us. But we think that that is a high performing business that has picked the low hanging fruit and we’re always going to raise the bar and we’re always going to work for more productivity, and we are always going to look for more cost out value engineering et cetera. But I do not see – I think that’s in the later stage of development. Scott, you can add commentary here.

Yes, I would add that if you go all the way back to actually when we came out of the spin we had talked about that the HVAC segment probably had the most advanced levels of progress against operational initiatives. And so getting the business to around 16% top end margin is what we are targeting. And as I said, that is where we are in that is where we see ourselves operating around in 2017. So it’s really just very good day to day focus on operational initiatives. Just getting through efficiencies in the plants, low cost manufacturing, supply chain, focus that is day to day and what they do. So they have really gotten as Gene said the biggest impact of the changes and now it is just ongoing part and then we just kind of keep squeezing out the margin improvement.

And I would say one other small comment on commodities, we are seeing the impacts of commodities, and I would say we are managing that very closely. I would say that we do have pricing power and we’ve adjusted pricing where we do see commodity impacts, but it is something that is out there and we are keeping our eye on in great detail and managing very closely.

Okay, makes sense. Thanks.

Thanks.

And just on Transformers. I know you mentioned you’re still sort of seeing stable demand there, guided revenues flat in 2017. Just curious, how you guys are feeling about some of the incremental growth opportunities that you talked about in the past. I know one of the things you have been working on is trying to increase your market share and penetration in the high-voltage and I know there has been some product introductions as well, the load tap changer is one example. Just wanted to get a sense on how you guys are going about those – sort of those growth opportunities going forward.

Sure. Let me take a crack at that. I would say first of all with the transformer team, I think the work that has been done there has been very, very impressive. I think that team beat all of our expectations in terms of the pace of the implementation of the improvement initiatives. So where we sit today, transformers are in a very strong competitive position for a leader in medium size power transformers with a very strong competitive position. As we have improve that business to where this business is generating very nice returns in a very competitive environment. So we’re talking 12% to 13% EBITDA returns where there is overcapacity in the market, we are now shifting gears towards growth. And we do think there is some interesting opportunity there, and I think you have talked of a couple of them, while we have a very strong market position in our medium voltage power, we are smaller and a newer player and the high-voltage power. And that’s an area that we see some opportunities for growth. I would say that one area we have to keep an eye on there is a lot of the competitors in that market are overseas and the very strong dollar has been a little bit of a headwind there and has impacted some pricing pressure in that portion of the market. As a reminder, that is a very small portion of our business. That is maybe 10% to 12% of our overall revenue in that business. But we actually do think it is a very nice opportunity for growth, and then I think some of the other areas that you highlighted, we do have a very nice load tap changer, which we think can help us on our OEM business, on our service business and can even be an opportunity on component sales. That is something that we are working with the business on. We are also looking at service. So actually at this very moment we have a growth strategy underway with the transformer business to really lay out the growth plan because really the first two years of the team has been focused on improvement and now the business is healthy generating a lot of shareholder value. We are shifting towards a lot more growth there. So we think there is some nice opportunity there. We do see a little bit of headwinds on foreign exchange rates on the EHB side, but we actually think that’s a good business with a really strong market position and we think there is some interesting growth opportunities. I think that is something as we shift gears as a company towards more reshaping the portfolio towards growth, this is just something we are going to talk about in more detail in next week in our Investor Day. We will try to put a little more information in there as well.

Okay great. Thanks, guys. Congrats on the buckle door sale by the way and all your repositioning actions last year.

Thanks.

Thanks, Damian.

[Operator Instructions] Our next question comes from Robert Barry of SIG. Your line is open.

Hi, good evening, guys. This is Ashish on the call for Rob.

Hi, Ashish.

Hi, Ashish.

Hi. A couple of questions there. First one, I see that the guidance for Detection & Measurement for 2017, revenue growth is middle of 2% to 6%. I was wondering what’s the assumed growth various components of D&M.

We don’t get into the individual business growth rates. As I said a little bit earlier if you look at kind of more – call the run rate side of the business, put it more around a global GDP type growth rate we are seeing good strong growth out of transportation and the remaining power of the communication technology is more project oriented that is where we are seeing the project delays, so flattish.

And as a reminder, the run rate business of that segment is about two-thirds of the overall segment. We’re seeing very steady growth there. On the project side, which is always little bit lumpier, we’ll see some growth there driven more by transportation.

Okay, thank you. And then finally is there any visible opportunity for the portfolio pruning at this time or should we assume that is done?

I think the way we’re looking at where we are now we feel good about the company – in the composition of the company. As I said in my prepared remarks we’re going to focus all of our businesses on getting returns above our cost of capital. And so as long as everybody is contributing above the cost of capital there’s – line of sight to being able to achieve that, then we will be stable and if not we will look at other alternatives.

Okay, great. Thank you.

Thanks.

There are no further questions. I’d like to turn the call back over to Paul Clegg for any closing remarks.

Thanks, Michelle, and thanks to all of you for joining us. We hopefully look forward to seeing many of you at our Investor Day on March 6 in New York. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.