Good day, ladies and gentlemen, and welcome to the Ingersoll Rand First Quarter 2014 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I would like to hand the conference over to Janet Pfeffer, Vice President of Treasury and Investor Relations. Please go ahead, ma'am.

Thank you, Karen. Good morning, everyone. Welcome to Ingersoll Rand's First Quarter 2014 Conference Call. We released earnings at 7:00 a.m. this morning, and the release is posted on our website. We'll be broadcasting, in addition to this phone call, through our website at ingersollrand.com, where you can find the slide presentation that we will be using this morning. This call will be recorded and archived on our website. If you would please go to Slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities laws. Please see our SEC filings for a description of some of the factors that may cause actual results to vary from anticipated. This release also includes non-GAAP measures, which are explained in the financial tables attached to our news release. To introduce the participants on this morning's call, Mike Lamach, Chairman and CEO; Sue Carter, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations. With that, please go to Slide 3, and now I will turn it over to Mike.

Great. Thanks, Janet, and good morning, and thanks for joining us on today's call. In the first quarter, we delivered GAAP earnings per share of $0.27, which included $0.02 of restructuring, translating to adjusted EPS of $0.29. That's $0.01 above the top of the earnings guidance range and a 32% increase versus the first quarter of 2013. Revenues were $2.7 billion, up 3% versus last year. Revenues were consistent with our guided revenue range of up 2% to 3% for the quarter. Orders were up 5% in the first quarter, with Climate up 7%; and Industrial, down 1% against the tough Industrial comp, as last year's first quarter included 2 significant project awards. Adjusted operating margin, which excludes restructuring from both years, was up 60 basis points. Climate margins increased 210 basis points. Pricing exceeded direct material inflation, marking 3 full years or 12 consecutive quarters of consistent execution in our pricing capability. We did experience severe weather in the quarter, which impacted our ability to produce, receive parts and ship in several locations. In most instances, the teams were able to make up those shipments during the quarter. Club Car's performance was the most severely impacted, with 2 significant winter storms in Augusta, on top of an already full first quarter order book. Although the team was able to make up part of the lost days of production, some shipments were delayed until the second quarter. And Sue will give you some more color on Club Car in a few minutes. Through the tireless efforts of our employees, we were able to overcome such challenges and deliver for our customers, as well as for our shareholders in the quarter. I'd like to thank and acknowledge our employees for their dedication during some very long days and weeks in the first quarter. We repurchased 13 million shares in the first quarter and have completed the December 2012 $2 billion repurchase authorization. Now Sue will walk you through in more detail in the first quarter, and I'll then take you through our second quarter and 2014 outlook.

Thanks, Mike. Let me give you a high-level summary and then dive into the details. Our bookings for the quarter were up 5%, revenues were up 3%, and our operating margins, without restructuring, were up 60 basis points year-over-year. Reported earnings per share were $0.27, and adjusted earnings per share for the first quarter were $0.29. Versus guidance, pricing and volume were a little bit better and more than offset the operating inefficiencies we experienced due to the weather, taking us $0.01 above our guidance range. Now let's go to Slide 4. Orders for the first quarter of 2014 were up 5% on a reported basis, and excluding currency. Climate orders were up 7%. Global commercial HVAC bookings were up low-single digits. Transport orders were up high-teens, led by container orders. Orders in the Industrial segment were down 2%, excluding currency. As Mike noted, there were 2 significant awards in the first quarter of 2013, making it a challenging comparable. Club Car orders were up low-single digits. Now let's go to Slide 5. Here's a look at the revenue trends by segment and region. The top half of the chart shows revenue change for each segment. For the total company, first quarter revenues were up 3% versus last year on a reported basis and 4%, excluding currency. Excluding currency, Climate revenues increased 5%, with HVAC revenues up low-single digits and transport revenues up low-teens. Residential HVAC revenues were up mid-single-digits. Industrial revenues were essentially flat on a reported basis and excluding currency. I'll give more color on each segment in the next few slides. On the bottom chart, which shows revenue change on a geographic basis, revenues were up 3% in the Americas, 6% in EMEIA and Asia was up 3%, all excluding foreign exchange. Let's go to Slide 6.…

Okay. Thanks, Sue, and please go to Slide 11. As you know, the first quarter comprises only 10% of our annual earnings given the seasonality of our businesses. In the aggregate, markets were about where we thought they would be, some a little better and some a little weaker but in total, about in line with our outlook going into the year. You saw that in our first quarter revenues, which were in line with our guidance. Dodge put-in-place forecast for 2014 shifted somewhat in the latest update. The commercial and industrial forecast was revised up, while the institutional forecast was revised downward. In total, the 2014 Dodge forecast is slightly higher. Again, commercial and industrial buildings tend to use more unitary equipment, while the institutional markets tend to use more applied equipment. Single-family housing activity was adversely impacted by weather, although our full year forecast is still from mid- to high-single digit growth in industry unit volumes. Transport markets had a good start to the year, particularly in Europe and in marine. We continue to expect the full year North America trailer market to be flat to slightly up on a unit basis. Industrial markets were fairly slow in the quarter. All that said, the second quarter is a much more telling quarter from which to gauge the balance of the year. Given that and, as is our normal practice, we're maintaining our full year guidance for both revenue and earnings at this time, and we'll be taking a look at the full year outlook again when we talk to you in July. Let's go to Slide 12. The second quarter guidance refer to the right-hand column on the chart shown. Second quarter 2014 revenues are forecast to be up 4% to 5%. We expect growth to be stronger in Climate than in Industrial, but both should be in the low- to mid-single digit range. Second quarter GAAP continuing earnings per share are forecast to be in the range of $1.08 to $1.12. Restructuring costs are expected to be about $0.01 in the quarter. So on an adjusted basis, the EPS range is $1.09 to $1.13. We are assuming an average share count of 275 million shares and a tax rate of 25%. For the full year 2014, we expect to generate free cash flow of $900 million. So in closing, we're pleased to have delivered above our earnings commitment in the first quarter despite some challenges. As we head into the seasonally important second quarter, I feel good about our positioning and our focus for the balance of the year. And now Sue and I will be happy to take your questions, and Karen, I'll turn it over to you to moderate.

[Operator Instructions] Our first question comes from the line of Steven Winoker from Sanford Bernstein.

A couple of questions. One, I kept hearing a lot about these systems and ERP issues through the quarter that I think had pushed out expectations as well. Can you maybe give us some color on what actually happened on that front and how you had mitigated it and what the status is of its -- all -- through all that?

Yes, Steve, I kind of thought, with the amount of chatter that went in print over the last several weeks, that might be first on the list. So I'll give a bit more of an expansive answer here, I think, trying to help anybody else in the queue from repeating [ph] the question. So I'll cover a fair amount of detail. We went live with Phase 2 and again, it's a 6-phase ERP implementation in mid-February. Actually, February 10 was the date that we went live. It included a large portion of our European transport business. It was a small portion of our Compressed Air Systems and Services business. And it included ordering warehouse logistics modules for our North American commercial Unitary and residential HVAC businesses. So we plan for a post go live stabilization period of about 4 to 6 weeks, which is normal when you have a system go live. And then for stock businesses, we built an inventory buffer to compensate. We expect a lower productivity during a system downtime just prior to go live and then, as people get used to the new standard work and processes going forward. And then our experience and that of all the folks we're working with would be that it takes about 6 months post-launch to achieve the expected productivity benefits from a conversion like that. So the TK and Air Systems launches went very smoothly. And the unitary conversion was much more typical productivity curve I just mentioned a second ago. So we planned an additional 10 days of inventory to be held at the Unitary warehouses, and we have that in place by the end of January. On the 29th and 30th of January, though, several plants were shut down due to the first snowstorm and ice storm…

Great. And then maybe a higher-level question. Nelson Peltz resigned from the board, we saw. Are you likely to fill the seat? And what kind of skill set are you thinking about? Sort of what's been lost and how are you thinking about that?

Well, with Nelson coming off in June and 2 directors coming off next year, we'll go out and look at -- for a search. Ideally, we'd love to have somebody with international, large-scale P&L experience in an industrial setting. So we're out there and over the next 15 months or so, we'll be looking to add to the board around those 3 departures that are planned over the next year or 15 months, probably looking to fill 2, and have a board size of about 11.

And our next question comes from the line of David Raso from the ISI Group.

On the margins for the year by segment, I'm just trying to get a feel for how you're thinking with the full year for both margins? Obviously, Climate had a great quarter, Industrial was a disappointment. Can you just update us on the thoughts for margins for each segment for the year? And then I have a question related to that for 2Q.

David, it's Sue. So as we think about the full year and again, we haven't changed our guidance for the full year outlook. So this is going to be pretty much information you know. Our Climate operating income margin, we expect a 40 to 80 basis points improvement over last year. And on the Industrial segment, flat to up about 20 basis points.

Okay. So on the industrial, to get back on track for that, it appears what the second quarter is implying for margins, I assume we're looking for a nice snapback in Industrial margins for the quarter, where industrial margins will be up year-over-year in 2Q?

Yes. So let's talk about the second quarter. So the guidance would be looking at sort of low-single digits revenue growth for the business. And an operating margin back in, perhaps, the 16% to 16.5% range.

And our next question comes from the line of Jeff Sprague from Vertical Research.

First, just on price and cost, Mike. You said price overcame materials cost inflation, but did you actually have net materials cost inflation? Or materials were actually grinding a little bit lower here?

So let me try, Jeff, and look at your question. So when we think about the first quarter, I mean, obviously, the direct material inflation is pretty tame. And perhaps there's a little noise in that as we get towards the end of the year. But if you think about in total, we saw about 50 basis points of price and then as we talked about in the call, about 40 basis points overall for price versus direct material inflation. So when we think about the price, we got positive price in both of our segments, so positive in TK, positive in Trane, commercial and res, and so we feel pretty good about that pricing. And again, direct material inflation, pretty tame in Q1, probably pretty tame through the first half and then maybe some noise around seal in the back half of the year.

And then my second question is on the investment spend. Should we still expect something in the neighborhood of $0.18 for the year? And it kind of appears from your commentary that all or most of that spend was in Industrial this quarter. Is that correct? Could you address both of those points?

Yes. So I think the full year remains about the same. And as we think about the first quarter versus the full year, yes, you would say that more of the investment spend -- it had a bigger impact on the Industrial margins in the first quarter, but again, it'll be pretty balanced as we go through the year. But the total year hasn't really changed.

And our next question comes from the line of Joe Ritchie from Goldman Sachs.

So I thought the incremental margins this quarter were pretty darn good, you're north of the 25% number that we talked about last quarter despite the ERP issues, the weather issues in Climate, the Club Car disruptions. Is there a potential catch-up embedded into your 2Q guidance? And perhaps, maybe you can talk a little bit about whether your incremental margins are conservative for the remainder of the year.

So Joe, as we think about leverage in our terminology, obviously, the Climate businesses had very good leverage in the first quarter at 57%. And then overall, for the company, about 26% for the business. So when you think about Q2 and what that means, the guidance would sort of give you the implication that the overall leverage for the company is up around the 40% level, with just north of 30% coming out of the operating segments and then you start to get some tailwind out of the corporate expenses also. And so obviously, as we've looked at it, the second quarter, the guidance looks right to us. Again, the business is just over 30% total, just over 40% because we do start to get some of that corporate uptick. And then for the full year, obviously, where we haven't changed anything, we're still sticking with the story that we had in the upper-30s for the full year, with 25% coming out of the businesses. But in fairness, as we go through the second quarter and we come back in the month of July and talk about the total year, we'll take another look at that.

That's helpful, Sue. And just one follow-up question on your -- it looks like you took up your free cash flow guidance to the upper end of your range. I think you had $850 million to $900 million last quarter, now you're at $900 million. It's pretty good free cash flow as the year progresses. Talk to us a little about your uses of -- that cash, specifically as it relates to buyback and M&A?

So we talked about what we were going to do on the share repurchase, and we said that we completed the $2 billion authorization, we're spending on the remaining Allegion money, about $175 million in the second quarter. And then we said we'd take about $400 million to $500 million of the free cash flow and apply it to share buyback in the year, and that math sort of gets you the first quarter, plus the second, the final Allegion dollars. And then the $400 million to $500 million gets you to that $1.375 billion to $1.425 billion that we talked about in the script. And so then as you think about that with the $900 million of free cash flow guidance, that's roughly about half of the free cash flow. And we said that what we would do is -- with the remainder is toggled between M&A and investments in the business and share repurchase for the remainder of the free cash flow.

And our next question comes from the line of Julian Mitchell from Crédit Suisse.

Yes, I guess the first question was around the sort of mix of business within the Climate segment. If you look at the institutional phasing businesses, I think those were down slightly, the Applied business was down slightly. You talked before about Applied being flat for the year. Are you still sticking with that? And maybe just talk a little bit about what you're seeing in your Applied customers in terms of quotation and order activity?

Well, it's mixed globally, Julian. But I think North America tends to be the focus of the question, typically. Interestingly, when we look at bookings in the first quarter for North America Applied, they were actually up high-single digits. If you look at Unitary North America, they were actually up teens. And one thing that we probably need to identify here is there's a buy/sell component of what we do, often tied to contract and we might do a performance contract and have a pump set made by somebody else that we sell through to the end customer. That's actually the business that's down. So what we're seeing in terms of an uptick in our bookings, full resourcing of our plants, absorption of our plants, it would lend toward a decent back-half of the year, kind of recovering back up the level that we have thought. So it's actually a very good quarter in both supply and Unitary North America. I would say that the weakness is probably more around the mature economy, which we would include China and Asia Pacific. And it's just a matter of which segments of the market are going to be working there and not -- specifically in China, it's easy to identify it's going to be areas like nuclear, pharma, food and it's going to be away from some of the heavy industries like shipbuilding and so on and so forth. So we'll adjust accordingly in how we're looking at that. And then Europe has been very strong for us as well. In fact, the Applied business in Europe was up high-single digits as well. So it was a pretty good quarter for bookings, and I think we'll see that flow through for the balance of the year and obviously, for the Climate segment, we should end at a higher note.

And then in terms of the gross productivity measures, is it fair to say that those have been fairly steady the past 6 months? I guess, in Q4, you just had the costs rising up to offset that and then they fell back again in Q1. But overall, gross productivity should be fairly steady through the balance of the year, there was nothing special in Q1?

Well, remember, too, that the gross productivity really hasn't changed much between Q4 and Q1 from operations. That uptick we saw was really on headquarter spending as it related to a lot of the benefit plans and in changes that had to be approved for in the fourth quarter on a strong year. So operationally, what we're tending to run with about 120% of the pipeline that we think we need productivity in a given quarter or year, and that's been a pretty good mechanism for us to make sure that we've got enough inventory to the pipeline to keep things humming. So it was a good quarter but the underlying productivity in quarter 4 was good, too. I think it was a little bit misunderstood because of the blurring of all the adjustments and accruals made outside of operations in the fourth quarter.

And our next question comes from the line of Andrew Obin from Bank of America Merrill Lynch.

Just a question on the Industrial side. I'm just surprised that given all the excitement about a short-cycle industrial recovery, sort of, Industrial even x the Club Car business just sort of not doing better, can you talk about what kind of visibility we have on Industrial in mature markets in North America and Europe?

Well, I mean, the visibility on Compressed Air Systems and Services is pretty good, and we've got a pretty good look there, for the most part. When you -- if you look at the quarter, about 2/3 of the leverage missed expectation would've been through Club Car. Now they did a fantastic job getting golf fleets out in the quarter. But what had to give was the ability to get some of the utility vehicles that go with that out, which will be through second quarter and third quarter of this year. The remaining 1/3 on the deleverage piece of that was heavy in terms of the investments, a question was asked earlier, and a lot of that is not just in channel and not in product but it's also in kind of putting the right level of talent into these business units: Power Tools, fluid management and Material Handling. We're seeing really good bookings, in Material Handling, as an example. We're seeing very good bookings in fluid management, a little weaker in Compressed Air. And Club Cars, we mentioned, has got low-single digit growth. So I feel like for the long-cycle businesses, which really, in our mind, are Club Car, Material Handling and the Compressed Air Systems and Services business, pretty good visibility for the year. Power Tools tends to be more of a spot buy, and fluid management tracks with a lot of what you're seeing in comparables from other companies as well. So we don't have that [ph] forward visibility, too, at this point. I feel good about the plan we've got for the balance of the year to bring margins back up over the balance of the year.

And just to clarify on orders. Do you think orders were impacted by the weather? And if yes, are -- you think you're going to get them back in the second quarter?

Orders, not so much. Shipments of Club Car, absolutely. But orders, not so much. And so I wouldn't think there'd be much -- more of a push there, I would suppose, that I would think about it being something more fundamental being pushed in the second quarter. We didn't have any issues in any of our factories, whether it be Climate or Industrial. I don't think we lost a minute of downtime to anything other than weather. So we were able to keep up in inventory levels, where we have stocking and tools and fluids, we're pretty good.

And our next question comes from the line of Stephen Volkmann from Jefferies.

I may be splitting hairs a little bit here, but I guess I'm just trying to think through this order question as well. You put up a couple of quarters of 5% that are only kind of getting the year up 3% to 4% in terms of revenue. Is there anything that would lead you to believe things will decelerate going forward? Or is this just kind of normal conservatism?

I think it's got a more of a long-cycle view as to whether or not we think things will happen in the fourth quarter or the first quarter of next year based on some of the bookings we're seeing: very large Compressed Air Systems and Services and very large Applied HVAC orders. And that's 2 areas that, as you look through that, potentially some delays in these projects, particularly in some of the mature economies in Asia, that's a little bit hard to pinpoint exactly when we'd see those revenue for the year. So that's probably the one blind spot. I would also say that as you look at our year, 10% in the first quarter of earnings. There's a lot of runway left here for the balance of the year and for us. I'm not sure it's conservative a view so much as it is a pragmatic view that we've got a long way to go for the year. So I think July for us is just a much more useful update for you than it would be trying to pinpoint it here in April.

Okay, I can appreciate that. And maybe if I could just ask you to comment sort of on the tenor of the quarter. Did things kind of get better into March? And any early read on April yet?

March was pretty good for us. I would tell you that we had good strength. Even in the HVAC res business, January and February, just take that for a second, the Hardy sell-through, we actually matched the 5 in January and the 9 -- yes, the 5 in January and the 9 in February. March, we haven't seen yet. So we're anxious at some point to get that data as well. But where March, we're matching at least the Hardy segment there. And I think that we were happy with March's performance. I'm not going to give you much more of a read in the second quarter, it's pretty early for us, and I think I said all along, so much of the year has really delivered in the last couple of weeks of June for us.

And our next question comes from the line of Deane Dray from Citi Research.

Mike, a question on the potential that ductless systems would gain more adoption in the U.S. and in Europe. So just looking in your crystal ball today, how fast might you see the take on ductless? What might the gating factors be? And does Trane have the right capacity in place to respond to this demand if it does come through?

Yes. We're counting on the world being a ductless place and being a player across the world in all geographies. It's interesting that we don't hear as much about ducted solutions in other parts of the world. But our Unitary business in Asia, which is a very large business, was actually up 35% in the quarter. So we're growing that business as well. We want to have a full product suite, we want to have ductless systems, we want to have applied Unitary systems and we want to have hybrid systems where it makes sense. So it's really a matter of building a portfolio. Relative to your question about do we have the product portfolio, I'd say, yes, we do. And when we don't, we have the right partnerships. But I think we're doing the right things to put ourselves in a position to be a global player in all technologies.

Great. And then for Sue, I was hoping you could comment on the stranded costs from Allegion, size for us where it stands and what the horizon is for taking those costs out?

Okay. So the best way to think about all of that is to think about most of those stranded costs being in the corporate number. So as we talk about corporate and what we think corporate will look like, the unallocated portion of it for 2014, we expect that to be about $200 million for the year. 2013, that corporate number was $260 million. So there were about $40 million of stranded costs, which came out, and then about $20 million of other savings that we planned into 2014. So in the fourth quarter, we did our restructuring actions that, again, some of those fell over into the $0.02 that we saw in Q1. But those costs are primarily out of Ingersoll Rand. We are complete with that restructuring and the stranded costs have gone away.

Our next question comes from the line of Nigel Coe from Morgan Stanley.

Just wanted to dig into the North American Trane leverage. You called out 200% incremental margins. Now granted volumes are still pretty light there, but I'm wondering could you just talk about base cost productivity pricing? And how does that then leverage, as volumes pick up, taking the Applied business, what sort of incremental margins can you get from Trane North America?

Well, in the quarter, Nigel, there was about 1 point of productivity looking at the total gross productivity less total inflation. And then from a price perspective, about 70 points fell through on price alone. So in general, they've just done a good job of consistent productivity, keep the pipeline full. There's not been a silver bullet. It's the same things we've been talking about for 4, 5 years there. And just a really excellent quarter, excellent execution. As I said, it wasn't weather-related, we didn't lose a minute in production in any of our factories. So I'm proud of that. Not sure what else I could really tell you on that one.

But any deal on how that business leverage as, particularly, the commercial HVAC volumes start to pick up?

Yes. I think we'll leverage at about gross margin of the business. And so I'd be looking potentially for that to be as high as 30% and as we've said, as low as 25%, which is where the guidance is.

Our next question comes from the line of Shannon O'Callaghan from Nomura Securities.

Mike, maybe just to follow-up on that. I mean, the 57% conversion in Climate, and I think you said 230% North America Trane. I mean, I know you're expecting good leverage going forward but I guess, what are the things that make it come down from that level?

Well, it's the timing of productivity events. I mean, there were no one-offs that happened. It's somewhat on low-growth, the lost small numbers working for you in this case as well. So I just think you should kind of get into a fuller year with larger numbers and more normalized margins, incrementals going forward. You're going to tend to revert back to -- you will revert back to gross margins in the business. That's fundamentally what the view is.

Okay, that makes sense. And then just maybe update, you're talking about potentially toggling to M&A. I mean, what are your current views of that market in terms of what's out there and how active do you think it might be?

Well, we've been very selective. We did a small deal in the first quarter on an energy supply company that didn't -- we didn't make any headlines with that. But sort of looking selectively. We've got a few smaller things that are really tucked into the commercial channel for HVAC that we're looking at. But it's been and continues to be a pretty disciplined process, really nothing earth-shattering, certainly nothing transformational in the cards. But there's probably 10, I would say, active ideas we're looking at. It will be based, as Sue said, on valuation and holding a mirror up to our share price and other investments, just seeing what we think is best for the shareholder a year out. So that's our view.

And our next question comes from the line of Josh Pokrzywinski from MKM Partners.

So just maybe to beat this operating leverage question to death. Looking at 2Q, it seems like a lot of that strength persists, and I know you mentioned that 1Q, some of that is just a function of good productivity on smaller absolute volume numbers. I guess that implies some decel there in the second half. Is that a comprehensive view on maybe some of that problematic steel pricing that you mentioned or load of productivity pipeline for the second half? Or is that just we don't have the visibility yet to make that call?

Joshua, I think one of the ways I would look at it, and Mike can add his thoughts afterwards, is we talked about where we expect the second quarter to be, and that we really haven't updated the guidance for the full year and that we would talk to you more about that in July. I think what you're seeing on that leverage and the calculation, it's just math at this point in time. I think we feel good about -- we feel very good about where Climate came out in the first quarter. We feel very good about where we're looking at both businesses, as Mike said, and roughly the gross margin territory for the second quarter. And as we get into July, we'll give you more color on what think the full year will look like.

Josh, I'll probably add that looking at quarter 1 and quarter 2 for both segments, the productivity really stays the same, which is exactly what we're looking for, is that 120% pipeline drumbeat that with breakage, you get to what you thought you'd get 100%, maybe do better. That's always a good thing if you can get better. But it's really preserving our pipeline. I would say that investments would tick up, particularly in the Climate business a little bit and tie in with things like new product launches. But also, you got second quarter, the effect of all the wage increases, which, across the company, start in April 1. So you've got a little bit of a run rate change there in wage structure. So it reverts back to something like the gross margins. And that's a pretty steady drumbeat that we look to attain over time. So we're going to have great quarters like we had and we're going to have some weaker quarters in there, but 25% is a good number to plan with. 30% would be the gross margin of the business. So that's what we look to do.

Okay, that's helpful. And then just as a follow up and I think Nigel asked this question, I don't know if you addressed it directly. Any differences between Applied and Unitary? I know you've done some big product refreshes on both sides. Any differences there when we start to see that Applied business pick up, whether it's mix-positive or negative, I guess, should we expect that to behave differently when that finally comes around?

Yes, with all the restructuring that's been done over the last 4 and 5 years and all the product development that's taking place, we're indifferent really as to if Unitary or Applied goes up. There's really not a change in the contribution margin business. And so the nice thing is we're, I think, we're levered either way but I wouldn't expect things would change one way or the other with the higher Applied versus Unitary mix. I mean, right now, of course, we're seeing higher Unitary than Applied but, eventually it'll cycle back around.

Our next question comes from the line of Steve Tusa from JPMorgan.

Maybe you can contribute and offset some of these rounds played that are down, it should be a pretty good spring for you guys, it sounds like. The incremental margin question, I guess, I just wanted to get a little more precision on this because to get to 110 in EPS using kind of a 4% to 5% growth rate, it seems like there is a little bit of a higher kind of implied incremental. What is corporate going to be in the second quarter, I guess? And then I can kind of, I guess, back into what that implies for the segments?

So when you think about corporate and we're spending, it should be roughly $50 million-ish. Again, you take the $200 million for the year and it's roughly the same throughout the quarters. Now what you will find when you're thinking about this in terms of leverage is that the quarters in 2013, the corporate costs and corporate components were actually increasing. Therefore, taking out the stranded costs and taking out some of the G&A costs will provide a bigger lift in terms of leverage as we go through each of the successive quarters and we do see that in the second quarter.

Sure. And then -- and I guess, just for the -- so I can kind of -- you get to kind of a baseline and you told us what the industrial margin range is going to be, what -- I'm getting something around 14% for the Climate margin in 2Q?

13.5%, yes, somewhere in there. You're not far off.

Yes, Steve, we've looked at 40 to 80 basis points maybe for the full year and last year, it was around 12.7%. So kind of 13.5% is probably a much better number than 14% there. The incrementals, Sue mentioned earlier in her comments, are 30 and you can say probably more precisely like 31 from the businesses. The other 10 points of lift comes from the headquarters reduction. And so there's a little better incremental margin in Q2 versus Q1. And that was planned. Of course, weather wasn't planned but the transition to the ERP System was planned. And so that didn't really change much in terms of what we had expected there.

And our next question comes from the line of Jeff Hammond from KeyBanc Capital Markets.

Just a couple of loose-end items. Can you just talk about the sustainability, the strength you're seeing in Thermo King? And then also, commercial HVAC orders down in Asia. Is that kind of bad lumpiness or is that kind of the trend you're seeing over in Asia?

Well, the lumpiness really has to do with just sort of the macro economy in China, and we're dealing with that like everybody else. There are some very, very big deals in Asia that would swing that. But absent hotels, hospitals and pharma, some nuclear, there's real weakness in some of the other segments of the market. Really, actually, the weakness in industrial plays through to HVAC, where we're, if not the largest, one of the largest process cooling provider out in the marketplace. And so when semiconductor businesses go down, we feel that in the HVAC business, actually, just the same. So that's an example there. Your question on TK, and the outlook there, it was a good start to the year. Containers have run more like 5% of our total. TK mix, it was 10% in the quarter. Those are very, very lumpy in terms of how that works. And so the underlying businesses were strong in Europe. I think that that moderates and normalizes through the balance of the year. And in North America, truck and trailer is about what we thought when we called out in the year. Really no difference there, more or less flat industry volumes but revenue pickup just on the mix, with the new product being more expensive with the new car compliant.

And our next question comes from the line of Jamie Sullivan from RBC Capital Markets.

Mike, maybe just some of the market commentary you mentioned with the Dodge revisions. You also talked about in North America, your Applied orders were up in the quarter. But you've also been a little more cautious on the market forecast. Just wondering if you can maybe give us an update on if these trends maybe change your view on the cycle at this point?

Yes, and we always look at a group of indicators. I think I say that every time we meet but I'm always cautious somebody might be new to -- that's listening to the call. One of the key areas of the Dodge put-in-place and starts data, which we triangulate with a couple of other metrics, one that we all think supports what's happening in terms of our own proposal pipeline that we can look at the same. So the latest Dodge forecast for 2014 put-in-place up about 8% versus 2013. And you've got to look at the underlying trends by verticals within that. Institutional, which is over half of the put-in-place dollars, was actually forecasted to be down 2% in its revision. And that's the sixth consecutive year of that happening. Of course, the ABI numbers were a little bit weak this morning as well. But the commercial, industrial activities forecast to be up 18%. So really, on the commercial, industrial activity, my view would be that, that will come down slightly from 18%. I don't think it'll stay there. I think they'll revise it down. When I think of the Applied market, at least what we're seeing, it might be a little bit stronger than what we're seeing there. One of the interesting things that we saw there today was that property tax receipts in the country now are at the 2008 pre-recession levels, and that's always a pretty good indicator of when institutional spending comes back, schools, K-12, health care, bond issuances, more infrastructure, I mean, those are typically -- that's the cycle we look for there. So anyway, that's sort of the mix that leaves us to kind of maybe hedging back a little bit on the Industrial and Commercial forecast, that 18%. We're probably not so sour on the Applied side. So it doesn't really change much for the year for us.

And then just a follow-up on the resi side. Maybe you could just comment on what you're seeing on the mix of efficiency levels that you're seeing in revenues and orders? And then maybe your expectations for a pre-buy or inventory build ahead of the January cut-off for the new efficiency standards next year?

Yes, things are trending toward higher efficiencies, so trending up toward 14 SEER at this point. So we're seeing the 13 SEER on mix change, that's good for us, good for the industry as well. As it relates to any sort of a pre-build, the nice thing here is that we're going to have a pretty good opportunity to look at the price gap between 14 and 13 SEER at the end of the year in the marketplace. That's going to drive a lot of what happens in terms of the pre-build. Of course, the larger the gap, the more pre-build that you would see. The smaller the gap, the less you'd see. We'll roll up a view from all of our dealers and distributors and closer to the end of the year. The nice thing about all of that is we would be building air conditioning in our air conditioning plants in the fourth quarter, which is a very seasonally low quarter. So all of that portends to being able to take a relatively late look in the summer at that and then planning accordingly for fourth quarter based on the variables and the dynamics I just mentioned.

And our final question for today comes from the line of Eli Lustgarten from Longbow Securities.

Just a clean-up issue. You had a very impressive first quarter despite all the weather issues and postponements, stuff like that. Do you have any measure of how much production was actually pushed into the second quarter from the first quarter, particularly, it looks like in Industrial it's got to be measurable at this point?

Yes, with the exception of Club Car, everything else was a push. We had higher demand for parts and services and lower demand for a few Industrial products but generally a push. But Club Car was the big outlier there for us. From a production standpoint, nothing else really pushed. From a distribution standpoint, I mentioned earlier, we've got about 1 week more in backlog than we'd like to have in the residential business that can ship on orders, and we'll be fleshing that out over the next week or 2.

Right. And could we get some quantification, is that like $20 million or $30 million worth of production that we're going to see and catch up in the second quarter? It sure do looks like it's something to that effect.

Well, it's -- if I looked at the res piece of that, you're probably not too far off. The Club Car piece, second, third quarter, that will kind of kick in there as well. I would say that you're probably in the ballpark on that. That's for the quarter. I've kind of taken the second quarter up, and 4% to 5% reflects that we'll see a little bit of that, whether it's 25 to maybe 40 in total. But some of that.

And finally, your restructuring, I guess, is implying $0.07 in the second half of the year with a bigger -- is there any change causing the back half order has always been that way and does it say anything about 2015 restructuring since your numbers are stronger in the second half of the year than the first half?

We've been doing a lot of restructuring for a long time. I think that what you've got here is where that maintenance fees, the $0.10, which has been typically what it's run for us. And so the $0.03 being spent in the first half leaves $0.07 for the back half. That's, again, one of those things, Eli, that in July, I think we'd have a better view, a clearer view of any projects we want to undertake in the third and fourth quarter and update you there. But for now, that placeholder, I think, stands and it's a good number to rely on.

And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any concluding comments.

Thank you, Karen. We don't have any further comments. Joe and I will be around for follow-ups today. Everybody, have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.