Good day, ladies and gentlemen, and welcome to the Ingersoll Rand Second Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Now I'd like to introduce your host for today's conference, Ms. Janet Pfeffer, Vice President and Treasurer of Investor Relations. You may begin, ma'am.

Thank you, Earl, and good morning, everyone, welcome. 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 call, through our website at ingersollrand.com, where you'll find the slide presentation that we'll be using this morning. This call will be recorded and archived on our website also. If you would please go to Slide 2, which is our safe harbor statement. Statements made on today's call that are not historical facts are considered forward-looking 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. Our release also includes non-GAAP measures, which are explained in the financial tables that are attached to our news release. With me on the call this morning are: Mike Lamach, Chairman and CEO; Sue Carter, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations. And with that, please go to Slide 3, and I'll turn it over to Mike.

Great. Thanks, Janet. Good morning, and thanks for joining us. In the second quarter, we -- our adjusted earnings per share were $1.20. We saw organic revenue growth of 3%, led by strength in the U.S. and European transport and commercial HVAC businesses. Industrial markets were weaker in the quarter, as distributors delayed restocking and some customers deferred purchase decisions. As a result, organic revenue in Industrial was down 4%. Industrial revenue trends started out weak in quarter 2 but strengthened in the last few weeks of the quarter. Not enough to fully recover within the quarter, but giving us some more positive trends going into the second half. Similarly, organic order rates softened in some markets but remained healthy overall in the second quarter at 4%. Adjusted operating margins were slightly down but increased 50 basis points, excluding the impact of currency and the accounting impact of bringing Cameron and FRIGOBLOCK results into our financial statements for the first year. Adjusted EPS for the quarter was at our guidance midpoint, but there were some puts and takes, and we did not perform to our expectations in terms of operating leverage and margin. Revenues were approximately $100 million lower than the midpoint of our guidance forecast. On a percentage basis, we were looking for organic growth of 5% to 6% as compared to the actual 3% growth rate for the quarter. Climate came in right on our revenue outlook, the difference was all in Industrial. For Industrial, organic revenues in Europe were down low single digits, excluding currency. Asia continued to be weak. U.S. seemed to have taken a pause in April and May and showed some signs of stabilization in June. North America was down 6% on an organic basis in Industrial. The earnings impact of the lower volume was offset by corporate spend controls, lower compensation benefits as well as favorability in other income. We'll talk more about it in the outlook. We're taking aggressive and targeted cost actions where we see volume weakness. U.S. industrial trends improved in June and have continued thus far in July, so we are partially reflecting that stabilization in our outlook. Before I turn it over to Sue to take you through the quarter, we did reach an agreement with the IRS in mid-July to resolve all disputes related to intercompany debt and similar issues for the period 2002 to 2011. The details are in the 8-K we filed a week ago and Sue will take you through that in more detail today. So with that, I'll turn it over to Sue, and then I'll come back to take you through the outlook.

Thank you, Mike. Before I go into details on the quarter, I wanted to take you through the reported versus adjusted results, given the larger difference due to the impact of the tax agreement. On a reported basis, our continuing EPS was $0.31. To get to adjusted earnings per share, we're making 3 adjustments totaling $0.89, which we think are appropriate given the nature of the items. First, the tax agreement resulted in a charge to income tax expense equaling $0.84. Second, as we've guided all year, we are adjusting the inventory step-up component of acquisitions. This now includes both Cameron and FRIGOBLOCK, but the great majority is Cameron. In total, that adjustment is $0.04 this quarter. And finally, we had $0.01 of restructuring in the second quarter. So that's the breakdown of the $0.89 to get you from reported continuing of $0.31 to the adjusted earnings per share of $1.20. Now let's go to Slide 4. Orders for the second quarter of 2015 were up 2% on a reported basis and up 6%, excluding currency. On an organic basis, which excludes both currency and acquisitions, orders were up 4%. Climate orders were up 3% and up 6%, excluding currency. Orders in the Industrial segment were down 1% on a reported basis and up 5%, excluding currency. Organic orders for Industrial were down 1%. We saw organic orders decrease by low single digits in Air and Industrial products and improve by high single digits in Club Car. 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, second quarter revenues were up 2% versus last year on a reported basis and up 3% on an organic basis, which…

Great. Thank you, Sue. Please go to Slide 11. In the aggregate, our adjusted EPS forecast has not changed since the last update in April. But within the guide, we've made some adjustments based on market and performance trends. Let me walk you through some of the geographic regions. This is probably the best way to give you some color. North America institutional markets continued their recovery in the second quarter, and we are increasing our revenue forecast here. We also continue to see growth in commercial and industrial buildings and retrofit. Based on this, we expect mid- to high single-digit growth for 2015 in North American commercial HVAC markets. The regional standards change in residential HVAC is going as planned. Monthly trends bounce around based on channel stocking levels and weather. At the end of June, channel inventory levels were at normal levels, and distributors had begun restocking to maintain those levels. We expect motor-bearing unit shipments for the year to be flat to up low single digits. To round out North America, we expect North American transport markets to be up high single to low double digits for 2015, reflecting good trends in trailer truck and APUs. North American industrial markets took a pause in the second quarter. Overall, we did see signs of stabilization in June, which continued so far in July in most businesses, but we did bring down the industrial markets' growth outlook for the year based on the trends. This particularly impacted some of our shorter-cycle businesses in Industrial such as small, medium compressors, Power Tools, Material Handling and fluid management. [indiscernible] markets are expected to be up low single digits. We expect Latin American, Asian, European and Middle East HVAC equipment markets in the aggregate to be up low to mid-single digits at…

[Operator Instructions] Our first question comes from Nigel Coe from Morgan Stanley.

So Mike, you sort of answered my first question a little bit in your closing remarks. The 5% to 6% organic for 3Q just feels, on the face, to be a little bit aggressive. But you talked about the swing on residential and talked about the shipments in some of the backlog businesses in the commercial HVAC business. But is there still some, obviously, assumed recovery in the short cycle, I'm just wondering, what's the degree of confidence do you have in that 5% to 6%? And if you had to haircut that number, would you be comfortable assuming some acceleration from the 3% we saw in 2Q?

Yes, Nigel. And I saw your note this morning, because Q2 and Q3 are fairly flat and so there were some questions about the normal seasonality of the business. But there are a few things that go on here. First, third quarter North American commercial HVAC bookings and Thermo King are going to continue at high levels, and that really underpins the Climate forecast there. We had excellent bookings and growth in second quarter, a lot of that in the schools market, and so I'm pretty confident that we're not going to see weakness at the North American commercial HVAC and TK in the quarter. We also have seen the restocking of the res channel take place in late June and through July and believe it should match results that we had in our direct model, so that goes well. In fact, we had a good quarter in res for Q2, and think that will continue in Q3. China is interesting, because it's a place you wouldn't expect for us to see a lot of growth. But if you go back to the fourth quarter of 2014, we had bookings of about 33% growth in the fourth quarter in China. A lot of that now ships in Q3. And those projects are in markets where -- I'm sorry, those projects are being delivered into the vertical markets that are growing. So we don't see any real risk in delivering those as planned. Now the Industrial segment moves from really negative revenue comparisons in the second quarter to really, a low single-digit rate, and that's based on a couple of things. First, Club Car had a strong June, kind of plus 18%, so that's really a delay, if you will, in Club Car business from Q2 to early Q3, so I think that we'll see that pick up. We're seeing a pickup, an example, June's, our Compressed Air business was up like 22% in bookings, most of that being in small and midsize compressors, which we feel like we'll book in turn. But then as you look at late Q3, and I know this goes now into Q4, this is where we get into just delivering on the backlog of large machines, whether they're Cameron or Ingersoll Rand. So I think that it's a little bit maybe unusual from a seasonal pattern for us, but I think all the pieces make sense that we should be able to deliver that. We have put in place a lot of actions, about compressing the productivity schedule, looking at discretionary spend, looking at investment spend, triggering many things now. And if in fact things get weaker or it doesn't materialize in the top line, we're looking between third and fourth quarter to make sure that we manage the bottom line. So that's probably more than you asked for in your question, but that's the answer.

No, that's incredibly helpful. And by the way, 3% still isn't too shabby compared to some of your peers. The follow-on would be the headwind from volume mix, the 30 bps this quarter, big swing from the plus 100 last quarter. And it sounds from your comments that that's more of a geographic mix than a product mix. Can you maybe just confirm that? And maybe talk about the big swing that we're seeing Q-to-Q and what's caused that swing?

The mix, it's a bit of a worst-case mix that we saw. If you step back, it's your higher-margin Industrial segment that is just down everywhere, averaging at the gross margins of the business. Then if you unpack that, you end up with a very disproportionate growth rate and deleverage happening in the highest-margin businesses, which are going to be tools, fluid management and Material Handling. Then if you look at it on a geographic basis, it's particularly weak in Asia and Latin America, which have historically been very good, profitable markets for us. So when you look at that sort of mix challenge, it's squarely into the Industrial segment for us. In essence, Climate did well and offset mix with some extra volume and really hit expectations, both for leverage and top line.

Our next question comes from Jeff Sprague from Vertical Research.

First, just to follow up on Industrial, Mike, again, if you could, and then a separate question. But in Industrial bookings, that strength does sound quite remarkable, just given kind of the general tone in industrial land out here this earnings season. Can you give a little color on kind of vertical markets where you're actually seeing that level of activity? And then as part of the Industrial outlook, it does look like Cameron is actually coming down quite hard. You mentioned it's typically seasonally back-end loaded. But certainly, on a year-over-year basis, it looks like it was very weak here?

Jeff, actually Cameron is not as bad as you would think. If you go back to the original idea that we had, we thought that it was a $350 million to $365 million business, where based on that, depending on which side of that you take, worth maybe $15 million to $25-ish million lighter overall, it's really coming across -- heavily coming across the smaller businesses and the smaller compressors, which go into small industrial customers across the board. So it was really sort of a pause in the industrial economy in the U.S., which was quite unexpected. Most of these things are going to be stock products we had built and turn them, and they didn't build -- I'm sorry, they built and didn't turn in the quarter, and so it was pretty tough for that. It's also the business that in June was up 22%, largely in small compressors. We also saw some improvements in the fluid business. I mentioned Club Car was up nearly 20% in June. Haven't seen quite the increase back yet in the tools business, and the Material Handling for us is really our only oil and gas-exposed business, and that continues to be very weak there. So the backlog, as I think about big machines, is at this point in time pretty well in the bag. The catch -- the key for us here is being sure to deliver that. I mentioned that Cameron's business is 40% skewed toward the fourth quarter. And so that is actual customer requests for delivery on big machines. And so it's more of an execution of the backlog question there for the full year.

And Mike -- and Jeff, I think we might have confused you just a tad with one of the slides in terms of Cameron. So let me try to add a little bit of color to what Mike has already said. In the second quarter, there were a miss of revenues in the Cameron business. But it was, perhaps, nearly 10% of the Industrial miss, so it wasn't a big part of that. And some of that was actually revenue that shifted over to the third quarter and the back half of the year. On the slide, where -- on Slide 11, where we talked about organic reported revenues, and we said 2% to 3% for acquisitions and 3% to 4% for FX, our original guidance for the year, as you well know, was that we were going to have about 3% on acquisitions, offset by 3% in FX. This is a little bit of the rounding and puts and takes. I do expect the acquisitions to be right about 3%, and FX may be slightly over 3%, but we won't be at the outer margins of that guidance. So I would say, let's call it back to more of the 3% on acquisitions and maybe just slightly more than that on the FX side.

That's helpful. And then just on raw materials. Mike, you touched it a little bit as you were wrapping up your concluding comments. But can you give us a little bit more color on how that plays? Obviously, we're in a pretty severe industrial metals deflation right now. Obviously, you've got hedging and other things, but can you give us a little bit of an update on how we think this should play through? How big of an impact do you see in the back half? And do you see that really undermining any way your attempts on the other side, on the pricing environment?

Jeff, let me give that a shot. As we look at commodities, first of all, we've said all year that the commodities would turn to a deflationary environment in the second half of the year. And so if we look at that back half, we've got about 70% of our copper bought and about 40% of our aluminum bought. So that deflationary environment is going to flow through what we've got in the back half, so I don't see a big risk to that. And it does help us, from a first half to second half comparison in terms of materials. Now on the pricing side and what we've talked about with pricing, we consider that we still want to have a positive spread between the direct material inflation and price of about 20 to 30 basis points for the year. And that's where we were in the second quarter, we were roughly about 20 basis points. And so I think the back half material deflation is going to give us some -- a wider -- a little bit wider gap or some more positives there. And we still expect to have some positive price. And the overarch on price and material inflation is that we build our pricing capabilities to get paid for delivering higher value to our customers and to anticipate and react to movements in commodities, and I think that's what we're doing.

Our next question comes from Robert Barry from Susquehanna.

A quick follow-up on the price cost. I think it was down 0.2% in 1Q and up 0.2% in 2Q, so call it neutral for the year. Does that imply that to get to the 20 to 30 for the year, it would kind of be 40 to 60 in the back half? Is that kind of order of magnitude?

I think it'll be in the 20 to 30 range, a little bit higher than that to get us to in our range. And we said 20 to 30 for the full year, so just slightly higher than that. But again, that's really the material coming down. As you know, we had a slight amount of material inflation in the first quarter, very minimal in the second quarter, so that turns deflationary in the back half.

Yes, I mean, Robert, your rough math works. We fundamentally, as material is coming down fast, price won't come down as fast, and so you get a little bit bigger spread in the back half of the year. And unless something happens with pricing and it just destroys the marketplace, I think that, that would be the case. We would see that, from a commercial perspective, things have been weak in Latin America and Asia for sometime, so I don't see pricing deteriorating further there. So I don't think the risk there is great. So it does support falling commodities, prices sort of moving slower and the spread widening in the back half.

Got you. And then maybe just a follow-up on the productivity actions. If you kind of put aside the price cost on materials, it sounds like those are stepped up. Could you quantify how much kind of incremental productivity you now expect versus what you had been expecting? And maybe in that, you can touch on, in particular, corporate. I think that was expected to be kind of 230 to 235. It looked like it really stepped down in 2Q. How is that tracking?

Yes, right now, Robert, it's probably 30 basis points more productivity in the back half versus the front half. And then in addition to that, we're really putting together re-forecasts for the balance of the year and re-evaluating any sort of investment spend and timing. Even some of the CapEx, just to kind of go back through that and scrub it for the back half of the year. So we're looking to not only get to 30 basis points second to front half, but really get a bit of a natural hedge built in through some productivity actions being built in to protect the EPS forecast we're giving you.

In the unallocated corporate, Robert, we're taking to sort of 220 to 225 for the year.

Our next question comes from Julian Mitchell from Crédit Suisse.

I just wanted a bit more color on what you're seeing in Asia, and China specifically, on the Trane side. I guess your margins in Q2 in Climate may be a little bit less than some people have thought. Was there a mix impact from Asia being down within that? And then maybe just give some color on the bookings you're seeing in Asia now. I think Carryall was down very significantly in Q2.

Well, any sort of mix in Climate, maybe to start there first, would be that on the res side, we're probably one of the few people that actually mix down to 13 and 14, sort of the more we fill out the channel, the more we fill out the product range, we tend to mix down on it just a little bit there. We also mix down a little bit when you look at European transport. And this is really weakness in Eastern Europe that is kind of pulling down some pretty good results in Western Europe, as an example. So there are minor things happening within that. Latin America has been a really soft market in Climate, a very profitable market for us. There's really no recovery happening in Latin America as we speak, and so those are the mixed drags that you see to Climate at present. Now China, it's not unusual, gosh, I can think about last couple of years, where we get this see-saw happening between strong bookings, weak revenue and so on and so forth. Now granted, it might be weak 2 quarters, strong 2 quarters, but as an example, the fourth quarter bookings we had last year kind of coming through into strong revenue in Q3 and good revenue in Q4. When we look at Q3 bookings in China, and this of course is based on a pipeline of real deals and real projects, we also expect a strong bookings in Q3 and in Q4 for China in the HVAC business. This happens to be some of the vertical markets that we are working in. It would not be surprising to find it to be mid-teens in quarter 3, as an example, in HVAC for bookings. But it's a see-saw there to a certain extent. I think that Industrial in China remains weak. I know that power consumption, as an example, was down 2% in China last quarter. Now compare that to the reported 7% growth in the quarter and you get a difference between what's happening sort of on the ground, where the proxy is power consumption, and what's reported in terms of GDP growth. And obviously, the more you focus on heavy industry, sort of the worse off you're going to be. The more you focus on health care, data centers, food, beverage, pharmaceuticals, probably the better you're going to be in that mix.

And then just my follow-up would be, with the IRS thing potentially out of the way, you talked about greater clarity or greater certainty in the release on the future effective tax rate. I just wonder if there could be any mechanism to think about bringing that down a little bit in the long run?

I think we -- Julian, I think we'd keep the range sort of in our 24% to 26% range, with sort of that midpoint at 25%. I don't -- we haven't evaluated anything that would change that from a longer-term rate basis.

And our next question comes from Josh Pokrzywinski from Buckingham Research.

Just on some of this near-term improvement, Mike, that you've seen in the Industrial business, I get the 22% bookings growth in short-cycle Industrial. I would imagine that, given some of the pushouts you saw in 2Q, that there might be a little bit of a hedge to the second half. Can you help us maybe outline the difference between what the backlog supports, what the orders are telling you and what you're baking in the guidance? So I guess, maybe the long way around there is that, do you have more pushouts baked in? Because I guess from an industrial perspective, this doesn't feel like the type of environment where people are pulling in business. And it does seem like there's still a lot of reliance on those fourth quarter bigger projects still shipping on time?

Yes, Josh, when you look at, sort of -- if you stand a month in front of the next quarter and look at the visibility typically you have of that business, it might be somewhere between 45% and 60%. The other 40% to 55% really comes through those short-cycle small compressors, tools, fluid management businesses. Club Car, Material Handling and larger compressors tend to add just a bit more visibility in what we're looking at. What's a little bit unusual now as we think about how the Cameron business works, and this is really historical for the profile of Cameron, they're a big back half, big fourth quarter type of company. If you think about their top 5 to 10 customers, their pattern every single year is delivery around that time of the year and so that happens. It's got the benefit of really improving visibility there, and of course, we've always had good visibility on our big machine. So it's a pretty fair forecast kind of looking ahead, because we can see that big machine, we can see the Club Car business to the balance of the year. To a certain extent, you're guessing on the overall economy as it relates to the tools business and some of the small compressor business. So if you had to sort of handicap all of this, there is probably, if you want to net it out further, maybe more upside that could happen on the HVAC businesses, maybe a little bit more weakness on the short-cycle industrials. But at the end of the day, I think we've cut it fairly close and fairly.

Got you. And then just a follow-up on maybe the margin end of that on the Industrial side. Can you dimension out maybe what was more of a surprise factor in 2Q on the margin versus what gets better by managing that in real-time? And how that relates to kind of the better backlog outlook? So how much of the problems in Q2 just go away because you're now on top of things and no more surprises versus the revenue uptick?

Well, let me kind of walk you from 16.4% last year to the 13.3% this quarter, just the big pieces, and you can tell me, so you can have your impression about what you could be more on top of and what you couldn't. The biggest piece of what we saw was volume and mix, which was 210 basis points of the difference. The FX piece was 110 basis points negative and then Cameron at 70 basis points. But that's more mathematical, Cameron, of adding revenue in at small OI and now moving toward the back of the year, where they really over-absorb Q3 and they really absorb Q4 -- over-absorb Q4, so you kind of balance that out. You also end up with investments in Other, which were about 1 point and almost -- I'd say the majority of that is just a legal accrual on an old item. So with -- I mean, the other way back, you had productivity over other inflation of 120 basis points and price over the direct translation, which is 60 basis points, so the good guys around productivity and price, 180 basis points. I don't think the investments in Others is a drag. I think Cameron turns itself around just through absorption in the factories, and then volume and mix is what we've been talking about. You've got to place a bet on some of that, both on short-cycle, high-margin businesses and some geographic spread on that. But all in all, the plans we've taken to address this really are contingencies around if things remain weak. And so I would look for productivity to then significantly be better than other inflation and for price to be -- could still be better than direct translation, in this fast-reducing direct material environment that we're in, with price of material deflating, basically.

Next question comes from Joe Ritchie from Goldman Sachs.

This is actually Evelyn Chow for Joe. Maybe just returning a bit to your Climate margin guide, I understand that resi [indiscernible] channel, that impacts mix, but it seems like your second half margin guidance implies kind of a normalization of incrementals. Can you help us think about the puts and takes on margins as it relates to mix, investment spending and other items?

Well, I mean, leverage in Climate just in the quarter was pretty good. So it was right around 25%. But if you take FRIGOBLOCK out, it was right around 30%. So if you start looking at Q3 and -- correct me, Q4, it starts to look around 30% again. So there's really not much of a difference in the leverage that we're seeing and expecting around the Climate business, even with the res mix. So maybe you want to fine-tune your question if I'm missing a little bit, but we're fairly -- it's fairly flat and linear there.

Okay, understood. And then maybe just returning to your comment on China HVAC bookings potentially being up in the mid-teens in the back half. That seems a little bit at odds from what we heard in that region from your competitors. So what's driving the strength in your business?

It's really not unusual for competitor A to have bookings in one quarter and B bookings in the second quarter. It's just based on what they're working on and the customer order profiles for major projects. We see it all the time. When we're up 15%, 20%, it might look good compared to a competitor, and you flip it around and it may look bad. But all in all, one quarter, 2 quarter differences in the competition are really what we're talking about. There is some difference, though, depending on what competitors you talk about. Clearly, we don't have much of a presence in the res business in China. And so I think we've been helped by that, somewhat insulated by that. And we tend to focus on markets, again, like pharma, health care, electronics, data centers, food and bev, where we've done better.

Okay. And then maybe just returning to CAM briefly, could you just provide maybe a little bit more color around what you've seen in the 3 main businesses there this quarter?

It's Sue, Evelyn. Let me look at -- take a look at where we are in the market for the centrifugal compressor business. So first of all, on the processed gas side, we're really more exposed to gas than to oil and gas. So we're seeing a little bit of growth from natural gas and from LNG and particularly in the U.S. In the Middle East, you do have some project delays that are related more to oil prices, but we see petrochemical doing okay. And we expect power generation to grow for the business. On the engineered air side, we're seeing some of the industrial gas business, particularly in Asia, with air separation declining, and that's really due to overcapacity in that area, but where steel demand also had -- has an impact on the engineered air segment. For plant air, we see a slow recovery in North America. So we've got some good markets in auto, in food and beverage, pharma, electric power. So North America is stronger; Europe and Asia are slightly softer in the plant air side. And then, the fourth, really, piece of the Cameron centrifugal compressors is the aftermarket, and the aftermarket is stable. But we still have some more opportunities and synergies to gain on the aftermarket side of that business.

Our next question comes from Steve Tusa from JPMorgan.

Sorry, I might have missed this. But what did you say about the resi -- how resi kind of ended the quarter and started in July again on your independent distribution channel again. Did you give numbers around that?

Yes, so let's go back to the beginning. We saw wholly owned up double digits and in the quarter, we had independents down roughly the same, actually down double digits. And then if you look at that and break it apart further, April and May were incredibly strong. First couple of weeks were frankly a little bit slow and then the last couple of weeks of June were record levels of shipments that we have seen, and we're seeing that through July. My guess is that it's going to look a little bit more like the sell-through that we had with wholly owned. Now all that, Steve, gets you to kind of maybe flat to low single-digit, motor-bearing sort of markets for the year. But pretty strong last 4 weeks, 5 weeks.

So what do you think resi can do in the third quarter, assuming kind of weather is stable, in total, your total resi rev?

Yes, great question. I mean, best case, you're probably looking at double digits -- low double digits.

Wow, that's good. And as far as the margin dynamics there. I mean, are you starting to see -- I know you guys redesigned your 14 SEER. What are you seeing on the margin front there? I would assume that's not fully reflected yet because there was clearly some prebuy dynamic in your numbers, so maybe just talk about how you can convert that with the new 14 SEERs?

Yes, 14 SEER is good, Steve. 13 SEER is what it always has been, and I think that as that really comes out of the market, and I would assume for the most part, it would be out of the market relative to AC units by August at this rate. This is the market. The PT pumps to the market a little bit longer than that, but I think that you see the margins start to look better and mix back up. I think that for the res HVAC business this year for us, you'll see good growth, probably share gain and margin expansion again. So I think that they're playing it right on cue. Good launches coming in the fourth quarter relative to the heating season, those are on track. I think that, that's kind of one more nice sort of arrow that they've got to shoot in the fourth -- third and fourth quarter.

Okay. And then lastly, just on your '16 margin targets for Industrial. I mean, are those kind of off the table here now?

No, it's too soon to really tell on this. I think we need to get through and look at the delivery on Cameron for the year, look at the bookings going in. But structurally, nothing changes for me. I just -- before coming out and shooting from the hip, I want to make sure that we've had as much of '15 as we can, look at the bookings and the really big stuff and just make sure that we're giving you a number that we can live with for '16, so it's too early for me to do that.

Okay. Can you buy back stock here? Sorry, last one. Do you have the desire to buy back any stock here in the second half of the year if the stock kind of stays where it is today?

Yes, we're going to buy it all back that we talked about, so it's $250 million?

Yes, the $250 million.

Yes, $250 million is what you can expect.

Next question comes from Steven Winoker from Bernstein.

Mike, could you comment on the inventory turn number? I guess it came down from 7 to just over 6? And Climate versus Industrial, what's going on there, a little more detail?

Yes, Steve. When you end up with sort of getting an air pocket come through and you build inventory and it's sitting a bit, it didn't, particularly in those quick-turning stock businesses, you get caught a little bit sitting there. You also get caught needing to pull some production days out because you've built the inventory and so that even compounds some of the margin problems you see when you've over-built. So we've got to work that out in Q3. And then you're going to see, obviously, the res business start to really move inventory levels down as you've got the independent restocking taking place in late June or early July. So there'd be no question in my mind that by the end of the year, that we'd have turns in the right place at that point. And then the teams are working on very detailed plans that -- taken out, month-by-month on a glide path, certainly by December, and we're doing our best to pull it forward into the third quarter, just to have a better chance to build and collect it in the fourth quarter.

Okay. And that's -- it's not weighted disproportionately to Industrial, the challenge on that one or it is?

Well, res HVAC would be a big part of it, and the balance would be Industrial, I think.

Yes, it's about 50-50. It's not overweighted to Industrial.

Okay. And then on the IRS litigation, assuming that the settlement, that, that's all finalized, just looking through the Q and your exposures that you had called out publicly before, looks like, just adding all that up, you're closer to -- it looks like something like $1.8 billion to $2 billion, depending on how you count the '07 to '11. But this gets rid of all of that, and it also -- there's nothing else that's pending out there, right? So this completely removes the litigation as called out in the filing, is that correct?

'02 through '11, all open issues and items are addressed. So again, it's the [indiscernible] on things. And then if you look at sort of '12 and on, I mean, these are just normal open audits that the IRS would normally be working within any company. It's something where, if you've gone from '02 through '11, and then you have a change, '12 through '15, in terms of how you're sort of looking at managing your taxes, it would be very hard to assume they would assert anything that was already agreed to between '02 and '11. So my guess would be although that '12 through '15 is not part of the agreement in writing, it would be logical to assume that you wouldn't see those same issues asserted, since we have sort of settled that already.

Okay, great. And then maybe just one last one. On non-resi, a little more depth there. You guys are really -- it sounds like significant strength. You mentioned schools, but any place else where it's giving you confidence of a really, I guess, a long-lasting rebound, Mike?

Well, what's interesting for us, I would say, Steve, now is that the institutional markets, we're really strong, but we're pulling that with controls and performance contracting. And the performance contracting projects, we booked one, kind of in the mid-$30 million range for a school this past quarter. We've got some very large ones booking in other verticals in Q3 and Q4, it's larger than that. They are slow burns, 18 months, 2 years, in terms of the project cycle that have to be managed. They put a little bit of pressure on the gross margin, because you end up with a lot of pass-through subcontracts. But they're accretive to the contribution margins because all of your costs are embedded in those projects, right? Everything down to the commissions for the salespeople, if you will, right, are embedded in the project margins. So I think you might see some larger numbers start coming out there. I think the nice part about it is these are 10-, 15-, 20-year deals, where it's equipment, controls, service, all bundled together. And it's a really nice project management business that's helping us from an energy retrofit perspective, just being able to take on and do really large projects effectively for customers.

Our next question comes from Jeff Hammond from KeyBanc Marketing.

So it looks like you're coming up against some tougher order comps. And I think you mentioned China up 33% in 4Q, and I think you had some really good order growth in back half, Europe last year. As you look at kind of quoting activity and thinking about that tougher comp, how should we think about order momentum into the back half?

Quoting activity in commercial HVAC, North America is very strong. Performance in Europe in HVAC continues to be very strong, double digits, again strong, continues to go well. Middle East, same thing, double digits, teens-type growth there. The low activity is in, really, Latin America. Choppy activity is what you see, really, through China but all of Asia Pacific. And then, really, in Industrial, big machines, Sue kind of highlighted there what the strengths were, so I won't reiterate that. Probably a little bit more of the choppiness comes back into some of the plant there, where you could see some air pockets from month-to-month, quarter-to-quarter, that I think is just indicative of the overall economy.

Okay. And then just on residential, I mean, you mentioned kind of mixing down. And it seems like the market is kind of going the other way. So can you just talk strategically how you're kind of positioning that business? And how you feel like you're doing competitively? It seems like you have a little bit lower growth rates versus some of the competitors.

Well, Q2, that wouldn't be the case, actually. The data we got from HR would say it was a really good quarter for us in Q2 and actually year-to-date. So I don't -- it's a little tough with all the data you get and reporting people do, but the benefit is, at least in North America and the U.S., with the HR data, we're able to see that relative to the marketplace. So we had a really good quarter and it's been a good couple of -- a good 6-month period there. It's hard for our business, Trane, American Standard, to do anything but mix down, because historically, we only played at one end of the spectrum. So whole strategy has been for years now to build a product line that runs the gamut, so the dealer has the opportunity to use the product line across all aspects of the price points customers want to pay. So it would not be at all unusual for us to see motor-bearing units going up, and obviously, as you sell 13 SEER, 14 SEER, the mix goes down a little bit. Nothing unusual or unplanned about that at all. In fact, I would say, to reiterate [ph], that we're getting more of our channel base and our dealer base to use more products across their businesses. That feeds the parts business, and it feeds everything down the road, including replacements, too, so it's all good.

And our last question comes from Deane Dray from RBC Capital Markets.

You said -- a follow-up on the IRS settlement. And Sue said there'd be no change at this time to the tax rate. But would there be any change to how you're booking intercompany debt? Is there a P&L effect? And would we be able to see that?

No, Deane. There shouldn't really be that much of a change and so really, that change has already happened. So if you think back to the inversion debt, which was a big part of this settlement, that inversion debt was gone at the end of 2011. And then we've simplified the structure, even as we went through the Allegion spin in 2013. And we've really been very conscious of making sure that we're using our Irish domicile in the right ways for moving cash around the globe, but not really being aggressive on any of the different items. We've said a number of times that we've been playing it right down the middle of the fairway, and that has been the case for the last few years, and so I don't expect any change to that at all.

Great. Just last question. With copper at a 6-year low, I know you've always stayed very disciplined in terms of doing your laddered purchasing, you've got 70% already purchased. But with copper at these levels, would you ever consider walking in a -- or extending the duration of these hedges or advanced purchasing?

Yes, I think the -- we have a commodity team that looks at all of these different items and a policy that gives us some flexibility when we do have prices that are at an all-time low and so that's something that we continuously monitor, and the sourcing group is doing a good job of making sure that where it makes sense, that we take advantage of that.

Has that happened yet?

We've got about 1/4 unlocked in Q3 and about 1/3 unlocked in Q4. So there's a little bit more room there than we normally have to go take advantage of stock rates anyway, Deane.

I'd like to hand the call back over to Janet Pfeffer for closing remarks, please.

Thank you, Earl, and thank you, everyone. Joe and I will be around if you have any follow-up questions. Have a good day. Thank you.

Thank you, ladies and gentlemen. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.