Good day, ladies and gentlemen. Thank you for standing by. Welcome to the special Emerson Conference Call. During today's presentation by Emerson Management, all parties will be in listen only mode. Following the presentation, the conference will be open for questions.
This conference is being recorded today, 12/17/2020. Emerson's commentary and responses to your questions may contain forward looking statements, including the company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson's most recent annual report on Form 10 ks as filed with the SEC. At this time, I would now like to turn the conference over to our host, Pete Lilly, Director of Investor Relations at Emerson. Please go ahead.
Good morning and good afternoon, good evening everyone around the world joining us. Today, I'm joined by our Chairman and Chief Executive Officer, David Farr our Chief Financial Officer, Frank Delacuila Executive President of Automation Solutions, Lal Carsenbai as well as our Executive President of Commercial and Residential Solutions, Jamie Froch. Thank you for joining us. And with that, I'll turn it over to Mr. Farr.
Thank you very much, Pete. Frank, you must have been referring to that famous 10 ks that we have. There's six pages of risks that if we don't do anything, that's where he's just referring to. I just thought he'd like to hear that. Okay.
Welcome, everybody. I'm referring to the 10 k where you risk every risk that, you know, that happens in world like we don't develop new products. We don't go out and sell. We just source it back in the bunker. I welcome everybody.
The reason we're having a call is it's a commitment we made back in November at the November earnings call. That if we got two months into the new fiscal year, we would give you an update on what we see going on in the world. So as you see in the order pattern and the chart, did they have this chart here? The chart going out there, the V is formed extremely hard at this point in time. Clearly, the Commercial Residential Solutions business has continued to strengthen, And I'll let Jamie talk about that in a few minutes.
But it's strengthening pretty much around the world and more and more the segments other than the professional tools are starting to take hold in this recovery, which is good to see. From the standpoint of Auto Solutions, historically, we have bounced around the bottom. If you look back in the late twenty sixteen time period going into 2017, we do bounce around the bottom for a while, then we'll spike. Also keep in mind, in both these businesses, it's not uncommon for them to have a month or two where it flattens out, dips a little bit. It's not a straight line as it looks there.
But from my perspective, I would expect this that we're ahead of where we thought we'd be at this point in time, probably a month or maybe a month and a half ahead of where we thought we'd be. We have a large December, obviously, and Lal will talk about that. But the trend line is the right trend line at this point in time, and we're continuing to see pretty good strength around the world and by more and more of our segments. So it's really good to see that. I think at this point in time, if I look at the hard blue dot that we put in the middle back in November, and we're out in the upper right hand corner of that box, My feeling is that we're gonna be somewhere in the upper right hand corner because that blue dot will
be somewhere in that middle.
I would say that we could flatten out, Lal will talk a little bit about he had some very big orders last December. If you look at his last three month roll in December, you'll see that he had a little spike up. And that was from some of the big orders we had on the chart the previous year. But still, the trend line is good. I'm going turn it over to Lal to talk a little bit about it.
But again, we just wanted to update everyone and give you a feel. I'll let these guys go first, and I'll add some comments if necessary. So Lal, why don't
you give them a little update? Sure. I'll try to give you a little bit of color. I I think, David, it's fair to say that we're close to flattening our trailing three month order run rates. The last three months have yielded encouraging signs, particularly related to the civilization of day to day process business.
A recovery of discrete industrial activity really driven by by Europe and China right now. However, it it is also a fact that with the exception of a few k o b two projects and a number of power projects, the environment around the world remains precarious and, lacks any significant k o b one FID activity. So I'll touch on the orders from three dimensions, geography end industry, and end market, as well as give you an update on KOB one, two, and three out there. Let's start with North America, which remains soft for us, although the the three month trend has stabilized in North America. Upstream oil and gas customers are still depleting inventory despite an approximate 40% increase in completion activity, which has resulted in a moderate increase in book to ship instrument orders for us here in North America.
We are, however, seeing in field drilling activity in fields like the Permian, which leverages equipment such as separation equipment and compression equipment versus moving expanding the field activity, which we saw obviously during the growth phase. The refining spend remains stagnant. However, we do expect some end of year budget spending in chemical, in pulp and paper, which will take place, as well as power continue to be strong as we finish the quarter and into the second quarter. We've talked about this in the past. Customer site access is challenged, as the COVID nineteen restrictions fluctuate across the North American environment.
The Google Mobility data indicates that approximately 30% decline from that March 9 basis of where we are. You may recall we talked about a 56% fall in mid April when we started looking at that data. So it has stayed relatively stagnant as we went through the full months. We also have assessed that the large portion of our customers in North America have less than 40% of personnel on-site with many stating to return, to the plants no earlier than spring. So, again, we need more folks on-site to move beyond the break fix environments.
We're seeing some of that, but still not enough. But there are some small signs there. This has translated into some increased quotation activity, but we're yet to see that uplift in the in the order activity, but at at a minimum of stabilization. Turning to Latin America, it is stressed, driven predominantly by the Mexican economic position, which impacts both PMACs and downstream spending across Mexico. I will I will highlight some significant activity around LNG, particularly in the Baja Peninsula in Mexico with a a a project by Sempra that's been FID ed and we have been awarded.
This is a an LNG facility for export of gas into Asia. It bypasses the Panama Canal. So from a speed perspective, has a a significant number of advantages over the Gulf Of Mexico. There's also a bright light in the Southern Cone with the metals and mining activity. We've seen what's occurred in metal prices and we've seen that activity pick up in Argentina, Chile and Brazil.
Europe has seen a recovering daily run rates driven predominantly by life sciences, automotive and discrete OEM activity in Germany predominantly and power activity across the Western European sphere. Germany is experiencing broad growth in industrial activity in their strong OEM economy. And that's one of our early cycle discrete businesses in Germany being up close to 30% right now. So encouraging signs there. Coming off of a flat year in 2020 for Asia and China, which as David and I have talked often, felt a lot better than flat.
For us, we expect moderate growth in 2021 for both China and Asia, and we're off to a pretty decent start, particularly in China as indicated in our eight k release. We are seeing continued momentum both in process and discrete markets as well as life sciences, medical, and semiconductor industries that are driving strength. The good news is that customer site presence is nearly at a 100% in China. We have trade shows that are taking place, public marathons, things of that sort. So normalized activity levels in China, which obviously helps the business dynamics.
And then finally, The Middle East and Africa is impacted by KOB one delays, but we have benefited from KOB two activity driven mostly by digital transformation. Just a couple a couple end markets to highlight if I may. Three perspectives, life sciences continues to be a differentiating story for us. We have direct involvement in over 20 vaccine efforts around the world at a number of therapeutics. There's a very high probability that when each of you take that COVID nineteen vaccine, it will have been made by delta v.
The medical, PP and E equipment also remained strong, masks and oxygen therapy machines predominantly. The discrete activity, in automotive has picked up particularly in Germany and China, semiconductors driven by consumer electronics as well. The electrical channel in North America is yet to see the same type of recovery, however, as we've seen in Germany. Although the daily order run rates in that market space have improved to nearly two x what they were in the summer troughs. So some encouragement there.
If there is a industry that we're watching very carefully, we spend a little time talking about it, the refining space. COVID nineteen has impacted approximately 4% of of of capacity of of global refining capacity. It is actual it is actively being converted to biofuels, idled, or closed, or in some kind of economic evaluation. If I just zero in on The United on the North America specifically, North America had approximately 19,000,000 barrels per day refining capacity pre COVID. And approximately 6% of that is either being idled, that's five refineries, closed, three refineries, or undergoing biofuels conversion, which is a good opportunity for us.
And there are four notable projects in pre FID stage right now with two large California refineries undergoing those those conversions. So that's one industry on the downside that we're watching very, very carefully. So we'll yield opportunities in those conversions. And then lastly on KOBs, we closed 2020 with KOB three at 57% of sales, two at twenty three percent and one at 20%. We did expect higher KOB three as we went through the the second half of the year, but our book to ship instrument business has weakened significantly as we went through q four.
KOB two pace of business is improving. More customers are engaging and activity is driven by our digital transformation business. It's predominantly software, data lakes, and connections to the digital twin environment that we've created. So there's very good momentum there. And then lastly, KOB three has stabilized as I mentioned.
It is albeit at lower levels right now. We need to continue to see a recovery in daily booking rates as we go through December and through the early part of Q2. One thing, Lal, I'd
like to I mean, based on these numbers here, might have a lot to talk a little bit about OSI and how it's really strong. It started out really from a synergistic basis. But before I say that, I think as I look at the first two months and the current pace and the activity we're hearing from our customers, I would say, Lal is banking on a pretty strong second half recovery. As I look at this order trend chart and the way it's turned, which is good, it does give us a lot more confidence that his second half recovery is going to happen because he needs to build the backlog, he's building the orders, and he's starting to get the day to day stuff improving, which is very, very important. But one key area that we've really seen a strong strength and we've been winning some very major projects around the world is with OSI and the combination of our PWS, our Power and Water Solutions business.
We're really running well. You might want give another color, particularly one of a couple of big ones outside against one of our competitors, which is great to see.
Yeah. David, I'll I'll give you a little color. Very strong start as as as And these
and those numbers are not in our chart. We do not put those in until next year.
So there's no OSI order to This is the underlying basis here. So very strong start to the year. We we've booked $55,000,000 in orders through November, and I think we'll exceed $85,000,000 of of bookings in in q one. This was, you may recall, in our acquisition deck, a $160,000,000 company in sales a year ago. So tremendous start.
The technology is truly differentiated we continue to learn more and more about it and is incredibly well timed as an acquisition to capture the opportunities as T and D customers continue to modernize their grid assets and address renewables and distributed energy resources. The integration, David, is going very well. We held our first board meeting on Tuesday, and I will tell you that the cultural and the operating effect is very, strong with this company. Specifically to the project wins, there have been three very important projects. Exelon here in The United States, which is an upgrade on an ADMS and EMS system.
We have we have put our first significant transmission stake in the ground in Europe, in The Netherlands, and Northern Germany. This is one of 42 transmission companies on that continent, but a very important point of relevance. And not only that, but we competed against one of the key incumbents and key players in that space, and we're to win the project. That will book actually, David, in q three. We've been awarded a a hydro job in in Australia, again, versus a very strong incumbent in the space, but that gives us a stakeholder on renewables and in Asia as well.
We remain very focused on the top 20 utilities and capturing the synergies with PWS. That's great progress by Bob Yeager and the team on that. And we're also pursuing significant opportunities in gas distribution with the recent win in North America versus a skater incumbent at at a utility in the Central US. So a lot of good activity. Business looks good.
We are working honestly right now on on 22 revenue already in terms of where the funnel sits. So very excited about the momentum with that team. Good. Lot of opportunities out there.
I think with the combination of Al and Baumann and his team and with us, I think we have a lot of strength that we offer, especially the financial strength, which is something they didn't have exactly from that standpoint. So now we can go against the big incumbents. With that, I'm going turn it over to Jamie. Obviously, if you look at Jamie's curve, nothing grows that sharply forever. It's just a matter of time.
Obviously, we do know this thing will flatten out a little bit and dip and move forward. But we still feel a very good year. And clearly, I would say Jamie is ahead of where we thought he'd be at the beginning this year. But the most important thing I see on Jamie is it's not just one market, not just one customer. It's broad based from an Asia standpoint or European standpoint, a U.
S. Standpoint. A couple of industries are starting to kick in in orders, and I think this is very, very important. In particular, Jaime, I want you to talk about Asia and China a little bit because I think this is for the first start of this year, things are going well. So Jaime, turn it over to you now.
Thanks.
Yes. Thanks, David. I really appreciate that. Good morning, everyone. As David said, I think that's the key story is when we talked at our during the earnings presentation, it was really a story about North America, largely about the residential space and what we were seeing in the AC heating markets as well as the big box retailer markets where we sell our wetdry vacs or InSyncreator products.
But what we saw since the earnings announcement is steady and consistent improvement in other areas around the world. So our Asia climate businesses are up over double digit in orders the last two months. Overall, Asia is growing. We didn't expect it to come back quite this quickly. We continue to see the professional tools business stabilize, still negative on an overall orders basis, but the Europe business turned positive in this last month.
So very, very positive signs for us. As we look at the overall residential marketplace in North America too, David, we don't see the momentum slowing down in the interim. As we look at the channel inventory position, we look at the market signals that we're getting from end users as well as our channel partners, there's an expectation that the growth and the opportunity here is going to continue over the next several months. And so the accelerated growth that we've seen in those markets, as David said, it stay on that trajectory forever, but we do expect there to be growth, continued growth in that space for at least the next few months. Second half, we'll see, but if markets continue to improve at the pace that they're improving, our hope is that we'll see the professional tools, the commercial and the light industrial markets start to come back for us in the second half of the year at the same time that law's businesses are starting to gain some momentum.
Just a few statistics. We have a business called Thermadisc, which serves appliance markets and HVAC markets around the world. Trailing three months order for North America for that business, 29.4%. China, up 36 and a half percent. Rest of Asia, up 47.4.
So it's a really good indicator for us for the general consumer health and spending, again, around appliances and HVAC products. Our Climate AC growth is led by US residential. You know, we mentioned at the earnings call that q one sales for residential could be over 50. They definitely will be at this point. They're on track to not only be greater than 50%, they could be greater than 60% or 70% with the pace that we're on.
The commercial markets are still slightly down, but we're starting to see good aftermarket health, and that's up mid single digits. Our Climate Europe business continues to be strong. I think that momentum around the heat pump will continue for the foreseeable future, given its alignment with not only the market trends but the subsidy environment. And then the do it yourself and big box retail channels, strong growth for North America. You know, our our wetdryback business was up over 35% on a trailing three month order basis, and our in sync rater business up 18%.
So very, very positive momentum across those businesses. So David and team, I think what we're seeing is, as Dave said, is a balanced recovery here now globally in many different markets, not just North America, but the North America residential momentum continues. And we expect that we'll continue in the near term, and we continue to see stabilization of professional tools. Our cold chain business has also turned positive earlier than we expected, largely driven by our transportation and our cold chain business related to our life sciences and medical businesses has seen strong growth, which we expect to continue throughout the year. So David, that's kind of a high level summary of what we're seeing across the business.
I'll pass it back to you.
Thank you very much. The key issue for us right now is the early cycle stuff that Jamie sees and Lal sees are and we, as you guys know and have known us for a long time, it does help us forecast these curves. We've been doing these curves since I've been CEO for twenty years. I have a good sense of what's going on with the curves. We do know the early cycle guys have all kicked in both in Lal's business and Jamie's business.
It's a good indication that the economies are getting stronger. The key issue for us now is watching some of these later cycle stuff kick in. And as Lal talked, KOB2 quoting is very good. That's a good sign. On Jamie's side, I think the stabilization of professional tools is very, very important to us.
That tells us that plants I'm not thinking about non rep, I'm thinking about plants right now. The industrial segment of that will start doing activity, which will drive Lal's business. Now we're not here to talk about profitability and things like that. I know everyone wants to know, but we gave our forecast. We're not changing our forecast.
I think a couple of things I want to comment on before we open the mic up for a couple of questions. The restructuring, reset programs continue to move very, very well going forward here. We've had a good run. Frank, what you see is booking what in the first quarter for restructuring reset here?
Yes, we'll probably be around 75,000,080 million dollars
$75 $80,000,000 first quarter. Lal has had some very aggressive programs. They want to get ahead of this curve. In fact, things are getting better right now is a good sign for Lal. I think Jamie's got some major plant moves restructuring underway at this point in time that will move throughout this year and next year.
So the longer term restructuring and reset programs are underway. We're reviewing with the Board. I see it a lot, and the platform leaders are doing reviewing it. Obviously, both Frank and Steve Pelcher were watching this very closely, too. Very, very important.
The first couple of months, the profitability has been very good. We're getting the flow through leverage, a good mix, which is always a good sign. The only negative that has emerged, and I talked about it a couple of times on some investor calls, is early stages of material shortages and inflation. This is something you always see in the early parts of the cycle, in particular given a lot of our material got steel, copper, other raw materials, rare materials and plastics. They shut down a lot of capacity.
Now the demand is coming back. As Lal talked about automotive, they take a lot of material. So a lot we're starting to see some material inflation. We're going have to deal with that in the first half of this year, in particular on Jamie's side. But in the positive, as these lines come back up and I think about this KOB2 stuff and KOB3 that allows starting here, it's some of the customers that we have in the material area, be it steel, be it iron ore, be it copper, they tell me they're I feel we're bringing lines back up.
Some of chemical guys are going to bring lines back up, which we will help cover that material shortage. But we're going to have this shortage in this inflation in here most likely for two to three quarters. It's not unusual. And the key issue is Jamie has to fight it. On the positive side, I know Lal will get the business down the road, and we'll work our way through this.
But it's the only negative I see at this point in time other than hiring people. We're hiring people. Our plants are running. On Jamie's side, he's running full out in many areas. We're having to hire, make sure our plants can keep up.
Obviously, we still have the COVID-nineteen virus out there, so we're having to balance that from that perspective. But overall, things are moving forward very well in the first quarter. I see a lot of good momentum. I see a lot more wind to our back at this point in time with a negative wind relative to the material. And obviously, the vaccine coming out is going be very, very helpful.
But a great start, I think, on both sides of businesses, in particular, the OSI, a great timing of an acquisition as well. So the culture fits us very well. Al Baumann and his team up there are really working hard with Bob Yeager and his team. And I think we have an unusual twelve to eighteen month period with these two guys. And so hopefully, we can get a session in Pittsburgh sometime where we can share what we're excited about with that business.
With that, I'm opening the mic and take some questions here. We'll probably just take three or four questions. So why don't we start off, Pete? Who's on first? First up, we have Andrew open.
Good. Yes. Good morning. Good morning, Andrew. Are frozen yet?
My daughter told me it's pretty cold there in New York.
It's actually not so bad. It's okay.
My daughter's obviously bitter skin than you then.
No. No. Well, I grew up in Russia. So
tell her that right now. You said it's okay. It's it's not complaining.
Well, I did grow up in Russia, so it's like I told that's like
Oh, god.
It's literally you had, like, two months of that. You had two months of that nonstop. Getting a lot of questions from investors just trying to give more color, discrete versus process, how do you see those two verticals? And what are the trends specifically for discrete versus process?
Go ahead. Yeah. So clearly, as I mentioned, early cycle implications on discrete. Early cycle industries are very strong right now. Process lagging, the discrete markets as I look across the world.
But that's normal. Which is normal. That's where the cycles, kinda roll in. So if you look at packaging, OEM activity, automotive, as I mentioned, medical, those are those are the leading industries. And, obviously, we have the leading early cycle business of that service.
So while I did follow-up on the question first, Andrew, how's what I call Asco valve? You got got a new name for it. Now it's called something else. But so how how the daily order rates at Askov valve coming out of New Jersey? How how are they doing here in North America?
So in North America, they're stable.
They've they've they've improved from the fall rates, but they haven't seen a significant acceleration. That we saw in Europe and Asia. Saw in Europe and China. Okay. Germany is up over 30%.
China is up over 15%. That's where we're seeing the early acceleration in discrete spaces, Andrew.
Yeah. But that Andrew, I would say from the from the questions you're getting, that's the early indication that our core markets will turn around. And, you'll see discrete going into also some of these, materials shortages in the steel area and things like that. So I think that's a good sign that, that marketplace is the same thing. We've got our hands around it much faster, our cash flow was good last year.
So we started letting things go earlier. We're starting to see CEOs let things go at the end of this year. And I think the budgets are being formed. Some of them may be flat, some may be down, but I think the budgets are being formed and we're going start seeing spending at the capital level. I just think that's going be the case at this point in time.
But I think the trends are pretty good. Anything else you want to ask, Andrew? No. I'm good. Thank you.
You're welcome.
Okay. The next question comes from Nicole DeBlase of Deutsche Bank. Please go ahead.
Yeah. Good morning, Dave and everyone. Good morning, Nicole. How are doing? I'm good.
How are you?
I'm fantastic. It's cold here, but we don't have any snow. Now we did have ice yesterday, and there was, like, freaking wrecks everywhere. We saw cars lift over. It was unbelievable.
You would have thought that they've been in a roller derby or something like that. It was, like, unbelievable cars out there.
Oh, that's crazy. We have not
gonna put usually. Yeah.
We have, like, a foot of snow in New York. So
Oh, good. Good. Good.
Alright. So I guess maybe approach.
Angels don't consider that to be mild.
Mild, isn't it? Oh.
I did not grow up in Russia. So
So we personally like extreme weather. So very cold, very hot is good for the automation business world and also Jamie's business too because pipes break, you gotta fix them. That means you need a plumber.
Yes, definitely. Long snow. Okay. So I guess maybe on the material question, so Dave, you brought up the issues around inflation and some of the shortages on raw materials. Are you trying to like send the message that this could potentially be a margin risk?
Or do you feel good about your ability to kind of push through and get pricing as raw materials see inflation?
I mean, think I'm not I was not a scare risk. It's I think the key in the short term, I think we're okay. And I'll let Jamie talk a little bit it because he sees it more than allow. I think the key issue for us is the way this works is there's always delays in how we recover it. I think what we're having to do right now is having to clearly figure out other cost reductions to help offset that.
And then at the pricing time, we'll deal with it at the right price and time. We don't do spot pricing. The only time we ever did spot pricing, I think, was around the most recent last this year when on the logistics, we had some spot prices for logistics when price of oil and we couldn't ship stuff. So I think right now, Nicole, we have the ability to deal with it. I think that, you know, as a company, I still feel very good about our leverage this year.
The key issue is that it's just one of those things we have to deal with. And I I tell Jamie, it's a good thing because business is stronger, and therefore, it's a positive. But we will have to work through the price cost ratios. I would say that this year we thought we'd be, I would say, slightly green, which means we're positive. Now we're probably going be slightly negative.
And that means we've got to work at many different levers at this point in time. We're going to work to offset it. The one good thing that we have is we did assume that in our plan that we would have, what, 75,000,000 coming back from the crisis we see right now, Nicole.
Got it. Thanks, Dave. And the Christmas spirit, I'll pass it along to the next person to ask questions.
Oh, Christmas spirit. That's very good.
All right. The next question comes from Steve Tusa of JPMorgan. Please go
Hey, guys. Good morning.
Good morning, Steve. How are doing? How was how was your ice hockey this morning? Did you go
out ice hockey this morning?
No. No. No. No. It's too much snow.
Too much snow. Okay. You know, you obviously didn't grow up in Russia either, did you? No. No.
No. No. In the lumberyard. So
I'm just kinda, like, struggling with the messaging here. You know, the stuff that's bouncing back should be pretty high margin from a mix perspective, but you're talking about a little bit of price cost headwind, but, you know, maybe, you know, clarity on savings, and then you're talking about some of this temporary costs not coming back as much. I mean, are you, like, reaffirming EPS guidance this morning? Are you saying that the sales will flow through with kind
of a normal incremental? Mean, I'm just just kinda, like, struggling with
what the the messaging is here on on your deal.
No message around our rates. I mean, our guidance we set in early November, we're not changing it. After two months, we're not changing it. The message here is that the pace of sales and orders are better than we said. I said the first two months of the profitability is very good, so we are getting early cycle very good leverage.
You're right. The mix of business right now is favorable for us. That's a good sign. Mean, I'm not making any statement about profitability. All I'm telling you is that we're ahead of plan for the top line and orders at this in sales and orders at this point in time.
We're on par. The only thing I see coming at
us is a negative, I I try
to get balance is is the material inflation, which is something that, you know, with a strong recovery. But there is no change up or down relative the guidance of how we're having this call. This call is to give you, update on orders and the pace of business, as I said we would in early November. I I mean, from what I see right now, I like I like what we're seeing from our profitability. I like what I see from our cash flow, and I like what I see from sales.
But, you know, we're two months into it, and the big month of the quarter is obviously December. But I think the trend lines are good, and and we, know, we we have our cost in line, so I feel very good about where we are at this point in time. So there's not there's not a
But I mean, to be clear, like, KOB three and some of the stuff that you're selling through on the on the climate side is some of your, like, highest, like, margin, most favorable mix business. Correct?
Correct. Correct. But I'm not sitting here to make a statement that our margins are going be better than I said forecasted just a month ago. I mean, you can make your own assumptions that as I said, we had a very two good first months. Our order patterns are good.
The cycle pattern, the numbers you're talking about, right businesses. And I like where we are right now. I think we're ahead of where we thought we would be at this point in time. I feel good about it.
Got it. And then just thinking about the trends in automation, I mean, seems like The U. S. Is fine, but the upside seems to me to be kind of more international, China, you know, maybe a little bit in Europe. You know, that that seems to be kind of the the profile here that you guys, with your strength in those markets, you know, should be kind of outperforming others, in process, those that in process are more narrowly exposed perhaps to more marginal parts of, you know, the chain in The US in process.
That's a very good statement. That's a true statement. Our global presence has given us a big plus. The fact that our international markets are more open than The U. S.
Markets, we don't have the governmental shutdowns that we see as much here. Other the good thing I do see about the North American market and Lal's business right now is we are hearing for the first time that inventories are where they need to be relative to the current pace of business. We're hearing a lot of quoting around KOB three or LOW, KOB two. We are hearing that people want to bring lines back up, Steve. So if they took down facilities to say 30%, 40% operational levels to keep them open, but not shut them all the way, we are hearing that they're going to start doing some of the work on the lines, which is a good sign for us.
Again, good mix for us. But most importantly, I think that the day to day order patterns have moved the right way in North America. And I think that if they continue that trend line, I think that's a good sign for Lal. I think he tough has order comparison for the month of December because you booked, what, Golden Yes. Pass last
have large KOB-1s that totaled almost $110,000,000
in booking. So I think as tough as booking month is right now and as a comparison basis fee, but what I'm really more interested in what I'm trying to convey and what Lal's trying to convey is that we see the early signs even in the process world that money's starting to be released. And, you know, there is every indication that people have some money to spend this last month. And so I think that's the key issue for us. And and you're right.
It's the best type of business we have for us. And and Right.
And you're and and you're yeah. And you're and you're still guiding, you know, kind of negative one to negative four for the year versus maybe others that are in kind of the mid single digits. So you're you're kind of, you know but yours is a bit of an easier bridge to cross, it sounds like.
Correct. Correct. So I I mean, from my perspective, I'm I'm much more comfortable now with Lal's business. We had a we had a negative one, negative four. I mean, I've always felt that if things could turn our way early on and we could get some really big cycles business, things will get closer to zero.
I just always felt that with Lal's business. But until when you're down to bottom like Lal was at minus 20%, It's hard to say I'm gonna start growing, you know, two, plus three. So I think that from our standpoint, the the trend lines are good. The type of customers he's getting right now, the type of quote activity he's getting right now is very good. You know?
So I I feel very good about that. And and the question is, think that we've you know, and the other thing is, you know, not in this chart, is just the work we're doing with OSI and and PWS. We're we're building a pretty strong platform to grow for the second half this year and then also for for twenty I twenty two know you're
a hockey guy, Steve, but the analogy that my North America selling organization uses is that we've been living on on buns and singles, and we're moving to singles and doubles. Yeah. That's the last thing.
We we so what's the hockey analogy to that? What is it?
Do you do you have
stated one leg? What is this what's the analogy for hockey? It's it's dump and chase. That's that's the Dump and chase. Well, he was dumping, not chasing, but now he's at least chasing.
Okay? Got the blue line. I hear you. Was kid tripping up in the blue line. Thank you, Steve, for that analogy.
Yep. Way to go. Thanks. Yep. Got time for one more, folks.
Thank you very much. Who's up? One more.
Come from John Walsh of Credit Suisse. Please go ahead.
Hey. Good morning. Thanks for squeezing me in here.
You're welcome, John. How are doing?
Doing alright. Getting the the snow tube blown up for later because we got that snow here in New York.
That's good. Well, you gotta have something to complain about up there. I mean, everything's normal in New York City. I mean, you could get to go to restaurants. You get to go, you know, walk out and go to movie theaters.
You I mean, there's so many good things you can do in New York City right now.
Well, we we haven't been there in quite some time, but I guess maybe
My daughter's unemployed now. So how great is that? I mean, my our governor of New York and mayor of of New York, we got my daughter unemployed. She's back on employment line. How about that, man?
It's great, dude.
Well, I guess, you know, may maybe shifting back to this this inventory comment. You know, you've probably obviously seen a lot of cycles where we've seen the inventory drawdown and snap back. I mean, is there any reason to think this cycle is any different just given, you know, that there's probably some additional pressure on some of those energy customers going forward? Or would you expect, you know, normal traditional recovery in that channel as customers spend some more money?
Okay. So let me give you I'm going go to two platforms. I mean, let's go to Jamie's platform first. The snapback is happening viciously right now. I mean, Jamie's customers, be it the big boxes, be it the small distributors, be it the big OEM guys, all took their inventory down way too low for this and now we're all struggling and fighting hard to get back up.
I mean, if you look at Jamie's numbers right now, Jamie is actually building backlog, which is very unusual in his segment. I mean, I could probably name one other time in my twenty year history as CEO that he's built they built inventory backlog. He's doing that right now because of snapback and the inventories were way too low, but they're coming on strong. And I think, as Jamie said, I'll let Jamie comment before Lyle comes in. But what we're seeing, we think they're going to have to keep building because they've got to get the inventory levels back up with the pace of demand right now.
The demand is higher than the inventory is going to support, so they've got to get both working. So we got a positive going there. So Jamie, anything you want to answer there before we go to wild side because I think Yes. Look, I mean,
eventually, it'll happen, right? Eventually, we'll get back to a point where we get the equilibrium, and then we know we're in the building inventory phase. And whether or not they overshoot or or not, it's way too soon to tell, but we're not there yet. And the best indications we can tell is that we're several months away from getting to a point where that
would even begin based on
the demand that's out there and the lack of inventory in the channel.
And the one thing I would add to that is, John, is that the industrial inventories for like the facilities and manufacturing, the things Lal was talking about earlier, Those numbers are still pretty low. We're just starting to see the early signs of orders there. And I think that will be the next sign we want to see on Jamie's side is the industrial channels relative to professional tools and then adding that stuff because that tells me then they're getting the demand from the factories. I don't expect to see a lot of non res construction early on, but I think the factories will be the key issue for us. Now in Lal's business, historically, we would.
The inventories go down. There's a period where things are pretty stable. And then all of sudden, as the KOB three, KOB two come into play, then they'll start aggressively bringing the inventory back in. I think it's on the discrete side, that's starting to happen around the world, except for The U. S.
Is just starting right now, Lal was saying that earlier. The process, think we're a little bit earlier, but historically, you would we would snap it. There's different type of snap. It's typically a more of a gradual build. Just they don't because they see their visibility relative to projects and the day to day business is clearer than it is on Jamie's side.
But Lau, anything you want add
to that? Yes. I think of the inventory and the channel in two perspectives. One is the on hand inventory that drives day to day business, David. And you're absolutely right.
We have stabilized there and we're starting to see the levels increase across the distribution channels. The second category of inventory is the project driven inventory. And that continues to be more challenging outside of automotive and OEM businesses in discrete.
Good. So I think, John, I think from your perspective, you're right. We're in the early cycles of this, and we're keeping our ears to the ground. The way I see it right now, on the industrial side, there's a couple of places I watch very carefully. We watch it with our Impact Partners channel and allow spends a lot of time with them.
So the place I'm watching is on Jamie's side. Since I ran Ridge Tool back, I think, in 1850, when I ran Ridge Tool back a few years ago, we watch that channel. And I think the early signs of that channel is starting to talk about projects and inventories. And that will stack pretty quickly. And Jamie knows, he's hearing from his guys right now, that, that could be something that happens pretty quickly.
It could happen this month, it could happen next month. I don't know, Jamie, what are you seeing right now in day to day North America professional tool orders? Have they have they have they improved a little bit? What are you what are you hearing and seeing?
Yeah. I mean, over the last over the last three, four months, we've seen consistent, moderate improvement, and so less negatives as we as we go along here the last several months. So, you know, we're again, I think stable is the right word right now. And we're waiting to see what the triggering event will be for for the bump, and I think most of us believe that the stabilization in the COVID situation is probably the trigger. Obviously, lot of good news and momentum right now on the vaccine front.
As we get into the spring summer time frame, things go as as we all hope. That could be the triggering event to for those markets to, you know, kinda go to the next level. But right now, stable.
Good. So with that, I'm going to John, do have another question before I wrap it up? We got any more thing you want to ask?
No, that was very comprehensive. Thank you.
Thank you very much. Well, I want to close it out here. I know other people want to ask questions, but we're trying to we're just trying to give people a brief update. The key issue for us is we committed in in November that we come out as we we put a forecast out for our order trend lines in that chart we put out in November. Wanted to give you the first two months.
I wanted to wait till we got two months, to get a better indication. One month is is something that doesn't always tell you that's a pure trial line, but two months tell me that the line is pretty solid. The V is formed pretty firmly. Our indicators all tell us that V is formed pretty firmly. Again, going back to what Steve Tusa asked me, I like where we are right now from the orders.
I like the first two months of closing, good profitability. I like the cash flow, which has been very good and very strong. That tells me, as Frank knows, the quality of earnings is very high. Cash is growing with earnings, and that's a good sign, and we like that. From our standpoint, we're on target relative to restructuring and repositioning the company, and we're looking at a pretty good year at this point in time.
We'll get into what the year looks like. Is it shaking? Is it a different shape? But I'd like to get the first quarter behind us. But right now, the trend lines are very good for us, and I wanted to make sure the shareholders had a sense of what's going on around the world from a company that does try to give you visibility to our marketplaces.
So with that, I'm going to wrap it up. I want to thank Lal, I want to thank Jamie, and I want to thank Frank for joining us this morning. Pete, thank you very much for getting us organized. So everyone have a Merry Christmas, good holidays, and I wish you well. And even though my dinner tonight was canceled, we'll be back in New York eventually when they unfreeze and the COVID is a little more tame.
So with that, thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.