Good day, ladies and gentlemen. Thank you for standing by. Welcome to this 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, December 17th, 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-K 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 Dellaquila, Executive President of Automation Solutions, Lal Karsanbhai, as well as our Executive President of Commercial & Residential Solutions, Jamie Froedge. Thank you for joining us. 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-K that we have. There's six pages of risks that if we don't do anything, that's what he's just referring to. I just thought you'd like to hear that.
Okay.
Welcome, everybody. I'm referring to the 10-K, where you list every risk that happens in the world, like we don't develop new products, we don't go out and sell, we just source it back in a bunker. 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 after we got two months into the new fiscal year, we would give you an update on what we see going on in the world. As you see in the order pattern in the chart, do they have this chart here? The chart going out there, the V has 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 of the segments other than the Professional Tools are starting to take hold in this recovery, which is good to see. From the standpoint of Automation Solutions, we know historically we would bounce around the bottom. If you look back in the late 2016 time period going into 2017, we do bounce around a 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.
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 where we thought we'd be. We have a large December, obviously, Lal will talk about that. 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. 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 going to be somewhere in the upper right-hand corner. 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. That was from some of the big orders that he had on the chart the previous year. Still, the trend line's good. I'm going to turn it over to Lal to talk a little bit about it. Again, we just wanted to update everyone and give you a feel. I'll let these guys go first, then I'll add some comments at the end if necessary. Lal, why don't you give them a little update?
Sure. I'll try to give you a little bit of color. 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 stabilization of day-to-day process business. A recovery of discrete industrial activity, really driven by Europe and China right now. However, it is also a fact that with the exception of a few KOB2 projects and a number of power projects, the environment around the world remains precarious and lacks any significant KOB1 FID activity. I'll touch on the orders from three dimensions: geography, end industry, and end market, as well as give you an update on KOB1, KOB2, and KOB 3 out there. Let's start with North America, which remains soft for us, although 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 infield 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. We do expect some end-of-year budget spending in Chemical, in Pulp & Paper, which will take place, as well as power continuing 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-19 restrictions fluctuate across the North American environment. The Google mobility data indicates an approximately 30% decline from that March 9 basis.
Where we are, you may recall, we talked about a 56% trough in mid-April when we started looking at that data. It has stayed relatively stagnant as we went through the fall 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. 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 order activity. At a minimum, a stabilization. Turning to Latin America, it is stressed, driven predominantly by the Mexican economic position, which impacts both Pemex and downstream spending across Mexico.
I will highlight some significant activity around LNG, particularly in the Baja Peninsula in Mexico, with a project by Sempra that's been FID'd, and we have been awarded. This is an LNG facility for export of gas into Asia. It bypasses the Panama Canal, so from a speed perspective, has a significant number of advantages over the Gulf of Mexico. There is 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 recovery in 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. That's one of our early cycle discrete businesses in Germany being up close to 30% right now. 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. We're off to a pretty decent start, particularly in China, as indicated in our 8-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 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. Then finally, the Middle East and Africa is impacted by KOB1 delays. We have benefited from KOB2 activity driven mostly by digital transformation. Just a couple of 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 and a number of therapeutics. There's a very high probability that when each of you take that COVID-19 vaccine, it will have been made by DeltaV. The medical PPE equipment also remains 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 has 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 2x what they were in the summer troughs. Some encouragement there. If there is an industry that we're watching very carefully, we spent a little time talking about it, the refining space. COVID-19 has impacted approximately 4% of global refining capacity. It is actively being converted to biofuels, idled or closed or in some kind of economic evaluation. If I just zero in on North America specifically, North America had approximately 19 MMbpd 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.
There are four notable projects in pre-FID stage right now with two large California refineries undergoing those conversions. That's one industry on the downside that we're watching very carefully, but will yield opportunities in those conversions. Lastly, on KOBs, we closed 2020 with KOB 3 at 57% of sales, KOB2 at 23%, and KOB1 at 20%. We did expect higher KOB 3 as we went through the second half of the year, but our book-to-ship instrument businesses weakened significantly as we went through Q4. KOB 2 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. There's very good momentum there. Lastly, KOB 3 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, based on these numbers here, I'm going to have Lal talk a little bit about OSI and how it's really strong and started out really from a synergistic basis. 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 important.
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 & Water Solutions business. We're really running well. You might want to give it a color.
Sure.
In particular, you've won a couple of big ones outside against one of our competitors, which is great to see.
Yeah, David, I'll give you a little color.
Those numbers are not in our chart.
No.
We do not put those in until next year. There's no OSI orders at the start.
Right. This is the underlying basis here.
Yeah.
A very strong start to the year. We've booked $55 million in orders through November, and I think we'll exceed $85 million of bookings in Q1. This was, you may recall, in our acquisition deck, a $160 million company in sales a year ago. Tremendous start. The technology's truly differentiated as we continue to learn more and more about it, and is incredibly well-timed as an acquisition to capture the opportunities as T&D customers continue to modernize their grid assets and address renewables and distributed energy resources. The integration, David, is going very well.
Yeah.
We held our first board meeting on Tuesday, and I will tell you that the cultural and the operating fit is very strong with this company. Specifically to the project wins, there's been three very important projects. Exelon here in the U.S., which is an upgrade on an ADMS, an EMS system. 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. Not only that, but we competed against one of the key incumbents and key players in that space, and were able to win the project. That we'll book actually, David, in Q3, we've been awarded the job. We've also been awarded a hydro job in Australia, again, versus a very strong incumbent in the space.
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. We're also pursuing significant opportunities in gas distribution with a recent win in North America versus a SCADA incumbent at a utility in the central U.S. A lot of good activity. Business looks good. We are working honestly right now on 2022 revenue already in terms of where the funnel sits. Very excited about the momentum with that team.
Good. A lot of opportunities out there. I think with the combination of Lal and Bahman 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. Now we can go against the big incumbents. With that, I'm going to turn 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. We still feel a very good year. Clearly, I would say Jamie is ahead of where we thought he'd be at the beginning of this year. 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 industries are starting to kick in and orders. I think this is very important. In particular, Jamie, 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. Jamie, I turn it over to you now. Thanks.
Yeah. Thanks, David. Really appreciate that. Good morning, everyone. As David said, I think that's the key story is when we talked 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 Wet/Dry Vacs, our InSinkErator products. What we saw since the earnings announcement is steady and consistent improvement in other areas around the world. 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. 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. The accelerated growth that we've seen in those markets, as David said, it won't stay on that trajectory forever. We do expect there to be continued growth in that space for at least the next few months. Second half, we'll see.
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 Lal's businesses are starting to gain some momentum. Just a few statistics. We have a business called Therm-O-Disc, which serves appliance markets and HVAC markets around the world. Trailing three months order for North America for that business, 29.4%. China, up 36.5%. Rest of Asia, up 47.4%. 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 U.S. residential. We mentioned at the earnings call. The Q1 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, 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. The do-it-yourself and big box retail channels, strong growth for North America. Our Wet/Dry Vac business was up over 35% on a trailing three-month order basis. Our InSinkErator business up 18%. Very, very positive momentum across those businesses.
David and team, I think what we're seeing, 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 will continue in the near term, and we continue to see stabilization 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 & Medical businesses has seen strong growth, which we expect to continue throughout the year. 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 up, 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 20 years. I have a good sense of what's going on in the curves. We do know the early cycle guides 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. As Lal talked, KOB2 quoting is very good. That's a good sign. On Jamie's side, I think the stabilization of the Professional Tools is very, very important to us.
That tells us that plants, I'm not talking about non-res, I'm talking about plants right now. The industrial segment of that will start doing activity, which will drive Lal's business. We're not here to talk about profitability and things like that. I know everyone wants to know, 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 well going forward here. We've had a good run. Frank, what you see is booking what in the first quarter for restructure reset here?
We'll probably be around $75 million, $80 million.
$75 million, $80 million first quarter. Lal has had some aggressive programs. They want to get ahead of this curve. The fact that 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. The longer-term restructuring reset programs are underway. We're reviewing it with the board. I see it a lot, and the platform leaders are reviewing it. Obviously, both Frank and Steve Pelch are 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, some plastics. They shut down a lot of capacity. Now the demand's coming back. As Lal talked about automotive, they take a lot of material. A lot of it, we're starting to see some material inflation. We're going to have to deal with that in the first half this year, in particular on Jamie's side. In the positive, as these lines come back up, and I think about this KOB2 stuff there and KOB3 that Lal's 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, I feel we're bringing lines back up. Some of the Chemical guys are going to bring lines back up, which will help cover that material shortage. We're going to have this shortage and 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. 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-19 virus out there, so we're having to balance that from that perspective. 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 to be very, very helpful. A great start, I think, on both sides of businesses, in particular the OSI. Great timing of an acquisition, and as Lal said, the culture fits us very well. Lal and Bahman and his team up there are really working hard with Bob Yeager and his team, and I think we have an unusual 12 - 18 month period with these two guys.
Hopefully we can get a session in Pittsburgh sometime where we can share what we're excited about with that business. With that, I'll open the mic and take some questions here. We'll probably just take three or four questions. Why don't we start off, Pete, to who's on first?
First up, we have Andrew .
Good.
Yes, good morning.
Good morning, Andrew. Are you 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 thinner-skinned than you then.
No. Well, I grew up in Russia.
I'm going to tell her that right now. You said it's okay. It's not complaining.
Well, I did grow up in Russia, so it's like I told that story.
Oh, man.
It's literally, you have 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? What are the trends specifically for discrete versus process?
Go ahead.
Yeah. Clearly, Andrew, 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.
That's normal.
Which is normal.
That's very normal.
It's really where the cycles kind of roll in. If you look at packaging, OEM activity, automotive, as I mentioned, medical, those are the leading industries. Obviously we have the leading early cycle businesses that serve them.
Lal, just a follow-up question for Andrew. How is what I call the ASCO Valve? You guys got a new name for it now, it's called something else. How are the daily order rates at ASCO Valve coming out of New Jersey? How are they doing here in North America?
In North America, they're stable. They've improved from the fall rates, but they haven't seen a significant acceleration.
That we saw in Europe and China.
That we 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. That, Andrew, I would say from the questions we'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. I think that's a good sign that that marketplace same thing. We've got our hands around it much faster and 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 to start seeing spending at the capital level. I just think that's going to be the case at this point in time. I think the trends are pretty good.
Yeah. 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 you doing?
I'm good. How are you?
I'm fantastic. It's cold here, but we don't have any snow. We did have ice yesterday, and there was like frigging wrecks everywhere. We saw cars flipped over. It was unbelievable. You would have thought that they'd been in a roller derby or something like that. It was like unbelievable cars out there.
Oh, that's crazy. We have like a foot.
Yeah.
We have like a foot of snow in New York.
Oh, good. Good.
All right.
Things break with the approach. Andrew, though, considers that to be mild. Mild, yeah. It's cold.
I did not grow up in Russia.
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 and you got to fix them. That means you need a plumber.
Yeah, definitely. Long snow. On the material question. Dave, you brought up the issues around inflation and some of the shortages on raw materials. Are you trying to 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?
It was not a scare risk. I think the key in the short term, I think we're okay. I'll let Jamie talk a little bit about it because he sees it more than Lal. 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 pricing 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 on logistics. We had some spot prices for logistics when price of oil and we couldn't ship stuff. I think right now, Nicole, we have the ability to deal with it.
I think that as a company, I still feel very good about our leverage this year. The key issue is it's just one of those things we have to deal with. As 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 to 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 million coming back from this as we see right now, Nicole.
Got it. Thanks, Dave. In the Christmas spirit, I'll pass it along to the next person to ask a question.
Oh, Christmas spirit. That's very good.
All right. The next question comes from Steve Tusa of JPMorgan. Please go ahead.
Hey, guys. Good morning.
Good morning, Steve. How you doing? How was your ice hockey this morning? Did you go out ice hockeying this morning?
No. It's too much snow.
Okay. You obviously didn't grow up in Russia either, did you?
No. In the laundry yard. I'm just kind of struggling with the messaging here. The stuff that's bouncing back should be pretty high margin from a mix perspective. You're talking about a little bit of price cost headwind, but maybe clarity on savings, and then you're talking about some of this temporary cost not coming back as much. Are you reaffirming EPS guidance this morning? Are you saying that the sales will flow through with kind of a normal incremental? I'm just kind of struggling with what the messaging is here on EPS.
There's no message around our earnings. 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 t he pace of sales and orders are better than we said. I said the first two months of the profit quarter is very good. 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. I'm not making any statement about profitability. All I'm telling you is that we're ahead of plan for the top line in orders and sales at this point in time. We're on par. The only thing I see coming at us as a negative, and I try to give balance, is the material inflation. There is no change up or down relative to the guidance on why we're having this call.
This call was to give you an update on our orders and the pace of business, as I said we would in early November. From what I see right now, I like what we're seeing from our profitability, I like what I see from a cash flow, and I like what I see from sales. We're two months into it, and the big month of the quarter is obviously December. I think the trend lines are good, and we have our costs in line, so I feel very good about where we are at this point in time. There's not any negatives there.
To be clear, KOB 3 and some of the stuff that you're selling through on the climate side is some of your highest margin, most favorable mixed business, correct?
Correct. I'm not sitting here to make a statement that our margins are going to be better than I said forecasted just a month ago. 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 patterns, the numbers you're talking about, they're right businesses. 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. Just thinking about the trends in automation, it seems like the U.S. is fine. The upside seems to me to be kind of more international, China, maybe a little bit in Europe. That seems to be kind of the profile here, and that you guys, with your strength in those markets, should be kind of outperforming others, especially in process, those that in process are more narrowly exposed, perhaps, to more marginal parts of the chain in the U.S. 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. The good thing I do see about the North America market in 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 3 or Lal KOB 2. We are hearing that people want to bring lines back up, Steve.
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, a good mix for us. Most importantly, I think that the day-to-day order patterns have moved the right way in North America. I think that if they continue that trend line, I think that's a good sign for Lal. I think he has a tough order comparison for the month of December because you booked, what, Golden Pass last year?
We booked three large KOBs that totaled almost $110 million in bookings.
Yeah. I think his toughest booking month is right now, and as a comparison basis, Steve. What I'm really more interested in, and 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. There is every indication that people have some money to spend this last month. I think that's the key issue for us. You're right, it's the best type of business we have for us.
Right. You're still guiding -1 to -4 for the year versus maybe others that are in the mid-single digits. Yours is a bit of an easier bridge to cross, it sounds like.
Correct. From my perspective, I'm much more comfortable now with Lal's business. We had a -1, -4. 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 have always felt that with Lal's business. When you're down at the bottom like Lal was at -20%, it's hard to say I'm going to start growing +2, +3.
Yeah.
I think that from our standpoint, 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. I feel very good about that. The other thing is, not on his charts, is just the work we're doing with OSI and PWS. We're building a pretty strong platform to grow for the second half of this year and then also for 2022 too.
I know you're a hockey guy, Steve, but the analogy that my North America selling organization uses is that we've been living on bunts and singles, and we're moving to singles and doubles.
Yeah.
That's the line-
Got it. What's the hockey analogy to that? What is that? That you skate on one leg? What's the analogy for hockey?
It's dump and chase. That's the analogy for it.
Dump and chase. He was dumping, not chasing, but now he's at least chasing. Okay.
He chased at the blue line.
He was tripping up at the blue line. Thank you, Steve, for that analogy.
All right, guys. Yep. Way to go. Thanks.
Yep. Got time for one more, folks. Thank you very much. Who's up? One more.
It will come from John Walsh of Credit Suisse. Please go ahead.
Hey, good morning. Thanks for squeezing me in here.
You're welcome, John. How you doing?
Doing all right. Getting the snow tube blown up for later because we got that snow here in New York.
That's good. You got to have something to complain about up there. Everything's normal in New York City. You can get to go to restaurants, you get to walk out and go to movie theaters. There's so many good things you can do in New York City right now.
Well, we haven't been there in quite some time.
My daughter's unemployed now, so how great is that. Our governor of New York and mayor of New York got my daughter unemployed. She's back on unemployment line. How about that, man. That's great, dude.
Yeah. Well, I guess, maybe shifting back to this inventory comment. You've probably obviously seen a lot of cycles where we've seen the inventory draw down and snap back. Is there any reason to think this cycle is any different, just given that there's probably some additional pressure on some of those energy customers going forward? Or would you expect normal, traditional recovery in that channel as customers spend some more money?
Yeah. Let me give you, I'm going to go two platforms. Let's go to Jamie's platform first. The snapback is happening viciously right now. Jamie's customers, be it the big boxes, be it the small distributors, be it the big OEM guys, all took their inventories down way too low for this, and now we're all struggling and fighting hard to get back up. If you look at Jamie's numbers right now, Jamie's actually building backlog, which is very unusual in his segment. I could probably name one other time in my 20-year history as CEO that they built backlog. He's doing that right now because of the snap back and the inventories were way too low, but they're coming on strong.
I think, as Jamie said, and I'll let Jamie comment before Lal 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's higher than the inventories can support. They've got to get both working. We got a positive going there. Jamie, anything you want to answer there before we go to Lal's side?
Yeah, look, eventually it'll happen, right? We'll get back to a point where we get to equilibrium, and then we know we're in the building inventory phase. Whether or not they overshoot or not, it's way too soon to tell, but we're not there yet.
No.
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.
The one thing I would add to that, John, is that the industrial inventories for the facilities, the manufacturing, the things that Lal was talking about earlier, those numbers are still pretty low. We're just starting to see the early signs of orders there. I think that'll be the next sign we want to see on Jamie's side is the industrial channels relative to Professional Tools, then adding that stuff. 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. I think the factories will be the key issue for us. Lal's business, historically we would. The inventories go down. There's a period where things are pretty stable. Then all of a sudden, as the KOB3, KOB2 come into play, then they'll start aggressively bringing the inventory back in.
I think 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 it earlier. On the process, I think we're a little bit earlier. Historically, we would snap. It's a different type of snap. It's typically a more of a gradual build. They see their visibility relative to projects and the day-to-day business is clearer than it is on Jamie's side. Lal, anything you want to add to that?
Yeah, I think of the inventory in 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. That continues to be more challenging outside of automotive and OEM businesses in discrete.
Good. I think, John, I think from your perspective, you're right, and 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 places I've watched very carefully. We watch it with our Impact Partners channel, and Lal spends a lot of time with them. The other 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 watched that channel, and I think the early signs of that channel starting to talk about projects and inventories. That will snap pretty quickly. Jamie knows, he's hearing from his guys right now that that could be something that happens pretty quickly. It could happen this month, 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 stabilized? Have they improved a little bit?
Yeah, over the last three, four months, we've seen consistent moderate improvement, and so less negatives as we go along here the last several months. Again, I think stable is the right word right now.
Yeah.
We're waiting to see what the triggering event will be for the bump. I think most of us believe that stabilization in the COVID situation is probably the trigger. Obviously, a lot of good news and momentum right now on the vaccine front. As we get into the spring, summer timeframe, if things go as we all hope, that could be the triggering event for those markets to kind of go to the next level. Right now, very stable.
Good. With that, John, do you have another question before I wrap it up? We got any more thing you want to ask?
Nope. That was very comprehensive. Thank you.
Thank you very much. Well, I want to close it out here. I have no way other people want to ask questions, but we're just trying to give people a brief update. The key issue for us is we committed in November that we put a forecast out for our order trend lines in that chart we put out in November. I 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 something that doesn't always tell you that secure trend line, but two months tell me that the line's pretty solid, that V is formed pretty firmly. Our indicators all tell us a 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 reposition 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 and is it shaping, is a different shape, but I'd like to get the first quarter behind us. 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.
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. Everyone, have a Merry Christmas, good holidays, and I wish you well. Even though my dinner tonight was canceled, we'll be back to New York eventually when they unfreeze, and the COVID-19 is a little more tame. With that, thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.