Eaton 2Q17 Earnings Call Notes

Craig Arnold – Eaton Corp. Plc

Higher commodity prices

“we had somewhat higher commodity prices, and you’ll see that theme really throughout many of the segments.”

Industrial activity remains weak

“Overall, I’d say industrial activity remains weak with mixed activity across the remainder of what we call nonresidential construction segments. ”

Pockets of weakness in global light vehicle markets

“we have seen pockets of weakness in global light vehicle markets, primarily in North America.”

Mixed economic indicators

“I’d say we’re seeing somewhat mixed economic indicators. On the positive side, manufacturing PMIs are strong in the U.S. and in Europe, north of 57 in both cases. U.S. non-defense capital goods orders were also up 4.5% in the quarter and up 2.8% for the year, so perhaps somewhat of a turn there. However, we’re also seen pockets of weakness. We’re seeing obviously the volatility in oil pricing. We have a lower rate of industrial production growth in both the U.S. and China. The U.S. IP was 1.6% in Q2, and that’s down from 2.4% in Q1. And in China, industrial production was also a bit lower at 5%, but once again lower than Q1. And perhaps more thematically globally, large industrial projects remain weak.”

Growth in office construction beginning to moderate somewhat

“growth rates for most construction markets are slowing, and growth in the office construction is also beginning to moderate somewhat. Large industrial project activity continues to be weak. The manufacturing category, as a key indicator of the C-30 report showed through April and May, down some 8.5%. We’re also seeing somewhat slowing growth in housing starts”

Continue to experience commodity cost pressures

“We do continue to experience commodity cost pressures as we move into the second half. And this does include a recent spike that I think many of you are aware of, that we saw in copper prices where copper prices hit $2.90 or so just last week, and that’s up about $0.30 from where they’d been running. So we continue to struggle with getting commodity prices to seat at a level that we can essentially plan effectively for. And so we’ll continue to face that challenge going forward. ”

V shaped recovery in China construction

“Yes, I mean, what we’re really seeing I think mostly is a pretty broad-based improvement in our Hydraulics business. We’re seeing certainly kind of the V-shaped recovery that I mentioned in China construction. But more systemically, we’re seeing really increases in all regions of the world. And we’re also seeing increases really in both mobile equipment and stationary equipment and then across both construction and ag. And so what we’ve really experienced I’d say mostly is a pretty broad-based recovery in most of the hydraulics markets and a really outsized V-shaped recovery in China construction.”

Commodity prices have retreated but not as much as we anticipated

“it was our original anticipation that commodity prices would start high, and then we’d see them essentially retreat a little bit as the year unfolded. And in fact, that’s largely what has happened. Unfortunately, it hasn’t happened to the extent that we anticipated. And then on top of that, we’re ending up with these extraordinary events where you see spikes in various commodities essentially driven largely by maybe geopolitical factors and I’ll cite copper as a prime example, where copper prices spiked last week due to not necessary a supply/demand issue, but more of a more political kind of issue around China.”

Every commodity is at a higher price than we anticipated

“if you take a look at the basket of commodities that are important to our company and you go commodity by commodity, and I’d say almost every commodity today that we purchase is at a higher level than what we originally anticipated. And so I think it’s a pretty broad-based commodity challenge across most of the baskets of commodities that we buy as a company. So it’s pretty broad-based.”

It’s our intention to recovery cost inflation through price

“suffice it to say that to the extent that we are experiencing more commodity price inflation in our businesses than we originally anticipated, and we don’t have clear line of sight to other measures to offset it with cost reductions, that the intention would be to go out and recover it in the marketplace. And that’s fully our expectation that through the cycles of commodity prices up and down that commodity costs are neither a headwind nor a tailwind to our business.”

Hedging is a temporary fix

“the way we think about hedging in general, it’s kind of a bridge to a permanent answer. And so hedging is never going to be a permanent solution to deal with commodity fluctuation. Ultimately, you have to get price or you have to get costs out of your business. And so we do hedge. But once again, it’s a temporary fix.”

Richard H. Fearon – Eaton Corp. Plc

Would love to do M&A but it’s a tricky environment

“Yes. We are clearly interested, Rob, as we’ve said, of getting back into an M&A mode, which we were out of during the years of Cooper integration. And because of that, we have spent a lot of time in the last three to four months systematically targeting areas and systematically starting to rebuild our pipeline of likely candidates. The environment I think is a challenging one right now. As you know, multiples, by most people’s estimations are above average. And as you’ve seen, the prices paid in many of the acquisitions that have been announced, they’ve been very high. And so I think those of you who know us over a great many years know that we have been very disciplined in how we purchased companies, and we intend to remain disciplined. And so with the caveat that the environment is a trickier one than it sometimes is, we would hope that we would make some good progress over the next 12 to 18 months in hopefully achieving some acquisitions.

Eaton 4Q16 Earnings Call Notes

Richard H. Fearon

Impact of border adjustment tax would not be significant

“But let me just say this: Without knowing the exact policy changes, if the policy that came in was something along the lines of a border adjustment tax, we believe the impact on us would not be significant, since we are balanced if you total up our imports. And we’ve recently been looking in some detail at this just to make sure we fully understand the numbers. But we’re balanced when you total up the imports versus our direct and indirect exports. When I say indirect, we make a lot of parts that go into other assemblies, other people’s products that are then exported. And so we believe the way it would come out, we would likely be able to get an offset for all of those exports. So we should be neutral.”

Craig Arnold

Not expecting a V shaped recovery in hydraulics

“we’re very comfortable saying that we think we’ll see very slight growth in Hydraulics during the course of the year. But at this point, we’re not forecasting kind of the V-shaped recoveries that we have historically seen in this business. You never know. When these markets turn, they tend to turn hard and fast, but we’re not yet in a position to call that turn.”

Optimism but haven’t seen the turn yet

“And we do think, as we take a look at the oil and gas assumption for 2017, yes, rig counts have increased nicely, and that’s a good indicator, but we’ve not yet seen a significant turn in orders. And we think in our harsh and hazardous business that we talked about in Electrical Systems and Services, we think it’s another down year. We could be wrong. We hope we’re wrong, that a lot of the enthusiasm today that’s built into a number of expectations, we hope that translates into orders and sales, but we’ve just not yet seen it. ”

Commodity prices have been very volatile, not sure whether we can pass them into the marketplace yet

“What we are really dealing with, we think, today is a lot of speculation built into the expectations of global growth, and hence the demand for commodities or the price of commodities have really been fluctuating quite significantly. Just to give you, as a point of quantification, post the U.S. elections, our commodity prices on the basket of commodities that Eaton acquires are up 7%, making this issue obviously a bit more difficult to manage and to pass on quickly in the marketplace. We’re seeing also large swings in volatility. To give you maybe another couple of data points that will maybe be helpful, bar steel prices over the last 12 months have been as low as $185 a ton, and they hit a high at the end of the year of $303 a ton. And today, they’re $265 a ton. Copper prices over the last 30 days have been as low as $2.49 a pound. Today they’re $2.73 a pound. So a 10% change over a 30-day period. And so this period of volatility is really going to have to work its way through the system before we can really understand exactly where commodity prices are going to settle out and where we can put plans in place to either offset them or pass it on in the marketplace.”

Automotive still doing very well

“I’d say today, the global auto markets around the world continue to do extremely well. Even if we got the January numbers for the U.S. market and down from the fourth quarter kind of record levels but still north of 17 million cars and about flat with prior year, which is largely what our forecast is for North America. So we think North America continues to run at flat at very high levels. We think Europe is maybe some modest slight growth, and we think China continues to be kind of a standout performer. I mean, China really posted very large numbers during the course of 2016, and we think it moderates a bit, but we think it’s still positive.”

For the most part we’ve seen commodity costs go up over the last 90 days

” most of the commodities, certainly the two that you mentioned, are up, whether it’s bar steel or flat steel or hot roller beam. So really it’s almost across the board where we’ve seen commodity inflation creep into the system. And so it’s – I mean, there are a few commodities, like silver and the like, that have perhaps come down slightly. But, for the most part, we’ve seen most of our commodity input costs go up over the last 90 days or so.”

Improvement in hydraulics was not just a December surge

“Yeah, in our case, Andy, the simple – short answer to the question is no, it was not a December surge, as we also have heard others articulate, spending budgets at the end of the year. We really did see the strength largely play out throughout the quarter. And so far in January, I’d say that we’re encouraged that some of the strength that we’ve seen in Q4 has continued.”

Eaton 3Q16 Earnings Call Notes

Eaton Plc (ETN) Q3 2016 Results

Craig Arnold

Expecting continued industrial weakness

“If we take a look at the balance of the year, what we’re really seeing here is industrial weakness, and industrial weakness that is continuing. And so we now have updated our overall revenue forecast to be down 4% for the year, and so we’re really thinking that the year now comes in at the lower end of our guidance. And as you’ll note from the chart on page 10, we did in fact make a number of meaningful adjustments to our full-year outlook. And I’ll walk you through some of the detail here and some of the drivers.”

Lots of uncertainty for Q3

” all we’d really say about 2017 is that Q3 was certainly a bit of a disappointment when we took a look at a lot of our end markets and our order intake, and we expect that to continue into Q4. And we’re in such a period of uncertainty right now, with so much volatility in many of our end markets that it really is difficult to make a call on 2017. And so we made the decision to increase our restructuring, because we think this period of uncertainty will continue. But we do think it’s too early to make a call on what our revenues will be next year. I think once we get past the elections and a little bit of the uncertainty works its way through, we’ll be in a better position to make a call on revenue next year.”

Weakness in electrical end markets

” what I’d say, Ann, really throughout the summer months, we principally saw a weakness across most of our Electrical end markets. If you think about the markets that have been weak all along whether it’s oil and gas or whether it’s large industrial projects, industrial controls, we saw each of those markets essentially weaken up a little bit throughout the summer months, and that certainly cascaded through to the order input that we saw in our Electrical Systems and Services business, which, as we reported, was down 5%.”

Is everyone taking a pause to wait and see which direction the US is headed?

“you’re absolutely right that across all of those end markets we saw weakening this summer. Question – is that a function of all the uncertainty in the current environment? In manufacturing capital equipment, everybody’s taking a pause until the air clears a little bit here around which way the U.S. is headed, but it was principally in the U.S. that we saw the weakness and really across most of those markets.”

A lot of our end markets didn’t perform anywhere close to our expectations at the last strategic planning period

“one of the principal issues is if you take a look at the size of the company today versus what we had forecasted, let’s say, going back in the last strategic planning period, Eaton is a smaller company. A lot of our end markets over this period of time did not perform anywhere close to what our expectations were. So there’s a piece of what we’re doing that’s essentially rightsizing our company, given the current revenue and the certain size of commercial and economic activity across our enterprise.

You never end up with the company you would have with a clean sheet of paper when you build through acquisition

“And having said that, as you’re well aware as well, we built this company for the most part through a series of acquisitions. And when you acquire companies, you always acquire excess capacity in manufacturing. And if you’d said, do you have the ideal footprint, if you could start from a clean sheet of paper and redraw it, you never end up in that place if you grow a company through acquisition. And so we’re really taking some steps back and saying, what can we do, what would we do if we could start with a clean sheet of paper? How would we draw it up? And from that are coming new ideas and opportunities to do it smarter, to do it better, to do it more efficiently.”

Industrial has been weak, but seeing strength on the consumer side

” so we continue to see weakness on the industrial side of the house, but, having said that, we’re seeing strength on the consumer side. Residential housing, the lighting market continues to do well, the Vehicle markets around the world continue to perform well, the light end of non-resi construction, things that are really the small strip malls and really that are, I’d say, almost attached to household formations.”

Have seen strength in China

” Yeah, we too have seen the strength that other companies have talked about in China. We had a pretty strong Q3 overall in terms of our order bookings in China and we saw that in our Hydraulics business. We saw that in our Electrical business as well. So certainly, the government stimulus programs are helping. Their monetary policy is helping. Whether or not these structural improvements will continue into the future, I think it’s once again another one of these points of uncertainty. And they put the stimulus programs in effect for a reason. So they had some underlying concerns. But at this point we think China has certainly stabilized. I think the risk associated with China today is less than what it was probably the last time we had a conversation about China last quarter. So we’re feeling better about China but longer-term I think it remains a question mark.”

Light vehicle markets doing great, but would point out that incentives increasing in NA

“Yeah, I’d say so far the light vehicle markets have held up extraordinarily well. North America running flat at very high levels; China continuing to run very strongly at high-single-digit numbers; Europe doing better than what we imagined. So I’d say at this juncture, the light vehicle markets around the world, speaking about it globally, are actually holding up quite well. The one piece of caution in North America, we do see the incentives are increasing. And if you take a look at the incentives in Q3, they were up over Q2, and that always gives you a moment of pause or caution, but overall we think light vehicle markets globally are doing just fine.”

It’s understandable that companies would hesitate in an environment like this one

“And I’d say once again, we’re struggling with the data feeds very much like others, but we do think the thematic message that cuts through all these conversations is uncertainty, and if you think about any person running a business today and making a long-term capital commitment in the face of an economic environment and a presidential election that’s been as noisy as this one with as much uncertainty around the environment that we’re going to be dealing in, it’s, while disappointing, a little bit understandable that companies are basically pausing and waiting to see how things play out before they make a decision around major capital multi-year commitments.”

Eaton 2Q16 Earnings Call Notes

Eaton Plc (ETN) Craig Arnold on Q2 2016 Results

Have not seen any indications that the oil and gas market has turned

” I think at this juncture we’d say we certainly have not seen any improvement in oil and gas and maybe we’ve seen a little bit of deceleration in oil and gas. Not material changes from our original assumptions for the year, but clearly we’ve not seen any indications that that market has turned.”

Steel price increases will be passed on to the marketplace if we think they are more permanent

“Yeah. As I said, you raise an excellent point, Eli, because we’ve absolutely seen steel prices move materially up order of magnitude 50%, a lot of that driven by some of the duties that have been put on imports coming out of China, and that’s had a knock-on effect of steel prices around the world. In the near term we think we’re fine in terms of the net impact to the company. We did some pre-buying. We do have some hedges in place. And so we think in the near term, we have the ability to mitigate the impact of steel price increases. We’ll have to wait and see how long these increases stay in effect, whether this is a short-term blip or it’s a long-term blip. And in the event that it’s a longer term impact, we’d have to actually revisit our pricing assumption and we’d find a way to pass it on into the marketplace. And so, we think once again on balance, we’ll do what we’ve always done in inflationary environments. We’ll find a way to pass it on to the customer base.”

We take a cautious view on automotive markets

“To your point around auto weakness, we certainly have seen a lot of the reports, reading the same ones that you have. We continue to take a very cautious view on the outlook for automotive markets. We think North America will be largely flat this year and Europe and Asia will be up slightly. But like you, we’re taking a very cautious view of it and we’re getting prepared that in the event that we do have a downturn, we’re going to be well prepared to deal with it.”

We are definitely seeing the same industrial weakness that others are

“Yeah, I think from our perspective, industrial really has been a source of weakness really this year and for the entire quarter. I don’t know that June was an especially stand-out month for us in terms of the industrial markets, but we are in fact seeing the same weakness that others are talking about. And it’s one of the reasons why in our Industrial Systems and Services (sic) [Electrical Systems and Services] (36:29) business, that we’ve taken the guidance down and the reason why we continue to see some margin challenges in that business. And so we are absolutely seeing the weakness and experiencing it”

Seeing ongoing weakness in China

“I’d say in general what we’re seeing in China is largely ongoing weakness. I think as you heard the commentary as I talked through the various end markets, but for let’s call it the consumer-related market and passenger car markets, we continue to see weakness, mid-single digit weakness in the industrial markets in China. That’s affecting our Electrical business, and we continue to see strong double-digit declines in many of the Hydraulic-related markets as they continue to work off excess inventory.”

There’s still some inventory overhang in China

“So I think we’re still living through a bit of overhang, and sales versus production I think continues to eat into the inventory overhang that we’re dealing with in a lot of the capital equipment markets. Principally I think markets like excavators and road rollers and the other things that are really supporting this major building boom that China went through over the last ten years, but they continue to eat into it. Are inventories today at the level that I’d say are where the market needs them to be? I’d say no. I think they’re still working through a bit of an inventory overhang, and that’s why we’re still dealing with these strong double-digit declines in a lot of the end markets in China. And that’s very much what we’re forecasting.”

Eaton 4Q15 Earnings Call Notes

Eaton’s (ETN) CEO Sandy Cutler on Q4 2015 Results

Continue to see strong aerospace activity

” A lot of discussion over the last couple of weeks about what’s happening in the commercial aerospace activity, we’ll talk a little bit more about that when we talk about our guidance for next year, but we continue to see that outlook being strong as we move into 2016 and 2017.”

Have accelerated and expanded restructuring actions

“we’ve now accelerated and in fact expanded our restructuring actions and as our view that a couple of you had commented on your write-ups this morning that 2016 and 2017 will remain somewhat challenged time periods in terms of end market growth and so our focus is getting the cost out and using our balance sheet to buy back shares and to really get the company in well positioned in what will be a period of lower growth then we had seen in previous years.”

Think revenues will be down more than projected in October

“We now, with the benefit of the last several months and I think all weaker and after [ph] news, it’s not only we but you also have been reading as well our detailed discussions with our customers around the world. We think a better expectation tuned up for that doubt is that our organic revenues would decline on the order of 2% to 4%”

We’re in a commodity cycle. It will end, we just think probably not in ’16

“I think clearly we’ve got a couple of big issues going on and we’re in a commodity cycle and it doesn’t matter whether it be oil and gas, whether it be metals, whether it’d be Ag, we’ve seen as the world has slowed down it’s not having a fairly profound effect on a lot of these commodities. This too will bottom we’ve been — lived through a bunch of these. It just our view that we’re not going to see that end in ’16, that’s why we said that it’s so important really to get — to take these restructuring actions in ’15 and ’16. Hard to forecast right now, Scott, whether that turn up is in ’17 or whether that turn up is in ’18, I think most forecasts have always proved to be wrong”

You are starting to see the big integrateds slashing capital budgets

“You are starting to see some of the big integrateds are really slashing capital budgets again and that’s why our view has been that you have a second year of a negative in the oil and gas industry broadly in this year. And once you start these big cycles it takes a couple of years for them to swing back.”

I don’t think we’re seeing anything that would cause us to believe that markets are better than we’re forecasting

“Our view is that there are couple of distributors that have come out and talked about things being a little bit more positive. Actually our direct business peers, I don’t think you’ve heard as much commentary coming out about the first quarter. I don’t think we’re seeing anything at this point that causes us to think that markets are better than what we’re forecasting here. This is a — we’ve seen markets coming off each quarter throughout 2015 typically our first quarter is seasonally weaker than our fourth quarter, it’s our weakest quarter of the year and that’s how we’ve laid out our guidance for this year. So I think it’s a little early to call the year. Fortunately, we haven’t had a major snow event this year which hasn’t given us a big hit in January, but I’d say no were not seeing anything different than our guidance at this point.”

We’re planning as if there wont be a rebound in the second half

“as we put the plans together this fall were not counting on an economic rebound in the second half. We think that’s been kind of an unwise premise to go into these markets where if it does gets stronger, so much the better, we can scramble up, we’ve done that well in the past, but the restructuring actions that we’re taking, this commitment to a three year restructuring plan says that we think 2016 doesn’t recover when we get to the second half.”

Inventories maybe still elevated in oil and gas areas but other than that people have gotten the hatches buttoned down

“I think the one segment where you find when you travel regionally and you talk to different customers, if an individual distributor whether they were electrical or whether they were hydraulic had an unusually high exposure to oil and gas area. They may still be struggling with some inventories because I think that has continued to move in a way that many people didn’t predict it would. But I’d say outside of that, I think they’re fairly balanced. I think people have got their hatches buttoned down tight and they too are trying to live through a period of time when growth is less than they’d hoped it might be a couple of years ago.”

There’s so much time between now and the fourth quarter

“we think we’re better the plan on the fact that we aren’t going to see the rebound at that point. And if we do it will be an upside, there is so much time between now and the fourth quarter in terms of seeing what happens to crop prices, what happens to commodity prices and we’ve seen the volatility in these areas. So, we are not able to forecast that so, we are not assuming it’s going to occur.’

We think it’s a frustratingly slow environment but not a recession

“We don’t see that as the high probability, We do think that we are in this frustratingly slow environment that can often cause people to use the recession word, but I think that’s almost a more of a kind of an emotional issues than it is a the factual basis, we think that GDP is likely to grow in the mid-two’s again this year. However as we are on the industrial side of the economy were seeing industrial production numbers that are more like 1.”

Craig Arnold

An unprecedented period in hydraulic markets

“No, the only thing I would add to what you said is we really are living through what I would argue is a really unprecedented period in the Hydraulic markets and you can’t find the hydraulic end market today that hasn’t gone through a pretty perceptive downturn, whether it’s Ag or it’s China construction, or its mining the oil and gas. Most recently anything tied to capital purchases and on the industrial side the business. “

Eaton 3Q15 Earnings Call Notes

Eaton Corporation’s (ETN) CEO Sandy Cutler on Q3 2015 Results

Distributors have been seeing a slowing of their end demand, not comfortable taking on more inventory

“As we’ve talked with so many of our distributors around the world, they have been seeing a slowing in their end demand. They clearly are not comfortable taking on more inventory in this environment. And we saw this slow as we went through the third quarter. And so I’ll comment more about that when we get to our fourth quarter guidance. Still positive in the Americas and in Europe but Asia was particularly weak, and it was not simply China; we saw weakness across the region.”

Asia was basically weak across the board

“Asia was basically weak across the board and was the primary reason that the total bookings were flat instead of slightly positive.”

Seeing a downshift in NAFTA heavy duty truck build

“We are seeing a downshift in terms of NAFTA heavy duty truck market build. If I could comment on that just for a moment, you’ve known that our forecast throughout this year has been 330,000 units. We think it’s coming off here in the fourth quarter.”

Continue to hear that customers are scheduled to be closed more than they were three months ago

“we continue to hear from specific markets, I cited one but it’s just one, the heavy duty truck market, that there are many more days being scheduled now to be closed from our customers than they were just three months ago.”

Not seeing any evidence that pricing pressure is coming back to commodities

“We don’t see pressure on the commodity side. Hence, we don’t see a lot of pricing actions that are likely to be successful out in the marketplace. So relatively neutral in that regard. I think the key is going to be for us all to understand when that commodity pressure starts to come back. But we’re not seeing any evidence of that at the present time.”

US construction has been strong on residential, not that strong on commercial and weak in industrial

“if I could cut it into maybe three pieces, on the light side and that’s the portion that was attached to residential, I would say continues to be quite strong and looks a lot like the residential demand. On the really large commercial projects, not all that strong. On the industrial large projects that’s where the weakness has been”

Base assumption is that Brazil continues to be weaker next year than this year

“our base assumption is that Brazil continues to be weaker next year than this year. And we just think there are so many macroeconomic issues that have to be addressed, we’re not planning on an upturn effect; we’re planning on it still sliding some more in 2016 versus 2015.”

Feedback is that customers have a little more to do before they feel their inventories are optimally sized

“I think that industry was maybe buying in a little too strongly in the first quarter and second quarter. And as things began to back up here in the second half, they are obviously not buying or trying to window down our inventory. And our feedback is they’ve got little bit more to do before they’re going to really feel they’re going to optimally sized.”

Some of these end markets have been weak for some time but still think we’re going to see some negative numbers in 2016

“When you get out to the end markets, some of these end markets have been weak for quite some time and you would hope that they are starting to get it right. But our view is when markets are falling off like this, it usually takes a while for people to catch up and get right-sized. And so that’s all kind of big into our view in a number of these markets in 2016, we’re still going to see some negative numbers on the growth side.”

Primary focus right now is on getting cost out of the business

“our focus right now is that we’re seeing markets have weakened and we need to get the cost out of our overall corporate portfolio that’s at the corporate level and each of our individual businesses.”

Our concern that we’re responding to is that this is a general slowdown

“our concern that we think we’re correctly responding to is that this is a general slowdown and then you GDP numbers come out lower than people thought again; you saw the industrial production numbers come out now lower than people thought and not seeing a lot of different news from around the world. So, we’re trying to get ahead of this as fast as we can.”

We think IP in China is growing much slower than has been stated

“we actually think that manufacturing IP in China is growing much slower than has been stated. Having said that, now you look within it and look what’s going on, most of the infrastructure projects have been pulled back. There is not much manufacturing capacity. And many people are talking about the construction side — I’m talking commercial construction that has gotten much slower. We’re not seeing the export; this will be machine tool activity, be particularly strong either and that has to do with the receiving countries, not being that strong. And last but not least, the corruption investigations that resulted in a lot of practices that are — let say, it’s causing delay in projects”

Things are slow in the rest of Asia too

“I’d say if you go down through Indonesia, Malaysia, wherever else, clearly the oil situation is acting as a depressant in that particular area. You get up into Korea and of course there’re not a whole lot of ships being built currently and you’re seeing this back up again.”

This recession is milder because there haven’t been significant bubbles created out of this long grinding growth rates

“I think there are a couple of salient reasons why they’re different. We don’t see significant bubbles having been created out of this very long, low grinding growth rates. The banks are in awfully good shape and a lot of the regulations are ensuring very fulsome capital ratios in that regard. We have not yet seen any form of inflation and the prospect that we could get a couple of quarter point interest rate increases doesn’t feel like the thing that will derail an economic growth at this point.”

We will finally start to benefit from low natural gas prices in 16 and 17

“the last item which we’ve almost all forgotten about is with natural gas dropped two-three years ago, people speculated on the reindustrialization in United States. We cautioned at that time that that’s going to take five years because designing these plants and building these plants and putting them into production is a five year cycle. Guess what, end of ‘16 and early ‘17 is when a lot of that starts. And so there is a phase of construction going to come here in the country that’s going to be of a very large size and that is traditionally an area where Eaton has participated quite well but it’s not quite yet.”

We don’t see a reason why this goes dramatically negative because this doesn’t have a monetary crisis attached to it

“we don’t see this very slow grinding recession that doesn’t have a monetary crisis attached to it, we don’t see a reason why that goes dramatically negative. But it is a difficult, frustrating, grinding environment, and that’s why we say again, our strategy has to be built upon on this point. ‘

Pretty low likelihood commodity businesses will change substantially next year

“I think the likelihood we’re going to see these commodity businesses change substantially during 2016 is probably pretty low. So you talk about ag and construction and mining et cetera.”