Parker Hannifin FY 4Q17 Earnings Call Notes

Thomas L. Williams – Parker-Hannifin Corp.

Positive, neutral, negative markets

“Positives are aerospace, agriculture, construction, distribution, forestry, general industrial, heavy-duty truck, lawn and turf, mining, oil and gas, refrigeration and air-conditioning, semicon and telecom. So, as I said, it’s a long list but that’s a great thing to have a long list of positives. On the neutral side is automotive, power gen, rail and life sciences, and really the only market that we see as negative year-over-year is marine. Now, one comment I want to make is context to overall that end market, that’s how we are doing in the end markets. I’m not trying to make a comment about the whole end markets, kind of what it’s doing. It’s just our projection of Parker within that end market.”

Feel pretty good about the global economy right now

“I feel pretty good about the global economy right now. We’ve already experienced, as you’ve seen in our orders the last couple of quarters, this is pretty good activity right now and we look forward to continue. And the splits kind of is what drove the second half. But we feel very good. I mean, if you look across the regions, this is a great environment for Parker right now.”

China continued to do very strong

” China continued to do very strong, mid-teen growth in the quarter and virtually every end market as you get go down the list, being positive. And the Asia team in general across – in addition to China, we’ve got every country in positive territory, every country growing. And Asia was the first region for us that turned and had a terrific year for us last year and it looks like it’ll be another strong year as well.”

Lee Banks

Some modest restock taking place

” On the distribution level, I would say there is some modest restock taking place. There’s been a surge in activity and I have North America mostly in mind when I make that comment. And then on the OE side, I would say modest but it’s pretty much pull-through demand, the best we could tell at this point in time.”

Emerson FY 3Q17 Earnings Call Notes

David N. Farr – Emerson Electric Co.

Global demand conditions strengthened

“Global demand conditions strengthened versus the second quarter. Emerging markets were up low single digits and mature markets grew mid-single digits. Growth was supported by improving end markets in the U.S. and Asia and early signs of improving demand conditions in Canada. Growth in Asia accelerated during the quarter, led by China. Excluding China, the rest of the region also improved, growing at low single digits in the quarter.”

We have a lot of markets going our way

“we’re still seeing a very good performance relative to the fixed investments around the U.S., around Western Europe, around China, Asia. We’re seeing some improvement from Middle East. If you remember the last call, I was somewhat concerned about the Middle East, but that’s turning right now. Investments are starting to happen. And maybe, and I mean maybe, Mexico might actually start growing again, and so that will be good to see if they get some money freed up. So we have a lot of markets going our way at this point in time.”

Steel pricing still very manageable

“Steel pricing has been a little bit more negative from the standpoint, but still very manageable at this point in time. I think it’s going to take us one more quarter to settle it out as we get into fiscal 2018 it will be a little bit better. But as you’ve been hearing on the calls, it’s been a little bit tougher out there this year relative to price cost. But fortunately, we have a pretty good process. We got ahead of it and Bob’s team was able to offset it with incremental margins relative to the price cost this quarter. And it’s just – it’s a little bit more challenging now than what it was, but still very manageable.”

Ecolab 2Q17 Earnings Call Notes

Douglas M. Baker, Jr. – Ecolab, Inc.

Economies are okay to good. Raw material costs creating margin pressure

“If we look at the macro environment, the economies around the world we’d say are mixed but in aggregate, are okay to good. FX headwinds have subsided. Energy markets have recovered some and certainly stabilized. Raw materials, though, are rising and creating some short-term margin pressure but we believe are manageable over the year.”

If you cut through the noise US growth is a little softer

“If you cut through the noise, U.S. growth is a little softer. It’s around 4%. Globally, I’d say Global Institutional is around 3%, same factors as last quarter which is what we had forecast. Same-store sales are a bit soft in U.S.”

We do expect mining to be positive in the second half

“Yeah, we do expect mining to be positive in the second half. I will also say we expected mining to be positive in the second quarter. I mean, it was about flat (12:06). So, it’s always a little hard to predict. But clearly, it’s been healing, if you will, if you look at the sequential growth rates. And we do expect it to pop into positive in the second half for sure in probably the third quarter.”

Oil price hasn’t really changed

“I think the Energy business and how we see oil price hasn’t really changed from what we expected going in the year. So, we didn’t have a particularly bullish outlook. So, we don’t need to bring it down, I guess, is the easiest way to put it.”

I don’t think there’s been any huge fundamental change in food service

“Well, I would say the softness in the first quarter in particular was also timed identically to the retail softness broadly. There’s all kinds of assumptions or guesses about what was driving it and timing of tax refunds, et cetera. I don’t think you’ve got any huge fundamental change you’re currently seeing in U.S. food service, i.e., takeout order or some other magical thing. Those things move year-on-year but at a fairly slower rate, so I don’t believe those are the trends that we’re seeing. I think what we’re seeing is some softness broadly in a certain segment of the foodservice industry. We’ve chased it before over time. We’ll probably chase it again. So, that’s really I think the issue. I don’t believe there’s been any fundamental secular change that we’re dealing with at this moment. That’s not what the industry sees. It’s not what the stats suggest.”

raw materials biting us in Europe. Getting some pricing power

“In terms of raw materials, they’re biting us in Europe. No doubt about it. We have the same story there. It takes us a while to recover via pricing, but we’re starting to get pricing in Europe as well. And we expect a kind of tried-and-true formula we’ve talked which is absolute raw material cost coverage, year one and margin recovery, year two. Sometimes we do it in a little more accelerated basis, but it’s not a bad way to think about it.”

Example of the cloud in use

“We’ve got, I don’t know, some 2 million customer sites nearly if you add up all the restaurants, probably collecting data 90%. But we only have a small fraction of it currently connected to the cloud. So, in most instances, our people have to walk into the unit, download via an RF port, and then they have the data to start analyzing how they can further improve the customer’s operation. We know that if we take that and send it to the cloud, do the analytics, send it to our person in advance of them arriving at the front door that we’re going to improve their productivity significantly and improve the amount of time they have for up-selling and for doing other things, even handling more accounts. So, technology, I would say in all industries, we have not yet pushed boundaries in these areas we are going to”

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.

3M 2Q17 Earnings Call Notes

Inge G. Thulin – 3M Co.

Germany is doing well

“I would say the comment relative to West Europe specifically is more around, I think Germany is still doing well. And if you look upon our figures and the way we do business over there, if you take manufacturing PMI in Germany, the second quarter was 59%, if you compare that to like 50% and 51%, 52% for China. So Germany, by definition, which is a big engine in Europe are doing well in the manufacturing side. And our business in Europe, if you look upon the portfolio, Industrial business is very strong.”

Nicholas C. Gangestad – 3M Co.

Two things have changed from first quarter on pricing power

“two main things that have changed from first quarter are strong growth in electronics which was much more of a price down that the other businesses that we saw that strong volume growth there contributed to more negative price growth in Asia Pacific. And then in Latin America, where we often see price growth often driven by a weakening currencies against the U.S. dollar, we saw much more stable currencies there versus the U.S. dollar, so some of the corresponding price growth we see didn’t materialize.”

Core price growth at the low end of expectations

“The core price growth and this gets into what we saw in the United States. Core price growth, we traditionally see somewhere between 30 basis points and 50 basis points of core price growth. In the U.S., we see ourselves now tracking to the low end of what we’ve been expecting for price growth. We expect it to be closer to flat for the total year in the U.S”

Slightly tougher comps for Electronics and industrial in 2H

“when it comes to the comps, there’s a couple of different things going on. One, like for instance our Electronics and Industrial, both of those, I agree with you, we’re going to have slightly tougher comps in the second half of the year. In the case of Consumer and in Health Care, both of those will be seeing easier comps. I wouldn’t call it a big statement on our fact that we’re seeing an improving economy. We’re seeing a fairly stable economy outlook for the balance of the year.”

United Technologies 2Q17 Earnings Call Notes

Gregory Hayes

China is still a growing market

“So let me just add perhaps the more bullish view on China. It is still a growing market. The GDP there will grow more than 6.5%. Property prices remain strong. The long-term outlook is very good. Look, we’re suffering this year through really the remnants of what were a tough two years where pricing was very, very difficult. But I think to Akhil’s point, it’s encouraging what we’re seeing here in the quarter. And while we won’t see these in actual results play out until early next year, it’s still encouraging to see the Chinese market growing.”

Akhil Jori

Some talk of inflation in Europe

“The other aspect I would say is for Europe service, inflation is starting to at least be talked a little bit, even though at very small levels. But for many years, there was no discussion of inflation at all. And now at least there is some talk about potentially a little bit of inflation coming through, which will ultimately show up in our pricing and will relieve some of the price pressure we have seen in Europe, but still a long way to go, I would say.”

Government can move China much more than other markets

“of all the markets that we play in, China is probably the one where it’s most difficult to call in terms of exactly how it will play out. The government there has abilities to move the markets much more than other markets. And so my crystal ball is not that clear on Otis China.”

Textron 2Q17 Earnings Call Notes

Scott Donnelly

Auto is flattish

“So I think if you look at the constituent parts obviously automotive right now is more flattish, so there is a little bit of difference regionally, North American auto is down a bit. so I think getting any kind of significant growth on the topics side right now was probably unlikely just given the nature of what’s going in the automotive segment. The business is still performing well”

We are increasing price that we are realizing

“as we have talked about we are increasing our price that we are realizing out there in the marketplace. We continue to do that and we continue to do that in the second quarter, so we are seeing improved pricing versus where we were last year when we said sort of said hey guys enough is enough, we need to start getting some price back into the market. For sure there was some mix out there of customers that are waiting to see some movement on the government side, from a tax standpoint which I think largely people feel would help to stimulate the economy and drive some GDP and improve their business outlook, which would give them more confidence to do capital expenditures on things across the whole business including business jets. So I think there is are still little bit of reservation around that, obviously it’s a relatively flattish market. So I think we are being successful on the price front. We are certainly willing to do that at the expense of some volume and there are certainly some customers who are holding out and that’s fine we are not going to give back on the pricing front, I think it’s moving in the right direction.”

Fastenal 2Q17 Earnings Call Notes

Daniel Florness – President and CEO

Able to take a little more advantage with price

” if we continue to see demand get better and the environment remains somewhat inflationary, then a window would probably open for us to take advantage of a little bit of pricing if the market affords. And we sort of deemed the second quarter to be consistent with those themes”

Holden Lewis

Growth accelerated

Great. Thank you, Dan, and good morning, everybody. Thanks for joining the call. So just to hit on what Dan covered on Slide 3, our total and daily sales in the second quarter were up 10.6%, that’s an acceleration from up 6.2% in the first quarter. The timing of the Good Friday shift into April from March this year did cost the quarter about 50 basis points. But on the other hand, we included Mansco this quarter, which we acquired on March 31, and that added about 130 basis points. If you adjust those 2 factors, the second quarter daily sales rate was around 9.7%. Either way, growth accelerated to the quarter. And even better than that, in June, the daily sales were up 13% or up 11.6%, excluding Mansco.

*Benefiting from macro strength

“some of our improvement clearly reflects a favorable macro backdrop. The Purchasing Managers Index in the U.S., it represents 88% of our revenue, that averaged a healthy 55.8 reading. Industrial production growth was still modest in the quarter, but did speed up a bit over the prior quarter. These metrics underpin the improvement in our industrial and construction end markets in the second quarter as well as acceleration in both our fastener and non-fastener lines, as you can see from the charts in the presentation. In fact, it’s difficult to identify a major market that is acting particularly poorly at this point. And the feedback that we’re getting from our RVPs remains overall very favorable.”

GE at William Blair Conference Notes

Bill Ruh – Senior Vice President, Chief Digital Officer, Chief Executive Officer of GE Digital

There will be more processing on the end than in the cloud

“Predix. I know you would like me to go into depth on all the technical details of Predix. But I would just say this, it is a unique architecture. We don’t ride on one infrastructure, one cloud. We run on AWS today. We announced we will be on Azure shortly. We are really the only major application that runs on both simultaneously plus we can run on Saudi Telecom, China Telecom and so on. The second thing is edge compute. There will be more processing on the edge than we think in the cloud. And we think that the ability to run on the edge is an important part. Why? Because it’s a real-time game and the amount of data and the amount of processing that’s necessary in real-time to change a control system is not going to allow you to go back to the cloud, make that decision and lose the efficiency. So we have an architecture that’s cloud-to-edge oriented. We love the cloud providers. I want to tell you, AWS, Azure, these are great companies, we really like running on. We will continue to be strong supporters of everyone’s cloud. We don’t want to spend on those data centers. We will cheer them on and ride them.”

General Electric at Electrical Products Group Conference Notes

Jeffrey Immelt – Chairman and CEO

Look, nobody like how the stock has traded this year

” Look, nobody likes how the stocks traded so far this year, but it’s up to us to execute and that’s what we’re committed to doing. This is the world, I think you’ve heard this week kind of the business outside the U.S. is quite strong. U.S. gets a little better each day, still the ability to get defilation we see in our markets.”

Oil and gas stabilized but off a low base

” I would say the oil and gas market stabilized. We see orders improving, but it’s off a low base. So I still think we have to underwrite caution in that space.”

New portfolio is power, healthcare, transport and resources

“So look we’ve done a ton of work around the portfolio. I would make a couple points here. We are big and what I recall four big equal systems. We’re big in power, healthcare, transport, resources, we’ve got leadership positions, diversified positions across all those. We’ve really try to I’d say narrow the scope of the company. We’ve launched a couple of things that I think are going to give us bigger pools from a profitability standpoint.”

We have divested $100 billion worth of businesses

“What I would say to you guys is look I know this is about unlocking value versus creating value and all that shit really. But really it’s just hard for us to say really and I have come down here a long time we divested more than $100 billion worth of businesses, right. We did plastics and NBC, insurance and capital. And did we get them all right, maybe not, but we got more right than wrong. And so what I would say Rob, look we’re always going to be fast on our feet and trying to create shareholder value and if we are not good at a business, we are going to sell it.”