Craig M. Rossman - Emerson Electric Co. David N. Farr - Emerson Electric Co. Katherine Button Bell - Emerson Electric Co. Frank J. Dellaquila - Emerson Electric Co..

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker) Steven Eric Winoker - Sanford C. Bernstein & Co. LLC Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker) Gautam Khanna - Cowen and Company LLC Joe Ritchie - Goldman Sachs & Co. John G. Inch - Deutsche Bank Securities, Inc. Robert McCarthy - Stifel, Nicolaus & Co., Inc.

Nigel Coe - Morgan Stanley & Co. LLC Deane Dray - RBC Capital Markets LLC Shannon O'Callaghan - UBS Securities LLC Christopher Glynn - Oppenheimer & Co., Inc. (Broker) Charles Stephen Tusa - JPMorgan Securities LLC Jeffrey Todd Sprague - Vertical Research Partners LLC Jeremie Capron - CLSA Americas LLC.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's Investor Conference Call. During today's presentation by Emerson management, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, August 2, 2016.

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.

I would now like to turn the conference over to our host, Craig Rossman, Director of Investor Relations at Emerson. Please go ahead..

Thank you, Renee. I'm joined today by David Farr, Chairman and Chief Executive Officer of Emerson; Frank Dellaquila, Executive Vice President and Chief Financial Officer; and Katherine Button Bell, Vice President and Chief Marketing Officer.

Today's call will summarize Emerson's third quarter 2016 results and also provide an update on Emerson's business transformation. A conference call slide presentation will accompany my comments and is available on Emerson's website at emerson.com.

A replay of this conference call and slide presentation will be available on the website for the next 90 days. I will start with the third quarter summary as shown on page two of the slide presentation. Net sales in the quarter decreased 7% versus the prior year to $5.1 billion, with underlying sales down 5%.

The third quarter results reflected the continuation of challenging demand conditions in our key served markets. Oil and gas spending, both capital investment and operational expenditures, remained at significantly depressed levels.

Automation markets in North America have been extremely challenging, as anticipated improvements in spending did not materialize as we had forecast. Data center and telecommunications infrastructure demand continue to be favorable, while global air conditioning and refrigeration and U.S. construction markets were mixed.

The trailing three-month orders for June were down 6.7% on a GAAP basis, with underlying trends down 4.4% excluding approximately 2% for currency translation. Adjusted earnings per share, which excludes $37 million of separation cost, decreased 5% to $0.80. Reported earnings per share were $0.74. Operating cash flow in the quarter was $718 million.

Turning to slide three, despite lower than expected sales, EBIT margin increased 20 basis points versus the prior year driven by benefits from restructuring actions and solid operational execution within our businesses. No additional shares were repurchased during the quarter; and separation costs were significantly lower than expected.

Turning to slide four, underlying sales decreased in all regions except Europe. The results by region were similar to the second quarter as the global environment for business investment remains challenging. Turning to slide five, total segment margin was up 50 basis points to 16% as three segments reported improved margins.

Both the Climate Technology and Commercial & Residential Solutions segments reported up margins despite lower volumes. And improved cost structure resulted in operating cash flow of $718 million in the quarter. Capital spending continues to be reduced, in line with overall business conditions.

Turning to slide six, Process Management underlying sales decreased 13% in the quarter. Energy spending, particularly in North America, continues to be reduced as customers evaluate the stability of current oil and gas prices, while power and life sciences markets continue to provide growth.

Restructuring programs will be further increased in response to weak demand conditions from global oil and gas customers and the expectation that weaker conditions will continue into 2017.

Segment margin decreased 290 basis points primarily due to a sharp volume reduction and the resulting deleverage, partially offset by savings from restructuring actions.

Turning to slide seven, Industrial Automation third quarter underlying sales declined 11%, reflecting continued weakness in industrial spending and upstream oil and gas capital investments, while wind projects remain favorable for the drives business.

Segment margin decreased 110 basis points primarily due to volume deleverage and price, partially offset by savings from restructuring actions and material cost containment. Mixed demand forecasts among the businesses are expected to result in improved levels of sales and profitability in the fourth quarter.

Turning to slide eight, Network Power underlying sales increased 10% in the quarter as strong order trends in both data center and telecommunications infrastructure markets translated into positive growth. Sales increased in all regions except Europe, which reflected a difficult comparison to the prior year from large project revenues.

Segment margin improved 550 basis points to 9.1%, driven by volume leverage and savings from restructuring actions. Benefits from restructuring actions and new product programs support the expectation for continued margin improvement in the fourth quarter.

Turning to slide nine, Climate Technology's underlying sales decreased 1% in the quarter as decreases in Asia and the Middle East more than offset increases in other regions. Underlying sales growth in North America and Europe reflected low-single digit growth in both the air conditioning and commercial refrigeration businesses.

Segment margin increased 270 basis points to 22.4%, primarily due to savings from restructuring actions and material cost containment, partially offset by lower pricing. The near term outlook for global demand in our served market supports the expectation for modest sales growth in the fourth quarter.

Turning to slide 10, underlying sales in the Commercial & Residential Solutions segment decreased 1% as growth in food waste disposers was offset by declines in all other businesses, which were impacted by customer-driven inventory reductions.

Segment margin improved 380 basis points to 24.4%, reflecting the impact of the divestiture, savings from restructuring actions and material cost containment. Modest levels of underlying growth are expected in the fourth quarter as we anticipate favorable conditions in U.S. construction to continue and channel inventory reduction should be complete.

Turning to slide 11. Earlier today, we announced agreements to sell our Network Power, Leroy-Somer and Control Techniques businesses for a combined value of $5.2 billion, which is in line with the guidance we provided at our February Investor Conference.

These agreements represent a significant step forward in the overall portfolio repositioning strategy we announced last year in June.

And with these agreements now in place, the strategic repositioning squarely focuses on acquisitions within our core platforms of Automation Solutions and Commercial & Residential Solutions, as Emerson management and the board determine how best to redeploy the cash proceeds from these divestitures. Turning to slide 12.

The third quarter results continue to reflect the low growth global environment facing our businesses today; and the outlook remains challenging as markets will continue to be impacted by reduced levels of investment spending, weaker global economics and political uncertainty.

Considering these conditions, coupled with the fact that anticipated improvement in order trends did not materialize, the company now expects fiscal year underlying sales to be down 5% to 6% excluding currency translation and an impact from completed divestitures of approximately 2% each.

Adjusted earnings per share for the fiscal year are now expected to be $2.90 to $3, excluding $200 million to $250 million of separation costs and a fourth quarter loss of approximately $100 million related to the agreements to sell Leroy-Somer and Control Techniques.

I will now turn the presentation over to Kathy to talk about our business transformation..

Before we do that, this is David Farr, I want to first thank Greg for the update in the quarter. Secondly, Kathy – I'm going to introduce Kathy. Kathy has been engaged for a little bit over a year now relative to what we refer to generally as the new Emerson.

There's a lot of work that has to be done relative to the communication to our investors, communication to our customers, communication to our employees.

And Kathy has taken on this assignment with her team and several people from the various businesses that will still be part of Emerson going forward; and she's creating a new presentation of what Emerson means going forward.

And so, what we want to do today, given the announcement of the transaction to sell Network Power and the transaction to sell Leroy-Somer and CT, I wanted Kathy to go through and share with the investors and the outside people what we're seeing as we go forward and we'll be formally announcing in early October.

So I've asked Kathy to talk to investors today and give you an insight to that. And, Kathy, the floor is yours. Thank you..

Thank you, Dave. Good afternoon, everyone. I'm positive you're all anxious to hear from Dave, so I will try to use your incredibly valuable time with great care and sensitivity. It is clear to me that I am merely the warm-up band and you're eager to get the main act.

Today, we're going to briefly discuss how we're applying our marketing expertise to better redefine our great company to accelerate change, drive growth and imagine a different future. I believe you've already witnessed some highly tangible efforts of this, this morning. Go to page two.

Although today is about moving your view beyond our financial pie chart, this particular one holds all the excitement about our new possibilities. This demonstrates how we're adapting to a new reality utilizing our already industry leadership position in adjacent markets and driving our single source end-to-end solutions. Go to page three.

This is not revolutionary for an already well-managed and financially strong company. We are on our 126-year-old journey of complexity reduction and perpetual integration of our businesses.

We're driving efficiencies through a tighter brand, which would deliver more collaboration and more customer focus, resulting in more integrated solutions innovation between our businesses. We're, therefore, more capable of cross-leveraging our remaining portfolio and making it easier for all to navigate our business. Slide four.

So we need to accelerate past our previous transformations, evolving our business and our messaging from doing many things to concentrating our efforts on the critical challenges facing our customers, specifically in the process, industrial, commercial and residential markets.

For Automation Solutions, this means being the most trusted partner and problem solver for our customers during the current business crisis for them.

This also becomes a showcase for our Internet of Things initiatives as we build on our legacy of long-term success of network intelligence in the field via our groundbreaking PlantWeb technology and our unmatched wireless heritage.

For our Commercial & Residential business, we can focus on the global criticality of human comfort, connected home, food quality, advancing energy efficiency at home and work, as well as sustainability. Slide five. As conglomerates have fallen out of favor, we've quickly transitioned to a more highly focused enterprise.

The best example of this is the new emerson.com debuting on October 1. But all of our communications, both internal and outside, will reflect and promote our new positioning. Talent acquisition migrates from fragmented business units to an Emerson career-centric approach.

Our social media has historically been product brand focused and now we're trying to expose our deep industry expertise and to humanize our brand. Finally, advertising, which previously portrayed us as wide and deep now can support two major businesses in their our own deep special expertise. Slide six.

So a great example of this was our truly unexpected foundational sponsorship of CERAWeek, which, as you probably know, is the Davos meeting of the oil and gas industry.

As we were developing our new Emerson Automation Solutions positioning, this seemed like a great opportunity to dramatically demonstrate our leadership position in the industry and launch our unique and desperately needed approach for the oil and gas businesses facing a crucial moment in their troubled marketplace.

Top quartile solutions were a breakthrough approach for a vulnerable industry and we tried to optimize our moment in the sun. Slide seven.

We poured exceptional effort and assets into the Houston-based event with full immersion media and social media training for all the Emerson executives, as we drove a full frontal media approach of the city, venue and with all the participants.

The extraordinary results are the positive outcome of tightly choreographed messaging strategy, as well as very well-prepared executives. This is Emerson at its best, applying full energy and singular focus. Slide eight.

For Emerson's newly combined Commercial & Residential Solutions business, the opening of our new Helix Innovation Center in Dayton offered a similarly tightly focused media and promotional event that was designed to showcase the advantages that's closely aligned with those businesses.

Innovation Center clearly demonstrates our unique research capabilities around energy efficiency, connected homes and businesses in a real-time simulated environment. This miraculously includes a fully built-in IKEA furnished house; a commercial kitchen, which serves the entire Dayton campus with catering and a convenience store.

This all exists under a single roof and allows for monitoring and research under an exceptional array of climate, environment and variable conditions. Slide nine. From a marketing viewpoint, like CERAWeek, the opening of the Helix allowed for a wildly focused media event.

We continued our highly publicized STEM support initiative with a survey on the issues of STEM education. For you financial guys, STEM is the acronym for Science, Technology, Engineering and Math. We again tapped Internet science superstar, Hank Green, in the backdrop of our Innovation Center on the University of Dayton campus. It was media magic.

We showcased our engineering initiatives and allowed Hank to do his storytelling sorcery to millions of network viewers, social media networkers and even thousands of potential investors.

This was astonishingly successful for a B2B initiative, where media interest was stoked by the authentic connected story of STEM careers, sustainable research, a science geek and a real university setting. This is not just another product launch event. Slide 10.

As we all know, digital access and transparency has changed all of our business lives forever. We also know that an extraordinary amount of research and private exploration goes on long before a salesman is invited to the party.

Your website is the window to your company's soul and undoubtedly has the ability to expose one's capability to better explain, as well as execute one's business. Most multi-billion dollar companies cannot unify and face the challenge of reconstituting their digital presence.

The unique inflection point of today's divestitures have swung open an opportunity to begin again. We've been working for 12 months on Phase 1 of our new web presence to launch single taxonomy, single product catalogue, single technology approach, resulting in mobile always, all glass (16:50) responsive design.

This will result in a cleaner, portable, searchable new emerson.com. It will take us two more years to complete the technology transition; keep, kill, edit and vent (17:03). We had over 700,000 pages in our previous environment, but we will be at the very least a more nimble, unified player.

This is the one thing I believe our competitors would not expect from us and would fear the most; a better more truly (17:20) integrated Emerson. Slide 11. So Dave has generously allowed me to give you a 3.5-minute cook's tour of the emerson.com prototype. This is giving you all a sneak preview into our Phase 1 of the new site.

I think you will find it as a new vision of our streamlined tightly focused selves, exemplifying enduring strength and adaptability to change as we rise to the new challenge. Please bear with me, as we thought it was technically safer to videotape the prototype as it is a little jumpy and we didn't want to take you out of the webcast.

Here is emerson.com. Please roll the video. [Video Presentation] (18:00). There they go. Okay. The front page is dedicated to introducing our clean design, inviting customers to explore, career seekers to learn and investors to fall in love all over again. It is meant to be a showcase of our great stories and a window to our values.

The new site is an exceptional initiative to bust our silos and unify our businesses. In usability research, our customers said it was beautiful, complete and visually appealing and that the images highlight the breadth of our industries and humanize our brands. As we move to About Us, you'll see we introduce our visitors to our transformation story.

This describes how we plan to increase value to both our customers and shareholders with our tight focus on two major business segments. Our realignment is about accelerated cultural change inside, customer joy outside and value creation for all.

As we wind our visitors down the page, they will encounter a new Social Responsibility Report, access to our educational I Love STEM page, our much more extensive Join Our Team careers section. I'm also very proud of our more extensive social channel selector, (19:46) which you'll see from Twitter to YouTube we are ready to connect.

Finally, we head to our Investors happy home. Our Investors page is meant to be a familiar, but improved user experience for all of you. Roll over resources, back year Annual Reports, profiles and SEC filings are at your mouse tip.

Finally, an up-to-the-minute mergers and acquisition updates section will be available, but not currently available in our 30-day-old prototype. Emerson Automation Solutions is the doorway to our ever-broadening offering in the industrial and process industries.

We immediately discuss capital projects, operational efficiency and tour our Internet of Things offering on a global scalable level. Our site is founded on an industry-centric approach, allowing us to better explain our end-to-end solutions with an industry view.

Our world-famous signature brands are still prominent and easily searchable, so every customer can still reach each SKU by bookmark, new easy search and relatable discovery. The Emerson Commercial & Residential Solutions business introduces us to the unified concept of optimized performance for connected buildings with energy control.

All our products and services form the basis for many cohesive growth opportunities based on connected equipment, home and business monitoring, energy efficient improvement and infrastructure support.

World-class signature brands like RIGID, Sensi and InSinkErator form the basis for scalable solutions and are the bedrock of this B2B business and our only B2C empire. As I introduced earlier, the Helix is the metaphor for our Commercial & Residential businesses.

Our five simulated environments are almost impossible to appreciate from a distance, as the building offers us the ability to control the external environment – think winter in Alaska, summer in Dubai – in order to measure the energy efficiency or the home or business inside.

Our Innovation Center has been a terrific real-life laboratory with some of Emerson's most impressive, sustainable innovations, like InSinkErator's Grind2Energy, food waste initiatives to Sensi Wi-Fi Thermostats and groundbreaking compressor health control. So thank you very much for your time and attention, and I will hand it back to Dave Farr..

Thank you very much, Kathy. I appreciate your time. I wanted the shareholders to understand, the investors to understand, where we're trying to take the company going forward. A lot of work will be undertaken here the next 60 days as we get ready to launch.

It is very important for our employees and our customers to understand what we're trying to do with Emerson and reposition the company into these two core business units. Clearly, a little over a year ago, we announced our repositioning efforts. We announced that we were going to sell or spin Network Power and sell the Leroy-Somer and CT business.

Today, we're very excited to announce that we found two strong partners to buy these respective businesses.

Platinum buying the Network Power business and a great solution for this business; and one that we are excited about for Platinum, the management team and long-term even potentially us, given that we will have some potential upside if they're successful and with our 15% equity ownership down the road.

Also, Nidec, a strong Japanese company that we've known for a long time, I've known the Chairman for years, buying our Leroy-Somer CT business and managing that business going forward.

Again, a great solution for these two businesses with a good outcome for Emerson, with over $5 billion of investment value for Emerson and our shareholders and for allowing us to reposition the company. We will have one more transaction in 2017. If you remember, we talked about selling ClosetMaid and we said we'd do that in 2017.

In total, we'd do somewhere between $5 billion to $6 billion in proceeds. And so, we're well within what we expected back in February.

So we look forward to closing these two transactions before the end of the calendar year and moving forward as the new Emerson and trying to drive a stronger valuable proposition for our customers and for our shareholders. Now the third quarter. Yes, it was a tough quarter, a very tough quarter.

June was a very challenging industrial marketplace for us, especially on process. Given the recent announcements of the GDP numbers, it shouldn't surprise any of us. The numbers announced last week from business investment for the last nine months were negative and declining. Restatements for the last couple of years made it worse.

So we're facing a very tough environment and we saw that very quickly in the month of June as our Process Transactional business really slowed down, as our customers continued to protect cash flow and their investments to make sure they have the cash needed to run the businesses or pay dividends or whatever they're doing, but clearly a very challenging environment, but an environment where our team across Emerson knows what to do.

And we're acting on it very aggressively and making sure we keep our costs in line, making sure we do the right things internally to protect the key investments, but also keep our costs in line to allow us to generate the profits, the cash and the returns we expect at this company. In total, profitability with the third quarter was pretty good.

We generated operating margins flat with last year at 17.4%, in case you didn't figure that out, 17.4% with down underlying sales of over 4%. Cash flow was very strong in the quarter. We were strong in cash flow for the first nine months.

We will continue to generate the cash flow to run the company, to invest and pay money back to our shareholders and do what we need to do. But we have to face the reality of what we see today. It's a tough market. We did see a bounce back in July in our process orders, which is a good sign.

But in reality, we are look at a marketplace right now where people are being very cautious, they are being very careful with what they're spending money on and they are very uncertain relative to what's going on around the world from a political standpoint relative to just a business environment standpoint and where things are heading.

So we're staying very focused on trying to drive the necessary actions to protect the short-term profitability, at the same time, staying very focused on making the right, relevant, long-term investments to drive the necessary change that we'll see in this business, this industry when we come out. We will come out. This industry will come out.

But clearly, a challenging marketplace right now and one that we fully understand that we have to deal with and we will deal with it. Now let's think – on the positive side of this. We had many people out there doubting that Emerson could take the transaction, the repositioning and get the job done.

But the team within corporate, the team within Network Power, the team within LSCT and our external partners did a lot of work the last 12 months and came up with very strong proposition both for our shareholders and for the buyers of these actions and of the remaining assets that are being bought.

Very pleased with the work there, not easy to do in a marketplace, by the way, which is quite challenging. So my hats off to the entire team around the world for making this happen.

Also want to thank the team for landing a tough quarter, a quarter that was a lot tougher than we started out thinking about it and in reality, it ended up being very challenging, but we got the job done and delivered pretty good levels of profitability and levels of cash flow.

No, it was not what we expected, but still, very good in the environment we're seeing. From the perspective of the board and the senior management team, we're very focused on the future of the company. We have been repositioning the company and we continue to reposition the company.

It is a very solid company when we get down to the two businesses that will remain at the end of the calendar year.

And we're very much focused on making the necessary investments internally and through strategic acquisitions to build upon these two businesses to once, again, return to over $20 billion in sales, profitable sales and profitable returns. The opportunities are there and we're working on those.

Yes, it's a tough environment, but that's no problem within Emerson, we deal with those tough environments. That's what we do. It's our DNA. Clearly, would I like to have better times? Yes. But that's not what we face today. So we're facing reality.

We're very much focused on driving a stronger company, a more profitable company, a faster growing company and remain an industry leader in the two key business units, business segments that we'll have when we finish. A tough quarter. Fourth quarter is going to be tough too.

Wasn't long ago I thought that maybe we'd actually have flat or up sales in the fourth quarter. That's not going to happen. So we're having to deal with that.

And from our perspective, as we continue to restructure and get ready for a challenging 2017, it will be more favorable coming through a very difficult last 18 months, but still a challenging environment for us.

But we are well positioned and will continue to be well positioned to derive levels of profitability that will generate great cash flow and returns and over time will continue to return to the growth mode that we know with inside Emerson. So yes, I look back at the third quarter, a tough one, but we got a lot done.

Within 12 months from the announcement of the concept of repositioning and selling or Network Power business, LSCT, we did it. We got it announced. We are looking at how reorganized on the company to drive longer-term value, very good. The game is still on.

The hard work is still happening and I want to thank the entire management team globally, working so hard here the last 12 months and in this quarter to deliver what we need to deliver to continue to move Emerson forward, to remain relevant and an industry leader in the space as we serve today and will continue to serve going forward in 2017 and beyond.

With that, I'll open the floor for questions or comments. Thank you..

Thank you. And our first question comes from Andy Kaplowitz with Citi..

Good afternoon, Dave..

Good afternoon..

So look, I know it's early you don't want to give specific 2017 guidance, but can you talk about the puts and takes in terms of 2017 EPS? You've got dilution from the sales of your businesses..

No, thank you. I will not talk about 2017. I will not talk about 2017..

Okay..

Wait, Andy. Let's be realistic here. We're in the process of selling two businesses that will happen in our first quarter of 2017. We're in the process of going through, what I call, continuing restructuring process. We're in process of going through an environment where people are still cutting back spending. So I'm going to give you a forecast.

I've had a tough time this year. So I had a better view six months ago than I do now. So from my perspective, I'm not going to give you a forecast for 2017..

Okay. That's fair..

For people trying to guess 2017 right now, I think it's a pure guess..

I understand. So just shifting gears then, you're guiding to $90 million to $100 million of restructuring expense this year. You've done, I think, $43 million so far. So we know you've mentioned in the past that restructuring takes time.

But when we look at restructuring going forward, you're seeing Process Management business have lower decrementals in the quarter than last quarter.

How do we look at margins going forward in Process Management? Could the decrementals get a little worse before they get better?.

From our perspective, yes. I think what we're going to see is from a Process Management standpoint, we'll have a good fourth quarter process because it's always our best quarter. And we have a lot of restructuring underway in Process, a lot of things have been announced and we'll be starting to book or starting to book already.

So we expect that we'll be close to the $90 million level restructuring at fourth quarter. Clearly, you have timings when things get pushed and shoved, but we're going to continue to restructure there in the fourth quarter, then also in the first half for Process Automation.

It looks to me right now that Process Automation, from a profitability standpoint, are going to be going down into the operating level, probably around the high 17%, low 18%; EBIT margin is obviously lower because of the restructuring. And they'll bounce back into that 20% level, but will not bounce back in 2017 based on what we see right now.

I do not see the growth coming in the Process world to drive that leverage back up. So we're in the mode right now of trying to protected and minimize the downfall in profitability.

And so what we're looking at right now probably from profitability is somewhere between 200 basis points, 250 basis points, I would say deterioration in profitability at the operating level line of the Process business for 2016. And we'll stabilize that as we get into that – into 2017..

Okay. That's helpful, Dave. And then if you looked at – remember you gave the order growth curve to us in May and you talked about it potentially going positive in July. And I know you talked about it sort of being delayed.

How do you think about that order growth curve? Now, I know you said it's very hard to forecast, but is it fair to say it just sort of pushed out maybe six months to nine months? Any commentary on orders as we go forward here?.

The order curves that we see today have trended pretty much in line where I thought they'd trend, except for Process. On the Process segment, we've been bouncing between this minus 12% to minus 14% underlying order rate now for over a year.

And until, you know, we anticipated, including myself – I made the call, no one else did, I made this call – that I thought that would start lifting up towards the minus single-digit. It has not happened.

So based on what I see right now, the rest of the businesses have continued to trend upward and would be pulling us up to positive, they would have pulled us up earlier to positive, but until Process Management starts seeing, I would say, a lift in the order pace, which right now is running as minus 12%, minus 13% range, until we start seeing that move off that range, and we'll communicate that.

So once it goes into this minus 5% to minus 10%, then you're going to start seeing the total Emerson lift come. But right now, Process is such a big piece; it's down at a level that we have not seen a lift to pull us up. So that's what we see right now.

And I see no indication that we'll see that going into single-digit underlying order pattern in the rest of this fiscal year, which is the fourth quarter. So most likely, we'll start seeing it as we move out of this quarter going into the first quarter and the second quarter of fiscal 2017..

Thanks, Dave..

You're welcome. Thanks. Good questions..

Thank you. Our next question comes from Steven Winoker with Bernstein..

Hey. Thanks, and good afternoon. Dave, you....

Good afternoon, Steve..

You invited questions or comments, so I am – I actually am going to take the leap here and say congratulations on getting a sale done, which I know we've been debating for a long time. So congrats on that..

Thank you. A lot of hard work by a lot of people out there, Steve, that you should be thanking, not me. I mean, I'm just – there are other people that did a lot of work on that one; it's not easy, and do it right for the organization, which is very important..

Right. And you had to still agree to and get it done. The midpoint for the fourth quarter implied, I think, sequentially is about a 5%, just over a 5% sequential step-up. It is a little bit more than we've seen historically.

And given all the order rates you keep giving us, it certainly makes me – just want to understand a little bit, is there – are there any bright spots in here that are making us think that this would be just a little bit better than usual from 3Q to 4Q?.

Based on the – if you look at our underlying order pattern, we've been, on total Emerson, we've been running underlying around the 4% – the 4.5%, 5%, if you look at the pure underlying order rate.

So right now, what we're seeing is that – if that pattern continues what we've been seeing, then we should be able to reach this from the standpoint sequentially from the sales.

We are also seeing, on a positive standpoint, we are seeing – we had a lot – we had some inventory liquidation in some of our channel in the month of June and – May and June in some of the Commercial and Residential. We expect that that – some of that will return in the fourth quarter.

We also expect some of our compressor-type of business, which is the heat and the refrigeration markets, we expect a little bit of lift in that, which will help us as we go into the fourth quarter. We're not expecting much from the Process Automation.

If you look at the underlying business, we were down last year in the fourth quarter around 10% in sales for Process. We'll be expect to be down again around 10% again for the fourth quarter.

So we're seeing the other businesses are seeing a little lift and that's what's going to pull us up and we are banking the fact that Process does not have a leg down.

So I was very pleased to see Process came in in preparation for today's board meeting and showed us the July orders – the way they work, they do a 4%, 4.5%, so we know the July orders, and they bounced up back to a run rate that got back into the average that they've been seeing for the last five months or six months and way above what we saw in June.

So we did see a bounce back there. So that's how we look at it right now, Steve..

Okay. That's helpful.

And then if you look at just MRO versus CapEx type of demand within Process and Industrial or just overall automation, any, at least a little more commentary on the MRO side? A little more – is there any more stabilization there?.

Not really. We've seen very weak – and North America has been the real challenge for us. It would be Canada, U.S. and Mexico.

The MRO business and the – what we call the transactional business had a very, very weak June, as people really – some of our customers curtailed spending, they're doing the turnarounds of the facilities and changes, for the facilities and maintenance, but they're doing it very, very carefully and really cutting back on the extent of how much money is being spent.

So that has not seen an improvement. We expected that to stabilize, but it's not yet. That will be a key sign for us. And I think that is also a reflection that you see in the GDP. When you deconstruct the GDP in the United States the last three quarters, you'll see that business investment continues to deteriorate.

And that's one of the areas we're seeing right now is that day-to-day MRO type of business and that's hurt us in this space..

Okay. And can I just sneak one more in? Given your prior commentary about where to deploy the capital going forward, and especially now that you're through this big milestone, are you thinking still – you talked about a couple, one or two transformational deals versus bolts-on.

What should investors – are you leaning – do you think we should expect one bolt-on versus transformational? Or it's really up in the air? Or what? What are you thinking?.

We continue to do little bolt-ons. We've done a couple of smaller transactions, the unique software transactions in the Commercial Residential business the last 30 days, 40 days. We are continuing to look for a strategic investment in either the Automation business or the Commercial Residential business.

So in discussions with the Board today, we're very much focused on driving our trend – what we call a more strategic type of deal, a bigger deal. And clearly with the balance sheet strength, we can do that. But we're still very much focused on that and our focus is to get that done sometime in the next three, four, five, six months.

We're not going to do anything stupid, but we're looking at where we can invest and make a stronger, core Industrial Automation business or core Automation Solutions business in this tough marketplace. So we're going to work it hard. We're not going to step back and wait..

All right. Thanks, Dave. I'll hand it off..

Thank you very much, Steve..

Thank you. Our next question comes from Julian Mitchell with Credit Suisse..

Thanks a lot..

Good afternoon, Julian..

Hi. Afternoon.

Just following up on the issue of the stepped-up restructuring, so if we think about the sort of RemainCo Automation Solution segment, is the idea that the restructuring you've announced today, that should be sufficient to keep margins sort of flat in that business over the next 12 months, even if sales declined sort of a single-digit rate?.

Yes. Our goal is within the Automation business – Commercial Residential Solutions business restructuring is really starting to tail off. Bob Sharp and Jim Lindemann have really done a very good job. They got ahead of this and that business is doing better.

So our goal here is between this year and the first six months of Automation Solutions business is again spend restructuring. We're going to probably spend somewhere between $50 million and $60 million next year. And the goal is to maintain the profitability level of this business, plus or minus a tenth or two. So that is the goal.

We're trying to find where we can find that bottom without, Julian, without as I tell my board, I will not jeopardize the future of that franchise because it is a franchise.

But we clearly are working that equation right now relative – as the business has continued to weaken as we look at probably next year, as I've said, probably low single-digit negative growth in the Automation Solutions business. How do we protect that profitability at the level we finish this year? And that's what the game is.

And that's what we're trying to structure. That's how we're working the equation right now..

Understood..

Thank you..

And then just a follow-up around the sort of gross margin's impact from price versus from material cost. I guess for you, for everyone, that's been a tailwind for 12 months, 18 months in particular.

When you look in the next 12 months where input costs are now, and what pricing is doing particularly for large projects, how do you see the price-cost delta shifting, if at all?.

From our perspective, it has been a positive for us. If you look at our GP margins, we had a – our GP margin this quarter was what, Frank, we were up this year – this quarter. I think our GP margin was up this quarter..

We were up..

I think we have one more good quarter of it, Julian, to be honest. And then my feeling is what you've heard me talk about. I think that shift is going come and the wind is going to come against us a little bit.

And I fundamentally believe that we're going to start seeing that squeeze and we will not have the positive, and that we'll have to fight pretty hard to maintain a neutral balance. But I wouldn't be surprised if we don't have a quarter or two where the wind goes against us.

But right now, we're in a mode where we're still positive, but I think there's a period coming maybe early 2017, where it goes against me for a couple quarters. But we're working that hard – yeah. Frank Dellaquila said we're up 0.2% on the GP margin for the quarter. So that – your assessment is right.

Give us another quarter and then we'll probably get two quarters or three quarters coming out that will be more challenging. It will probably be neutral or slightly negative..

Thanks.

But pricing itself, you and your competitors, is that changing much? Or not really versus six months ago?.

No. Pricing is not changing. What's happening right now, the pricing – I think we talked about pricing around the negative – on average negative 0.5, negative 0.6, negative 0.7 for the year. We're well within that boundary right now. And the net material inflation has been good for us and it's been good for all the people.

So the pricing is staying well within that boundary. I think next year, we'll probably – I mean if I took a snapshot right now, Julian, and think about next year, I think it'll be slightly negative; won't be quite as negative as this year, but our net material inflation won't be as positive.

And we could have that switch coming on, where you – often you get squeezed a little bit. So that's what I see right now. But people are behaving – we've got other issues out there from a manufacturing standpoint, like too much capacity and stuff like that..

Agreed. Thank you very much..

Thank you. Our next question comes from Gautam Khanna with Cowen & Company..

Yes. Thanks, David.

I may have missed it, but could you elaborate on what the tax leakage is from the two divestitures, if any?.

Yeah, the tax – I'll let Frank talk about the tax leakage a little bit..

Yeah, so we've got gross proceeds, as we told you earlier today, of about $5.2 billion. The net proceeds will probably come in around $4.3 billion, $4.4 billion. So we've got a bit of tax leakage on both of them, a lot of moving parts, especially around the Network Power deal.

In terms of where we're recognizing gains and losses, where we have basis, but that's about the net of it right there..

Thank you. And just one other one. We've heard a lot about the M&A pipeline on the AS business.

Can you talk about what you're looking for in the C&RS business? What types of technologies or geographies that you're looking at? And any sense of what the size of some of those opportunities might in fact be?.

Yes. Most of the opportunities within the Commercial Residential Solutions, I will use the real names, not the abbreviation. I've got Kathy in, my head of marketing, and she's beating me over the top of the head with my – I got hit with my own baseball bat.

From our perspective, what we're looking for is sensing; we're looking for sensing type of technologies to allow us to create a bigger solution within our core product that we have there today.

We're looking for software, we're looking for monitoring, we're looking for the transformation that we did in the process world back 20 years ago when we created a very strong Component business and created sensing, solutions, the software. And that's where we are taking the position for the Commercial Residential.

The business acquisitions, most of them right now will be probably in the $20 million to $100 million range. There might be another one $200 million. No big significant acquisitions in what I would say the next 12 to 18 to 24 months. Bob Sharp and his team is driving the solutions strategy around this right now.

It's sort of the early days of understanding how to create that. One of the things Bob is coming from the process world and understanding that, so I'm expecting him to create a more of a solution type of environment around this and to leverage the core assets, the leading assets we have in that space.

So – but it's going to be smaller, sensing, solution, software type acquisitions, and companies you've probably never even heard of or thought of, to be honest..

Thanks a lot, guys. Good luck..

You're welcome..

Thank you..

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs..

Thanks and good afternoon, everyone. Dave, I echo the congratulations on getting the sales done and for the amount that you got them done. I guess as I think about your capital allocation priorities, clearly we've been talking about the M&A.

But can you maybe touch on the dividend once again? I know it's kind of like a Holy Grail for you, but I'm trying to get a sense for whether you're planning to set aside any of the capital from the net proceeds to fund the dividend going forward and how to think about buyback in that context as well..

Okay. Thanks. First of all, thank you very much for recognizing the sale. I appreciate that. As I've been communicating for over a year on sort of our utilization of cash flow going toward, yes, the dividend is important to us. It's important not to us per se, but to our shareholders.

And from our perspective, where we are right now, with the shrinking of the company down to, say, around $15 billion and the cash flow coming down along those lines, we will be detecting (48:55) our dividend as we've discussed at the board level for the next couple years.

The goal is obviously to grow the company both organically and through acquisitions, to rebuild the cash flow base that we're losing from the divestitures. But right now, as you think about our company and you think about our free cash, let's think about our free cash flow next year.

And let's say we take the dividend up marginally a little bit like we did this year. Our dividend coverage – our cash flow, the free cash flow of the dividend coverage is going to go around the mid-60% level.

And so, our goal is to figure out how to keep that – peak at that mid-60%s, maybe higher 60%s and then move it back down in the range of 40% to 50%.

As I've told the shareholders, however, let's say that we're not able to find significant strategic acquisitions, we're not able to get the growth necessary to get back up to the size of the earnings and cash flow base that we had just a couple of years ago. Then we will, as a board, will have to consider do we cut the dividend.

But that is not where we sit right now. Right now, we have the capability of both funding internally and doing the dividend and will dial back the share repurchase.

And this year, we're going to end up around $600 million of share repurchase, next year will probably be somewhere in the $100 million to $200 million range, just basically covering any stock we're putting out there for employees – and but we'll dial that back.

The intention of the board, as we discussed a lot over the last 12 months, the use of proceeds and our balance sheet to go out and continue to do aggressively – make investments within the two core spaces we're maintaining, we're keeping the company, and that's where our focus is going to be..

Got it, that's really helpful. And I guess maybe one last question and I know it's probably too early to talk about 2017..

No way. Go ahead..

I'm going to ask it anyway.

I guess if you're thinking about just the underlying trends that you're seeing in process today, if those underlying trends were to hold steady through the year and as we progress into 2017, can you guys grow margins given the price cost commentary earlier as well as the restructuring actions that you're taking in that business?.

I think to be very honest with you, I think given the current trends, the underlying growth rate of our Automation business next year will be slightly negative, will be low single-digit negative sales.

From that perspective, with the restructuring we're doing, we're going to do (51:29) everything possible to protect our profitability as we finish this year in that environment, and so that's what I see right now until I see our customer base willing to invest more for productivity, invest for next-generation capacity or whatever it takes, that it's going to be a tough environment.

So I don't see that. On the Commercial Residential, we do see underlying growth and we do see a little bit of improvement in profitability.

Next year, the focus of that business will be the integration of some of the – on the various businesses, as we've talked about streamlining, creating a very strong global integrated business, and so that's where that focus are going to be.

So next year, I would say that business will be – will have a positive underlying growth and most likely we'll see a little bit continued margin improvement, which – and the business is running at pretty good levels of profitability right now..

Got it. Thank you very much..

You're welcome..

Thank you..

Thank you. Our next question comes from John Inch with Deutsche Bank..

Thank you. Good afternoon, everyone..

Good afternoon, Johnny..

Hey, Dave. So maybe a question for Frank or perhaps you. In February, you gave us a pro forma EPS number of $2.60. And now that we've done these transactions, the guidance has come down.

And I guess just with all the corporate moving parts and stuff, what is that – what maps (52:49) to that $2.60 for fiscal 2016 pro forma? What would be the number today?.

It's going to be lower; I can tell you that. It's a little bit early to say how we finish up, but it's definitely going to be lower than that and it's going to be moving – it's obviously more closer to the $2.50 range and slightly lower.

But it's going to be – that's what we're – clearly, with our EPS now down lower, I think that's what's – just being (53:13) reality, that's what's going to happen right now. But the basis is going to be more in that line at this point in time..

And then pro forma, how much of your free cash, so pro forma, so these businesses have gotten – how much of the free cash or how much free cash would you be generating in the United States?.

Still going to be about 50/50. The profile of the company from sales profitability, it does not change much from the – John, as we operate going into the transformation and as we go to the next – the NewCo, doesn't change much. So it's going to be about the same. And so we're losing cash flow operating cash flow, Frank, around....

$400 million to $500 million..

$400 million to $500 million. So – but as you look at the generation of $3 billion, we lose $400 million to $500 million, it's going to be the same makeup between U.S. and international..

I was just trying to bridge the dividend is like $1.2 billion and change, right? You raised a little bit. You've got half of your free cash. Is it – just the question is almost to Joe's question, is are we generating enough U.S. free cash to pay this? And it seems like we're kind of on top of that, right? It's....

We're on top of that. And the other issue we've talked about is that one thing Frank and his team is looking at right now is we will be making – assuming we don't do anything from an acquisition standpoint, we will be bringing back cash flow at a very low tax cost to us, as we talked about both in February and this year.

So Frank, you might want to mention....

Yes. As we walk through these transactions and as we move toward closing, we're looking at bringing back all the proceeds because we'll receive a significant amount of proceeds offshore. But we'll bring everything back as well as all the cash that was in those businesses that had been generating over time.

So we'll have pretty significant cushion here in the U.S. as we do that. And then we normally bring back $400 million to $500 million of cash very efficiency every year anyway. So we understand the issue on the dividend and the share repurchase, but we think we have it covered..

Yeah. One thing we do with our finance committee is we very clearly lay out the cash flow needs over a couple of years and where that money is coming from. So we try not to get ourselves surprised and boxed, but it's easier for us to see it than you. So that's how we understand the issue..

No. That's fine. I think the Network Power transaction, talked about Emerson retaining a subordinated position..

Yes..

What exactly does that mean? Does that mean you're some sort of a minority interest accounting number? Or is that actually pertaining to....

No. There will not be any of that. There will be no minority interest. We have no board fees. What we have is if the business does well and we'll be retaining a 15% subordinated equity piece, if the business goes well and something happens and they make their return, then we – then obviously we'll get a piece of that on the upside.

So that gives us a little bit of capability if something does go well and a lot of the efforts we put in the last couple of years, we have a chance of making something down the road. Maybe my successor or whoever has a chance to have a little bit more money coming out of that for our own shareholders at some point in time.

But no minority interest on the balance sheet in this one..

No, it's not, from an accounting sense, an equity position. It's a subordinated interest, which under the right circumstances, could be a very good payout for us down the road..

Okay. That makes sense. Lastly, is there a timeline, Dave, where you would say now we've sort of accomplished the M&A for this? I mean, in other words, you've sort of given yourself a two-year window on the dividend.

Does that imply that the execution of replacing the lost earnings is over two years? Or – I mean, obviously you would want it to be front-end loaded, right? Except that the M&A markets, it's a little bit pricey.

So I'm just curious how you would like us to think about the timeline, perhaps, of deployment of proceeds to do these acquisitions?.

Yeah, from our perspective, Frank and I, we review with the Board and also the Finance Committee.

We see that – where the two years come from, the fact that we know we have to be in a map, or sort of like a roadmap of figuring out how to get that – our return coverage interest – coverage from the dividend on free cash flow coming back down towards the 50% level.

And so that's why we say two years because if we don't have a roadmap that's through acquisitions or faster internal growth, then the pressure is going to be building both us as a management team, the board and our shareholders and say hey, how long can you maintain that high level of dividend payout without damaging the company? So that's why we look at that and say a two-year window, a nice round number to talk about.

That's why I say that..

Okay. Got it. Perfect. Thanks very much..

Thank you. Our next question comes from Robert McCarthy with Stifel..

Good afternoon, everyone..

Good afternoon, Rob..

Yeah. I guess, Dave, in terms of your comments around Process, I mean, obviously you talked about perhaps a bounce in July orders. But obviously, we're now in a bear market for oil again, given recent trading.

So I guess what gives you confidence that we're not going to see something kind of worst going forward?.

I don't have confidence. I mean, from our perspective, just go read the transcripts from any of the oil and gas companies reported, all we do is we look at our businesses, we look at what's going on in transaction, look at the day-to-day order book and what comes in. We have good systems, we can see that.

The fact that I look at the stability and the flattening of certain things and we make a call. So that's the type of confidence level I have. And I know of no customer out there saying, oh, things are great, we're looking at increasing spending. But we have a very broad and diverse business, global business, a lot of industries.

And so that's how we make that call. And I was just – I am encouraged by the fact that we did see a bounce back in July because June was a very – I mean a knock-you-over-the-head type of month for our Process business, so that's where I'm coming from. And we'll see..

In terms of the Network Power acquisition, the six – I mean how would you, on the basis of your guidance, the performance of the businesses right now, how would you categorize the EV to EBITDA multiple paid on 2016 numbers?.

You're talking about (59:22)? The number we showed was....

I think if you look at our trailing 12 months, we're right in the 8 range on EBITDA, plus we've got the upside..

Yeah..

Okay. And then the final question is – I mean from a capital allocation standpoint, you're kind of between a rock and a hard place here.

And from that standpoint, you've got companies that are probably having a road in fundamentals right now and you have to take a look at them in a public equity market that, in the main, is still rising, still high valuations.

I mean, is there a case to be made to kind of batten the hatches here? Shift capital allocation and then just get a better sense of where we are on the down cycle before pursuing something more aggressive on the strategic front?.

I mean, we obviously look at everything, but we'll make that call based on what assets are potentially out there for us to make a call on. I mean I think that if you have unique opportunities, you have to take those opportunities.

If you think about our business, the Automation business we're involved with, there are few and far-between assets you can actually interact with, so you do what you have to deal with. But – let's just put this way, I'm not looking to go out and do something really quick and crazy with the $4 billion which I don't have yet.

But I think from our perspective, we see the opportunity and we see a situation – we're going to take advantage of the situation. Right now, it's a tough marketplace out there. And you try to find – you ever try to get to bottoms when to buy stocks or buy things? You're going to lose. That's a loser's strategy.

We're going to buy assets we think we can make money. And so I look at people that sold the day of Brexit and the day after Brexit. I would call that very short-term thinking..

Congrats on getting the deal done. Talk to you later..

Thank you very much..

Thank you. Our next question comes from Nigel Coe with Morgan Stanley..

Thanks. Good afternoon. Hi, Dave..

Good afternoon, Nigel..

Yes. Congratulations on getting everything coordinated for (1:01:21) today. That's quite a task..

Thank you very much..

So I know you've clarified that you're not going to give any 2016/2017 guidance. But you – back in February (1:01:34), you talked about $0.65 of lost earnings from the assets to be sold in (1:01:40). Obviously 2016, there's been a lot of moving parts on Network Power, probably a little better than plan (1:01:46), industrial automation, their worth.

So are we still on track with our $0.65 impact?.

Yeah, I – well, I just said in the – a couple of minutes ago, I think what we've said, the impact will be about the same, maybe a little bit more, maybe about the same. But because our – the base in 2016 will be lower on that number than we talked about. We talked I think $2.60 EPS.

That number's now going to be lower because from the standpoint of the whole range came down. But I think if you look at the Network Power and Leroy-Somer assets, there's about the same number. Delta's about the same. Just one's done better, one's done worse, so that's about where we see it right now..

Okay. So the net impact's about the same. Okay, that's helpful. And then perhaps a question for Frank.

The tax rates for the pro forma Emerson, how does that look?.

About the same as the old Emerson. It really comes out pretty much the same way as the total company is today, so there's not – I don't expect any material change in the tax rate. I think we're going to be in that 30% to 31% range going forward..

Okay. And then just finally over to the last pieces, (1:02:48) you said probably mid-2017 for this.

I'm assuming that proceeds from that would take us right in the middle of that range, the $4.4 billion to $4.7 billion?.

Exactly. Exactly..

Yeah..

I think that – yeah, it's not a huge transaction and we'll – our people have been pretty busy right now on this one, so we'll get – we'll launch that sometime early 2017. The exact – we'll be – I think we talked about $5 billion to $6 billion, and then we'll be right in that range with this one too..

Great. Thanks, guys..

And then we're done. Thank you..

Thank you. Our next question comes from Deane Dray with RBC..

Thank you. Good afternoon..

Good afternoon, Deane..

Dave, I was hoping you could expand a bit more on the potential divestitures. And as I was going through Kathy's slides, you still have a legacy exposure to data centers with Liebert.

And I just wanted to hear from you what sort of linkages you think that business has? It certainly does with climate, but beyond the climate linkage, where else does Liebert fit within the business on the go-forward?.

Liebert is part of the Network Power business which is being divested. So....

So....

There is no – there is no – if you look at our Network Power business, which if you think about the business in that you have Liebert, you have Chloride, you have ASCO Power, you have Avocent, you have Avansys, businesses that we've had for a long time or maybe acquisitions.

That's the compromise – that's the composition of the business that are being divested.

So those businesses will make up the Network Power business which is being invested and bought by Platinum today and run by Scott Barbour and then the Leroy-Somer CT business, which was the – what we call the Industrial Automation businesses that were left out with those businesses we've had for a long time will also – those are being sold to Nidec in a separate transaction.

So once we're down with that, the only business left that doesn't fit within our Automation Solutions business is our ClosetMaid business, which is a storage business we bought many, many years ago and did very well with; and there's no reason to keep that, so we're moving that out.

And then at that point in time, all the business will fit in very nicely and have a lot of core strength between Commercial & Residential Solutions and Automation. And maybe, Craig, come back – come and come in and see (01:05:07) sometime and go through it, so you can see the two business segments and how everything fit together..

No. That's helpful. Just looks as though that slide hasn't been updated because you still have data set of thermal management included on the umbrella of the businesses..

Okay. Okay. Because that's within – okay. Okay. Now I – okay now I understand the (01:05:26) question, Deane. So you're right.

Within the Helix, our interim center, we actually have a cooling data center there which we're monitoring and with that, from that standpoint, that was built in when obviously Network Power's a part of us and we'll work with them down the road to help them but as part of cooling, but it's just more of a compression thing.

That's all it will be in the (01:05:46). That will not be our core part. They do have that capability within the Helix today because our customers want to look at cooling, precision cooling or humidity or whatever it is. And that's nothing to do with business we're keeping. It's just within that engineering center there in Dayton, Ohio. Good grace.

Thank you..

Thanks for that clarification.

Just a last question, I don't mean to spin you up, but you did bring up the thought that there could be some of the business investment hesitancy because of political uncertainty, and how meaningful do you think that is across your businesses today?.

I mean I don't think – I mean, from my perspective, North America, I'm sure there's some hesitation relative to spending, but really – and you think about – it really boils down to the overall economies not growing.

1% growth for the last two quarters or three quarters or four quarters is not very exciting; and I think that that's created an environment where businesses are being very, very cautious at spending money. Political environments around the world is more of a function of what's going on in Europe, our elections here, what's going on in Japan.

It's just there's a lot of uncertainty relative to, well, from a government standpoint just what – where the direction is of the government.

Are we going to try to create negative interest rates for the world? Are we going to try to invest and grow the world? And right now I see more of an environment where we want to create negative interest rates and give people free money; and there's no incentive to invest. So I thought that's the only environment, I'd say..

Got it. Thank you..

Okay. Thanks..

Thank you. Our next question comes from Shannon O'Callaghan with UBS..

Good afternoon, Dave..

Good afternoon..

Hey. And just in terms of this June and July stuff with the process, I mean there are parts of the oil and gas world seem to be stabilizing during that period of time, but other parts seem to be still getting worse.

I mean as you talk to some of the customers and took some of that feedback in June, I mean were you able to make any sense of parts that were stabilizing versus parts taking another leg down?.

From what we're seeing, what we saw was clearly they're doing the maintenance, they're doing the turnaround situations, but they clearly are being told to spend less on it; and that's what we're seeing right now.

And from the standpoint of June, June's normally a very big month for our process industry because of all the turnaround situations over the summer months; and I think that our customer base just got a little bit more cautious in that month and hopefully there's – maybe they're getting through that period right now and they're going to feel – and go back to a little bit more the normal pace we've been seeing.

But June was such a shocker to us relative to how much they decided to contract. But I just think people are being super, super cautious, and bosses are probably saying, hey, we did it for $1 last couple of years; can you do this now for $0.50? And so, I think that's was going on in this environment right now..

Okay. And then just as you think about investing in the process business both organically and via M&A, I mean, Emerson was a real trend-setter in terms of digital communication and asset management of devices, et cetera, and now there's a lot of activity going on in that space.

I mean, do you think there's anything you need to do differently there? Or do you – still comfortable with the control platform and just think you want to add more devices to it? Maybe just give a sense of where you think you are there?.

From the control platform or from diagnostics, sensing and stuff like that, we continue to invest, we continue to buy technologies, we continue to do internal investments on those technologies. Nothing real big in that space as we continue to make sure that we stay, keep a leading position as we go forward here.

So a lot of our investment dollars are still safe in that space right there. We will continue to look at acquisitions relative to offering a broader package relative to our solutions. So bringing more capability to the end market relative to the capabilities both from control, from its rotation, from valves, whatever it takes, measurement out there.

So we'll continue to look at trying to add to that capability. But we continue to be a leading investor, relative to your first question, relative to sensing, control and diagnostics; and we'll continue to do that going forward, because we have no intention of losing that.

So that's the fine line we walk relative to where we slow down our investments and where we don't slow down our investments..

Okay, great. Thanks..

Thank you..

Thank you. Our next question comes from Christopher Glynn with Oppenheimer..

Thanks.

A question on process, Dave, as you've seen a deeper trough manifest here, how does that inform your view of expectation for a steeper recovery at some point versus kind of just the more absolute baseline reset?.

My opinion is the deeper we go, the longer we stay down here, the faster the snap back. I've been here once before. I saw it. And so, the more pain you have, the better in the end. No fun having the pain upfront, but the better a snap back. So right now it's a deeper pain going down; it's a longer pain going down.

And that tells me one thing, that spending will have to bounce back at a faster rate..

Okay. That's it. Thanks..

And knowledgeable about (1:11:16) this industry..

Thank you. Our next question comes from Steve Tusa with JPMorgan..

Hi, guys. Good afternoon..

Good afternoon, Steve..

I think there was some cash over in like China or something with Network Power.

What's happening with that? Does that go to the buyer?.

I think we've worked out contractually a way to get that out of there over time, over and above some reasonable amount that needs to be left behind..

Yeah..

It's not a worry..

Okay.

Is that kind of part of the – and this is – just basically this is an earn-out, right? I mean is what you're kind of – you propose to these guys?.

No, no, no. Steve, Steve, when they buy the business, they will write a check for $4 billion.

And then if – they are going to run the business and if the business does well – and we've made a lot of investments with that business and you can see it's been progressing to come back – and the business does well and down the road if things do really well and they have a chance to sell the business, or take it public or whatever they do with it, and there's an upside from what they return, then we have a chance to get a little bit more money down the road too ourselves.

So upfront, the day they take this company, they're going to pay us $4 billion cash right up front. So we get money. And typically we'll work the cash balances around the world.

As you said, there are taxes around the world, and we will leave what we consider adequate cash for our business, but the rest of that cash belongs to Emerson and our shareholders..

Okay. And then just one last question just on I guess kind of the cultural direction here. I mean, you guys walked through the website on the conference call, which we've kind of never really seen that before. So obviously you're trying to put a foot forward when it comes down to the transformation of the company.

GE has got these commercials out there, even though it's like literally 2% of sales for them.

I'm just wondering like how – is there like something going on in the industrial world where there is – is this kind of an internally driven thing or is there some consultants running around trying to pitch this story? It just seems like everybody is talking about IoT at the same time.

And to varying degrees, what is your percentage of sales? Because I think you guys have a decent amount in software, better than the other guys, but I haven't seen it before..

Yeah. We have a lot there. We're not buzzing IoT. I mean, in reality, there is no consultant running around. I've got Kathy, and she's got a little minion here and she is right here next to her. So it's a dynamic duo team right here. Steve, there's no consultants.

I think that why we did this today, it's very important, this webcast is listened to by a lot of our employees, too..

Okay..

And one of the key issues from our perspective right now, we're communicating to you, we're communicating to our customers and internally. And what's going on right now, our customers are looking for what are we going to look like, how this thing look like going forward when we come out in October. So I asked Kathy to come in and to talk about it.

There are no buzzwords here. I mean we're very much into Internet of Things and we have been involved in this for a long time, going back to initial Internet of Things been called PlantWeb, which I used to present when I was running the process business.

So I think that it's just people like to talk about it and we felt very important for you to understand, and for our investors to understand and then also for our employees understand where we're trying to take this in the next two months to three months as we unfold this transaction..

Okay, great. Thanks a lot..

Thank you..

Thank you. Our next question comes from Jeff Sprague with Vertical Research..

Thank you. Good afternoon..

Hello, Jeff. Good afternoon..

How's it going?.

Okay..

I just wanted to make sure I totally got the cash proceeds right.

So the $4.3 billion to $4.4 billion net is after-tax payments that you make and includes cash that you're repatriating as part of the transaction...?.

No. That includes the cash tax payments, Jeff, on the taxable gains. There's another couple of hundred million. Depending on what we decide to do on repatriation that we would incur, we can bring a lot of cash home at a very low effective incremental rate.

But it would be another couple hundred million of cash taxes if we bring home all the proceeds, as well as all the cash that was in the businesses..

So it's real simple, $5.2 billion of proceeds, we pay taxes for the transactions, some with losses, some gains around the world. We'll end up somewhere around $4.3 billion of cash sitting in our bank account that we'll use to do something with. That simple..

Is there any election, a 338(h) or anything like that that has some negative ramifications for you guys down the road?.

No..

No..

No..

And then just one last one, Dave. Your comment about the dividend and deploying the capital and kind of bringing the cash flow back made sense.

I wonder if you'd also, though, consider massive share repurchase to lower the share count and therefore lower the cash dividend amount, right? And it seems like you could kind of correct the imbalance that way if you wanted to.

Is that something you would consider or not?.

Not at this time. Our consideration is to invest in growing the business again and not liquidating the business. So the investment profile of the board is such that we feel that we have opportunities out there and we'll continue to have opportunities out there in the next couple of years.

And we've gone through a whole process here saying (01:16:50) where do we want to focus. And so, our focus is in these two areas here and we're going to look to go out and buy assets and leverage those two businesses which are two very strong global profitable businesses; and that's what we're going to do.

I'm not in the mode of buying stock back and taking the company private..

No. I'm thinking more kind of further down the road, you suggested if you can't find deals dividend (01:17:12). All right..

I would just go all out (01:17:15) and take the company private..

All right. Got it. Thank you..

Thank you. We move next to Jeremie Capron with CLSA..

Thanks. Good afternoon. Question on the underlying sales trend, do you have an idea of what it looks like excluding energy markets? I mean, I see the huge contraction in Middle East, Africa and Canada here. But Europe and U.S. don't look so bad.

I suspect that if we exclude energy markets, you should be running positive this year?.

I mean, we don't look at it that way, because there's a lot of cross-correlations in there. But I mean obviously the major oil and gas downturn in North America and Latin America and Middle East has definitely pulled it down. Obviously, I mean, we don't cut it that way. I don't have that capability of doing that, but clearly they're down quite a bit.

So I would say that there's a good chance if you start cutting out and looking at a smaller part of Emerson, you could say it's growing. But that's not how we think about it. And I just don't see the numbers that way..

Fair enough. And you commented on the valuation of the Network Power deal.

Any comment on the Leroy-Somer?.

Okay. The price that we're talking about is $1.2 billion. I mean we'll end up – obviously there we have less taxes to pay in that transaction. And so, we'll end up probably around a little bit under $1 billion in cash when we're all said and done..

And in terms of the earnings multiple on that?.

It's around 10 times..

Yeah..

10 times. 10.3 times..

All right. Thanks very much..

You're welcome. Thank you..

I want to thank everybody. We wrapped up here. Again, I want to thank the organization around the world and particularly around the Network Power team, our Leroy-Somer-CT team, and the work working the Platinum folks from Network Power and Nidec on the Leroy-Somer CT. And I want to thank the organization. Yes, a very tough quarter.

But we'll get our way through this and we'll get on into the next quarter and moving on to the next generation of Emerson. So thank you very much, everybody. Appreciate that..

Thank you. This does conclude today's presentation. We thank you for your participation..