Janet Pfeffer - VP, Treasury and IR Mike Lamach - Chairman and CEO Sue Carter - SVP and CFO.

Jeff Sprague-Vertical Research Company Jeff Sprague - Vertical Research Company Nigel Coe - Morgan Stanley Mark Douglass - Longbow Research Julian Mitchell – Credit Suisse Steven Winoker - Bernstein Research Steve Tusa - JPMorgan Robert Berry - Susquehanna Josh Pokrzywinski - Buckingham Research Andrew Obin - Bank of America Steve Volkmann - Jefferies Jeff Hammond – KeyBanc Capital Markets Joe Ritchie – Goldman Sachs.

Good day, ladies and gentlemen, and welcome to the Ingersoll Rand Third Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this conference call is being recorded.

I would like to introduce your host for today’s conference Janet Pfeffer, Vice President, Treasury and Investor Relations. Ma’am you may begin..

Thank you, Sam, and good morning, everyone. Welcome to Ingersoll Rand’s third quarter 2014's conference all. We released earnings this morning and the release is posted on our website. We’ll be broadcasting, in addition to this call through our website ingersollrand.com, where you will find the slide presentation that we will be using this morning.

This call will be recorded and archived on our website. If you’d please go to slide 2. Statements made in today’s call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of Federal Securities laws.

Please see our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. This release also contains non-GAAP measures, which are explained in the financial tables attached to our news release.

Now to introduce the participants on this morning’s call Michael Lamach, Chairman and CEO; Sue Carter, Senior Vice President and CFO; and Joe Fimbianti, Director of Investor Relations. With that, please go to slide 3, and I’ll turn it over to Mike..

Great, thanks, Janet, good morning and thank for you joining us today. In the third quarter, we delivered earnings per share of $1.10. There was a small amount of restructuring in the quarter, it was less than a penny so reported and adjusted EPS are identical. That’s a 21% increase versus adjusted earnings per share in the third quarter of 2013.

Revenues were $3.4 billion, up 5% versus last year on a reported basis. Revenue growth was about a point higher than our guide which was to be up about 4% for the quarter. We saw somewhat stronger revenues in transport particularly in auxiliary power units and marine equipment and in commercial HVAC equipment in both North America and Europe.

Revenues were up 6% excluding currency. Orders were up 7% in the third quarter and up 8% excluding currency. Climate orders were up 9% led by auxiliary power units, marine units and commercial HVAC equipment orders. Industrial orders were up 3%. Adjusted operating margin which excludes restructuring was up 90 basis points.

Climate margins increased 120 basis points; industrial margins were headwind of 110 basis points. For the company pricing exceeded direct inflation that has each quarter for more than three years. Operating leverage was 31% on an adjusted basis. On the year-to-date basis we have delivered 110 basis points of margin improvement.

We repurchased 2.6 million shares in the third quarter. We have narrowed the range of our full year forecast the midpoint of guidance for adjusted EPS of $3.22 is unchanged and now includes diligence and transaction cost related to the Cameron acquisition that we were not in our July guidance.

I’ll give you some more detail on the fourth quarter and the year in a few minutes after Sue walks you through more details on the third quarter.

Sue?.

Thanks Mike. Starting at a high level again, our reported bookings for the quarter were up 7%, revenues were up 5% and our operating margins without restructuring were up 90 basis points year-over-year. Reported earnings per share were $1.10 versus midpoint guidance of $1.03 the $0.07 fee came from a few areas.

As Mike said revenue growth was about a point higher than mid-point guidance which would be about $0.03 earning. The currency exchange impact from Venezuela which we have point out as an estimate in our third quarter guidance of $10 million cost or about $0.03 did not occur in the quarter. So that was three of the $0.07 difference plus the revenue.

However, the risk in Venezuela remains and we’ve rolled that now into the fourth quarter guidance. The tax rate and share count were each about a penny favorable. FX excluding the Venezuela item was about a penny unfavorable to guidance. So that gives you the full $0.07. Now if you'll go to slide four.

Orders for the third quarter of 2014 were up 7% on a reported basis and up 8% excluding currency. Climate orders were up 9%. Global commercial HVAC bookings were up mid-single digit. Transport orders were up over 20% and as Mike said led by auxiliary power unit and marine unit orders. Orders in the industrial segment were up 3%.

So if you can go to slide five. So look at the revenue trends by segment in regions, the top half of the chart shows revenue change for each segment. For the total company third quarter revenues were up 5% versus last year on a reported basis and up 6% excluding currency.

Climate revenues increased 6% with commercial HVAC revenues up mid-single digits and transport revenues up mid-teens. Residential HVAC revenues were up low single digits. Industrial revenues were up 3% on a reported basis and excluding currency. I’ll give more color on each segment in the next few slides.

For the bottom chart which shows revenue change on a geographic basis, revenues were up 6% in the Americas, 9% in EMEA and Asia was down 2% all excluding foreign exchange. Within Asia, China revenues were down mid-single digits in the quarter with climate revenues down low-teens and industrial revenues up slightly. Now go to slide six.

This chart walks through the change in operating margin from third quarter 2013 of 11.8% to third quarter of 2014 which was 13% for an increase of 120 basis points. This chart is on a reported basis. We’ve clearly spiked out the impact of restructuring cost for you which was 30 basis points of tailwind year-over-year.

Volume mix and foreign exchange collectively were 80 basis points positive versus prior year. Our pricing programs continue to outpace material inflation adding 10 basis points to margin.

We have been consistently positive on this measure for more than three years although we’ve foreshadowed in each earnings call this year the gap has narrowed as we move through 2014. Productivity versus other inflation was 60 basis points of positive impact in the quarter.

Year-over-year investments and restructuring were higher by 30 basis points in total. In the box, you can see that was comprised of 60 basis points of headwind from investments, those are the new product investments, channel expansion and also IT. There was a 30 basis point benefit from lower restructuring cost.

So if you prefer to look at this on an adjusted basis, adjusted margins increased a net of 90 basis points versus the 120 basis points on a reported basis. Leverage in the quarter was 31% excluding restructuring from last year and 27% in the segment.

Climate’s leverage at 34% was strong across both the HVAC and transport businesses particularly in North America and Europe. Now if you'll go to slide seven. Let’s talk about the climate segment. The climate segment includes Trane commercial and residential HVAC and Thermo King Transport refrigeration.

Total revenues for the third quarter were $2.6 billion that is up 6% versus last year on a reported basis and excluding currency. Global commercial HVAC orders were up mid-single digits. Orders were up mid-single digits in the Americas and Asia.

HVAC orders were up more than 20% in Europe, Middle East and Africa with strong increases in both applied and unitary products. Commercial HVAC revenues were up mid-single-digits. Revenues were also up mid-single digits in Americas, up low-single digits in EMEA and down in Asia. Commercial HVAC equipment revenues were up mid-single digits.

HVAC parts, services and solutions revenue were also up mid-single digits versus prior year. Growth in worldwide unitary equipment revenues more than offset lower applied revenues. Thermo King orders were up over 20% versus 2013 third quarter led by increases in marine equipment, auxiliary power units and North American trailers.

Thermo King revenues were up mid-teens with truck trailer revenue up low-teens. Bus, APU and marine equipment revenues were all up over 20%. Residential HVAC revenues were up low-single digits versus last year. Unit volumes were also up low-single digits and mix was positive.

The adjusted operating margin for climate was 14.3% in the quarter, 120 basis points higher than the third quarter of 2013, due to volume and productivity, partially offset by inflation. Now let’s go to slide eight. Third quarter revenues for the industrial segment were $741 million, up 3% from last year’s third quarter.

For the industrial segment excluding Club Car, revenues were up low-single digits and orders were also up low-single digits versus last year. Excluding Club Car revenues in the Americas and Asia Pacific were up mid-single digits while revenues in Europe, Middle East and Africa declined.

Club Car orders and revenues in the quarter were up slightly, growth in utility vehicles offset a decline in Gulf markets in the quarter. Industrial’s operating margin of 14.8% was down 110 basis points due to inflation in investment spending partially offset by higher volume, productivity and pricing.

We have increased investment spending in industrial versus prior year product development and advance of upcoming regulatory changes and infrastructure investments to support channel and services. Let’s go to slide nine. Working capital as a percentage of revenue was 4% of revenue in the quarter.

The increase versus prior year is from higher receivables in inventory, partially offset by higher payables balances. Day sales outstanding is up mainly due to mix of business in higher terms in certain geographies such as China.

On inventory, we have been intentionally increasing stock levels, inventory levels of key assemblies in order to ensure availability of supply. Year-to-date September free cash flow was $417 million. Our full year cash flow forecast is 800 million to $850 million versus prior guidance of $850 million to $900 million.

The change mainly reflects investment we are making in inventory to support key stocking levels and support the regional standards change in residential HVAC that translates the free cash flow of 90% to 95% of net income. Please go to slide 10. We repurchased 2.6 million shares for approximately $160 million in the third quarter.

Year-to-date September we have spent $1.2 billion in share repurchases and repurchased about 20 million shares. Our forecast for the year remains to spend 1.375 billion on repurchase. And with that I will turn it back to Mike. .

Great, thanks Sue. Please go to Slide 11. In August we announced our agreement to purchase the Centrifugal Compression division of Cameron; this chart was shown during the webcast we held of the day of announcement. It’s great fit with our compressed air business it generates value for our shareholders, and it’s decretive to all of our key metrics.

It adds to our core compression capabilities and it adds throughout the range to our compressed air business. Please go to Slide 12. There are no updates to the timing of the closure. Everything is progressing according to schedule; we still expect to close in the fourth quarter.

The forecast I will go into next does not include any operational results for Cameron. We will update you once we know the closing date. Please go to Slide 13. Our full year revenue forecast for growth was about 4% is unchanged.

There has been some movement within the climate segment, where transport is going to come in somewhat stronger given the orders we have in hand for marine containers and APUs that will ship this year which is offset by somewhat lower HVAC revenues in Latin America and Asia and the impact of negative foreign exchange. Please go to Slide 14.

For the full year as I said we still see revenue growth of about 4%. We are adjusting our full year 2014 earnings outlook to a range of $3.17 to $3.21 on a reported basis. For the full year we now expect to spend about $0.03 in restructuring versus $0.05 in our prior guidance. So on an adjusted basis in a range of $3.20 to $3.24.

This includes absorbing some transaction cost related to the closing of the Cameron acquisition which again were not in the July guidance. There was no change to the full year average share count value to 275 million shares the tax rate of approximately 25%. Fourth quarter 2014 revenues are forecasted to be up approximately 3% to 4%.

We expect mid-single digit growth in climate and low single-digit growth in industrial. Fourth quarter GAAP, continuing earnings per share are forecasted to be in a range of $0.68 to $0.72. Restructuring costs are expected to about $0.01 in the quarter, so on an adjusted the EPS range is $0.69 to $0.73.

The difference between the prior fourth quarter guidance and current guidance is from a negative Venezuelan currency impact estimated of $0.03 to a timing moving from Q3 to Q4 to as Sue discussed, some timing of shipments between Q3 and Q4 versus the July view and transaction cost related to the closer of the Cameron acquisition which were not included in our prior guidance.

We are assuming an average share count of fourth quarter of 270 million shares and a tax rate of about 25%. So the EPS bridge versus last year’s fourth quarter in the appendix for your reference. So in closing we are pleased to have delivered above our earnings commitment in the third quarter with solid performance against the macro headwinds.

I continue to feel good about our positioning and our focus as we head into the final quarter of the year. With that Sue and I will be happy to take your questions. .

Thank you. [Operator Instructions]. Our first question comes from Jeff Sprague of the Vertical Research Company. Your line is now open. .

Mike can you give us a little bit more color on what's going on in the applied market, whether you are seeing any signs of churn there. And maybe if there is any geographic color to put around that is kind of the first part of the question. .

Sure. Applied equipment revenue was down closed and ubiquities, but applied revenues were actually up in North America kind of mid-single digits. So we saw that the weakness really in all regions except North America. And so that really Jeff I think is the first quarter that we have seen kind of mid-single digit growth.

And I think if we were to see another quarter or two of that we feel better going into 2015 as there would be moderate recovery in institutional construction. .

Then secondly, just on industrial can you give us some color on the investment spend and maybe more importantly how does it continue going forward, obviously there is some slide down in your log but maybe give us some color on where that lays geographically between the segments. And do we see that tapering off into the new year. .

Let me give that a shot Jeff and talk a little bit about industrial and I will kind of broaden the question a little bit and talk about some of the things that that we were doing.

So when we think about industrial and we think about where we are and where we are with the third quarter results, there is a piece of this that says that as we have gone through 2014 and we've looked at this.

The first quarter created a quite a hole for us and we knew that and we knew it was going to take some aggressive actions to get back to the target on operating income margins for the year.

In addition to that as we have gone through the year we have been looking at these businesses sort of the new structure and we’ve been looking at growth and the businesses and prioritize, good payback investments that are going to support growth, they’re going to support product development, service infrastructure investments, channel investments like I talk about in the script.

So as we were going through the third quarter we looked at where we were again climate has been over achieving.

We did accelerate some of the investments in industrial and again looking at new products to prepare them for the upcoming technology efficiency standards, investments in channel and services and in addition to that as we thought about the back half of the year, we were expecting perhaps more recovery in Club Car than what occurred.

So Gulf markets have really remained down as we’ve gone through the year. And so when we think about industrial then going forward nothing that we’re seeing in the investments that we’re making is not going to change our longer term margin opportunity for industrial and we expect them to have margin improvement in 2015..

Mike Lamach:.

Jeff I probably add on here little bit and say when you back up and look at the longer term guidance we’ve given around 15% to 20% EPS growth in ‘14, ‘15 and ‘16 we’re tracking at about 21% at the mid-point of the guidance we’re giving right now.

And with bookings being so strong in the third quarter and really setting up well for the fourth quarter in 2015 there is no reason when we see a good idea here not to act on it pull it forward and really build and protect against the 15%, 20% EPS growth in '15 and '16.

So I think that there are no surprises here and I want to emphasize there is absolutely nothing wrong with this business, these are investments that we fully expect to have a return in ‘15 and ‘16 and we’d expect that business to return to normal incremental margin expectations of ‘15 and ‘16. .

Thank you. Our next question comes from Nigel Coe of Morgan Stanley. Your line is now open..

Yes, thanks good morning guys. I just wanted to follow up on Jeff's point on the industrial margin and I just want to -- you thought of two points, one was the investment spending which you just went through, that sounds like that’s going to taper in 4Q in ’15.

But you also called that inflationary pressure as so maybe if you could discuss that and Mike just I couldn’t help but reiterate that you put out that 15%, 20% for ‘15, do you still feel comfortable with that target for ‘15 right now?.

Yes, Nigel first of all we’ve laid out a 15%, 20% ‘14 ‘15 and ‘16, ‘14 happened about how we bought relative to growth in the market leverage per share count tax and buyback all being factors that are yielding a year that should be just a bit up top of that range and again we’re looking at this thing a little longer term, and that just quarter-to-quarter and there is some opportunity particularly in the industrial segment where we think that we can accelerate growth much like to see that acceleration right now and find it is going to take just a little bit of investment and want to be smart about that but I have no reasons to have any different expectation than 15%, 20% EPS growth ‘15 and ‘16 as we see about..

Okay..

And then to repeat Nigel on your question on the inflation that we referenced in the press release. So there is a bit of material inflation that happens on the industrial side of the business, again it’s not something that is unexpected but it is inflationary pressure.

There is also inflation that occurs from our businesses with people, with compensation and different pieces of just year-over-year inflation again, none of that would be an unexpected event for the businesses, what you balance that which is that sometimes in the businesses and this in particular occurred with the industrial side is that the productivity is a little lumpy which means that we had some productivity that was better in Q2 versus Q3 but the inflation numbers were a little higher in Q3 than they were in Q2.

So you got some flips and puts and takes between the couple of orders but again there is not an inflation that was something we wouldn’t expect for this unusual for the business and these are normal things that occur..

Thank you. Our next question comes from Mark Douglass of Longbow Research. Your line is now open..

Good morning everyone.

Can you discuss, you talk about applied but unitary must have been at least up high single digits, can you discuss what’s going on in commercial unitary?.

Yes, actually a very successful quarter for us worldwide unitary equipment was up high-teens in the third quarter so that was a success. Train, commercial, unitary revenues were up by low-teens in the third quarter that was certainly a positive for us as well. High-single digit in Americas, a very strong growth in Europe, and a decline in Asia.

So again high-teens unitary orders and then good revenue flow through in the quarter across the inventory business again low-teens. Good continued success in the Americas high single-digit. EMEA was really outstanding again sort of a high mid-teens in Europe, Western Europe I should say, a little bit higher than that in the Middle East.

And all that brought down by the events of what was happening in Eastern Europe. So a good quarter. .

Thank you. And then can you talk about how you are approaching the regional standards in the U.S. and Brazil.

Are you anticipating a significant pre-build but not necessarily pre-buy in fourth quarter? And how are you seeing that play out with your distributors in 2015?.

Mike Lamach:.

Yes I would say Mark as of today the impact is going to be very different for each OEM depending on what their channel structure is. So I think you are going to see different results that are going to phase in over the year and actually you are seeing some volatility in order and shipments rates between OEMs in the res business.

As you probably know we own part of the distribution and part of its independent. We have been talking to our distributors and our dealers and even among them it's not one size fits all, it depends on their liquidity, their stocking capacity and the strategy that they want to employee themselves for management transition.

But as we see it today we will have some pre-buy and we will certainly have some pre-build in the fourth quarter and as we are following the situation closely. We have plans in place for both. And we are flexible enough to adjust accordingly as it evolves within the quarter. .

Thank you. Our next question comes from Julian Mitchell of Credit Suisse. Your line is now open. .

Hi, thank you. I just wanted to follow-up on the overall segment incremental margin. So I think you talked in July that it should be in the mid-30s this year. And if that’s still the case that would imply maybe mid or high-20s for Q4.

I just wanted to check that was still correct? And then related to that should we see that number pick up into next year more akin to the gross margin level of sort of 30%-31%. .

So I think Julian when we look at the full year of 2014 at the midpoint level for the full year, what you see is an incremental leverage of about 33%. And then in the fourth quarter what you have is a segment leverage of about 30%. So overall when you look at first half, second half they are pretty evenly weighted.

And again I think as we talk about going forward we would continue to expect that sort of the threshold would be at the gross margin level for its leverage expectations. .

Mike Lamach:.

Yes that’s right Julian. I think really in your prudent modeling would probably have us telling you something more like 25% along breakage when things go right for us, like they've done a lot this year.

We might see something closer to gross margins; in fact depending on where that business is coming into us, there could be some leverage against fixed assets depending on what we have done there at the time. So 30% is probably a good more aggressive number, 25% more prudent.

And there will be some volatility I think in quarter-to-quarter but again over the full year and then over a long period of time now four years or five years we have been able to pretty consistently have those top quartile incremental margins and that’s a pretty important part of our commitment strategy how we run the business..

Thanks. And then just on the industrial business. I just wanted to clarify that; price mix for you was about zero in that business in Q2.

Was it around zero in Q3 or it went negative?.

No it was around zero in Q3 also. .

Great, thank you. .

Mike Lamach:.

Yes Julian price would have been just a touch higher material emplacement but so close that it rounding correctly is about flat..

Thank you. Our next question comes from Steven Winoker of Bernstein Research. Your line is now open. .

Thanks and good morning. I just wanted to get a little more clarity on the $0.07 you called out for the Q4 reduction versus last guidance. So $0.03 on Venezuelan currency. And then is it fair to say the other $0.04 is all revenue related and some mix of that's FX and something else.

Because it sounds like you are calling out continued strength in margins. So maybe just a little more clarity in terms of how you broke that or how you are thinking about that. I am looking at the bridge but the bridge is just year-on-year and not your change in thinking from last quarter to this quarter..

Right. So what you would end up with Steve is you would have the Venezuela as we called it out. We also called out having some of the Cameron cost that were in there. And as we have said in August when we announced the transaction about a penny or two on the cost for the Cameron fees.

And then as you think about it and as we talk about it today we may have had some revenue that was holding to Q3 versus Q4. So nothing again other than really sort of those raw components but the biggest two pieces being Venezuela and also the addition of the expected Cameron transaction cost..

Yes simply for me Steve, three pretty much coming out of Venezuela a couple coming out of Cameron one currency maybe even..

Yes, yes..

And the balance of that is just being a little bit more sensitive to the volatility of what we’re seeing with some of the order rates and China is a great example where you’re seeing volatility one strong booking this quarter followed by a weak bookings quarter and lag of course to a revenue quarter and so on so forth.

So the volatility here in Latin America is weaker and I don’t think it’s going to change for the balance of the year in addition to China. So it’s a little bit of market but I would say the market is probably a penny exchange on the balances just Cameron and Venezuela..

What I would also state though for those on this call is we take Venezuela at $10 million as we went through the mid-point of the year which is what we had in the third quarter numbers and we rolled that into the fourth quarter numbers, that’s an extremely volatile situation.

The number could be different than the $10 million but we weren’t going to play with making any changes in our overall guidance for what that might be doing because we just simply don’t know.

I mean it is just going to continue to move and if there is a negative impact from that we’ll balance it off of the $10 million but that’s not a known number, that’s the piece that we put into the guidance and we’ll continue to monitor that with things down there.

And I just want to make sure that clear that, that’s the number that we write that and put into the guidance..

Sue is that -- which exchange rate did you use to get to that?.

[indiscernible] the normal rate wasn’t the CCAB [indiscernible] one or two rates..

And then for my second question if I could, just the VRF, what do you think on VRF penetration and how that’s affecting you good and bad through the quarter?.

Can you repeat that?.

Yes, Variable Refrigerant Flow, VRF penetration in the quarter?.

That's a really good growth in the quarter Steve, really good growth in the quarter all regions of the world and as always point out continued penetration of ducted and ductless markets as well. So it’s a good balanced approach but good success with VRF excellent growth coming in all regions with the line..

Thank you. Our next question comes from Steve Tusa of JPMorgan. Your line is now open..

On the resi stuff so should we just basically think about the difference in free cash flow as kind of your best estimate of the type of inventory you’re going to build for this transition?.

There is puts and takes in there Steve, see we normally have without a pre-built sort of a laying down and lower working capital we got to add back on top of that. So it’s not completely in that number but the change in thinking certainly I think will be attributable largely to our thoughts around pre-built..

Okay.

And then when you think about the transition, do you expect it to have, there are a lot of moving parts here and do you expect it to be kind of a net impact next year? Do you think about the kind of mid-single digit industry trend line that we’re in right now? I mean given this is more of a pre-build than a pre-buy, any kind of impacts around margins or growth that you want to call out that you guys kind of planned for this thing here?.

No, it’s little too soon; Steve it happens with certainly ‘14 to your pricing and then just in terms of dynamics as it plays out in each OEM in its own strategy, it's how much inventory that we're rebuilding and holding and again that’s a factor of how quickly those ‘14 comes balancing push against ‘13 and I would say that overtime possibly relatively short period of time you’re going to see some focus on cost reductions coming into the ‘14 so you’re going to cross the competitive space.

There is a lot of play there for us to make a call on that now. The other point I would make that’s the capital question there was some other selective areas where there is quite of bit of order volatility as an example marine container, auxiliary power units even the TK unit that go on trucks.

So the vehicle power self-powered truck units, lot of volatility in the order rates there, those are nice businesses for us so you got us holding and bringing in more component inventory as long lead items be able to build against that demand.

And it’s really a fine tuning of the working capital for the upside to ensure that we’ve got the ability to take advantage of really good progress and order rates across those businesses..

What is your mix now -- the last question, what is your mix now of just the baseline ‘13 here, what will mix of ‘13 here be the shares of percentage of your volume?.

Even though if I have that handy Steve, I'll say what, we’ll look for it, take the next question and I'll answer that as we go here..

Thank you. Our next question comes from Robert Berry of Susquehanna. Your line is now opened. .

Hey guys good morning. Thanks for taking the question. Just a quick follow-up first on the Resi HVAC impact.

How much are you factoring from that in the 4Q outlook?.

Mike Lamach:.

Well for the industry our view of units in the industry has been something to the neighborhood of five points of normal growth and probably a couple of points of growth associated with pre-build. So we end up with sort of a mid to high single-digit residential environment.

That’s the environment we think we are playing into and our plans would be commensurate with that. .

That couple of points is that for just the fourth quarter or is it for the year will be higher in the fourth quarter?.

Mike Lamach:.

I think in the industry it's started already, competitively one large OEM that had a ERP system conversion and put about 30 days of extra inventory into the channel. We've had a couple of other OEM competitors that have had more aggressive campaigns against moving into the channel. So some of that’s happened in Q3.

I think more will happen in Q4 but in total I think it’s a couple of points probably to NBU volumes which would put us somewhere in the neighborhood of a range of a low-end of 700,000 and high-end maybe a million units in market and pre-built. .

And then just finally, could you just update us on what you are seeing changed in Europe since the last quarter in particular industrial I know was particularly strong in 2Q. I think it ended up being down a little bit in this quarter. I know that’s lumpy but. And then in TK in particular just what you are seeing in the Europe environment? Thank you. .

Mike Lamach:.

Yes, thanks. In industrial it is choppy. And so I think your question, I have the answer in it as well. It’s absolutely, it's been choppy large centrifugal air compressor orders are going to be a big swing factor there and that was a difference for us well.

With TK it's been again strong growth in Western Europe of course marine container is strong but very, very slowly growth in Eastern Europe probably no growth. I mean there is really no businesses that’s really dry it up until things normalize there. And then with smaller vehicles again small truck, that’s moderated somewhat as well.

So TK is slowing down a little bit in Europe but we are picking it up in other areas like in marines. And industrial I would expect to see some choppiness but it ask us to be able to continue to move towards that kind of 1% to 3% sort of growth rate for the year and probably after a couple of quarters I don’t see any big shots happening there..

Thank you. Our next question comes from Josh Pokrzywinski from Buckingham Research. Your line is now open. .

Hi good morning guys. Just first on the applied side. You talked about strong revenue growth there. I think you have a really tough order comp from last year on a new product line.

Can you talk about what orders did? And then I guess prospectively how those are coming along either any log or conversations with your customers?.

Mike Lamach:.

Well you have got one solid quarter I think in North American growth. And if you recall we said last quarter that we thought like we are seeing an inflection point. And so you had the inflection point off the bottom, we had one quarter of good growth.

We don’t really describe to the Mcgraw Hill data view as of there is 10 point happening in 2015 institutional construction. I think that we are more likely to see a multi-year mid-single digit in a given quarter or two it may touch high single-digit applied rate.

And there's many, many reasons for that, some of which include the availability of field trades and labor to work on these projects for institutional customers. And that’s very consistent with what we are seeing for inquiries and we are seeing in the pipeline of projects that we are looking at.

So I'd like to see another quarter or two Josh before we say that kind of is an inflection point but it’s a trend that we would feel good about calling for 2015. But I think it's pointed in the right direction for moderate year. And again a stronger but more moderated recovery than what Mcgraw Hill was projecting. .

What were orders in applied in the quarter?.

Mike Lamach:.

Well I think you are mostly thinking about North America applied because that’s where we would see typically the institutional recovery that we -- that was mid-single digit. .

Okay. And I do recall right that it was a tough comp from last year from than new product. .

Mike Lamach:.

That’s right. .

And then just a follow-up question. As you raw mats playing out here obviously the war on copper has this taken down exposure that overtime. How do you feel about that that price cost after this has been narrowing through the year.

As we get into next year should that staying narrow, is there an opportunity for that to widen out or could actually go negative if demand stays choppy?.

Mike Lamach:.

It stays fairly narrow and we've had very good success for some three or maybe more years now driving price in in excess of petrol inflation. It could invert quarter or two. Don't see that happening, but it could happen.

But I would expect that over time, over three or four quarters of time rolling you would see a slight premium to petrol inflation and that’s just what we built in to the operating system and into the expectations of product management and in the way that our people can compensate it that self. .

Got you.

And I guess just underneath that if I can squeeze in one more on the 13.0 pre-built well there would be any change in your view on industry pricing for that 13.0 product versus what its price at today?.

If anybody has got on that it’s a the wild west I think as it comes to expectations around what really happens on that. But if you look at some point it’s not the richest margin product that anybody is selling so I think sensitivity around price cost is narrow enough that there is not going to be really anything crazy happening there.

Why go through the operative pre-building if in fact you are going to give it away as part of the 2014 equation. So I don’t really see that as being a significant problem. And then Steve back to your question I think it’s about 60% on the 13.0 mix cross. .

Thank you. Our next question comes from Andrew Obin of Bank of America. Your line is now open..

Hi. Just a question on restructuring we’ll lowered it from $0.05 to $0.03.

Are we doing less? Are we changing the timing, are we being more effective?.

I think as we have looked at our restructuring for 2014 Andrew we started out with a forecast that said we had a lot of plans that we actioned in the fourth quarter of 2013 and sort of a normalized levels would be in the $0.05 to $0.10 range in 2014.

And as we’ve gone through the year what we’ve done is a natural part of the business as we looked for opportunities that made sense.

But we did do some pretty heavy lifting on restructuring in the fourth quarter and so as we’ve gone through the year we sort of led this naturally fall out with things that we needed to do and things that fit the construct of how we were running the business and it just happens to be $0.03 this year that is in day predictor of what the future will be but we have put in basically a placeholder that said what was normal and given the work that we did at the end of last year and actually first couple of months of 2014 just wasn’t as necessary throughout 2014 so were at $0.03..

And the maintenance Andrew I think is sort of if you look back over a long period of time sort of the maintenance that we view around the footprint probably get you some sort of a nickel that we put into recruiting every year but it’s not the big story.

We’re generally always looking at, but generally happy with where the footprint actually is, what utilization is and what the available capacity is, hopefully going into some growth coming into ‘15 and ‘16 particularly in the HVAC commercial businesses. .

And just the follow up question on the industrial, as you’re pushing into oil free compressor stays with more capacity, should we be concerned that one of your European competitors would push back and will somehow impair the structural profitability of the market space?.

Well, I'm sure if they did they'd be impairing their own profitability so I’m not sure that wins anybody’s sort of affection in that regard.

I would say that the investments that we’re making are few fold, one is, there has been some efficiency rules put in place in China for air compressors that’s moving to Europe and I think it will adopted soon and it eventually in early conversation with DOE it will come to the U.S. and other countries as well.

And so it’s really getting in front of a lot of these 2017, '18, '19 efficiency requirements.

Our belief is that the grand promise that's been around energy efficiency and around reliability and so what we want to be able to do is to able to continue to sell the most efficient, most reliable product in the marketplace and that’s really what the investment is, certainly it’s not indicative of some oil free pressure that we’re seeing around the pricing, it’s not the story that we had in Q3 or Q4 around the compression in margins, it really is we have not the gulf recovery although our orders were up a little bit we certainly haven’t seen shipments improve across gulf, that’s hurt and then we pull forward a number of NPD and channel investments and set ourselves up in ‘15 and ‘16 particularly well across all of the industrial businesses as quicker..

Thank you. Our next question comes from Steve Volkmann of Jefferies. Your line is now open..

Good morning. Just a quick follow up on Thermo King I know guys got some new product there. it seems like its going fairly well, kind of what’s going on, what’s driving the strength? is it an upgrade cycle do you think you’re taking any share and then I’m curious if there has been any move in the margins in that business with the new product as well..

Well last question first, the incremental margins have been right at expectation and pretty consistent with past performance when the business is growing and leverage there is something unique or really remarkable about the leverage that we’re seeing there.

in fact the climate segment the remarkable leverage that comes from the commercial and residential trends in particular. The growth that we are seeing is certainly highest in APUs. When you think about what our truck customers faced, the number one issue that they have is the availability of drivers.

A couple of large customers told me that drivers only last about nine months in that business but some of the larger companies have found that by installing APUs in their cabs they were able to significantly increase driver retention.

And so that’s one of the reasons we are seeing APUs really expand dramatically even though fuel prices have dropped and it used be that APUs increased as fuel prices increased but this is a disconnect, fuel prices are dropping and the drivers really around driver retention more than anything.

Marine container has been good, particularly gen sets, the inter-marine containers have been very strong for us and we continue to leverage new products which is more expensive but with the Tier [indiscernible] new carbon requirements coming into play and that’s driven a lot of -- obviously the revenue upside for us as well. .

Great, thanks. And then Mike any thoughts as we get into 2015 about sort of capital allocation.

I know you are in the process of obviously big acquisition here but how do we think about things like share repurchases next year or your appetite for further M&A?.

Nothing's changed in terms of wanting to be smart and practical and pragmatic use of capital in terms of how we are thinking it. We have said that the dividend needs to be 30% to 35%, and we are going to continue to keep pushing on that. And make sure that we are competitive in peer group.

We are going to control any share dilution so share buybacks will continue be a harden story. Then depending on what’s starts from there which would probably toggle between share repurchases and acquisitions that are accretive to us accretive in the short term. And we will see where that goes.

But we will guide more in 2015 on that but wouldn’t expect anything different than what we have been saying on the last couple of few years. .

Thank you. Our next question comes from Jeff Hammond of KeyBanc Capital Markets. Your line is now open. .

Hey just to follow-on Josh’s question on pricing. It looks like in late September you put through a 2% to 5% price increase in North America commercial.

Can you just talk about what’s driving that and what are you seeing from your competitors?.

Mike Lamach:.

Mostly what’s happening is freight prices are really increasing particularly flat bed. So where you are moving really large pieces of equipment. So chillers or extremely large rooftop units, which I think you know we have got a very high share of, those are moved typically over one or more flat beds as opposed to closed body trucks.

And the theoretical utilization of flat beds like 106% right now in the marketplace which isn’t even possible other than if you look at what’s happening you got prices going up and trucking companies not really investing in new fleet because they can’t find drivers. So that’s primary driver there is freight for us.

And I think that our competitors are seeing the same thing. We probably as a mix have a higher degree of that just due to the mix of applied versus unitary and even the large unitary mix that we have versus their unitary.

Some of our competitors only go up to 30 tons to 40 tons and of course we go up to 150 tons of unitary which can take two or three semis to move. .

Okay, that’s helpful. And then just like the Europe commercial HVAC orders being up 20.

Is there any kind of good lumpiness in there as their share gains it just seems kind of an outlier versus what we are hearing in Europe?.

Mike Lamach:.

Well we had that outlier happening now for a while. So I probably can’t hide -- can’t look past the results there. We are doing really well in Europe. New product launches have gone extremely well we have got a great management team on the ground that’s very energized and I don’t know how long it will persist but we are enjoying it for the time being..

Thank you. And our last question comes from Joe Ritchie of Goldman Sachs. Your line is now open. .

So my first question is really around the I guess the elevated investment that you talked about in industrial. Clearly it seems to make a lot of sense given that you are tracking ahead of your 20% EPS growth target. And you are looking to protect your investment in coming years.

I guess my question though is, how much of that incremental spending increased this year? I think you guys were talking about like a $60 million plus type rate for ’14.

So I am just wondering how much that’s changed?.

Sue Carter:.

So Joe, if I look at where we are in a full year now, we are probably adding $9 million to $10 million to that $64 million so it now looks more like 74-75 on the incremental basis. .

Okay, great. That’s helpful Sue. And then just my one follow-up is really on just industrial margins. I think when we most recently spoke I think the expectations were to at least kind of try to hold those margins flat. Fully understanding you are investing more in that business today.

But what’s the expectation now embedded in your 4Q guidance for industrial margins. And then the corollary to that is how do you think about those margins moving forward into ’15 on an organic basis? Clearly Cameron is going to change things but it would be helpful to hear your thoughts there as well..

So one thing in particular.

Sue gave you an absolutely true and actual corporate number which is around circa $10 million of investment but even if you look at the mix change of that 10 million it’s shifting much more toward industrial than it is at the climate has been very efficient with the plans and so we shifted actually more of that then we tend to industrial in a little less in climate so that’s a bigger impact of the climate margin just the absolute 10 million for the company.

Incremental margins there should look to recover in 2015 probably certainly at the gross margins but then depending on weather in Q1 and Q2 of next year meaning we don’t have multiple ice storms and the severity that we had in Club Car we should not have a repeat of Club Car in gulf environment Q1, Q2 and that was I guessing $20 million impact to us probably in the first quarter.

So if you don’t repeat that and get back to the normal incremental margins in the business hopefully with little higher growth rate which is something we’re looking to it to, is what can we do to these investments to drive a little higher growth that what we’re thinking. We should get incremental margins at or above gross margins for area in 2015.

As we enter into that planning process and enter into guidance with you when we talk to you soon in the first quarter we’re going to tune that but that would be a pretty good indictor of what at least my expectation and Sue's expectations would be going in..

Okay, that’s helpful.

Just one maybe one follow up to that is the investment, what’s the investment level expected in industrial in 4Q and what’s that delta versus 3Q?.

Look it’s, I don’t have that broken out exactly where you can see it, it probably 50 basis points..

Okay..

Yes..

Thank you. And at this time I’d like to turn the call back to management for any closing comment. .

Thank you, Sam. Thank you everyone. I will be available for follow-up. Everyone have a good day. Thank you..

Thank you ma’am. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a wonderful day..