Emerson Electric Co. (EMR) Earnings Call Transcript & Summary

Welcome and thank you for standing by. [Operator Instructions] This call is for JPMorgan clients only. I'd now like to turn the call over to Mr. Steve Tusa. Sir, you may begin.

Great. Thanks, everybody, for joining us for another one of these fireside chats. We're very pleased to have in the building, in person, CEO of Emerson, Dave Farr; and Investor Relations guy, Pete Lilly. What's your official title?

The guy works.

Guy -- The guy.

Just Investor Relations.

Investor Relations guy.

Person.

Investor Relations person, Pete Lilly.

There's no fireplace, though.

No fireplace. But we're keeping a social distance here, I think, is good.

It might be.

So Dave, I'm asking this to everybody. Just a bit of a near-term update on what you're seeing out of China and anything else related to coronavirus. Do you want to bang out here early on? I think your position in the business community as part of the -- leading the roundtables and things like that, but also some good perspective on what you're hearing from your CEO buddy's in the last couple of weeks?

Okay. Good. So relative to coronavirus, relative to China -- we'll start with China first. We are basically at 100%, we're 95%, 96% up and running, all the facilities are running. We are getting materials. We are shipping. Shipping is taking a little longer, but definitely, we're shipping out, both within the country and outside the country. At this point in time, we are working through the backlog that we built up prior to the Chinese New Year and then also through the delay. From the perspective of all employees, none of our employees ever did get sick, and we've had probably 3 or 4 special inspections from the local officials, making sure that we are honoring the commitment from the facilities for a health standpoint. The big issue right now for us, and hence, the $100 million to $150 million that we put out a couple of weeks ago now, it hasn't changed. It's still the same number we see. The big issue for me right now is the demand within China, it's still below the pace of prior year on our forecast, which happens -- that's what we're trying to accommodate in this $100 million to $150 million. And every day, it gets better. But at this point in time, it's hard to say when that demand will get back up to the full level. From the state of business for us, the big issue for our customers is around financing money. The government is trying to work with the banks to get the money out, but the big multinationals have no problem with money. It's typically our small and medium-sized customers that have that problem. Around the world with coronavirus, all facilities are up and running, including Northern Italy. We have a lot of Northern Italy facilities. We have close to 1,800 people in Northern Italy in 20, 30 manufacturing facilities -- sites. I mean I think we have 3 or 4 manufacturing facilities. They're all running, we're shipping. Italy for us is around $300-plus million in sales, and we do ship a lot out of Italy into the Middle East and Africa region. So far, we've not had any disruption. But clearly, that is the one area that is still moving relative to controls and coronavirus. We do have one individual that had taken a vacation for some unknown reason in Northern Italy at the end of February, early March, kind of strange place to go, and she did get sick with the family, and she's now quarantined. She works in Norway at our Roxar facility. But our facility is up and running. We've not had any issues, knock on wood, to the facility at this point in time. Obviously, a lot of communication around, if you do get exposed, please stay at home, we'll quarantine, we'll take care of you. Compensation-wise, we'll make sure that you're properly compensated. I'm just more concerned about the employees. And talking to other CEOs, we're all pretty much doing the same thing. it is kind of a unique time period that where you see a situation, which is really out of our control. I mean I went through SARS. So SARS was not like this because it didn't spread around the world, it stayed within the Asian region. But this is clearly spread, and there's so much unknown. And the 2- or 3-week time period that you could be exposed before you get sick is something else that creates a difficult time period. So we're on a daily -- I get daily reports coming out of the United States, Asia and Europe relative to employees, relative to our facilities, and that's where we sit at this point in time. But clearly, it will impact -- I call this sort of -- this coronavirus sort of slowdown from the standpoint of what's going on, this coronavirus malaise and it's going to be going for a while here, I think. I don't see it changing.

When you think about that impact, you broke out in China, the $100 million to $150 million, I think it was?

Yes.

How did you come to that number? And what types of -- how should we think about what types of declines in the demand activity that you're seeing there? And it's a little less about you guys, and it's more about us trying to kind of understand what people are seeing, because you're being probably the most upfront by far versus anybody else in putting a number out there. So using you as a bit of a pivot point and a proxy. So I'm curious as to how do you come to that number?

So we're coming to it by daily order rates. So we have a projection line. We start a quarter, typically, we have a good -- we have a daily order rate within our business. And so that's what we're looking at, both the daily order rate from this year and for last year. And so we've sort of projected that line, and that's the number that we see within that band. Now the order rate is still -- it's coming up, which is good. But what I'm watching right now is, "Okay, is it going to close the gap to what it should be? Or is it staying sort of parallel?" And at this point in time, the gap is still closing. So when you think about 2 lines coming together, what we're assuming is sometime typically in the third quarter -- our fiscal third quarter...

Fiscal third quarter. Yes.

Which is the second calendar quarter that we see those lines getting closer together. I now believe, as I said the last time, I think because of the slow pace of this uptake, we're going to lose some of that this year. I think some of it will come back next year. People are not going to a double order up. It also is a function of how fast -- the thing that I'm watching very closely right now is when does the Chinese government get back together. The government has not reconvened their meeting, which was supposed to be early March. So for me, that tells me, I think they're getting ready based on what we're hearing from our people there that the government's now become very active. They're out there encouraging people to make sure everyone's back to work and getting things, they're trying to get the financing. I think that government meeting is going to be very important because that's when President Xi will probably communicate how they're going to -- what they're going to do from a stimulation standpoint to get the economy going back. So that's how we drew it up. And now the other thing we're looking -- and we are talking a lot to our customers and how fast they're going to come back online, how going to restart the projects up, so that's how we came up with that number.

So is this like $2 billion in China sales quarterly rate of roughly $500 million, $100 million of that tells you that you're going to basically see it's kind of a 20% decline intra-quarter? Most of that is on February and March. So February and March are kind of down more than that. Is that kind of right?

That's how we're looking at. That's how you should look at it, right?

Okay.

And then so we're going to watch and being -- I'm open so I'm not sure what it will be likely to be open, but I'm pretty open. We'll give you an update when we see the March orders.

Sure.

So we'll be a little bit more open on the March order pace and how that goes, and we'll look at it. Because now we have the other issue, we have the price war going on oil.

I was going to get to that in a second.

So we've got 2 convoluted things. So within the United States, the coronavirus clearly has created a slowdown and malaise, definitely that. Same thing in Europe. It's been very hard for us to see. We -- as I looked at our February results, they weren't much different than I thought they would. They actually did a little bit better from a standpoint of just from the pace of sales. So we did a little bit better than I thought. Now the question is, is that going to sort of accelerate more in March? March is a bigger month anyway for companies like us.

And when you think about that China exposure and what's happening there, is there a greater pullback in CR&S? Or is there -- or is it kind of all -- it all kind of like step down together?

Step down too much together.

Together? Okay.

Because companies -- all the customers step down together.

That makes sense.

That only thing we're watching right now is the heating season or -- the heating season is pretty much going to be lost for us in China. I don't see -- I mean Bob's business in CRS, they've lost a couple of months. So that business won't come back until next year, because pretty soon they're going to be out of cold season and heating investments. So I think that's the key area we're seeing. We're starting to see some turnarounds from a standpoint around the world because they don't want big groups of people in the factory. So when you do a turnaround facility, you bring in a lot of people, put your own people and contractors. So a lot of our customers now -- and this is around the world, not just China, but Southeast Asia, United States, they're saying, "Hey, let's move this out a couple of months until it gets warmer." So we're starting to see that a little bit from that perspective. These are all normal things. The CEOs are being super, super cautious. None of us want to expose -- I mean I've stopped my traveling to our -- to organizations because when I go out, particularly to Asia, which I was going to do last week, or I was going to go to Mexico about a week, I actually go out and meet customers, and what happens is my organization is mobilized and then I don't want to risk of exposing them per se, right? It doesn't make any sense. So we're doing everything by WebEx. We're doing conference calls like this. We're getting the room, project the slides and talk. It's probably 5 to 6 feet apart. I mean it's kind of a weird time period. I mean if this is what that's going to be like, I'm thinking those can be strange. I mean...

So let's move on to the other positive part, which is the oil price decline.

It's hard to call it that. That one caught me by surprise all weekend.

Yes. I think it caught everybody by surprise. So let's talk about how your business is different than it was in 2014? What really strikes me is the KOB...

3 aftermarket -- aftermarkets.

Yes. And the fact that KOB 1 and 2 hasn't really come back and would have engines and the reason why your growth has not performed, not the way that people expected. So in my view, you've already kind of chewed into what could have been a big drop off from your current level by not having those orders come up. Should we think about, hey, this is going to be just as bad as that, except your KOB 3 is higher, so it shouldn't actually on a revenue basis be as bad? Or how do we -- what's the mindset you're going into with this set of business now versus this oil decline?

So we've been this week since this thing hit us Sunday, I've asked Lal and his team -- I have a conference call tomorrow afternoon, when I get back from New York tomorrow, on digesting or dissecting all of our KOB 1, 2, 3 business. What we're looking at -- to your very point there, we have a much larger KOB 3 now than we did in the last cycle.

Close to 60% versus kind of 45%-ish?

That's about what it was.

Okay. I mean it's 47% and 57% somewhat down.

Yes. 47%, 57%, something like that.

Yes.

So the difference is, what we're looking at right now is, okay, what's in our plan that we're going to book and ship this year on KOB 1 and KOB 2, around the oil -- particularly around oil. And so let's assume that's coming out. So we're going through that analysis right now. It definitely will not be as dramatic as the last oil shock that we saw because we are much broader, and we're also seeing that -- we're going to see some investments come back most probably in Saudi, we're going to see some investments come to force in Russia because that's where they're going to be have to invest money to get that volume up. Saudi is taking the volume, they're going to have to spend some money. So hopefully, we'll see some investments there, and we both -- we're very strong in both of those marketplaces. But -- the concern I have right now, Steve, is North America. I think the national oil companies are going to spend money. They know the things they're going to get through. But I'm concerned about -- what's already been down in North America and the U.S., in particular, is this going to be another step down on any KOB 2, KOB 1. If you think about some of the golden path, things like that, how many things they push out. So what we're doing right now is, we have a big -- the war room, we're spreading out a lot of projects, KOB 1, KOB 2 war. And then basically, what we're then talking to customers about, are you going to push delay? What does this mean to you? And in certain cases, they may not delay because they -- most people are assuming this will get solved. Now the question is how long, and most of these projects are not going to be coming online for a year or 2 years. So what I'm hearing initially is some slow, but not stopping. But I'm wanting them to go through all the KOB 1s and 2. I'm more concerned about things we're going to book and ship this year that maybe not happen. So you remember correctly, we had a second-half recovery in Lal's business. And so what I'm looking right now is how much that second-half recovery is going to come out. And then I've also said, "Okay, Lal, what can we accelerate from a restructuring standpoint? Because now we're going to have more time because we're not -- the activity is lower, so can we now accelerate some plant moves that we were going to do in the first half of '21 into the second half of 2020?" And probably my restructuring number will go up higher than I said in February, but that analysis is going now because I've asked them, basically, Bob and Lal, can I accelerate restructuring this year given the pace of business between coronavirus and now the oil price war? Can we accelerate and try to get ahead of this? Because one of the concerns we all had when we talked about this, and many of the investors said the same thing, is how much we're trying to do in facility movement in '21. So that's where we are. But definitely, we are much stronger in KOB 3 aftermarket deposits. I still think some of the KOB 2 stuff will move forward. I think the KOB 1 in the second half will most likely push on into '21.

Right. And alone, the KOB 1 now is like low 20s as a percentage of...

Actually, it's less than 20%. It's more like 17%, 18%.

Yes. High teens for them.

High teens KOB 1?

Yes.

Versus like mid-20s, mid-high 20s?

Normally, the stock will be around 25%. And so KOB 2 is actually higher now than it was last year. And that's because of those expansions are underway. So that -- we're waiting to see and test the customer. But my gut tells me the second half KOB 1, we thought ain't going to happen and let's do all that testing and then keep pushing on the KOB 3, which we're very strong in right now. And we have not cut back in KOB 3 investments.

I think like the 15% decline in your stock price couple days ago probably took out the entire value of that KOB 1 revenue stream.

Last quarter.

Yes, yes, just our view. So when you look at the $200 million of restructuring savings you could have in 2021, you probably can't move the needle on savings this year much, unless you stand back that a little bit. But for 2021, is there any kind of way to -- that, that number is going to move up? Or would it be more of a 2022 kind of cost saving...

I think we're just trying to get a little bit in the fourth quarter in '20 in savings. So what we're trying to do right now is -- so the work we have with outside consultants, we're looking at -- that we had planned to try to accelerate into sort of early '21, can we do a little bit in the fourth quarter this year? Can we get some additional savings in -- can I get fourth quarter? I can't do much in the third, but can I get in the fourth? So we are trying to get a little bit this year, and we're trying to get more in '21. We're trying to make sure that we can get as much done this year with a slowdown in the pace of business, which will happen this year, protect margins and give then a bigger bump as we get into '21. But if you get the plant moves done earlier, then that will help '22 at the same time because that means you're done. And so -- we're just trying -- student buying is up right now because volume is down.

Sure. Can you flush a little bit of working capital out with this kind of volume decline? I mean is there a way...

On cash flow -- I don't have a -- right now, my cash -- obviously, cash is driven by earnings, that's the biggest part, right? But I think that if we do not have a second-half recovery, then we won't have the inventory build that would have been there. We won't have the receivable build. So I feel pretty good about my cash flow. We're pretty good...

But your conversion on -- if earnings go down, your conversion should hold or it maybe even go up a little bit?

On the working capital side, it will definitely get -- be a little bit better. I still don't know if the rate will be any better, but it should be still very solid over 100% conversion. I mean I -- earnings are a big part of your cash, in case you don't know. And so that -- I feel pretty good about that right now. The cash flow -- first 5 months cash flow is ahead of last year, ahead of plan because of the slowdown of pace. But -- so we're working very hard to strip -- what I call, strip the balance sheet of any excess working capital at this point in time. Don't see any huge restructuring increases but I still -- sort of write-off, I see mainly can accelerate compliance and get things moving, I probably get some -- I want to improve this year a little bit on the restructuring numbers.

And then when we look at kind of the CR&S side, outside of China, should be pretty stable to maybe even grow a little bit long...

This helps us right now because like stability is there. We have not seen the dramatic drop. I mean the order pace is still the same as it has been trending, it's slightly negative. We'll see -- I mean their pace actually in China has come up faster than CRS in the order pattern. It's smaller. So it's easier and they're less -- they're not big facilities they're typically selling into from our standpoint of that. Right now, that business is holding in there very well. And we're just using this opportunity to do as much kind of restructurings as we possibly can and can we get going. I'm looking right now, I've actually shifted and try to buy empty facilities versus build facilities for the moves because there's facilities out for sale right now, and it's a lower-cost way. I may have to put remodeling in them. We're looking at one right now in Mexico. We're looking right now one in Arkansas. And rather than build, we're going to buy. And that will allow me to -- allow the team to get in things faster and be, I would say, a quick lower cost number to go at it.

So if we kind of put this all together and think about the dynamics around oil and gas that happened last cycle, how you're positioned this cycle, the degree of cost savings you have already teed up, really, you weren't thinking you were going to have to go into this. But you're already teed up with a couple of hundred million dollars of savings next year.

Correct.

I mean can you defend earnings to the point where maybe buy back a little bit of stock, just a little bit more stock. Do you think you could through this kind of whatever downturn comes here, assuming it's not '08, '09, a little bit more like '14 and '15 on an oil basis, but more KOB 3, more restructuring, maybe a little bit of buybacks, you have a strong balance sheet. So why do you possibly hold earnings within the bay?

I think there's couple things are going to help us. One -- there's 2 things that are going to help us. One, we are going to buy back the stock as we're buying pretty heavy right now. It's a pretty good product...

Yes. I mean you're 7% plus free -- I mean I haven't done the math, but even on a lower number, you're at a very high free cash flow on your end.

The other issue is, with the stock price numbers, we mark-to-market our long-term plans. And so that number has dropped way off. So our long-term comp stock plans are mark-to-market. And so when the stock price down this low, we will get a pick up there.

How much is that with your stock price currently here?

I mean you're talking typically several million dollars per dollar stock price.

Got it.

It drops, it drops. And so we've seen this before. We've often -- now we had built this number because it was sitting in the 70s, we're now sitting in the 50s. That will help us in the near term. The other key issue for us will be the containment around spending from the standpoint of travel trips, everything it's like you guys are doing here in New York, you may have to way down. So that will also -- so the -- I would say, variable spending numbers are being really pushed hard right now. One, because people, they don't want to travel. If we don't, they're also going to help us. So right now, we're staying within that band until I see it. Very -- I want to see the assessment relative to the oil and gas customers, which are -- that work will be done...

And I don't mean flat relative to consensus. I mean like on a growth -- like from here, from a peak or wherever you are today, kind of through this cycle, I mean, last cycle with that?

We're in a better shape, we're in a much better shape to defend our margins and our earnings right now because we started last year on the restructuring. And we're well into it. I'm able to pick up the pace a little bit in the restructuring. And right now, I have a lot more -- I can work with relative to where I was in the last cycle, and hit us right through in the eye. So I think that we have a better shot at protecting ourselves from an earnings and conversion of cash flow in this cycle than we did in the last cycle. I just like where we are at this point. And also, we have -- there's a lot of things going on relative to some of our customers. I know you just talked to Trane. There's a lot conversions going on. They're going to have -- these things are going to move forward, they're going to have to go forward from an environmental standpoint and efficiency standpoint. So those investments are going forward. But I like my hand a little better this time.

Right, right. Right. On a -- from a capital allocation perspective and a portfolio management perspective, we just talked about buybacks, you're doing few bolt-ons here and there. Any plans to kind of prune -- obviously, with this market, it's going to be tough for people to come up with valuation, but any plans to kind of prune and work the portfolio and anything, if there is?

We're working in -- none of the big ones are being -- so we're having those on hold right now because of the valuation. I'm not going to sell an asset off for cheap price. But we are looking at product line prunings. Those are moving forward. We have 3 major product line pruning, major mean a couple of hundred million dollars, within the portfolio, one in Bob's business and 2 Lal's business. The major assets right now that we are looking at, we will wait and see until there's some stability in the marketplace. And the people that would buy these things have stability because these are the strategic buyers that are going to want to buy some of these assets. So we're going to wait for those -- these things to stabilize. But we're still going ahead with the process of getting them ready from that perspective, doing the audits and getting everything done. So I would say, acquisition environment with this environment, could be interesting to see what happens here. Do some of these assets shake out or companies are going to be very nervous, like we're nervous about selling assets. So I would say the capital allocation that we laid out in February is not going to change much. I think we had what, $1.5 billion of share repurchase. If I think we could do a little bit more, we'll do a little bit more. Acquisition is around $0.5 billion, something like that. Capital right now, we were talking around $650 million, $660 million. I would say the asset could be a little lower. And so then from that standpoint, maybe I'll put more money in the share repurchase. I'll look at balancing and I'll also look at how this cash flow comes in after the March quarter, because I'll then have 6 months and I'll see the trend lines. I know my norms between the third and fourth quarter, buying lower, cash will be better. And so that's how we'll work it. So very fluid right now. I have a Board meeting in April, and I'll update them relative to the same thing we're just talking about, where I see the cash being spent and where we're going to put money back.

And should we think about kind of what you know today, you're kind of in line for the second quarter, the risk is really kind of the stuff that falls out of the back half of the year?

Yes. I mean the $100 million to $150 million, we know with that -- I mean...

You feel very comfortable with that.

Yes, I feel right now. And the oil price shock number -- the question will that hurt us quick in this month of March. We still got 2 or 3 weeks, that's my concern. Is there a shock effect relative to the overall spending to people's stock. Now I haven't dealt that yet, but it's only what, 3 days. And so I think as the week goes on, and we're calm and talking to customers, we could see that towards the end of this month. But that's why I'm really -- that's why I'm going to be nervous about the near term. And again, we'll -- some customers will not stop. My Saudi business won't stop, and my Russian business will probably pick back up, because these guys are going to try to figure out how to -- how they can pump more oil, and they're going to need us to do that.

What are you seeing on the raw material cost side? Just remind us of what you had guided to for this year, I think, a tailwind of $50 million or something like that?

$50 million. So right now, the...

I don't know what that was. It was...

It's around $50 million. There is a chart there. It's...

Price cost.

Price cost. We have the price cost chart there. Yes, we are slightly positive in price. I think that number is going to drift back up. I think it will stay positive. So we were going to be around $100 million net price cost positive, $100 million. Most of that coming from commodities. So right now, I would say that number is holding in around $100 million. The price has drifted down a little bit and commodities has drifted a little more negative from that. Because volume is dropping, we typically can get a better price point. The only area that we've seen a little bit of price pressure on commodities is in China. And in order for us to get certain things, we've had to pay slight premiums. Now those slight premiums 2 weeks ago could have been 10% or 15%. We're now down to probably in the 5% range. So what's happened is the Chinese customers have come back up, we can -- we wanted it. We paid a premium, it's now drifting back down because they're seeing their production, our supplies are running at 85%. So that started to come down. That's the only place we've seen a little bit of inflation on the commodity side. But I still feel good about the price cost. Like you said, I -- we have more things going forward this cycle than we did last cycle from -- ahead of the cost structure, we're hunkered down. We have chances to accelerate things. We get the mentality of the people -- is that we weren't looking at growth this year. And so we had a mentality of people, okay, where do we hunt down -- and how do we save? And then how do we get our cost structure in better shape as quick as possible? And that's where we are. And the only counter thing would be the coronavirus where people are really nervous, and we're working full out, 100%. We're not doing remote stuff. We're not doing like Bayer did in St. Louis, like some guy comes back from Germany, and they shut the whole campus down. We're not doing that. We're working, and I need my people to work, but I am also taking care of my people that cannot come in because of coronavirus. And so right now, we've been, knock on wood, go and keep things going. And that's the key issue for me. Can we keep our facilities going? And right now, we are.

When you -- operator, maybe we can poll for questions? And while you're doing that, I'll ask one more here.

[Operator Instructions]

Just at a higher level, when thinking about how this feels the same or different, it doesn't feel like it's '08, '09, a little bit stronger financial system, maybe there's some risk around the BBBs and some of these nonbank lenders that could screw up the whole system. But there's always somebody who's kind of acting in an aggressive way. It's a little more broad than '14, '15, just a few more variables going on. So maybe like it's a little more like '01, '02.

9/11.

9/11, but maybe plus because 9/11, people get over terrorism in a couple of weeks, they're defying. This one, our people, they're canceling things through June in China. And I mean, I heard that there are some conferences that are even being canceled in August and things like that. So how does this as a CEO and all your buddies, are they -- what level are you, kind of 1 to 10, when it comes to another big bite at the apple? What are your friends, your CEO friends, what -- where are they in kind of another bite at the apple when it comes to a structural restructuring where we start to see it in the unemployment numbers and consumer confidence? Where are we on that?

So far -- okay, so I'll step back. So from a stock financial first, because I -- as a CEO, I've been through 9/11 all the way up to this. This is my seventh one of global crisis, and fundamentally, it feels like 9/11 to me. And it was a U-shaped recovery, but I want for someone to go back and find, I'll come back to that. But financial structure was much better this time. The Federal reserves around the world are actually very active right now, very active to make sure liquidity because that's the biggest issue, liquidity from that standpoint. All of us are -- our financial structure is much solid, and we are actually looking, as most companies are right now, can I borrow 10-year money under 2%, which is -- we've never gone for. The lowest ever I have is 2.7%, okay? So we're looking at we -- with our credit rating, our spreads right now, when the market opens up, it might open up this week, we're going to go in and do -- we'll probably do $500 million, maybe $1 billion of 10-, 11-year, 12-year money under 2%, which is phenomenal for us. We're also pushing out...

In refi.

Yes. And we're also putting out commercial paper as long as possible. We can't get past 90 days. The commercial paper in 90 days right now is very cheap. And so we're trying to rebalance our commercial paper. We have about $2.5 billion of commercial paper. And so companies like Emerson, which in most of the conferences you talked to, are very -- we have a very strong balance sheet. We're all trying to figure out how can we strengthen it. So Frank and his team are working and very aggressive, right now, to strengthen the balance sheet so we don't have the financial crisis issues we face. More than 9/11 financial issues, when we couldn't refinance because commercial paper market was frozen for almost a month. Now what I feel like in talking to most CEOs, most CEOs were not CEOs in 9/11, like I was, but they were working somewhere in a company. This feels just like 9/11 relative to the down and how those things -- so I call this an elongated U. It came down, and then what we're going to see is this thing will stay down here. The question is where that level is. Now we already -- we're expecting a very low number. And so the question will be, what kind of stimulation occurs around the world, Steve, relative to -- from the government. And if you think about the China government, the Singaporean government, the Japanese government, the U.S. government and then also, the European government, they were doing things. I think that will make a difference how fast this thing comes up. So that's -- I feel, from this perspective, it's going to be -- it feels just like 9/11, and they did start tumbling. It was -- we were down for almost 12 months. If you go back and look at our modeling of what we were down from the quarter-by-quarter, it was 12 months. The issue relative to 9/11 is that we already made a decision to break the quarter string in May of that year. So we actually -- just like this time, in May, we decided to do a major repositioning. We took a big restructuring charge around $500 million and started moving stuff. So when 9/11 happened, we were doing the same thing. We're actually already taking costs out. So we improved our profitability, but at the same time, it lasted kind of down for 12 months. And that's why we're -- that's how we're modeling it right now. So that's why I'm trying to get the guys to accelerate cost because I don't see this V-shaped thing that we talked about early on, no one sees that any more from a CEO standpoint. So I'm saying it's going to be down for, say, 3, 4 quarters. And then, okay, we've got to get everything done within the bottom of this U and then get ready because this thing, when it does pop because we know this simulation is coming from almost every major economy in the world, be it the governments or be it the banking industries, they are going to stimulate because they got to get the people back to work. And that's what they are saying.

We're at a point where other corporates are going to kind of follow your lead and start to cut heads. So we see that in the jobs, the jobs numbers and...

I think they're going to be very, very cautious right now because of the paranoia around the coronavirus, Steve. I think they're going to be very nervous about cutting heads. I think they're going to be very careful about it.

So we won't know really until kind of probably first quarter earnings reports you know...

People might say, okay. But now, I think...

I've seen enough now. I know whether I need to cut or not.

But now from my standpoint, since we've already started restructuring, I have the flexibility to do it because I have already started. And -- but the issue is, I think they're probably adjusting them off at this point in time and say, "Hey, do I do this?" And I think that you'll start seeing it in that April, May, June time period. I personally think that this thing, that when the heat gets here, this thing will slow down, people get back out. I mean people get tired at being in a building all day long, I mean, by themselves. And from that perspective, I think people will start traveling again sometimes in the summer.

I like alone time personally, but...

So you're kind of a loner person.

Yes. Nice time to reflect what the -- look in the mirror and reflect.

Your wife told me that, yes.

Pontificate to myself, right? It sounds really good. Operator, are there any questions for Dave?

I'm showing no further questions at this time.

But it's interesting. I did an interview with the local papers and Wall Street Journal, I went through all the crisis we've been through. It's an amazing thing. But I think that it's a combination of the financial crisis and the combination of the 9/11, and we all bunkered. We went bunkered big time in 9/11 around the world, people went paranoid. And so that's what I see right now. But the oil thing is a new kick for us, and we've had oil prices down this low. We'll see how this goes. It would be interesting to see if this thing goes on. Some people say they've going to be probably for 6 months, I just find that hard to believe that. So they'll go to war for 6 months like this. It's just -- that's a crazy time period to go and this seems a long to try to bang the price down like this. We'll see, certainly.

And I guess we have a couple more minutes, and I'd like to use the full time. Looking at smaller part of your business on the discrete side, it's been weak, auto, et cetera, machine builders. What are you seeing on that front? Most people are really focused on the process in oil and gas side. I would assume that maybe it's not as bad as oil, but still pretty big degree of pressure there. So what...

Our discrete side in North America is pretty well stabilized. And we've been -- we were not that strong enough, we're not that big in automotive, in general, for manufacturing. I would say the coronavirus/oil stuff pushed it back down, but have stabilized. The only place they have not stabilized was Europe. Europe was still very weak. They do have machine builders, export machine builders...

China.

China, we're very weak. That was the one weakness we saw. We see the business coming back in Asia reasonably well. It was on a good pace...

Well, that's Italy, too, right? Italy has got a decent amount of machine building...

Yes, they do. And so far, that's been hurting on the discrete side, building and the machine coming out of the region. So that's the one area we're still pretty weak. But U.S. has stabilized. So we'll see what the manufacturing numbers are. We are not a big automotive company, not much there. But China was very weak. I mean China right now is -- on the automotive side, they're already going through a recession. The question is, what happens when they come back? I mean are people going to go out and buy cars? I'm glad I'm not in the automotive industry. I don't -- that's going to be a tough issue for China from my perspective. But I think the key thing for us is, when we get the curves out of orders and since we always do talk orders, we will give you...

Yes. You guys stopped getting orders a couple of years ago, all of a sudden, were getting it every month now.

Not every month. But I felt that it was beholded for me to keep the industry on this relative to orders, and I started back up again. I thought it was missing people, people will always ask me. And I can't -- if I don't put it out, I can't talk it.

100%.

And I'd like to talk it.

More disclosure to us is better than less disclosure, absolutely.

Yes. But it's an interesting time. I think that we've gone through a period, this period...

The election, as we come -- let's say we come out of this in the summer. Is the election kind of an incremental double whammy headwind? Or is there not -- is there a little more certainty work around that?

There is more certainty. The big issue right now is we do need something to do in the United States relative to fiscal stimulus. And the big issue will be if it becomes political. I mean the White House would like to do something, Congress is going to say no. And I think that's not a good issue. So while other countries are going to be starting to do something relative to fiscal stimulus, we may not see this. The political issue will come into play here, right, because one side of the House would say, "Hey, let's have a recession." The other side of the House say, "No, let's not have a recession." I mean we know that. So this battle is going to happen, and you can see it today already. It's happening today. There's something I'd like to say, there is a time like this we've dusted off, so I am dusting off right now. The company is a lot different. '97. 1997 when the price of oil went to $10, and we had the Asia crisis, I was running the process business, so I've been around, I'm pretty old, kind of viral, but I'm pretty old...

I will tell you, it's not true.

Yes. But I lived through that crisis. So we're dusting off the depth of that. Now the company is different now, but I want to see with the price of oil shock because we had the oil price shock that went from $40 down to $10. We had the financial crisis in Asia, which created a recession around the world at that time period. So that is what I'm looking at right now, say, okay, what were the pieces to knock because we can take out the pieces there that we have today out of it. Now we're more aftermarket than we were back then. But it gives me an idea of how some of my customers reacted during that period, during that financial crisis that came out of Asia and the price of oil shock. So that's one of the things we're looking at right now, which is pretty far back, but '97, '98, and now is a tough time period.

So maybe it's a combo of it, maybe the right construct is to look at a combo of the 2 and...

Of 9/11.

Yes.

And so that's what we're looking at right now. Being around this long, I mean it's a -- we look at that one and we look at this one, and that's what it feels like. That's how it feels like to me. But the one thing good about -- I have my hats off to the federal reserves around the world, financially, they have this in better shape than we did. We did not -- we're not getting blindsided like we did in 2008.

Well, part of that is because the prior administration had -- while they may have restricted a bit of Wall Street's ability to...

Do things.

To do things.

You're financially stronger.

Not allowing to extend makes the thing more resilient in times like this.

The European banks are not in that shape. The only negative you will have is the banks may not lend loan because the interest rates are too low. So that's where the government is going to have to work, to figure out how to get the banks to loan because the banks are not going to kind of loan at this level. And so if I just look over the overall financial structure, I feel much better about it. I think people are more in tuned, which is -- it takes away, we don't need 3 things coming out of it. I mean now from my perspective, we have the energy shock coming out of the war, and we have the coronavirus. And the coronavirus will pass. The question is, when it will pass and when we get -- how do we get people back to work?

Well, the other thing is air travel and aerospace in my sector for the last 4 years have been growing high single digits versus a group that was growing 2 to 3. So like the question is, how many engines does the economy have to fly on? And right now, you've taken away China oil and gas and aviation, auto is already kind of weak. That doesn't leave a lot of positive markets. So that on its own moves things down a pretty significant shift, so...

I mean from my perspective, I think you said earlier on, Steve, it's a very fluid situation right now. And we're having constant communications as with the OCE, twice this week already. We're communicating -- we've had major communications, we're going to do it again on Friday. We're sort of -- we're trying to pick up where this thing is going real quickly. And the customer base is talking, so that's one thing good about it, you're talking. And the question is, how do we adjust? How do we take advantage of the situation? We are already doing it. So how do we take it a little faster? And so it's an interesting time. That also gives me a chance, to be honest, again, as I've said at the conference, it gives me a chance to really evaluate this next-generation leadership and see how well this has performed under a lot of pressure, with a lot of uncertainty, and who goes to bunkers and who is working. I mean who is really working is the issue. And that -- it's a good thing for me from that perspective. The Board won't see it, but I'll be able to communicate that to the Board right when I see it happening because this is a real test. And I got tested in '97, '98 and it's -- I would say, probably the way I came through that process when I was running automation was one of the big pluses relative to me getting the job in 2000 from that perspective. So we'll see. That's where we are.

Thank you as always for the color. Great conversation.

Happy to be here. The city is empty.

Traffic is light though.

Yes. Traffic is light. I drove in today. So it's for the first time in like forever.

I mean you can avoid people. You don't have to touch people. Steve and I, we kicked each other in the way. It was like -- and now I will get charley horse.

Kind of like a Kid n' Play dance. I appreciate the time, as always. And with that, operator, we'll end it there. Thanks again.

Thanks.

This concludes today's call. Thank you for your participation. You may disconnect at this time.