Don Bullock - SVP, IR Sandy Cutler - Chairman & CEO Rick Fearon - Vice Chairman & CFO

Scott Davis - Barclays John Inch - Deutsche Bank Ann Duignan - JPMorgan Steve Winoker - Sanford Bernstein Jeff Hammond - KeyBanc Jeff Sprague - Vertical Research Shannon O'Callaghan - Nomura Eli Lustgarten - Longbow Andy Casey - Wells Fargo Mig Dobre - Robert W. Baird

Good morning. I'm Don Bullock, Senior Vice President, Investor Relations.

Welcome to Eaton's first quarter 2014 earnings conference call. Joining me today are Sandy Cutler, Chairman and CEO; and Rick Fearon, Vice Chairman and CFO.

As has been our historical practice we will begin today's call with comments from Sandy, followed by a question-and-answer sessions later in the day. I do want to let you know that we understand many of you have a very tight schedule today with a number of calls; what we will do is we will be holding our call to an hour today in respect for the fact that many of you have a number of those to try to get to.

Before I turn it over to Sandy, I want to take a moment to draw your attention to the statement on Page 2 of our presentation. Our presentation today contains forward-looking statements.

The comments on page two outline factors that could cause our actual results to differ from those in the statements. These factors are noted in today's press release and related form 8-K.

In addition our presentation also includes non-GAAP measures, as defined by the SEC rules. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided at the Investor Relations section of our website at www.eaton.com.

And at that point I'll turn it over to Sandy.

Great, thanks Don, and thank you all for joining us this morning. I'm going to work from the earnings presentation that was out on our website; hopefully you have all had a chance to download this morning.

Our first quarter, I'm to going to turn to page 3 to start this morning. Our first quarter was largely in line with our own expectations despite the concerns we have had about the challenging winter here in the U.S.

so we've spoken about a couple of times this winter. I think one way of thinking about the year, this winter is that we were able to largely recover from the revenue impact from it.

But we did incur some higher cost to do so through expediting and overtime. A couple of highlights on this front chart that hopefully will give you a good summary for what's in the pack today is that we did achieve operating EPS of $1.01 that included as we've said about $0.03 or about $13 million of premium expediting and overtime cost virtually all incurred in our Electrical Systems and Services business and that's because our major facilities are located right in the area the Carolinas so that that got hit particularly hard that knocked out workdays for us in January and February.

Our core growth, I'm really pleased with 4.5% that was partially offset by the 1% of negative ForEx. We are confirming today our full year guidance $4.70 no change.

But it does now include a $40 million charge for a restructuring in our industrial sector. I'll talk a little bit more about that.

That's about an $0.08 hit in the second quarter this year. Our markets still we think will grow at about 3% this year, no change in that.

Cooper integration remains very much on track and really pleased that we will be getting that $95 million of synergies this year, another $150 million next year. Further buttressed by the next claim which are the results of the restructuring we are undertaking in our industrial sector so another $35 million there.

So the year-to-year 2014 to 2015 self-help story is now $185 million and we think that's very powerful. Second quarter guidance for operating earnings per share of $1.05 to $1.15, a midpoint of $1.10 and that does include the $40 million of restructuring charge that I referenced.

The last piece I think helpful news as you think about how the year rolls out is that we did experience this winter some negative impact in terms of the large projects placements in our electrical business, you saw that in the negative 6% bookings in our Electrical Systems and Services business and as we watch April roll out, electrical book quotations and bookings are clearing strengthening in April and really pleased with that tone that we are seeing as we gotten off running in the first month of the second quarter. If we turn to page 4, just a couple of highlights of the results, operating earnings up 21% really powerful, we think in a period of time of relatively slow end market growth, operating earnings per share up 20%.

We recognize that $0.06 of that achievement was due to you will recall a year ago in the first quarter we incurred about $0.06 of purchase price accounting and inventory step-up charges those didn't occur this year. So without that $0.06 this is a very solid 13% increase in terms of our operating earnings.

Sales I mentioned before $5.5 billion very much in line with our guidance of 3.5% and that's a net of the very strong 4.5% organic growth the best quarter in the last eight quarters in that regard. You go all the way back to the first quarter of 2012 when we had a 4.50% organic growth number.

Segment margins very much in line with our own expectations 14.50%, up 50 basis points that's in spite of the $13 million of increased cost due to weather that's about 0.2% that impact. If we turn to chart 5, volume again very much on our guidance and on our expectations and so really when we look at the puts and takes in the quarter pretty minor.

Little lower corporate expense and we talked at the end of February that as we had seen weather impacting us in January and February we were working very hard to contain problematic expenses. You see that really on this line with $0.04 of benefit.

Lower taxes this is just really a decimal point by a penny. Negative weather I mentioned the $13 million or negative $0.03.

And then a little higher currency translation that you saw, of the negative $56 million number, we thought it was going to be a little closer to $30 million so overall about a penny better than our guidance this year. You will also recall for those of you who are trying to trace our corporate expenses if you remember in the fourth quarter of 2013, we had incurred about $20 million of Cooper related costs and then we also told you this year that we would getting about $2 million per quarter of synergies on the Cooper line and that's part of how you trace from the fourth quarter to the first quarter.

If we turn to page 6, quick financial summary, really nothing more to highlight given the numbers I have obviously the volume is up a net 3.5%, the margin is up 50 basis points. You can see the very strong core growth.

I'm going to operate into the segments here in light of our time today. If we start on page 7, titled Electrical Products segment, volume was very much in line with what we had expected, very solid increase in terms of operating margins.

I think very significantly the first quarter bookings were up 6% more than the shipments. I think that's reflecting our forward look here, strongest in Americas, weakest in Asia-Pacific.

But I think the really good news here is both in the Americas and in EMEA we had very solid mid-digit increases. And it really reflects in this particular segment because most of these products are flowing through distributors this outgrowth is really due to distributor channel conversions, which are beginning really to build and you will remember one of the very important sources of revenue synergy in our acquisition of Cooper so really very, very pleased.

As I mentioned the tone in April is quite good and I think as you can imagine the northeast and the central and the southeast portions of the country were hit pretty hard in the first quarter and we're seeing those areas come back in spite of that weather problem, really good momentum here in terms of distribution channel. Our lighting strength continues and very importantly the LED penetration in terms of our overall lighting excited the quarter about 37%.

I'm very pleased with the technology leadership we have there, a very strong growth across the board there. The majority of the operational synergies and you remember in our guidance for this year, we said about 75% of those synergies would drop into this segment, again part of the reason for the very strong 150 basis point increase in terms of our operating margins.

If we turn to page 8, entitled Electrical Systems and Services segment, here the volume is pretty much in line with where we thought they were going to be but clearly the 12.8% margin down a 130 basis points from a year ago, I'm sure raises some questions in your own mind. Really three things to really think about here the weather impact $13 million that's worth about 0.9% in this segment.

We do not expect that to repeat. I'm pretty confident we are not going to have heavy snows during the second quarter.

The unfavorable mix and we did talk about the fact on bookings that bookings were down 6%. That big impact was really right here in the United States and that's where it occurred; the United States and Canada.

And we saw a real paucity of large projects being coded and awarded in the U.S. and Canada, now that has changed as we have gotten into April and that's a very good news.

But that impact gave us a little bit of negative mix as well and that was about $6 million negative mix impact. And then the last item is something that will be with us all this year even though it is in our full year guidance, I will get to it a little later in the packet.

We've raised the margin guidance for the electrical product segment by 25 basis points and we've lowered the guidance for the Electrical Systems and Services segment by 25 basis points. It's about $4 million a quarter.

We've made a as we have had the chance to manage these combined businesses a little longer, we have looked at the allocation of some of the overheads between the businesses and we think it's more appropriate that we shifted about $4 million a quarter to this segment from the product segment. You put those three together, three-tenths that comes from unfavorable mix, the nine-tenths from weather, the two-tenths from allocation that's about 1.4 points and you can get a sense that we think this business was pretty much in line without those items and we don't expect the weather to occur and we expect the next piece to come back, now that we're seeing the recovery in the business here in the second quarter.

If I move it on then to the Hydraulic segment, this is page 9. We think a very strong quarter of performance, 3% of volume growth, but you can see the core growth is actually 6% and we had negative ForEx of 3 points.

So you're seeing I think pretty strong volume top-line growth. The bookings up another very solid 9% as you can see below and then the profits up 240 basis points to 14.3% so whether you compare it to the fourth quarter or the first quarter, very strong margin performance here.

Getting within the bookings is to get a sense for them in within the 9% clearly the big pluses here were on the mobile side, you saw construction is up very strongly. And so construction up strongly, mining and ag weak.

In the stationary side, led by oil and gas, very strong performance in that segment. One that also we're also quite strong in our electrical businesses as well.

And if you take our actual bookings for the last two quarters, the first quarter 2014 and the fourth quarter 2013, and compare them to the two quarters a year before, each of those, we are averaging about 13% increase in bookings. And so I think you're really seeing the backlog building the tenure of the market improving and you can see from our results we are really demonstrating in terms of both the volume and the margins.

I would also mention that April will continue very much in this regard. If I move to chart 10, which is the Aerospace segment, our volume is up some 7%, 2 points of that positive ForEx or 5% volume increase.

Our operating profit is pretty flat with the year ago margin is down slightly. This is a continuation really of the mix that we've been talking to you about and you see it within our first quarter bookings albeit in this segment we report our quarterly bookings and they can be pretty bumpy depending upon which large OEM orders are booked in the quarter.

Very strong commercial strength offset by quite a bit of military and that's the real story behind the bookings. The very good news is within those overall bookings, our aftermarkets was up some 15% and we have been talking to you for several quarters about the fact that we had expected to see an uptick occur at some point, we were very pleased on both the commercial and military side in the aftermarket.

Just a quick update on the divestiture. We do expect it to close within the second quarter and you recall that decreased revenue for the full year, and decreased profit for the full year was already in our guidance for this year we had detailed that when we went through the open initial guidance for the year.

For those of you who were looking at the 13.4 margin in the first quarter and asking is that really in line with our expectation for our full year guidance, yes it is, this is very much how we anticipated the year laying out. Now moving to chart 11, which is the Vehicle segment, a very strong quarter performance and you see 6% revenue gain actually 9% core growth, offset by 3% negative ForEx very strong margin improvement, you can see a 110 basis points.

I think everyone will recall in the fourth quarter we had experienced some launch challenges that had caused about $17 million of higher cost in the fourth quarter those have been largely resolved. You see that in the margin hopping back.

We had told you we expected margins to come back in line with normal first quarters as you can see it's actually a little stronger than the normal first quarter so very pleased. I think the big news from a market potential is that you saw the March NAFTA heavy duty orders come in at 27,400 units and we saw 91,000 of orders in the first quarter.

We saw an industry backlog of 118,000 units in the first quarter and from all we are hearing April orders again will be we think relatively strong. All of that has let us to increase our Class A heavy duty market forecast and again this is NAFTA that we provide to 280,000.

We think it will lay out with about 67,000 in the first quarter stepping up to 72,000 in the second quarter, and then sort of flat lining along the line of 71,000 to 70,000 for the remainder of the year. What is offsetting that is what we spoke to you about in our earnings guidance for the full year is that we were seeing South America start the year weak and we had originally forecasts those markets would be down a couple percent.

We actually think they will be down closer to 4% at this point and so a little bit of an offset, if you will, in terms of the South American impact. Moving to page 12, which is our 2014 end market growth forecast as you can see really no change overall, but we did move up our vehicle forecast by 1 point frankly it doesn't round the total of the 3% up for us, but that really recognizes that the heavy duty market in North America is little stronger and no change in the U.S.

retail sales outlook for light vehicle, but weak in South America across the board. Moving to page 13, our margin expectations by segments you can see the aforementioned change between electrical products and Electrical Systems and Services still comes out to the same overall number for the total electrical business in terms of what we expect this year, and if you look down to the bottom of 15.75% that's still our expectation there as well.

So no changes on this chart just a remainder that the 2015 segment margin of 17% does have the benefit of $150 million of additional synergy going from 2014 to 2015 in our electrical segments and now an additional $35 million of benefit that comes from the just announced restructuring in our industrial business. So $185 million, if you will, of self-help in terms of achieving those margins in 2015.

Now moving to chart 14, entitled 2014 EPS guidance. We are providing our first guidance for the second quarter.

I mentioned it before, a midpoint of $1.10 operating earnings per share, the net income number of midpoint of a $1.05 does reflect $35 million of second quarter restructuring expense as we look at the overall year, I will talk a little bit more about full year restructuring in just a moment. No change to the full year either range or midpoint of operating earnings or net income.

So the $4.70 is the exact same number up 14% from last year that we provided in our full year initial guidance. Moving to page 15, really just some tweaks in terms of this overall guidance its still $4.70.

I will draw your eye to just a couple line items the organic growth of roughly 3% still the same number of about $990 million of volume; it is now at $0.50 versus the $0.56. We do not think we will cover the $0.03 of the weather expense that we got in the first quarter and the rest I would describe as rounding slightly different number in terms of interest and pension, we had thought earlier that was a benefit of about $0.20, we think it's going to be closer to $0.16.

And then when you come down to the tax rate, we had a negative $0.44 there in the first quarter. As we work through the details we think it's going to be closer to $0.26.

Obviously we introduced an $0.08 restructuring charge into the last item in the yellow block there as well, still leading us that to our overall $4.70 of guidance. Moving to chart 16, entitled we remain on track to deliver our Cooper synergy projections, no changes on the sale synergies, the cost-out the total operational synergies you will note that under the acquisition integration cost we have lowered the expenses that we expect to spend this year to achieve our full program and the full program has not changed neither breadth or in benefits.

We just think we can get it done for about $10 million less. You actually saw that materialize in the first quarter where our actual spending was about $66 million versus the original guidance we have provided you for $76 million.

Nothing to interpret from that about any change in program or benefits that we're achieving, all we expected to do is just getting it done at about $10 million less expense. If we move on to Chart 17; hopefully a helpful first look into our second quarter, and let me step through these.

We start with $1.01, being our operating EPS in the first quarter. We've then got five items that lead to a total of a plus of 23%, a fairly typical movement for us in terms of volume of about 5% between the second quarter and the first quarter that would lead us to think volumes will be up on the order of about $275 million over the first quarter, and our incrementals that yields about $0.13.

Then you'll see we're anticipating a little lower pension expense than we saw in the first quarter. We won't have we believe the weather cost impact of the $13 million in the second quarter.

We'll get additional Cooper synergies the same way we had laid them out for this year, no change there, another $0.02 there, slightly lower interest as well. And then three negatives of the industrial sector restructuring I spoke about.

Let me just talk to that for a moment. The reason we're doing this is not that our volumes were lower in the first quarter than we anticipated, but when we look at world GDP, certainly the world is experiencing, what I call, some growth anxieties, whether people are worried about the China market not materializing as strongly, or the Ukrainian impact potentially in Europe, or the political elections in India, or the U.S.

economy showing different degrees of growth in different sectors, we just felt it was prudent to go ahead and get going on this, and ensure we've got the self-help to propel our earnings into 2015, and that's a negative $0.08. Higher corporate expense, we have provided you a guidance of $82 million per quarter.

We came in at $64 million in the first quarter. As I mentioned, we had really worked to try to hold those expenses down in the first quarter and we want to return to get back to a number of the growth investments that we think are important to continue to push the company ahead, and we tend to have our expenses move up as we go through the year in terms of corporate expense as well.

And then just a very slightly higher tax rate, probably a little bit north of the 5% number here in the second quarter and all that leads us to our $1.10 guidance for the second quarter. If you move to Page 18, this is the 2014 outlook, no changes.

The only change here on this page is that we're providing second quarter guidance that I just reviewed for the first time. So we think a clean quarter.

We were able to offset the impact of weather. We're feeling better about the booking situations now in terms of our electrical business particularly there on the side of the Systems and Services side, and we think we enter the second quarter on a strong note.

So with that, Don, let me turn things back to you for questions.

Okay. If you will, can you provide the instructions?

Our first question comes from Scott Davis from Barclays.

I wanted to talk a little bit about big picture. I mean, Sandy, when you think about the Cooper integration, now you've anniversaried, you've had enough time I think to do the heavy lifting.

I mean, is it -- do you think about potentially pulling forward your interest in doing M&A again particularly in electrical?

Yes, we, Scott, I think we've been consistent. First, let me just say we're really pleased with where we are in the overall integration, grade us as being slightly ahead of where we had hoped to be on the broad array of complex issues we're taking on.

But we've really traced our ability to do M&A to two things. One, obviously finishing this integration activity, and we've said that mature year is 2016.

And so I think it's going to be late '15, to what we're kind of back in a more active stage in that regard. And the second is, obviously paying off the acquisition debt and you'll recall that we had outlined about $2.1 billion of debt that we were going to be paying back and the last tranche of that is in the first quarter of 2016.

So I think that's more likely the time period. We're obviously out continuing in the quoting activities, but unlikely to be at the altar if you're on anything substantial much ahead of that time table.

And then just a follow-up. We've talked a little bit about -- I don't think at least in your prepared comments, you talked about channel inventories.

I mean, sometimes these things can whip around a little bit ahead of the building season. I mean what's your sense of where your customers are at now?

Are they stocking up as usual seasonally, or are they stocking up more so than usual because they anticipate a bigger pull-through -- sell-through?

Yes, I think our best sense, Scott, NAAD is going on right now. So we've had a chance to have a lot of conversations with distributors in our electrical businesses.

This winter was so tough on people who were involved in the construction side, whether that was residential or light commercial that they saw whole weeks that they missed in terms of being able to get on job sites. As a result, they were really careful with their inventories.

So we do not think the inventories are overstocked on the electrical side, and I think as we're starting to see ground opening up, people being able to get going that we think -- that we're in that kind of normal seasonal pop-up at this point. And perhaps in some of the areas of the country like the northeast for example that really had a very difficult winter, we'll see them rebound a little bit more strongly, but I would say I think it's a plus at this point, not a neutral.

Our next question comes from John Inch with Deutsche Bank.

Hi, Sandy. The restructuring in the second quarter, it just seems a little unusual in terms of the timing.

I hear your macro commentary, but I'm trying to dovetail that with the fact that you obviously saw April rebound, right? It sounds like Cooper is on track.

What exactly is out there that would cause you in the second quarter to kind of pull forward some cost saves? Is it – I mean, I'm just trying to understand the timing, that's all.

Yes, I wouldn't say there is anything unusual about our timing, John. We take these actions when we think it's right within our businesses and we've done the right preparation, and that always takes some time, and frankly, we're not all the way through them, which is why we're not sharing them in terms of how much is in each individual business, what we'll get there as we roll them all out.

But as we watch the first quarter unfold in terms of what I call some of the global GDP issues that's really what caused us to believe this was the right time to move ahead on them. Frankly, if we'd seen the world sort of taking off and I'd call, less of the growth anxiety, these may or may not have been the right thing to do.

So we think it's just a very prudent hedge against the likelihood that we see weakness pop out in any of these markets. So we've not changed our own view of the 3% growth.

Frankly, a number of you felt we were too somber in our 3% for this year. We still think that's about the right number because the world does have -- I call it, growth anxieties right now.

Yes that makes sense. But the hedge, just so I'm clear, right, the hedge sounds like, it's because -- this isn't sort of cadencing to your internal plan, like, I mean, I'm trying to understand, did you expect, for instance, April is obviously rebounded, but did you expect it to be rebounded even more?

Are there things you're seeing perhaps, and -- obviously we know what's happening in emerging markets and then there's the question mark around Europe. I'm just making sure there's nothing else.

No, nothing else, John, really, just our kind of sense that that the world is probably not going to accelerate substantially beyond the numbers that we've got out there at this point. And we think that these plans, as our businesses, have reviewed them with us, make really good sense and all they do is make our businesses more competitive, and also give us, I think a stronger self-help earnings story, obviously as we go into 2015.

So I think a net plus all round from the very, very fast paybacks, as you can see roughly a $35 million payback next year for the $40 million this year. And so they are very attractive programs.

Yes. It looks like the street including ourselves kind of mismodeled the second quarter a little bit.

So the first half based on the midpoint, right, is going to be above 45% of the year based on the midpoint. Historically, you've had a bit of a stronger first half.

Is that what you would expect, Sandy, Rick, going forward that your first half is about that, again, kind of pro forma for Cooper et cetera, is that about right, and maybe we just mismodeled it or is there something else about sort of the sequential that you think we should be thinking about?

No, I don't think there is something else John. I think that frankly and we're aware that the consensus was up in the high 120s for the second quarter.

Frankly that looks too strong to us. It is true that we tend to have our strongest quarters in the second, third, and fourth quarters.

But this year was having obviously a $0.08 share that put you up at a $1.18, and so on adjusted basis if you would add that to our $1.10 midpoint. And -- it's again we're tracking toward a $4.70 guidance.

I know the consensus is out there, it's been a little bit north of $4.80, and I suspect that difference got swapped into the second quarter. We obviously don't know what's behind everybody's individual thinking, but I think that balance if you say first half and second half is -- that's reflected in our guidance, this point is a pretty good way to think about an average year for Eaton.

Yes that makes sense. Then just lastly, this is the year of Cooper integration I guess with respect to facilities, manufacturing, distribution, heavy emphasis on Europe.

How are you guys feeling sort of four, five months in the year sort of under our belt, what's the trajectory and what is the point like has everything gone okay in Europe? I realize you spent a little bit less money, but that's obviously one of those things where you sit here in North America and Egypt -- you hear all these headlines about you can't do anything in France et cetera so what -- how is the progress been, any kind of an update would be helpful?

Yes, I'm going to appreciate the question because it is a very important activity that our teams are involved and where we are really very pleased, whether it be the overall activity and you're right, this is the belly of the beast if you will, the 2014 and '15 are the really heavy lifting years of execution, and the teams are really doing it, I'm just very, very pleased. Specifically in Europe, we are through all of the planning phases, and we're into the action phase.

And so that as you say, the fact that it always takes a little longer to get things done in Europe, we think we did a very good job of planning, communicating, and we're now in the execution phase. So we're in the action phase and it's moving ahead very well.

So if anything, I think we're moving a little faster than we had originally anticipated, and that's good news. I would say as important as are all the cost synergies, the area I'm equally really thrilled about is, is how well the reception is going in terms of the marketplace with our improved competitive position and the synergy opportunities.

And you really saw that come through in terms of that very strong organic growth in the Products segment, in spite of the weather problems that were out there. You can see that our organic growth overall for our electrical business of about 2.9% or 3%, really fared pretty well when you look at many of the other global competitors.

And we think that's a testimony to how well this is coming together.

Our next question comes from Ann Duignan with JPMorgan.

Sandy, can you give us some color on your bookings within the different segments? Normally you give us how much mobile bookings were up distribution, et cetera, et cetera, just in the different businesses if you have any more color.

Sure. Now, I think, let me start with the one you just referred to, Hydraulics is that, in a little bit of a change for us.

In this quarter where you've been seeing over the last six to nine months that our mobile bookings have actually been stronger than our stationary, this time mobile was up 7% and stationary was up 41%. Now that huge 41% gives you a feel for what's going on in the oil and gas industry and that was the biggest push.

Within mobile, as I mentioned, the construction was very strongly, and then the negative, as you would expect would be mining and then we saw ag being slightly negative as well. If you flip it and look at it from a distribution and an OEM point of view because a bunch of -- most in the mobile and in many of the big oil and gas activities are what I would call OEM-oriented, there again, it was heavily more OEM than it was distributor-oriented this particular quarter.

If I flip you over to aerospace for a moment, the overall bookings of two, and remember, we had very strong bookings the last quarter, so we don't average ours on a rolling average. We just give them to you as individual quarter.

This was really a situation where you had all the great commercial strength being offset by defense weakness, and then I mentioned on the aftermarket side that the commercial was very strong but the military was also a very healthy positive. So a nice balance there.

And then if you go back up into the electrical businesses, I think the comments you've heard from other electrical companies, I wouldn't typify the market much different. I'd say there's been improvement in construction markets.

Oil and gas is strong. We had a very, very strong quarter in terms of lighting, high double-digits.

We had high double-digit on bookings in the residential segments as well. The weakness, as I mentioned was in the U.S.

large gear and large UPS, the big UPS market was weaker in the first quarter, and then the Canadian economy has been weaker as I think you've seen with most people. In Europe, we've been really pleased with the single-high-digit recovery in our comp on the product lines, virtually across Europe and the Middle East, and better strength in the small data center area and the large data center area.

And then when you go to Asia-Pacific, which was the more challenging region outside of the weather issue that hit North America. There you've got some very strong activity and large data center activity, some pretty good attractive large project work in the power distribution side, but the weaker side of the markets have been the single phase power quality markets, and then the Australian economy continues to be weak.

I mean, overall for Eaton, let me just anticipate the China question, we saw our revenues in the first quarter in China up 10%, and so I think China continues to improve at this point, and I think that's good news, because one of the questions we've all had is how quick would that recovery be. That's the one area the world of construction equipment market has not recovered and so this big driver on construction equipment has been primarily a U.S., a Europe, a weak South America and a not recovered China yet.

Okay. And that's a great color thank you, appreciate it.

And just a follow-up on Brazil, you noted that market. And could you just breakout you different business segments in Brazil, whether it's ag-related or truck or automotive?

Again, overall for our Vehicle Latin America view, when we last gave guidance, we thought the markets for the full year would be down on the order of 2. We think it is more likely that they're going to be down on the order of 4.

In the first quarter and we've got some question always about the accuracy of quarterly data stream. So take this with a little bit of salt, if you will.

We think it probably is down on the order of 6, and within that you saw Brazilian ag being the bigger number certainly down somewhere between 10% and 15% in the first quarter with the light vehicle markets being down something just below 10%. And then the truck and bus numbers look to have been down just a couple of percent.

So somewhere in those ranges when you try to get the overall feel for the market.

Our next question comes from Steve Winoker with Sanford Bernstein.

Just to put a finer point on the Cooper cost synergies, you had moved to $5 million I guess out to 2014. Have these specific actions now taken place in the last quarter so that that catch-up is or that's cleared -- is it complete clarity on that or is it still to be done?

We have things that we'll do all through the year this year, but we've not changed what -- and I think as Tom outlined for everyone who had the chance to -- Tom Trowse identify for everyone had the chance to attend our meeting in New York, he tried to give you an indication, about each of the categories via the cost or the synergy sales categories. The vast majorities of decisions have been made, and so we're in an executing mode.

So I would say no, there has not been a change in either scope of what we're taking on nor schedule. And we feel, we're now, three-and-a-half months or almost four months into this year, and it continues to feel very good in that regard.

And Sandy, do you have a sense for upside from there as you continue to sort of, now that you continue to make progress, from your end you kind of talked about a high level, you feel good. I mean do you -- are you starting to find new areas of opportunities without -- you don't need to quantify it, but are you getting a sense for even more there on the cost side?

I think we'll get a better sense, I think as we've got a very full place and what we're working today. And I think there are always more opportunities.

The question is will they prioritize high enough that we'll get at them during this very focused two, three years of execution. So I wouldn't want to advertise as we've got excess capacity to take things on right now.

We're pretty busy. There's a lot going on.

I think the team is doing well, and we get out towards the end of this year, we'll have another projection as to whether we think it steps up from there. But you'll recall, we just increased in February what we thought not much would happen so much this year, but what would happen over the '15, '16 time period, and I don't anticipate that we're going to be raising a lot during '14.

I think the potential would be out there in the future, and we'll look at that as we get towards the end of this year.

And just so I understand that ESS commentary on mix, weather, and corporate allocation, to sort of say that you're on similar on what you would expected, and I guess that's two-tenths or 20 basis points for corporate. That allocation, year-on-year, you've would done it before, just how -- what kinds of things are we talking about there?

I know it's small, but I'm just trying to get a sense of the health of the business.

It's a whole -- no, it's -- these are areas where we have services or assets that support both the segments, and as we've just looked at you can almost think of it as an activity costing model. We've simply just said, we think that about $4 million more per quarter should have been assessed against the ESS segment and the Products segment.

So nothing that affects the health of the business or the orders or the competitiveness, it's really an internal cost allocation issue. And once we came to this determination during the first quarter, we thought we were better to kind of project it out over the whole year, and that's why we increased the segment margin target for the full year in products by 0.25 and took it down by 0.25 in in the Systems and Services.

Right. And you're not seeing any pricing pressure in the electrical businesses, are you?

Well, I would say that in every business, there are always pricing pressures, but no, I'd say at this point, we're comfortable with our margin projections vis-à-vis all the cost reduction work and new product introduction we do as well.

Next question comes from Jeff Hammond with KeyBanc.

Just on ESS, I mean outside of may be the weather and some of the timing noise, can you just characterize what you are seeing in those project related power quality, power distribution outside of may be what your expectations were and just tone there?

I think the big issue Jeff and then I will come on a couple of specific areas was, just as the weather got worse this winter and you saw an awful lot of job sites frozen out, so a lot of things didn't start and they were people also delaying either the quotation or the awarding of large projects with a pretty unusual quarter in terms of the number of large projects that were actually awarded and we're able to track that data pretty carefully, because we've got such a good window. And I'm speaking primarily here about the North American impact.

I'd say the second issue, comment a little bit in response to Ann's question earlier is that the -- if you look at the large data center side of the market, in the U.S. it was a pretty weak quarter in terms of data centers wanting to receive their equipment.

Now we see just the opposite happening in the second half of this year, where the schedules for the second half look pretty robust with what we've got in hand at this point. So I think those are just examples of, because there are always hundreds and hundreds and hundreds of these projects, not just one project.

But we're feeling much better about as we see this fill for the second quarter and the balance of the year, a very unusual first quarter and our experience in that regard.

Okay. Then just remind us on this synergy split between EPG and ESS.

Why that is, what's driving it in terms of the actions and the savings timing and does that start to shift into '15?

Yes, at this point what we had said is, if you take the roughly $95 million of year-to-year, that was 2013 to 2014 acquisition synergies and that consisted both of sales synergies and cost synergies. And you remember that we said that about $8 million of that shows up from the corporate line, so you got about $87 million that then shows up into the two segments that approximately 75% of that would show up in the products segment and approximately 25% in the S&S or ESS segment.

That's indeed what it looks like is pretty well happening and it has to do specifically with the mix of all of the projects. We've not yet looked at that for 2015 and laid it out over the two segments precisely, we'll do that as we get to later this year.

It's many, many, many, many projects if you could imagine. But right now I think that's a pretty good planning template for you to be using for this year.

Our next question comes from Jeff Sprague with Vertical Research.

Couple of quick ones. Sandy, just your view on restructuring to come back around to that.

So you could kind of say in essence you've taken and make it into restructuring here and you too running it through kind of your operating number. How do you think about that relative to gains, I mean the essence of my question is you'll have a gain on the aerospace stuff?

Do you view that as an opportunity to fund some additional restructuring, do you view those type items kind of in the same sentence, if you will, or they're totally kind of discrete factors for you?

We've not -- obviously we've not included in our $4.70 midpoint operating earnings per share guidance any gain from our announced divestiture to Safran of our two aerospace units. At the time that we close that transaction, we'll be in a position to talk a little bit about what that gain would be and we do expect to close it in the second quarter.

I think it's just premature for us to comment, until we close it, Jeff, at this point. At this point, we want to be very transparent about the -- taking the charge this year, its $0.08.

Some people will interpret that that we've raised our guidance by $0.08 because we've obviously kept a $4.70 operating earnings per share midpoint, and we didn't have the $0.08 in that beforehand. And then we want you to have visibility to what we think the benefit is for 2015, because I think increasingly in these periods of relatively slow end market growth and I would characterize 3% as still in the relatively slow area, we think it's increasingly important that the self-help story, if you will, would accompany this as a really powerful part of the earnings story.

And with a $185 million of self-help going into next year, we think that's pretty powerful.

Thank you. And just two other quick ones, could you comment briefly on what you see going on specifically in the U.S.

utility market on the distribution side, putting aside kind of the weather noise, but how the year plays out in your view? And then I was just wondering on tax, because the modest change this year in anyway change your view where tax rate had been, '15 and in the out-years?

On utilities, Jeff, really, no different than what our original guidance was this year. We had said we thought the market would be flattish from last year to this year, that's still our view.

I think the first quarter was rougher on some utilities and others depending on where they were weather-wise. And obviously, some areas got pretty beat up in terms of distribution.

But we don't see it as being substantially different. We think overall, it's likely to be a flat year, and that's pretty much what we're hearing back from our customers in this regard.

And on the tax rate, our guidance for this year remains around 5%. So really no change.

And as I mentioned, in terms of the guidance for the second quarter, we feel it will have trended up slightly from where we are in the first quarter, and it's probably likely to be a little bit north of the 5%, because we were a little bit south of it in the first quarter.

And Jeff, that keeps our view for '15 at the 8% to 10% range that we talked about on our last earnings call.

Our next question comes from Shannon O'Callaghan with Nomura.

So Sandy may be a little bit more on the booking for ESS, you mentioned and we've had sort of two straight down quarters of bookings. We're talking about more robust data center activity in the second half.

Is that sort of when maybe we finally turn the corner back into positive bookings for ESS? Just a little color on what you see coming in the pipeline.

I would say data centers Shannon is just one part of it. It's -- the data center clearly, the big end data centers, the three phases as we call them, that is in this particular segment and we do see better activity in fact, we're pretty confident of their much better activity in the second half.

But I'd say, the other bigger potion is the Canadian markets have been quite weak coming out of the backend of last year versus a year ago, and it was true in the first quarter. And as I mentioned, I think it was Jeff's question relative to the -- what was unusual about this first quarter was that, we had really huge bookings in the fourth quarter of 2012 and first quarter of '13.

That compounded the fact that when we saw this quarter and the first quarter of 2014 with very few big bookings, and I'm talking about these are over a certain dollar size. The market really just kind of pulls back in terms of actually placing those orders and you see it in the NEMA data, the National Electrical Manufacturers Association's data, quite a different first quarter.

We think that was very much related to not only the fact that people lost workdays, but that there were so many job sites frozen out, that people just were waiting. Now, we're seeing that in terms of, I mentioned in my comments at the beginning of the call, we're seeing that in April because it has definitively changed in terms of this larger activities.

So no, it's not simply power quality, it's on the power distribution side as well.

And I guess on the margin side for ESS, I mean even if you add back the factors you called out for the quarter, margins didn't go up much this quarter, when do you think you really start to transition into the margin improvement phase, for ESS obviously, it's baked into the '15 number, but as we phase sort of across the quarters, when do you think you really kind of turn the corner?

Well clearly, it has to step up in the second quarter in order for us to be able to hit this 14.5% guidance we've provided for the full year. So we don't think this takes a long time to be addressed.

Our next question comes from Eli Lustgarten with Longbow.

Can we talk a little bit about the first half, second half, I mean it's obviously, most of you were disappointed with that second quarter guidance well below our modeling, which probably got wrong. But in order to make your numbers, we're talking a step-up of the earnings now to at least $1.30 kind of the quarter in the second half.

And can you run us conceptually, what takes us up that much between the first half and second half? Do you have that booking or the expectations of power quality, what's driving that profile, big profile step-up in the second half versus first half?

The first part Eli, if you take your $1.10 in the second quarter, add $0.08 for the restructuring, so the actual run rate without restructuring is $1.18. So to hop yourself up to $1.30 would be a 10% increase.

When you typically look back at our company, the difference between seconds and thirds, that's not an unusual number and we're obviously also the synergies continue to increase in this time period, and we do expect the segment I just talked about, Electrical Systems and Services those margins will get better. You'll also see I think the earlier point we made on aerospace that aerospace started this first quarter 13.4% and we're talking about a full year margin there that are at 14%.

And then I wouldn't ignore the vehicle piece because on top of the traditional seasonal in vehicle, we have seen obviously the bookings get stronger around North American heavy duty in the industry, and there's a fairly attractive step-up occurring as we get into this year. So I think those would be your major factors in this regard.

Now, also, if you look at our corporate areas of interest in pension, they start to trend down as you go across this year as well. So those would be the major points I would point to.

So, it's just a normal -- this is nothing businesswise, backlog in shipping or anything, that gives you this expectation from a macro standpoint, and how you're running the business internally?

No, we think it will be a fairly normal progression ex the $0.08 that was hitting this quarter, and that makes it look like you're jumping from $1.10 to some quarters that would be like a $1, $1.30 and it's the $0.08, when you put in there, I think it makes it feel like it's not that kind of jump.

And you talked probably about the industrial restructuring, but I guess you never were specific about where it is, is that pretty well spread across or it's mostly in one segment? Can you give us some idea of exactly what you're trying to doing that (inaudible)?

Until we're announced with all of our employees, we're not in a position to do that. After we have finished all of that, then we'll be in a position to be able to do that.

Yes. But is it spread or is it more focused?

It's in all three elements of what we call industrial sector. So it's in Hydraulics, it's in Aerospace and it's in Vehicle.

Our next question comes from Andy Casey with Wells Fargo.

Just a kind of a high-level question first. When you look at what you're seeing across markets and axing out the Q1 weather impact for a moment, are you more or less confident in a pick-up in improved U.S.

CapEx from your customers and commercial construction during 2014 than you were when you put together the initial forecast towards the end of last year?

Well I think you have to be more confident just because the numbers that are available from the Department of Commerce would indicate that the first quarter was 7.5% and so our guidance of 7% to 8% doesn't sound like it's very wild when the first quarter came in at 7.5%. And it's a bigger number on the private put in place, it's a negative number on the government, but I think again some of the input you heard from various companies who have announced, I think they are looking at just individual elements of the non-residential and not looking at that whole chart that we referred people to historically.

Okay. So if we look at that Sandy and take into account the stronger March/April customer activity that you referred to, do you think the April improvement is just catch-up to where you thought you would be, or is it potential upside?

I wouldn't raise our forecast right now. I think that it's really an indication on these larger projects that there was some push out and awards in the first quarter.

I think we'll have a better sense Andy, when we get through a full quarter of seeing how that stabilizes over in April, May, June. So I think it's a little bit early to call that it's going higher than 7 to 8.

And remember our number is a nominal number, you'll hear some people talking real numbers and ours is nominal just to be clear in that regard.

Okay and thanks for that. And then lastly on that April project activity improvement.

What -- if everything holds, what sort of revenue recognition lag would you expect based on the projects that you're seeing come in?

Boy, it can vary, Andy, from a month to three to five months. We have a very hefty backlog, so we're kind of well covered in the near-term in that regard.

But I think importantly from a tone point of view when you look at the difference between the bookings in our Electrical Products segment and our Electrical S&S segment, it's hard to reconcile the two that you're up a plus 6% on the distributor side, but the project side didn't really come through that's where that the difference in terms of, there is some end market difference such as big data centers, but an awful lot of it goes into light and bigger commercial construction and we think that's the piece that we'll see filling in here in the second quarter.

Next question comes from Joe Ritchie, Goldman Sachs.

Just a few quick questions. Sandy, can quantify, it seems like you've been pretty happy with how April has started.

Can you quantify what electrical bookings are up in April?

Since we haven't closed the month we really don't have a final number, but they feel a lot more across-the-board like what we saw in products for the first segment. So in both segments, whether it's the S&S, or whether it's the products side.

Just to clarify there, it seems like what products is trending towards in Q1?

Yes.

Okay helpful. And then, secondly, does the incremental restructuring that you've talked about for Q2 and the incremental savings in '15 give you any upside to that preliminary 17% margin target that you've talked about before?

No, I wouldn't change them now. I would really -- we will obviously -- we will have to go through our planning at the end of the year.

But I would say, I think it just gives additional credence to them at this point in spite of the slow growth environment.

And you guys have been pretty good at calling the truck order number. Is there a preliminary read on April?

We don't have a final number. What we're hearing from customers though is that we think it's going to be let's say, a very attractive number, again, looking like this kind of trend we've seen over the last four months.

There's really good tone and activity out there.

Okay. That's helpful.

I guess one last question on the Hydraulics side of your business. It was interesting to hear that your mobile was up, I guess outside of China.

Do you have any sense how much of that is underlying demand today versus just a restock of the channel?

We do believe in Europe and in the U.S. that the channels are in pretty good shape.

We've talked a lot about this over the last couple of years that that adjustment is going on. I think you've heard from at least one of the big OEMs that they are starting to do restock into their channel and that's all helped the opposite of that is the situation in China today where I think there is more and more recognition that that channel is very full, and that the utilization rate of newer equipment sold over the last couple of years is still fairly low.

So I think most people in the industry are thinking that things are looking up in the U.S. and Europe.

There are kind of sideways in South America, the way you've got more of a mining orientation, same true in Australia and that China is the area that's harder one to figure out, looks like it's off in the future some time.

We'll be able to take one more question and then as normal, we will be available after to follow-up questions. Our next question is from Mig Dobre with Baird.

Thanks for squeezing me in. Going back to Hydraulics here, you reiterated your 2014 margin guidance, and I'm looking at what obviously was a very good first quarter.

I'm wondering how should we be thinking about incrementals for the rest of the year here?

Mig, normally our Hydraulics business like a number of our industrial segment business -- sector businesses have stronger first half than they do second half. And so I'd say that's probably may be the best guidance I can give you in that regard both from a volume point of view and then obviously the margins as well.

So we're pleased, we've started stronger as we should have in terms of achieving this margin. We'll take a look at the full year projections as we get to mid-year.

But I think I'd put another category we're off to good start. We're very much on schedule and we're particularly pleased not only with the 240 basis point increase in the margin, but with the continued very strong bookings background, because that's what's going to give the ability really to power this business up further from a revenue point of view.

Sure, I appreciate the color. And my last question is really on your guidance.

As you sort of look at the earnings guidance range and assuming the midpoint may be as the base case, what do you think you could have some of the upside and downside risk at segment level, may be that could take you to either the high-end or the low-end of your guidance?

What we've said is the big issue and we said this back when we issued our original guidance. If you model the 2% to 4% growth rate in our end markets you get the two wings of our guidance.

The 3% is really the midpoint of our guidance. So I think the big plus or minus really has to do how we see these world markets for our end markets.

So at this point 3% still looks like our best view.

But you wouldn't call out a specific segment for upside or downside risk, specifically?

No, I think we're very comfortable with where we are from an execution point of view. A lot of it's going to deal with just how strong these markets play out for the balance of the year.

Thank you all for joining us today. As always, I'll be available for follow-up questions along with Mark Doheny.

Thank you again, and we look forward to your follow-up questions.