Apr 30, 2014
Executives
Ryan Taylor - Director, IR Chris Kearney - CEO Jeremy Smeltser - CFO
Analysts
Mike Halloran - Robert W. Baird John Baliotti - Janney Capital Markets Samuel Eisner - Goldman Sachs Nathan Jones - Stifel Nicolaus John Schaefer - Credit Suisse
Operator
Operator
Good day, ladies and gentlemen, and welcome to the Q1 2014 SPX Corporation Earnings Conference Call. My name is Mina, and I'll be your operator for today.
(Operator Instructions) As a reminder, this call is being recorded for replay purposes. I'd like to turn the call over to Mr.
Ryan Taylor, the Director of Investor Relations. Please go ahead, sir.
Ryan Taylor
Thanks, Mina, and good morning everyone. Thank you for joining us.
With me on call this morning are Chris Kearney, our Chairman, President and CEO of SPX; and Jeremy Smeltser, our Chief Financial Officer. Our earnings press release was issued this morning and can be found on our Web site at spx.com, and this morning's call is also be webcast with a slide presentation that can be accessed in the Investor Relation section of our Web site.
Our webcast will be available for replay until May 7th. I encourage you to follow on with the webcast as we refer to the detailed information on the slides.
Unless otherwise noted, the financial information presented today is on a continuing operations basis. And as a reminder, our 2014 earnings per share guidance was issued on an adjusted basis to exclude the gain on the sale of our EGS joint venture interest, early extinguishment of debt charges and non-service cost pension items.
Our 2014 free cash flow guidance is also on an adjusted basis to exclude the tax payments associated with the gain on the sale of EGS. In the appendix we have provided reconciliations for all non-GAAP financial measures included in today's presentation.
Portions of this presentation and our comments are forward-looking and subject to Safe Harbor provisions, and please also note the risk factors in our most recent SEC filings. And with that I'll turn the call over to Chris.
Chris Kearney
Thanks, Ryan, and good morning everyone. Thanks for joining us.
Building up our strong finish to 2013, we had a positive start to this year with strong margin expansion driving better than expected earnings. We are particularly pleased with the continued margin expansion in our Flow segment where Q1 margins increased a 170 points year-over-year.
We are benefiting from the organizational changes and restructuring actions executed last year which have led to better operating performance and reduced our global cost structure. In Q1 we reported $0.27 of adjusted earnings per share from continuing operations, $0.05 above the high end of our guidance range driven by segment income.
Segment income was $98 million, also above our guidance range, and segment margins expanded 180 points driven by our flow in Thermal segments. Our total backlog increased 1% sequentially and book to bill in the quarter was just over one times.
We had a solid start to the year with Q1 orders up over the prior year period, and the front log remains very attractive particularly in food and beverage and oil and gas markets. Over the past few quarters we have made significant progress on our capital allocation and strategic initiatives.
Through yesterday we have executed approximately $200 million of our $500 million share repurchase plan, which began trading in December. Additionally, we recently raised our annual dividend 50% to $1.50 per share.
During the quarter, we completed our pension actions as well as the early redemption of $500 million of bonds. And as a result, our gross leverage at the end of the quarter was reduced to two times.
That's well within our target range. On the divestiture front, we completed the sale of our EGS joint venture interest for $574 million, and recorded a gain on the sale of $491 million or $7 of earnings per share.
Additionally we saw two industrial businesses for a combined purchase price of $105 million. These businesses were moved into discontinued operations last year and had combined annual revenue of approximately $135 million.
After completing these sales, we still have assets in discontinued operations that we are focused on exiting this year. While we are pleased with the progress over the past few quarters, we remained fully committed to improving our operating performance, returning capital to shareholders, and strategically focusing on our Flow end markets.
We continue to invest in restructuring actions that further reduce our global overhead costs and simplify our organization. Our 2013 actions were concentrated on reducing cost in our Flow and Thermal segments and contributed to our improved margin performance in Q1.
We expect to see continued year-over-year tailwinds from our lower cost structure in subsequent quarters. For 2014, we budgeted $25 million of restructuring.
In Q1 we executed $10 million of actions focused primarily on further reducing Flow's European cost structure. And we are evaluating additional opportunities to optimize our global footprint and reduce our global corporate cost structure.
Looking now at key trends in our flow end markets including beverage we continue to see steady growth in aftermarket and component bookings. And our pipeline of system opportunities is very strong.
We are currently involved in pre-engineering and quoting activity for several dairy projects in the EMEA and Asia-Pacific regions. With that said, we did not book any large systems orders in the first quarter as a few of the larger opportunities we are tracking were delayed for various customer-specific reasons.
In Power and Energy, we had another good booking this quarter in pipeline valves in the oil and gas aftermarket. The order pipeline for OE pumps remains strong, particularly in North America and EMEA.
We are seeing competitive dynamics on larger projects. However, Tony Renzi and his team remain disciplined and selective for new OE orders consistent with our commitment to improving margins.
In Flow's industrial markets, orders in the first quarter increased modestly over the prior year, driven by an uptick in dehydration and heat exchanger orders. Demand in marine market was notably stronger, and we are seeing good quoting opportunities in chemical processing markets.
In contrast, demand in mining remains week. In the U.S.
power transformer market, pricing and lead times have been generally steady for several quarters now, and we continue to see a high level of order volume driven by replacement demand. We had a solid order intake in the quarter with orders up by double-digits both year-over-year and sequentially.
The severe winter weather impacted transformer shipments in the quarter as congestion in the North American rail system caused four large power shipments to be delayed into early April. In aggregate, these shipments represent approximately $10 million of revenue.
In our Thermal segment, the challenging conditions in power generation markets persist in North America and Europe, where demand for our power equipment remains stable but at low levels. Given the lackluster demand in power generation, Gene Lowe and his team have been expanding our cooling equipment offerings into adjacent markets.
As a result, we won a number of medium to small sized cooling tower orders for petrochemical, industrial and HVAC applications primarily in North America. Fertilizer plants and datacenters are two key areas where we have increased our market penetration over the past year.
In our short-cycle package cooling business which primarily serve the commercial HVAC market, new product launches and commercial initiatives have been increasing our revenue in a fairly stable demand environment. Our package cooling orders were also impacted by weather during the quarter.
In January, we saw a sharp decline in orders. That trend reversed in late February and March.
We estimate the order delays caused about $4 million of revenue shortfall in Q1 that we expect to fully recover within the year. In contrast, weather had a positive impact on our residential boiler and personal heating sales as orders remained strong through the extended cold weather season.
We estimate at least $9 million of boiler and heating product sales were driven by the extended cold weather in Q1. So overall, we are very pleased with our Q1 performance and solid backlog position.
Although we remain cautious on the global economy, we are encouraged by positive trends in many of our short-cycle markets and the strong order pipeline and our longer lead time businesses. As such, we are reaffirming our full year financial guidance of 2% to 6% revenue growth and 90 points of segment margin expansion with margins expected to increase in all three segments.
Our EPS guidance range remained at $5 to $5.50 per share, and we are targeting 225 to $275 million of free cash flow, which is expected to be stronger in the second half of the year consistent with our historical seasonality. So now Jeremy will take you through a detailed analysis of our first quarter results and Q2 targets.
And at this time, I'll turn the call over to him.
Jeremy Smeltser
Thanks, Chris, good morning everyone. I'll begin with earnings per share.
For the first quarter, we reported diluted earnings of $6.58 per share. This included a few significant items as expected.
We recorded a gain of $7 per share on the sale of our EGS joint venture interest. We also recorded $0.45 of early extinguishment of debt charges related to the early bond redemption.
Non-service cost pension expense was $0.24 in the quarter due primarily to charges associated with the lump sum pension settlement. On an adjusted basis, Q1 EPS was $0.27 and exceeded the top end of our guidance range by $0.05 due to higher than expected segment income.
Total revenue was $1.1 billion, down 2% versus the prior year driven by the expected ramp down of the power projects in South Africa. Revenue associated with those projects declined approximately $25 million year-over-year in Q1.
Total segment income increased $19 million or 23% to $98 million, and margins improved 180 basis points to 9.1%. The segment income growth was driven largely by our Flow segment which reported solid improvement over the prior year.
The profitability of our Thermal segment also increased significantly from a challenging Q1 2013. Looking at the segments beginning with Flow; Flow reported $670 million of revenue for the quarter in line with our expectations, and up 1% versus the prior year due to currency benefits.
Organic sales increased across many of our Flow product lines including power and energy valves, including beverage equipment, industrial flow components and in the oil and gas aftermarket. However, these increases were offset by a $33 million decline in OE pump revenue, causing the segment to report a modest organic revenue decline.
The decline in OE pump revenue is due largely to our disciplined order acceptance. Execution on the large OE pump orders booked in the second half of 2013 is scheduled to ramp up as the year progresses.
Flow segment income increased 20% to $66 million and margins expanded 170 basis points to 10.7%. The increase in segment income and margin was due primarily to cost reductions and increased aftermarket and component sales which typically carry higher margins.
Flow's ending Q1 backlog was up 4% over the prior year to about $1.4 billion, stable on a sequential basis. Book to bill in the period was one times the solid start to the year.
However, as Chris mentioned, orders for few large dairy projects were delayed for customer-specific regions. We continue to track these and other large orders in our front log.
Quoting activity across most of our Flow markets continues to be strong particularly for large dairy and oil and gas projects. We believe Flow's backlog and short-cycle order run rates support our mid single-digit revenue growth target for the year.
Based on the timing of large projects and backlog, we expect Flow's revenue growth to accelerate as the year progresses. And overall, our improved screening process continues to benefit the quality of backlog in the segment.
Looking at our Thermal segment, Thermal's first quarter revenue declined 8% year-over-year to $280 million. Currency was 2.6% headwind, mostly as a result of the weaker South African Rand.
And organic revenue declined 6% reflecting the expected ramp down on South African projects. As Chris mentioned, sales of residential boilers and personal heating products benefited from extended cold weather.
However, on a year-over-year basis these sales were flat. As we also experienced elevated sales volumes in Q1 2013 related to hurricane Sandy relief efforts.
Segment income was $9 million and margins were 3.3%. The increased profitability was driven by cost reduction from the restructuring actions executed last year, and improved operating execution.
Thermal's core backlog has grown steadily over the past year. At the end of Q1, it was up 2% sequentially and 16% over the prior year.
And we continue to make progress on our large power projects in South Africa with a backlog decline to $135 million. As a remainder, these contracts have provisions to adjust for fluctuations in material and labor costs as well as changes in currency rates.
Over the life of these contracts, cost inflation has increased their value. Based on current estimates the future revenue for our South Africa projects is over $200 million.
Moving on to industrial, revenue and segment income were essentially flat to the prior year at $173 million and $22 million respectively. As Chris mentioned, weather delayed transformer shipments caused about $10 million of revenue to move out of Q1.
The consistent snowfall during the quarter caused significant congestion in the North American rail system making it difficult to ship large units particularly out of our transformer facility in Wisconsin. The delayed shipments were completed in early April.
The other businesses in this segment were relatively stable year-over-year. Segment income was essentially flat, and a slightly less favorable revenue mix caused a modest decline in the margins in the quarter.
Industrial's ending Q1 backlog increased 10% sequentially and 6% year-over-year to $313 million. Note that the ending backlog included the $10 million of delayed transformer shipments.
Transformer orders were strong in the period up double-digit sequentially and year-over-year. We are now quoting our medium power units to be delivered in Q4 and large transformer units for delivery in 2015.
However, as Chris mentioned the overall demand environment remains relatively stable. Before I turn the call back over to Chris, I'll provide our Q2 financial targets and a brief update on our financial position.
In the second quarter we are targeting total revenue to grow in the low to mid single-digits year-over-year to approximately $1.2 billion. At the segment level, we expect growth at Flow and Industrial to be partially offset by a decline in Thermal due to the continued ramp down in South Africa.
South Africa headwinds are expected to moderate in the second half of the year as the comparisons get easier. Looking at segment income we are projecting 125 to $131 million with margins improving about 70 points to between 10.5% and 10.8%.
At the segment level we expect Thermal's income and margin to decline versus the prior year. Last year, Thermal's Q2 profitability benefited from a large cooling tower retrofit projected and a favorable contract price adjustment in South Africa, which both contributed higher than average margins.
In contrast, we expect to see continued strong improvement in Flow's year-over-year income and margins. Based on these assumptions and 44 million shares outstanding, our Q2 adjusted EPS guidance range is $1.11 to $1.21 per share.
Looking at our financial position, the capital allocation and strategic actions executed in the first quarter had a significant impact on our balance sheet. During the quarter we received $613 million of pre-tax proceeds on the sales of thermal product solutions and our EGS joint venture interest.
We completed the early redemption of all of our 7 and 5/8% senior notes for a total price of $530 million. In total, we reduced debt by about $550 million or 33% to $1.1 billion.
And our growth leverage is now at two times well within our target range of 1.5 to 2.5 times. We executed $134 million or share repurchases within the period, and typically seasonality of our first quarter led to a usage of free cash flow of $71 million.
We ended the quarter with $486 million of cash on hand. Our free cash flow guidance for the full year remains at 225 to $275 million, giving us approximately $320 million of projected free cash flow over the balance of the year.
In the second quarter we have already received $62 million in pre-tax proceeds from the sale of precision components. And we also plan to execute the $100 million delayed draw option on our term loan.
Based on our current cash position and projection we're sufficiently funded to pay the taxes on our asset sales and to complete our share repurchase plan by the end of this year. In summary, we significantly reduced our debt and leverage in the first quarter.
We're sufficiently funded to execute the remainder of our 2014 capital allocation plan, and we expect to remain in a very solid financial position throughout the year. And with that, I'll turn the call back over to Chris.
Chris Kearney
Thanks, Jeremy. So we are very pleased to have our capital structure back within our target range with sufficient funding to execute our plans for the balance of the year.
In the near-term we remain focused on increasing operating margins and returning capital to shareholders through our increased dividend and share repurchases. As we evaluate future organic growth initiatives and restructuring actions, our goal is to invest in the highest risk adjusted return opportunities.
We view acquisitions as part of our long-term strategy to further expand our Flow business. However, we do not plan on allocating capital to acquisitions in the near-term consistent with our recent comments and organizational focus on improving profitability.
In summary, we were very successful executing on our capital allocation and strategic initiatives in the first quarter. Operationally, this is the fourth consecutive quarter that we have reported improved year-over-year margin performance.
We are pleased with the continued margin expansion particularly at Flow. Our improved order discipline and project selectivity have resulted in a healthier backlog.
And from an end market perspective short-cycle trends are generally positive, and our large project order pipeline remains very attractive, supporting our revenue and bookings forecast for the year. Across our organization, we are committed to driving a linear cost structure, improving our return profile and investing in profitable growth.
So that concludes our prepared remarks, and at this time we will be happy to take your questions.
Operator
(Operator Instructions) Thank you. Your first question comes from the line of Mike Halloran from Baird.
Please go ahead sir, your line is open.
Mike Halloran - Robert W. Baird
Good morning everyone.
Chris Kearney
Hey, Mike, how you doing?
Mike Halloran - Robert W. Baird
Good, thanks. So, first on the order side, when we look across the Flow landscape today, we are seeing a lot of commentary on healthy quoting, healthy bidding, particularly oil and gas side and with your unique food and beverage exposure I can certainly see why you'd say the same there.
But they're also talking about delay, so maybe give us a little color on what the customer cadence is today? Why the delays?
What gives you confident these things are coming forward? And then just what type of commentary they're giving you when you have those discussions?
Chris Kearney
Yeah, sure. I'm happy to do that, Mike.
So, first at a macro level, just looking across the company and particularly the Flow business, we are seeing a good level of quote and bid activity for OE pumps particularly in North America and the Middle East. On some of the larger opportunities, however, we're experiencing some pretty competitive pricing, and so as I mentioned in my remarks, Tony and his team have done a very nice job about being disciplined and selective about those opportunities.
So, we are focused on continuing that discipline throughout the bidding approach, and that has really served us well, because it has total improved the quality of our backlog, and now as you can see we're beginning to see the benefits of that in our reported results. More specifically in the oil and gas markets, some of the delays that we are experiencing on order placement are due to things like political uncertainties in places like Syria, Russia, the Ukraine.
In the upstream markets we are seeing a shift to higher risk and some more complex deepwater developments, and that tend to slowdown the project approval process. Including beverage, there is not a specific trend here, Mike, to call out.
Order placement has been delayed for a variety of reasons that are typically unique to the individual customers. But we do see a healthy pipeline of opportunities especially in dairy applications, which is our sweet spot as you know in terms of technology.
And so, just like in oil and gas we remain discipline and selective on those large projects opportunities. And at the same time we are working hard and I think getting traction on our initiatives to expand our aftermarket capabilities in both power and energy and food and beverage.
And aftermarket trends in both of those markets are steady and positive.
Mike Halloran - Robert W. Baird
Thanks for that color, and then on the margin side within Flow, obviously really nice progression here, and so can we just look at some of the bucket for the improvement here. How much is obviously something you talked about, which is just improved pricing discipline and having that backlog starting to hit the revenue books -- revenue line?
But maybe also talk about what you're seeing on the food and beverage margin side and some of the mix there. And then also the changes that are rolling through at ClydeUnion, what the efficacy looks like and what the progress looks like?
Chris Kearney
Sure. Let me start with food and beverage, so with food and beverage a lot of the same selection and discipline activity that we've seen and talked about a lot in power and energy, Marc Michael and his team have really initiated in the food and beverage business.
So, greater care and a more disciplined process around that project selection, but also a very strong on further development of the aftermarket and component part of that business which is really the foundation for profitability and success going forward. And so they've made great progress there, and much like the aftermarket opportunities in oil and gas, Marc and his team in food and beverage are focused on continuing to improve that and to balance our revenue profile with a solid portion of it coming from components and aftermarket.
And in terms of project selection, finding projects that are attractive from a system's perspective upfront, but perhaps even more importantly present a nice aftermarket service profile that we can service going forward. In the oil and gas business much of the improvement obviously is coming from the interaction of ClydeUnion into the power and energy platform.
So, Tony and his team have done a very nice job there. We just talked about the discipline around order selection, and that being reflected in the quality of the backlog that we have.
And much like food and beverage, maintaining a significant portion of the total revenue profile year-over-year in the aftermarket business. So, a lot of improvement coming from there in terms of the restructuring actions that we took last year; the discipline that's been instituted in that business, but beyond power and energy, really the same discipline across all of the Flow businesses with a lot of focus on footprint consolidation, rationalization, localized manufacturing to be more competitive in the expanding and developing markets around the world, and just improved manufacturing efficiency which Dave Kowalski and his team are leading.
Mike Halloran - Robert W. Baird
Great. And then last one from my side, the restructuring side seems to be going pretty well here on track.
So when we think about that next leg that you guys keep alluding to, could you talk a little bit about the bandwidth that you have internally to drive the next layer? And what the decision-making processes on what you are attacking, what the hurdles from the timeframe are and what specifically are you going after?
Chris Kearney
Yeah, sure. So first of all, very pleased with what we got done in Q1, nearly $10 million of restructuring accomplished in (indiscernible) or invested in Q1 which is at the high end of the range that we had given.
So we are off to a really good start. We targeted 25 million for the year.
What I will tell you Mike is that with the new organization that we have in place and particularly with having Dave Kowalski and his team in the global operations role, for the first time ever I think we had a really -- we have the opportunity to take a universal approach to facility consolidation that spans not only the end market platforms in Flow, but all of the businesses within SPX. So I think we are taking a very thoughtful and comprehensive view.
And then realistically as we take that view trying to prioritize what can reasonably be accomplished this year, and where the biggest opportunities for shortest term improvement are. So again, we are off to a very good start given what we have done in Q1.
I am confident that Dave and his team along with the end market guys particularly in Flow will be able to execute in the balance of the year, so that we can get to the target that we have established.
Mike Halloran - Robert W. Baird
Great. I appreciate the time.
Chris Kearney
Thank you.
Operator
Thank you. Your next question comes from the line of John Baliotti from Janney Capital Markets.
Please proceed sir.
John Baliotti – Janney Capital Markets
Hi, good morning, guys.
Chris Kearney
Hey, John.
John Baliotti – Janney Capital Markets
Hi, Chris and Jeremy, I guess if you want to split it up. I'm sure you would have preferred given obviously whether is beyond your control and delays of projects are beyond your control.
So you would prefer the revenues to be higher, but the margin improvement certainly above as you said above your expectations, and I think it clearly bodes well as the revenues progress through the year. I am just trying to get a sense beyond 2014, what's your sense of the new cost structure in terms of -- and years passed, we've had revenue coming little bit shorter, and the margins haven't quite gotten there.
It just seems like you're fundamentally better positioned than you were over the last several years. I am just wondering how much of that do you feel is really on a secular track going forward?
Chris Kearney
We agreed, John, I mean we think we fundamentally are in a better position, and we think that the focused restructuring actions that we have taken and the cost reduction that we have achieved are absolutely consistent with what we committed to do, and perhaps the results even beyond where we expected to be at this point in time. With that said, we think there is more opportunity here.
And all the things that I just talked about in response to Mike's question about our global focus on restructuring and how we prioritize those opportunities, we think there are clearly opportunities to continue improve that margin; keeping in mind that all this is consistent with our goals achieving long-term margins that we have articulated not only in Flow, but across all of SPX. So as you know, John, I mean getting there takes a lot of heavy lifting, but it takes persistent and stick-to-itiveness, and I think a collective focus among the team in terms of where we go neat to do that.
And I think the new organization has allowed us to get that consensus, and we are just committed to achieving it.
Jeremy Smeltser
And the key is both last year and this year, I mean the cost reduction actions that we are taking there is sustainable. There is momentum I think still as we go into next year for the actions that we are taking this year.
And to Chris's point, I think the opportunities out there are still pretty large. I think the key is managing it action-by-action, and keeping the risk as low as possible, and making sure that we keep the customer in mind as it relates to satisfying our delivery commitments.
I mean it certainly has to be a lot easier for you now that the -- your portfolio is much more focused than it was certainly a couple of years ago, five years ago, ten years ago. I mean every year gets more focused which is -- and in a good way it's focusing in good secular areas, but I am sure if you go back to what the company look like when the General Signal acquisition EDI, I mean clearly there was a lot more to deal with versus what you have to work with today.
Chris Kearney
There is no question. I mean there are fewer moving parts, but greater critical mass around the business that we have intended to grow, right?
So the path to get there, John, to your point I think becomes clear. I think the actions themselves are never easy, but the way to get there becomes, I think, a lot more apparent.
And the ability to get consensus around those actions and to prioritize it when Flow accounts for more than 60% of the company's revenue -- excuse me, more than 50% of company's revenue, more than 60% of the company's earnings; the priorities become easier. And so as we continue to grow that business it is easier to get focus around that.
Jeremy Smeltser
I think overall it's the higher quality of assets in the portfolio that's a similar size at where we were ten years ago. But the reality of what we build with the core acquisitions of APV and food and beverage and ClydeUnion and power and energy is a higher quality mix of assets to point it in the right -- to your point secular places in the world that we want to be where we think the long-term growth drivers are better.
So while we obviously had our challenges out of the gate with ClydeUnion, I think already the last quarters we are really seeing the benefits in high quality of that asset and really what it can be and what we envision it to be when we made that acquisition.
John Baliotti – Janney Capital Markets
Yeah, but just to finish up the -- I was going over -- looking through the backlogs and I was just trying to go back and I know there has been some restatements over the years, but I can't see a period going back eight to 10 years where all three segments have had both sequential and year-over-year improvements in the backlog. It just seems to be a nice momentum going into the cost structure that you have provided.
Jeremy Smeltser
Yeah, I think that's right particularly in a mixed macro environment.
John Baliotti – Janney Capital Markets
Right. Thanks, guys.
Jeremy Smeltser
Okay. Thanks, John.
Chris Kearney
Thanks, John.
Operator
Thank you. Your next question comes from the line of Samuel Eisner from Goldman Sachs.
Please go ahead, sir.
Samuel Eisner - Goldman Sachs
Thanks. Good morning, everyone.
Chris Kearney
Hi, Sam.
Jeremy Smeltser
Hi, Sam.
Samuel Eisner - Goldman Sachs
Just going back into the Flow business lines, I have a few questions regarding mix. It sounds that the aftermarket was a tailwind this quarter, trying to understand as we go through the course of the year and as you shift more towards OE.
Is mix going to be a headwind for you and kind of the next three quarters of the year?
Chris Kearney
I don't think it will be a headwind year-over-year, Sam. I think we probably sequentially a little particularly in food and beverage and maybe somewhat in power and energy, but to a lesser extent have a little bit higher OE mix sequentially just because of larger projects that I mentioned in the prepared remarks around ClydeUnion, for example.
We will start to recognize revenue on the OE front, but the year-over-year, I actually don't see it as a headwind. I think it was just a tailwind for Q1.
Samuel Eisner - Goldman Sachs
Understood. And then as you think about the restructuring that you are doing in the European operations that I think, Chris, you touched on that a little bit before or perhaps just understand a bit better obviously it is a little bit harder to restructure in Europe.
So just curious on the progress of that as they are going to slip potentially to 2015 or you are expecting to get it all done in 2014?
Chris Kearney
No. We expect certainly to hit the restructuring targets that we have set for 2014.
And again, Sam, we are off to a really good start with $10 million having been spent in Q1. And those are focused on Europe.
So much of what we have done in Q1 and much of what we did in 2013 was focused in Europe and in Western Europe. So have taken that on and have made good progress there.
It's still an area of focus for us going forward. Yeah, I would tell you that has been at the forefront and we have achieved much of what we already plan to do.
Samuel Eisner - Goldman Sachs
That's great. And then just thinking about industrial flow, when you go to market in power and energy your ClydeUnion as kind of a marketing business within food and beverage, in PE, but you don't effectively have a marketing brand that could maybe push you larger into system sales, so just curious how you are thinking about that.
I realize that acquisitions are off the table in the near-term, but in the long-term, how are you thinking about the positioning of industrial Flow versus your competitors.
Chris Kearney
Well, industrial Flow, I think you correctly characterize it is more fragmented than the other two platforms within Flow technology. And there are significant competitors that are easy to identify in the other two parts of Flow.
A little more regionalized I would say in industrial. But when we look at the industrial Flow business we think there are really good organic opportunities to expand some of our niche product lines particularly, Sam, in some of the developing markets where we think we have really only begun to penetrate those markets.
We think in most of the obvious markets Asia-Pacific, Middle East, South America and those areas particularly were focused on really trying to develop our commercial organization to be able to get more traction there. So we think we got some really attractive niche products in those businesses.
And I think just the right commercial focus to be able to get more traction and some deeper penetration in those markets is an area of focus for Dave Wilson and his team.
Samuel Eisner - Goldman Sachs
If I can just sneak one more and I appreciate that answer, just on the overall portfolio rationalization, obviously your stated goals become a pure-play. You have seen one of your competitors in the thermal space you are actually able to move a large business off of their books to the private equity, just curious how your confidence level is today about potentially exiting some of your larger thermal businesses over kind of the medium to long-term.
Chris Kearney
Yeah. I would tell you, Sam that our focus hasn't changed at all.
And we have been, I think, consistent and successfully consistent moving this company towards being a bigger Flow company both by growing that platform, that segment and by opportunistically and steadily divesting businesses that are non-core to that strategy. So nothing has changed with respect to our strategic focus on thermal.
With respect to the deal that you alluded to that was announced, those developments are interesting, but I don't think they can really predict how they might impact our strategic process. Our focus is what it is and it's consistent about -- we are consistent about that.
It's probably worth noting that that business is somewhat different than ours. About 75% of the business that (indiscernible) is selling is heat exchanger business that consists of plate heat exchangers and other smaller products that are used across pretty diverse area of end market applications.
Only about a quarter of that business actually is consistent with ours. But it's interesting nonetheless and doesn't change anything with respect to our focus on what we want to do here.
Samuel Eisner - Goldman Sachs
Great. Thanks so much.
Chris Kearney
Thank you, Sam.
Operator
Thank you. Your next question comes from the line of Nathan Jones from Stifel Nicolaus.
Please go ahead. Your line is open.
Nathan Jones - Stifel Nicolaus
Good morning, Chris, Jeremy, Ryan.
Chris Kearney
Hi, Nathan.
Jeremy Smeltser
Hi, Nathan.
Nathan Jones - Stifel Nicolaus
If we could just go back to the quoting activity that you are talking about on large projects, has there been any noticeable compression or extension of the sales cycle there?
Jeremy Smeltser
One of the things I would add to Chris's comments earlier on that topic is that the complexity of some of the projects that we are seeing. I think this is true both in food and beverage and in power and energy, specifically oil and gas right now in the cycle.
It's actually leading to more engineering and pre-engineering contracts that are being led well before a final order acceptance will happen. So we are seeing that more frequently than we probably did two or three years ago.
That's extending the sales cycle a bit. But the flipside of that is there -- these are big investments on engineering hours that our customers are making.
So obviously there is a pretty significant level of commitment to move forward with the project. So the timing is just difficult to predict at times.
Nathan Jones - Stifel Nicolaus
Is there any color you can give us on kind of what your expectation is for when these projects be into checklist. I know it's different for each customer, but just any color you could give there?
Jeremy Smeltser
I think it's difficult to tell. I mean what I say is we are comfortable with our expectations for the full year.
I think if you look back to last year we had a fairly similar experience where the first half of the year was pretty light on the larger projects and starting in maybe late Q2, but certainly in Q3 we started to see more of the longer term commitments turn into backlog and those deposits started flowing in. Again, I think we are comfortable for the full year.
Timing can be difficult to predict. But I think another important point on that, Nathan, is to look at Q1 and say, "Well, we didn't have a lot of those larger opportunities turn into backlog in the quarter, but we were still at one time book to bill," which means that the underlying run rates in components and aftermarket was pretty strong.
So that's encouraging to me and we are confident on the larger project coming in as the year progresses.
Nathan Jones - Stifel Nicolaus
Yeah, great. And in normalizing for the weather, the quarter came in kind of at the low end of your guidance on revenues.
Were there any other customer-driven delays or anything like that that brought you in at the low end or how did that come about in the quarter?
Jeremy Smeltser
Well, Flow kind of came in at our expectations, Nathan. Q1 was modestly lighter than our expectations at Flow and industrial.
And we talked about the reasons around that and weather did impact those other segments. So I guess the long and short of it is that nothing has changed with respect to our organic growth expectation and guidance or targets for the year.
So we are reasonably comfortable with respect to where we sit right now, and reasonably comfortable that the backlog and the short cycle activity that we see reasonably supports where we expect to be full year from a revenue standpoint. We did have some specific timing delays in cooling projects in the Europe and Asia that were customer and/or construction site dependent.
So those should recover within the year and shouldn't be a headwind to the targets we have out there.
Nathan Jones - Stifel Nicolaus
Okay, that's helpful. One more from me, it would seem that you not only have sufficient capital to fund your current plans for 2014 that -- but that you have excess capital to fund those plans.
Is there any thought to potentially increasing the share repurchase in 2014, you are obviously executing at a faster pace than the 500 million for the year?
Jeremy Smeltser
Actually the pace at the current stock price and the current volume I think is would probably take us into Q4. If you look at our trading, we did 134 million in Q1 in that 90 day period.
So I would say that's something we would evaluate more towards the latter half of the year. The plan that we have in place is already setup and is trading on a daily basis and I think will take us into Q4 with the current commitments.
Nathan Jones - Stifel Nicolaus
All right, guys. Thanks a lot for the help.
Jeremy Smeltser
All right. Thank you, Nathan.
Operator
Thank you. Your next question comes from the line of Julian Mitchell from Credit Suisse.
Please go ahead, sir. Your line is open.
John Schaefer - Credit Suisse
Hi, this is John Schaefer for Julian. I was just wondering if you could give a little color around Thermal.
I know it has been weak for the last several years, but it seems like core backlog is up 16%. Is this indicative of a larger turn in that market and also could you just give any color on kind of by geography how it's shaping up?
Chris Kearney
Yeah, sure. And when we look at Thermal, John, what we have to do and what we consistently try and reinforce is separating the impact of the declining backlog in South Africa, right?
So if you except that out as a non-recurring large project and you just look at the core thermal business, it actually has been encouraging even in market that we described as stable, but at the lower end. So if you look at the core backlog ex-South Africa, it was up 16% year-over-year at the end of Q1, so that's pretty healthy.
And as you think about the full year for Thermal, also it's important to remember that the headwinds that we are facing with respect to South Africa are largely in the first half of the year and those tend to dissipate in the second half. And so we expect to see the underlying core growth manifest in the second half of the year.
Jeremy Smeltser
I think overall in PowerGen we are not seeing a change in market conditions. I think that's important to stay upfront.
But what we are seeing is better execution in our business of market penetration where the reality is we have the best technology in the marketplace pretty much across portfolio of products. So I think if you go back to the prepared remarks, I mean, we are seeing more wins in areas where there is investment, fertilizer, chemical, datacenter type wins.
Those are really helpful for us. And I think we will see that continue.
I think there is -- In our HVAC business in North America, we have seen that over the last two or three years with Gene and his leadership where we have been having a good market share gains on HVAC overall. So the team is executing well.
We are seeing growth in, I'll call, a challenging market, and the business seems to be moving forward in a much more positive way.
Chris Kearney
Yeah, in addition to Jeremy's comments about the success that they have had in terms of expanding into adjacent markets which is significant worth noting, the focus that Gene and his team have also had on product innovation, I think is very important and helps allow the movement of some of those adjacent markets. Some of the modular approaches that they are doing to package cooling and the multi delta product in dry cooling which takes a lot of the construction, the field construction cost out of the product and success they are having with their ClearSky the Plume Abatement cooling tower.
So they are doing all the right things to run their business and position their business and to move slightly away from the market that has historically defined it.
John Schaefer - Credit Suisse
That's very helpful. And if I could just sneak in one quick one on transformers, how is pricing in that market?
Can you just discuss the dynamics a little bit and across kind of large and then medium and small.
Jeremy Smeltser
We have described and continued to describe pricing as stable. We have not assumed any price increase or change in the guidance we have given for the full year.
Our lead times there are at about six months right now. So even if we did see improvement in pricing in the second half which we are not anticipating, but even if we did we wouldn't really recognize the benefit of that until 2015.
Chris Kearney
I think those comments are consistent across medium power and large as it relates to pricing specifically.
John Schaefer - Credit Suisse
Thank you very much.
Jeremy Smeltser
Thank you.
Chris Kearney
Thank you.
Ryan Taylor
And this is Ryan Taylor. At this time we are going to conclude our call.
We appreciate the participation for everybody that listened in. Per the usual, I'll be available all day for anybody that has any follow up questions.
Thank you for joining us. And we are signing off.
Operator
Thank you, sir. Thank you for your participation in today's conference.
This concludes the presentation. You may now disconnect.
Have a good day. Thank you.