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Edited Transcript of FLOW earnings conference call or presentation 6-Aug-19 12:30pm GMT

Q2 2019 SPX FLOW Inc Earnings Call

Charlotte Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of SPX FLOW Inc earnings conference call or presentation Tuesday, August 6, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jaime Manson Easley

SPX FLOW, Inc. - CFO, VP & CAO

* Marcus G. Michael

SPX FLOW, Inc. - President, CEO & Director

* Ryan A. Taylor

SPX FLOW, Inc. - VP & Chief Strategy Officer

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Conference Call Participants

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* Adam Michael Farley

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Andrew Jon Krill

RBC Capital Markets, LLC, Research Division - Senior Associate

* Brett Logan Linzey

Vertical Research Partners, LLC - VP

* Joao Pedro Joaquim Carvalho

Barclays Bank PLC, Research Division - Research Analyst

* Michael Patrick Halloran

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research & Senior Research Analyst

* Nigel Edward Coe

Wolfe Research, LLC - MD & Senior Research Analyst

* Robert Douglas Barry

The Buckingham Research Group Incorporated - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the SPX FLOW Second Quarter 2019 Earnings and 2019 Guidance Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Ryan Taylor, Chief Strategy Officer.

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Ryan A. Taylor, SPX FLOW, Inc. - VP & Chief Strategy Officer [2]

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Thanks, Ian, and good morning, everyone. Thank you for joining us. With me on the call today are Marc Michael, our President and CEO; and Jaime Easley, our Chief Financial Officer.

Our Q2 2019 earnings release was issued this morning and can be found on our website, spxflow.com. This call is also being webcast with a presentation that is located in the Investor Section of our website, which includes details of our Q2 results. A replay of this webcast will be available on our site later today.

Note that elements of the presentation contain forward-looking statements that are based on our current view of the businesses and their markets. Those elements are subject to change and we ask that you view them in that light. Principal risk factors that may impact our performance are identified in our most recent SEC filings. And in the appendix of today's presentation, we provide reconciliations for non-GAAP and adjusted measures.

Before we begin today, I want to highlight some key changes to our reporting. As announced on May 2, 2019, we are focusing our strategy on building a premier process solutions enterprise and as part of that strategy, we are pursuing the sale of our Power and Energy business.

In our Q2 financial reporting, the results for the Power and Energy business were reported as discontinued operations for all periods presented, reflecting management's determination that it is probable that the sale of the business will be completed within the next 12 months.

The continuing operations of the company were reported in 2 segments: Food and Beverage and Industrial, the latter of which now includes certain product lines previously reported in the former Power and Energy reportable segment. These product lines are not being offered for sale. Most notably, this includes our Bran+ Luebbe metering and dosing pump business.

Note also that the appendix includes recasted segment results for 2017 and 2018.

Within our continuing operations, costs that support the Power and Energy business have been reclassified as corporate expense. These costs that were previously allocated to the former Power and Energy segment totaled approximately $6 million on an annual basis or roughly $1.5 million per quarter.

Additionally, in accordance with GAAP accounting, a portion of interest expense has been allocated to discontinued operations in all periods presented today and in our guidance. The allocated portion totals approximately $13 million of interest expense on an annual basis and approximately $3.25 million per quarter.

Our 2019 guidance is now on a continuing operations basis with certain measures adjusted to exclude discrete items that are unique to the year. This includes investments we're making to support our long-term strategic growth plans.

Note that our 2019 guidance has pegged the currency rates as of June 30. And lastly, with respect to the divestiture of Power and Energy, please keep in mind that this process is ongoing and we intend to provide comments and updates only when we determine that further disclosure is appropriate or required by law.

Specifically, we do not intend to discuss confidential elements of the sale process.

With that, I'll turn the call over to Marc.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [3]

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Thanks, Ryan. Good morning, everyone, and thanks for joining us on the call. 2019 represents a significant pivot point for our business as we are taking deliberate steps to narrow our portfolio focus, enhance customer focus and further simplify our operating structure. To say Q2 was a busy quarter for our team is an understatement.

I want to start out this morning by thanking all our team members across the enterprise for their hard work, tireless effort and positive contributions to the quarter. I'm pleased with the progress made on many fronts and confident in our plan to build a premier process solutions enterprise with a strong balance sheet and customer-centered growth strategy. We're excited about the future and remain committed to creating long-term value for our shareholders, customers and employees.

Since the start of 2016, we've been on a journey to transform SPX FLOW into a high-performing operating enterprise. We've made significant progress along the way. The journey to high-performance continues in 2019 as we work towards driving a world-class customer experience, creating a higher quality of revenue and expanding gross margins.

On the strategic front, we've been taking deliberate steps to reduce our exposure to cyclical Power and Energy markets and large dry dairy applications. These verticals contributed to volatility in our historical operating performance and overshadowed the underlying profitability and quality of revenue generated in our high-value product lines.

As we begin the second half of 2019, we are nearing an inflection point in this portfolio transformation. In dry dairy, execution on the large orders we won back in 2017 is winding down and we have been methodically reducing our exposure in that micro vertical.

In parallel, the process to sell our Power and Energy business is moving forward with positive momentum. As Ryan mentioned, the results of this business were reported as discontinued operations, reflecting our confidence in completing a sale within the next 12 months.

As we approach that milestone, I want to ensure you that we understand the scope of the supporting costs for the business and are well-prepared to reduce overhead in a timely manner upon completing the divestiture. Once complete, we intend to quickly redeploy the proceeds on organic investments, further deleveraging and return to shareholders. This will further strengthen our balance sheet and provide ample financial flexibility to invest for growth and create value through disciplined ROIC-centered capital allocation going forward.

With an eye on the future, we're aligning our organization design to enable optimum value creation and deliver a world-class customer experience as a premier process solutions enterprise. As part of this concept, we're committed to achieving 2% to 3% cost productivity through the reduction of overhead cost and material spend along with further simplification and streamlining of our functional support.

We've invested substantial time in the first half of the year detailing our plans to achieve this goal. We are refining those plans and expect to execute them over the next 12 to 18 months. Our goal in that time frame is to achieve mid-teens EBITDA margins and double-digit ROIC in our process solutions business.

Over the long term, we believe there is potential to achieve an even higher margin and ROIC profile through organic growth and continuous operational improvements. We believe this portfolio of products has organic growth potential in the 4% to 6% range through an economic cycle.

Dwight Gibson transitioned into a broader role, leading one combined commercial team with increased focus on utilizing innovative customer and market analytics to drive growth. He is realigning his team to drive a more focus on product development, commercial operations and project delivery. Dwight and Ty Jeffers, our VP of Global Manufacturing and Supply Chain, are working closely together to optimize and leverage our pathway to excellence lean approach and increase speed and efficiency of customer fulfillment.

Looking at our Q2 results, I want to first highlight the chart on the right side of this slide, which compares our actual results on a consolidated and comparable basis versus our May 2 adjusted guidance, which includes Power and Energy.

As you can see, we exceeded our guidance ranges for revenue and profitability. We delivered $513 million of revenue and $64 million of EBITDA.

On the old segment reporting, both Food and Beverage and Power and Energy exceeded revenue expectations through strong backlog conversion. Segment income came in at $62 million, $6 million or $0.11 per share above the midpoint led by strong gross margin performance in Industrial and Power and Energy.

Our Power and Energy team delivered double-digit operating margins in the period and grew orders more than 40% from Q1 to Q2, driven by pipeline valve orders in North America and global aftermarket. I'm quite proud of José Larios and his team for executing at a high-level operationally while also managing the divestiture process.

On a consolidated basis, comparable to our guide, we delivered $0.65 of EPS, that's $0.18 or 38% above our midpoint.

Also in the quarter, we completed our strategic restructuring actions on time and under budget. With the large dried projects in food and beverage ramping down, accordingly, we completed actions late in the quarter to reduce our cost structure in that technology category.

Additionally, we also closed a facility in South America. Strengthening our balance sheet has been a consistent point of emphasis for us for the past 3 years and we've made remarkable progress over that time.

In Q2, we made a voluntary prepayment of $20 million on our term loan and ended the period with net leverage at 1.8x, a significant milestone.

To top it all off, at the end of June, we proactively amended our senior credit facility, extending the maturity to 2024 while also achieving modestly better pricing and increasing capacity to support our long-term growth strategy. We now have no material required debt payments until 2022.

I want to reiterate my sincere gratitude to our teams for their effort in the quarter. We are executing our strategy and effectively manage the things we can control.

Turning to the economic environment. Softening macroeconomic conditions contributed to year-over-year order declines across most of our businesses in the first half. In the second quarter, orders for continuing operations declined 14% year-over-year on an organic basis, broadly reflecting delayed capital spending across our customer base with a slowdown in short cycle activity across most of our industries.

From a regional perspective, these impacts were most prominent in North America and to a lesser degree, Asia Pacific.

Our original guidance for the year anticipated a healthier demand environment to drive sequential order growth. While we are encouraged with the stability of orders from Q1 to Q2, we have reduced our full year revenue guidance by $50 million to reflect the level of orders booked in the first half in the current economic environment.

Even with that adjustment to revenue, we anticipate profitability in the second half to improve significantly.

Looking at the second half guidance as compared to the first half. We're targeting approximately 250 points of margin expansion at the segment level primarily driven by gross margin improvement.

Additionally, we expect to see incremental cost savings half to half. The majority of the margin expansion is expected in our Food and Beverage systems business, where we've been increasingly selective on new orders over the past year while also improving project execution delivery.

We focus our funnel of system opportunities on higher-value market segments where we have world-class process expertise in areas such as fermented dairy, nutritional beverage, condiments and fats and oils.

In contrast, we've been methodically reducing our backlog of large dry dairy projects and expect to see a $20 million decline in this revenue stream in the second half, which will be accretive to the overall margin profile in Food and Beverage.

Our second half guidance assumes order rates across our short cycle product lines and in our spares and service business remains stable for the first half.

With that underlying assumption, our second half revenue targets for components and aftermarket sales in both segments are roughly flat to the first half.

Looking at the full year guidance. This chart provides a high-level walk from the consolidated guidance we provided on May 2 to the continuing operation guidance we provided this morning. We've taken the discontinued operation out of our guide. This represents $500 million of revenue, about $50 million of segment income and approximately $72 million of EBITDA, which is not fully burdened with supporting costs.

In the continuing operations, we lowered our organic revenue target by approximately 3% or $50 million. We adjusted our segment income and EBITDA targets to reflect our first half performance, the lower anticipated second half revenue volume along with countermeasures we implemented to mitigate those declines.

On a continuing operations basis, we're targeting about $1.5 billion of revenue, $200 million of segment income and approximately $180 million of adjusted EBITDA.

This guidance assumes corporate expense of approximately $50 million, which includes the $6 million of annual costs supporting the Power and Energy business.

As the execution of our strategy progresses and at the appropriate time, we intend to provide more discrete modeling assumptions for the following items related to the sale of our Power and Energy business: The amount of net divestiture proceeds and the expected timing and breakdown of capital redeployment; the cost and benefits associated with our 2% to 3% cost productivity goal as well as further detail on these actions and phasing of margin benefits; and investments in strategic growth, including new product development and capital expenditures, which we expect to increase gradually over the next few years.

That concludes my opening remarks. At this time, I'll turn the call over to Jaime to provide more color on our Q2 results, guidance and financial position.

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [4]

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Thanks, Marc, and good morning, everyone. I'll begin with earnings per share.

We reported Q2 EPS of $1.47 per share. EPS from continuing operations was $0.27 and EPS from discontinued operations was $1.20 per share. The discontinued EPS included a $0.95 or $41 million tax gain resulting from basis differences that are expected to be realized on the Power and Energy divestiture.

Looking at EPS from continuing operations. The effective tax rate for the quarter was 50%, well above our guidance assumption of 29% due to losses incurred in countries where we do not expect to realize a tax benefit. A portion of these losses related to cost incurred with a facility closure in South America.

On an adjusted basis, we're using a 29% tax rate, consistent with our guidance to calculate earnings per share. This is a $0.10 adjustment from reported EPS.

The other adjusted items include $0.01 of professional fees associated with investments we are making this year to develop our growth strategy, a $0.04 charge related to strategic restructuring actions and a $0.03 benefit from the mark-to-market gain on a legacy equity investment.

Excluding these items, adjusted EPS from continuing operations was $0.39 in the period. This is the same basis we were using for our full year guidance.

Taking a look at the segment results and starting with Industrial. Note that figures in all periods have been recasted to include Bran+ Luebbe and other smaller product lines previously reported in the Power and Energy segment.

Q2 was $207 million, down 5.5% year-over-year. Currency was a 2.4% headwind. Organic revenue declined 3% due to a lower level of capital projects and decline in shipments of dehydration equipment. These declines were partially offset by growth in heat exchangers and mixers.

Despite the revenue headwinds, segment income improved 8% versus the prior year, coming in at $31 million or 14.8% of revenue.

Margins expanded 180 points driven by higher gross margins, which came in at nearly 37%. This reflects improved operating efficiency across our factories, net benefits from cost price as well as increasing our focus on driving a higher quality of revenue.

Looking at orders. Organic orders were down 8% versus the prior year period, reflecting the overall slowdown across industrial short cycle demand particularly in North America. The decline was across the majority of our industrial products with the exception of our Lightnin and Plenty mixers, which saw high single-digit growth in orders. We continue to see exceptional performance with our mixer business this year.

Moving onto Food and Beverage. Revenue for the quarter was $179 million, down 5% year-over-year. Currency was at 3% headwind. Organic revenue declined 2%. This was due, in part, to a lower level of systems revenue than anticipated. Component sales in North America were also down versus the prior year partially offset by modest growth in aftermarket sales.

As it relates to North America, we believe the decline in component revenue is due to delayed capital investments by U.S. Food and Beverage producers, most likely attributable to tariffs imposed on exports.

Segment income was $14 million and margins were 7.8%. Profitability in the quarter was diluted significantly by net losses incurred on 2 large dry dairy installations and certain costs to exit a facility in South America.

The lower volume of high-value component sales also contributed to the year-over-year income and margin declines. We expect margins to improve significantly in the second half as Marc described.

Organic orders in the segment declined 21%, broadly reflecting customer delays on capital investments for process systems, particularly in Asia Pacific and a lower level of orders for components in North America.

Dwight Gibson and his team continue to remain disciplined and strategic in their approach to systems opportunities. That funnel of systems opportunities is healthy and we are seeing much better quote in order activity at the outset of Q3.

Moving onto guidance. Taking a look first at our Q3 guidance on a continuing operational basis. We are targeting approximately $370 million of revenue. This represents a high single-digit decline to the prior year. We are assuming a currency headwind between 1% and 2% and an organic revenue decline in the high single digits.

Our guidance assumes a mid-single-digit organic decline in the industrial segment and a double-digit organic decline -- revenue decline in our Food and Beverage, a large portion of which reflects the revenue contribution from large projects ramping down.

Overall, our organic revenue assumptions for Q3 reflects the softer order development we've described and the broad slowdown in short cycle industrial activity we've experienced over the last 2 to 3 quarters.

We are targeting about $50 million of segment income with margins of approximately 13%. We're modeling corporate expense at around $12 million. This includes $1.5 million of costs supporting the Power and Energy business. Adjusted EPS is expected to be between $41 million and $48 million -- I'm sorry, adjusted EBITDA is expected to be between $41 million and $48 million and our adjusted EPS guidance range is $0.41 to $0.53 per share. This assumes interest expense at $7 million and a 27% tax rate.

Looking at the full year continuing operations guidance. Let's first walk through the material changes to our May guidance in a little more detail, beginning with the segments.

In our Industrial segment, we are now targeting about $815 million of revenue and margins in the 14% to 15% range. This guidance for the segment now includes approximately $80 million of revenue previously reported in our Power and Energy segment. This is primarily our Bran+ Luebbe product line.

On an organic basis, we reduced our target for Industrial revenue $20 million from the May guide, reflecting the slowdown in short cycle demand.

In Food and Beverage, we reduced our revenue target for the full year to a range of $675 million to $695 million. This reflects a lower level of component revenue as well as the delays we've seen in customer spend on capital projects.

Margins in Food and Beverage are now expected to be in the 11% to 12% range. This reflects the low level of profitability in Q2, which was below our expectations and the impact of decremental margins on the reduced component revenue.

Two other key updates to our guidance. As mentioned a few times already, corporate expense now includes $6 million of annual costs supporting the Power and Energy business. We are keeping these costs in our guidance to maintain accountability for addressing upon completing the divestiture.

Looking at interest expense, we are now allocating about $13 million of 2019's interest expense to discontinued operations consistent with the accounting methodology for discounts.

Our continuing operations interest expense is now $30 million for the year. As you think about modeling interest expense in future years, I think $30 million is reasonable, if not a conservative estimate.

Based on our thoughts today, the use of the proceeds -- the divestiture proceeds, it is fair to assume we will look to reduce our annual interest expense to $30 million or less.

The next slide offers a more comprehensive view of our full year guidance ranges and modeling assumptions. We've covered a lot of this already, so I'll be brief.

For 2019, our adjusted EPS from continuing operations guidance is $1.85 per share at the midpoint. Note this assumes $30 million of interest expense and a 29% tax rate.

Adjusted free cash flow is expected to be between $80 million and $90 million. This assumes just over $20 million of CapEx and modestly positive working capital impact for the full year.

Moving on now to our balance sheet, liquidity and capital allocation principles. Let's start and take a look at the credit facility. During the quarter, our treasury team worked together with our lender group to successfully amend our senior credit facility.

As a reminder, our prior facility had been in place since the spinoff in 2015 and was set to mature in Q3 2020.

Our new facility includes a $20 million -- a $100 million term loan; a $500 million revolver with borrowing capacity in USD and certain foreign currencies, a 10% increase from our previous facility; and a $150 million foreign credit instrument tranche, which allows for the issuance of guarantee instruments to provide performance security to our counterparties in certain transactions.

Through the amendment process, we were able to modestly improve pricing, simplify out our pricing grids and are now able to fully net our global cash balance against gross borrowings for purposes of compliance reporting.

On the right side of the slide, you can see the maturity schedule for all of our debt instruments, including our senior notes.

Note that our maturities are staggered and we have no material required principal payment until 2022. I would like to thank our banking partners for their continued support of our company. Getting this amendment finalized marks an important step towards providing committed financial capabilities to our teams as we pursue value creation through our strategic plans.

On this next slide, you can see an overview of our current capital structure. At the end of Q2, we had $187 million of cash on hand and gross debt of $732 million. And net leverage was down to 1.8x at the end of the period. Debt to total capital was 42%.

Just over 80% of our outstanding debt is at attractive fixed rates, with just under 20% floating debt, which has interest rates at approximately 4.25.

As I mentioned previously, our adjusted free cash flow for the year is expected to be between $80 million and $90 million, the majority expected to be generated in the second half. We remain committed to using the majority of the cash to reduce debt. Through June, we paid down $20 million of debt. Our full year commitment to debt reduction remains $50 million to $75 million.

Between cash on hand and our revolver, we have over $650 million of liquidity today and when we consider the potential proceeds from the Power and Energy divestiture, we expect to be in a very strong financial position.

As we consider our options for deploying these proceeds, based on current information, our intention would be to allocate it to a mix of organic growth investments, further deleveraging and return to shareholders.

Stepping back and thinking in more general terms of capital allocation, our approach will be ROIC-based. You can see our guiding principles on the right-hand side of this chart. ROIC-centered approach to deliver enhanced shareholder return, invest in business through all economic cycles, maintain a strong balance sheet and financial stability, target net leverage between 1.5 and 2.5x. We intend to target financial ratios that are consistent with investment-grade profile.

Going forward, we'll continue to prudently invest capital in areas of opportunity that provide strong ROIC and create long-term value, consistent with our strategy.

With that, I'll turn the call back over to Marc for closing remarks.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [5]

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Thanks, Jaime. In closing, 2019 represents a significant pivot point for our business as we execute our portfolio strategy, simplify our operating structure and enhance our customer focus.

Our objectives include driving a higher quality of revenue throughout our portfolio, aligning our organizational design to enable optimal value creation and a world-class customer experience, continuing to drive improved cost productivity throughout our operations and strengthening our balance sheet to be in a position to invest in our business throughout economic cycles and have flexibility to invest capital on the highest return opportunities.

Once again, I want to thank our teams across the enterprise as well as our business partners for their hard work, tireless effort and positive contributions to the quarter. We're excited about the future and remain committed to creating long-term value for our shareholders, customers and employees.

That concludes our prepared remarks this morning, and at this time, we'll open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Nathan Jones from Stifel.

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Adam Michael Farley, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [2]

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This is Adam Farley on for Nathan. I just want to talk about the commentary around short cycle, to begin with. How does your order book progress through the quarter? Is the weakness broad-based across end markets or more concentrated?

And then also, if you could just comment on some of the longer cycle projects, how is that holding up as well?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [3]

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Yes, sure, Adam, I'll take that. And Jaime, jump in if you've got any color to add. I think it's best if we look at it by segment. I think the main stories would be in Food and Beverage, we're seeing overall market demand, a bit softer and -- in North America, our short cycle business for the components part of what we do in the market is slower than we expected. As we mentioned, we believe this is really associated with tariffs from China that are influencing customers' capital spend decisions. So that's influenced a slowdown in our North American short cycle components business.

And in China, our systems business has been a bit slower to develop than we planned. Some of that is due to timing. We had some LOIs in hand in Q2 that didn't translate into orders and we're actually starting to see those come through here at the beginning of Q3. So we're off to a good start in our systems business in Q3.

The other thing I would say on our systems business is we've indicated throughout the last couple of years is the discipline in pricing that we're maintaining and the selectivity of the projects. So in some cases, we are walking away from some orders if the pricing has gotten too competitive. So that's kind of the situation in China. I would say that in China on a sequential basis, we did see a pickup in our business overall in Food and Beverage, which was nice to see.

And then in Food and Beverage in Europe, we are seeing some improvements and we hope to see that region really exceed our expectations and see some upturn there. With what's going on with the trade wars, as some of the slowdowns happened in North America, we believe that some of the purchases are starting to happen out of Europe, from China purchasing goods and we hope to see some upturns in our European business as a result of that. So pretty kind of mixed story there in Food and Beverage. But overall, I would sum it up; slower North American component business, slower than we expected in systems in China but expected to recover in the second half of the year, and we're already seeing some of that here in Q3; and in Europe, we're pacing at or better than what we'd expected so far in the year.

And then if we look at Industrial, I think the big story in Industrial, it was a bit of a moderation in our short cycle orders, especially exiting Q2. We saw hydraulics and dehydration slowing a bit. Mix orders were still pretty good and then our pumps business was pretty stable sequentially.

So across North America and Europe, that was kind of the story in North America in Europe. And then in China and across the APAC region, we really saw a nice acceleration from Q1 to Q2 in our short cycle industrial business.

So again, a bit of a mixed story there in Industrial, slower in North America and Europe but accelerating in China and the APAC region. So that's what brought us to really holding our short cycle business kind of consistent with what we saw in the first half, again given the sequential stability that we saw in our orders overall from Q1 to Q2 in the short cycle part. And so we've really just maintained that through the second half of the year with an uptick of our orders planned in the systems business based on the developing orders in China.

So again as I mentioned, Q3 is off to a good start, meeting our expectations and we're on track as we've gone through the first 5 weeks or so here.

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Adam Michael Farley, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [4]

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That's really helpful, Marc. Then just turning to this cost productivity goal. Could you just provide some color on -- like some of the initiatives you guys are doing and then an update on your operational excellence journey and what areas in the business you can continue to improve on?

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [5]

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Yes, Adam, I'll take that one. So as we talked last time we were together, and I think we mentioned at your conference, the plans that are coming together around that have been developing nicely. Going back a bit, we engaged a third party to really go through function-by-function our costs, helped us do some benchmarking and also helped us give thought to how to set these functions up or make modifications doing the functions that would benefit us in the long run as we look to grow. So that work's wrapped up. The teams, the functional leaders have looked at that and have set their plans out.

As we work through Q2, we finalized those plans and are ready to begin executing on those. There is a piece that is -- was woven through the comments that we had this morning, that there is a required level of functional support that goes along with the P&E business. So as long as we continue to run and operate the P&E business, we're going to need quite a bit of those resources in order to do so.

So really what the teams are doing is making sure that the plans are ready and to the extent they can be actioned earlier than the exit of P&E, we'll do so. But it's really needing to time those in concert with the sale of the business, the execution of the TSA of those -- of that business and then go ahead and move through the

(technical difficulty)

So what I would say is, as it relates to the divestiture process, timing of that is difficult to predict. The process is going very well and as we seek to get that wrapped up, it's most likely that most of these actions will get started maybe toward the end of this year and then will begin to really materialize through the course of 2020.

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Operator [6]

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The next question is from Mike Halloran from Baird.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research & Senior Research Analyst [7]

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So just sticking on that train of thought here, how much -- just try to give some context around how much the sale process here is impacting the timing of how quickly you can move on some of these productivity initiatives? It certainly sounds, based on the past response that you're getting yourself prepared, setting up in certain areas, moving in other areas. But maybe give some context to the pacing as we look through here. How much of this now is just preparation before final sales and acceleration? Or is it pretty consistent across the board there?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [8]

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Mike, yes, it's Marc. As Jaime was mentioning, I mean, the 2% to 3% cost out initiatives we have, there's nothing really impacting significantly our ability to move forward with those. Again as Jaime mentioned, we've got plans in place, each function has their particular goals and objectives and they've identified the pathway to get there. So we'll start working on those as we go through the second half of the year and expect to fully realize those benefits by the time we exit 2020. And so as we get into the early part of next year, we'll provide a complete schedule around how we expect those to develop based on our 2020 guidance. But well defined and we know how those are going to layer in as we move through the 2020 time period on the 2% to 3% margin expansion through cost productivity.

And the other point that was mentioned in the prepared remarks, the $6 million of costs that we've got in the corporate line, that's the cost that supports the P&E business and that's the part that the timing of that coming out will depend upon a bit of the transaction timing, the close timing and how long those support costs are needed. Now what's important is that $6 million would be intended to cover in a TSA with the new owner until which point that -- those support services aren't needed anymore and then we would take those costs out of the business.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research & Senior Research Analyst [9]

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Makes sense. And then on the F&B system side. Is the second quarter the last of the lower-margin stuff? Or does any of that trickle through into the third quarter from here?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [10]

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Yes. We have a minimal amount of revenue associated with the large dry dairy projects in both Q3 and Q4, kind of evenly split between the 2 quarters, about $5 million in revenue for each quarter. So once that trends -- that's out of the backlog, we're finished with that revenue stream on those large dry dairy system projects.

What I would mention about the backlog and what's supporting part of the gross margin expansion we expect to see and the overall margin improvement is about a 400 basis point improvement as we get into the second half of the year if you compare to where we started the year. So our backlog is really improving across the board with 400 basis points in total. And the systems business even looks a bit better than that as we go into the second half of the year in terms of margin performance improvement.

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Michael Patrick Halloran, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research & Senior Research Analyst [11]

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That's good. That's very good. And then last one for me. So obviously you're going to be in a really good financial situation once the transaction closes just from a balance sheet perspective. Maybe just talk a little bit about one of the prongs that you're thinking of looking at, which is more targeted inorganic opportunities on the acquisition side. Is that something you're building the funnel for now? And what does that look like from your perspective?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [12]

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We are. We're building the funnel now. We're actually doing some additional work with some third-party support too to look at various micro verticals where we can identify really high-value, high-quality of revenue streams that we want to pursue. So we'll look at things that are close to the core and some near adjacencies. But we are building that funnel and as that develops and opportunities present themselves, we'll be considering them. We're going to be disciplined now as we've always been, in thinking about how we're deploying capital and make sure that we can create value in deploying that capital and get a good return.

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Operator [13]

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The next question is from Julian Mitchell from Barclays.

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Joao Pedro Joaquim Carvalho, Barclays Bank PLC, Research Division - Research Analyst [14]

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This is Joaq Carvalho on for Julian. So I guess, one quick question on some of these project pushouts you're seeing from your customers. You cite that some of it is stemming from sort of trade and tariff conflicts. Do you get a sense of how far the pushouts are? Is it kind of a 1 quarter, 2 quarter out or do think your customers are sort of sitting on the sidelines until there's a bit more of a solid resolution, I guess especially in light of things ramping up this week?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [15]

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Yes, boy, that's a good question and really a bit tough to call exactly what the timing will be. That's why we feel we've been prudent in looking at what the run rates have been in our shorter cycle business that tends to support, especially in North America, some of that capital deployment where customers maybe are doing upgrades.

So we anticipate that we'll continue to see a steady rhythm -- and this is specifically in our Food and Beverage business but albeit at a slower level than what we've seen historically over the last couple of years. This is really a bit unprecedented. Typically, these slowdowns are more short in nature for this short cycle business. But we started experiencing it, even if you go back to the second half of last year, and it's kind of continued through.

So a bit difficult to make that call. The pipeline, though it's still there. We've got a funnel that's active. It's -- it ticked down a bit in Q4 but came back through the first half of the year in terms of the funnel but the conversion rates have been a lot slower than historical. But we're watching it closely. We know what the projects are and we're well positioned when -- should the customers and when the customers decide to release the capital.

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [16]

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Yes, I'll just add to that. That was the description of the components business in the U.S. and then I think you were also asking about some of the F&B systems business. So you saw in one of the slides that our systems business has, in the last few quarters, been $40 million to $45 million of revenue. What we do have in the second half is a fairly significant uptick in order intake around systems. And I think Marc mentioned in his prepared remarks that we've seen a strong July already around the systems business. And those are the projects that we've been more selective in watching and are seeing come through now.

And Marc also made reference to the margins and backlog and the quality of those bookings and the references he gave to 400 basis points of backlog margin improvement since year-end and 600 basis points margin improvement from June of last year. The projects that we are taking in here in Q3 and for the rest the year should be at or accretive to those margins.

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Joao Pedro Joaquim Carvalho, Barclays Bank PLC, Research Division - Research Analyst [17]

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Got it. And then one quick follow up. Just getting back to capital deployment. Leverage is starting to trend down towards that kind of 1.5, lower end of your target. And so I'm just curious if there's sort of a time line for when more deployment to rather return to shareholders or acquisitions come into play. I know that cash flow is kind of earmarked for debt pay down right now and so particularly -- I guess, in light of Power and Energy closing, is that something that has to come first before you see more buybacks, more dividends, more acquisitions or is just kind of a running analysis on the whole ROIC basis?

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [18]

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Yes, I'd say that we've committed to getting our debt down to the lower end of our range as you referenced there. And I think we'll continue to do that through the course of the year and then the playbook certainly opens up quite a bit whenever we complete the divestiture of P&E. And so the approach that we're going to take at that time will be to probably keep a certain amount of cash on the balance sheet to pay for some of the restructuring activities that we've talked about here. There's also some investments that we'll make either within our factories or on the organic side of the business.

And then we're also, as you made reference to there, going to target a return to shareholders in some fashion. In between now and then, we'll continue to watch where the stock trades, what the best approach to that will be. But we do recognize the dilution effect of selling the P&E business and that will be taken into consideration whenever we look to deploy those proceeds.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [19]

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Yes, and I would just add to that and mention that once we understand what the proceeds are for the sale -- from the sale of the Power and Energy business and we look at which areas we want to redeploy that capital and those proceeds. Hey, if we end up under 1.5 for a period of time, that's okay, right? I mean a healthy, strong balance sheet in uncertain times is a good position to be in. And that will allow us more flexibility and more dry powder to do things we want to do over time.

So our target range is 1.5 to 2.5 but being below 1.5 for a period of time with a really healthy balance sheet during these kind of uncertain times, that won't be a bad position to be in. That will be a really good position to be in.

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Operator [20]

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The next question is from Robert Barry from Buckingham Research.

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Robert Douglas Barry, The Buckingham Research Group Incorporated - Research Analyst [21]

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I'll agree with you on the comments on the balance sheet at this stage in the cycle. It sounds good to me. I wanted to just clarify a couple of things here on Slide 10, kind of a guidance bridge. So you're pulling out $500 million in revenue for Power and Energy, $50 million in segment income. I think that implies a 10% margin. If you had guided to 9% in the Bran+ Luebbe business, I thought it was even higher than that, kind of implying what would be coming out would be more like, I don't know, 7% or 8%. Is there some adjustment in the math there?

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [22]

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Well, Robert, what I would say is the shift from the Power and Energy business into our Industrial, you're correct, is -- it's principally the Bran+Luebbe brand, which does have segment margin slightly above the average for that business.

In addition to that, there are smaller moving pieces within there that generally aren't material but they may affect the total debt you'll see come over. So it's principally the Bran+ Luebbe brand but some more that's coming over as well.

As it relates to the reduction of revenue and margins and operationally, so we'll have revenue coming down $50 million and the EBITDA coming down by $5 million. About half of that revenue reduction will relate to our systems business and then another half would be the shorter cycle componentry.

From our standpoint, are happy to see the decrementals there really benefited by some of the margins that we talked about now in backlog, some of the price cost improvements that we've seen over the course of this year. And so really trying to protect on the EBITDA side of the deleverage.

But back to your point on what's coming over. There are some details and moving pieces that Stewart can help you with later.

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Robert Douglas Barry, The Buckingham Research Group Incorporated - Research Analyst [23]

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Right. Yes actually -- and where you went was where I was going to go next. So $3 million out of EBITDA on $50 million of sales, especially when it sounds like you're also now including $6 million of costs kind of implies that the kind of like-for-like EBITDA guidance is a little bit better. Is that right? Or it sounded like there are a couple of things that might be tracking better than you thought, price costs or -- but I wanted to clarify that.

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [24]

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Yes, I think that's the main driver, would be how we're seeing price cost develop over the course of the year. And then as we kind of look forward and what some of our trends we see on the inflation side and where we sit with price, continuing to see that momentum will be the biggest difference.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [25]

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Yes, the other thing I would add to that, Robert, there's price, there's our supply chain teams doing a great job on mitigating inflation, as Jaime was mentioning. And then I can't underemphasize the impact of our systems switch and what we're doing with these more lucrative liquid projects and having a better margin profile.

So we're really going to see a significant flip in the margin profile there as we go into the second half of the year. So a lot of this will show up in -- half to half in our Food and Beverage business with the better systems margins, the restructuring is another important piece that we're -- we've also done, too, and completed.

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Robert Douglas Barry, The Buckingham Research Group Incorporated - Research Analyst [26]

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Got it. I guess just lastly for me and maybe this also points to things tracking better on the cash flow, I think you were guiding midpoint $115 million, now it's $85 million. So that's $30 million less on pulling out $72 million of EBITDA. I mean maybe there was like $5 million or $8 million of CapEx there. So it seems like, I would have expected like, $65 million, $70 million of cash flow out and you're only reducing the guide by $30 million. So is there also some kind of, I don't know, working capital tracking better? Or is there something else in that bridge I'm missing?

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [27]

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No. I think if you take it back to what's on the face of the statement of cash flows. So year-to-date, we'll have, in total, so this would be continuing ops and disc ops, up $30 million of free cash flow. As we work throughout the course of the year, we do expect that to trend back up to, call it the $110 million to $115 million. And then the splits between disc ops and continuing ops are difficult to get to from the GAAP financial statements and it comes from a place of how certain balance sheet positions have to go through continuing operations and maybe disconnected slightly from the P&Ls of disc ops and continuing ops.

But what I'd say in broad strokes, Robert, is that we do see some level of improvement starting to come through on working capital, particularly in AR. In the last bit of Q2, we saw some pretty significant improvements in inventory.

And then the other big driver for us on the working capital front and free cash flow would be our systems business. So as a reminder, those tend to be larger orders and do come with a degree of down payments and milestone payments at the front end of those projects. And as we've taken in the less number of systems orders this year, that's been a headwind for us and I think we've mentioned now a couple of times the developments we've seen already in July and what we're expecting through the remainder of the year. We're expecting that that will turn positive for us as we exit the year.

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Operator [28]

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The next question is from Nigel Coe from Wolfe Research.

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [29]

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So we've covered the capital deployments side in some depth. But you did mention the first sort of option was organic investment, which a lot of the companies do talk about. But I'm just curious what that means for you guys. And I'd be curious if there was any degree of constraints that you've had in the last year or two with [invest and organic] in your business and then kind of how that might change with a stronger balance sheet?

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [30]

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Yes. Yes, sure. So I think about it in a couple of different buckets. The first would be in new product development and investments to change the level of NPDs that come out. And so Dwight and his team have done some restructuring here recently, reorganization and they have created an organizational design which I think are going to allow us to bring ideas to the forefront faster and allow better visibility across the organization to those potential investment opportunities and give them, then that team, a framework of where and how investments in new products are tied to our strategy.

So I think historically, you would've seen that we spend roughly 1% of our revenues on NPD. We believe that an absolute driver of future success is going to be to push up the vitality index and the vitality of our revenue profile to improve the quality of revenues and that would need to, I'd say, at least double over a period of time. So the team is working on really again identifying those opportunities, pulling those to the forefront, and we're going to look to fund those in a more rapid pace than we have historically.

So that would be on the product side. And then as we look to the plants, we've historically spent on CapEx a bit less than depreciation. And there are a number of our plants which we believe could significantly benefit from some recapitalization and Ty Jeffers and his team are aligning that back to the product strategies and bringing those ideas forward. We've seen some come forward more rapidly here in just the last couple of months and we expect to continue to see those come through in the second half of this year and into next year.

So CapEx, recapitalization, factory automation, those type of investments that we believe would allow us to reduce the lead times of our products and serve customers faster and a higher quality. Those are roughly the buckets of organic investments that I think we're going to focus on.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [31]

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Hey, Nigel, the other -- one thing I would mention is that -- this 2% to 3% cost productivity objective we have and as we go through the next 18 months, we'll need to deploy a certain amount of cash and capital towards that. So the good news is, and I think the beginning of your question, what's prevented us in the past, over the past several years from doing the things that we wanted to do in terms of capital deployment, everything's gone towards debt reduction and our restructuring efforts. I mean that's -- hasn't been a very balanced approach. So Jaime's goal is to really balance that out and mine too, in terms of how we're deploying capital and being -- hitting more important areas and products in our plants and how we're returning to shareholders and in organic investment.

So we're going to look to really balance out that capital deployment much differently than it's been in the last 3 years and we're going to be able to do that on the back of a much stronger balance sheet and better cash flows.

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [32]

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That's helpful. Marc, you just touched on this [area] in terms of driving towards that 2% to 3% goal. Is there a need to -- with maybe some effectivity on the projects and obviously, the weaker demand environment, is there a need to do another big bang restructuring program?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [33]

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Yes, I don't see a big bang restructuring program. Some of the things we've put in place over the last couple years, learning from experience and being very disciplined in our hiring efforts, we've been managing our overall cost structure and headcount much more effectively. So even as we saw moving through the first half of this year things not developing as we had anticipated, we were slowing down the hiring process in certain areas and making sure that we weren't running as much overtime in our facilities, reducing our contractor headcount.

So I don't see the need for a big bang, we'll continue to manage that prudently as we move through the second half of the year and look and see how orders develop.

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [34]

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I have a quick follow on. Obviously, you've discontinued the bulk of the Power and Energy portfolio and given that you've dissected certain parts in that and brought them into Industrial, I'm not sure how relevant the question is, but just have some -- can you give us some sense in terms of how the business is tracking versus your original plan so that we can do some sensitivity around what we can see as proceeds? Has the business -- is the business tracking more or less to plan or is it deteriorating sharply?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [35]

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For Power and Energy?

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [36]

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Yes.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [37]

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Yes. No, I mean, José Larios and his team did a great job in Q2. We mentioned that as we expected the order rates recovered sharply from Q1 to Q2 with good North American pipeline valve orders, they executed it at double-digit income margins. So much better than anticipated, hit the revenue objectives. So really good execution, couldn't be more proud of the team and they're on the right path.

And just to reemphasize, we've made that switch already internally where really José and his team are running that part of the business and they've spent the bigger part of Q2, while they're not only executing a good quarter, going through various aspects of management presentations and factory visits from interested buyers. And so we're already moving into the second phases of due diligence and expect to be doing final bids pretty soon for Power and Energy.

So it's performing well. José and his team are doing a pretty great job and so we're confident as indicated about a positive outcome.

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [38]

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Yes, I would just add to that. Marc mentioned the orders, which we've seen come in through Q2, which at the end of Q1, we said there were some timing differences there. Those orders that we expected to be timing have all come in here in the second quarter. The aftermarket stream and order profile of that business continues to remain strong. And then we just look at the margin performance of that business, it's up almost 200 basis points from where it was in Q2 of last year. And kind of on an old basis, our segment income margins for that -- for P&E here in Q2 would've been the highest that it has been for well over a couple of years.

So the business is performing very well. José and team, as Marc made mention, have done a lot of proactive outreach to customers and customers are responding well, factories are performing well. So it's nice to see that business holding together very well through all the things that Marc mentioned that's been going on this quarter.

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Operator [39]

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The next question is from Brett Linzey from Vertical Research.

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Brett Logan Linzey, Vertical Research Partners, LLC - VP [40]

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Just want to come back to productivity and some of the streamlining efforts. It's good to hear the teams are primed and ready to go here. But just in terms of pace, once initiated, what's the timing of when these products -- productivity savings start to ramp? Is it more back-end loaded, heavier lifting? Any color on the phasing now that the plans are finalized would be great.

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [41]

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Yes. I would say that they are somewhat back-end loaded. So a number of the actions that we have are ones that require a fairly significant degree of planning, a fairly significant degree of execution across multiple parties, multiple jurisdictions, et cetera. So they're in motion now. I think that to Marc's point earlier, we'll see some of them take place over the second half of this year but really begin to take shape in the first half of next year.

And I think that well over half of the savings will begin to hit in the second half of 2020. But it is unlikely that we're going to see the full annualized benefit before 2021 of all the actions. But there's the piece that relates to P&E that the teams have to make sure there's certainty around knowing where that business will go and what the TSA needs will be. But the remainder of the projects are well under progress and planned and will begin to be executed fairly soon.

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Brett Logan Linzey, Vertical Research Partners, LLC - VP [42]

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Okay. Great. And then maybe just a question on China specific to orders. How were orders in the quarter in the segment? And then what are you assuming in the guide for the balance of the year?

And then the follow up there would be, have you seen any type of nationalist stance with respect to new bids and activity in that region?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [43]

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Yes, sure. So in China, let's maybe break it down again, between Food and Beverage and Industrial. So systems business in the quarter was a bit slower than we expected but as I mentioned, we had some LOIs in hand that we'd expected to translate into orders within Q2. That didn't happen but we're already seeing them come through in Q3. So Q3 orders coming in and systems have picked up.

And then in Food and Beverage for more of our components business and aftermarket business, we did see that increase sequentially within the quarter. So overall, the business in Food and Beverage is operating as we expected with the exception of some timing associated with the systems orders.

I would just follow along with that saying that we're still staying really disciplined in our selectivity on systems business and pricing and that goes across the entire business.

And then as you look at the Industrial business in China and across APAC for that matter, we saw a nice acceleration of our Industrial component business or short cycle business from Q1 to Q2 in China. So overall, I would say in China, the business is -- through the first half of the year, is performing well. We expect it to perform well in the second half and even look better with the systems business that should come in and that we're already seeing here in early Q3.

And I couldn't point to any specifics to say that there's any evidence of nationalism. We're just -- we're well anchored there with our teams. We're localized with our teams and they're executing the plans they have in front of them.

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Brett Logan Linzey, Vertical Research Partners, LLC - VP [44]

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Sorry, just one quick follow up with the sale process. Could you just speak to the types of buyers that are looking at the asset? Is it a combination of strategic and financial buyers?

And then maybe just some more color on how long the bid list looks today.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [45]

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Yes, we've had interest from both and I would say it's a healthy bidder list and we're pleased with the overall interest. And I'm not going into a lot of depth on the number of bidders and who's still in the process. But again, we're confident that things will progress through the second half of the year. And as I mentioned, we've gone through already first-round bids, we've gone through management presentations. We've gone through site visits and then we're in the process of due diligence right now and preparing for kind of second-round final bids.

So process is moving along well and we'll provide an update as soon as there's significant developments on that front.

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Operator [46]

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The next question is from Deane Dray from RBC Capital.

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Andrew Jon Krill, RBC Capital Markets, LLC, Research Division - Senior Associate [47]

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This is Andrew Krill on for Dean. Just wrapping up on P&E, another quick question. Just, can you comment, it seems like the process is going well but just has the choppiness in oil and gas recently had any impact on potential sales multiples? And would you be willing to sell the business in pieces rather than the whole segment at this point?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [48]

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Yes, Andrew, maybe work backwards from there. We plan to sell the business as one business as we've defined it. We don't have any intention to break it apart and sell it individually. And the interested parties are looking at the business that way. And as you can see from the performance that we're getting from the team or what the teams have done, not only in Q2 but building up to this point, performance has continued to improve, and we would expect that to support a good value for the business as an outcome.

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Andrew Jon Krill, RBC Capital Markets, LLC, Research Division - Senior Associate [49]

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Okay, got it. And then just lastly, on tariffs. Recently, the pressures kind of seem to continue to ratchet up. So just -- before you commented price cost seems to be in your favor still, but just have you seen any increasing direct input costs at this point? And like, can you just give us some other color on your confidence in offsetting any potential increases?

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [50]

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Yes, tariffs, specifically on the products that we produce at this stage, there's not really an impact there and the most recently announced tariffs it doesn't really touch our area. What I would say is our supply chain team has done a really nice job this year in minimizing any inflationary implications throughout the year or impacts throughout the year.

So we're in a good spot with what our commercial teams have done on price. Our supply chain team is doing a good job. And tariffs themselves on our products we're producing aren't having a significant impact as we move through the second half of the year. We wouldn't expect that given the recent announcements.

But going back to what is impacting is that in the Food and Beverage part of our business, those customers are being impacted and we believe those tariffs -- Chinese tariffs, the tariffs from China are influencing their capital deployment decisions and that's what's impacted our short cycle volume.

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Operator [51]

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I am showing no further questions at this time. I would like to turn the conference back to Mr. Ryan Taylor.

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Ryan A. Taylor, SPX FLOW, Inc. - VP & Chief Strategy Officer [52]

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Thanks, Ian. I appreciate everybody joining the call today. That concludes our webcast for the Q2 earnings presentation, and Stewart will be available throughout the day to answer any follow-up questions that you might have.

Thank you for your participation, and we'll talk to you next time.

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Marcus G. Michael, SPX FLOW, Inc. - President, CEO & Director [53]

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Thanks, everyone.

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Jaime Manson Easley, SPX FLOW, Inc. - CFO, VP & CAO [54]

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Thank you.

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Operator [55]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.