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Ingersoll-Rand PLC  (NYSE:IR)
Q4 2018 Earnings Conference Call
Jan. 30, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Welcome to the Ingersoll Rand 2018 Q4 Earnings Conference Call. My name is Tiffany, and I will be your conference operator today. The call will begin in a few moments with the speaker remarks and the Q&A session. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions) We ask that you please limit yourself to one question and one follow-up. Thank you.

Zac Nagle, Vice President of Investor Relations. You may begin your conference.

Zachary A. Nagle -- Vice President, Investor Relations

Thanks, Operator. Good morning and thank you for joining us for Ingersoll Rand's fourth quarter and full year 2018 earnings conference call. This call is being webcast on our website at ingersollrand.com, where you'll find the accompanying presentation. We are also recording and archiving this call on our website.

Please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause actual results to differ materially from anticipated results.

This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are Mike Lamach, Chairman and CEO; and Sue Carter, Senior Vice President and CFO.

With that, please go to slide three, and I'll turn the call over to Mike. Mike?

Michael W. Lamach -- Chairman and Chief Executive Officer

Thanks, Zac, and thanks to everyone for joining us on the call today. Please go to slide three. Before discussing our fourth quarter and full year 2018 results, I'd like to begin with a brief review of the fundamental elements of our business strategy that underpin our financial performance and create value for our shareholders.

First, our global business strategy is at the nexus of environmental sustainability and impact. The world is continuing to urbanize while becoming warmer and more resource-constrained as time passes. We excel at reducing the energy intensity in buildings and industrial processes, reducing greenhouse gas emissions, reducing waste of food and other perishable goods, and we excel in our ability to generate productivity for our customers, all enabled by technology.

Our business portfolio creates a platform for the company to consistently grow above-average global economic conditions, aided by the strong secular tailwinds I've outlined. Second, our business operating system is designed to excel at consistently delivering strong top line growth, incremental margins, and free cash flow.

And lastly, over the years we built an experienced management team and a high performance winning culture that makes our performance sustainable. When combined with our dynamic capital allocation strategy, we have a differentiated business model that drives strong shareholder returns over the long term.

Turning to slide four. Focused and consistent execution of our business strategy enabled us to deliver top tier financial performance in 2018. We deliver top quartile organic bookings and revenue growth in each quarter and closed out full year 2018 with 13% organic bookings growth and 9% organic revenue growth for the enterprise. Adjusted earnings-per-share growth was also top quartile up 24% for the year and up 29% in quarter four.

Despite persistent material and other inflation and tariff related headwinds, our team successfully developed and delivered pricing and productivity actions that enabled us to effectively manage these costs and drive improved leverage and solid margin expansion throughout the year. Importantly, at the end of quarter two, we set out to achieve significantly improved leverage of 25% in the second half of 2018, and the team delivered against that objective, while at the same time delivering record organic bookings and record revenues.

Additionally, we achieved 10 basis points positive price cost for full year 2018 with 60 basis points of enterprise adjusted operating margin expansion. While at the same time continuing our healthy pace of incremental business investment which is core to our ongoing differentiated operational and financial performance. Free cash flow for the year was 82% of net income, which lagged our 100% conversion target. The largest component of the shortfall is related to funding working capital above normal levels through the end of the year in order to meet growing customer demand for our products and services.

We also funded additional CapEx for high ROI projects, beyond what we expected when we entered the fourth quarter. We've delivered an average of 110% free cash to net income conversion over the past four years and we expect to return greater than 100% in 2019. Lastly in 2018, we also continued to execute our balanced capital deployment strategy.

After investing in the business including $366 million in capital expenditures largely related to footprint optimization and plant consolidation. We deployed approximately $1.7 billion between dividends, share repurchases and mergers and acquisitions.

Turning to slide five. Our performance against our initial guidance expectations was strong with the exception of free cash flow, which I discussed earlier. We significantly beat on both the top and bottom lines and delivered strong margin expansion, while managing inflation and tariff related headwinds and making healthy investments in the business.

Turning to slide six. Focused execution of our business strategy is delivering differentiated results in the marketplace and for shareholders and we will maintain this focus going forward. Looking at 2019, we see the fundamental ingredients for another strong year. First, our end markets generally remain healthy. And I'll address that in more detail on the next couple of slides. Second, we're entering 2019 with record backlog and multiple business units.

After achieving exceptional bookings throughout 2018 this provides us with improved visibility into what to expect for 2019 revenues relative to where we would have traditionally been at this stage in the year. Third, in 2018, we demonstrated our ability to effectively manage inflationary and tariff related headwinds through pricing and productivity.

Combined with higher expected volumes, we expect this to enable us to continue to deliver solid leverage, improving margins, and strong EPS growth in 2019 as we did in 2018. For 2019, we're expecting free cash flow to exceed adjusted net income. We will continue to execute a dynamic capital allocation strategy that deploys capital, where it earns the best returns. This includes organic investments, dividends, mergers and acquisitions and share repurchases. On the M&A side, we have an active pipeline of attractive opportunities.

It will be a strong fit with our core business strategy. If or when these become actionable and affordable, we're in a strong position to execute any transactions. We also continue to see value in our own shares which are trading well below calculated intrinsic value.

Lastly, based on our performance in 2018 and our guidance for 2019, we're firmly outpacing the glide path to achieving our 2020 Investor Day revenue growth, EPS, and free cash flow guidance that we laid out during our mid-year 2017 Investor Day. Given the tremendous amount of inflation and tariffs, the industry has endured over the last two years. Moving along that glide path a bit differently than what we expected in 2017 or well ahead of the curve nonetheless.

Turning to slide seven. Our end markets continued to show strength throughout the fourth quarter and 2019 appears to be shaping up as another solid year. In Commercial HVAC, the markets remain strong in virtually all geographies and we delivered strong bookings growth and revenue growth across the product portfolio. Europe has shown mixed economic signals over the past few months, but the HVAC activity remains healthy there as well. China had a solid quarter in HVAC with good growth in both equipment and services.

Our direct sales strategy in China continues to progress well against our expectations, and we're making good in-roads in a number of verticals including infrastructure, which has been a key focus for us and continues to be one of the strongest verticals. The situation remains fluid with trade war uncertainty, but at this point in the year we're still expecting to see modest market growth and market share expansion opportunities in China.

Outside of China, the Asian markets are mixed. In total, our global outlook for the Commercial HVAC market continues to be positive with low single-digit to mid single-digit market growth expected. Turning to residential. Quarter four was another very strong quarter for us with continued share gains.

Growth was primarily driven by replacement demand and we expect the majority of the market growth to come from the replacement market in 2019 as well. This plays well into our business mix which is about 85% replacement. Economic indicators have softened modestly, but it's still healthy and supportive of growth for the year.

Turning to slide eight. Our transport business continues to be a globally diversified and resilient business with good growth opportunities across multiple areas. In 2018, we saw exceptional order growth for North American trailers and auxiliary power units, and we built a healthy backlog as a result. In 2019, a strong backlog position for these businesses gives us solid visibility into revenue growth for the year as we work to convert this backlog to revenue over time.

The European transport markets are mixed with trailer a bit weaker and clocked a bit stronger as Brexit uncertainty is impacting these markets. I think the additional clarity around this topic would be a positive catalyst. Overall, we're expecting low single-digit to mid single-digit market growth for transport refrigeration in 2019.

Our compression technologies business had good growth globally in the fourth quarter with North America and Europe healthy. We continue to see trade war uncertainty impacting projects in China. Global services growth continue to outpace equipment growth in the fourth quarter, which is positive and it's well supported by multiple service initiatives focus on increasing attachment rates of services to equipment and increasing our share of wallet of total services provided within accounts.

All things considered, we expect to see low single-digit, mid single-digit growth in the compression technologies market in 2019 with China being the main area to watch closely. Small electric vehicle growth continues to be powered primarily by our consumer and utility businesses. We expect to see healthy growth in 2019. Our industrial products businesses including fluid management, tools, and material handling markets remain healthy. We expect to see continued solid growth in these businesses in 2019.

And now I'd like to turn it over to Sue to provide more details on the quarter and discuss our 2019 guidance. Sue?

Susan Carter -- Chief Financial Officer

Thank you, Mike. Please go to slide number nine. I'll begin with a summary of a few main points to take away from today's call. As Mike discussed, we drove solid operating and financial results in the fourth quarter with adjusted earnings per share of $1.32, an increase of 29% versus the year-ago period.

Our earnings growth in Q4 closed out a strong year in which we delivered adjusted earnings-per-share growth in excess of 20% in each quarter. Organic bookings and revenue growth was strong in both our climate and industrial segments. In our Industrial segment, we delivered 6% organic bookings and revenue growth.

Organic bookings growth was healthy in the fourth quarter, despite a difficult comparison of 12% organic growth in the fourth quarter of 2017. On the climate side, organic bookings were exceptional up 20% including a large commercial HVAC order that will provide revenue over the next three to four years. Excluding this order organic bookings growth was still outstanding up 13%.

These exceptional organic growth rates accelerated despite difficult comparisons with very strong growth rates of 7% in the fourth quarter of 2017 and 10% in the fourth quarter of 2016. Organic revenue growth was also exceptional up 9% and was broad-based across all of our climate businesses and across both equipment and services.

As Mike discussed free cash flow was 82% of adjusted net income primarily due to funding higher working capital to support our exceptional bookings and revenue growth, and funding additional CapEx for strong projects in the fourth quarter. We continue to drive high quality earnings and expect to deliver free cash flow in excess of 100% of adjusted net income in 2019.

Leveraging our business operating system for operational excellence across the enterprise, we continued to manage direct material, tariff related, and other inflationary headwinds in the quarter. During Q4, we delivered our targeted 25% operating leverage and expanded adjusted operating margins 90 basis points.

For the year our 60 basis point adjusted operating margin improvement was toward the higher end initial guidance. Importantly, we also delivered on our dynamic capital allocation strategy in 2018. We deployed $480 million in dividends and increased the dividend 18% during the year consistent with our commitment to maintaining a strong and growing dividend over the long term.

We deployed $900 million on share buybacks as the shares continued to trade below our calculated intrinsic value. We also deployed $285 million on strategic mergers and acquisitions in 2018, the majority of which was committed to spend in 2017. Looking forward, we expect to consistently deploy 100% of excess cash over time.

Please go to slide number 10. As we discussed on the previous slide, the fourth quarter was highlighted by continued strong organic bookings and revenue growth in both of our segments as indicated by the positive signs on the chart.

These results reflect continued strong execution of our strategy capitalizing on healthy end markets. The one minus sign on the chart was a revenue decline in Commercial HVAC in the Middle East where orders and accompanying revenues can be lumpy.

Last quarter we highlighted that there were a couple of large orders in the third quarter of 2017. These orders shipped in the fourth quarter of 2017 creating a difficult comparison for us in the fourth quarter of 2018. European HVAC orders and revenues showed continued strength in the quarter.

Please go to slide number 11. We delivered organic revenue growth of 8%, adjusted operating improvement of 90 basis points, and adjusted earnings-per-share growth of 29%. Strong gains and volume from ongoing investments in new products. Panel and system controls are delivering results in virtually every business and geography where we compete. Consistent disciplined focus on productivity and pricing actions enabled us to effectively manage inflation and tariff-related headwinds and drive margin expansion across the enterprise.

Please go to slide number 12. The focused execution of our business strategy underpinned by our business operating system enabled us to drive solid year-over-year earnings-per-share growth in the quarter. Our climate segment delivered another strong quarter of operating income growth.

Our industrial segment delivered solid results with our compression technologies business in particular levering over 40% in the quarter. Corporate productivity initiatives drove $0.05 of earnings-per-share growth year-over-year.

Below the operating income line, other expenses related to legacy legal matters negatively impacted results by approximately $0.04. All-in we delivered 29% earnings-per-share growth with strong results across the enterprise.

Please go to slide number 13. Strong execution drove 90 basis points of adjusted operating margin improvement in the quarter. Price versus material inflation was positive by 40 basis points in the quarter and positive by 10 basis points for the full year reflecting strong pricing efficiency and a return to more normal price cost despite the extraordinary inflation we were up against in 2018.

Productivity versus other inflation was notably stronger in Q4 improving margins by 30 basis points. For the full year productivity fully offset other inflation. We also continued to reinvest heavily in our business with incremental Q4 investments of approximately 60 basis points pretty evenly weighted between operating expense reduction projects to drive further productivity, footprint optimization, plant consolidation projects for Commercial HVAC and compression technologies and new product development and information technology investments.

All of these investments were in concert to make Ingersoll-Rand a stronger and more resilient business. Please go to slide 14. Our climate segment delivered another strong quarter with 9% organic revenue growth and adjusted operating margin expansion of 40 basis points. Consistent with our expectations, results were strong across the segment.

Please go to slide 15. Our industrial business also delivered strong results with 6% organic revenue growth and 40 basis points of adjusted operating margin expansion with compression technologies leverage up more than 40%. Outside of compression technologies, the overall Industrial segment leverage was negatively impacted by discrete accrual adjustment and a legal settlement totaling approximately $5 million. We expect industrial segment leverage will be strong moving into 2019 as it has been over the past several quarters.

Please go to slide 16. In 2018, we executed a dynamic and balanced capital allocation plan deploying capital where it earns the highest returns for our shareholders. We maintain a healthy level of business investment in high-ROI projects to help customers solve their most complex challenges. These investments helped drive our strong growth in both segments during 2018. Beyond that we invested $366 million in CapEx largely on footprint optimization and cost out programs which build a stronger more resilient Ingersoll-Rand.

We maintained a strong balance sheet that provides us with good optionality as our markets evolve. We executed against our long-standing commitment to a reliable strong and growing dividend. During 2018, we've raised the dividend 18%. Additionally, we deployed approximately $900 million on share repurchases as the shares continued to trade below intrinsic value.

As we look forward to 2019, we remain committed to a dynamic capital allocation strategy that consistently deploys excess cash to the best return on investment opportunities. We're enthusiastic about the future and the opportunities ahead to deploy excess capital to the best ROI investments whether that be investment in the business, raising the dividend, repurchasing shares or making value accretive strategic acquisitions.

Please go to slide 18. I'll spend a few minutes walking you through the details of our 2019 guidance. Given the market backdrop Mike outlined earlier, we expect total reported revenues to be up 4% to 5% in 2019 with the climate segment growing slightly faster than industrial.

The difference between our reported and organic revenue contemplates about one percentage point of negative foreign exchange impact year-over-year. With the enterprise, we delivered solid leverage and margin expansion in the back half of 2018. In 2019, we expect further margin expansion in each segment and enterprise adjusted operating margin expansion of between 30 and 80 basis points.

Please go to slide number 19. We expect continuing adjusted earnings per share for 2019 to be in the range of $6.15 to $6.35 excluding about $0.25 of restructuring. We've modeled approximately $500 million in share repurchases into our guidance, which translates into approximately 244 million diluted shares for 2019.

As I outlined earlier, we're committed to a dynamic and balanced capital allocation strategy that consistently deploys excess cash over time. Net the actual allocation of excess cash will depend on where we see the highest ROI opportunities over the coming quarters. We are targeting free cash flow to be greater than 100% of net income.

The adjusted effective tax rate is estimated to be between 21% and 22%. And for your modeling purposes we also offer the following guidance. Corporate expenses are expected to be approximately $250 million. Capital expenditures are expected to be approximately $300 million primarily driven by footprint optimization, factory consolidation and new product development initiatives.

Below operating income, we estimate interest expense to be approximately $200 million reflecting the debt refinancing we did in early 2018. Additionally, we estimate that pension-related expenses that are classified within the other income and expense line will be approximately $40 million for 2019. We did not plan other income or expense line items outside of pension. These items are truly are there and not estimable in advance.

Now I'd like to cover two topics of interest with you. Please go to slide 21. It's hard to keep track of what's happening with tariffs relative to what's in and what's out of guidance, so we thought it might be useful, if we laid out the assumptions that we're using.

The guidance I just laid out includes the known direct and indirect impacts we expect from the Section 232 tariffs, the Section 301 tariffs including list 1, 2 and 3, which is the full $200 billion and the expected China retaliatory tariffs. Relative to the Section 301, tariffs we have included the planned step-up from 10% to 25% on March 1st of 2019 at the conclusion of the 90-day negotiation period.

As we've said a number of times during this call we expect to be able to effectively manage the inflationary and tariff-related impacts in 2019 as we manage these types of costs in 2018. To be clear, however, if the step-up from 10% and 25% does not occur you should not anticipate we'll see a windfall gain. We will implement the pricing actions necessary to cover the actual inflation we see.

The next topic which is on the same slide is on 2019 restructuring costs. We thought it would be helpful to provide a little extra content beyond what we included in the main presentation. The restructuring we're doing in 2019 is largely aimed at proactively taking steps to build stronger more resilient businesses in both our climate and industrial segments.

Of the estimated $0.25 of restructuring in 2019 more than 80% relates to our ongoing footprint optimization and plant consolidation efforts. Each optimization project is expected to reduce our fixed-cost base and improve operational efficiencies, which benefits us no matter the economic conditions we encounter going forward.

And with that I'll turn the call back to Mike.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thanks, Sue. Please go to slide 22. We believe the company is extremely well positioned to deliver strong shareholder returns over the next several years, and our 2018 financial results bolstered our confidence. We'll be the first to recognize that 2018 was by no means a perfect year. There will be a room for further improvement.

However, our ability to solve complex problems and overcome escalating headwinds to drive continuous improvement and results for 2018 is encouraging and gives us confidence in our business operating system and high-performing teams are prepared to successfully navigate the evolving landscape ahead.

I want to extend my full appreciation to our talented people throughout the world that are committed to delivering excellent results for our customers and shareholders. Our strategy is firmly tied to attractive end markets that are healthy and growing profitably. Our products and services portfolio is at the nexus of global energy efficiency and sustainability mega trends, which provides a tailwind for growth above-average economic conditions over the long-term.

Unless you believe the world is getting less populated, cooler, and less resource-constrained these secular mega trends will continue to create growth opportunities for Ingersoll-Rand. Successful execution of this strategy enabled us to deliver exceptional bookings and profitable revenue growth in every quarter of 2018. We have an experienced management team and a high-performing team culture that incorporates operational excellence into everything we do.

Our business operating system and our culture are differentiated and sustainable competitive advantage. And lastly our business model generates powerful cash flow and we are committed to dynamic deployment of capital. We have a strong track record of generating free cash flow and deploying excess cash to shareholders over the years.

And with that Sue and I will be happy to take your questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from the line of Scott Davis with Melius Research. Your line is open.

Scott Davis -- Melius Research -- Analyst

Hi. Good morning, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Good morning, Scott.

Susan Carter -- Chief Financial Officer

Good morning.

Scott Davis -- Melius Research -- Analyst

Well, there's not much to pick on in this quarter at all, but you made a couple of comments, I just wanted to dig into a little bit, in particular, really about the push to the right on some of the commercial projects in China. Is it the opinion of your local guys that this is just more of a delay or maybe something a little bit more tied to the tariff outcome or what's really the color behind some of those comments?

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, you have to separate the businesses a bit Scott. So, take HVAC where we saw again really strong bookings growth and continued momentum there in services as well. And in those markets, I think, it's less susceptible particularly on the government commercial side involving infrastructure institutional work that there's more of a bias toward producing greenhouse gas emissions, and as I've said hopefully a thousand times, if you're going to go attack the greenhouse gas emissions problem anywhere you're going to hit HVAC whether it's stationary or transport first because it's 15% to 25% of most economies global greenhouse gas emissions. So, I don't think that China lets its foot off the gas around codes, compliance and regulations that would improve air and water quality. That being said you look at the industrial business and here I think the trends are largely the same. Interestingly, we saw good growth in some of the smaller compressor, some of our contact with rotary and certainly in our -- rotary compressor lineup in general, but certainly all three would have been part of that. So that continues. What I get mostly from our suppliers and from our customers that are in China exporting outside of China particularly to the US is they are waiting to see, however, some of them are moving more rapidly to put incremental capacity in Asia outside of China. So, Vietnam is a favorite spot for that right now. So I think that you're already seeing sort of actions taken by Chinese companies that export. I think you continue to see that going forward. And by the way it's positive Scott for us because you know it doesn't matter sort of where they set up shop, we're going to be able to support them.

Scott Davis -- Melius Research -- Analyst

Yes, it's going to be my natural follow-on is that are you a net winner or a net loser? I mean you have critical mass in China and some of those other regions maybe you don't or do you, I guess, it's kind of --

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, we have a strong footprint throughout Asia, so you really can't get to a part of Asia where we don't have a team on the ground, sufficient capacity to supply it. So, it would be good so long as that capacity is unlocked somewhere we would have opportunity.

Scott Davis -- Melius Research -- Analyst

Okay. I'm going to pass on it. Thank you, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thank you, Scott.

Operator

Your next question comes from the line of Steve Tusa with JPMorgan. Your line is open.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Hey guys, good morning.

Michael W. Lamach -- Chairman and Chief Executive Officer

Hi, Steve.

Susan Carter -- Chief Financial Officer

Good morning.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Can we just dig into the bridge the margin bridge a little bit? What was exactly an investment in other? And then could you maybe just give some color on how you see kind of that price material number kind of trending? And I think you said no windfall, if the tariff doesn't go through, but like you're already 40 bps ahead of the game here definitely better than we expected in 4Q. I would think that can get better on its own ex-tariffs next year maybe just give a little bit more color on how you see both of those parts of the bridge probably trending in the 2019 guidance?

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, Steve, so you say sort of walk to the bridge, are you thinking about the 2019 bridge or the 2018 fourth quarter bridge?

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Yes, I mean, in the context of what happened in the fourth quarter I guess -- the 2019. So, maybe just explain the 60 bps what was in there in the 4Q and then moving beyond the 2019 how you'd see that play out?

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, I would start and let Sue finish, but price over material inflation was something that -- we had hoped to get back to say zero for the full year. We got to 10 basis points, so roughly at our expectations there. That worked out materialized as we hoped that it would. One of the questions going into 2019 is why is there not more positive price versus cost given some of the carryover and well, I would say, there is -- we got to remember that the 232 tariffs were implemented in April and May and the 301 were implemented in October. So, the first half still sees headwinds from tariffs that didn't exist last year at the same time. We also would see commodity inflation in quarter one and quarter two still see -- still see steel is being the largest, copper is being next, and of course the Tier 2 knock-on effect contains these metals would be inflationary in the first half of 2018. But by quarter two you start to lap the majority of price from 2018. Materials begin to get perhaps deflationary, but tariffs remain in our model, so you might see a wider spread in Q3 or Q4, but it's pretty early call how all that looks, but our plan is laid out as I've just expressed in that regard. Sue, any of the bridge items?

Susan Carter -- Chief Financial Officer

Yes. So, if you think about, Steve, your question on investments in the fourth quarter and going into 2019, so the investments in the fourth quarter where as we had planned them throughout 2018, and they're primarily investments in operational excellence and new product development and some of the footprint optimization that we were doing. And those actually do carryover and we continue to invest in the business as part of our capital allocation strategy in 2019. So, nothing terribly unusual or unexpected as you think about either the fourth quarter of 2018 or where we're going in 2019 is that overall strategy of really providing for projects that make us operationally better increase productivity and allow us to manage the business.

Michael W. Lamach -- Chairman and Chief Executive Officer

And Sue probably I'd add one point, which is when you think about the productivity over a long period of time creating higher utilization and really opening up new capacities, we've taken the decision over the years to slowly as projects emerge and you can consolidate reduce footprint we've done that. But you've seen in 2018 and 2019, a more aggressive view toward that. There was a step-up in 2018 not quite as high as step-up in 2019. That's at this point sort of the last of what we see as the larger projects would entail for us. And we want to be clear that we're not thinking about a recession in 2019, but we wanted to get really in front of that final large restructuring now. And just really in the event that something will happen into the future around recession we just can be that much more resilient around that. So that's another part of what the investments involved through 2018 and certainly in the fourth quarter of 2018.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Historically, that investment number is kind of a modest negative. Is that what we should think about for 2019, a more modest negative?

Michael W. Lamach -- Chairman and Chief Executive Officer

Well, the total investment number on the bridge itself is always right around 40, 50 basis points and that's exactly what we would be modeling in 2019.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Got it. And then one last one. Normal seasonality first half to second half next year how should we think about seasonality for 1Q and the rest and next year?

Michael W. Lamach -- Chairman and Chief Executive Officer

Steve, I love you're adapting your question because I was expecting the one at that quarter one. And so let me answer that one actually first because I appreciate that you're taking a longer view on. Quarter one is usually the part that I think creates the most confusion around investors. But historically if you look at the three-year average we've been around 12.4%. If you go to a long-term average, it's been around 11.1%. So I think that when you think about the seasonality for us it largely comes into the first quarter. And for models that are between 11% and 12.5% you're kind of in a safe range. If you're north of that you're probably figuring out something that we don't know about. So that's how I would kind of give you some thoughts around quarter one. The rest of the year sort of works itself out. I don't think there's that many situations where there's been confusion around the back half of the year or even quarter two.

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Right. You gave me more than I thought I was going to get. I appreciate that. Thanks, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Julian Mitchell with Barclays. Your line is open.

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Hi, good morning. Maybe a first question around the free cash flow within that step-up of conversion in 2019. I think you're guiding for CapEx to drop almost 20%. But you're still guiding for operating cash flow to grow about 25% , so double the EBIT growth guide. Maybe just spell out is that mostly coming from receivables for example? And how quickly through the year do you think we see that improvement given your cash flow tends to be pretty seasonal?

Susan Carter -- Chief Financial Officer

Yes, Julian, it should be a good story for us in 2019. We really do expect to have greater than 100% of net income in free cash flow. And so as you take apart those pieces let's talk about CapEx for a second with the approximately $300 million guide for 2019. That is lower than 2018. That was $366 million and there's a couple of components to that. We made a couple of decisions on projects in 2018. We had some carryover, we had a warehouse facility where we were doing a warehouse consolidation absolutely a good project. We made a decision to lease versus buy. So --

Michael W. Lamach -- Chairman and Chief Executive Officer

The other way round, own versus lease.

Susan Carter -- Chief Financial Officer

All right. Own versus lease, sorry Mike. So as you think about the CapEx it sort of normalizes back into our more 1% to 2% of revenues range in 2019. So that's helpful. As you think about working capital, working capital isn't going to change from an overall strategy viewpoint, which is that you're always going to be looking to balance out your customer terms and your supplier terms. So, DSO and DPO always looking to balance those out. And on inventory you're looking to make sure that you have enough product to meet the demand that we have which is of course been quite strong. And at the same time meet your on-time customer delivery. What I would expect to see in the free cash flow guide in 2019 is that as we move through 2019 that the working capital as a percentage of revenue is also going to normalize back more into our 3% to 4% range of the long-term guide. So, we're moving back into more of the longer-term metrics in the 2019 statistics and that's what gives us the additional bump in free cash flow for next year.

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Great. Thank you. And then my second question maybe a bit more color on what you're seeing in Europe overall. I think you had mentioned that in Thermo King you have some specific watch items which are understandable. But anything interesting changing in Trane or on the Industrial side in terms of customer spending appetite and so forth and maybe split anything on Western Europe versus the Middle East?

Michael W. Lamach -- Chairman and Chief Executive Officer

Well we've had a very strong HVAC here in quarter four in Europe and so that continues. And again here this is this bifurcation between economies very focused on energy efficiencies greenhouse gas emissions and making the regulatory changes to make that happen. So, the growth rates there are outstanding. And then you're looking at sort of the industrial side of Europe is slower than that of course, as you're really I think factoring in sort of a sloppier Brexit, and I think the economy is a little bit in a slower mode there. But all-in-all it's certainly not bad in industrial and Europe for us and it's been great in HVAC. The Middle East just been choppier with the way orders come in there. Generally, you're talking about district cooling plants that are extremely large and whether we build them or not or modify them or not can make a difference quarter-to-quarter. So, I think, the environment there is good for us. It's just a matter of lumpiness in the orders. So, we're relatively optimistic on Europe and certainly the Middle East as well. In terms of transport refrigeration in Europe it's a little bit mixed. You've got to slowdown in Western Europe. You've got continued growth in Eastern Europe. You see a little slower European trailer market, and you see a little stronger European truck market. And again I think this is just really working through some of the general economic concerns largely Brexit. And clarity on Brexit frankly sort of a good outcome there. Clarity would be sort of a baseline outcome. I think it's positive for the market and for our businesses.

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Understood. Thank you.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open.

Nigel Coe -- Wolfe Research -- Analyst

Thanks. Good morning, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Hi, Nigel.

Susan Carter -- Chief Financial Officer

Good morning.

Nigel Coe -- Wolfe Research -- Analyst

Jeez, Mike, it sounds like you had that Q1 answer prepared?

Michael W. Lamach -- Chairman and Chief Executive Officer

I didn't want to disappoint Steve on that one so I got it.

Nigel Coe -- Wolfe Research -- Analyst

12.4% that was pretty specific. So, the large commercials order, I don't think I've ever seen you call out an order of that size and especially in long cycle. So, maybe just a bit more color in terms of that and how that progresses in. What's the market like for that kind of size of order, I mean, are you seeing other opportunities of scale out there?

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, we actually had one in 2016 and I wish we would have called it out in 2016 because that created a little bit of confusion in 2017 when it lapped. I think it was in the $128 million range this one is closer to $200 million. So, I think, that we're going to see more of these where it's a holistic approach toward reducing energy use and facilities campuses buildings, reducing the energy intensity maybe even getting some grid flexibility moving toward alternative power. We're seeing more of that. And so for us we're seeing that it involves design, equipments lots of controls, service, moderating over time and then some subcontracts that will go along with that. So, they're lumpy. I've been probably talking about this for three or four quarters. So, that's one of the larger projects that we thought we will close and I think these things will get spotted in over time. This particular project will last about 40 months, and it will earn revenue in a pretty linear fashion. And we like that, we like the again the resiliency over four years having a nice base of business to build on. The margins are pretty good and so it shouldn't really affect, we expect to be good leverage for the business going forward.

Nigel Coe -- Wolfe Research -- Analyst

Okay. That's really helpful. And then I think you mentioned your shares below intrinsic value, I think, three or four times during the call. You also mentioned M&A opportunity. So, I'm actually wondering given that you consider your share price too cheap right now. Is the needle for incremental dollars still toward buybacks or do you see opportunities out there to deploy M&A more accretively than share buybacks? Any comment there will be helpful.

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes. It's both Nigel, I mean, you can expect that it would be both for us. And it's really looking at the extrability, affordability the ROICs of the M&A that's out there based on we think we could do that for and then comparing that toward intrinsic value. Of course the benefit on the acquisition is building a compounding base of cash over time particularly if they're good businesses, strategically fit the core of the company. So, that's the focus. But as you know we're not going to let cash sit around for long and we're going to deploy it somewhere. And that's what certainly happened in the fourth quarter where you saw us as we stepped up the buyback in the fourth quarter. Balance sheet is in great shape, so plenty of capacity there and flexibility to work with the balance sheet going forward.

Nigel Coe -- Wolfe Research -- Analyst

Okay. Thanks, Mike.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thank you, Nigel.

Operator

Your next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open.

Joseph Ritchie -- Goldman Sachs -- Analyst

Thanks. Good morning, everyone.

Michael W. Lamach -- Chairman and Chief Executive Officer

Good morning, Joe.

Susan Carter -- Chief Financial Officer

Good morning.

Joseph Ritchie -- Goldman Sachs -- Analyst

So just to clarify a couple of points on the cash flow, Sue. So obviously nice step-up expected in 2019. You guys are expecting roughly 40% growth. Get the CapEx point it seems like the delta is half of it seems to be coming from working capital improvement half of it coming from earnings growth or EBIT growth core EBIT growth. And so on the working capital side are you assuming the turns get a turn better or how should we be thinking about that working capital piece?

Susan Carter -- Chief Financial Officer

Yes, if I think about Joe and I go back a little bit with the working capital as a percentage of revenue where we would have called that at year-end would have been probably 3.4%, 3.5% somewhere right in the middle of our 3% to 4% range. And it ended up at 4.3%, so you actually do get to your point on about a full point of that coming out of there. And again it is a process where it is not just making a decision of whether you're going to have inventory there or not. I mean there's a series of levers that happen. As you see the demand forecast as you plan what's going to happen in the factories and you plan how you're going to actually efficiently manage those factories going through time to meet that on-time customer delivery. So, your point is the right one, the inventory will probably come down over time, and everything else remains balanced. But it does go back into that 3% to 4% of revenue range, which is what gives you the uplift.

Michael W. Lamach -- Chairman and Chief Executive Officer

Of course Joe we delivered really outsized cash in a slowdown, so it's kind of a good problem to have as we're funding growth here. And it's not a worry in terms of what we think about everyday. The cash would be not a worry in terms of our ability to deliver that. We've done it historically. We'll do it in 2019 and it was good reason in 2018. The plan we always have is to increase turns. We usually plan at about half a turn, but we always throttle it back. The trump card there is always on-time shipment on-time delivery and when you've got sort of volatile order rates particularly biasing upwards, we want to make sure we've got plenty of safety stock or increased con bond sizes to be able to handle particularly hard-to-get components and parts. And so we're just going to make sure that we're making hey while the sun is shining. So, Sue's point is exactly right, but we want to make sure to fulfill the growth and do it on time.

Joseph Ritchie -- Goldman Sachs -- Analyst

Right. So maybe and said it another way, if the quarter book looks good as the year progresses and you may have to build inventory again next year and that's just a good problem to have.

Michael W. Lamach -- Chairman and Chief Executive Officer

Well, our growth rates the forecast probably half of what it was last year. So, I think, to Sue's point, you can see working capital come down anyway there a little bit. I think we comfortably get above 100% just based on that. But it's a 12-round fight, so you need to think about how this is going to evolve over the year. And if we've got a good outcome on some of the stuff that's out there whether it's the debt ceiling negotiations or Brexit or China-US tariff discussions, if it's a blue sky scenario there, we're going to adjust, it's necessary to go fulfill that.

Joseph Ritchie -- Goldman Sachs -- Analyst

Yes, that makes sense. And Mike just to follow on your question, your comment earlier around talking about these large projects for several quarters. I recognize the lumpiness, but it'd be helpful, if you can maybe talk about the pipeline whether you see like the pipeline is being pretty robust today or you are starting to see some of these projects come through and maybe a little bit less full than maybe what you saw over 12 months ago?

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, look I think that these projects kind of go in sort of two to five at a time that are out there on the horizon. They take often two, three years to develop. We'll often put $10 or more million into the development of the project you can imagine. And so as we get closer and closer toward thinking we've got something, we can certainly do that this year, we knew that we had one or two turned out to be the one really large one there's a couple of smaller, but in the magnitude of $50 million to $125 million that are out there.

Joseph Ritchie -- Goldman Sachs -- Analyst

Okay, great. Thanks, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is open.

Andrew Kaplowitz -- Citigroup -- Analyst

Hi. Good morning, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Hi, Andy.

Susan Carter -- Chief Financial Officer

Good morning, Andy.

Andrew Kaplowitz -- Citigroup -- Analyst

Mike, obviously -- there continues to be some concern that resi HVAC for you will slow down at some point given weak or new housing. But we know you're projecting lot of missing on the de-growth for the resi market in '19 based on replacement demand, but your resi growth in Q4 natural role of climate growth in high single-digits. And do you think 2019 could be another year of share gains for Ingersoll or should we think Ingersoll growth more aligned with the market in 2019?

Michael W. Lamach -- Chairman and Chief Executive Officer

Are you talking about resi, Andy?

Andrew Kaplowitz -- Citigroup -- Analyst

Yes.

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, so resi really from 2013 to the present and, I would say, '18 for sure of consecutive quarters in a row we've had share gain. We've really changed the strategy in '13 product distribution, the model, investments in digital. And so for '18 straight quarters without a hiccup, we've had share gain there. It was the same in the fourth quarter of this year. And the markets there remain strong. You have to realize that 85% of what we do is going to be in the replacement market not the new construction market. So, think about the context of Ingersoll-Rand, you think about residential HVAC is being less than 10% of our revenue. So, you can think about obviously you're talking about a really small number 1% to 2% being new construction and if that fell up even 20% would be a negligible dip for us. We're really build toward the replacement market and I think that's going to continue to be strong.

Andrew Kaplowitz -- Citigroup -- Analyst

Okay. And maybe, Mike, if I can ask you about the US commercial HVAC market. Obviously, a lot of questions on the large projects, but even at the 13% organic bookings growth in the quarter was very strong. Looking into 2019, I think, you mentioned in the prepared remarks to get better visibility here than you've had. Some people still question how we're late cycle, but if you look at the strength that you're seeing, is it still broad-based between institutional supply of markets. The (inaudible) market, is institutional going to lead the way in 2019. And does this backlog that you have really start taking into 2020 at this point?

Michael W. Lamach -- Chairman and Chief Executive Officer

Well, a couple of things, Andy. One is certainly the applied business remains strong, but I have to tell you the strength of the unitary, commercial unitary market was really strong as well. And so this just gives us a general sense about sort of underlying economic conditions in the US is still pretty positive. It's got long legs they've had that kind of growth for this long particularly the results we had in the fourth quarter in commercial unitary. The applied institutional work continues to move along nicely. Education and healthcare about 50% sort of above that mix and we think that education continues to be strong. We think that the healthcare continues to be strong. No outliers there that we're seeing on that front. So, we think we've got a solid backlog built for 2019. And as I mentioned earlier on the question regarding the larger contract that we booked that, I think, Nigel asked that thing is a four-year span. So I think this thing has got legs through 2019 for sure. Recognized too -- Andy for people, you know, just to kind of keep it in context, you know, when you think about our commercial HVAC business, you get to think about 50% equipment, 50% service. You get to the equipment piece of this thing it really break down pretty quickly between institutional and commercial. But the large component of what we do there is still replacement buildings in the US, and so I think there's always an opportunity for us to have more energy-efficient, more environmentally friendly ideas going into our customers, so there is a demand creation opportunity here as well.

Andrew Kaplowitz -- Citigroup -- Analyst

Appreciated Mike.

Michael W. Lamach -- Chairman and Chief Executive Officer

Thanks, Andy.

Operator

Your next question comes from the line of John Walsh with Credit Suisse. Your line is open.

John Walsh -- Credit Suisse -- Analyst

Hi. Good morning.

Michael W. Lamach -- Chairman and Chief Executive Officer

Hi, John.

John Walsh -- Credit Suisse -- Analyst

You know maybe just to circle back to the margin bridge into 2019 for climate. I was just wondering if there's anything to call out in terms of mix. You obviously gave us the market growth rates for some of the sub-businesses, but is there anything Ingersoll-specific there? And then anything as it relates to the different growth rates between equipment and service, as you think about the margin impact?

Michael W. Lamach -- Chairman and Chief Executive Officer

So, nothing remarkable jumps out to me at all on the year. It's a pretty straight stick. I think that -- we ought to be right in the ballpark there too of 25% of leverage that will continue to improve throughout the year. The mix if anything, I mean, perhaps a little bit on the res side or the TK side because we continually expand more of the opening price point for the product line. With TK there could be some mix with Europe being a little bit weaker and a bit more profitable than North America a bit more maybe toward truck versus trailer in Europe. So, little things on the edges, but I think it's a pretty straightforward year. The visibility around the backlog for TK particularly around North American trailer units and around auxiliary power units is the most visibility we've ever had in that business. I think we feel that way about the backlog in HVAC entering the year as well too. So, relatively straightforward plan here I think.

John Walsh -- Credit Suisse -- Analyst

Got you. And then as we think about these restructuring benefits rolling through from the $94 million in 2018 you obviously call out the $0.25 and them having a four-year here payback. I mean how should we think about what's actually carrying over from earlier actions into 2019 and then even starting to think about '20? And what kind of tailwind some of these restructuring actions could have or is it going to be later than that?

Susan Carter -- Chief Financial Officer

So, John the way I would think about it is the bigger pieces of the restructuring that we've been talking about in the footprint optimization arena between 2017-2018 and what we're projecting into 2019 is sort of in the range of five to seven factories and those less than five-year paybacks over time. So, you're going to continue to build. We started that process in 2017, and so you're going to build savings as you go through each of the years going out into -- there will be savings obviously in 2019, but there will be increasing savings in 2020-2021 from these projects. And again it is really about optimizing the footprint, building capacity and building a better Ingersoll-Rand in the catching locations that's there, but it does provide a good return and it does have a great payback.

Michael W. Lamach -- Chairman and Chief Executive Officer

Let say, John, once we make these announcements into 2019, and as we think about extending the next round of long-term planing guidance that we do this is something that will factor into improved margins or costs of course lower fixed costs in the company going forward. And I think we can probably help recast that sometime later in the year for all investors to understand the benefit of what's happened and so we'll make a note to do that once we have announced our intentions.

Susan Carter -- Chief Financial Officer

And I think, Mike, you made the point earlier in part of the discussions is that we're not looking at these opportunities as a way to get ahead of an economic environment. We're actually looking at these opportunities to actually operate really well regardless of the economic environment. And so the fact that you can get a great return off of that in addition to making the company stronger is terrific.

John Walsh -- Credit Suisse -- Analyst

Great. Appreciated. Thank you.

Operator

Your next question comes from the line of Josh Pokrzywinski with Morgan Stanley. Your lines is open.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Hi. Good morning, guys.

Michael W. Lamach -- Chairman and Chief Executive Officer

Josh Pok, good morning.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Yeah, close enough, right, I mean, I'm used to it. Just on the industrial business. Not that anyone should necessarily operate with a hard landing scenario, but thinking back to 2015 and 2016 I think some of the shorter-cycle elements of that and tools and other industrial products caught you by surprise and some of the decrementals there were a bit abrupt. How are you thinking about inventory levels customer tone and kind of distance from prior trough in the context of 2019? It seems like everything's fine and I'm not being overly alarmist here, just trying to gauge what maybe the sensitivity looks like?

Michael W. Lamach -- Chairman and Chief Executive Officer

Well, first I mean back to John's question when you think about sort of where all this restructuring spend has gone, the bulk of it at this point has gone into the industrial business particularly into the compressor business. And so I think building a higher margin more resilient business is certainly what they've been doing. The other piece of it is that service orders continue to outpace equipment growth certainly again in Q4 too and that as both service penetration and at share of wallet strategies for our CTS business. We believe that from what we're seeing here there is certainly a balanced view toward what could happen. I mean clearly if there is some certainty around China-US tariffs, we think certainty no matter what the outcome of that could be is probably going to lock a little bit of growth there. So, I think, it's a balanced view at this point in time, but I think we planned for a lower fixed-cost base, the restructuring through higher service mix. And that business has been prolific around investing back into the business. I want to say, it was a full 50 basis points going back into industrial. And I think that is always a sign of healthy business investing. In a downturn you can take share and we want to make sure if that happens we're taking share in a downturn too.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That's helpful. And then just thinking about some of these larger projects in climate I would imagine as the cycle wears on you see more and more large projects show up. How should we think about that in terms of operating leverage when those shift? I would imagine some of that especially in performance contracting is some pass-through revenue not just all your equipment. Is there a margin hit that comes in with that or a lower incremental or it kind of feel like normal equipment?

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, it can be Josh not particularly in this case right? I don't think this one's going to be something that spikes out materially anything with leverage or incremental. So, the margins on those projects are not bad. As we've talked in the past you've got to look at the contribution margin to the entire business. Usually those projects have everything from an SG&A perspective loaded into the contract as well is very little between contribution margin and operating income they're left to look at. So, I feel positive on that. Again they're hard to forecast. We don't put them into base plans. And when we think we've got something that's got a high probability of closing, we might start to talk about it. And certainly when there's the magnitude of what we've booked, we'll have to spike those out, so we get everything straight from a comp perspective. So, I hope that answers your question.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Sure. It does. Thanks, Mike.

Operator

Your next question comes from the line of Andrew Obin with Bank of America Merrill Lynch. Your line is open.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Yeah. Good morning. Can you guys hear me?

Michael W. Lamach -- Chairman and Chief Executive Officer

Good morning. How are you?

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Hey, I'm good. Just a question and a lot of questions have been answered. Thanks for including me. But just can you give us visibility on the institutional side because I know you guys look at state and local funding and bond issuance. How much visibility do you have for funding on the institutional side in HVAC in North America because it is a key market for you guys?

Michael W. Lamach -- Chairman and Chief Executive Officer

There's a lot of metrics to look at there, Andrew, I mean, certainly you all can look at ADI, GDP growth non-resi fixed construction all those look good. We've got the benefit of looking at.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

I was more interested in, yes, you guys track bond issuance and sort of longer-term metrics from local government and state government, those tend to be useful, sorry.

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, we do as well and you guys certainly can look at that. The most important thing we can track though is we put a lot of investment into the systems we use in the front end of the commercial process. So, the ability for us to understand pipelines better really supports strong institutional growth going forward. And I could just tell you the number and the size of the projects from the institutional perspective are very healthy. And this goes back to the question around 2019 in climate what confidence do you have or maybe even to the larger Ingersoll-Rand question what kind of confidence do you have in the guidance you put out. I've got a high degree of confidence on what we put out today on all of that. But, I would say, at the heart of that is because I feel very strongly about what's happening globally around HVAC compliance and certainly greenhouse gas emissions visibility around institutional growth in North America and around the visibility we have into the TK business. Those are all very strong indicators that I look back over 10 years of doing this and I probably haven't had at least the visibility I've got now into the backlog.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

That's a great answer. Thank you. And just to follow up on the industrial compressors. How much of a headwind is automotive for you? And if it is a headwind which industries are offsetting this in North America because the orders are quite good as well? Thank you.

Michael W. Lamach -- Chairman and Chief Executive Officer

Yes, sure. Andrew when you go back and you look at some of the pie charts that the business produces, one we do Investor Day and it shows the end markets that we serve you are on a collars and slivers on the pie chart. So automotive is a piece, but it's probably not more than 2% or 3% of what we do. Electronics is a piece, it's not 2% or 3% of what we do. And pharma and food and beverage and so on and so forth. So automotive per se is not critical, but it is indicative of a broader slowdown at times. It's indicative of the spending in the economy. So, we watch automotive and when we see automotive slow down, it can be a leading indicator for us for sure.

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

Right. What's strong in North America? Are there any end markets that send out strong to you guys on the industrial side?

Michael W. Lamach -- Chairman and Chief Executive Officer

Industrial markets that remain strong would be food and beverage, pharma would be anything oil-free would certainly be strong for us. And then some of the weak to moderate markets are still going to be larger compressors where customers might be waiting on capacity to understand what's happening with trade.

Operator

I will now turn the conference back over to Zac Nagle for closing comments.

Zachary A. Nagle -- Vice President, Investor Relations

I'd like to thank everyone for joining today's call. As always Shane and I will be available over the coming days and weeks to take any questions that you may have. So, certainly reach out to us, if you'd like to chat. And we look forward to seeing you all at the upcoming conferences in February, and we'll be on the road in March as well. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 66 minutes

Call participants:

Zachary A. Nagle -- Vice President, Investor Relations

Michael W. Lamach -- Chairman and Chief Executive Officer

Susan Carter -- Chief Financial Officer

Scott Davis -- Melius Research -- Analyst

Stephen Tusa -- JPMorgan Securities LLC -- Analyst

Julian Mitchell -- Barclays Capital, Inc. -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Joseph Ritchie -- Goldman Sachs -- Analyst

Andrew Kaplowitz -- Citigroup -- Analyst

John Walsh -- Credit Suisse -- Analyst

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Andrew Obin -- Bank of America Merrill Lynch -- Analyst

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