Emerson Electric Co (EMR) Q4 2020 Earnings Call Transcript

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Emerson Electric Co (EMR -0.67%)
Q4 2020 Earnings Call
Nov 3, 2020, 2:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Emerson's Fourth Quarter and Full Investor Conference Call. [Operator Instructions]. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today, November 3rd, 2020.

Emerson's commentary and responses to your questions may contain forward-looking statements including the Company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson's most recent Annual Report on Form 10-K as filled with the SEC.

I would now like to turn the conference over to our host, Pete Lilly, Director of Investor Relations at Emerson. Please go ahead.

Pete Lilly -- Director of Investor Relations

Thank you and welcome everyone to Emerson's fourth quarter and full year 2020 earnings conference call. I hope everyone is staying safe and healthy.

Today, I am joined by David Farr, Chairman and Chief Executive Officer; Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer; Lal Karsanbhai, Executive President of Emerson Automation Solutions; and welcoming Jamie Froedge, our new Executive President of Emerson Commercial & Residential Solutions. As usual, I encourage everyone to follow along in the slide presentation, which is available on our website.

Starting with the cover slide. Despite the overarching challenges of COVID-19, Emerson has continued to invest in key technologies and solutions for future growth and value creation. We are excited to welcome OSI Inc., to the Emerson family, a leading provider of software-based technology for advanced grid management.

Additionally, we also welcome Progea Group to Emerson, a leader in software based HMI, SCADA and analytics solutions. We will also be -- we will also review other important strategic 2020 acquisitions later in the call. Now, please turn to Slide 3. Similar to last quarter, I'd like to briefly highlight the Emerson Corporate Social Responsibility Report, which is available on our website, emerson.com. This document reviews in detail many of Emerson's aspirations and accomplishments within the environmental, social and governance realms.

Many of these important topics remain at the forefront of the national and international conversation. As problem solvers at our core, Emerson strives to advance the discussion, share our own progress and strategies and also be a valued resource for our customers as they embark on their own individual sustainability journeys. Emerson takes very seriously our role as a critical enabler and partner for digital monitoring, measurement, control, optimization and efficiency management across our broad customer base.

Fundamentally, we believe that this role and responsibility aligns very well with the broader purpose and goals of the sustainability movement. I encourage everyone to read the CSR report if you have not yet had a chance to do so. Please turn with me to Slide 4, and we will review some highlights of the quarter and the fiscal year. First, Emerson remained steadfast in our commitment to health and safety for our employees, customers and communities.

Business continuity, serving our customers in critical industries, disciplined cost control and positioning to outperform as we emerge from COVID-19 remain our key thematic priorities. Next, we continue to work hard to ensure that our localized supply chains and operations remained stable, safe and productive. Turning to performance, Emerson executed well in a challenging but stabilizing demand environment.

The organization was able to deliver adjusted earnings per share of $1.10 in the quarter and $3.46 for the full year, a strong finish driven by our ongoing aggressive cost reset actions which totaled $73 million of restructuring actions in the quarter and over $300 million for the full year.

Cash flow in the quarter was very strong, representing 128% conversion of net earnings and 6% growth year-over-year. It is important to highlight that the balance and market diversity and stability of our two platform business portfolio was critical to enabling the strong operational cash flow outcome.

Savings for the year on both restructuring and COVID related cost actions totaled approximately $370 million and we were able to manage detrimental margins to 21% at adjusted EBITDA. Despite all the uncertainty and demand challenges, sales and orders finished squarely in line with guidance given in August.

Commercial and Residential Solutions orders turned sharply in the quarter ending up 6% on a trailing three month basis. We now expect this business platform will turn positive to sales growth earlier than previously expected.

Overall, as we look toward 2021, management has adopted a conservative view given the uncertainty in the marketplace, that continues to expect sales to turn positive in Q3. Now please turn to Slide 6, which summarizes results for the year. Both net and underlying sales growth finished toward the higher end of their guidance ranges at down 9% and 8% respectively. Commercial and Residential Solutions came in slightly ahead of expectations at down 7% underlying.

Adjusted EPS of $3.46 was above the guidance range of $3.20 to $3.35 and restructuring actions finished slightly above guidance of $300 million. Despite lower sales, both platforms executed well on profitability, the COVID-19 related cost control measures in addition to the ongoing aggressive restructuring reset actions.

Finally, cash flow performance for the year was strong with both operating and free cash flow finishing above guidance. Turning to Slide 7, we will briefly bridge full year adjusted earnings per share. Starting with adjusted EPS in 2019 at $3.69, we subtract $0.13 for foreign exchange, pension and other items. Tax, share repurchase and interest added $0.17 which partially offset operational headwinds totaling $0.27.

The operational headwinds from COVID-19 were broadly mitigated by restructuring and cost containment efforts. This left adjusted EPS for the year at $3.46. Turning to Slide 8, we will review the results of the quarter. GAAP EPS of $1.20 was up 3%, while adjusted EPS of $1.10 was down 4%. Total net sales were down 8% with underlying sales finishing down 9%. Importantly, both underlying sales and orders for the consolidated Company have showed improvement from last quarter.

Automation Solutions underlying sales were down 11% and trailing three month underlying orders were down 19%. Commercial and Residential Solutions underlying sales were down 3% while trailing three month orders were up 6%. Cash flow performance was strong in the quarter with operating cash flow of $1.23 billion and free cash flow of $1.02 billion.

Full-year operating cash flow and free cash flow of $3.08 billion and $2.55 billion were up 3% and 6% over prior year respectively. Lastly, the Company continued and built upon its aggressive cost reset plan initiating a total of $73 million of restructuring actions in the quarter.

Turning to Slide 9, we will bridge adjusted EPS. Beginning with fourth quarter of 2019, adjusted EPS of $1.14, you can see that non-operational items of foreign exchange effects, pension, tax and other items detracted a total of $0.07. This was somewhat offset by $0.03 from share repurchase and interest. Most importantly, operational deleverage was fully mitigated via cost control actions. Overall, we finished the quarter at $1.10, $0.15 above consensus estimates.

Moving to Slide 10, we will review the P&L in the quarter. Starting with gross margin, we saw a reduction of 150 basis points to 41.3% as deleverage and unfavorable mix were partially offset by favorable price cost. Importantly, SG&A as a percent of sales declined by 150 basis points as aggressive cost control actions took effect.

Adjusted EBIT and adjusted EBITDA margins, which exclude restructuring and related costs increased 80 basis points and 140 basis points respectively, also reflecting the cost containment actions flowing through. Lastly, our effective tax rate dropped this quarter driven by foreign subsidiary reorganization efforts.

Of note, the adjusted EPS decline of approximately 4% was ahead of overall revenue decline of approximately 8%. Turning to Slide 11, we will look at underlying sales by geography. For the quarter, the Americas continued to show the steepest declines, down 13%, with the North American market also down 13%. Here we saw strength in residential, life sciences, medical and food and beverage markets more than offset by weakness in most other end markets. Europe was down 5% and Asia, Middle East and Africa was down slightly driven by growth in Southeast Asia.

For the year, the Americas finished down 11% with the other two world areas each down a more modest 4%. Please join me on Slide 12, where we will discuss total business segment performance. Total segment adjusted EBIT margin decreased 30 basis points to 19.9%, reflecting aggressive cost control measures and strong operational execution as sales declined.

Total segment adjusted EBITDA deleverage was limited to 21% in the quarter. Meanwhile, adjusted pre-tax earnings increased 70 basis points to 18.4%. As previously highlighted, Q4 cash flow performance was strong given the challenging environment. Operating cash flow of $1.23 billion and free cash flow of $1.02 billion both increased year-over-year by 2%.

Free cash flow represented 140% conversion of net earnings. Turning to Slide 14, we will review the business platforms. Automation Solutions underlying sales finished down 11% for the quarter as broad based declines in most end markets were slightly offset by life sciences, medical and food and beverage markets. North America again saw the steepest declines down by over 20%.

Meanwhile, Asia, Middle East and Africa were slightly positive driven by India and Southeast Asia. Trailing three month underlying orders were down 19% again reflecting stagnant but stabilizing demand trends. Restructuring actions totaled $52 million across the platform, which brought the total to $244 million for the full year.

The platform delivered on profitability in a very challenging demand environment. Adjusted EBIT and adjusted EBITDA margins were limited to down 80 basis points and down 20 basis points respectively, reflecting the aggressive cost actions taking effect. Decremental margins were held to 26% at adjusted EBITDA. Lastly, the platform converted approximately $400 million of backlog leaving an ending balance of $4.7 billion.

Turning to Slide 15. Commercial and Residential Solution's underlying sales were down 3% in the quarter. The Americas and Europe each had modest declines of 1% while Asia, Middle East and Africa was more challenged at down 13%. As previously mentioned, trailing three month orders turned sharply in the quarter finishing up 6%, driven by residential and big box retail market demand.

For the quarter, restructuring actions totaled $21 million, which brought the total figure to $52 million for the year. Adjusted EBIT and adjusted EBITDA margins were up 50 basis points and up 120 basis points respectively reflecting continued effective focus on profitability.

Please turn to Slide 17 and we will introduce the first quarter guidance. We expect that underlying sales will be in the down 7% to down 6% underlying range as residential, life sciences, medical and food and beverage market growth is more than offset by challenging but stabilizing other process, discrete and commercial markets.

GAAP EPS and adjusted EPS are expected to be $0.52 and $0.67 respectively, plus or minus $0.02. We expect adjusted EBIT margin to be 15.5% to 16% with adjusted EBITDA margin in the range of 21.2% to 21.8%. Slide 18 introduces our full year 2021 guidance framework. First, management has a conservative outlook for the macroeconomic environment in 2021 given the ongoing COVID uncertainty.

We assume that demand will continue to be challenging, but stabilizing and gradually improving as companies, communities and governments continue to learn and operate and live with the virus as the year progresses.

We also assume that there will be steady progress with regard to vaccine development and distribution during the fiscal year. Lastly, we assume, there are no major operational or supply chain disruptions and that oil prices remain in the $35 to $50 range.

With those assumptions in mind, we expect a flat underlying sales year with a range of down 1% to plus 2%. Automation Solutions is expected to be in the range of down 4% to down 1% while Commercial and Residential Solutions is expected to grow between 4% and 7%. Expected total restructuring in 2021 now totals over $200 million with approximately $160 million coming from Automation Solutions, $30 million coming from Commercial and Residential Solutions and the balance coming from Corporate.

We expect operating cash flow to come in at approximately $3.1 billion, capital spending of $600 million, resulting in free cash flow target of approximately $2.5 billion. Emerson intends to resume share repurchases in fiscal year 2021 in the amount of $500 million to $1 billion, while concurrently maintaining optionality for further acquisitions should the opportunity arise.

This allocation excludes the funding of the previously announced acquisition of Open Systems International, which closed on October 1st, 2020. Additionally, we remain fully committed to our dividend program and plan to increase our dividend per share for a 65th consecutive year.

Within this framework, as management forecasted in April 2020, we expect overall revenue to return to growth in the third quarter of 2021. Commercial and Residential Solutions is expected to return to growth earlier than originally expected while Automation Solutions is expected to return to growth later in the year.

GAAP EPS is expected to be $3.11 plus or minus $0.05, while adjusted EPS is expected to be $3.45 plus or minus $0.05. Lastly, we do expect to encounter some profitability headwinds in the year. These include the return of some COVID related costs as business conditions slowly normalize, stock price changes and amortization costs from the OSI acquisition. Also of note, we expect price cost to be less positive in 2021 and pension cost to be a tailwind for the year.

And now, please turn to Slide 19 and we will review the updated Reset Restructuring and COVID related savings summary. Due to the delayed recovery in many automation markets, we are increasing restructuring spend within Automation Solutions in 2021 resulting in a total Company restructuring spend of over $200 million, up from the $125 million shown last quarter. This increase in restructuring spend yields higher incremental savings in 2021 of approximately $245 million.

We still expect that approximately $70 million of the $150 million COVID related savings from 2020 will come back in 2021 as business conditions start to normalize in the back half. Total long-term annualized savings of the overall Reset Restructuring program are now expected to exceed $650 million.

Please turn to Slide 21 and I will now hand the call over to Mr. David Farr.

David N. Farr -- Chairman and Chief Executive Officer

Thank you very much. Thank you very much, Pete. And Jamie, welcome to the Group here.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Thanks, David.

David N. Farr -- Chairman and Chief Executive Officer

Frank, and obviously Lal, but chart 21 is clearly the underlying orders forecast. So I'll talk about that in a second. But first, I do want to welcome everybody from the investor world, the shareholder world, our employees, thanks for joining us today and thank you for your continued support and engagement over this quarter and the total fiscal year. As we all know, it's been a truly unusual fiscal year for this Company, but I think this team has risen to the challenge.

I want to make a special call out to the global Emerson employees, the leadership team and our new members from acquisitions, from acquisition in this year and thank them for their commitment, the safety, our customers, our fellow employees and shareholders and community as we returned to work starting in March and throughout the year as we continue to reengage and be successful as a Company. I want to appreciate everything you've done, I want to thank you for the job you did and thank you for everything you did over the last eight months as we brought -- got back into our offices, as we got back to the manufacturing plants and we opened and produced product for our customers.

I want to thank all of you very, very much. I know that this was not easy to do, but you all did it, you rose to the challenge and you delivered for our customers, our shareholders and the communities and the fellow employees. As we know 2020 was an exceptional year in sales profit margins, earnings and cash flow. Our free cash flow to earnings, our conversion was close to 140% this year. It's our 64th year dividend increase, our dividend, free cash flow came in at 47.5% as many of you know, we did not cut our dividend when we did the major repositioning back in 2016, and we worked our way back into under 50% in free cash flow to dividend ratio.

We returned over $2.1 billion to our shareholders this year in 2020. We kept our dividend going like many companies did not do and we returned capital to our shareholders through share repurchase. And given what I see right now in underlying margin improvement, strong cash flow generation, growth returning in the Commercial & Residential Solutions business, and I think that a business and automation solutions that will return in the second half year we are going to increase our capital allocation, back to the shareholders to get to $2 billion this year as Pete talked about.

This is something we feel strongly about confidence in the Company. How we position the Company from a cost standpoint, the new products, the investments we've made in acquisitions, clearly, we've got a very uncertain political environment right now, but the investments we made, we have a lot of confidence and that we'll be able to grow and outperform this marketplace and do well at the same time make an investment internally while returning more cash back to our shareholders.

And I think that's very, very important to show that confidence to our shareholders that we will get our way through this. As you know, we sat here at April, gave a forecast for quarters, for the year and the first half of '20 and 2021. Very few companies did that. We delivered, we actually beat them as we went through that quarter. We are two quarters ahead and Commercial & Residential has returned to growth, tremendous performance by the Commercial & Residential Solutions group, and the markets coming back.

Great to see, they're leveraging, their margins are really doing well based on all the restructuring that went on from 2019 throughout 2020 and they're ready to grow and expand those margins. We also believe that Auto Solutions, the cycle that we laid out back in August we're probably 1.5 quarters behind that cycle still some tough things ahead of us, but we feel quite strongly that business will return to growth in the second half of the year.

But Lal and his team that have confidence in delivering improved profitability and improved cash flow in 2021, has made the decision to increase, increase the restructuring in the first half of this year and all and mostly in the second half of the year, but most importantly, the first half of year to drive higher margins even though sales are going to continue to be down in the first half of the year.

That is not easy to do when you look at all the things they've been doing over the last 12 months to 18 months. But I feel quite strongly that they will deliver. The Company is stronger, the balance sheet is stronger, I believe the underlying growth momentum will return. Our aggressive cost actions are self-help, we are on track to deliver the peak margin plan we laid out in February of 2020 despite sales being approximately $2 billion lower than we said back then before the pandemic, before the -- obviously the recession, we've had to go through.

But the hard work on cost actions, the hard work in restructuring, the hard work in new product investments and the things we had to do to make this Company stronger for our shareholders and for our customers, we have done. We have confidence in 2021. Yes, we still have [Technical Issues] ahead of us, yes, we have an election going on today, who knows what's going to happen. Yes, COVID virus is still out there, but we have confidence we'll have a vaccine.

We have confidence that we'll move back into a more normal business environment as we go into the middle of 2021. We feel good that we can return more cash to our shareholders as we go into 2021. But again, before I go to the charts, I want to make a very special call out to our Emerson employees around the world. The Emerson leadership team, the corporate employees, the employees that stood by me and the OCE live in St Louis, not live from Saturday Night Live, but live in St Louis to get through this COVID pandemic environment, live together. I want to thank them for making that happen.

Clearly, we've got some challenges but clearly I feel the Company today is in much stronger position than it was back in April, when we talked, and I feel very good about what was going to happen as we go into the 2021 time period.

As we laid out in chart 21, chart you saw in 21, a lot people said how you going to get back to the top of that one as we are coming down. Well, we did. Upper right hand corner, obviously Commercial & Residential came back strong, Lal's business is going sideways right now as we continue to wait for America. KOB3s and KOB2, he'll be talking about that.

So we've laid out some dots here as we go forward into this quarter, and while we think orders will trend in the first quarter, our orders will trend in the second quarter. This is the trend line we see, we have to be on as a total Company, how the various pieces move around that will change depending on what happens each month.

But this is a trend that we have to on to return to a total growth for the total Company by the second half of 2021. Again, as we sit here today, as we talked about in April of 2020, the midst of COVID, the forecast we laid out is pretty well in line except we're for a little bit ahead for Commercial & Residential and Lal is a little bit behind, just from a recovery standpoint. He didn't go any deeper than we thought, but he didn't -- he has not recovered yet, primarily because of KOB3 in the turnaround business in North America.

But we're seeing other parts of the world doing pretty well for a while. We go forward to Chart 22. Here's the forecast we lay out right now. The first quarter, after delivering down 8.6% underlying growth in the fourth quarter of this year, we're looking to be down somewhere in the 6% to 7%. I hope we'll be closer to 6%. As we look at October, you can, I hope Jamie will comment on how we saw October and Lal will comment on how they saw October, but I think that we'll be down somewhere in the 6% to 7%.

We'll get a little bit better as we move into second quarter and then we'll get better and go past this as we go into third and fourth quarter. This is the same lines that we drew out in the last year in April. The only difference is right now, we clearly have the uncertainty of the election, we clearly have the uncertainty of how the COVID will continue to move and impact the rest of the world.

But we feel confident that we can control some of our own destiny for underlying growth and also improvement in profitability and cash flow as we go into '21. As I look at the Auto Solutions business, and I'm going to turn it over to Lal right now to talk about what he sees, but it's very important to see that, I think the momentum will start shifting for you, Lal, as we go through this quarter and I want to take the hats off to you and your whole team in the restructuring.

Many people on this phone don't know how hard it is to restructure, and do what you're doing. And my hats off to what you've got done. I know what -- how proud you guys are of the team, but this is not easy work, so it your mic, Lal.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Thank you, David for those words, very meaningful for all of us in the business. So it was an extraordinary year as you described and I'm still grateful and humbled by all the efforts and the results that this team delivered. Very proud, as you said. A few words, if I may on 2020. The second half of 2020 was weaker than we expected when we first talked David back in April as we reset the plan and we did not see that acceleration in orders in the second half in the latter half of the year as we expected into Q4.

However, the team did a tremendous job on and I'll call out five fronts here. The first being identifying and executing the restructuring programs, secondly, converting $400 million of backlog in the second half of the year and meeting that commitment that we had made. Thirdly, growing our Life Science and Medical segment by over $100 million in sales value through the year and that's through participation gains and therapeutics and vaccine development, as well as medical PPE manufacturing. Fourthly, staying committed to the digital transformation journey across our business. And then lastly, working very, very diligently on the diversification and software elements of our business, including through acquisition and internal development.

So just tremendous work across -- across the business to deliver 26% quarterly adjusted EBITDA leverage and 23% annual adjusted EBITDA leverage on almost $1.5 billion down sales. So great work on the year. Now turning to '21, we do expect two additional challenging quarters in the first half prior to turning positive in the second half of the year as we laid out the plan here.

So we are watching three key leading indicators in the business. First, the discrete industry orders and the inventory levels in the distribution channels. To David's earlier point, we are seeing some early encouraging signs through September, October, particularly in Europe and China driven by Automotive. So that's encouraging to see as we've gone through the first, the first month of this fiscal.

Number two, the manpower presence in customer sites. If you recall, we had talked about back in August at 40% level of manpower presence, that's moved now into the mid 70s through October, that's very encouraging as it will be a sign of moving from an environment of break fix into further KOB2 and KOB3 activity.

And then lastly, and perhaps most importantly, the ultimate bellwether in this business is the rate of our short cycle KOB3 business in North America. And then again, as Pete pointed out, it's stable today, but we need to see an acceleration in the core market spending as we go through the quarter and into the second half of the year.

Let's turn then to Page 24. I want to highlight three specific segments that performed extremely well over the calendar year 2020. There are over $650 million of sales represented on this chart across the platform. Life sciences, on the left grew 15% in 2020. We have the leading DCS position in the life science industry, DeltaV, a position that has been invested in over time through both organic investment and acquisitions.

We have over 3,000 DeltaV systems installed in the industry, including 1,200 across the top 20 pharmaceutical companies. The growth has been predominantly in two areas driven by COVID. The first has been therapeutics and the second has been vaccine development and production, where we are engaged in over 20 of the 160 vaccine efforts under way around the world.

In the middle part of the chart is our medical business, which grew 40% in 2020 driven by two predominant applications, mask manufacturing, where we use ultrasonic welding machines instead of, for example, glue to assemble masks and secondly, valves and regulators for ventilators and oxygen therapy devices for patient treatment.

And then lastly, but very important is our clean fuels and renewable businesses. We are well positioned and we have a well positioned portfolio that grew 10% this year to really capitalize on this macro trend. There are two key areas here. Number one, enabling our core process customers to reach carbon neutrality and predominantly in the power and oil and gas industry, and secondly, the tech -- we have the technology and application know-how for biofuels, bio methane applications as well as the growing field of clean hydrogen in that fuel cells for the long haul mobility segment.

So very encouraging and we have a significant role to play here particularly in that hydrogen value chain from production to distribution and utilization. We turn to Page 25, and I wanted to highlight four very significant investments that we made there through the year.

We continue to be acquisitive, and really think about our expanding our served markets, diversifying our industry and increasing our software portfolio. So in 2020, we completed three acquisitions and made a fourth equity investment. The four investments, American Governor, OSI and Progea as well as inmation support our strategy to drive end market diversification and strength in the portfolio, as I described.

Our power industry diversification is driven by growth in renewables, hydro turbine controls and grid control and optimization and we bought an HMI company in Progea that complements the PLC assets that we had acquired from General Electric and really focuses on the hybrid and discrete segments. And then lastly, inmation is a German-based next generation cloud native and OT data lake, which is a critical element for the continued success of our digital transformation business.

And then lastly, I wanted to provide you with an update on our project funnel. The funnel today is valued at $6.4 billion, that's down from the $7 billion when we last reviewed the funnel in April 2020, and David, we did not look at this since that period.

David N. Farr -- Chairman and Chief Executive Officer

No.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

[Speech Overlap]. As we went through the last six months. So we have booked approximately $150 million out of the funnel since April to bring the total bookings from the funnel to $400 million for 2020. The significant bookings in Saudi Arabia as well as in the Arctic LNG. As a matter of fact, I would like to highlight the LNG wave, we've spoken at length with the investment community about the eight jobs that have been committed through this, that are weighed [Phonetic] through this wave. We have won 54% of the available Automation dollars to date, and there are an additional $600 million to be bid over the next year or so.

So a tremendous job across all the automation businesses, but I'll take my hat off particularly to the final control business that has participated in every single one of the eight jobs to date. So a great job there. There has been about $800 million of value that's been removed from the funnel, the single biggest cancellation is about $200 million that's a Saudi crude to chemical job that was just moved out.

And then we've had about $700 million of projects that have shifted into -- from '21 into '22 and beyond, so that's occurred. And then the last thing I'll say is $500 million of project additions into the funnel, these are particularly on average smaller projects and concentrated in gas globalization in the power generation segment.

David N. Farr -- Chairman and Chief Executive Officer

Before we turn over to Jamie, I just want to thank Lal and the team for a couple of things here. One major effort on the restructuring cost reductions to get, driving the margins back up, the peak margin improvement and the drive higher margins in 2021, they're going to have, even though sales are still going to struggle for them in the first half of the year.

I also want to say that they made sure they made the right investments as we did site reviews, as we did talks and had web access or face-to-face meetings, we made sure we talked about the new products, the next generation technologies. We wanted to make sure that we continue to make the right investments, they got the right monies where they need to be to make sure we did not jeopardize the future franchises within this Company.

And at the same time, we made some very unique as you saw acquisitions that strengthen our hand in many, many core places that we think that will have long-term growth and long-term sustainability from the standpoint of value creation for Emerson and diversification for Emerson, so Lal and your team, phenomenal job.

So Jamie your first call, I mean, I hate to say Bob Sharp set it up for you and now you got to grow, and you just got to keep the plants open to start growing, you've got a growing tiger in your hands. Well, here it is, let me -- let's talk about it.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah, I was in Asia working with Lal as we were working through the depth of the COVID impact and it's great to come back here to see that the team put a tremendous number of investments in place both in terms of improving our operational capabilities and transforming our structures and our business so that we can have improved profitability as we grow going forward. But they also invested in the technology and as we go through these charts, I think you'll see a combination of those two things.

Looking at chart 27, we saw a return to growth in underlying sales in the fourth quarter of 2020 across many of our product lines driven by strength in the North America residential markets. We also experienced sequential improvement across our businesses as the quarter unfolded. Trailing three month orders in September were 6.4% and will improve to be double-digit as we finalize the October numbers.

Residential markets globally typically represent between 40% to 50% of our mix in a given quarter and North America is by far the largest portion of that. Inventory restocking across residential segments provided is providing additional order sales growth opportunities beyond the demand being driven by home sales and home improvement.

So I think we're very well positioned for 5% to 6% underlying sales growth in the first quarter. Our second quarter outlook and growth percentage is slightly lower than Q1 as we believe the inventory rebuild restocking activities will start to level out a little bit.

And the North America AC strength, we think, could continue potentially into fiscal third quarter given seasonal trends. We see growth occurring in the Europe Heating & AC Technologies Group businesses throughout the year and overall growth for the broader European portfolio returning in the second quarter. Asia is on track right now to return to growth late Q1 or early Q2.

Looking on to Chart 28, home sales, home improvement, inventory restocking and our operational capabilities enabled strong Q4 North American residential AC growth. Our strong partnerships with customer's ability to execute have allowed us to capitalize on these growth opportunities. Q1 '21 North America AC will be up 20%-plus with greater than 50% growth in the residential space alone.

We've also been investing heavily during the downturn in technology and recently won an AHR Expo Innovation Award. The K7 compressor that you see on the chart will help prepare the industry to meet the new DOE efficiency standards, which go into effect January 2023 and this product line will support multiple refrigerant types, including lower GWP refrigerants, such as R32 and R454B. This product line will serve residential and commercial markets.

On the right side of the chart, you can see the Sensi platform. Our Sensi thermostat sensing and analytics platform continues to outperform and has been recognized in the industry. Additionally, we have lots of exciting features on the way over the next couple of years, so we're very excited about how that space is unfolding.

Moving on to Chart 29, not only have market conditions created growth opportunity in our wet/dry vacs and InSinkErator businesses, but the investments in improved performance as well as new features, functions and product lines, position us well in these spaces. Q4 combined sales for these business were up 10%. And as you can see on the chart, we expect an even stronger Q1 performance.

Additionally, our main wet/dry vac competitor Shop-Vac has created a unique opportunity for us in the market to take our leadership to the next level. We are working very closely with our channel in that space and we're putting in the appropriate investments to help serve the industry needs and accelerate growth.

Looking at the bottom half of the chart, although the commercial industrial spaces haven't returned to year-over-year quarterly growth, sequential improvement matched with our investments in new technology, provide momentum into the second half of the year. On the chart, you can see multiple examples of products that we launched in fiscal 2020. So, the team really stayed focused on innovation and launching new products.

Flex shaft and pipe inspection enhancements in technology will increase our customers' productivity and provide features such as the combined cleaning camera visibility and the ability to see the pipe pitch during inspection.

In our next-gen battery tools category, as you can see on the right side of the chart, our RIDGID product shown increases cycles to a level 2x the normal time needed for service and provides cycles greater than the tool normally requires making it essentially service free.

The insulated tools shown can help protect a worker from accidentally cutting a live line up to 1,000 volts, a very unique and new feature for a battery hydraulic tool in this industry. The remote cable cutter product shown, which was awarded the Showstopper Award by the National Electrical Contractors Association allows the user to manage the job with a remote control, keeping them safely away from the cutting procedure.

And partnering with users of our products, it has really helped us unlock innovative ways to improve their work experience, allowing them to be safer and more productive. On Chart 30, you can see our focus on product lines that help drive decarbonization served us very well in 2020, the strong year-over-year sales growth in European heat pumps and renewable natural gas compression orders. Multi-year growth in these spaces is expected to continue driven by market trends and in many cases accelerating subsidy and decarbonization targeted policies.

Just to wrap up, I'd say that given the current market conditions, we do see a solid first half fueled by residential market. Second half growth driven by improving non-residential markets as those residential markets kind of ease into more sustainable growth rates, but I want to say, just as Dave and Lal said, how -- so proud I am of the team, their focus on safety, our people's safety, our customers' safety, operational excellence and margin improvement, but I'm really proud of them because they did all those things while maintaining the same intense focus on innovation as they had it in all those areas, so that we can return this growth -- return to growth with enhanced products to serve our customers' needs.

With that, I'll hand it back to David to you, and Pete.

David N. Farr -- Chairman and Chief Executive Officer

Thank you very much, Jamie. Again, I want to thank the Commercial & Residential organization for the work you got done.

Bob in 2018 and 2019 and in the first half 2020 really got into the restructuring that kept the investments going. We knew that we'd return to growth and they are at it. But they have -- they returned to growth level, a major new innovation, major new product portfolio, second to none. And I think it's pretty exciting.

The markets are returning, the key issue for them right now is they have several plants within their structure running full out in the midst of COVID, increased COVID, that's not easy to do, they have plants they have to keep running and producing at record levels and we have a major competitor that disappeared out of the marketplace. He will return, but we don't know exactly when.

In the same time, they will have other industries across their business that will start growing in the second half of 2020. So, the team got ready for this, they executed and I give them high marks. Before I go to the Q&A, I just want to make a couple of comments here.

First of all, 2020 was my 20th year as CEO, a year that I'll never forget. We started out with activism. We then -- we launched a massive, massive restructuring effort across the Company to driving increasing margins in a tough year and then we just happen to have this thing called COVID-19 pandemic, where the results are in recession around the world.

But the Emerson team rose to this challenge and we drove, I think, less down sales than people thought. Our earnings minimization of the decreasing was less than people thought, and we drove increased cash flow. A very strong 2020, some people say, well, what you can do for us in 2021? Well, we had a heck of a 2020, got a little bit of tougher base to come off of, but we're going to make 2021 a better year.

As I move into my final year as the Emerson's CEO, I think our plans to drive top line growth, improve margins and earnings and cash flow as we get into the second half of the year are very strong and very positive and we'll be ready to hand this over to the next CEO and his leadership team and I want to thank everyone for that support. But we got tough 2021 ahead of us, but we -- I think, we have a lot of confidence that we can deliver improved sales, earnings and cash flow and turn that over to our next leadership team, as Mr. Knight did back to me in early 2020.

So, with that, we'll open the mic for Q&A. So let us have it.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Jeff Sprague from Vertical Research. Please go ahead.

Jeff Sprague -- Vertical Research Partners -- Analyst

Hello, everyone. How are you doing?

David N. Farr -- Chairman and Chief Executive Officer

Good afternoon, Jeff. How are you doing, my friend?

Jeff Sprague -- Vertical Research Partners -- Analyst

Hey. Doing well, Dave. Congrats to Jamie. Glad to have had the chance to meet you a few years back in Austin. Good luck in the new position.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Thanks, Jeff. Look forward to seeing you again soon.

Jeff Sprague -- Vertical Research Partners -- Analyst

Yeah, absolutely. Well, Dave, I mean, you've been signaling your impending retirement for a while, but you made some pretty explicit comments just there, right, I think, I guess some of us have nothing better to do than speculating whether you're going to stay around longer and all that sort of thing.

So really my question -- my first question is though, how does this play out? What's kind of the timing of naming your successor? And how long a transition period might there be?

David N. Farr -- Chairman and Chief Executive Officer

From the standpoint -- and that's obviously a Board decision, I mean, I'm just one member of the Board as Chairman, as Chairman of the Board. But as I basically communicate, I would say that we will name my successor sometime in late 2021, in the second half of 2021.

In my opinion, there will be very little transition. I mean, it's up to the next CEO that -- that they even need Dave Farr, the old man around. [Speech Overlap] We can hear -- Okay. Someone came in and said, they can't hear us, but I think they can hear us. [Speech Overlap]. Yeah, I thought so. And so I think that what will happen is, what Mitch and Knight did to me is, I got announced, he threw the keys to my chest and said, it's all yours, I'm out of here.

And so, I'll probably throw a couple of bats at him and a couple of rally monkeys and say, I'm out of here. Give me a call if you need me. And I think that Emerson management team is strong. They don't need old farts like me around. Maybe I know how to fight COVID, maybe I know how to fight recessions, but I will -- my door is always open, my keys -- the house is always open for people to ask me questions.

So it'll be quick, bam, bam, and I'm not a big believer in transition. The guys will be ready. They don't need Dave and so that's where it is right now. But I would say I'm in charge still and I will most likely name it with the Board sometime in late 2021. That's how it looks right now, Jeff.

Jeff Sprague -- Vertical Research Partners -- Analyst

Yeah. Thanks for that color. We'll definitely miss you when that day comes. I had a question for Lal too, it's just a follow up and I'll pass the baton.

David N. Farr -- Chairman and Chief Executive Officer

Just assuming I don't die in between now and then, OK, Jeff, OK?

Jeff Sprague -- Vertical Research Partners -- Analyst

Yeah. No, please don't. Stay safe.

Lal, on the KOB3, I mean, everything you said was pretty close to crystal clear. I'm just wondering though, in terms of dialogue with customers or other indicators that you look at, do you actually have some visibility on when this may begin to turn? And can you just level set us too so we have the base correct? What was KOB3 as a percent of the total mix for 2020?

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Hi, Jeff. Yeah. Thank you. So, KOB3, right now, we're still crunching the numbers, we will be close to flat from 2019, that was 57% of sales in 2019. That's what we expect right now. And the reason for that, I actually expected it to come up. The reason to have them is that we had a significant drop off in the latter half of the year, particularly in that short cycle business, instrumentation and the discrete side. And, consequently, impacted KOB3. So it sits right at that flattish to 2019, that's the way to think through it right now, Jeff.

Now in terms of indicators, there are couple of others. The shutdown turn around activity is a very relevant indicator to us of KOB3 activity on sites. We talked about it at the prior earnings call of what occurred in the spring and the summer shutdowns. They obviously didn't occur. We have seen reschedule of activity into the fall and we're actively working those now. I will tell you that they tend to be more systems driven upgrades than valves and instrumentation, right now. So whether it's cybersecurity upgrades or various other things, that's what they're really focused on.

So we haven't seen a tremendous uplift yet in what will drive core device valve instrument uplift in new orders. But that's another one to watch carefully. And then last, Jeff, I will mention, just it is important what I stress in terms of getting the customer back on site, and then watching those numbers very carefully and that will be a tell tale sign to activity.

But, ultimately, as you and I talked, Jeff, in the past, it's got to be demand driven. You've got to see that underlying demand in our -- in the end products come back versus in acceleration. David?

David N. Farr -- Chairman and Chief Executive Officer

Thanks. We're just -- we're talking about -- people dialed in can hear us, but the people in WebEx couldn't hear us. So they can't hear us. I think it was Jeff, because when I told him I was retiring and stepping down next year, they all cut off [Speech Overlap]

Jeff Sprague -- Vertical Research Partners -- Analyst

You blew up the website, yeah.

David N. Farr -- Chairman and Chief Executive Officer

I blew up the website. They said, Oh my God, celebrations, people are saying like, God, we finally got rid of this guy after 40 years.

Jeff Sprague -- Vertical Research Partners -- Analyst

Well, best of luck. I'll pass it on to somebody else.

David N. Farr -- Chairman and Chief Executive Officer

Yeah. Thank you very much, Jeff. I hope to see you soon.

Jeff Sprague -- Vertical Research Partners -- Analyst

See you soon.

Operator

Our next speaker is Josh Pokrzywinski, and he is from Morgan Stanley. Please go ahead.

David N. Farr -- Chairman and Chief Executive Officer

Hey, Josh. How you are doing, my friend?

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Hi. Good afternoon, guys. Good, Dave. How are you?

David N. Farr -- Chairman and Chief Executive Officer

I'm fantastic and pretty cool, nice sunny day and saying, look, it's going to be a low 70s and if we weren't talking to investors, might be I'd playing golf today. I know Frank would [Speech Overlap]. Go ahead.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

[Speech Overlap] Couple of questions from me. I guess, first, just looking at the Auto Solns orders and how they've been trending the last few months, not just what we've seen here more recently in September, and trying to square that away with the outlook for fiscal '21. And, I guess, part of that mix is also considering that you guys said you did a better job of working down some of the backlog. So, carrying a little less backlog in to the year, if I understand it right, seems like the orders are still a little mushy and the underlying sales outlook doesn't quite jive with it. What am I missing in that? And what should we watch for that order cadence to really need to pick up to support it? I see the chart in there, obviously, but any milestones that you would really need to hit on [Speech Overlap]?

David N. Farr -- Chairman and Chief Executive Officer

I'll give you my two sense and I'll give you expert, Lal. But -- and my two sense is, what we're still watching for is North America, USA, KOB3. And we are not in -- we're seeing some really liking that and some plant turnaround right now, but we're not expecting anything of substance or return to that until we get into the new calendar New Year. So, we're going sideways and then what we expect going to happen is those investments will start unfolding in the USA. We'll start seeing some additional investments in aftermarket and some KOB2 to come in and allowing us to have a little bit of growth in the second half year. So, we're watching and we'll continue to communicate to you all about this KOB3 when we start seeing that happen.

The problem will be, if we get into February, March, April and we don't see any turnaround in KOB3, if something happened, that will be a problem for Lal and his business. So that's why he has chosen to do additional restructuring in the first half of the year and the first quarter, in particular, to try and give him some protection as this thing -- as we wait for this thing to turn. But that's the way we look at it right now. We've been here before. It is probably a little bit on the -- as we say, on the KOB [Phonetic] for the second half of the year, but I feel confident that customers will start spending as we see that capital coming in.

So Lal, why don't you go ahead and give him what you feel? You're the expert [Speech Overlap]

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

No, I think you're an expert. You said it well, David. We've been running between $38 million and $40 million a day...

David N. Farr -- Chairman and Chief Executive Officer

Correct.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

...in bookings. And through October that has not changed. We actually expected to see a drop off in October, we did not see it. It stays very stable at $39 million a day in October.

David N. Farr -- Chairman and Chief Executive Officer

That's good.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Which is good. Which is good. So David, you are absolutely right. We got to watch that KOB3 environment in Europe, in North America predominantly and Asia, very telling us to the pace of business as we see those early short cycle orders come in. But I'll also say, there are elements where we can control our own destiny. We've set very aggressive new product sales goals, our competitive displacement activities that we worked in the power industry and are now working in the chemical segment and then really going after the life cycle and the medical opportunities that are out there in our business.

David N. Farr -- Chairman and Chief Executive Officer

So, Josh, what we'll do -- as you know, we are a Company that puts out orders and dialogue. We'll commit to do -- Lal and I will now commit to the shareholders right now and, obviously, the sell-side analysts here is, we'll continue to put out any dialogue we see on the day-to-day, the daily order number that you just put out there $39 million a day right now and also, most importantly, the North American KOB3. That's what you got to watch. That's what we're watching. And the fact that the plants now are getting a 70% population, that's a good sign. That means they're getting ready and they'll start spending money. They have to spend money or those plants will have safety or quality issues and that's not a good thing for the facilities we operate in. So that's what we're watching, Josh.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

And it is perhaps [Speech Overlap]

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That's helpful.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Sorry, Josh. Perhaps I can go through, but I'll throw it out. Customers are actually inviting us into sites now. I've got couple of visits right now in Houston in a couple weeks. So that's encouraging again as we see activity pick up.

David N. Farr -- Chairman and Chief Executive Officer

Maybe we'll get some investors who are driving to St. Louis. Okay, next. Go ahead, Josh.

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Yeah. Just a quick follow-up. I heard both Lal and Jamie mentioned restocking in some of their comments. Any sense on what that might be embedded in the guide over the next, presumably not more than the next one or two quarters, but whatever time frame you want to say that that's baked into the numbers? How much of that is restock? Thanks.

David N. Farr -- Chairman and Chief Executive Officer

So, yeah, I'll let Jamie answer that. But the restocking mostly will be in Jamie side of the business. Lal only have -- he is watching the restocking on the hybrid in the discrete side -- the early stages of that, because inventories have been taken the way down. So Jamie has the biggest restocking going on, because his customer base liquidated inventory when we're in the COVID, demand came up and now he's behind the curve. So why don't you give your...

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah. That's right, Dave. I mean, it's a -- I hate to give you a little bit of a vague answer, but it's a little hard to tell right now, because the levels were taken to down so low historic levels, big box retailers, the CEOs in those spaces have been very public about their comments about what happened there, they took them down almost nothing, our AC industry did the same thing. So what you have is, there's a lot of noise in the system right now as they -- people are chasing to restock inventories, there is real demand by home improvement and home sales. And we don't know how long that cycle is going to last.

So, if you ask the AC folks, I think, right now, how much of this is going to be restocking versus real demand? It's too early to tell, because the cycle could run into the third quarter if you have a hot summer. By the time you catch up to the demand we're seeing right now and you get caught up, all of the sudden you hit peak season and it could keep running. So, we're seeing similar things. How long does Shop Vac have challenges supplying the industry? Okay? We're not sure yet. So there's a lot of unknowns. And I think we'll have more clarity as we get into the first part of the calendar quarter -- first quarter of calendar year, it'll get a little more clear to us.

David N. Farr -- Chairman and Chief Executive Officer

So, Josh, what we're looking at right now from my -- this is Dave's expertise of being 40 years in this Company and 20 years as CEO is, we're adding capacity in Jamie's business right now. I think we have a unique window here to pick up some share. Jamie and his team -- I mean, the innovation that Jamie inherited from Bob and those guys is phenomenal and I think that we have unique opportunity. So we're adding capacity at this point in time, at the same time, we're running at peak levels, we're adding capacity. Right now, Lal's business is -- we're more interested in getting some of the capacity moved around into better cost structure and he's got to get that done, because he doesn't want to be in a position that Jamie is right now, where he's trying to do some massive restructuring with capacity moving out.

So, we're betting on things will get better in Jamie's business and that the restocking will go and then -- and the pace for online business will continue to go, assuming nothing happens relative to the election or something crazy happens with the COVID. But we're adding capacity in Jamie's business right now, as we think we'll be better as we get into the second half of this year.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

The only other comment I would add is that, as you look at our first half outlook for sale, especially first quarter, we are being prudent right now, though, as we assess those orders. So, I don't want to get into the exact numbers, but just know that as we see the orders unfolding, they're good. And as I said, October is a double-digit quarter's number. Again, we know some of that's restocking and so we're being prudent in what we put into the sales forecast at this time.

David N. Farr -- Chairman and Chief Executive Officer

But we'll keep you informed as we go forward -- as we go -- that's our vehicle to let you guys know if we think things are better or worse. Okay?

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Got it. Thanks, team. All the best.

David N. Farr -- Chairman and Chief Executive Officer

Thanks, Josh. Hope to see you soon from other bunker.

Operator

Our next question comes from Gautam Khanna at Cowen. Please go ahead.

David N. Farr -- Chairman and Chief Executive Officer

Hey, Gautam.

Gautam Khanna -- Cowen and Company -- Analyst

Yes, thanks. Hey, how's it going?

David N. Farr -- Chairman and Chief Executive Officer

Where are you hanging out today? Where are you hanging out today?

Gautam Khanna -- Cowen and Company -- Analyst

Lovely Jackson, Wyoming actually.

David N. Farr -- Chairman and Chief Executive Officer

I mean, you said that last time. I mean, if I was your boss, you wouldn't have a job. I mean, I'll be very honest right now. You know that, don't you?

Gautam Khanna -- Cowen and Company -- Analyst

Yeah. Please, let's keep that on the down-low.

David N. Farr -- Chairman and Chief Executive Officer

Yeah. We're on a global webcast right now. We're going to keep this on down-low. But how do you spell your last name, Gautam?

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

We promise, we won't tell.

Gautam Khanna -- Cowen and Company -- Analyst

Yeah. I'll make sure we edit the transcript.

David N. Farr -- Chairman and Chief Executive Officer

It's good to hear your voice, my friend. It's always good to hear your voice.

Gautam Khanna -- Cowen and Company -- Analyst

Yeah. Likewise. Thank you. My question is more on how you look at the business with the oil and gas exposure? Because time and again, we hear from investors that this is not just a cyclical challenge, it's more secular as the world moves to alternative fuel sources and the like. And how Emerson is going to react and position to be ahead of that trend and maybe help in that trend with your customers? If you could just talk a little bit about your perspectives on what might be a structural change? And how the Company is going to emerge on the other side of it?

David N. Farr -- Chairman and Chief Executive Officer

Yeah. I mean, it definitely is a structural change, Gautam. And if you look at this year sales, as a percent of our total sales, we're going to be down to 23%, 24% as the total Company is. As we continue to invest in other technologies, as we make acquisitions, we are still a major supplier, a very important supplier, especially in KOB3, which, if you look in oil and gas industry, our KOB3 is probably closer to 70%. It's probably -- it's primarily an aftermarket business.

So what we'll do and we'll talk more about this in February, but we're continuing to make investments in the next-generation renewables, be it hydrogen, be it hydro, be it the investment we made in the OSI power, we continue to make investments around other uses of powered energy to replace oil and gas and we'll continue to do that. But we're not going to -- it's not something you say, OK, we're going to sell that segment off, because a lot of the technologies we use from a DeltaV or sensors or pressure or whatever we're doing are very similar to we use in our industries. But I think what you're going to see, we'll continue to serve this industry, at the same time, we continue to invest in other technologies.

As we talked to the Board today about the innovation we're doing in the medical field, and also we're doing in the sensing field, in other -- in the renewable fields, we'll continue to do that. So, that percentage will continue to move downwards. We're still -- we're not going to walk away from it. Don't -- I mean, we're going to have a spike as they make investments come back in it, but we fundamentally believe, as we look -- show the Board the pieces of the pie of where Emerson is going, it will continue to be smaller and smaller, we'll continue to grow and we continue to make those investments to allow us to have a more balanced portfolio.

I think people are way overestimating of how much oil and gas we have in this Company and the way we're estimating the impact as we make this transition. We've been making this transition for some time now over the last several years and we'll continue to make it. At the same time, we'll continue to make those investments. So, I feel very good under where we are right now. We're working very, very hard with our customers from a renewable standpoint and we'll share that with you in February, so people can have that. But I think people have to understand, we as a Board, we as a management team, understand we have a very strong presence in oil and gas, we'll continue to invest to try and diversify, but we're not going to walk away from that cash cow that we have from the standpoint of that business segment today.

So, I think that from the standpoint of what I see also is a good news happening is the consolidations of this industry. That's going to be good for the short-term. And that will help us as people consolidate. But in the meantime, we'll continue to invest to diversify, we'll continue to be a player, but it'll be less and less of a player. And I think people overestimate the impact of that because most of that business right now in oil and gas is around KOB3 aftermarket. And, by the way, if you go look at any forecast for the next 20, 30, 40 years, oil and gas is still the primary source of energy. And it's still growing. It doesn't mean you got to make more double down on it, but it's still growing and investments will come back. Got to have -- unless you don't want to have lights, unless you want to be like California.

Gautam Khanna -- Cowen and Company -- Analyst

All right. Thank you very much. Appreciate it, guys.

David N. Farr -- Chairman and Chief Executive Officer

Okay, Gautam. All the best to you.

Operator

Our next question comes from Steve Tusa from J.P. Morgan. Please go ahead.

Stephen Tusa -- J.P. Morgan -- Analyst

Good afternoon, guys.

David N. Farr -- Chairman and Chief Executive Officer

Good afternoon, Steve. How are you doing?

Stephen Tusa -- J.P. Morgan -- Analyst

Jackson, Wyoming sounds nice.

David N. Farr -- Chairman and Chief Executive Officer

I know your paygrade. You could not afford Jackson, Wyoming.

Stephen Tusa -- J.P. Morgan -- Analyst

Yeah. Certainly, not as good as your paygrade. That's for sure, Dave.

David N. Farr -- Chairman and Chief Executive Officer

Do you think I'm in --. Wait a second. Do you think I'm in Jackson, Wyoming right now? Who said [Phonetic]? I'm sitting here in St. Louis in my little conference room right now. I mean, fortunately, my kids are out of college, I don't have that college expense anymore, which you got looking forward to.

Stephen Tusa -- J.P. Morgan -- Analyst

Yeah. I got a dog too. So, just got to...

David N. Farr -- Chairman and Chief Executive Officer

I have two. Okay.

Stephen Tusa -- J.P. Morgan -- Analyst

Just got to buckle down, buckle down.

David N. Farr -- Chairman and Chief Executive Officer

What can I do for you, my friend?

Stephen Tusa -- J.P. Morgan -- Analyst

So, speaking of dogs, jumping over targets or whatever you used to say, I kind of calculate a bit more tailwinds just mechanically. You do have a bit of a tailwind, whether it's restructuring and some of these other things, buy back. So, on kind of flat revenues, a flat EPS number. I know you got a little bit of tax headwind, some of these temporary costs coming back. But is there anything in the mix that we should be aware of? I mean, KOB3 is already kind of down. CR&S is a higher margin platform that should outperform. So, is there anything in the mix or anything like that? You've given us price/cost. Anything in the mix that's negative that would be kind of holding you guys back from converting whatever little kind of revenue you get on top of some of these tailwinds?

David N. Farr -- Chairman and Chief Executive Officer

Okay, Steve. I mean, what we tried to put forth for our shareholders is, we had a very, very strong second half of the year. You know that. I mean, our earnings per share, our margins, our cash flow is much better. One of the things we're all worried about is my concerns about what happens in election, in particular in North America, what happens to the -- the COVID comes back in our plants and things don't -- investments happening. But you're right, I would say that we put forth, what I would call, a conservative forecast in a somewhat uncertain world.

The only bad mix we have coming at us right now that I can tell you about is I know that, Lal, in the first half this year, his most profitable business being instrumentation and flow are -- without the return to KOB3, he'll struggle. And that's a 60%-plus GP margin business. So, all his cost reductions are very helpful, but 60%-plus GP margin business, when it has a struggling in the short-term. But you're right, he's taken additional actions. I think that if we get any volume, our leverage, our upside is there. And -- but I want to make sure that we laid out a foundation forecast, but that little -- I do have -- I have two dogs right now, both of them can jump a little bit higher than Zorro [Phonetic] can do because they're younger, they're only -- one is two and a half and one is eight one-and-a-half [Phonetic]. So, they can jump a little higher. They can jump higher than dad can jump now.

So, I think the key issue for us is the only tail -- headwind we see is the mix on KOB3 North America. If we start seeing that turn around, especially around instrumentation and flow, Lal's business will do pretty well. As it is right now, he's targeting internally a 20% deleverage in 2021 as he's got this forecast. But the only thing we're watching very carefully and we're being conservative about is, does this North America not turn around in KOB3, if it doesn't, he's going to have a really tough -- I don't care what he does, that instrumentation and flow of business will deleverage pretty hard because he's got it down to the bare minimums at this point in time. So, that's the only thing we're really cautious about, Steve. So, you're right [Speech Overlap]

Stephen Tusa -- J.P. Morgan -- Analyst

Yeah. I guess, what I kind of like, maybe this is just too stupid of a way to look at it, but your sales are down...

David N. Farr -- Chairman and Chief Executive Officer

I never call you stupid, Steve. I never call you stupid.

Stephen Tusa -- J.P. Morgan -- Analyst

Your underlying is down. You have your toughest comp in the first quarter, yet your adjusted EPS is going to be flat. And then you're calling for the year to be flat. So, it just is kind of like, if you're starting the first quarter at kind of flat EPS and that's your toughest revenue comp, it just -- I kind of like struggle with, like why you're going to be flat for the rest of the year on an EPS basis?

David N. Farr -- Chairman and Chief Executive Officer

So, I just want to make sure that we -- I'm not trying to be too crazy here. There's so much uncertainty around it in the timing. I think as Josh said earlier in talking about the signs, our biggest uncertainty right now is the USA KOB3. And I did not want to put a forecast out there that really gave us a lot of leverage around KOB3 in the USA until we start seeing the whites of those eyes. And so, that's why we're being a little bit cautious, Steve. I mean, if you go [Speech Overlap]. Go ahead.

Stephen Tusa -- J.P. Morgan -- Analyst

And then -- sorry one for Jamie. Congrats, first of all -- second of all. I -- what were your -- why not more of a catch up on resi, North American resi HVAC? I mean, is that just all coming now? Is there a particular -- now that we've seen all the resi guys report, the numbers are obviously very strong. In fact, Carrier up ridiculously, Lennox you may not serve as much, not up as much. Is there a particular customer out there that you guys serve that may have kind of missed out a bit on this season and is now kind of restocking for next? Like, it's just a little bit strange to me that you guys as a component supplier would be having this big channel fill in kind of the first quarter of this year as opposed to a catch up in the third or maybe a catch up in the second going into the third and next year or whatever it is, the next spring. Maybe you could talk about kind of resi HVAC, what you saw there?

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah. The HVAC orders have been strong going back into June, especially July, August, September, so this isn't a brand new thing. Okay? As you know, there's a timing differential between our order rates, our sales rates, and when these guys -- our customers are reporting out and they have a different mix than we do. Actually, Steve, it's quite the contrary to your question. We believe based upon what our customers are sharing with us and what we've been asked to do to help the industry out that we're doing very, very well during this recovery.

Now, there are uncertainties with everyone's operations. But overall, I think we've done a nice job, maybe better than the competitors on the operations side and we're being asked to fill some holes. So, if anything, it's kind of the opposite of what I think the question may be implied. So, we've seen strong orders now, three, four months. We see strong orders going into the next few months and sales following right along. And we've not lost track with any major customers.

David N. Farr -- Chairman and Chief Executive Officer

I think it's just a function of trying to keep up with them right now. And we always were lagged them a little bit. We'll always lagged them a little bit, but I don't see our underlying growth rate the same as their growth rates from the standpoint of components, we're not seeing any problems there.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah. I mean...

Stephen Tusa -- J.P. Morgan -- Analyst

And then, Dave, just one last quick one. Who did you mention, you mentioned some competitor that's exited the market? Is that -- was that on the HVAC side? Is that Bristol? Or are you talking about somebody on the -- I thought you said on the automation side somebody exited or something like that, somebody is not there? Who is it?

David N. Farr -- Chairman and Chief Executive Officer

Shop Vac. Shop Vac went bankrupt and Shop Vac is the number one player...

Stephen Tusa -- J.P. Morgan -- Analyst

Oh, Shop Vac. All right. I'll have to add that to my watch-list. Okay. All right. Awesome. Thanks, guys.

David N. Farr -- Chairman and Chief Executive Officer

Well, it's a private held [Phonetic] company, you can't add to your watch-list. It's a private -- it's a major supplier in the industry. And they had half of the industry. We had the other half. It's -- so it's going to come back, but I think that we have a window here to pick up some of that business over the next -- I would say, the next six months before they get their act back together. But they literally shut down their plants in Asia, Vietnam and United States right now. And they've been shut down for probably 30 days. And so, it's not -- that's what -- that's unique opportunity for us right now. But you just nailed the head there, Steve, we're -- I want to be very careful with the uncertainty out there. And if -- as we see things getting better, as Lal's business picks back up in North America, we will leverage. That's the whole game here. That's where we want to play this year.

Stephen Tusa -- J.P. Morgan -- Analyst

All right. Thanks, man.

David N. Farr -- Chairman and Chief Executive Officer

Thank you. Okay. See you, Steve.

Stephen Tusa -- J.P. Morgan -- Analyst

Thanks.

Operator

Our next question comes from Andrew Obin from Bank of America. Please go ahead.

Andrew Obin -- Bank of America -- Analyst

Yes. Good afternoon.

David N. Farr -- Chairman and Chief Executive Officer

Good afternoon, Mr. Obin. How are you doing? Are you in New York, New Jersey?

Andrew Obin -- Bank of America -- Analyst

I am in New York. Yes, I am in New York.

David N. Farr -- Chairman and Chief Executive Officer

I know you don't go to Jackson hole, I know you're not that type of guy.

Andrew Obin -- Bank of America -- Analyst

I am not. I am not.

David N. Farr -- Chairman and Chief Executive Officer

Yeah. You're more down to earth guy like the Emerson guys here in St. Louis.

Andrew Obin -- Bank of America -- Analyst

That's right. That's right. Question on oil and gas. So, you did talk about structural change in oil and gas. But the question I have, as your customers sort of think about -- we've seen the headlines, for example, Exxon is reducing capex to protect its dividend. So, clearly, they're thinking about the world differently. What does it mean for what they're going to spend money on going forward? Does it change the mix dramatically? And in particular, does it change the conversation? You have this -- if I have it right, top quartile initiative, how do they change their thinking about efficiency? And as I said, just going back, what do they spend on going forward if there's no more growth long-term?

David N. Farr -- Chairman and Chief Executive Officer

I'll take a shot and then Lal can take it. But I think the -- it is going to change the mix. It's going to change -- you're not going to see a lot of new energy resources go into play. What they're going to figure out how to do is get more out of it, more efficiency, more productivity state [Phonetic] and all those different things which will be good for us. It's a good thing, other than the fact that there won't be any new fields for many, many years for us to deal with from an installed base. So, we'll be -- the KOB3 will become more and more significant for us and the upgrades they're going to have to spend around that to be -- from a productivity and quality and safety issue, which are all good things for us because that's not a jump ball-type of big project, it's going to be -- you're going to be mining your installed base. And we have the strongest, the strongest by far of the global service support organization around the world for all the oil and gas industry. And as you know, we've been making huge investments in that over the last couple of years and that will really pay dividends for us as they start changing that mix. But that's why I think what's going to happen is, we'll see that industry continue to shrink relative to investments, but our profitability should be pretty good once they start spending that money. So, that's the way I see it.

Lal, what are you hearing from your guys in the field right now?

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Yeah. I think that's right, David. Just three things to add there, Andrew. The first is, I still believe and we still are executing around the investments for the globalization of natural gas.

David N. Farr -- Chairman and Chief Executive Officer

Correct.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Methane will continue to be a viable energy source in industry and in power generation combined with cycle and we're seeing those investments continue, be it at Exxon, Shell, anyone around the world. So, that's important to note that it's not purely an oil and gas across the board. The second is the technology investments that drives reliability, safety, smart operations are still -- will continue to be very viable. A lot of those fall within our digital transformation business and we continue to see those go forward.

And then lastly, Andrew, we talked about a little bit earlier is the applicability of our technology for the decarbonization efforts.

David N. Farr -- Chairman and Chief Executive Officer

Correct.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

For the sustainability efforts that these customers are driving and a very broad set of applications which we'll flesh out in more detail for you in February and highlight but that's an opportunity for us to change our mix within the customer spend.

David N. Farr -- Chairman and Chief Executive Officer

So, all the big oil and gas customers right now are engaging pretty heavy with Stuart Harris and Lal's business profile on digitalization and how they're going to try to reduce their carbon use. And that's where -- that's a benefit to us because it's a sensor business. It's more of a technology business and we're -- that's our strength. So, as that shift happens, we'll still have pretty good sales and we'll definitely have better profitability over the long-term. So, it is a shift that we're all going through, but I think it's going to benefit us as a Company, given our presence and our digitalization position and all the things we've been doing relative to that over the last 20 years. I like the hand we have right now.

Andrew Obin -- Bank of America -- Analyst

Got you. And just a follow-up question on Commercial & Residential Solutions. Asia and Middle East and Africa down. Just a little bit surprising given the pace of recovery in China. Is it China, is it something else and maybe more color on what's happening specifically -- what are you seeing in China specifically? Thank you.

David N. Farr -- Chairman and Chief Executive Officer

Go ahead, Jamie.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Well, look, October, there were some positive signs in Asia, but I think it's too soon to say that we've turned a corner. At this point, I still think it's a quarter or maybe a quarter half away. But what you see there is, we participate in industries like the hospitality as far as servicing, hotels and restaurants and food service, food retail and those industries are industries that are still pretty heavily impacted in China and across large parts of Asia. So, although we've got some growth, that's come back like our -- we serve some of the appliances in China, our Therm-O-Disc business has been very good. So there's pockets where we're strong, we've seen some good strength in the residential side, but the cold -- some of the cold chain, especially around food service, food retail, hospitality is still a tough, tough market. However, again, October results were promising. We had positive results in Asia and China. And so, we'll see if that's sustainable or if it's just a blip on the radar here, but too early to tell, but some positive signs.

David N. Farr -- Chairman and Chief Executive Officer

So, Andrew, as you know, we -- our trust in Asia and the Middle East was all around commercial, not residential. And so, those were the markets have been hit pretty hard relative to the end markets in this COVID situation. And we continue to develop the new products and new technologies around that. They'll come back. But until we start seeing movement of people, I think we are going to have a struggle there. And -- but I think it will start bouncing back as we go forward this year. And, obviously, it's been down, tough for us, so you get an easier comp. But more importantly to me, as what I'm watching people spend the money on, while bounce back pretty nicely in China and Southeast Asia, Jamie ran that, he probably stuffed the channel before he came back and make a good year. But -- and so, Susan Hughes and Fawson [Phonetic] will have a hard time with that if she ever gets over there. But...

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

She got work permit.

David N. Farr -- Chairman and Chief Executive Officer

She got a work permit, Susan. That's fantastic. So I think I'm more optimistic about 2021 in Asia for Jamie than I was last year. I see signs picking back up.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah. It should be a good year. I mean, what we're outlooking for the full year is extraordinarily positive. It's just the growth, it really starts to accelerate kind of more in the second half.

David N. Farr -- Chairman and Chief Executive Officer

But it's been disappointing. I would say, the second half of '20 was disappointing for us. It didn't come back like last year.

Andrew Obin -- Bank of America -- Analyst

Thank you.

David N. Farr -- Chairman and Chief Executive Officer

Thank you, Andrew. Hope to see you soon, my friend.

Operator

Our next question comes from Andy Kaplowitz from Citi Bank -- from Citigroup. Please go ahead.

Andrew Kaplowitz -- Citigroup -- Analyst

It was somewhat close. How are you doing, guys?

David N. Farr -- Chairman and Chief Executive Officer

Well, good. How are you doing, Andy?

Andrew Kaplowitz -- Citigroup -- Analyst

I'm doing fine. I'm doing fine.

David N. Farr -- Chairman and Chief Executive Officer

She didn't have the -- your last name starts with K. I don't want to pick on her, because she could cut me off the phone right now. But Andrew K.

Andrew Kaplowitz -- Citigroup -- Analyst

She could cut me off too. So just call me Andrew K, and we're good.

David N. Farr -- Chairman and Chief Executive Officer

Why don't you start put your name as Andrew K, that way we all know who that is. I mean, that's a famous actor and so...

Pete Lilly -- Director of Investor Relations

Between your name, Karsanbhai and Froedge, we should have a little spell that last name party.

Andrew Kaplowitz -- Citigroup -- Analyst

Hey, whatever works, it's all about branding. You guys know that.

David N. Farr -- Chairman and Chief Executive Officer

Yeah. It's all about branding, that's for sure. Well, what can I do for you, Andy, whatever it was last name?

Andrew Kaplowitz -- Citigroup -- Analyst

All right, Dave. So, you've talked about $650 million of annualized cost savings. It's a big program. I think it might be the biggest you've done in your tenure. So maybe you can just talk about, put it in perspective for us, you did talk about reaching your margin targets still that I think you set for FY'23, despite $2 billion less of sales? And I think you already answered Steve's questions regarding conservatism around detrimentals and incrementals, but if Lal's business does turn, does he get to see better than historical incrementals, especially if KOB3 is coming back faster than KOB1?

David N. Farr -- Chairman and Chief Executive Officer

I'll answer that question right away. It's better or he won't be around by the time I step down. So that was an easy answer to that one. I mean, to be honest, he wants it too. I mean, his organization to be -- they've gone through pain. The step up, he's doing the first half. I mean, he wants to get back to peak margins. He wants to do that and his whole organization is very much focused on it, but at the same time, not cut us out. The answer is yes, you'll get very good leverage as he comes back into peak margin plan. We presented to the Board, we didn't -- we haven't talked to you this time but we'll update you. I updated the planning conference group last week with our planning conference where we had 700 people, 600 on the WebEx and 100 in our conference room, live, face to face. And then -- but I think the key issue for the restructuring number, it is the largest number.

Now, the next largest would have been back, I would say, in the year that we broke -- back in 2002, 2003, 2004, that time period, 2005, as we reposition the whole Company, as we globalized the Company, that would be the next largest. And we had a very strong margin run off of that if you go back. If you look at those historical charts we put out there. But I think the most important thing we're doing here, we're also going back to the questions people going to ask it. We're resetting the industries we're going after, we're putting the resources, we're putting our facilities, what type of plants we want to have and from the perspective of what we're trying to get done with this repositioning. It's not all about margins, it's about how we reset the businesses for the next generation. And so, a lot of that work that both Jamie and the commercial and residential side has been doing -- work that Lal has been doing is, OK, where does the business go? It's not where it's been, but where does it go? And so, that's why what he's looking at a lot of restructuring in the online-type of technologies, the online customer base that's moving. Where do I want that to be? And that's why it's such a massive number.

I think that what we're trying to do is reset like we did back in 2002, 2003 and 2004 and then add a hell of a run all the way through -- all the way as we set those -- some peak margins. And I think that that's what these guys are trying to do right now. It's heavylifting, but it's resetting the Company structure for a different Emerson, for different industries, different customer base and different services as the Company continues to transform and that's not easy to do, because you got to go debate with everybody and, say, why are we doing it this way. And so, I think that -- I think Lal and Jamie are set up when they finish this to be a good run.

So, anything you want to say?

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Thank you. No. You said it well. We didn't want to waste the opportunity. And it's not purely about taking cost out, it's about thinking about how we can do business differently. We're resetting the platform and how we interface with our customers and how we interface internally as an organization through this process, and that's really what this is. A heavy element of that is also realigning our best cost structure into Eastern Europe, Mexico and Asia, very important part of this journey as well. So, both components are very well thought out, our entire plan runs across 17 different individual tracks of execution that we manage month-to-month and it has been done very, very well with the leadership of Ram and others across the organization.

David N. Farr -- Chairman and Chief Executive Officer

Yeah. We're trying to totally reset Automation Solutions. I mean, there's not as much of that with Jamie, there's a little bit of that, but it's been far more with Lal's business, because we know Lal's business, as we've been talking about, there will be different customer base, just different customer needs as he thinks four, 10, 15, 20 years from now and that's what this is, reset.

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah. The commerce side has different SG&A profile and so, as Dave said, we didn't take out 11% of SG&A headcount over the last few years, because the business wasn't growing in '19 either and there'll be a little that comes back. But there's still a lot of work that we're doing, that we're able to get done on the facility side. So, our footprint and, to Lal's point, where the footprint is and how efficient that footprint is to serve our markets, how regionalized we are, we'll be able to do, six, seven years worth of work in two or three years. And so, like Lal said, we didn't want to waste the opportunity and it's going to pay huge dividends for our business going forward.

David N. Farr -- Chairman and Chief Executive Officer

And that's why I keep telling everyone out there thank you very much, because that's not easy to do in the middle of a frigging COVID recession pandemic.

Andrew Kaplowitz -- Citigroup -- Analyst

Very helpful. And then just talking about free cash flow, it probably doesn't get talked about enough. But, I mean, obviously, strong conversion in Q4. Can you talk about how you're thinking about -- for the puts and takes of working capital as you go into '21? Obviously, you mentioned a little bit more capex, but again good conversion. Can it continue?

David N. Farr -- Chairman and Chief Executive Officer

Okay. So 2021 is going to be a fun one. 2021 -- we've set ourselves off of a very challenging 2021, because we know -- obviously, we've really performed well in the second half of the year in operating cash flow and free cash flow. We almost set a new record as free cash flow, as a percent of sales at 15.1%. I think all-time record is probably around 15.5%, 15.6%.

The big issue for us, Andrew, it's going to -- Andy, it's got to be around -- we need earnings. We need earnings, because what's going to happen as the year progresses, our balance sheets -- other than a little bit of extra inventory that we brought in to make sure we protected our customers from a channel standpoint and a supply chain standpoint, we're in pretty good shape on the balance sheet. So what's going to happen is that, balance sheets actually going to get bigger from a working capital standpoint, because we're going to be growing in the second half of the year. So the way for us to get back to the very challenging operating cash flow and free cash flow number next year, which will still be very, very good is, we've got to get higher earnings, because as Frank and I've been communicating to all the people out there, the earnings is going to drive cash flow this year, not the liquidation of balance sheets. In fact, the balance sheet is going to go the opposite way.

So, this is -- we thought last year was a lot of fun, this one got a higher degree of difficulty for the operating people, because they're going to try to figure out how not to put a lot of working capital on, but they're going to have to put some on, because our receivables are growing, our inventory will be growing a little bit. But at the same time, how we'll get more earnings. So, now, we want to keep a 3 or 3.1 in front of the operating earnings or cash flow next year. We've got to really work hard in our earning side, it's not going to be the working capital side. And that -- and everyone's been communicating. Frank has been meeting everyone up on that one from the standpoint of CFO. We can see that, period.

Andrew Kaplowitz -- Citigroup -- Analyst

Great. It sounds as much fun as you trying to pronounce my name. Thanks, Dave. Appreciate it.

David N. Farr -- Chairman and Chief Executive Officer

It's always fun to run Emerson. It's just a joy. That's why we're calling you Andy K, Andy K.

Andrew Kaplowitz -- Citigroup -- Analyst

There you go.

David N. Farr -- Chairman and Chief Executive Officer

Like a -- maybe a cereal or something like that.

Andrew Kaplowitz -- Citigroup -- Analyst

Appreciate it.

David N. Farr -- Chairman and Chief Executive Officer

See you later, Andy. Special K. Oh, there's special K.

Operator

Our next think question comes from Julian Mitchell from Barclays. Please go ahead.

David N. Farr -- Chairman and Chief Executive Officer

Oh, there she is laughing at that one. You got Julian, right, where did you go? Okay, Julian, how are you doing my friend?

Julian Mitchell -- Barclays -- Analyst

Very good. Thank you. I'll keep it quite brief. Maybe just two quick ones. So one would be for Jamie and welcome, again, to this forum. But what are your thoughts around the operating -- yeah, I think a virtual forum perhaps. How is the operating leverage in the business this year? You've got that mid-single-digit class sales growth, what kind of incremental margin should we expect? Any big variation through the year?

And then the second question would just be for Lal around China. How did that business finish up fiscal '20 in Auto Solns? And what's the expectation for China in fiscal '21 in your business, please?

David N. Farr -- Chairman and Chief Executive Officer

Hey, Jamie?

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Yeah. I mean, it'll be somewhat just north of 30%. And exactly what number it will be? It'll depend a little bit on the mix and other factors, but it will be in that range. And so, we feel very positive about it. We've not lost any momentum on the cost actions that we're taking, and those are going to continue throughout the year. So we feel pretty good about that.

I don't look at the year right now and say, well, this quarter we're fine; this quarter, we're not. Pricing the model was very good for us. Last year, it's good for us in the first quarter, it gets a little tougher as the year develops, but we knew that, we've known that, and that's normal for our cycle. And so, we've got plans around it. So, I don't see anything extraordinary at this moment. This is the way of the cycle. We have profitable business growing right now. We got other profitable, very profitable business, similar profit profile that start to grow in the second half. So, right now, that's the way the plan looks.

David N. Farr -- Chairman and Chief Executive Officer

Yeah.

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

So, yeah, Julian, hi. On China, the first -- obviously, we had a very significant downturn in the second quarter, fiscal quarter of the year. But the market recovered very aggressively in the second half and they ended up flat for the year in China, definition [Phonetic] sales for 2020. So, I -- it was a flat, but as Jamie would tell you, you haven't been there, it felt like a plus 10, because of the tremendous second half of work and what our teams have to encounter on that $1 billion plus business.

Now, looking at '21, I'll give you a range of plus 1 to plus 4, somewhere in there is where I'm landing right now. I think there are some positives in chemical, life science, automotive, as I said earlier, and that's offset by some challenges around power generation and refining. So, the plus 1, plus 4 is what we're working at right now. I think it'll be low-single-digit, it may turn better as we go through the year.

Julian Mitchell -- Barclays -- Analyst

Great. Thank you.

David N. Farr -- Chairman and Chief Executive Officer

All the best, Julian. I hope to see you soon. One more questioner.

Operator

Our next question comes from Joe Ritchie from Goldman Sachs.

Joe Ritchie -- Goldman Sachs -- Analyst

Good afternoon, everybody.

David N. Farr -- Chairman and Chief Executive Officer

Hey, Joe. How are you doing?

Joe Ritchie -- Goldman Sachs -- Analyst

I'm doing pretty good, Dave. So, I'll just keep it to one question, since we're bumping up against on time here. But, like, just if I look at your portfolio, you guys referenced especially within Automation Solutions, some good growth on the hybrid and discrete side. Just talk to us a little bit about how you feel about the portfolio there and whether you need to add on via M&A, just given some of the growth that you're seeing, especially whether it's on medical or life sciences, or do you have the right portfolio in place today to go after the opportunity?

David N. Farr -- Chairman and Chief Executive Officer

From our perspective, we went through -- Lal and his team, this year from a strategy standpoint, we are acquirers in the space. We would like to add more -- again, help us diversify into the hybrid space. We've been doing some software acquisitions, not many hardware at this point in time. We have the primary software. We would like to continue to acquire in this space to help us diversify and also drive a little bit faster growth. It's a tough market right now to do it, but we're out looking pretty hard and we're trying to shake it out and I know Lal has his wish-list working with Mark Bulanda and the team there. So, we are acquirer in the space right now and we will continue to push that pretty hard for that perspective. I know Lal is very interested and has a very strong preference to that from that standpoint.

Is there anything else you want to add?

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

No, you mentioned it earlier, David, I think that's well said. But there's also internal development ongoing in this space, including single use devices for pharmaceutical bio productions. So that's very relevant as well. So, it's a combination too, but absolutely acquisitive in that segment and we'll continue for the best.

David N. Farr -- Chairman and Chief Executive Officer

A lot of investment in that area right now trying to -- try to make that more relevant and more significant for all of us.

So, with that, I want to thank everybody for joining today. It was an amazing year. It's a quite unusual year as we wrap up 2021 and -- our 2020, as move into '21. I want again thank everybody out there for attending today and talk -- I apologize, we lost our webcast -- WebEx, I guess, webcast for everybody. So, they -- I guess...

Pete Lilly -- Director of Investor Relations

The first few minutes, but the recording will be available.

David N. Farr -- Chairman and Chief Executive Officer

The recording will be available. Unfortunately, that tells you that Mr. Farr is stepping down or something like that. So you can't go back and change that. But I want to appreciate everybody for joining and I want to thank everyone for this year and we're looking forward to have a very good 2021 in an uncertain time. But we feel good about going into '21 based on what we got done and self help in 2020. We got a strong team at the top here. We got Jamie here, Lal here, Frank and everybody else working around here. So we're looking forward to have a great year and in making another record year for us in '21. So thank you, everybody, and look forward to seeing everybody soon.

Operator

[Operator Closing Remarks]

Duration: 92 minutes

Call participants:

Pete Lilly -- Director of Investor Relations

David N. Farr -- Chairman and Chief Executive Officer

James Froedge -- Executive President, Emerson Commercial & Residential Solutions

Lal Karsanbhai -- Executive President, Emerson Automation Solutions

Jeff Sprague -- Vertical Research Partners -- Analyst

Joshua Pokrzywinski -- Morgan Stanley -- Analyst

Gautam Khanna -- Cowen and Company -- Analyst

Stephen Tusa -- J.P. Morgan -- Analyst

Andrew Obin -- Bank of America -- Analyst

Andrew Kaplowitz -- Citigroup -- Analyst

Julian Mitchell -- Barclays -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

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