Business Context and Reporting Period
This Form 8-K filing by Emerson Electric Co. is dated September 25, 2012, and serves as a Regulation FD disclosure regarding trailing three-month order trends through August 2012. The report addresses the company's performance across five business segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions.
Key Financial Metrics and Order Trends
The filing provides percentage changes in orders versus the prior year for trailing three-month averages, excluding acquisitions and divestitures. Specific revenue, profit, cash flow, or debt figures are not included in this document.
| Segment | June 2012 | July 2012 | August 2012 |
|---|---|---|---|
| Process Management | +5 to +10% | 0 to +5% | 0 to +5% |
| Industrial Automation | -15 to -10% | -10% | -10% |
| Network Power | -10 to -5% | -15 to -10% | -15 to -10% |
| Climate Technologies | -5 to 0% | -5 to 0% | -5 to 0% |
| Commercial & Residential Solutions | 0 to +5% | +5% | -5 to 0% |
| Total Emerson | -5 to 0% | -5 to 0% | -5% |
Underlying orders (excluding unfavorable currency translation) declined slightly. Currency translation negatively impacted results by 4 percentage points overall, with specific segment impacts ranging from 2 to 6 percentage points.
Material Changes and Segment Commentary
- Global Economic Conditions: Trailing three-month orders declined due to weak global economic trends and a strong U.S. dollar. Demand patterns are described as choppy and volatile.
- Process Management: Remained strong in North America, Asia, and Latin America driven by oil, gas, chemical, and power projects. European orders softened due to weak economic conditions.
- Industrial Automation: Trends remained unchanged with continued weakness in Europe. Power generating alternators, industrial motors, and electrical drives were the weakest areas, though showing slight improvement.
- Network Power: Orders declined due to weakness in global telecommunications and IT markets. Asia (Australia, China, India) faced the most challenging conditions.
- Climate Technologies: Orders remained stable with mixed geographic trends. Underlying orders grew slightly for the second consecutive month. The U.S. air conditioning market slowed, while Asia and Europe improved but remained negative.
- Commercial & Residential Solutions: Orders slowed as U.S. non-residential construction softened. Growth in food waste disposers and commercial storage was offset by weakness in professional tools and wet/dry vacuums due to a lack of annual fall promotions by big box retailers.
Guidance, Outlook, and Risks
Outlook: Management expects underlying sales growth in the fourth quarter to be slower than in the third quarter. Consequently, full-year underlying sales growth is projected to be approximately 2.5 percent. Inconsistent and sluggish demand is expected to persist until a sustainable global economic catalyst improves visibility.
Risks: Forward-looking statements are subject to risks including economic and currency conditions, market demand, pricing, and competitive and technological factors.
Upcoming Events: Fourth quarter and fiscal year 2012 results will be issued on November 6, 2012, followed by a conference call at 3:00 p.m. ET.
Investor Verification Checklist
- Verify the full-year underlying sales growth projection of approximately 2.5 percent against actual results when released on November 6, 2012.
- Monitor the impact of the strong U.S. dollar on future currency translation adjustments, which currently deduct 4 percentage points from order growth.
- Assess the sustainability of order growth in the Process Management segment versus the continued decline in Network Power and Industrial Automation.
- Review the specific performance of the U.S. non-residential construction market and big box retailer promotion cycles affecting Commercial & Residential Solutions.
- Confirm the timing and details of the Q4 2012 earnings conference call for further management commentary.