Business Context and Reporting Period
This Form 8-K filing by Emerson Electric Co. is dated July 27, 2011, and serves as a Regulation FD disclosure regarding underlying order trends for the trailing three-month period ending June 2011. The report provides a segment-by-segment breakdown of order growth compared to the prior year.
Key Financial Metrics
The filing focuses exclusively on order growth percentages rather than revenue, profit, or cash flow figures. Currency exchange rates positively impacted total orders by approximately 7 percentage points.
| Segment | Trailing 3-Month Order Growth (vs. Prior Year) |
|---|---|
| Process Management | >+20% (April, May, June) |
| Industrial Automation | >+20% (April, May), +20% (June) |
| Network Power | +5% to +10% (April, May), +5% (June) |
| Climate Technologies | 0% to +5% (April, May), -5% to 0% (June) |
| Tools and Storage | +5% (April, May), +10% (June) |
| Total Emerson | +10% to +15% (April, June), +15% (May) |
The filing text does not provide clear values for revenue, profit, cash flow, margins, debt, or liquidity.
Material Changes and Trends
While order growth remained solid in the trailing three-month period, management noted a definite weakening of general business activity in June and July. Key observations include:
- Economic Slowdown: U.S. and European economies have entered a "soft-patch," with uncertainty regarding improvement in the second half of the calendar year.
- Segment Performance: Process Management and Industrial Automation remain strong but face increasingly difficult comparisons. Network Power saw growth in Asia, Europe, and Latin America offset by weakness in embedded computing. Climate Technologies showed slight negative growth due to declines in U.S. residential and temperature controls.
- Currency Impact: Currency exchange rates provided a significant tailwind, boosting Process Management orders by 14 percentage points and Industrial Automation by 8 percentage points.
Outlook, Risks, and Management Commentary
Management expects industrial-related businesses to eventually soften due to the poor economic environment, including negative budget discourse in Washington D.C. and the ongoing European debt crisis. Consumer and discretionary spending remain weak, pushing out any potential recovery in those end markets.
Upcoming Events: Emerson is scheduled to issue third-quarter 2011 results on August 2, 2011, followed by an investor conference call at 3:00 p.m. EDT.
Risks: Forward-looking statements are subject to risks including economic and currency conditions, market demand, pricing, and competitive factors.
Investor Verification Checklist
- Verify the specific revenue and earnings impact of the reported order trends in the upcoming Q3 2011 earnings release.
- Confirm the extent to which the "soft-patch" in U.S. and European economies affects Q4 guidance.
- Monitor the sustainability of Process Management order growth given the 14 percentage point currency tailwind.
- Assess the timeline for recovery in the Climate Technologies and consumer discretionary segments.