Business Context and Reporting Period
Emerson Electric Co. (EMR) filed a Form 8-K on January 27, 2020, pursuant to Regulation FD. The report provides a summary of three-month trailing orders data through December 2019, comparing performance against the prior year. The company operates through two primary segments: Automation Solutions and Commercial & Residential Solutions.
Key Financial Metrics and Order Trends
The filing focuses on order trends rather than GAAP financial results (revenue, profit, cash flow), which are not included in this specific report. Key order metrics for the trailing three months ending December 2019 are as follows:
- Total Emerson Orders: Reported as flat (0% change) including currency translation. Underlying orders (excluding currency, acquisitions, and divestitures) increased by 1%.
- Automation Solutions: Orders were flat (0%) including currency. Underlying orders increased by 2%, offset by a 1% unfavorable currency impact.
- Commercial & Residential Solutions: Orders decreased by 1% including currency. Underlying orders also decreased by 1%.
- Order Mix: Maintenance and repair (KOB3) comprised approximately 55% of orders. Brownfield projects (KOB2) comprised 20%, and Greenfield investments (KOB1) comprised 25%.
Material Changes Versus Prior Period
Performance varied significantly by segment and geography compared to the prior year:
- Automation Solutions: Growth was driven by delayed liquefied natural gas (LNG) projects booked in December. The Systems business saw underlying orders up over 10%, while the Final Control business declined 1%. Weakness persisted in North American upstream oil and gas and global discrete markets due to inventory reductions.
- Commercial & Residential Solutions: Declines were driven by softness in North American HVAC markets and global cold chain/professional tools markets. Conversely, Asia grew more than 10% (driven by commercial AC/heating) and Europe grew nearly 10% (led by residential heat pumps).
- Regional Performance:
- Americas: Underlying orders up 1% (aided by LNG projects), offset by weakness in Latin American metals and mining.
- Europe: Underlying orders up 1%, driven by LNG and power markets, offset by soft discrete markets.
- Asia, Middle East & Africa: Underlying orders up 5%, with Asia specifically up 10%.
Guidance, Outlook, and Risks
Outlook: Management indicated that the Commercial & Residential Solutions platform is tracking as expected for better orders growth as fiscal 2020 progresses. The booking of LNG projects is viewed as an encouraging early indication for greenfield business investment.
Upcoming Events:
- First Quarter 2020 results will be reported on February 4, 2020, prior to market open.
- An annual investor conference is scheduled for February 13, 2020, at the New York Stock Exchange.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Risks include economic and currency conditions, market demand, pricing, intellectual property protection, cybersecurity, tariffs, and competitive factors. Specific market risks noted include trade uncertainties, weaker global economic growth, and softness in upstream oil and gas and metals/mining sectors.
Investor Verification Checklist
- Verify the full Q1 2020 financial results (revenue, earnings, cash flow) when reported on February 4, 2020, as this 8-K only covers order trends.
- Monitor the execution of the delayed LNG projects booked in December to confirm their impact on future revenue recognition.
- Assess the sustainability of the 10%+ growth in Asian Commercial & Residential orders versus the continued weakness in North American HVAC markets.
- Review the impact of currency translation, which negatively affected reported orders by approximately 1% in the trailing three-month period.
- Track the inventory reduction trends in global discrete and cold chain markets to gauge when demand may stabilize.