Business Context and Reporting Period
This Form 8-K filing by Emerson Electric Co. is dated January 30, 2019, and serves as a Regulation FD disclosure regarding three-month order trends ending December 2018. The report details order performance for the Automation Solutions and Commercial & Residential Solutions segments, providing trailing three-month averages compared to the prior year.
Key Financial Metrics and Order Trends
The filing focuses on order growth rather than revenue or profit metrics. Key order statistics for the trailing three months ending December 2018 include:
- Total Emerson Orders: Increased 5% (reported) and 7% (underlying, excluding currency).
- Currency Impact: A 2% unfavorable impact due to the stronger U.S. dollar.
- Automation Solutions Orders: Increased 8% (reported) and 12% (underlying), with a 4% unfavorable currency impact.
- Commercial & Residential Solutions Orders: Decreased 3% (reported) and 2% (underlying), with a 1% unfavorable currency impact.
Order Mix: Maintenance, Repair, and Operations (MRO) comprised approximately 55% of the order mix. Brownfield projects (expansion/optimization) and greenfield investments each comprised 20% to 25%.
Material Changes Versus Prior Period
Order performance varied significantly by segment and geography compared to the prior year:
- Automation Solutions: Underlying orders were positive across all key end markets and world areas. Growth was driven by MRO and small to mid-sized projects for facility upgrades. Specific end markets showing strong underlying growth included Upstream Oil & Gas (15%+), Midstream Pipelines & Terminals (15%+), Metals & Mining (15%+), and Liquefied Natural Gas (10% to 15%).
- Commercial & Residential Solutions: Orders declined primarily due to the Asia region, which was down more than 20% against strong prior year comparisons. This decline reflected slower air conditioning and heating markets in China as the channel worked through higher inventory levels.
- Regional Performance:
- The Americas: Underlying orders up 10% to 15%, driven by upstream oil and gas MRO activity and midstream pipeline build-outs.
- Europe: Underlying orders up 5% to 10%, with strong growth in chemicals driven by greenfield investments.
- Asia Pacific & Middle East/Africa: Underlying orders up 10%, driven by MRO and greenfield investments, particularly in LNG and refining.
Guidance, Outlook, and Risks
Outlook: Management noted that Asia orders in the Commercial & Residential segment appear to have bottomed in recent weeks, with growth expected to be aided by easing comparisons for the remainder of the fiscal year. Excluding the Asia climate business, underlying orders in this segment were up 3%.
Upcoming Events: Emerson is scheduled to report first-quarter 2019 results on February 5, 2019, and will host its annual investor conference on February 14, 2019.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Identified risks include economic and currency conditions, market demand, pricing, intellectual property protection, cybersecurity, tariffs, competitive factors, and the impact of the Tax Cuts and Jobs Act.
Investor Verification Checklist
- Verify the sustainability of the 12% underlying order growth in Automation Solutions, particularly in the Upstream Oil & Gas and LNG sectors.
- Monitor the recovery of the Commercial & Residential segment in Asia to confirm if the "bottoming" trend holds in the upcoming Q1 2019 earnings report.
- Assess the impact of the stronger U.S. dollar on future reported order growth versus underlying performance.
- Review the Q1 2019 earnings call (scheduled for February 5, 2019) for updated commentary on inventory levels in the Chinese air conditioning market.