Business Context and Reporting Period
Emerson Electric Co. filed a Form 8-K on June 22, 2015, pursuant to Regulation FD. The report provides an update on trailing three-month order trends for May 2015 and revises guidance for the third quarter of 2015.
Key Financial Metrics and Order Trends
The filing focuses on order growth rather than finalized revenue or profit figures for the period. Key metrics include:
- Total Emerson Orders: Trailing three-month orders for May 2015 decreased between 20% and 15% year-over-year.
- Currency Impact: The strength of the U.S. dollar deducted approximately 6 percentage points from total order growth.
- Underlying Orders: Excluding currency and acquisitions/divestitures, underlying orders were down 10%.
- Segment Performance (May 2015 Trailing 3-Months):
- Process Management: -20% to -15%
- Industrial Automation: -20% to -15%
- Network Power: -20% to -15%
- Climate Technologies: -10% to -5%
- Commercial & Residential Solutions: -5% to 0%
The filing does not provide specific values for revenue, profit, cash flow, margins, debt, or liquidity for the reporting period.
Material Changes and Drivers
Order declines across all segments are attributed to the following factors:
- Oil Prices: A drop in oil prices has reduced capital spending in oil, gas, and energy-related markets, significantly impacting Process Management and Industrial Automation.
- Global Slowdown: Weakness in industrial spending and sluggish global capital expenditure.
- Currency Translation: Significant strength in the U.S. dollar negatively impacted reported order growth across all segments.
- Inventory and Weather: Climate Technologies faced headwinds from U.S. HVAC customers working through pre-built inventory due to regulatory changes and cooler-than-normal temperatures in the U.S.
Guidance, Outlook, and Risks
Management has revised its outlook for the third quarter of 2015:
- Underlying Sales: Expected to be moderately negative compared to the prior year.
- Reported Sales: Expected to decrease approximately 11%.
- Specific Impacts: The reported sales decline includes an unfavorable currency impact of approximately 5% and an impact from divestitures of approximately 2%.
- Risks: Continued abnormal weather poses additional risk to the Climate Technologies business for the remainder of the year. Other risks include economic conditions, market demand, and competitive factors.
Emerson is scheduled to report third-quarter 2015 results on August 4, 2015.
Investor Verification Checklist
- Verify the magnitude of the 11% reported sales decline for Q3 2015 against actual results when reported in August 2015.
- Monitor the impact of oil price fluctuations on the Process Management and Industrial Automation segments.
- Assess the severity of weather-related impacts on Climate Technologies orders for the remainder of the fiscal year.
- Review the reconciliation of non-GAAP underlying sales to GAAP reported sales in the upcoming earnings release.