Business Context and Reporting Period
This Form 8-K filing by Emerson Electric Co. is dated December 21, 2011. The report provides Regulation FD disclosure regarding trailing three-month order trends through November 2011 and updates the company's financial outlook for 2012.
Key Financial Metrics and Order Trends
Order Trends (Trailing 3-Month Average vs. Prior Year):
- Total Emerson: 0% to +5% (September), +5% (October), 0% (November).
- Process Management: Strong growth (+5% to +15%), driven by oil and gas investment.
- Tools and Storage: Solid growth (+5% to +15%), driven by professional tools and commercial construction.
- Industrial Automation: Modest growth (0% to +5%), offset by weakness in wind and solar.
- Network Power: Weakness (0% to -10%), impacted by telecom delays and Thailand flooding.
- Climate Technologies: Weakness (-10% to 0%), impacted by inventory liquidation and residential construction weakness.
Financial Impact of Currency: Currency exchange rates deducted more than 4 percentage points from the trailing three-month underlying orders growth. Excluding currency, underlying orders growth exceeded 4 percent.
Backlog: The company reported a strong backlog of $6.6 billion.
Material Changes and Segment Commentary
Order trends flattened in the trailing three-month period. Strength in Process Management and Tools and Storage was offset by weakness in Network Power and Climate Technologies.
- Process Management: Robust project activity globally; the negative impact of the Petrobras Comperj project booking from September 2010 has ended.
- Network Power: U.S. telecom providers are delaying investments due to consolidation uncertainty (AT&T/T-Mobile). China telecom investment moderated. Supply chain disruptions from Thailand flooding and microprocessor delays affected embedded computing.
- Climate Technologies: Weakness across all geographies due to North America OEM inventory liquidation, global residential construction weakness, and European economic uncertainty.
Guidance, Outlook, and Risks
First Quarter 2012 Outlook:
- Sales expected to be down 3% to 5% compared to the prior year quarter.
- Profit deleverage expected to be approximately 50% of the sales decrease.
- A $20 million charge for a post-65 retiree medical benefit reduction will be recognized.
- Heavy pressure on results due to market conditions and the previously communicated Thailand flooding impact ($300 to $400 million in sales).
Full Year 2012 Guidance (Unchanged):
- Underlying Sales and Orders: Up 5% to 7%.
- Reported Sales: Up 4% to 6%.
- Operating Profit Margin: Approximately 18%.
- Pretax Margin: Approximately 15.5%.
- Restructuring Expense: $100 to $125 million.
- Earnings Per Share: Up 8% to 12%.
Risks and Contingencies: Risks include economic and currency conditions, market demand, pricing, and competitive factors. Specific risks cited include Thailand flooding supply chain disruptions, global telecommunications market issues, and European economic instability.
Investor Verification Checklist
- Verify the magnitude of the Thailand flooding impact on Q1 2012 sales and profit deleverage.
- Monitor the recovery timeline for Network Power and Climate Technologies segments, specifically regarding inventory normalization.
- Confirm the execution of the $20 million retiree medical benefit charge in Q1 2012.
- Track the impact of currency fluctuations on reported versus underlying growth metrics.
- Assess the stability of the $6.6 billion backlog against the projected 2012 sales growth.