Business Context and Reporting Period
This Form 8-K Current Report was filed by Emerson Electric Co. on December 16, 2010. The filing primarily addresses the entry into a new material definitive agreement regarding a revolving credit facility and provides Regulation FD disclosure regarding order trends and full-year 2011 financial guidance.
Key Financial Metrics and Credit Facility
Debt and Liquidity: On December 16, 2010, the Company entered into a $2.75 billion four-year revolving credit facility (the "2010 Facility"), expiring in December 2014. This replaces a $2.83 billion five-year facility dated April 28, 2006. There are currently no outstanding loans or letters of credit under the 2010 Facility, and the Company has no intention to borrow under this or prior similar facilities. The facility supports general corporate purposes, including commercial paper borrowings.
Order Trends (Trailing 3-Month Average vs. Prior Year):
- Total Emerson: +15% to +20% growth.
- Process Management: Greater than +20% growth.
- Industrial Automation: Greater than +20% growth.
- Network Power: +5% to +10% growth.
- Climate Technologies: 0% to +5% growth.
- Tools and Storage: 0% to +5% growth.
Material Changes and Segment Performance
Order growth remained solid in November 2010, led by strength in capital goods businesses. Currency exchange rates had a negligible impact on the overall order growth rate, though they negatively impacted Process Management orders by approximately one percentage point.
- Process Management: Strong growth driven by the recovery of global energy markets; longer lead-time project backlog is growing.
- Industrial Automation: Strong trends led by power generating alternator and electrical drives businesses.
- Network Power: Solid rates with broad strength in data center and telecommunication end markets.
- Climate Technologies: Modest improvement driven by refrigeration; Asian and European markets have softened.
- Tools and Storage: Growth moderated due to slow recovery in consumer spending and residential investment.
Guidance, Outlook, and Management Commentary
Management stated that order rates support full-year expectations provided in the November 2, 2010 earnings conference call. The Company continues to expect the following for Fiscal Year 2011:
- Underlying Sales Growth: 7% to 10%.
- Reported Sales Growth: 12% to 15% (includes +5 percentage points from acquisitions, divestitures, and currency).
- Operating Profit Margin: 17.2% to 17.5%.
- Operating Profit: Approximately $4,035 million to $4,210 million.
- Operating Cash Flow: $3.4 billion to $3.5 billion.
- Pretax Margin: 14.2% to 14.7%.
- Tax Rate: Approximately 30%.
Upcoming Events: First quarter 2011 results will be issued on February 1, 2011, followed by an investor conference call. An Annual Investment Community Update is scheduled for February 3, 2011, in St. Louis, MO.
Investor Verification Checklist
- Verify the terms of the new $2.75 billion credit agreement (Exhibit 10.1) to confirm covenants and facility fees.
- Monitor Q1 2011 results on February 1, 2011, to assess if actual performance aligns with the 7-10% underlying sales growth guidance.
- Track the recovery of consumer spending and residential investment to evaluate the outlook for the Tools and Storage segment.
- Observe currency exchange rate fluctuations, as they previously impacted Process Management orders and are a noted risk factor.
- Confirm the status of the longer lead-time project backlog in Process Management as a leading indicator for future revenue.