Business Context and Reporting Period
This Form 8-K filing by Emerson Electric Co. is dated August 24, 2010, and provides Regulation FD disclosure regarding underlying order trends for the trailing three-month period ended July 2010. The report compares these figures to the prior year.
Key Financial Metrics: Underlying Orders
The filing focuses on underlying order growth (excluding currency impacts) rather than GAAP revenue or profit metrics. The trailing three-month average percentage change versus the prior year is as follows:
- Total Emerson: +10% to +15% (May), +10% to +15% (June), +10% (July).
- Process Management: -5% (May), 0% (June), 0% (July).
- Industrial Automation: >+20% (May, June, July).
- Network Power: +5% to +10% (May), +10% (June), +5% to +10% (July).
- Climate Technologies: >+20% (May, June), +5% to +10% (July).
- Appliance and Tools: +5% to +10% (May, June, July).
Currency Impact: Currency exchange rates negatively impacted total Emerson orders by approximately 7 percentage points. Specific segment impacts included a 15 percentage point negative impact on Process Management and a 4 percentage point negative impact on Network Power.
Material Changes and Segment Commentary
Underlying order growth excluding currency remained strong for the three months ended in July but has started to moderate slightly from peak levels. Management expects growth to continue moderating to more normal levels as comparisons become less favorable in future months.
- Process Management: Trailing three-month underlying order growth strengthened to the highest level since orders turned positive in March. Growth was driven by MRO and small projects in the U.S., Europe, and Asia, with improvements in oil and gas, power, and nuclear end markets.
- Industrial Automation: Order growth remained strong, led by electrical drives, power generating alternators, and power transmission businesses.
- Network Power: Underlying orders excluding currency increased slightly versus the previous month. All businesses saw double-digit increases excluding currency, except for the Asia network power business, which declined against tough 2009 stimulus-driven comparisons in China.
- Climate Technologies: Orders moderated from very high levels to more normal levels due to difficult comparisons. Growth was driven by broad demand in Asia, European refrigeration, and North American residential replacement and stationary refrigeration.
- Appliance and Tools: Trends remained consistent with the prior month. Growth in motors, tools, and disposers was partially offset by weakness in the residential storage business.
Guidance, Outlook, and Risks
Management anticipates that underlying order growth will continue to moderate and return to more normal levels as year-over-year comparisons become less favorable. The filing includes standard forward-looking statements regarding risks such as economic and currency conditions, market demand, pricing, and competitive factors.
Upcoming Event: Edward L. Monser, Chief Operating Officer, is scheduled to present at the Morgan Stanley Global Industrials Unplugged Conference on August 31, 2010.
Investor Verification Checklist
- Verify the specific magnitude of the "moderation" in order growth in upcoming quarterly reports.
- Monitor currency exchange rate fluctuations, which currently represent a significant headwind (approx. 7 percentage points) to reported order growth.
- Track the performance of the Asia network power business, which is currently facing declines due to prior-year stimulus comparisons.
- Confirm the sustainability of the strength in the Process Management segment, which has reached its highest growth level since March 2010.
- Note that this filing provides order data only; revenue, profit, cash flow, and debt figures are not included in this specific 8-K.