Business Context and Reporting Period
Company: Emerson Electric Co.
Filing Type: Form 8-K (Current Report)
Date: August 3, 2010
Subject: Announcement of Third Quarter 2010 results of operations and financial condition, including Regulation FD disclosure regarding underlying order trends.
Key Financial Metrics
This filing serves as a notice of the press release (Exhibit 99.1) containing the full financial results. The text of the 8-K itself does not provide specific GAAP revenue, profit, cash flow, or debt figures for the quarter. However, it provides detailed non-GAAP underlying order growth metrics for the trailing three months ended June 2010 compared to the prior year:
| Segment | Trailing 3-Month Order Growth (vs. Prior Year) |
|---|---|
| Process Management | +5% to +10% (April), -5% (May), 0% (June) |
| Industrial Automation | >+20% (April, May, June) |
| Network Power | +5% to +10% (April, May), +10% (June) |
| Climate Technologies | >+20% (April, May, June) |
| Appliance and Tools | +5% to +10% (April, May, June) |
| Total Emerson | +15% to +20% (April), +10% to +15% (May, June) |
Material Changes and Trends
- Order Growth: Order growth remained strong for the three months ended in June compared to easier comparisons in the prior year.
- Currency Impact: Currency exchange rates negatively impacted total orders by approximately 5 percentage points. Specifically, Process Management orders were negatively impacted by approximately 11 percentage points.
- Excluding Currency: The trailing three-month underlying order growth rate improved to its highest level since orders turned positive in February.
- Segment Specifics:
- Process Management: MRO demand continued; project orders increased (small/medium size); mega-project quoting increased but impact expected later in 2011.
- Industrial Automation: Very high growth across all businesses, particularly in power generating alternators, electrical drives, and power transmission.
- Network Power: Orders up 10%; growth in embedded power and computing offset by modest declines in Asia.
- Climate Technologies: Growth moderating due to difficult comparisons; driven by Asian end markets, European refrigeration, and North American residential replacement.
- Appliance and Tools: Growth in tools, motors, and appliances offset by weakness in residential storage.
Guidance, Outlook, and Risks
- Outlook: Management noted that mega-project quoting activity has increased but is not expected to impact results until later in 2011. Climate Technologies is moving into a period of more difficult comparisons.
- Non-GAAP Measures: The filing notes that the accompanying press release contains non-GAAP financial measures which should be considered supplemental to GAAP information.
- Investor Events: Senior management held an investor conference call on August 3, 2010. The Chief Operating Officer was scheduled to present at the Morgan Stanley Global Industrials Unplugged Conference on August 31, 2010.
Investor Verification Checklist
- Review Exhibit 99.1 (Press Release) for specific GAAP revenue, net income, and earnings per share figures for Q3 2010.
- Verify the reconciliation of non-GAAP financial measures to GAAP measures as required by Regulation G.
- Monitor the impact of currency exchange rates on future quarters, given the 5-11 percentage point negative impact noted in this period.
- Track the timing of mega-project order conversions in the Process Management segment, as impact is delayed until 2011.
- Assess the sustainability of order growth in Climate Technologies as the company faces more difficult year-over-year comparisons.