Business Context and Reporting Period
This Form 8-K filing by Emerson Electric Co. was submitted on July 29, 2019. The report provides an update on order trends for the three months ended June 2019 and preliminary commentary on third-quarter 2019 earnings. It serves as a Regulation FD disclosure prior to the official third-quarter earnings release scheduled for August 6, 2019.
Key Financial Metrics and Order Trends
The filing focuses on order data rather than finalized financial statements for the period. Key metrics include:
- Trailing Three-Month Orders (Total Emerson): Flat year-over-year. Underlying orders increased 2%, offset by a 2% unfavorable currency impact.
- Third-Quarter EPS: Slightly exceeded the May 7 guidance of $0.94 due to a discrete tax benefit.
- Restructuring Costs: Full-year restructuring spend and other actions are expected to increase to approximately $100 million, an increase of $30 million from previous estimates.
- Segment Order Performance (June 2019):
- Automation Solutions: Orders up 2% (underlying up 4%); currency impact was -2%.
- Commercial & Residential Solutions: Orders down 2% (underlying down 1%); currency impact was -1%.
The filing text does not provide specific values for revenue, net profit, cash flow, margins, debt, or liquidity for the period.
Material Changes Versus Prior Period
Management noted that June underlying orders growth fell below the previously communicated expected range of 5% to 7%. Key drivers for the variance include:
- Automation Solutions: Underlying orders growth slipped below 5% for the first time in two years due to slower global discrete end markets, persistent high channel inventories, and softer-than-expected upstream oil and gas investment in North America.
- Commercial & Residential Solutions: Performance was below expectations primarily due to unfavorable weather conditions in North America (cooler temperatures and higher precipitation in June) and continued channel inventory re-balancing.
- Profitability: Earnings from operations were lower than expected due to slower sales growth, though this was partially offset by lower corporate costs.
Guidance, Outlook, and Risks
Outlook and Strategy:
- Emerson is repositioning the business to deliver strong profitability despite lower second-half growth.
- The company is accelerating restructuring activities for the remainder of 2019 to improve profitability in early 2020.
- Europe orders are expected to trend favorably in July.
- Forward-looking statements are subject to risks including economic and currency conditions, market demand, pricing, cybersecurity, tariffs, and competitive factors.
- Recovery in short-cycle end markets (discrete manufacturing and upstream oil and gas) has not progressed in line with May expectations.
- Third-quarter 2019 results and an outlook update will be released prior to market open on Tuesday, August 6, 2019.
Investor Verification Checklist
- Verify the final third-quarter 2019 revenue and earnings per share figures when released on August 6, 2019.
- Confirm the specific impact of the discrete tax benefit on the third-quarter EPS.
- Monitor the execution of the increased $100 million restructuring plan and its effect on operating margins.
- Track the recovery status of North American upstream oil and gas and discrete manufacturing end markets.
- Review the detailed segment breakdown of revenue and operating income in the upcoming earnings release.