emerson electricl 	Electrical Products Group Conference
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    emerson electricl 	Electrical Products Group Conference emerson electricl Electrical Products Group Conference Presentation Transcript

    • Electrical Products Group David N. Farr Chairman, Chief Executive Officer & President May 21, 2008 Safe Harbor Statement Our commentary and responses to your questions may contain forward-looking statements, including our outlook for the remainder of the year and Emerson undertakes no obligation to update any such statement to reflect later developments. Information on factors that could cause actual results to vary materially from those discussed today is available in our most recent Annual Report on Form 10-K as filed with the SEC. Non-GAAP Measures In this presentation we will discuss some non-GAAP measures (denoted with an *) in talking about our company’s performance, and the reconciliation of those measures to the most comparable GAAP measures is contained within this presentation or is available at our website www.emerson.com under the investor relations tab.
    • Emerson Business Summary 2005-07 2007-08 2005 2006 2007 CAGR 2008E CAGR Sales(1) $16.9B $19.7B $22.1B 14.4% ~$25B 11-13% (5-7% Underlying)* - - OP $*(1) $2.6B $3.1B $3.5B 16.7% - - OP %*(1) 15.2% 15.5% 15.8% +50 to 70 bps Operating $2.2B $2.5B $3.0B 17.4% ~$3.2B - Cash Flow Free Cash $1.7B $1.9B $2.3B 18.3% ~$2.4B - Flow * DPS $0.83 $0.89 $1.05 12.5% $1.20 14% EPS(1) $1.69 $2.23 $2.65 25.2% $3.00-$3.10 13–17% (Continuing Ops) - - ROTC 15.5% 18.4% 20.1% ~21% (1) European appliance motor & pump business reclassified as discontinued operations. Strong Performance Continuing Into 2008, April Three-Month Trailing Average Orders Trending at +10 to +15%
    • Emerson Global Presence 2007 st 1st Half 2008 Sales Growth -- 12% Reported // 7% Underlying* st -- 12% Reported 7% Underlying* Western Europe Eastern Europe & Russia US & Canada 2007 Sales $4.1B 2007 Sales $0.7B 2007 Sales $11.7B Employees 17,000 Employees 8,000 Employees 43,000 Locations 65 Locations 10 Locations 103 1st Half Growth 1st Half Growth 1st Half Growth 2008 vs. 2007: 17% 2008 vs. 2007: 24% 2008 vs. 2007: 5% Latin America Middle East & Africa Asia-Pacific 2007 Sales $1.0B 2007 Sales $1.0B 2007 Sales $3.6B Employees 21,000 Employees 500 Employees 52,000 Locations 45 Locations 2 Locations 40 1st Half Growth 1st Half Growth 1st Half Growth 2008 vs. 2007: 27% 2008 vs. 2007: 22% 2008 vs. 2007: 19% Total Sales 2007 $22.1B Total Employees 142K Locations 265
    • Process Management Summary 2007 Sales by Product Profile 2006 2007 2008E Systems, Measurement Sales $4.9B $5.7B +15 to 17% Solutions & Devices Services 24% Earnings $0.88B $1.07B 45% % of Sales 18.0% 18.7% +40 to 60 bps Market Dynamics 31% Valves & Growing demand for energy is driving • Regulators capacity expansion in power plants, LNG facilities and upgrades to existing facilities 2007 Sales by Geography Current level of oil price drives • ROW spending in customer base United PlantWeb Wireless launch is going well 22% • States 34% Continued aggressive investment in • new products and expanding global 20% position Asia 24% April three-month trailing average order • trend at +15 to +20% Europe
    • Industrial Automation Summary 2007 Sales by Product Profile 2006 2007 2008E Industrial Sales $3.8B $4.3B +11 to 13% Equipment Motors & Drives Earnings $0.57B $0.67B 7% Power 22% Distribution 13% % of Sales 15.1% 15.6% -50 to -30 bps(1) (1) Includes impact of anti-dumping duties Market Dynamics 18% Fluid 18% Mechanical Automation Power Global capital goods markets remain • Transmission healthy 22% Power Increasing worldwide demand for • Generation reliable primary and standby power 2007 Sales by Geography driving alternator sales ROW Infrastructure investment in emerging • Asia 8% markets supporting demand for drives United 10% and motors States 41% Increased focus on technology, new • products and emerging markets will expand growth opportunities 41% Europe April three-month trailing average • order trend at +20%
    • Network Power Summary 2007 Sales by Product Profile 2006 2007 2008E Other DC Power Systems Sales $4.4B $5.2B +23 to 25% 7% 10% OSP & Service Racks Earnings $0.48B $0.65B 9% 14% % of Sales 11.1% 12.5% +0 to 20 bps(1) (1) Includes impact of Motorola Embedded Computing Acquisition. AC Power 17% 28% Embedded Systems Market Dynamics Computing & Greater power in smaller packages 15% • Power throughout wireless & wireline networks Precision Cooling Distributed fiber initiatives driving • wireline spending 2007 Sales by Geography Data center consolidation efforts • ROW continue. Strong demand for AC Power 10% & Precision Cooling Systems United 43% Business Continuity & Network • Asia 27% States Reliability needs extending into emerging markets 20% April three-month trailing average order • trend at +15 to +20% Europe
    • Climate Technologies Summary 2007 Sales by Product Profile 2006 2007 2008E Other Flow Controls 7% Sales $3.4B $3.6B +5 to 7% 6% Temperature Earnings $0.52B $0.54B Sensors 7% Heating % of Sales 15.3% 14.9% +10 to 30 bps 7% Controls Market Dynamics 73% Compressors U.S. housing market softness • continues Energy responsible product demand • 2007 Sales by Geography continues to benefit our higher value products and solutions ROW Growing usage of electronics in • 10% HVACR opens new products and services opportunities Europe 16% China’s need for higher efficiency and • 57% United improved heating technology will drive States 17% future scroll demand Asia April three-month trailing average • order trend at 0 to +5%
    • Appliance And Tools Summary Profile 2006(1) 2007(1) 2008E(1) 2007 Sales by Product(1) Sales $3.9B $4.0B -4 to -2% Tools Appliance Earnings $0.54B $0.56B Solutions 15% 21% % of Sales 13.8% 14.1% +60 to 80 bps Appliance (1) European appliance motor & pump business reclassified as 11% discontinued operations. 28% Market Dynamics Commercial 25% Consumer businesses environment • Motors Storage remains challenging due to falling home prices, high levels of consumer debt and rising food and oil prices 2007 Sales by Geography(1) Decline in housing sector continues, • ROW Asia non-residential construction has 8% remained positive -- but positive trends 2% 5% are weakening Europe Focus on costs and asset management • to create value -- also sale of United non-strategic assets States 85% April three-month trailing average order • trend at -5 to 0%
    • Key EPG Messages Strategic Focus Has Not Changed – It’s All About Consistent / Intense / Flexible Execution International Investments and Emerging Markets Remain Central to Our Growth Strategy – Our Global Growth Continues – Emerging Markets Are Driving Emerson Growth – We Continue to Leverage Our Global Infrastructure Emerson Leverages Technology to Solve Customer Problems -- Investing for a Competitive Advantage – Emerson Continues to Invest in Global Engineering & Product Development to Drive Growth – Emerson is Uniquely Positioned to Help Our Customers Deliver on Energy Responsibility
    • Emerson’s Strategic Focus Has Not Changed Emerson’s Strategic Imperatives Actions - Brand Platforms are being valued globally. 1. Strengthen - We are positioned to benefit from the favorable Business Platforms industry dynamics. - Major Growth Initiatives, acquisitions, and divestitures will help keep us within the 5-7% zone. - Today, some regional key accounts will grow to become Global Marquees. - Expand Solution and Service offerings to enhance customer value and MRO sales. - Collaboration among business groups yields new market opportunities. 2. Pursue Technology - Aggressively invest in next generation technology leadership Leadership - Develop more game-changing products and technologies through efficient Portfolio Management and proper allocation of resources. - Meet sales and profit objectives of new products. - Customer involvement throughout the entire process is essential.
    • Emerson’s Strategic Focus Has Not Changed Emerson’s Strategic Imperatives Actions - Geographic mix and presence allows continued 3. Globalize Assets growth. - Take care of mature markets, but emerging markets play an ever increasing role in success. - We will reach new milestones by the end of this five year period and must invest accordingly. - Reposition assets to drive profitability improvements and to better serve customers. - Price actions must stay ahead of material inflation. 4. Drive Business - Global best cost sourcing – adopt a cross- Efficiency functional, sharing approach to integrate the supply chain. - Improve on-time delivery performance to exceed customer expectations. - Continue to improve Trade Working Capital, generate strong Operating Cash Flow, and manage Capital Expenditures -- asset efficiency. - ROTC improvement will continue to be a key value driver.
    • Key EPG Messages Strategic Focus Has Not Changed – It’s All About Consistent / Intense / Flexible Execution International Investments and Emerging Markets Remain Central to Our Growth Strategy – Our Global Growth Continues – Emerging Markets Are Driving Emerson Growth – We Continue to Leverage Our Global Infrastructure Emerson Leverages Technology to Solve Customer Problems -- Investing for a Competitive Advantage – Emerson Continues to Invest in Global Engineering & Product Development to Drive Growth – Emerson is Uniquely Positioned to Help Our Customers Deliver on Energy Responsibility
    • High Growth In Emerging Markets Continues to Drive Sales – Latin America and Middle East & Africa Reached $1B Zone in 2007 4.0 2002 $B 2007 2010T T 3.0 T T 2.0 T T 1.0 0.0 Eastern Europe Middle East India Latin America China & Russia & Africa Asia Pacific Sales Expected To Reach ~$4B In 2008 – 2 Years Ahead of Our Target
    • International Sales Have Grown Steadily and Surpassed The United States For The First Time In 2007 100% 2007 55% United States Sales % 75% ~54% United States International 50% 48% 52% 28% $10.9B $11.7B International Sales % 25% 32+% ~30% Emerging Markets % 0% 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008E 2010T 2008E Sales Are Pushing Towards 54% International, With ~30% of Sales from Emerging Markets. We Should Exceed our 2010 Targets.
    • The Importance Of Emerson’s Investment in Emerson’s Emerging Markets Is Really Paying Off in Our Sales Growth And Strong Market Presence 1998 2008E 2010T Mature Markets $11B ~$18B $19-21B Emerging Markets $2B ~$7B $9-10B Total Emerson Sales $13B ~$25B $28-$31B ~45% of Growth From Emerging Δ Mature Markets ~$7B Markets, And Will Δ Emerging Markets ~$5B Be ~50% Over The Next 3 Years Emerging Markets Will Continue to Outgrow Mature Markets Over The Next 3 Years. We Target Growth of +1% More Than GFI Growth in Mature Markets and 2x GFI Growth for Emerging Markets
    • Emerging Markets Sales Growth 2003 Sales 2007-08 2003-08 81% Sales ($B) 2008E CAGR CAGR Rest of World China $2.1 24% 24% India 0.6 23% 40% 19% Rest of Asia* 1.1 13% 15% Emerging markets Eastern Europe 0.5 21% 20% Russia 0.4 19% 33% 2008E Sales Latin America 1.2 20% 20% ~70% Middle East 0.9 20% 25% Rest of World Africa 0.3 37% 20% ~30% TOTAL $7+B 21% 23% GFI Growth 11% 11% Emerging markets Emerson Target is to Grow Emerging Market Sales at ~2x the Gross Fixed Investment (GFI) Rate *Excluding: Australia/NZ, China, Japan, and India
    • Emerson’s Major Shared Facilities Emerson’s Xi’an Nove Mesto Shanghai Cluj Suzhou Hong Kong Shenzhen Manila Mexico City Dubai Pune Services Manufacturing Engineering ~6,400 Best Cost Headcount Involved in Engineering & Development and Providing Support Globally
    • Support Resource Expansion Accelerating with Four Emerson Centers Total Best Cost Country Support Headcount Romania vs. West Europe 4:1 Salary Advantage 7,000 6,400 120 People 6,000 Xi’an vs. Eastern China 4,800 2 ½:1 Salary Advantage 5,000 100 People 3,600 4,000 2,800 3,000 2,000 India vs. United States 1,700 2,000 5:1 Salary Advantage 1350 People 1,000 Manila vs. United States 7:1 Salary Advantage 0 2,500 People 2002 2003 2004 2005 2006 2007 Engineering & Design Support Resources
    • Key EPG Messages Strategic Focus Has Not Changed – It’s All About Consistent / Intense / Flexible Execution International Investments and Emerging Markets Remain Central to Our Growth Strategy – Our Global Growth Continues – Emerging Markets Are Driving Emerson Growth – We Continue to Leverage Our Global Infrastructure Emerson Leverages Technology to Solve Customer Problems -- Investing for a Competitive Advantage – Emerson Continues to Invest in Global Engineering & Product Development to Drive Growth – Emerson is Uniquely Positioned to Help Our Customers Deliver on Energy Responsibility
    • We Continue to Build Global Engineering and Technology Capacity To Drive Innovation / New Products Number of engineers 8,500 n sio n xpa 7,700 8,000 E pid 7,200 a R 7,000 6,000 6,000 5,500 Best Cost 5,000 5,000 5,000 4,000 3,000 2,000 High Cost 1,000 0 2002 2003 2004 2005 2006 2007 2008E
    • 70% of Global Energy Growth Could Potentially be Offset with Aggressive Efficiency Efforts Demand - QBTU 135 191 613 478 422 2003 Growth 2020 Efficiency 2020 Potential Efficiency Potential (QBTU) Emerson 32 Residential Participation 13 Commercial 13 Road transport 0 Air transport 2 Chemicals 50 Steel 4 Refining 21 Power Total potential energy efficiency opportunity = 135 QBTU
    • We Are Investing for Energy Efficiency: Our Products Are Reducing Our Customers’ Energy Consumption Customers’ Reduce emissions for the chemical, oil and gas, and pulp and paper industries Process Management Wireless monitoring solutions reduce emissions Annual energy and maintenance expenses can be reduced by 15% or more Climate Technology Estimated savings of 7B kilowatt hours of electricity annually “Teamwork” mode prevents units from Network fighting (humidifying and dehumidifying) Power Up to a 7% energy savings Expected to realize savings of 4,000 gigawatt hours by 2012 Industrial Automation Equivalent to a reduction of 100 million metric tons of CO2 Hot water tank sensors / controls Appliance Reduces energy consumption and lowers and Tools associated carbon dioxide emissions
    • Customers are Experiencing the Benefits of Process Management Wireless: Major Oil Refinery The customer had cases where the crude storage tanks were overfilled as the oil was offloaded from barges Clean up and environmental fines could cost upwards of $1M – A Wired solution had estimated installation costs of $500K A wireless transmitter was installed with mechanical switches to monitor the tank levels and prevent overfilling without the prohibited wiring costs Refinery improved environmental compliance and reduced costs with Smart Wireless Solution
    • We Offer the Widest and Fastest Growing Portfolio of Wireless Products in the Industry Smart Wireless Global Launches North America 10/06 Europe 1/07 Vibration Pressure Temperature Level Flow Flow Density / Viscosity Singapore 6/07 Malaysia 7/07 Australia 8/07 Venezuela 8/07 NA (Phase 2) 9/07 China 9/07 Multi-point Gas Specific Gas & Liquid Oil & Gas Remote Device ‘Stranded Field Device Argentina 10/07 Temperature Gravity Analysis Control Diagnostics’ Communicator EUR (Phase 2) 11/07 Brazil 11/07 Thailand 11/07 India 12/07 Mexico 12/07 Middle East 3/08 Asset … Discrete Radar Level Wireless Gateway Level Switch Valve Positioners Management Software Shipping Now Shipping 2008
    • Climate Technologies’ Intelligent Store™ Technologies’ ™ Offers Many Opportunities for Delivering Improved Energy Efficiency to Customers Services Refrigeration Products Refrigeration Units Racks Installation Intelligent Store Electronics Condenser A/C Self Lighting Units Pull-Through Other Contained Ventilation Components Units Ice Machine Commissioning Monitoring Service Case Control Recent Large Win in Australia – Initial Focus on Lighting and Display Cases. Worth ~$25M over 5 years.
    • Summary Of 2008 Expectations Solid First Half Of 2008 Delivered In A More Challenging Environment – Strong Underlying Growth And Global Performance – Orders Continue At Double-digit Pace – More Challenging Environment The Second Half Of Year Vs. First Half – Must Continue to Offset Higher Material Inflation with Appropriate Price Increase Actions – Tougher 2009 Environment We Will Continue To Make Strategic Investments – – Key Technologies – Breakthrough Products – Globalizing Asset Base – Acquisitions And Divestitures Where And When Appropriate Cash Is Key – Operating Cash Flow Up 34% First Half 08 Vs. 07 – Strong Balance Sheet – Flexibility For The Future – Fuels Investment For Long Term Growth – Substantial Amounts Of Cash Returned To Shareholders Through Dividends And Share Repurchase 50-60% – Very Focused Acquisition Strategy
    • Reconciliation of Non-GAAP Financial Non-GAAP Measures The following reconciles each non-GAAP measure with the most directly comparable GAAP measure ($ M): 2005 2006 2007 2008E Operating Profit * $2,565 $3,053 $3,496 $3,985 - $4,115 % Sales * 15.2% 15.5% 15.8% 16.3 - 16.5% Interest Expense and Other Deductions, Net (433) (380) (402) (485) - (495) Pretax Earnings $2,132 $2,673 $3,094 $3,500 - $3,620 % Sales 12.6% 13.5% 14.0% 14.3 - 14.5% 2005 2006 2007 2008E Operating Cash Flow $2,187 $2,512 $3,016 ~$3,200 Capital Expenditures (518) (601) (681) ~(800) Free Cash Flow* $1,669 $1,911 $2,335 ~$2,400 1st Half 2008 2008E Underlying Sales* 7% 5-7% Currency/Acq/Div 5% ~6% Net Sales 12% 11-13% Note: Historical OP margins adjusted to exclude discontinued operations.