emerson electricl Q1 2009 Earnings Presentation

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emerson electricl Q1 2009 Earnings Presentation

  1. 1. First Quarter 2009 Earnings Conference Call February 3, 2009 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 statements 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 call we will discuss some non-GAAP measures (denoted with *) 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 available at our website www.emerson.com under Investor Relations.
  2. 2. First Quarter 2009 Highlights First quarter sales down 2% to $5.4 billion  Underlying sales* flat, with strong international and emerging market – growth Operating profit margin* contracted 20 basis points to 14.8%  Earnings Per Share from continuing operations of $0.60, down 8%  compared to $0.65 in the prior year quarter Operating cash flow of $319 million and free cash flow* of $187 million  Restructuring costs in the quarter of $43 million, constant and  continuous repositioning efforts Balance sheet remains strong and flexible  Net Debt to Net Capital ratio at 30% – Operating Cash Flow to Total Debt solid at 60% – 2009 Will Be Tough – But Emerson Is Well-Positioned and Our Financial Position is Strong 2
  3. 3. Emerson First Quarter Results 2008 2009 ($Mil excl. EPS) Down 2%  Sales $5,520 $5,415 Underlying* flat; FX -4 pts; Acq. +2 pts; • Process Mgmt. +8%; Network Power +2% Down 3% Operating Profit* $826 $803  Cost reductions and restructuring benefits • OP%* 15.0% 14.8% help offset volume deleverage and price/cost pressure Lower incentive compensation and • commodity mark-to-market Down 12%  Earnings - Continuing Ops. $519 $458 Earnings% 9.4% 8.5% Repurchased 12.8M shares for $431M in the qtr.  Dil. Avg. Shares 796.5 767.9 Down 8% EPS – Continuing Ops.  $0.65 $0.60 restructuring in FY09 and lower gains Higher versus prior year negatively impact EPS Discontinued Ops. $0.06 - comparisons by $0.08 EPS $0.71 $0.60 Near-Term Economic Environment Challenging 3
  4. 4. Underlying Sales Analysis First Quarter Results United States (7%) Europe 4% Asia 8% Latin America 16% Canada 16% Middle East/Africa 4% Total International 7% Underlying Sales* 0% Currency (4) pts Acquisitions 2 pts Consolidated Sales (2%) A Very Good Quarter Internationally – Especially in the Emerging Markets Which Increased 10% 4
  5. 5. Emerson First Quarter Detail ($Mil) 2008 2009 Down 1%  Gross Profit $2,010 $1,996 Cost reduction benefits drive • GP% 36.4% 36.9% gross margin improvements SG&A% 21.4% 22.1% Down 3% Operating Profit* $826 $803  OP%* 15.0% 14.8% (in $M) Q108 Q109 Delta - Other Deductions, Net $3 $91  Gains ($64) ($4) $60 - Interest Expense, Net $50 $43 Restructuring $9 $43 $34 Pretax Earnings $773 $669 Down 14%  Earnings% 14.0% 12.3% - Taxes $254 $211 Expect full year rate of  - Tax Rate 32.8% 31.5% approx. 31.5% 5
  6. 6. First Quarter Cash Flow & Balance Sheet ($Mil) 2008 2009 Down 25% in 1st Qtr  Operating Cash Flow $423 $319 First quarter cash flow tends to • be lowest of year Capital Expenditures ($127) ($132) $81M margin deposit for • commodity futures contracts. Free Cash Flow* $296 $187 This negative impact will be gone by end of year Balance sheet remains Cash Flow/Total Debt 63.6% 60.4%  strong and flexible Inventories $2,480 $2,470 Continued focus on working  Receivables $4,296 $4,007 capital initiatives Payables ($2,329) ($2,171) Will be challenging until  Trade WC $4,447 $4,306 April / May as we reduce capacity to real underlying TWC % to sales 19.7% 19.9% demand In January 2009, Issued $500M in 10-Year Term Debt at 4.875% 6
  7. 7. Business Segment Earnings First Quarter Results ($Mil) 2008 2009 Down 13%  Business Segment EBIT* $843 $736 Volume deleverage and price/cost • Margin 14.9% 13.3% pressures Dilution from acquisitions • Benefits from cost reductions and • price initiatives Down $3 million  Diff. In Accounting Methods $53 $50 FY09 lower incentive comp. Corporate & Other ($73) ($74)  and mark-to-market offset by one-time gains in FY08 Down $7 million, lower rates & Interest Expense, Net ($50) ($43)  cash generation Down 14% Pretax Earnings $773 $669  7
  8. 8. Process Management First Quarter Results ($Mil) 2008 2009 Up 8%  Sales $1,436 $1,553 Underlying* up 14%; FX -6 pts; – U.S. up 10%, Asia up 23%, Europe up 12%, • Latin America up 29% Continued strength in the worldwide oil and – gas and power markets—but will weaken as year progresses Up 17% EBIT $258 $302  Margin 18.0% 19.4% Margin increase driven by leverage on higher – sales and cost reduction programs which offset Restructuring $1 $2 inflationary pressures, and strong new product EBIT Excl. Rest.* $259 $304 sales mix Margin* 18.1% 19.5% Continued investments in next generation – technologies will position us for 2011 and 2012 Opened state-of-the-art Asia Flow Technology Center in Nanjing, China Industry leadership continues – 25 first-place awards in Control magazine’s Readers’ Choice awards, including first place in Wireless Infrastructure Long-term Market Fundamentals are Strong 8
  9. 9. Industrial Automation First Quarter Results ($Mil) 2008 2009 Down 2%  Sales $1,125 $1,103 Underlying* up 2%; FX -5 pts; Acq. +1 pt. – U.S. up 1%, Asia up 7%, Europe flat -- – but orders show weaker rest of 2009 Down 10% EBIT $171 $153  Margin 15.2% 13.9% Price increases did not offset volatile – material costs and other inflation Restructuring $3 $3 Negative mix impact – EBIT Excl. Rest.* $174 $156 Margin* 15.4% 14.2% Global capital goods markets slowing Participation in energy saving products and solutions provides good business growth opportunities System Plast Acquisition Strengthens Position in Global Material Handling Market 9
  10. 10. Network Power First Quarter Results ($Mil) 2008 2009 Up 2% Sales $1,406 $1,435  Underlying* flat; FX -4 pts; Acq +6 pts – U.S. down 9%, Asia up 9%, Europe down 6% • Slowdown in capital spending patterns, – especially in Embedded Power and Computing customer base. – EBIT $180 $149 Down 17%  Margin 12.8% 10.4% Unfavorable mix and dilution from – acquisitions of 200 basis points, including Restructuring $3 $20 related restructuring. EBIT Excl. Rest.* $183 $169 Margin* 13.0% 11.8% China Power Systems business remains strong Significantly lowered the fixed cost base of this business versus prior downturn—we are taking necessary actions to stay ahead of economic downdraft Restructuring Efforts Will Position Business for Strong Recovery 10
  11. 11. Climate Technologies First Quarter Results ($Mil) 2008 2009 Down 10%  Sales $766 $692 Underlying* down 7%; FX -3 pts – U.S. down 13%, Asia down 21%, Europe up 30% • U.S. and Asian residential air-conditioning – and refrigeration businesses slowed Higher heat pump compressor sales in – Europe, from low levels in prior year Down 48% EBIT $102 $53  Margin 13.4% 7.7% Volume deleverage, volatile commodity – inflation, increased restructuring and Restructuring $1 $14 negative fx transactions due to the stronger EBIT Excl. Rest.* $103 $67 U.S. dollar Margin* 13.5% 9.7% European Union qualifies heat pumps as renewable energy Demand for energy responsible solutions will continue to benefit Climate Technologies -- the U.S. R410A refrigerant transition is a benefit later in 2009 Penetration Gains Achieved in the Global Refrigeration Transport Market 11
  12. 12. Appliance and Tools First Quarter Results ($Mil) 2008 2009 Down 17%  Sales $932 $771 Underlying* down 16%; FX -1 pt – U.S. down 19%, Europe down 18%, – Asia up 15% EBIT $132 $79 Down 40%  Margin 14.1% 10.2% Deleverage on lower sales volume – Pricing actions substantially offset by – Restructuring $1 $4 material and other inflation EBIT Excl. Rest.* $133 $83 Margin* 14.3% 10.7% Customers facility shutdowns and inventory reduction programs negatively impacting segment U.S. Residential and Consumer Markets Continue to be Highly Stressed – But Will Turn Fast Off a Much Lower Base 12
  13. 13. Summary and Outlook Emerson is well positioned as we move through a tough 2009  Strong Global Footprint – – International sales 54% of total business – Emerging markets 30% of total business Good Mix of Businesses – we have continued to actively manage the – portfolio We are stepping up Global Best Cost Repositioning and increasing – strategic technology and breakthrough Next Generation New Products for strong breakout growth when the global economy recovers. Financial Strength to invest internally and do acquisitions where – appropriate Will Review 2009 Expectations and Long-Term Initiatives at  Emerson’s Annual Investor Conference on February 6th 13

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