emerson electricl Q3 2008 Earnings Presentation

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emerson electricl Q3 2008 Earnings Presentation

  1. 1. Third Quarter 2008 Earnings Conference Call August 5, 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 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. Third Quarter 2008 Highlights Third quarter sales up 14% to $6.6 billion with increases in 4 of 5 business  segments Underlying sales* growth of 7%, led by strong international growth, and solid U.S. – sales Operating profit margin* improved 30 basis points to 16.6%  Earnings Per Share from continuing operations of $0.82, up 15% compared to  $0.71 in the prior year quarter Operating cash flow of $827 million and free cash flow* of $672 million  Order growth of +10% to +15% in the quarter, with approx. +5% currency  impact Balance sheet remains strong  Average Days-In-The-Cash-Cycle decreased to 65 days from 67 days – Trade Working Capital as a % of sales sequentially improves from 18.7% in second – quarter to 17.7% in third quarter Operating Cash Flow to Total Debt solid at 64% – First Half Momentum Continues Into Third Quarter Strong Nine Month Performance 2
  3. 3. Emerson Third Quarter Results 2007 2008 ($Mil excl. EPS) Up 14%  Sales $5,772 $6,568 Increases in 4 of 5 business segments • Process Mgmt. up +18%, Network Power up +26%, • Industrial Automation up +16% Underlying* up 7%; FX +5 pts; Acq/Div +2 pts • Up 16%  Operating Profit* $941 $1,092 30 basis point improvement driven by cost • OP%* 16.3% 16.6% containment programs and volume leverage Up 13%  Earnings - Continuing Ops. $573 $647 Earnings% 9.9% 9.8% Repurchased 4.6M shares for $249M in the qtr. -  Dil. Avg. Shares 802.1 787.8 Returning strong cash flow to shareholders EPS – Continuing Ops. Up 15% $0.71 $0.82  ($36M) impairment charge relating to the  Discontinued Ops. $0.01 ($0.04) European appliance motor & pump business EPS $0.72 $0.78 • Entered a definitive agreement to sell business Sale of the European Appliance Motor & Pump Business Expected to Close in Fiscal Year 2008 3
  4. 4. Underlying Sales Analysis Third Quarter Results United States 4% Europe 3% Asia 16% Latin America 16% Emerging Markets were up 17% Canada 11% Middle East/Africa 15% Total International 10% Underlying Sales* +7% Currency 5 pts Acquisitions/Divestitures 2 pts Consolidated Sales +14% Emerging Market Growth Led International Sales Expansion – up 17% 4
  5. 5. Emerson Third Quarter Detail ($Mil) 2007 2008 Up 15%  Gross Profit $2,095 $2,413 driven by cost Improvement GP% 36.3% 36.7% containment programs and SG&A% 20.0% 20.1% volume leverage Up 16% Operating Profit* $941 $1,092  OP%* 16.3% 16.6% $18M increase relating to fx  - Other Deductions, Net $58 $100 transactions, $9M charge related to the appliance control business, as - Interest Expense, Net $61 $46 we evaluate potential sale Up 15% Pretax Earnings $822 $946  Earnings% 14.2% 14.4% - Taxes $249 $299 Full Year rate expected to  - Tax Rate 30.3% 31.7% be approx. 32% 5
  6. 6. Third Quarter Cash Flow & Balance Sheet ($Mil) 2007 2008 Down 8% in Q3, versus an  Operating Cash Flow $899 $827 extremely strong Q3 2007 Up 13% year-to-date  Capital Expenditures ($144) ($155) Down 11% in Q3 Free Cash Flow* $755 $672  Up 14% year-to-date  FCF/Net Earnings cont.ops.* 104% Cash Flow/Total Debt 61.1% 64.4% conversion in Q3 Inventories $2,309 $2,562 Receivables $4,083 $4,663 Sequential improvement in  Payables ($2,247) ($2,563) ratio from 18.7% in 2nd Qtr. Trade WC $4,145 $4,662 TWC % to sales 17.6% 17.7% Over 70% of Operating Cash Flow Returned to Shareholders Year-to-Date 6
  7. 7. Business Segment Earnings Third Quarter Results ($Mil) 2007 2008 Up 14% Business Segment EBIT* $925 $1,051  Margin* 15.6% 15.5% Diff. In Accounting Methods $56 $62 Up $6 million  Up $23 million  Corporate & Other ($98) ($121) commodity hedging mark- $11M to-market $12M environmental costs and other items Down $15 million, driven by Interest Expense, Net ($61) ($46)  lower interest rates Up 15% Pretax Earnings $822 $946  14.2% 14.4% 7
  8. 8. Process Management Third Quarter Results ($Mil) 2007 2008 Up 18%  Sales $ 1,471 $1,731 Underlying* +13%; FX +6 pts; Div/Acq. -1 pt. – U.S. up 12%, Asia up 21%, Europe up 5%, • Middle East/Africa up 14% Strength across all parts of this business – – systems, valves and measurement EBIT $269 $346 Up 29%  Margin 18.3% 20.0% Leverage on higher sales volumes – $11M litigation charge in Q3 2007 – Restructuring $2 $4 EBIT Excl. Rest.* $271 $350 Margin* 18.5% 20.2% Order growth continues to be strong at +15% in the quarter TopWorx business acquired in July --Provides valve control and positioning sensing solutions (~ $40M Annual Sales) Continued Strong Investments Made in Technology and Global Infrastructure—For Future Benefits 8
  9. 9. Industrial Automation Third Quarter Results ($Mil) 2007 2008 Sales $1,095 $1,271 Up 16%  Underlying* up 8%; FX +8 pts – U.S. up 11%, Asia up 16%, Europe up 4% • Up 15%  EBIT $161 $186 Margin 14.7% 14.6% Margin down 10 basis points – Price actions offset higher material inflation – Restructuring $5 $5 EBIT Excl. Rest.* $166 $191 Margin* 15.1% 15.1% Strong growth in power generating alternator, fluid automation and industrial equipment businesses Order growth of +20% during the quarter – fundamentals remain strong Global Demand for Power and Strength in the Oil and Gas Market Drive Growth in Alternators 9
  10. 10. Network Power Third Quarter Results ($Mil) 2007 2008 Up 26%  Sales $1,322 $1,672 Underlying* up 10%; Acq +12 pts; FX +4 pts – U.S. up 10%, Asia up 13%, Europe up 3% • Strength across power systems, precision – cooling and telecommunications businesses Order trend is on target for normal cycle – EBIT $178 $212 Up 19%  Margin 13.4% 12.7% Sales volume leverage and cost reductions – drive margin improvement in core business Restructuring $5 $8 Acquisitions had dilutive impact of approx. – EBIT Excl. Rest.* $183 $220 150 basis points Margin* 13.7% 13.1% “Central Office In A Box” concept debuted at industry trade event -- provides modular approach allowing telecom companies to provide wireless and broadband services quickly and economically Strong Global Footprint and Market-Leading Technologies Provide Momentum for Growth 10
  11. 11. Climate Technologies Third Quarter Results ($Mil) 2007 2008 Up 4%  Sales $1,043 $1,087 Underlying* up 1%; FX +3 pts – U.S. down 1%, Europe down 6%, Asia up 14% • Continued penetration gains in the U.S. – water-heater controls business Current U.S. orders have increased due to – hot / humid weather EBIT $174 $169 Down 3%  Margin 16.6% 15.5% Margin down 110 basis points – Significant commodity inflation more than – Restructuring $2 $5 offset pricing increases (issue being EBIT Excl. Rest.* $176 $174 worked), higher restructuring costs Margin* 16.9% 15.9% Upcoming regulation changes provide good growth opportunities Order trends of +5% to +10% in the quarter, warmer weather across U.S. Demand for Energy Responsible Products Will Continue to Benefit Climate Technologies Products and Services 11
  12. 12. Appliance and Tools Third Quarter Results ($Mil) 2007 2008 Down 1% Sales $1,005 $998  Underlying* down 1%; Divestiture -1 pt; – FX +1 pt U.S. down 3%, Europe down 4%, Asia up 41% • Down 4%  EBIT $143 $138 Margin 14.3% 13.8% $9M charge relating to the appliance control – business as we evaluate potential sale Restructuring $4 $2 Benefits from cost reduction efforts were – EBIT Excl. Rest.* $147 $140 offset by volume deleverage Margin* 14.7% 14.0% Pricing actions offset by significant material – inflation Tough market conditions continued in consumer-related businesses Professional tools and hermetic motors showed strong growth Exploring Alternatives Relative to the Appliance Control Business 12
  13. 13. Summary and Outlook Strong third quarter  Underlying sales* growth of 7% – Operating profit margin* improvement of 30 basis points – Strong year-to-date cash flow performance – Order trends continue to show strength, +10% to +15% in the quarter – Solid results for the first 9 months of fiscal 2008 provide strong foundation for  another great year for Emerson Expect Full Year Underlying Sales Growth* of approximately 6% and Reported  Sales Growth of 11% to 13% Excellent Operating Margin* improvement driven by new products, aggressive  restructuring and emerging market growth—expect Fiscal Year 2008 Operating Margin* of 16.2% to 16.4% Expect Full Year Earnings per Share from continuing operations in the range  of $3.05 to $3.10, 15 to 17 percent growth over 2007 Targeting Full Year Operating Cash Flow of $3.3 billion, Capital Expenditures  of $0.8 billion and Free Cash Flow* of $2.5 billion – 100+% coverage Expect 2008 Return on Total Capital of 21%  13
  14. 14. Emerson Business Summary Reconciliation of Non-GAAP Financial Measures Expected FY 2008 Sales Growth % Underlying Sales * ~ 6% Currency / Acq. / Div. ~ 6 pts Total Sales ~ 11 to 13% Q3 2008 Operating Cash Flow $827 Capital Expenditures (155) 2008E Free Cash Flow* $672 ~$ 4,000 -$4,060 Operating Profit * 16.2%-16.4% % Sales * Net Earnings Cont. Ops. $647 Interest Expense and ~(470) Other Deductions, Net ~$3,530 – 3,590 % of Net Earnings Cont. Ops. Pretax Earnings 14.2% - 14.4% % Sales Operating Cash Flow 128% Capital Expenditures (24%) Free Cash Flow* 104% This information reconciles non-GAAP measures with the most directly comparable GAAP measure ($M) 14

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