Emerson Electric Co. (EMR) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day, and welcome to the Emerson First Quarter of 2021 Earnings Conference Call. All participants will be in a listen-only mode. . After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Pete Lilly, Investor Relations Director. Please go ahead. Pete Lilly: Good afternoon. Thank you so much, and welcome, everyone, to Emerson's first quarter 2021 earnings conference call. I hope everyone is staying safe and healthy. Today, I'm joined by David Farr, Chairman and Chief Executive Officer; Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer; Jamie Froedge, Executive President of Emerson Commercial & Residential Solutions; and congratulations to Lal Karsanbhai, current Executive President of Emerson Automation Solutions, who was recently announced as Emerson's next Chief Executive Officer effective on February 5. As usual, I encourage everyone to follow along with the slide presentation, which is available on our website. Starting on Slide 3. I'd like to briefly highlight two examples of the great work our global teams are doing and some recent recognition from customers and the marketplace. First, Emerson's Plantweb Optics analytics software recently received the 2021 IoT Breakthrough Award. Emerson's Plantweb Optics platform helps customers collect OT data from a variety of sources and apply practical and customized visualization and analytics, delivering key operational insights to the right people at the right time. Next, turning to Slide 4. Emerson recently received the 2021 Control Reader's Choice Award for our industry-leading automation control and instrumentation solutions. Emerson continues to receive positive feedback from customers and users of our products based on a relentless focus on technology, unmatched customer service and critical domain expertise in our customers' industries. Turning to Slide 5, we will review the highlights of a very strong quarter. First, Emerson remains steadfast in our commitment to health and safety for our employees, customers and communities. Serving our customers in critical industries, disciplined cost control and positioning to outperform as we emerge from COVID-19 remain our key thematic priorities, and we are starting to see the benefits of this focus flow through. Next, our regionalized operations remain sturdy and stable, and we will continue to build upon our firmly rooted strategy of business localization. Turning to performance. Emerson delivered a very strong quarter in a challenging but stabilizing and improving demand environment. The organization delivered adjusted EPS of $0.83 in the quarter, which was up 24% from the prior year and well above expectations. We continued our execution of the broad cost reset plan with an additional $69 million of new restructuring actions. David Farr: Thank you, Pete. First, I want to welcome everyone to the first quarter earnings call. And I want to thank you very much for the interest in this great company. I'm clearly a little bit biased on that, but it is a great company. Second, I want to thank the global leadership team, the executive leadership team and all the employees around the world executing and delivering a fantastic first quarter for all of our investors. The last 19 months have been hard with a cost reset for peak margins, downturn in late 2019, COVID-19 pandemic and a resulting global recession and now the return to growth. My recognition and applauding to all of you is powerful and thankful. I want to thank all of you from my heart for what you've done over the last 19 months. But now we have a new threshold of execution for the second quarter and total fiscal year. I believe this team will make it happen. They are good. Third, I want to recognize and congratulate Lal Karsanbhai as the new CEO of Emerson. I'm so proud of you and so excited for you and how you and your new OCE team will take Emerson to new heights as I and we have done the last 20 years. When Chuck Knight turned over the reins to me in late 2020, I took a deep breath, I paused, I smiled, and then I moved forward. You're ready and have what it takes to lead Emerson. You have the right stuff as does all the OCE and global leaders. I'll be your best cheerleader, your supporter, and my phone line is always open to you and your team. Pause for a second. Phew. Surendralal Karsanbhai: Thanks, David. Sorry. It's been an emotional time for a lot of us, Dave, and your words are very special. I'm very proud of the team and what the team has accomplished in the quarter. It's a phenomenal execution of a plan that we laid out for our investors last February that we committed to do, and we're now seeing it reflected in the P&L of the company. We're generating some of our own tailwinds, which I'll talk to you about, and the market is starting to recover broadly across many geographies as well, which is highly encouraging. This Page 22, nothing really changed appreciably in our orders as we went through the summer months. However, as we got into the late fall, we started to see an increase in activity, particularly driven by Europe and Asia. I'll flip to the next chart and give you some perspectives on how we see the outlook right now. The industries that drove growth dramatically were the discrete industries driven by Germany, specifically, which had turned its economic engine on and started to accelerate both in the process space for internal consumption and then its vast export market engine. So we started to see that improve in automotive and semiconductor packaging OEMs as well as broad activity across Europe around power and the specialty chemicals segment. In Asia, driven by China, Steve highlighted growth of 6%. We feel very good about what we've seen there and expect that growth to accelerate into Q2 as we'll talk about in a moment. But the big elephant in the room is North America. And what we experienced in North America was a stabilization of the oil and gas markets, albeit at lower levels but a forecastable level of business. What the business -- what has driven the business in -- on the continent has been power generation, mining in the Southern Cone and life sciences throughout, which has been a great story for us. As a result of that, we are seeing a recovery and expect to see sequential improvement in order pacing and sales pacing in the second quarter and in the second half of the year as indicated back on Chart 22. Let me turn then to Chart 24, and we'll give a perspective of how we see the world areas first half to second half. And across most of the world, and I can pick out 1 or 2 pockets here, we will see that improvement reflected in the environment. That discrete energy -- that discrete momentum that we've built in Europe and Asia will begin in the Americas, in North America, particularly. And we've seen, as David noted, early signs of distribution-based business recovery as we navigated through December into January. So that's very encouraging to see. I was in Odessa, Texas a few weeks ago. I saw -- I met with teams and talked about the plans for 3.8 million barrels a day production for the year, which is a stable level from where it was a year ago. So we'll see maintenance of that, increased drilling to maintain those levels in those fields. So some encouragement there. But obviously, demand will ultimately drive those -- that market. In Europe, I've talked about it's really been a German story. Our discrete business is up over 30%. Our process business is up over 10% in Germany alone. And that -- and then there's increased momentum throughout the continent, very pleased with the positive first quarter, and we expect that to continue. And in Asia, the China bounce back was important. That was discrete-driven and process-driven as well. And we feel very good about the funnel of activity that we see as we look out right now. So I feel much better than I did in October, David and team. But -- and I look forward to a much better outlook in executing in a much better environment as we go forward. David Farr: You did feel better once you got the CEO ring. Surendralal Karsanbhai: Well, I feel even better because I've got Jamie. Jamie's rolling. David Farr: Yes. Well, I just set you up for a very tough second quarter. So now I think -- so I mean very interesting to see. It's too early to talk about January, but you see the analyzing around January because I think we are feeling the distribution. We are feeling some semblance of optimism in even the Americas, and you've obviously seen some very good international orders. So I think that things are setting up. It doesn't mean it's going to be a perfect straight up. You're going to be going here or there. You go sideways stepping. But I feel very good about it. Jamie, I mean, you have a -- like you said, you're -- you can't be the slowest antelope in the pack when the tiger's out there. Right now, you're not the slowest antelope, but you've got a tiger out there running around. So what do you see happening to your business in the second half? James Froedge: Yes. The tiger is some kind of combination between growth that folks have never seen before and kind of a material situation that we're all dealing with around the world. David Farr: And customers. James Froedge: Before I jump into that, I just want to I say a couple of words because this is a one -- a special moment in time here. It's not going to come again. I want to say thank you and congratulations to David on just really an unprecedented career. What you've done in the space, there's no comparison to it. I know there's thousands of families and employees around the world that you've touched that wish they could be here to say this. I'll speak for them as well to say thank you for all you've done. You're part of the fabric of this company forever. And you've been a great leader and mentor for me, but you've also been -- you are a great friend. So congratulations. David Farr: Thank you. James Froedge: Lal, I want to say congratulations to you. We've known each other pretty much since I joined the company. We were in a similar leadership class together and worked at corporate together. We worked in the business together. I worked for you in automation. Now as business as leaders now, I get to see you in the CEO role, and I'm very proud of you. I know that the leadership team has a great deal of confidence in you, and we're very excited about this next chapter together. So congratulations to you and your wonderful family, who I have gotten to know over the years. So congratulations. Surendralal Karsanbhai: Thank you, Jamie. James Froedge: So with that said, let's jump into the first chart there, Chart 25, that shows the updated outlook for underlying sales for the year. As you can see, you heard throughout the call, the outlook for the year has improved since we last spoke. In November, we were outlooking 4% to 7% underlying growth for the year. It was going to be about 5% to 6% in Q1, 2% to 4% in Q2 and 5% to 8% in the second half. And growth in orders and sales has really accelerated in Q1, as Dave talked about, and we saw greater-than-expected strength in North America residential markets along with accelerated improvement really in all other businesses and world areas. And so from a Q1 order standpoint, we saw double-digit trailing 3-month underlying orders for all of our businesses with the exception of Professional Tools, which came in at 2% after delivering 8% orders growth in the month of December. So it was improving as the quarter went on. The broad product line and world area strength that we saw in Q1 orders, the backlog we built, what we continue to see in our business trends in January support the increase in our outlook for the remainder of the year. So if you go to the next chart, Chart 26. These 2 -- these next 2 charts look at the business from a product line and then a geographic perspective. First, from a product perspective, we see underlying sales growth in the heating and AC business in the 9% to 12% range for the year. Extremely strong first half driven by the residential market and a more moderate second half as, by the fourth quarter, inventory restocking should stabilize. Demand may settle into a pattern closer to historic cycles. However, we do see positive medium- and long-term trends in the residential market driven by homeownership, remodeling and a focus on efficiency and environmental concerns. Our Cold Chain business has exhibited a quicker growth recovery than anticipated. In November, we expected Cold Chain to grow more in the 3% to 6% range for the year, now at 6% to 9%, supported by a stronger Q1 than expected, which was really driven by a 20-plus percent Q1 sales in global transport, positive growth in U.S. foodservice in December. So even though foodservice is a tough market, coming back slower, we had positive growth in December, double-digit growth in U.S. food retail in the second half of the quarter and double-digit aftermarket growth. China delivered double-digit Q1 Cold Chain sales growth with transport up more than 40%. We anticipate solid, stable growth in the Cold Chain as the year evolved. Foodservice will continue to lag other segments, but improvement in vaccine rollout could drive upside in that space in the back half of the year. In November, our outlook for Tools & Home products was also in the 3% to 6% range. It's now 6% to 9%. Our home products business and tools we have impacted by residential demand, we will see extremely strong growth in the first half. Just to put some of the home and contractor growth in perspective. In Q1, our wet/dry vac business posted 38% trailing 3-month fixed rate orders, and our InSinkErator business saw 20% plus trailing 3-month fixed rate orders growth. Again, the residential markets will settle into more moderate growth rates as the year progresses with very strong growth in the first half, good overall fundamentals in the medium and long term. For the remainder of our Professional Tools products, we will see a return to quarterly sales growth in Q2, followed by double-digit growth in the second half of the year, aided by comparables in Q3 but also a general improvement in market conditions globally, which we already started to see, as David mentioned. For example, EMEA, Asia both turned positive in Q1, and general industrial has been steadily improving. Overall, commercial building construction globally will continue to lag the recovery of most of our other served markets. All right. Next chart, Chart 27. Our heating and AC compression business saw 24% plus trailing 3-month Q1 orders growth with exponentially higher growth in residential. Our Q1 U.S. residential heating and AC compression businesses sales grew 69% in the quarter with growth accelerating as the quarter unfolded. We do expect the U.S. residential market to settle into lower growth in the second half for the first half as we've seen unique near-term growth dynamics and the rebuild of inventory in the channel. However, as I mentioned earlier, we do see some longer-term positive residential trends persisting. North America industrial continues to improve with commercial building construction lagging. Asia climate trailing 3-month fixed rate orders due to December were up 11%. Europe climate was up 12%, supported by continued strength in the heat pump space in Europe along with weather conditions improving marketing conditions overall in China. Overall, Europe Q1 climate fixed sales growth was 8% with heating growth up 40%. Overall, Asia fixed rate climate sales were up a little more than 6%. The climate part was up 15%, and the heating piece inside of that was up 30%. So we see pretty solid growth dynamics for the remainder of the year in North America, Europe, China and the Middle East and several smaller markets but a slower recovery in parts of North and Southeast Asia. The COVID situation is dynamic. We're watching it closely around the world. We'll let you know if we start to see any changes that would reflect our current view of how the year is going to unfold. And just to wrap up, I want to say thank you to the entire Commercial & Residential Solutions team, the whole Emerson team for a tremendous quarter. You all responded to unprecedented demand increases, worked long hours to make sure we meet our customer needs while working hard to keep our employees safe. And we saw historic increases in demand in several businesses. Our team did a great job responding. And what we all can't forget is the middle of a pandemic. And so I want you to know how much the entire leadership team appreciates all of your efforts. So with that, I'll pass it back to Dave. Onto you, Dave. David Farr: Thank you very much, Jamie. Key issue here is Lal needs you to come through again in the second quarter, you and your team. I know you've got a lot of issues with, obviously, keeping the plants up and running. As we told the Board yesterday and again today, we are making investments for capacity, for productivity for you. Lal's clearly got plenty of capacity, but he's moving new facilities out, so he'll have capacity when it comes to '22, '23. So you really have a lot of moving parts. I think your team is in really great shape. And I know the team here at corporate will try to support you they best can as you go through this process because we're banking on your strong execution to deliver this year. James Froedge: Yes. David Farr: For the people on phone, I've been very busy in the last 2 days if you can imagine, Board meetings, shareholder meeting. I received over 500 e-mails and faxes. I will get back to everybody. It takes time. I'm not ignoring you. I didn't change my e-mail address, and I didn't block all the crazy ones out there that people sent me e-mails, too. It's wide open. And I will have a webcast tomorrow in the morning with Lal, and then I'll start the process and work my way up. You all mean a lot to me. You're my friend. We debate. We don't always agree, but you're all my friends, and I will get back to every single person that has sent me e-mails and faxes over the last 2 days. I appreciate that. With that, we're going to open the floor for Q&A. I, again, look forward to listening to this Webex -- or the webcast the next time. I guess that will be May. And so you guys are going to have fun. But today, we have a little fun one more time. So open the floor up. Well, who's going to hit me first? Operator: We will now begin the question-and-answer session. . Our first question comes from Andy Kaplowitz with Citigroup. Please go ahead. Andrew Kaplowitz: Good afternoon, guys. David Farr: Good afternoon, Andy. Surendralal Karsanbhai: Good afternoon. Andrew Kaplowitz: Dave, I know I speak for all of us: you've been a great help to the entire investment community. You keep it real. You keep it light at the same time, which we appreciate. Congrats, Lal. I think you're going to need some sort of rally animal to fill those shoes of Dave. David Farr: He isn't taking my Rally Monkey or my rally ferret. That sucker is -- those are going home with me. Andrew Kaplowitz: So, Dave, maybe the first question is -- one of the things you've talked about in the past is that you're hopeful that CEOs would begin to spend on CapEx again as the new year unfolds and that same distribution begins to ramp up. So your orders suggest maybe that you're seeing a little bit of that in Automation Solutions, but maybe you could step back and tell us if your conversations with customers are changing yet to the point where they're starting to open up their CapEx spigots? David Farr: So I wouldn't use the word spigot, but I would use -- I think that the conversation is with CEOs, my fellow CEOs, is that, in the capital industrial world, they are opening up. And they're talking about spending money around bringing lines back up, Andy, being -- getting some incremental capacity. We have a situation right now in the supply chain for Jamie's side of the business. There's a huge capacity issue, where there's not enough capacity, and we know they're going to have to -- they're going to start spending money around steel, iron ore, mining, copper, plastics, all these things. So what Lal's guys are hearing and we've been hearing quite a bit across the United States even now and even in Europe, they are starting to talk about small projects and spending. So I think those conversations will continue. I think you'll start seeing capital. We're going to spend more capital this year. I bet you, if we had the time, we'd probably even spend more, but the time is not a big issue for us. So I think that we're feeling it, and we're -- Lal's seeing it. Where I really, really, really want to see it is the U.S.A. And -- but I guarantee you Jamie's customers, his facilities, all need capital, and Lal's the one who is going to make it for him. So that's what we see. But we'll see how that unfolds this year. I think our discrete business in the U.S. probably had a good month. We don't know yet totally, but I think they had a very good month. And that will tell me that the projects are coming at the distributors of the channel. They're talking. They're ordering product. I think that Professional Tools will be the same way. If I -- now I turn to Jamie. He's shaking his head. James Froedge: Yes. David Farr: So that means the channel is coming, Andy. So I think that I feel good about it. Now the question is the momentum, but we'll see how much. But they've got to spend some money here. They've got to get things going, productivity-wise. And so I feel good about it right now. Andrew Kaplowitz: That's good to hear, Dave. And then at the risk of front-running your Analyst Day a little bit, when you think about Automation Solutions coming out of the downturn and the margin progression, when we look at Q1, you obviously improved adjusted EBIT by 200 basis points despite the decline in revenue. So as the segment improves, should you be capable of delivering over that mid-30% incrementals you've talked about in the past given your restructuring efforts? And do you see a path back to the high teens adjusted margin here over the next couple of years? David Farr: I'll let Lal answer that. I have my opinion, but I'll let him answer it first because he's the one who's got to deliver. So… Surendralal Karsanbhai: Absolutely. We're well on path, Andy, to deliver that peak margin plan in 2023. We want to stay that course. If we do get that tailwind, we have investments that we will need to make in this business. This is a technology business that's built around phenomenal products that differentiate us in the marketplace and allow those participation gains that we always have enjoyed and benefited from. So we will invest back in the business, and we'll stay measured. But I think we have opportunities, obviously, and we are in a phenomenal momentum right now in terms of margin execution. David Farr: So if you think about the next two or three quarters, the way Lal's business will unfold, he's going to have his earlier-cycle businesses. Those are all his higher-margin business. And so if you think about D&I, you think about measurement and instrumentation, you think about those businesses as flow businesses. Those are better-margin business. That's what's going to come back for him first. So he should have pretty good incrementals. He doesn't have the same cost/price pressure. He has a little bit of it, but not as much as Jamie does. And I don't see a lot of KOB1-type projects coming in for, what, 12, 18 months, Lal. Surendralal Karsanbhai: That's right. David Farr: So I think that as he goes into 2022, my gut tells me he's going to have strong double-digit orders going into 2022 in the fourth quarter. The question will be is the execution of the plans ready, has he got the moves done. And I think he's set up for a very good first-half of 2022 margin flow-through. Not every quarter is going to be perfect like this one. But I think, overall, his team is really focused on this. And I think they got -- they're ready to have a good execution around margin, and they will reach those new peak margins. Andrew Kaplowitz: Congrats again, guys. Good luck, Dave. David Farr: Andy, thank you very much. Operator: The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead. Joseph Ritchie: Thanks. Good afternoon, everybody. David Farr: Good afternoon, Joe. Joseph Ritchie: Dave, you're going to be missed. I hope you get that knee fixed soon. Go hit the links. Enjoy retirement. But yes, thanks for everything throughout the years. David Farr: My neighbor does not sound too excited about me retiring. He called me a walking dude and earlier when he came up in his truck, he said, what are you guys doing in the neighborhood? I said, I’m not going to knocking at doors and asking to help you do things like fix the air conditioning, the concrete work, so a lot of my neighborhood just think about, I need to move. Okay, Joe, let’s get back to you. Joseph Ritchie: All right. Well, Lal, congratulations as well. Surendralal Karsanbhai: Thank you. Joseph Ritchie: And I look forward to working with you closer. But yes, maybe my first question, Lal. I know you're going to tell us more at the Investor Day in a couple of weeks. But maybe talk to us a little bit about how you're thinking about looking at things maybe with -- from like a clean slate. And maybe that's the portfolio, maybe that's the margin trajectory, maybe that's the cost structure. Just any initial thoughts that you have on the transition and then making your imprint on the organization? Surendralal Karsanbhai: I surely appreciate the question, and I was waiting to hear who is the first one to ask. So congrats on that. There are a lot of things that I've thought about that I need to internalize and discuss with the team. Allow me a little bit of time. I'd like to really focus today on what's been just a phenomenal quarter for us for our organization and the guidance that we've put out for the year. The 16th of February will be shortly upon us. You'll hear our voices. You'll hear some of our thoughts. And if you allow me that, I truly appreciate it. Joseph Ritchie: Okay. Fair enough. Maybe turning it over to Jamie for a second. Jamie, when you take a look at that Slide 25 and you take a look at like the growth outlook for the second half and compare it to what we saw in 2020, clearly, like you have your easiest comp in the third quarter. James Froedge: Yes. Joseph Ritchie: And I recognize that things have been kind of like white hot for you guys in the first half of this fiscal year. But how do I reconcile those two things in that growth is going to step down in the second half just given what seems like a really easy comp in Q3? James Froedge: Yes, we'll see. I mean, I think Q4 is a big question mark right now in the model. And what we -- one scenario is that a dramatic portion of pent-up demand plus inventory that had to be restocked got pulled into the first two quarters and possibly a little bit of the third quarter. And so by the time you get to the fourth, which -- you got a tougher comp. We started to see growth come back towards the end of last fourth quarter. So it's a different comp you're chasing and could the residential markets go flat, even slightly down, slightly positive in that range. So you're -- I think it -- we see the Professional Tools businesses doing very well in the second half, both in terms of comps but also just demand improvement. Cold Chain is going to be steady throughout the year. So it's really a residential story. If residential has another wave here and stays strong and you have a hot summer, you have a very strong buying market in the housing market -- I think there's a lot of folks that didn't participate in the last wave of this housing remodeling and purchasing. That may be on the sidelines ready to go. They could -- then it could extend. We could have upside. But it's too early to tell. And so -- but that's going to be the key thing. Operator: The next question comes from Steve Tusa with JPMorgan. Charles Tusa: Congrats to you both. Dave, thanks for all the really fun times over the last, I don't know, 15 years or so. It's been a lot of fun. David Farr: Thank you very much, Steve. Hopefully, we'll see each other at least one more time. Charles Tusa: Maybe. I'm definitely hoping for that. But onto the results, which were pretty good. The second quarter guidance, I think, for AS reported revenue looks like flat sequentially. Do I kind of have that right? And can you kind of explain why that would be? I mean, looking back other than in 2020, it seems like that business is always kind of up sequentially, comfortably. And then I have just a quick follow-up on the margins. David Farr: Okay. I would say, initial look at it, you're right. It's probably flat because of FX, foreign exchange, the delta there. And the question is also just a mix of business as Lal gets the -- does he get the U.S. business coming in. Until we see the -- really, as we know that the U.S. business is -- we're trying to be cautious on Lal's business. He's done well the last two quarters, beat the numbers, Steve. But right now, it's just a function of we've got to get some of that early-turn cycle business. And so if he did see that happening in January, he should be able to do well in that second quarter. So probably a little cautious more than anything else and the currency impact from that perspective, Steve. But you're right in your analysis as always. And we'll see. Hopefully, it has a better quarter. Surendralal Karsanbhai: Yes. We're watching -- sorry, Steve. Charles Tusa: Go ahead, sorry. Surendralal Karsanbhai: Yes, just very quickly. We're watching our later-cycle businesses very carefully. Those will lag Final Control, which as they are the project-based businesses, which had good and lag coming into the down cycle. So Ram was still experiencing solid growth at this point last year and having weakened. And so we'll see him come in a little bit later. So that's going against us as well. Charles Tusa: And how much revenue will OSI contribute this year? Surendralal Karsanbhai: The Board plan, I can tell you what that is. It's around $180 million in sales. David Farr: Hopefully, it gets to $200 million. Surendralal Karsanbhai: We have a real shot. David Farr: I mean we had a good strong quarter, the first quarter, Steve. The question then, can we keep this momentum going there? They're really taking hold right now with our channel. And obviously, this whole renewable push is helping these guys a lot, too. But it's a question of how much they can execute around the various customers. But the orders right now are easily hitting the $200 million run rate. So... Surendralal Karsanbhai: Yes. So we booked nearly $95 million in the first quarter. David Farr: Yes. Charles Tusa: Right. And then one last one for you. I mean, I guess, despite kind of this quarter, which was well above prior year margins on a decline, you're basically guiding, I think, to flat adjusted segment margins year-over-year for 2Q. I mean, is there any reason? Is there a mix dynamic there? Is there something going on that we have to -- is it price cost? Like, what's the driver of a kind of a flattish margin year-over-year? David Farr: Yes. I think that -- did we give the individual margins up for the guys? No. So Steve, what you're seeing is Lal's business will have good second quarter margins. The big issue that Jamie has now got to override is the price cost as material inflation is coming in. Yes, he's got leverage from volume. He's got leverage from the reset. But the material cost numbers are starting to hit him right between the eyes at this point in time. We had good coverage in the first quarter. And now his team is working, scrambling hard to figure out how to offset that. So if we get good news there, then he'll be better than the margins in the second quarter, but he's the one that's going to be struggling when it comes to margins because of the material costs. And Lal -- I think Lal will have a good second quarter. I don't see -- or the automation business will have a good second quarter. Charles Tusa: And then one last one for you, Dave. I know you had kind of a tough ride in your first year as CEO. You had to kind of like break the streak and cut guidance. I mean, do you have enough visibility to kind of make us feel comfortable that we're not going to be kind of sitting here in the same shoes 6 months from now? David Farr: Yes. I mean the other problem is the GameStop thing that's going on out there. We did have the dot-com. The dot-com bust came in March for me that year. We would have had problems with the 9/11 issue too that year. So we -- yes, I did break the string. I did go see Chuck and said, Chuck, we're about to break the 44 year -- quarters. I knew I was going to have to do it eventually but not my second quarter in. You're right, Steve. I think we have a better feel for what's going on right now, and I don't see a dot-com bust. So I feel comfortable. I don't think that we're -- I'm not setting Lal all up for that famous phone call to you guys. Surendralal Karsanbhai: No SPAC bubbles. David Farr: No SPAC bubbles. No SPAC bubbles. Steve, you're such an optimist. Thank you. James Froedge: One thing I want to follow up with Dave is you're absolutely right, what we're facing. But I didn't want to -- for all those on the call, this is -- we've seen these cycles before. I think the bounce back in volume is faster than we've seen before. Some of the materials issues are greater than the markets have experienced. However, we're confident that, throughout this year, as we go into early part of next year, the relationships we have with our customers, the contracts we have with our customers in regards to price and MI, it all works itself out. So our focus right now is on partnering with those customers, getting the supply we need, making sure we meet their needs. But we also have very much in focus how this tends to play out in regards to the price and MI situation. So we'll be -- there'll be months where it's a little rocky as we chase things. There will other months that are fantastic as it flows through. Operator: The next question comes from Andrew Obin with Bank of America. Andrew Obin: Thank you, Dave. And Lal, congratulations. Surendralal Karsanbhai: Thank you. Thank you, Andrew. Andrew Obin: So the question sort of maybe goes a little bit into what you guys are going to talk at the Analyst Day. But with Democratic control of the Senate, has the tone of the conversations with your customers regarding green opportunities has changed? And I think I'm specifically talking about things related to the grid as it relates to Ovation and maybe anything you're seeing on mining in terms of change in tone as it relates to EVs and batteries. David Farr: Okay. So before these two guys talk, we spent two hours with the Board today on this very topic because we've been working on it. The Board knows we have been working on it, so we made a decision to bring in the organization to talk about this today. And so I'll let Lal and Jamie talk because both sides of these guys' -- of our businesses are very much involved in this whole ESG, around the sustainability and renewable stuff. And I'll just let Lal go first, and then we'll let Jamie go on this one because that's a very relevant question. We are really relevant in the space, Andrew. Go ahead. Surendralal Karsanbhai: Yes. And you're right, Andrew. This is thematical for us in what we'll talk about in the February meeting. And we're very excited to share that with the investors and talk about the opportunities we have as Emerson. James Froedge: We're going to have a dedicated section on it, Andrew. Surendralal Karsanbhai: Now so the dimensions that we'll speak about are within Emerson, the greening of Emerson. It's the greening by Emerson as we aid our customers around various elements. And Andrew, you and I have spoken about decarbonization and energy efficiency and emissions management. And it's the greening with Emerson. So it's a partnering around solutions and organizations around the world. We have -- we are in a unique position as an automation and as a commercial residential business to really fulfill what is a global demand and a global need here. So I'm pretty excited about where we sit. It's a growing business. There are various facets to it. We'll try to walk you guys through it. But over the last really two years, David, we've had a number of individuals around the world working there specifically. So I'm excited to share that with you on the 16th as is Jamie. David Farr: I think, around alternative energies, Andrew, I mean, we have a tremendous start in sight. I think we had the core technologies, as I told the Board. We're going to have to create some new technology solutions, both internally and externally, but we have the credibility with our customer base on some of these areas here. There's going to be a lot of work that happens in the marketplace over the next 5 to 10 and 15 years. And I think we have a pretty good start. Jamie's -- and I'll let Jamie talk, but we've been working on this for quite some time. We've been involved with the whole thing around refrigerant efficiencies. You think of the changing technologies and stuff that's going on, we've been living that with the governments around the world now for well over 10 years, and there's some big moves happening right now. So that's why Jamie's business in Europe is so strong. So why don't you... James Froedge: No, I think that's a great point. Look, I think in general, it's a broader political topic around regulations. I'm not going to get into that. If you just look at how it could impact our markets, when there is a clear regulation that gets put in place, it gives clarity and certainty in decision-making around what people should purchase, what they have to purchase, what they need to do in order to meet whether its efficiency targets or its emissions targets, et cetera. So generally speaking, it's good for our business because we're delivering compression solutions that have better efficiency, that use lower-GWP refrigerants. We're the leader in waste disposal capabilities globally. And we got a lot of other markets that we'll talk to you about here as we go to the Investor Day. But just in general terms, it's a very positive trend for our business because it gives certainty to folks around how they need to deploy their capital or where they need to spend their money. And as Dave said, we -- look, our engineers, our business leaders are on all the major committees around the world, have been for many, many years, that are driving these policies and driving the technical requirements around them, and we're ready for it. And in a lot of cases, the technology is already being developed and is getting ready to launch here in the next 18 months because we've seen this next transition coming, for example, on efficiency and low-GWP refrigerants. So... David Farr: I would say, in Lal's business, the automation business, our European team really pushes because they're not big oil refining business. We saw some push out of Asia when Jamie was in Asia, but the European -- and so they got it started about 2 years ago. And now with the acceleration of what's going on around the world, we have a very good running start from the standpoint of the opportunity. And that's what we want to share with you. We're a combination of doing it ourself but also working with our customers and helping everyone reach these goals. But I'm pretty excited about this in automation and in commercial. And we have a unique situation for the next 5, 10, 15 years in the space. So I feel good about it. Andrew Obin: It sounds like you guys are going to have quite a bit to say about it at the Analyst Day. A follow-up question on software. I think you have sort of -- there are multiple definitions of software. But the stand-alone software, I think it's like, what, $1.1 billion. That's sort of the market I'm referring to. What kind of growth rates have you guys seen last quarter? And what are you expecting for the business to grow at this year? Surendralal Karsanbhai: Yes. We continue to see in that high single-digit range, Andrew, as we spoke about, I think, in the past. That seems to be consistent through Q1 and what we expect for the year. And again, we -- it's driven by a lot of work in life sciences. There's opportunities in the electrification grid you talked about but in core discrete and process as well. David Farr: Yes, I think, well, there'll be some years it's really strong, some years less, but I -- we're making good momentum there. And we're going to continue to invest in startups and ventures around this area because it's both internal, as you know, Andy -- Andrew -- sorry, Andrew, and then also through, obviously, trying to look at acquisitions. But we have a good foothold in this right now. And it's really having a -- it's going to be a key port of -- part of what we're doing around sustainability too because it's not only doing it with the compression but using electronics and software. Same thing with a lot of software for Lal's business too as we... James Froedge: Yes. I mean, Dave, we were just talking about it the other day. When you start rolling out A2L refrigerants, low-GWP refrigerants, they're going to require -- it will be legal requirements around what -- the sensing you have to have, how often you have to monitor, how you have to remediate it if there's a leak or there's an issue. So as the world moves more and more in that direction, it's just going to require more insight real time to the data, and it's a huge opportunity for our business. David Farr: Andrew, so we have lot to say, but we only have so much time. Because unless they eliminate the former Chairman, we will run out of time. But -- and so they'll probably give me one chart: hello and goodbye. So we'll see. Andrew Obin: Thank you, Dave. And Lal, congrats again. Surendralal Karsanbhai: Thanks, Andrew. Operator: The next question comes from Jeff Sprague with Vertical Research. Jeffrey Sprague: Dave, congrats. We're really going to miss you. You're like the last of the Mohicans. You know that, right? I mean... David Farr: I know I'm the last of the Mohicans, truly the last of the Mohicans. Probably -- but that's okay. You guys can't handle many more Mohicans around here. Jeffrey Sprague: No, that's right. And no doubt Lal will do a great job. Congrats, Lal. Surendralal Karsanbhai: Thank you, Jeff. Jeffrey Sprague: Dave, I was wondering if you could address for us again, as all this succession was culminating, to what degree, if any, did kind of the discussion about, hey, maybe naming 2 CEOs and splitting Emerson at this particular juncture in its history? And clearly, where the decision landed is clear based on the discussion today. But kind of what, if any, was the debate around that and kind of the pros and cons in your mind? David Farr: Well, so not to sort of replay history, we went through that process back in 2019. So as we took the Board through for the -- June through the end of, say, November time period and we looked at the analysis of the 2 platforms, the strategic rationale around the two platforms, that was obviously on the table at that point in time. And the Board hired outside help relative to these 2 issues. And their opinion and working with outside help, it was very clear and we fundamentally believe there's more value in the combined basis than separating the two businesses. And so the logic was around the investments we see going relative to this whole -- around the ESG, around sustainability, around software, what we see happening in the global world right now. As you look at the different cycles, the classics and what's going on right now in the 2 different cycles and how they leverage each other, that work was done back in the mid- to late 2019. The Board made a decision. And as we went through these last 18 months -- I guess it's not quite 18 but close to 18. I'll say 12 or 14 months. The Board never -- did not think about that at this point in time. They made that decision in a while back, and that's where it sits. And I -- obviously, clearly, from Lal's standpoint, the Board will continue to evaluate that in our strategy sessions with the Board -- or his strategy sessions with the Board. And I fundamentally believe that will constantly be on the table as we look at the mix of the businesses, if we look at where we want to go next and where we may want to get out of. This company has been in and out of businesses. We get out of this business. We'll go here. And that's what's made Emerson unique. For the 40 years I've been around, if you look at the 40 years and how we transformed this company, let alone the 20 years I did, we don't sit still. So I mean, I guarantee, before Lal retires, the company will look different than it is today. Now how is it going to look differently? Well, that course will play its hand out with him and his team and the Board. So that's how we look at it, Jeff. We don't look at trying to -- status quo is not a word around here, as you know. Jeffrey Sprague: Yes. No doubt. And I was also wondering, you've obviously worked extraordinarily hard to get costs out through this restructuring. When we think about these COVID-related temporary savings, only $40 million of which are coming back, how much of that kind of total $150 million do you think does come back? It sounds like you're working hard to really mitigate that even looking into 2022. David Farr: You're going to have -- it's going to be really hard to measure because you're -- by the time we get to '22, the business is growing again. So I would say, obviously, what we've learned through this process, some things will change. So certain things will be different from a meeting standpoint, travel standpoint. But at the same time, you're going to be looking at a company that's growing as you get into '22. It's going to be a solid growth year for 2022. But I mean, clearly, it's not dollar-for-dollar coming back, but you're going to be seeing growth investments happen at that point in time because we're growing. But I would say it's been hard for us to get an exact number, but we know it's not 100% coming back, but we also know it's not only 50%. So I mean I've always felt that we'll probably be somewhere around the 80%. 80% would probably have to come back over time and 20% we've learned from a different process. But it's really what happens and what businesses grow, Jeff. It's -- but I guarantee we've learned a lot of different things here in the last -- not always a lot of fun things. Let's put it that way. But we've learned a lot. Operator: The next question comes from John Walsh with Crédit Suisse. John Walsh: A thank you to you, Dave, and a congratulations to Lal. Surendralal Karsanbhai: Thanks, John. John Walsh: So I noticed some new disclosure here in the back around software. I was just curious if this is just shuffling some things around for financial reporting or if you're changing the way some of this software actually goes through channel to your customers. David Farr: Fundamentally, as we've talked about, we're talking about trying to start to report on our software sales. We're in the early stages of what -- how we measure it. Because one thing you want to do, once you start going out with a measurement world -- in the accounting world, the columns are going to sit there. Auditor is going to look there, and they're going to say -- I see Frank shaking his head. No, he's -- so we've got to make sure we understand it exactly so we can measure it. A lot of companies don't worry about those things, but Emerson does worry about the integrity around the number. So this is our first step. As we start talking about it, we want to make sure that we have really grounded numbers so when we tell you what that is, you know what it is, and you can measure it. So that -- it's a first-step process. That's all it is. Surendralal Karsanbhai: No change to channel, no change there to reporting just from that perspective... David Farr: We're going to start giving some more insights around software. That's all. John Walsh: Okay. Great. I look forward to that. And then, I guess, just on the free cash flow guidance, I guess, is there some working capital associated with the higher sales? It just seems like you took the earnings up higher than the free cash flow. I just wanted to understand the dynamic there a little bit. David Farr: Okay. So yes, what we see happening in this third and fourth quarter is growth will be pretty strong. Now as someone said earlier, Jamie has got a unique situation where he has -- his comparison to the third quarter is really easy so he could spike. And he doesn't know what it's going to be like in the fourth quarter. So we're trying to be cautious. The other issue that we face right now and one of the reasons we had very, very strong operating cash flow in the first quarter -- yes, Lal's execution was very good. Yes, Jamie's execution was very good. But we're in a situation with Jamie's business that we haven't seen before of this magnitude, where all of a sudden, he's shipping using all the inventory can and from the standpoint of getting the inventory out getting paid and maybe not paying all the suppliers on the payable side standpoint. He's in a situation right now where his trade working capital as a percent of sale is extremely low, just where that's based out. And we know some of that will reverse as his business starts slowing down in certain areas. So I think we want to be very cautious as they try to estimate how much was that cash pull-in because of the working capital, but it was a very good quarter on earnings and execution. And I think Frank and his team, as he talked to the financial officers out there, want to be a little bit more cautious. I think if we get a better feel in the second quarter, how the cash comes in, I think I wouldn't be surprised if we don't tweak it back up a little higher, John, to be all honest. But we're just being careful right now. But I think that the earnings and cash flow execution right now is very good. And we definitely will have cash burning as we get into that fourth quarter because of our growth rate. Operator: The next question comes from Gautam Khanna with Cowen. Gautam Khanna: Congratulations. Congrats on the great run, Dave. David Farr: Thank you. Gautam Khanna: And congrats to Lal, and best of luck. Surendralal Karsanbhai: Thank you, Gautam. Gautam Khanna: I was going to ask you -- maybe you'll address this in a couple of weeks. But you hear the HVAC OEMs talk a lot about indoor air quality and that being a potential driver, especially in the commercial market, commercial HVAC market. I was wondering, does Emerson really play in that? Is there any specific products or solutions you guys are offering that might add another leg of growth to your commercial HVAC sales? James Froedge: Yes. We do. I mean some of it is direct, and some of it's indirect, right? Indirectly, as the OEMs work with different folks and they may put a broader air quality solution in place, it will often include an upgrade or a change out to the core compression solution. I think the other piece around air quality is that tight humidity control, I think, would be a big component of that. And we found that a lot of the air quality solutions work better in a tighter humidity band. Our 7ac business that we just bought, we invested in early stage, then we bought it out, and now we're commercializing it. It is a business that has 30%, 35% more energy efficient at providing very tight humidity bands for the air handling space for, initially, commercial buildings, for example. And we'll do some of that directly, and we'll also sell some of that through some of our large OEM partners. So there's multiple ways we play, and I think we'll continue to invest in that space as we go forward in both solutions with OEMs and maybe some that we sell direct to the end user base. But already, we see a lift from it today. David Farr: Yes. I think the key issue here, Gautam, is that what Jamie highlighted earlier in the conversation is that we see the states -- as we go through this current efficiency and refrigeration chains, we see the states putting in some controls and monitoring and some justification of where things sit, which will be sensing software based. And I think that's where we're going to be playing around this whole area because they're going to want to know that systems -- especially in the commercial area offering. So I think that will unfold here. That's something Jamie is going to talk about and we're investing in right now. But I think that efficiency does -- or air quality, efficiency, comfort does play for us. And so I think it's going to continue to build that way. I like that game for us. James Froedge: We always talk about automation. We work in that business close, and we have a closed loop between control system and our final control element or measurement element. If you think about the air quality space, fundamentally, it's moving in that direction. You've got to close the loop. You got to close the loop between the monitoring, the electronics, the controls, humidification, particulate management. And so if you -- for example, if you have a large commercial or residential thermostat business that's tied to key diagnostics and electronics, then you've got a big part of the puzzle there. And there's partnerships that you can have around those other pieces to close the loop and build a full solution. So we'll talk more about it in a couple of weeks, but we're very active in that space, and I think we'll do more there going forward. David Farr: What else you want to know, Gautam? Gautam Khanna: Yes. Just a second question maybe at Automation Solutions. So obviously, the order comparisons get a lot easier come May and June when you're comping down 13%, down 19% in orders. And what is the right expectation? I mean, I know you gave the second half guidance for the range at automation. But are we going to see a bigger snapback in the absence of KOB1 kicking in where we could see a double-digit month or 2 or 3 as we get to the third quarter or the fourth quarter? Surendralal Karsanbhai: Gautam, I think your assumption is right. We should not expect the KOB1 activity for the next 12 to 18 months. I don't foresee that. More significant, KOB2; and obviously, what we've been living on, KOB3, certainly. What I will tell you is that snapback is fully dependent on what happens in North America. David Farr: U.S.A. Surendralal Karsanbhai: Period. End of story. And that's really the -- that will measure the dimension of how it quickly comes back, how hard that snapback is. David Farr: I think we're trying to be cautious, but I think you'll watch the order pattern that these guys will put out because we're not going to stop that. I'm assuming Lal's not going to stop that. He may make that decision, but just watch and see what happens from that standpoint. Operator: The final question comes from Josh Pokrzywinski with Morgan Stanley. Joshua Pokrzywinski: Dave, it's been a pleasure. Enjoy retirement. Get a few more dogs. Take in a few more Cardinals games. I'll certainly miss you in Laguna. Lal, congratulations and good luck. You don't need it for sure. Surendralal Karsanbhai: Thank you. Joshua Pokrzywinski: But onto the question side of things. If I look at auto sol, kind of a similar angle is what was brought up before on C&RS. It looks like, for the second half, the range got a little wider and maybe a little bit lower. I know that, Lal and Dave, you guys both talked about KOB3 and kind of the process energy complexes being guidance parameters or drivers of the high end versus the low end last quarter. How do you see those evolving? What are the drivers of that range today? And how important is kind of that KOB3 process bucket? David Farr: So I'll give my answer, and I'll give -- I know -- I mean I know how these guys are thinking right now. They've had a couple of good quarters. They're still negative, Josh, as you clearly see. They've been very cautious relative to taking the back end up. So I think they've been -- as -- you're right. As they got a little bit better in the second and third, they'd probably get a little bit on the fourth as they look at the quarter. And so I think they're just -- I think these guys are being cautious because we have not seen the pure whites of the eye relative to that U.S. recovery. I think if we get a month or 2 where we see that consistent KOB3, KOB2 type of ordering in the U.S.A. like we've been seeing in Asia, like you're seeing in Europe, I think these guys will get a little more comfortable relative to that volume and that profit coming in. So I think they're just -- that's my impression of these guys. They've gone through a tough market here, a cost reset. And no one wants to say, hey, this thing is over, let's just go. I mean it's just like Jamie. Jamie was cautious a couple of quarters ago. Now as he's running through, he has -- it's hard for him to hide. So I think that's my feel. Anything you want to say there? James Froedge: No. I would add -- I think it's well said, David. Obviously, we're watching things like site access very carefully in terms of our engagements with customers; the spring outage schedules, which are holding right now, which is very important as well. Those are all positive signs. David Farr: The short date -- I mean, your order pattern. So what day to day -- what was your day-to-day order this month? What do you think it's going to be? James Froedge: In the month of January, it will land somewhere between $40 million and $43 million, somewhere in there, a day. David Farr: So that's a good number. That means he's coming back. So I think he's gaining -- everything's holding that we talked about from the standpoint, Josh. And now he just wants to see a couple of months of that continue. I mean you saw the early signs in December. If January gets the details, we want to analyze the details. That would be good. Early at first half of February, he gets into the investor conference, then I think he's going to say, okay, it's definitely taking hold firmly, just like we said 3 or 4 months ago with Jamie's business. So I think that's what it is. But all the signs are doing the right things. Joshua Pokrzywinski: Got it. That's helpful. And then going to the longer cycle end of the equation, the longer projects that got shelved with COVID, do you guys think that those come back off the shelf? Do we like the slate clean, start over just given that the world has changed so much? What are you hearing? What are you talking about with your customers today? Do we have a scenario where those come off, plus we have post COVID, kind of new projects and a nirvana scenario? Just happy to weigh in on all fronts there would be great. Surendralal Karsanbhai: Yes, I'll give you a quick color. The funnel sits at about $6.5 billion. It really appreciably has not changed for the last 3 months. What happened within that funnel, there were a number of cancellations, but they were replaced by a high number of smaller jobs. So quicker paybacks, those types of things. In addition to that, what's been interesting is we now have about a $1.6 billion electrification project funnel, which OSI brought to us. So that's in addition to the $6.4 billion KOB1 funnel that we've been talking about traditionally. We'll talk about this a little bit more in detail in a few weeks. But overall, feel that those projects are going to eventually move forward. It's just a matter of time here around demand. David Farr: Yes. I think from my perspective, as I hear from customers, I think they're going to -- Lal's projects will sort of be recut differently. The pressures on the CEO is relative to capital and things like that. So I think the projects, they are good projects. They will move forward, but they might be smaller. They might be cut a little bit differently. I think there's been a lot of discipline in our customer base around spending capital that's been learned the old-fashioned way through a lot of pain, like broken legs, broken arms, a couple of knives in the back. And so I think that I feel good they're going to be good. There'll be obviously some leaves, some new. But overall, I think it's going to be done. And I think Lal's got one more to say. Surendralal Karsanbhai: Yes, just one more thing. To your point, David, you're exactly right. If your project was a "bottom of the barrel" type of refinery project, that got scrapped. If your project is a conversion to a biofuel refinery, those projects are moving forward. There are many active in the United States and Europe, and we're very engaged in those processes. David Farr: It's going to be -- it will be a good -- that will be more late '21, early '22, Josh, as I see it right now. I think -- so Lal's team's got a lot of work they got to get done. They've got a lot of repositioning work in the facilities underway right now in Europe. And he's got to get that done because his business is coming back, and he can use capacity around the world right now to cover it. But when he starts getting all the world area markets going, he's got to get those new facilities up and running. With that, I want to thank everybody. And again, I will get back to people on the e-mails. It's going to take me a while. And I truly appreciate what people send to me in faxes and e-mails, and I look for it. Lal and I will try to get in before I fully go out to pasture. We will try to get into New York and I have some sessions trying to help Lal. I most likely will probably bring Jamie along just so he can learn, too. But we want to do that. That's part of my learnings that I could pass on to these guys, these gentlemen. And I have been doing this a long time, as you know, not only 20 years as CEO, but I was, when I came back from Asia, I became the spokesperson for Emerson for those 3 years. And I was an investor relations guy for multiple years -- well, 18 months. But I look forward to seeing all of you, and I truly appreciate everything you've done for me over the years and keep me straight, keep me honest and challenge me and disagree with me. I love that. Take care. Bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Emerson Electric Co. (NYSE:EMR) Sees Strong Performance and Sets New Highs

  • Ken Newman from KeyBanc sets a price target of $140 for Emerson Electric Co. (NYSE:EMR), indicating a potential upside of 19.38%.
  • Emerson's stock price surged by 7%, making it one of the top performers in the S&P 500 following strong fiscal fourth-quarter sales and profit figures.
  • The company's market capitalization stands at approximately $73 billion, with a recent bold buyout bid for AspenTech highlighting its strategic market positioning.

On November 6, 2024, Ken Newman from KeyBanc set a price target of $140 for Emerson Electric Co. (NYSE:EMR). At the time, the stock was trading at $117.27, suggesting a potential upside of about 19.38%. Emerson Electric is a global leader in automation equipment, industrial software, and engineering products. It competes with companies like Honeywell and Siemens.

Recently, Emerson's stock price surged by 7%, making it one of the top performers in the S&P 500. This increase followed the company's announcement of strong sales and profit figures for its fiscal fourth quarter. The stock is now priced at $127.52, reflecting an 8.37% increase with a change of $9.85.

The stock's price has fluctuated between $123.35 and $127.74 today, with $127.74 marking its highest price over the past year. The lowest price for the stock in the past year was $84.61. Emerson's market capitalization stands at approximately $73 billion, indicating its significant presence in the market.

Emerson also made headlines with a bold buyout bid for AspenTech, which could further enhance its market position. The trading volume for the day is 4,323,472 shares on the New York Stock Exchange, showing strong investor interest.

Emerson Electric Co. (NYSE: EMR) Surpasses Earnings Estimates

  • Emerson Electric Co. (NYSE:EMR) reported an EPS of $1.48, beating the Zacks Consensus Estimate.
  • The company's revenue reached $4.62 billion, indicating a 13% year-over-year increase.
  • Valuation metrics such as a P/E ratio of 39.22 and a price-to-sales ratio of 3.97 reflect investor confidence in Emerson's growth prospects.

Emerson Electric Co. (NYSE:EMR) is a global technology and engineering company providing innovative solutions for customers in industrial, commercial, and residential markets. The company operates through various segments, with Intelligent Devices being a key driver of growth. Emerson competes with other industrial giants like Honeywell and General Electric in delivering automation solutions and services.

On November 5, 2024, Emerson reported earnings per share (EPS) of $1.48, surpassing the Zacks Consensus Estimate of $1.47. This marks an improvement from the $1.29 EPS reported in the same quarter last year. The company's revenue reached approximately $4.62 billion, exceeding the estimated $4.57 billion. This growth reflects a 13% year-over-year increase in sales, primarily driven by the strong performance of its Intelligent Devices segment.

Emerson's financial health is further highlighted by its valuation metrics. The company has a price-to-earnings (P/E) ratio of 39.22, indicating that investors are willing to pay $39.22 for every dollar of earnings. The price-to-sales ratio stands at 3.97, suggesting that investors are paying $3.97 for every dollar of sales. These figures reflect investor confidence in Emerson's growth prospects.

The company's enterprise value to sales ratio is 4.47, and its enterprise value to operating cash flow ratio is 47.26. These metrics provide insight into Emerson's valuation in relation to its sales and cash flow from operations. Additionally, the earnings yield of 2.55% offers a perspective on the return on investment for shareholders.

Emerson maintains a moderate debt-to-equity ratio of 0.49, indicating a balanced approach to leveraging debt. The current ratio of 1.16 suggests that the company has a reasonable level of liquidity to cover its short-term liabilities. Furthermore, Emerson has announced an increase in its quarterly cash dividend to $0.5275 per share, payable on December 10, 2024, as highlighted by PR Newswire.

Emerson’s Price Target Cut at Baird Following Q2 Results

Baird analysts reduced the price target on Emerson (NYSE:EMR) to $116 from $120, maintaining a Neutral rating on the stock. The analysts noted that Emerson's Q2 results surpassed expectations due to broad-based gains. Despite a slight 1% year-over-year decrease in organic orders, the project funnel remains strong, bolstered by a healthy mix of growth initiatives in energy transition, sustainability, decarbonization, and traditional chemical and power projects.

The analysts highlighted that portfolio improvements are unfolding positively and that there is additional potential as network integration (NI) synergies are realized and the fundamentals in discrete manufacturing and test & measurement sectors inevitably strengthen. They also praised the company's execution and viewed the appointment of the new CFO from AspenTech as a positive, citing the benefits of bringing Emerson-style processes, discipline, and oversight to the role.

While the outlook for Emerson remains directionally positive, the analysts advised patience, suggesting a cautious approach until more pronounced positive trends materialize.

Mizuho Securities Raises Emerson’s Rating to Buy

Analyst at Mizuho Securities raised their rating on Emerson (NYSE:EMR) from Neutral to Buy, with an increased price target of $118.00. This upgrade comes in response to rising market multiples and the prospects of a re-rating following Emerson's transformational portfolio actions. These actions are expected to drive growth and improve margins, particularly from 2024 onwards.

Despite the understanding of bearish arguments, Emerson's shares have underperformed due to drastic changes in its portfolio. However, there's a sense that investor concerns may start to diminish, leading to increased engagement in 2024. Emerson is positioned as a "barbell" investment, where its long-cycle process/hybrid segment provides a stable growth source, complemented by the recovery of the "short-cycle" divisional orders/sales expected to start around mid-year.

This short-cycle end, including discrete automation, T&M, and productivity, The analysts also raised the 2024 earnings per share (EPS) estimate to $5.20 from $5.10, citing potential for additional upside. Additionally, they set a new 2025 EPS estimate at $5.80, based on mid-single-digit growth expectations.

Emerson Electric’s Analyst Meeting Review

RBC Capital raised its price target on Emerson Electric Co. (NYSE:EMR) following the company’s annual analyst meeting, where CEO Lal Karsanbhai and team outlined the company’s new automation pure-play roadmap.

Fiscal 2023 guidance was reiterated. The analysts said they liked hearing that 30% of the portfolio is levered to double-digit growth secular tailwinds and that the company is focused on expanding in four key adjacencies (industrial software, test & measurement, factory automation, and smart grid solutions).

Investors remain most focused on where Emerson will redeploy its balance sheet following the Climate Technologies and InSinkErator deals, but RBC Capital analysts remain confident that management will continue to pursue diligent capital deployment and strategic fit.

What to Expect From Emerson Electric’s Upcoming Investor Day

RBC Capital analysts provided their views on Emerson Electric Co. (NYSE:EMR) upcoming NYC Investor Day, scheduled on Nov 29. With the $14 billion Climate Tech divestiture announced on Oct 31, the analysts expect the focus of the Investor Day to be on the long-term positioning of the pure-play automation company and some perspective/timeline on how the 25% “earnings hole” will be filled.

The analysts expect the company to elaborate on the drivers of its through-the-cycle metrics provided last quarter, namely its 4%-7% organic growth, 23% adjusted segment EBITDA margins, and 100% free cash flow conversion. Recall that the automation segment underwent a sizable restructuring in 2019-2021, driving out $520 million in cost savings.

Emerson Electric Reports Q2 Beat, Provides Outlook

Emerson Electric Co. (NYSE:EMR) reported its Q2 results last week, with EPS of $1.29 coming in better than the consensus estimate of $1.18. Revenue was $4.79 billion, compared to the consensus estimate of $4.71 billion.

Automation Solutions orders grew 17% to $6.4 billion and backlog grew $0.4 billion sequentially and approximately $0.9 billion year-to-date after rising 16% in 2021.

The pipeline for LNG investment is pulling forward nicely, with 250 million tons per annum of capacity this decade, compared to 125 million each of the past two decades.

The company provided its full 2022-year outlook, expecting EPS to range from $4.95 to $5.10, compared to the consensus estimate of $5.01.

Analysts at Oppenheimer provided their views following the results, adjusting their 2022 EPS estimate to $5.10 from $5.00 and 2023 EPS estimate to $5.55 from $5.45. The analysts lowered their price target to $110 from $115, while reiterating their outperform rating.