Emerson Electric Co. Earnings Call Insights: Order Trends and Chinese New Year Visibility
Emerson Electric Co. (NYSE:EMR) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Julian Mitchell – Credit Suisse: Firstly, I guess just on the (indiscernible) throughout last year. Maybe if you could just talk a little bit about what’s driven that, if it’s something you are seeing in the January order intake or something in a specific region?
David N. Farr – Chairman and CEO: As we’ve been reporting in monthly orders, we have been a little bit more positive on the monthly order statements for the last couple months. Since September, October our order trends have turned up. In some of the businesses now in Climate Technologies, Network Power systems, residential solutions they have all now become positive and driving on a continuing basis on three-month roll. So from my perspective, this has been improving. It’s I will say a moderate amount of improvement from that standpoint, but just the global economies have stabilized and feel more comfortable for the financial institutions and I think money is again flowing and people are starting to make those investments, though it’s not a real robust economic environment out there, just look at what happened on average in the second half in the United States economy and so in total it’s still basically you’re looking about 2%, 3% type of growth and we’ll get into the various regions of the world next week, but I still see a 2%, 3%, 4% underlying growth in the general economic trend that we will be facing this year.
Julian Mitchell – Credit Suisse: And then just secondly, the issue of kind of mix comes up a lot in the slides in the different segments and how that affects your margin? How do you see that playing out over the balance of the year because I guess as you’ve emphasized the margin growth is very front-end-loaded, is that because there is a mix or something you think will carry on weighing on the margins over the balance of the year?
David N. Farr – Chairman and CEO: No, Julian, from my perspective, our business; in particular, Process business or the Climate business or the Residential Solutions business in a given month or a quarter, we could have a surge of sales shipments from the standpoint of the systems versus our instrumentation. I would say the last three quarters, not the most recent quarters, but the last three quarters, we’ve had pretty good mix and we – from last year as the profitability of some of these businesses things went our way, and so Climate, even though they had down sales last year, we had pretty good mix from the type of business, and therefore they had to improve their profitability. Same thing with Process. If you look at the underlying quarter, Process had a very, very strong systems and solutions orders and shipment quarter; instrumentation a little bit weaker driven by – the (projects) came in quite strong, a lot – and that will create a lower margin in the Process world. Same thing in Climate Technology. We expect that mix to come back as we look at our order books right now. We look at the order pace. I would expect that margin to come back, that’s why we still believe that we’ll have 10 to 20 basis points improvement consolidated, and I’ll give you the business margins by each of the segments; the forecast next week, but it’s not uncommon as you hear me talk, we’ll have a quarter, the mix goes the wrong way; quarter goes the right way, and I would say we had good margin improvement this quarter, it could have been better with the right mix, but we’ll make that back up as we go into that second quarter. It just moves around. That’s what happens.
Julian Mitchell – Credit Suisse: And then just lastly, just quickly on the Network Power specifically. The decremental margins have been pretty severe the last six months. Is that again mostly kind of just mix-related?
David N. Farr – Chairman and CEO: It’s mix-related and we expect that will start turning here. It is starting to turn as we see that business starting to recover. As I expect, that will continue to improve now as we move into the year in the second quarter.
Chinese New Year Visibility
Mike Wood – Macquarie Capital: Could you elaborate a bit more on the comments about expecting the Asian orders to gain momentum, and in particular, what’s your visibility like in front of the Chinese New Year?
David N. Farr – Chairman and CEO: Well, we have a pretty good visibility. We’re doing business there a long time. We see the order pace is. I mean some of the businesses will not have a good couple of weeks before the Chinese New Year, then it’ll come back. Clearly, every year there’s a Chinese New Year that just comes out a different time. We’ve just seen – I mean we just came – Ed Monser and I just came back from an Asia trip talking versus just couple of months ago. You are seeing a recovery now in China pretty broad across all of our businesses – the early cycle guides have already started coming into play. I would say what you will see for our businesses right now is a recovery will start happening in the second half for more of the Industrial, Network Power Systems, and Process and Climate will go earlier and they’re starting to move right now. So, that visibility is pretty good relative to order pace and just what’s happening. So we feel good about that. Same thing in India. We see that recovery going on right now. The one market I think is going to be weaker for us this year will be Australia because of huge investments the last couple of years. But overall, visibility right now in China, India, and Southeast Asia is pretty good. The order book is pretty good and I think that we’ll progress things will get better assuming the economic progression continues to happen as it is, we’ll get better as the year progresses. But I think you’re going to see in the second half that really get better, much better.
Mike Wood – Macquarie Capital: You also called out in the press release the negative margin mix in process from the lack of higher margin maintenance type projects. Is that already in the results this quarter or…
David N. Farr – Chairman and CEO: Yes.
Mike Wood – Macquarie Capital: So, we saw that impact?
David N. Farr – Chairman and CEO: You mean, what happen is, with a lot of discussion and I was just talking to Julian a few minutes ago the same thing. In a quarter we things that – clearly the MRO business which has been extremely strong in North America for us prior to last quarter was a little bit – people got a little bit nervous about what was being discussed and concern about the U.S. economy. So, they really pulled back a little bit and I would expect that as we go forward here, we’ll see that turn lose. But that mix is already built in the quarter. That’s a pretty quick – MRO is a pretty quick type of situation for us.