Emerson Electric Co. Earnings Call Nuggets: Extra Costs, Fix Strategy
Steven Winoker – Sanford Bernstein: Can I just start off with question around the extra costs you actually had in the quarter on the supply chain and inefficiencies that how much was there really in that result and how much do you expect going forward, so in terms of expediting airfreight, line ramps things like that?
David N. Farr – Chairman and CEO: It’s a number we have, I don’t have it on the fingertips of my hand, but I would frankly what I say that about $35 million, around $35 million. So, between $30 million and $40 million in the quarter. Well, it’s more than that. I am sorry, it’s about $12 million for the second quarter, I apologize. (I looked) the number there for the first quarter. Frank just showed me the numbers and about $5 million. So it’s around – I’d say around $40 million for the whole year. Therefore, we’re going to be running around $10 million or $11 million for the second half of the year per quarter. It will be net cost.
Steven Winoker – Sanford Bernstein: So, $10 million or $11 million run rate for the next two, and then presumably you’re saying, then you’re finished at that point, right?
David N. Farr – Chairman and CEO: Right now based on the fact that we put some things on hold, I mean there is no way out it’s going to allow quality problems. We’ve already hurt our customers once; I’m not going to hurt them twice. So, I would say that we’ll probably have that – probably somewhere between $5 million and $10 million in the fourth calendar quarter too. It will take us all way out to this calendar year to get this done, and it’s pretty even now. We’re going to get the biggest chunk out in the first, but it’s third and fourth, and we’ll get some left over in the first fiscal quarter next year.
Steven Winoker – Sanford Bernstein: Okay, and then the second question is, is on the underlying core growth assumptions that you’ve talked about. My math tells me somewhere between 6.5% to 10% implied underlying growth for the second half to hit the 3% to 5% for the full year. So, I’m not sure how close that is to what you’re thinking, but if that’s true, that’s telling me I have got to have or you’ve got to have a pretty big pick-up in Climate, in Network; PM has got to continue growing strongly, and IA has got to be positive I think. So, maybe you could just walk through your expectations.
David N. Farr – Chairman and CEO: Yeah. Frank, you got the chart? Where’s the number? I’ll get the number here. I’m looking at the underlying sales chart from today’s (indiscernible) – right there. Give me one second, Steve.
Steven Winoker – Sanford Bernstein: Sure.
David N. Farr – Chairman and CEO: Okay. You’re approximately right. It can probably be somewhere between – it’s going to average between 6% and 8%, depending which quarter. One quarter it’s going to be probably 7%, one quarter it’d be about 8%; something like that. I mean that’s our current expectations; 6% to 8% per quarter.
Steven Winoker – Sanford Bernstein: And across the business units, how you’re sort of…
David N. Farr – Chairman and CEO: The big drivers are going to be from our standpoint, you have Commercial & Residential Solutions has been averaging about 7% in the first half of this year. Climate Technology does go positive and we see the order pace that ever go positive. I am a little bit concerned about how fast and how sustainable, so you’re looking at mid-single digits from my perspective. Industrial Automation is going to be low to mid-single-digit. Network Power will actually stabilize and be in the mid 5%, 6%, 7% top of range and Process is going to be obviously very strong in the second half of year above where it was in the second quarter. So, I mean, the second quarters is around 14, so it’s going to be – that’s going to be somewhere 15% and 20% somewhere in that range.
Steven Winoker – Sanford Bernstein: And I guess I’ll sneak one last one in, thinking about the last 60 plus days, what is it that sort of – what’s been the most surprising to you both on your internal information flow and externally, if you think about where you sat and where you sitting now that’s sort have changed?
David N. Farr – Chairman and CEO: In my perspective there is two things that happened. One, I did not plan to have to shut down some of my Process business again for a quality board. We moved a lot of boards, the boards that go into some of the instrumentation businesses and when I moved that board we had a very strict quality control on it and unfortunately we had some time – that we =– they were producing bad boards, so I did not anticipate that unfortunately. We’ve got that corrected, but you move that many board that quickly one would have to expect that but that hurt us. That was a surprise to us internally. And secondly I did actually expect to see more – I actually saw, expect to see some recovery in the month of March. Typically, this industry has always built a little bit ahead of time, but there’s been no build at all. In fact (indiscernible) liquidation almost all the way up to the end. And so we’re obviously operating in a different norm now. We’re basically going to be operating as orders, book and go. I mean there’s not going to be any build at all in this industry and the climate industry around the world. So those are two different things really impact us in the second quarter and that’s where we are. It’s just the fact of life that Climate businesses has had a very difficult year and you would expect that with the consumer spending that we’d see more business spending in the Climate area, which we have not seen. And now we’re starting to see some but the automotive – if you look at (what was reported) in the second quarter half the U.S. GDP was automotive sales, (a.k.e.) not housing or air conditioning for housing.
Deane Dray – Citi Investment Research: Dave, in the embedded power back in February you talked about launching a fix or exit strategy and hoping you can give us an update. We saw on the slide comments about aggressive product line rationalization, but any color in terms of where you are in that evaluation would be helpful.
David N. Farr – Chairman and CEO: There is no change. The strategy right now is we are on (aggressive restructuring to fix the) business and that’s where we are at this point in time and there will be nothing other than that focused internally and with that operation, and so there’s nothing new to add there at this point in time. The key thing for me is to fix this business and I saw progress in the quarter, which is a positive and I expect to see continued progress here as we move into this quarter here. And so we will start seeing a better result within that business as we get into this quarter; that’s where we are.
Deane Dray – Citi Investment Research: And on the Process side, the recovery out of Thailand was just to clarify, has there been any cancellations of size in that backlog?
David N. Farr – Chairman and CEO: No, in fact our backlog and order pace has continued to be very strong. We’ve been working with our customers, we’re spending extraordinary amount of money to make sure we support our customers and shift stuff around and expedite. It’s really difficult. We know we have an estimate of like $35 million, $40 million for the year cost of doing this. It’s really hard to estimate that. So, the key issue to me is and that’s why we put the word out very clearly, any question on quality you shut it down and confirm it because you do not want to have two hiccups here and we have not had any and from my perspective that’s very important in our backlog and support happens to be very strong at this point in time. So we’ve got to keep executing.
Deane Dray – Citi Investment Research: Last question for me, on China, you had talked earlier about an expectation of a soft landing, but then perhaps a reinvestment by the government in the second half. Are you seeing any of that just? There’s been some discussion about some investment in non-res and energy. I’d be interested in if you’re seeing it and how you might be positioned for that?
David N. Farr – Chairman and CEO: We are seeing some improvement in business environment spending right now. It’s not nearly the type of recovery that we had seen historically when they turned this on. I think there’s still lot of issues relative to the government, there’s lot of issues internally going on in that country right now, and so from the perspective of how much money is going to be reinvested and try to revitalize a weaker economy, I have not seen the magnitude of investment. Though we are seeing from an Industrial Automation, the Process standpoint, the Climate standpoint, the Network Power standpoint the orders for the last 45 days and continued this month have been good. So I do anticipate a stronger second half, though I do not see the same second half that you would normally expect in the type of mode that we would see from a recovery standpoint in China. So, it’s better, it’s still growing, but it’s not going to be anywhere close to what I thought it would be. (indiscernible) taking the underlying sales. I can’t bank on this at this point at in time.
Deane Dray – Citi Investment Research: Any lift from the energy investments they’re making?
David N. Farr – Chairman and CEO: Yes, I mean we see that. We do see that benefit right now in the Process and also in the Climate area. So, the answer is yes. But it’s not going to be – the investment that’s going in is not anywhere close to the magnitude of investments that we’ve seen historically.