Emerson 1Q17 Earnings Call Notes

David N. Farr

I don’t see a snap but I do see strong momentum

“That’s a lot of ask. I mean since I’ve been pretty bad at forecasts in the last couple years, Andrew, I mean you remember I did call that we’d turn last year at this time. But – so keep that in mind. And from my perspective right now, I think that what we’re seeing is the increased investments going on from a – just from pent-up – a situation for many years. We’re starting to see some of that flow out both in the sort of in the Automation space but even also in the Commercial space. So I see a pretty steady recovery here. I don’t see a snap. As I’ve said, I’ve always felt that 2017 would be a good year of building that foundation and see a improvement. I see a much stronger 2018 than I see 2017. But I see right now, based on what I’m seeing from the customer base, based on what I’m hearing from some of our customers and what they’re saying they’re going to spend on capital next year, overall, I think the pressure is upward, as I say. So I see a pretty steady improvement for the trend line. I do not see a strong snap, but I do see pretty good momentum going into 2018 as I look at it right now. Clearly, what goes on in Washington can have a big impact and a major shift in the sentiment around tax policies or trade policies. Those things all could have a big impact. But right now, I think momentum is going the right way, and we’re seeing that. And I don’t see it slowing down at this point in time. But I do not see a snap, as you said.”

It’s slow but there is a pickup

“I think we’ve started seeing the MRO, when I went out and talk – and the shareholders I think in November and December, we started seeing this pick back up. The oil and gas companies, some of our key oil and gas companies, some of our chemical companies, some of our pharmaceutical companies started increasing their spending. They had kept it really, really tight, and I think as they saw, okay, there’s going to be better, favorable policies to spend, encourage it, and to really encourage people to spend money, they started spending. It’s a slow, okay, here’s a little bit more money; you can go ahead and spend it. And I’ve seen the budgets being set the same way.”

A little more inflation

“Relative to price cost. As I’ve been talking for the last two quarters, we’ve seen the shift. So our net material inflation is less negative, i.e., we’re not getting as much commodity benefits from the cost benefits from materials as there’s been a slight inflating in the economy which is a good thing in reality. And from a pricing standpoint, we are still, probably, as we usually were six months behind. So as we said, the last four or five years, we’ve been green. Our price costs have been both slightly negative, from a negative price, negative net material inflation and we’re green and they’re offsetting it.”

Currency/competitive environment stable

“No. No. I don’t think the global competitive dynamic’s changed much right now. The euro’s been bouncing pretty tight between $1.06 and $1.08. If it goes to $1.10 it’ll be a real nice wind at my back. We’ve got our European structure right now pretty good, because we went through this process where the euro really weakened. So right now the dynamic world is pretty set and we haven’t had a lot of changes. It’s been more of a, I would say, what’s coming out of the political arena more than anything else is creating some changes. But we’ll see what happens here. Right, we’re all – I’m watching very clearly what the Washington folks decide to do relative to trade, what they do to tax. Because we are in a situation in pretty good from the standpoint of a cost structure and so we’re going to have to adjust and figure out where we go from there.”

Hoping for tax reform clarity by late summer, early fall

“I think we will get clarity as a nation by late summer, early fall. I think it will take time to get it rolled out and so that means that’s why we’re getting ready from the standpoint. I believe we will get some kind of tax reform which will include probably some trade renegotiations around that and what that means relative to how we bring products in and out of the country back-and-forth. But I think it’ll be tied around tax approaches to come up with a more equal tax policy and structure for the U.S. companies which will be good for us. But I think it’s going to take a while for them to get that done because there’s a lot of gives and takes and it will obviously include repatriation type of approach on an ongoing basis around the world so we pay it, no matter where we make the money and get the money back. So I’m looking for clarity by late summer, early fall and that gives me time, as I get into execution later this year, early 2018 based on if I have to change anything.”