Emerson Electric 2Q16 Earnings Call Notes

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David N. Farr – Chairman & Chief Executive Officer

Poor profitability has now begun to improve

“Poor profitability has now begun to improve, and we’re exhibiting strong cash flow and very good performance. And again, I want to thank the global Emerson organization out there for doing some very difficult heavy lifting in a very challenging marketplace.”

Europe has continued to improve

“From my perspective right now, as I look at the global marketplace, I just came back from Europe. Europe, our Western European business has continued to improve. I finally see some good momentum there. No, the economy is not going to be robust there, but they clearly are making investments.”

US has continued to be challenging

“To the U.S., the U.S. economy in particular around the industrial segment has continued to be challenging. And in certain segments, I would say even weaker within the U.S. marketplace.”

Capital budgets continue to be curtailed by oil and gas

“Relative to North America and particularly the U.S., it’s primarily just the day-to-day type of spending that you see on the oil projects, not really big project specific. It’s all around the day-to-day type of what we’d call the MRO type of – normal type of spend. But capital budgets are definitely being curtailed by most oil and gas guys. There are companies within North America, both in Canada and the United States. And so they’re continuing to tighten those belts up, and we’re seeing that business and that day-to-day business given our strength in this marketplace, which has been hurting us more on what I would call the shorter-cycle type of products.”

You’ve got to see stability in oil prices

“I think that the price of oil, I’ve talked about my opinion on the price of oil over the months here. I still think there’s a chance that we could slip back in the $30s and then start trailing back up towards $50. You’ve got to see stability in the $50-plus range toward $60 and then a continued growth of demand, which we see today around the world, the demand for oil and gas.”

Been shifting resources to small and mid sized projects because not as many large large projects out there right now

“From our perspective, we’ve been really pushing resources because there’s not as many large, large, large projects out there right now. So we redirect our resources back into the small and medium-sized projects to pick up that business because you’re right. If you look at our share, we go very high to large. We’re very, very strong in the day-to-day. In the middle, we’re probably the weakest, as you said. So we’ve been shifting some of the resources down from the large down to the medium and go after those – off to the smaller projects”

CEOs are being very cautious relative to spending

” If you look at our capital spending in the first half of the year, we’re down significantly from last year. I don’t think I’m any different from any other CEO out there, and I think that CEOs right now are being very, very cautious relative to spending, and particularly given they keep seeing weakness emerging in the industrial space. So I think that part is going to be pretty challenging here for the next six months until CEOs feel okay, I can let go of a little bit more money and reinvest back into the company.”

One surprise is that we have seen the US spending rate come back down again

“The one surprise we had is in the last couple months we’ve seen the U.S. spending rate come back down again, which bothers us. And that’s what’s created probably this delay by one month relative to April, the April target, which we have – I don’t know yet for sure, but just intuition tells me where we were at negative 4% that should have been closer to negative 2%.”

US is slow to start turning that nose up in sales

“I feel a little bit more worried about sales because of the U.S. marketplace in particular. I feel better about Europe, as you can tell. I feel a little bit nervous about Latin America because I still think these guys are still struggling. But the U.S., this I would say slow to start turning that nose up really bothers me.”