Emerson Electric 4Q16 Earnings Call Notes

Emerson Electric (EMR) Q4 2016 Results

If the economy doesn’t grow you’re going to see acquisitions

“Now if the economy doesn’t grow and we continue to struggle for growth, hence you’re going to continue to see acquisitions. That’s why you’re seeing acquisitions. U.S. companies have been going through a lot of restructuring, taking costs out. We’re running at pretty high levels of profitability for the level of sales we have, and hence that’s why you’re seeing acquisitions. That’s why you’re going to see that continue I think in the short term, unless there’s some kind of growth in 2017 which I don’t see at this point in time. So if this thing keeps going and gets sloppy, then we’re going to have to add to our acquisition pool, and that’s why we’re going to be looking at an additional $3 billion to $4 billion of acquisitions over the next two or three years to continue to feed our chance to reposition and restructure and derive top-line growth through acquisitions, because the core economic growth we do not see coming through for the next couple of years.”

We’re as close as we’ve been to price cost pressures, and I’ve told the people at the Fed this

“I’ll give you the best feel I have at this point in time. I fundamentally believe right now we are about as close as we’ve been for a while relative to this price cost pressures, being pricing has been, as you know, has been basically flat for us I think last year, last two years basically slightly up, slightly down, 0.1%, 0.2%. Now we’ve been able to offset that with stronger net material inflation. What I see coming into us right now, either this quarter or next quarter, is our price-cost ratio pressures are going to build. And so we’re factoring into higher cost reduction efforts within the company because I wouldn’t be surprised if we do not go red for one or two quarters on our price-cost ratios in 2017. I’ve told people at the Fed this same issue. There is inflation brewing relative to specific skill set, material deflation is slowing down if not starting to come up and our pricing capability is not that strong right now because there’s plenty of capacity out there and there’s not a lot of demand.”

We’re going to have to come up with cost savings to offset price pressures next year

” in order to hold our margins and improve our profitability next year, we’re going to have to come up with more stronger discretionary cost savings because I think price-cost will be working against us. That’s my call. I’m sure you’ve not heard that from anybody, but that’s my call”

Europe is weaker but it will grow

“But I’ve been openly been telling people – and if anyone’s hear me talk, they’ve heard me say Europe has definitely weakened. Europe is definitely growing. The euro is weaker, so again it’s going to help our European operation. The euro went back down into the $1.09 to $1.10. If it gets back up to $1.15, it’ll make it tougher. But it’s definitely going to weaken. And I think the hoopla around Brexit is hoopla. And so I think from my perspective Europe will grow next year but it won’t be as much growth as this year.”