Emerson Electric FY 1Q16 Earnings Call Notes

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Emerson Electric’s (EMR) CEO David Farr on Q1 2016 Results

The last 30 days have been the most unusual in my time at Emerson

“As I look at our current marketplace, the last 30 days have been what I would call the most unusual in my time at Emerson. I have never seen a marketplace go so volatile from the standpoint of the end markets, the stock markets, the interest rates, I guess the attitudes. It’s just a very amazing marketplace right now and one that clearly global CEOs like myself have to deal with and be prepared for whatever comes at us.”

We’re in the 4th quarter of the recession, maybe one more

“But we are now basically in our fourth quarter of the recession. I see, as we will talk about next week, I see at least one more quarter, maybe another quarter.”

Oil market may not recover until late ’17

“We are looking at a situation, in my opinion in the oil and gas marketplaces, that will not recover until well past middle of ’17, maybe late ’17.”

I think the psychology is very tense at big oil

“I think the psychology is very nervous and tense within the big oil and gas investors at this point in time…I would say that my concern is the psyche of a Chevron or psyche of Exxon Mobil, psyche of these Shells and the BPs and things like that. I think they can freeze up some of that spending level. They can’t go to zero but I think it’s going to make it tougher. So my gut tells me that it is going to be more challenging I the near term”

Inventory levels are in pretty good shape

“I would say what my knowledge is right now, inventory levels within the channel including ourselves, our levels that, they are pretty good levels, low. And so the pace of business right now and the run rate where I see, I would say the inventory levels are pretty good for us. I don’t see much of a downward draft on that now. I think it’s pretty well over with, probably very minor downward draft. I think it’s pretty well there, around the world. I’ve been in Asia, have been around the world and I don’t see the inventory being a big issue for us right now. So that’s a good thing.”

I think China will be -5,6,7 range, but our team there is more optimistic

“I think that China in my opinion today, the forecast when we put that out there, I still think it’s going to be that mid-single plus digit. I think it’s going to be in that 5%, 6%, 7% range negative. I don’t see it changing. I would say my China organization is more optimistic than that. They are less negative. But I think that looking at what I see going on in China and the marketplaces around the world, I think that that’s going to be a tough one for them to do though they are working through the inventory that was built up in the first part of 2015.”

Hopefully we will start to see capital freed back up in oil and gas

“I think we are going to see a slow down and then hopefully as we get into the year, we will start seeing that capital freed back up. It can’t to go zero. It’s not going to go to zero but they are clearly going to reallocate and they are doing that really fast right now from our customer base”

Industrial automation sitting towards the bottom of the cycle

“relative to IA, I think IA got hit harder, sooner relative to the space they are in. And so there might be a little downside risk in IA but not that much. I think these guys are sitting really down, pretty far right now. I mean things can always go down further but my gut tells me they are pretty close to that cycle right now.”

My forecast for China is probably worse than what most people expect, so I’m concerned

“My forecast of China is worse than probably most people would say out there. So I am a little concerned about that one.”

There are some verticals that will do better than people think

“I think the answer is yes. I think there are some verticals that are going to do better than people think… We had a very very good run in oil and gas upstream and we gained a lot of growth, gained a lot of market share. And now what we are doing is refocusing those resources”

A leader has to take action

“I can’t speak to other people. I mean they’ve got to be looking at the same issues from the standpoint of too much cost, too much capital, fix that investments invested. They’ve got to be looking at that and so eventually they are going to have to say look, we’ve got to take action. A good leader — if they don’t take action I think there will be some other people coming and working on that issue. But from our standpoint I feel quite strongly as you know. We’re trying to deal with this issue. We make calls. I make calls, as you know my for a long time. I make a call. Sometimes I call right, sometimes I call wrong. But you have to make calls and say we’ve got too much capacity, things are going to be down longer, you’ve got to deal with it.”

Some companies are dealing with this well, others not so much

“I think there are several companies out there in my opinion in the industry right now that are doing a good job in dealing with this issue. There are several companies that are not and you know that. You can see it.”