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Dividend Growth Newsletter holding Emerson Electric (NYSE:EMR) posted lackluster second-quarter results reflecting mixed industrial demand. Underlying revenue increased 2% year-over-year to $6 billion, modestly lower than consensus estimates. Earnings were a penny below consensus expectations, growing 4% year-over-year to $0.77 per share. However, thanks to higher net income and more favorable changes in working capital, free cash flow was 51% higher year-to-date at $916 million.

Emerson has various segments, but second-quarter results were driven largely by a strong performance from Process Management. Segment sales jumped 8% year-over-year from robust international demand. U.S. revenues in the segment were actually down 1%, but oil and gas industry demand from Asia (up 14%), Latin America (up 13%), and the Middle East and Africa (up 36%) more than offset this weakness. Strong sales growth translated to an 18% increase in segment earnings, which accounted for the majority of earnings during the quarter. Management believes U.S. growth will improve as comparisons ease in the fourth quarter of fiscal year 2013 and the first quarter of fiscal year 2014, but it's important to remember the U.S. business boomed throughout fiscal year 2012.

The Industrial Automation segment was negatively impacted by a steep European decline of 15%, which dragged segment sales down 6% year-over-year. The U.S. also declined 1%, while Asia declined 3%. The global capital goods market continues to look weak, though we were pleased to see cost savings efforts help preserve segment margins, which declined 40 basis points. We see no improvement occurring in Europe, and we think Asia could also remain weak. However, we think U.S. could marginally improve, helping offset some of the broader weakness.

Lackluster capital expenditure spending by telecom companies weighted on the Network Power segment where underlying sales declined 4% year-over-year. However, since the industry is so dependent on capital spending, we believe the segment will return to growth, and CEO David Farr agrees, saying:

"I just think people (are) being very cautious right now. I still believe that we will come back and it has - there is always - there is a lot of trends going on, but we try to take those in consideration both the positive and the negatives. So I haven't really looked at 14 or 15, again in 60 days, but I, I mean, my feeling is that business will return to growth and as we get - as we move out of the embedded power computing business, we will some reasonable growth in the Network Power Systems business, so I still say we'd come back."

Improvement in the U.S. residential market helped propel a 7% year-over-year increase in sales for the Climate Technologies segment. U.S. residential air conditioning jumped 23% year-over-year alone and even Europe posted positive growth of 8%. We saw modest sales leverage, as operating margins improved 60 basis points to 17.7%. Going forward, we think sales growth will continue, particularly as the company makes incremental investments into the segment.

Going forward, Emerson painted a picture of the global economy that's much more negative than what we heard from the company during the first quarter. Weak orders in February, March and April caused the company to slash its full-year underlying sales growth guidance to 1.5%-2.5%, down from its previous forecast of 2%-5%. The firm cited deterioration in business confidence and very few growth catalysts going forward. Oddly, the firm lowered its earnings per share guidance range by just 5 cents to $3.48-$3.58-perhaps suggesting that the company will put significant cash to work buying back shares.

Regardless, with cash flow generation robust, we intend to hold on to shares of Emerson in the portfolio of our Dividend Growth Newsletter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: EMR is included in the portfolio of our Dividend Growth Newsletter.