Order Growth Remains Positive
Source: EMR 8-K*
As one can see from the above chart, business in August was roughly in-line with that of the previous two months, though 'Industrial Automation' turned positive while 'Process Management' decelerated slightly. Regardless, we think Emerson's order growth is symptomatic of the broader US economy-investment in capital goods is modest but investment is still growing.
Of note, European demand in the firm's 'Process Management' and 'Climate Technologies' segments is strong, suggesting the long-awaited bottom in the Eurozone economy may be surfacing. Little else stood out from the firm's commentary, though it did mention that 'Process Management' demand in China remained robust, which is a bullish sign for an economy that seems to be reinvigorated.
Emerson Beefs Up Its Oil & Gas Business
In addition to posting August order trends, Emerson announced a modest acquisition that should strengthen its 'Process Management' business. Emerson acquired India-based Virgo Valves and Controls-a leading ball valve and high performance butterfly valve maker. The privately held Virgo brings with it $250 million in annual sales mostly outside of India. Terms of the deal were not disclosed.
Regardless, the newly acquired products should fit nicely within Emerson's existing lineup, and management expects to extract some cost synergies. The deal is expected to close next month.
As has been the story for the past few years, Emerson continues to experience sales expansion. Though the firm has posted weak headline results, free cash flow generation remains solid at the company, allowing for some nice dividend increases.
Given the firm's ability to weather mediocre conditions in the global economy, we continue to confidently hold shares in the portfolio of our Dividend Growth Newsletter. We anticipate further upside as economic conditions improve in the US and Europe.
*Order growth represents trailing three months order growth.
Additional disclosure: EMR is included in the portfolio of our Dividend Growth Newsletter.