Emerson Electric: Will Business Keep Booming?

Emerson Electric (EMR) provides electrical solutions and related engineering services for industrial, commercial, and consumer applications. The Process Management segment produced 23.9% of revenues for the first nine months of fiscal 2007. It offers measurement, diagnostic, and control systems designed for automated industrial processes. These consist of software for collecting and analyzing data, and deploying instructions to hardware such as valves and motors.

EMR provides instruments to measure the physical properties and analyze chemical compounds in liquids and gases. Valves, actuators, and regulators automatically adjust to optimize the process and maximize quality. PlantWeb enables customers to access real-time production data and diagnostic information. This segment also offers engineering and project management services.

The Network Power segment produced 22.0% of sales. It makes AC and DC power systems, which provide continuous power during outages and surges; embedded power supplies for microprocessors and peripherals; and inbound power systems, which automatically transfer applications to back-up generators. Related services include monitoring, maintenance, and 24-hour servicing. This segment also designs precision cooling systems for electronic equipment.

The Appliance and Tools segment produced 19.7% of sales. It makes motors, controls, assemblies, and other components used in residential and commercial appliances, water pumps, heating and air conditioning equipment, and various industrial, farming, and mining systems. It also makes hand tools, plumbing tools, storage equipment, and vacuums. The Industrial Automation segment, which accounted for 18.6% of sales, offers an array of products and integrated solutions designed for manufacturing processes. Products include gear drives, transmissions, alternators, fluid power and control products, equipment for joining plastics and welding metals, and precision cleaning tools.

The Climate Technologies segment, which produced 15.8% of revenues, offers products for residential, commercial, and industrial uses. Air conditioning and heating products include compressors, thermostats, gas and electric monitoring equipment, gas valves, and furnace ignition systems. Commercial products include food and beverage refrigeration equipment used in supermarkets, restaurants, and transport containers. Growth has come from technological leadership and an effort to expand markets. However, the weak domestic housing market has hurt Climate Technologies and Appliance and Tools—the two segments with more than half of sales generated within the U.S.

Fiscal Q3 net sales increased 12.6% year-over-year to $5.87 billion. Organic growth was 9%. The gross profit margin expanded 26 basis points to 35.84% and the operating profit margin widened 39 basis points to 16.09%. Net income grew 18.1% year-over-year to $574 million or 72 cents per share.

A slowing economy and continued weakness in housing could spell trouble for EMR, but management believes business will keep booming. It recently raised full fiscal year earnings guidance, suggesting fiscal Q4 sales and earnings per share should grow as much as 8% and 21% organically, respectively. Orders for the three months ending in July were up 5-10% year-over-year.