Emerson Electric (EMR) Earnings Report: Q3 2015 Conference ...s.t.st/media/xtranscript/2015/Q3/13244467.pdf · Emerson Electric (EMR) Earnings Report: Q3 2015 Conference Call Transcript

CompanyName:EmersonElectricCoCompanyTicker:EMRSector:IndustrialGoodsIndustry:Industrial

EventDescription:Q32015EarningsCallMarketCapasofEventDate:34.30BPriceasofEventDate:49.64

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

EmersonElectric(EMR)EarningsReport:Q32015ConferenceCallTranscriptThefollowingEmersonElectricconferencecalltookplaceonAugust4,2015,02:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

CraigRossman;EmersonElectricCo.;DirectorofIRDavidFarr;EmersonElectricCo.;ChairmanandCEOFrankDellaquila;EmersonElectricCo.;EVPandCFO

OtherPart icipants

JoeRitchie;GoldmanSachs;AnalystRobertMcCarthy;StifelNicolaus;AnalystMikeWood;MacquarieResearch;AnalystJohnnyWright;Nomura;AnalystStevenWinoker;Bernstein;AnalystJulianMitchell;CreditSuisse;AnalystNigelCoe;MorganStanley;AnalystJeffSprague;VerticalResearchPartners;AnalystChristopherGlynn;Oppenheimer&Co.;AnalystRichKwas;WellsFargoSecurities,LLC;AnalystDeaneDray;RBCCapitalMarkets;AnalystShannonO'Callaghan;UBS;AnalystSteveTusa;JPMorgan;AnalystGautamKhanna;CowenandCompany;AnalystJohnInch;DeutscheBank;AnalystJeremieCapron;CLSA;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodday,ladiesandgentlemen.Thankyouforstandingby.WelcometoEmerson'sinvestorconferencecall.

(OperatorInstructions)

Thisconferenceisbeingrecordedtoday,August4,2015.

Emerson'scommentaryandresponsestoyourquestionsmaycontainforward-lookingstatementsincludingthecompany'soutlookfortheremainderoftheyear.InformationonfactorsthatcouldcauseactualresultstovarymateriallyfromthosediscussedtodayisavailableatEmerson'smostrecentannualreportonForm10-KasfiledwiththeSEC.

Iwouldnowliketoturntheconferenceovertoourhost,CraigRossman,DirectorofInvestorRelationsatEmerson.




CraigRossman (DirectorofIR):

Thankyou,Tim.I'mjoinedtodaybyDavidFarr,ChairmanandChiefExecutiveOfficerofEmerson,andFrankDellaquila,ExecutiveVicePresidentandChiefFinancialOfficer.

Today'scallwillsummarizeEmerson'sthirdquarter2015results.TheconferencecallslidepresentationwillaccompanymycommentsandisavailableonEmerson'sWebsite.AreplayofthisconferencecallandslidepresentationwillbeavailableontheWebsiteforthenext90days.

Iwillstartwithathird-quartersummaryasshownonpage2oftheslidepresentation.Netsalesinthequarterdecreased13%to$5.5billionwithunderlyingsalesdown5%.Thecontinuedpressurefromloweroilpriceshasresultedinfurthercapitalspendingreductionsbyglobaloilandgascustomersparticularlythoseinupstreammarkets.

Industrialspendingremainssluggishonaglobalbasisbutmostsignificantlyinenergyrelatedandcommoditymarkets.ThestrengthoftheUSdollarcontinuestobeasignificantheadwindforourbusinesses.

Thethird-quarterorderratesreflectedthecontinuationofdifficulteconomicconditionsasthetrailingthree-monthunderlyingorderrateshavebeendowninarangeof8%to10%overthepastfourmonths.Orderrateswereunderpressurebythesustainedheadwindsfromloweroilpricesandgasprices,capitalspendingweaknessacrossmanyofourglobalmanufacturers,weaknessindatacenterandglobaltelecommunicationsinfrastructureinvestment,andtheaffectoftheUSresidentialairconditioningcustomerpre-build.

Turningtoslide3.Grossprofitmargindeclined120basispointsto40.6%drivenbyvolumedeleverageasweadjustproductionandinventorylevels,unfavorablebusinessmixandtheimpactofthestrongerUSdollaronoperations.Overall,profitmarginsremainatasignificantlypositivelevel.

Restructuringexpensetotaled$36millioninthequarterand$89milliononayear-to-datebasis.Asignificantlevelofrestructuringexpenseisexpectedinthefourthquarter.Reportedearningspersharedecreased18%to$0.84.Thecurrentmarketconditionsrequirefocusonexecutionofthestrategicprogramsincludingglobalcostreductionactions.

Turntoslide4forthethird-quarterP&Lsummary.Asmentionednetsalesdecreased13%versustheprioryearwithunderlyingsalesdown5%.EBITmarginreflectstheimpactfromacceleratedrestructuringcosts.Inthequarter,approximately11millionshareswererepurchased.

Turningtoslide5.Underlyingsalesgrowthinthequarterwasdown5%excludingunfavorablecurrencytranslationof5%andtheimpactofdivestituresof2%.GlobaldemandwasmostlydownwiththeMiddleEastandAfricabeingtheexception,up3%.Acrosstheotherregions,theUSandAsiawerebothdown7%,Europewasdown2%andLatinAmericawasdown10%.

Turningtoslide6.Businesssegmentmarginsdeclined220basispointsto15.5%primarilyduetovolumedeleverage,unfavorablemixandincreasedrestructuringexpense.Operatingcashflowinthequarterdecreasedduetoloweroperatingresultsandtaxespaidonthegainsinthedivestitureofthepowertransmissionsolutionsbusiness.

Tradeworkingcapitalperformancewasaffectedbytheoverallbusinessslowdown.Overthenextthreetosixmonths,theglobaloperationsteamswillbeundertakingadditionalactionstoaligntradeworkingcapitalwithbusinessconditions.

Turningtoslide7fortheProcessManagementsegmentresults.ProcessManagementunderlyingsalesdeclinedby4%witha6%reductionfromacurrencytranslationresultinginanetsalesdecreaseof10%




inthequarter.O ilandgascapitalspendingremainedweakasaresultofloweroilprices.Upstreammarketsremainedunderthemostpressurewhiledownstreamactivityinchemicalandpowermarketscontinuestoprovidegrowthopportunities.

DemandintheMiddleEastandAfricagrewby5%reflectingfavorableactivitylevelsacrosstheregionparticularlyinmidstreamanddownstreammarkets.WhiledemandinAsiawasdown7%withgrowthinemergingmarketsoffsetbyslowingconditionsinChinaandcontinuedweaknessinAustralia.Europewasdown1%withstronggrowthinemergingmarkets,offsetbydeclinesinmatureWesternEuropeanmarkets.

Marginsweredown250basispointsduetovolumedeleverage,unfavorablemix,theimpactofthestrongerdollaronoperationsandincreasedrestructuring.DemandisexpectedtoremainweakthroughatleastthefirsthalfoftheFY16,andgiventhecontinueddownwardtrendincommodityprices,asignificantrecoverywillnotbeexperienceduntil2017.

Turningtoslide8fortheIndustrialAutomationsegmentresults.IndustrialAutomationnetsalesdecreased23%ascurrencytranslationdeducted7%anddivestituresdeducted11%resultinginanunderlyingsalesdeclineof5%versustheprioryear.Thethird-quartersalesreflectedcontinuedsoftnessinEuropeandemand,upstreamoilandgasandindustrialspending,specificallyinenergyrelatedandcommoditymarkets.DemandwasdowninallregionswithNorthAmericadown11%,Europedown2%andAsiadown1%.

Margindecreased80basispointsreflectingvolumedeleverageandunfavorablemix.MarketingconditionswillremainchallengingwithagradualimprovementinEuropeandsustainedheadwindsfromupstreamoilandgas.BusinesscapitalspendingplansareexpectedtoremainweakgiventhesoftnessintheglobaleconomiesandglobalGDPisexpectedtobelessin2015thanitwasin2014.

Turntoslide9fortheNetworkPowersegmentresults.NetworkPower'snetsalesdecreased17%ascurrencytranslationdeducted5%anddivestituresdeducted1%resultinginanunderlyingsalesdeclineof11%.ThethirdquarterreflectedcontinuedweaknessintheglobaldemandfordatacenterinfrastructureandtelecommunicationsinvestmentwithNorthAmericaandAsiatelecommunications'spendingdownsignificantly.

ThedifficultconditionswerefeltacrosstheregionsasdemandinChinawasdown28%,NorthAmericadown10%andEuropedown4%.Marginsdecreased510basispointsreflectingvolumedeleverage,lowerprice,unfavorablemixandincreasedrestructuring.Weexpectdemandtoremainmixedintheneartermwithareasofopportunityindatacenterinfrastructureandtelecommunicationspower.

Turntoslide10fortheClimateTechnologiessegmentresults.ClimateTechnologiesnetsalesdecreased6%ascurrencytranslationdeducted3%resultinginanunderlyingsalesdeclineof3%.DemandinNorthAmericawasdown6%drivenbyadouble-digitdecreaseinUSresidentialairconditioningcompressorsascustomerscontinuetoworkthroughremainingpre-builtinventory.

Asiawasup3%asgrowthinIndiaandSoutheastAsiaairconditioningandrefrigerationbusinessesmorethanoffsetslowingdemandinChina.Segmentmargindecreased130basispointsprimarilyduetovolumedeleverage,higherwarrantyexpenseandunfavorablemix.WhennormalizingfortheNorthAmericanresidentialA/Cpre-build,the12-monthrollingsalesgrowthisinlinewiththeindustry.Weexpectfourth-quartersalestobedownmodestly.

Turntoslide11fortheCommercialandResidentialSolutionssegmentresults.CommercialandResidentialSolutionsunderlyingsalesgrewby1%witha2%reductionforcurrencytranslationanda2%deductionforthetransferofaproductlinetoanothersegmentresultinginanetsalesdeclineof3%.

SalesgrowthinthequarterwasdrivenbyfavorabletrendsinUSconstruction,growthinthefoodwaste




disposals,andwetdryvacuumsmorethanoffsetdeclinesinprofessionaltoolsandstoragebusinesses.USconsumerspendinghasbeenlacklusterasrecoveryhasbeenmuted.ModestgrowthisexpectedinthefourthquarterasfavorabletrendsinUSconstructionmarketsareexpectedtocontinue.

Turntoslide12forthe2015outlook.Littlechangeisexpectedinmarketconditionsfortheremainderofourfiscalyear.Underlyingsaleswillcontinuetobeaffectedbyreducedlevelsofcapitalspendinginoilandgasmarkets,mostsignificantlyinupstreamprojectactivity,acontinuedbroadslowdowninindustrialspendingparticularlyenergyrelatedandcommoditymarkets,ageneralweaknessincapitalspendingbyglobalmanufactures,andsluggishgrowthincertainemergingandmaturemarkets.

Asaresult,underlyingsalesexpectationswillbelowerplacingcontinuedvolumedeleveragepressureonprofitability.Restructuringexpenseisnowexpectedtobeintherangeof$160millionto$180millionfortheyear.Basedonthecontinuationofthedifficultcurrenttrendsandtheirincreasinglynegativeimpactonresults,werevisedour2015outlookasfollows.

Netsaleswillbedownapproximately9%witha5%deductionfromcurrencytranslationanda2%deductionfromdivestituresresultinginunderlyingsalesthatwillbedownapproximately2%.Reportedearningspershareareexpectedtobe$3.97to$4.07whichincludesadivestituregainof$0.77pershare.AndwiththatI'llnowturnitovertoMr.DavidFarr.

DavidFarr (ChairmanandCEO):

Thankyouverymuch,Craig.ClearlyextremelytoughquarteranditgottougherasthequarterwentonaswegotintoJune.ThebignegatesurpriseforusinthemonthofJunewastheextremeweaknessinChina.WesawChinadropover$100millionfromprioryeardown14%plusversusprioryear.ThebottomfelloutinmanyofthecoremarketsinChinaandwedonotseethatrecoveringanytimesoon.

Ouroilandgasinvestmentscontinuedtoweakenasthepriceofoil,thepriceofgashascontinuedtoslide.Wenowexpectprettyweakordersinthisspaceforatleastthenext12to15monthsandwe'reabitconcernedaboutthepaceofrecovery.Sowhatwe'refocusedonrightnowisgettingourrestructuringdone,gettingthecompanyright-sizedtoaslowerpaceofbusinessandmakingsurethatwecanimproveprofitabilityevenwiththelackofunderlyingsales.

AsCraigmentionedyear-to-daterestructuringisaround$90million.Operationshavegearedupandareveryactiverightnow.Iwouldexpectthenumbertobeonitsomewherebetween$70millionand$100millionintheforthquarter,whichwillprobablybeinthe$160millionto$180millionmaybealittlebithigherifwegettheworkdone.There'salotunderwayfromaroundtheworld.

Frommyperspective,therestructuringfromwhenwestarteditbackinearlyFebruaryfromthestartofthistowhenwefinishthissometimeinearly2016,you'regoingtoseeSG&A,personnelheadcountdown8%to10%frombeginningtoend.Soamajorundertakingaroundtheworldaswecontinuetorepositionthecompanyforaweakmarket.

NotmuchIcandoaboutthemarketatthispointintime.Wefacetheotherissueofobviouslystrongcompetitioncomingoutoftheweakercurrencymarkets,inparticularoutofEuropeandJapan.Thosethingswehavetodealwithandthat'swhywehavetogetourcoststructureinline.

Asyou'veseen,theordershavecontinuedtostayweakinthenegative8%to9%range.Iwouldexpectthattocontinueforthenextquarteratleast.Wehavenotseenanyindicationtosaythatthingsaregoingtogetmuchbetter,sowe'refocusedondealingwithweakorders,weaksalesandobviouslyweakerproductionthroughoutourfacilities.

Soproductioniscomingdown,inventorieswillbeadjusted,wewillgetthecashflowback.Mostlikely




cashwillbetoughaswegointothefourthquarterbutwe'llgetthatintothatfourthcalendarquarterourfirstfiscalquarter.We'llstartrecoveringthataswegettheproductionbackinlineandwestartliquidatingtheinventoriesthathavebuiltupoverthelast12to18monthsastheslowdownshappen.

Theglobalteamsareactingfast.Theglobalteamsobviouslyclearlyfocusedontheshorttermandtherestructuringnecessarytogetourcostsbackinline,togetourproductionbackinlineandtomakesurethatwecanimproveourprofitabilityevenwithanenvironmentthatwe'reseeingrightnowthatwe'regoingtoseeminimal,ifany,typeofgrowthfortheforeseeablefuture.

AtthesametimetheteamsareveryfocusedondealingwithwhatweannouncedattheendofJunefromNetworkPower.AlsoourIndustrialAutomationLeroy-Somercontroltechniquesbusinessandthecontinueddivestitureofourmetrobusinessaswecontinuetostructurethecompanytofocusonsegmentsthatwewanttoinvestandgrowoverthelongterm.

Intheshortterm,we'reverymuchfocusedonexecutionaroundcosts,executionaroundgettingourbalancesheetbackinshapeandthenwe'llcontinuetomoveforwardattherighttime,therightpaceasweseethecoremarketsrecoverandasweseesomeotherinvestmentopportunitiesinthetwobusinesssegmentsthatwe'refocusingongoingforward.

Net,netobviouslynotapleasantquarter,onetodealwithandonetoreport.Fourthquarterisgoingtobeequallyaschallengingaswe'vehadsessionswiththeoperatingleadersherethelastcoupleofweeks.Andagainwe'regoingtobemeetingwiththemagainonThursday,Fridaythisweek.It'sallaboutgettingtheactionsnecessarytogetthecostdownandgettheproductiondownanddealwiththemarketplacethatwe'redealingwithrightnow.

Fromourperspective,we'renotlosingthismarket.It'sjustatoughmarketforusandthere'snowaytocoloritotherthanthat.It'stoughandwe'redealingwiththattoughnessatthispointintime,andthat'swhereweare.Andsowiththatopenthefloorupforquestions.

QUESTIONS&ANSWERS

Operator :


We'lltakeourfirstquestionfromJoeRitchiewithGoldmanSachs.

JoeRitchie (Analyst-GoldmanSachs):

SoDave,look,thefundamentalsjustcontinuetogetworse,themarketisnotgettinganybetter.I'mwonderinghowdoyoufeelcomfortthatyouguysaredoingenoughfromarestructuringstandpointatthispoint?


Yougiveityourbestshot.Aswelookattheforecast,aswelookatwhereweseethingsgoingandwebiteoffasmuchaswecando.Andwhat'sunderwayrightnowisalotandweimpactingabigchunkofthiscompanywithalotofcostsandit'snotreallyfacilities,we'redealingwithanoverheadstructurerightnowtryingtogetitdown.

Andatthesametimewe'regoingtohavetodealwithanoverheadstructureaswegointoasmallercompanyaswemoveoutof2016.SoIprobablybelievewespendalotoftimeonthis.Ifeelthatwehavetherightactionsunderwayandwe'retakingtherightamountofcostout.





Okayandthe$225millionthatyouexpecttospendbythefirstquarterofnextyear,Iknowyou'vetalkedaboutapaybackof1to1.Canwesee--willweseeallofthepaybackbyFY16orissomeofthatgoingtobleedinto2017?


We'rehopingtogetcloseto$200millionintheFY16.Ourgameplanhereistogetourcostsdowninaverydifficultvolumeenvironmentsowecanimproveprofitability,improveearningsinatoughmarketplace.That'swhywe'retakingashardandquickactionwe'retaking.

You'redealingwithpeoplehereandthisis--we'renot--there'snotalotoffacilitieswe'rerationalizingtherebecauseourfacilitiesareprettywellrationalized.Whatwe'redealingwithisanoverheadstructure,tryingtogetthecostoutsowecandrivethatprofitabilitytothebottomline.Thathowyougetthat--thesavingssofast.


Okay,fairenough.MaybeonelastquestionandI'llgetbackinqueue.Iknowit'sstillearlybutanythoughtsyetonyoujustannouncedthestrategicalternativesforafewofyourbusinesses,anyprogressyet,anyinterestonthosebusinesses?Justanycolortherewouldbehelpful.


It'searly.We'vegot--we'veobviouslyhadsomeinterestbutit'stooearlytodealwiththat.We'reworkingdownthespinrouterightnow.It'stooearlytotalkabout.Ithinkit'sgoingtobeworkedforthenextthree,four,five,sixmonthsandwe'llspendfromthatstandpoint.

[Therearemetro]actionmostlikelywillbedonesometimebeforetheendofthiscalendaryear.We'retargetingsometimeinOctober.


Thanks,I'llgetbackinqueue.

Operator :

We'lltakeournextquestionfromRobertMcCarthywithStifel.

RobertMcCarthy(Analyst-StifelNicolaus):

Goodafternoon,everyone.Dave?


Yes.


Yes,sothefirstquestionisreallychallengingnumbersacrosstheboardglobally,doyouthinkthere'sanissueofsharelosshereinadditionbecausewehaveseenveryweaknumbersgloballybutnottotheextentmaybeinthisvarianceforthequarter,sohowdoyouspeaktothatorcanyouspeaktothe--areyouleveragedtoaparticularendmarketorsubendmarketparticularlywithrespecttoChina?Anything,anynarrativearoundthatwouldbehelpful.





OurChinabusinesshasheldupreasonablywellforthelast18months.Butwe're--andChina,wedon'tfirmlybelievewe'relosingbusinessatthispointintime.Wedon'tseeanyindicationofthat.Butwe're--inChinawehaveverystrongmarketsrelativetothestrategic-ownedenterprises--thestate-ownedenterprises,whichare--havereallycutbackonspendinghereinthelastthreeorfourmonthsasthatgovernmentratchetbacksomeoftheissuesthey'redealingwith.

SoifyoulookatourProcessbusinesses,youlookatourenterprisebusinessinChinaandifyoulookatsomeoftheotherclimatebusinesses,we'reseeingthesewherethestaterunenterpriseshavereallycurtailedstockspendingandtheydiditverysuddenly.Sothisissomethingnewfromourperspectivetoseethattypeofdropoffthatquickly.

AnduntilweseesomekindofstabilizationwithintheChinamarket,theChinaGovernment,I'malittlebitnervousaboutChinaandarecoverythere.Sowe'reexpectingthenextcouplequarterstobeprettytoughthere.Butthat'swhereitis,it'saroundthatChina--thosespendingatourkeycustomerbase.


Andthenasafollowup,David,Iknowit'searlyandyougottherestructuringandtherestructuringbenefits.Butconceptuallythinkingabout2016,doyouhavethevisibilitytosayhey,wecouldbeclosetothebottomhereintermsofEPSdegradationortooearlytotell?What'syourviewof2015versus2016?Isitpossibleforyoutogrowin2016?


Ithinkthebigissueformerightnowiswehadaverystrongfirstfiscalquarterof2015.Wewereupalmost5.5%underlyinggrowth,wewereupverystrongearnings,double-digitearnings.AndIthinkthevisibilityrightnowisverychallengingbecauseIknowIgotthatbighillIhavetoclimbsittingrightoutinfrontofme.Andthatthefourthquarterisverystrongforuslastyearandourfirstfiscalquarterisverystrong.Soit'salittleearlyforustoseehowwecomeoutofthataswegetthroughthenexttwoquarters.(multiplespeakers)

That'sthebigissuerightnow.Thenexttwoquartersarelookingathugewallsthatwehavetogetthroughandseewhatwe--orfromanorderstandpointandbacklogcanwegetuptheretogetsomekindofgrowthinthesecondhalfofnextyear.


HowdoyouthinkaboutM&Ainthisenvironmentwiththeprospectsofacyclicalrolloverandbidaskmaybewideningbetweensellerexpectationsandbuyerexpectations?DoyouthinkthiscoolsyourpotentialappetiteforM&Aoryourcapabilitytogetthingsdoneofsize?


Iftherightthingcomesalongwehavethecapabilityofdoingit.Rightnowwe'relookingatdivestituresandspend.Iftherightopportunitycamealongfromanacquisitionstandpoint,we'djumponitprettyquickly.Idon'tthinkthathasanyissueforusandweunderstandthat.


Thanksforyourtime,Dave.


Okay,you'rewelcome.




Operator :

We'lltakeournextquestionfromMikeWoodwithMacquarie.

MikeWood (Analyst-MacquarieResearch):

AnotherquestiononthesharewithEmerson.SpecificallywithNetwork,thathighsingle-digitunderlyingorderdeclinethatdoesseemworsethansomeofthepeers.Morepeersexposedtopowermanagementnotseeingseveredeclines.Canyoumaybespeaktoisitthedatacenterandtelcospecificallyorhowyourpowermanagementsubbusinessisholdingup?


Thecorebusinessisholdingup.Wehadaverystrong--wehadsomebigprojectwinslastyearatthispointintime.Wealsohad--wehaveaverystrongpresenceinChinawhichisuniqueinourtelcospace.InChinaandNorthAmerica,telcoreallyhave--havereallycutbackinspending,sothat'swhyyouseethosenumbersarealittlebitmoredrasticthanourcompetitors.Underlyingbusinessisprettymuchinlinewiththat,butthetelcospendbothinChinaandNorthAmericaverydifficult.


Allright,veryhelpful.Andthencanyougiveusanupdateontheinventoryontheclimatesideandwhenthatmightbeworkeddown?


Becausewelookthroughthecyclefromthestandpointwelookat12months,it'sprettywelltrending.Iwouldsayrightnowourestimate,notestimateweknow,1.1millionunitswerepulledforward.Iwouldsaythey'reprobably80%throughthatrightnow.WeshouldstartseeingsomeNorthAmericarefillingproductionisreally--ourinventoriesrightnowproductionlevelsarelowsoweexpecttostartseeingthatflowthroughinthefourthquarter.

However,theissueforus,thecomparisonmaybeverydifficultbecauselastyearwaswhenweweresellingitbothinthefourthandfirstquarter.Butwe'reseeingitcomebackinifyoulookattheunderlyingIwouldsaypaceasimprovinginNorthAmerica.SoI'dsaythey'regettingthroughitprettyquickly


Thankyou.

Operator :

We'lltakeournextquestionfromJohnnyWrightwithNomura.

JohnnyWright (Analyst-Nomura):

JustneedacommentDavearoundthecompetitionoutofJapanandEurope.Isthatpartlyreflectedinthepricingenvironmentandisthatontheprocessside,whatareyouseeingtherefromcompetitivepricingperspective?


WehavetheJapaneseandEuropeancompetitorsonmost--acrossmostofourbusinessesbothontheProcesssideandIndustrialsideandClimateside.Andclearlywiththeweakercurrenciestheyhavetheopportunitytopricetodrivethatbusinesstheirway.




We'reworkingextremelyhard,oneofthereasonswe'reworkingsohardonthecostisbecausewedonotwanttoloseanypositioninthissituationwhereweareatahugedisadvantagewithastrongerdollaragainstourEuropeanandJapanesecompetitors.Sothepricingisdefinitelytougherandfromourstandpoint,we'redealingwithit.

Theoneeventwedohaveaswegetintothe2016environmentiswiththeweakercommodityenvironment,theweakermaterialenvironment,wewillstartgettingbenefitfromthataswegetintothefirsthalfofnextyear.Andthat'sabigadvantageforusandhelpusoffsetthispricecost.RightnowI'dsaywearestill--asyouunderstandwelookatthispriceandcost,we'restayingprobablyprettyclosetobeingneutralorslightlygreen.Andthekeyissueformeistostayaheadofthispowercurve.

Yeswehavepricerefreshersinparticularfromour--theweakercurrenciesoutthere.Butour--thecommoditysupplysideguysareworkingextremelyhardrightnowtogettherespectivecostreductionstohelpkeepuspricecostgreenaswegetintothistougherpriceenvironmentin2016.Sothat'swherethewarisrightnowandIfeelgoodaboutthebattleandIfeelgoodaboutwhereweare.


Okaythanks.AndthenI'mgoingtostickwithProcess,fromaverticalperspective,obviouslyupstreamoilandgasarestayingprettyweakbutsomeofthedownstreambusinesseslikechemicalandpoweractuallyseemstobeholdinguprelativelywell.Maybeyoucantalkaboutwhatyouseethereintermsofquotingactivityandhowyouseethoseverticalsholdingupinto2016?


Thedownstreaminparticularpowerhasheldupextremelywell,andcertainchemicalssegmentsheldupextremelywell.Theorderpaceisatrecordlevels,itcreatesalittlemixshiftforusalittlebitbutpressuresandprofitability.Butthatactivityisvery,verygoodrightnowandwefeelgoodaboutthat,andinparticularbothinNorthAmericaandinEurope.Asiaisnotthatgood.Indiaisgoodforusrightnow.

Butdownstreaminpoweranddownstreaminthepetrochemicalareaonthechemicalareaweseegoodpricing.We'realittlebitnervousrightnowrelativetothere'sbeenalotofactionsbymajorglobaloilandgascompaniesherethelasttwoweeksandthatwillobviouslystartflowingbackastheycontinuetogetpressureintheircapitalspend.

AndthatcouldpossiblyhaveanimpactonwhatwewouldcalltheirMRO,theirrepairbusinessiftheygetalotofpressureoncuttingtheircapitalevenmore,they'llcutbackincertainareasintheMROareaandwe'llstartfeelingthat.That'sanotherconcernIhaverightnowwiththecontinuedweaknessofthepriceofoilandgas,withwhereisthepriceofoiltoday,down$45?It's$45sothatbothersmealittlebitthere.


Okay,allright,thanks,Dave.


You'rewelcome.

Operator :

We'lltakeournextquestionfromStevenWinokerwithBernstein.

StevenWinoker (Analyst-Bernstein):

Dave,ifwegoto2015justfollowuponeofyourearliercomments,ifinfactrevenuedidgonegativenext




yearandwassaydownIdon'tknow1%orso,couldyoustilldrivemarginexpansioninthatenvironmentwithalloftheputsandtakesthatyou'retalkingabout?


That'sthegoal.(multiplespeakers)That'stheaim,that'swhatwe'retryingtodo.Everyoperationguyistryingtofigureouthowtodeliverimprovedprofitabilitywithnogrowthorslightlynegativegrowth.


Rightandifwethinkaboutwhat'spossibleinthatgoalgivenalltherestructuringthatyou'redoing,you'recallingoutrestructuringitsoundslikethroughthe,atleastthefirstquarter,butclearlyintheenvironmentthatyou'redescribingit'shardtoimaginethatyouwouldn'tberestructuringthroughmuchoftheyear.Isthatafaircomment?


Whatwe'retryingtogetdoneiswe'lldosomeinthefirsthalfofnextyearbutwe'retryingtogetitdonesowecanstabilizethebusiness.Andwe'veidentifiedwherewewanttogowithrestructuring,identifiedthecost.Wehaveamapwherewethinkthingsaregoingtoheadoutandthat'swherewe'refocusedrightnow.Myobjectiveisgetthis--themajorworkdoneaswegetintothatsecondfiscalquarterofnextyear.


Right.AndIguessifIalsocompareeverythingthatyou'regoingthroughrightnowcomparedtowhatyouwentthroughin2008,2009,onedifferenceitseemsmaybe,Idon'tknowifIcallitabrightspot,isthatatleasttheorderratesarenotgetting--deceleratinganyfasteritseemsfromthe--butisthatjustatemporarythingbasedonwhatyou'reseeinginthefrontlineandallthesequotingactivitiesthattherecouldbeanotherstepdownfromhere?


I'mgladyousawabrightspotinthere,Steve.


I'mlooking.


Ioweyouaglassofwinewiththatone,Idon'thavemanybrightspotshere.


Igotmymagnifyingglassout,Dave.


You'regettinghalfaglassofwineonthatone.Okay,atthispointintimewedonotseeitsteppingdownontheorderpace.Welookatthetrendlinesandwelookatthevariousbusinesses.Itlookslikeitsbouncingaroundthisbottom.Thequestionisthereanythingthat'sgoingtopullitbackup.Weknowwhatthecomparisonarelikeforthenextcouplequarters,butIdon'tseeastepdownatthispointintime.

Itlookslikeit'stryingtobottomhere.AndI'vecalledthisbeforeandI'vegotmyasskickedtobehonest




andthat'snotaswearword,Steve.It'skickboxinghere.I'vebeenkickedaroundtheringacoupletimesherethisyearanditlookslikeit'sforming.Idon'tseeanotherstepdownatthispointintime.

Nowunlessyousawasuddenbreakinoiloryousawasuddenbreakincommoditiesdownintosayinthe30sorbelow,thenthatwouldcreateanotherproblem.


Okayandthenfinallynonres,youspokeabouttherespressure,whatareyouseeingonthenon-resside?


Non-resNorthAmericais--we'vehadadecentenvironment,it'scontinuedtoweaken.TheactualwhatIwouldcallthecapitalspending,thetypeofproductsthatwesellhavenotbeenallexciting.There'sbeensomenon-resconstruction,butthebasiccapitalspendingenvironmenthasnotbeenverygoodinNorthAmericaandintheindustriesweserve.

Wedon'tservetheautomotiveindustryandsoitsbeenveryanemicatbest.Andthere'sbeenverylittlerecovery.Andthenyou'llseealotofdropoffasalltheindustrieshavesupportthebroadoilandgasindustrybothhereinNorthAmericaandLatinAmericaandaroundtheworld.Soitsbeenprettybroadandit'sbeenbusinessbybusiness.Ifyoulookatthesegmentsthatwelookat,thisisprettybroadacrossverymanybusinesseshere.


Okay,great.Thanks,Dave.


Thanks,Steve.Ioweyouhalfaglassofwineforthatpositiveyougavemethere.


Nextweek.Coupleofbeers.


Okay.

Operator :

We'lltakeournextquestionfromJulianMitchellwithCreditSuisse.

JulianMitchell(Analyst-CreditSuisse):

Aquestiononthegrossmargins.Iguesstheygotuptoabout42%secondhalfoflastyear,they'renowdownto40%.Maybepauseoutbetweenmixandvolumedeleveragingwhichonewasmoreimportantwithinthat?Andthenwhenyou'relookingahead,howdoyouthinkabouttheabilitytoholdthegrossmarginataround40%consideringpricecostandyour(inaudible)?


It'sabout50/50onthedegradationthere.Westillfeelverygoodaboutaswe--recoverystructureandstufflikethatthatwe'llgetthisthingmovingbackup.Istillbelievethere's2--fromthe42%Istillbelievethere'sabout200basispointsimprovementintheGPmarginforthecompany.




Sowe'reclearlygoingthroughalotofrestructuringrightnow,there'salotofmixgoingonandthere'salotofdeleveraging.ButtheunderlyingfundamentalGPmargininthisbusinessisstillprettygoodandit'llmovebackupintothat44%rangeaswegetthere.


Thanks.AndthenjustwithinIndustrialAutomation,obviouslyaverybigdropinNorthAmericathereinthequarter.MaybejustremindushowmuchofthatbusinessgloballyorNorthAmericayouthinkisdirectorindirectoilandgas?


InNorthAmerica,it'sprettyheavyoilandgas.NorthAmericait'svery,heavybecauseit'sCaterpillar.AndsotheCaterpillarbusinessisoffsignificantlyandthat'sprimarilyaNorthAmericabusiness.Sothat'swhat'sdrivingthatdownbothfromthestandpointifyoulookatwhatthey--whatweserveintotheirsolartypeofbusinessandalsotheirgenerationoftheoilandgasplatformsintheminingarea,that'soffsignificantlyastheycontinuetotakeinventoryoutastheycontinuetotaketheirproductiondown.

Soweexpectthatthatwillrun,keeprunningthiswayforthenextcouplequartersastheykeepdoingwhatthey'redoing.Butthat'swhatthatisprimarily,it'sveryheavyoilandgas.


Thankyou.Andthenjustlastly--


Andit'senergyrelated.


AndthenquicklyonProcess,youtouchedonMROearlier,soIguesshaveyouseenMROholdupuntilnowanditsallbeenCapExthat'sbeencomingoffintheordersandsales?


Yes,wehavenotseentheMROcomeoffyetbutI'vegonethroughenoughofthesecyclesasyouguyswellknow,I'malittlebitolderthanyou,andwhenIseetheoilcompaniesreallyunderthepressurerightnowtocutcapitalevenmorefromtheirshareholderbase,Iknoweventuallywhatthatmeansisthey'llcutintothecoreMRO.

AndsoIwouldexpectthenextsixmonthsforourProcessbusinesstostartseeingsomeoftheMRObusinessgetcutbackwhichwon'thelpus,itwouldbeanotherlittleheadwindforus,butwehavenoindication.Ijustknowwhathappens.Theseguysaregoingtogetpressuretocutcapital,weknowthat'sgoingtohappen.


Understood,thankyou.


Youtakecare.

Operator :




We'lltakeournextquestionfromNigelCoewithMorganStanley.

NigelCoe (Analyst-MorganStanley):

WanttogobacktoChinayourcommentsaboutJunesoundsquitefranklyquitedisturbing.WhatdoyouthinkcausedthatdropoffinJune,Dave?Isitliquidity,isitthegovernmenttellingyouyeswehavetopullbackonspending,whatdoyouthinkcausedthat?


Themajorstateofownedenterprisesisthere'sbeenalotofcontinuedcrackdownontheethicalissues,thearrestingandreplacementofmanagementteam,people--alotofpeopleareafraidtomakedecisions,they'regoingtomakebaddecisions.Sowe'veseenthisonabroadbaseandalotofourcustomerbaseacrossChinathatthere'sbeenacurtailmentofspendingastheyfigureoutwhat'sgoingtogoonrelativetotheleadership.

AndthiswholeuncertaintyrelativearoundChinaandtheleadershipofwhoseincharge,whosenotinchargerelativetothebusinesses.Andsothere'sbeenabigpushinthisareaagainandit'sobviouslyreactedverystronginsomeofourcustomerbasewhichwehavealotofstate-ownedenterprisesandcustomersinboththeProcessworldandtheNetworkPowerworldinparticular.AndtheygothitrealhardinChinaandIexpectthat'sgoingtocontinueuntilweseesomecleardirectionofstabilityintheleadershipofthevariouscompaniesoutthere,there'salotofthosecompaniesarehavingalotofmanagementchangesrightnow.


Soyou'veseenabigdivergencebetweentheSOEsandprivatecompanies?


Yes.


Okayandthenbasedonyourcommentsaroundordersthenextthreetofourquarters,Ithinkyousaidthatthey'regoingtoremainquiteweak.Andthengiventhatyou'retellingyourManagerstobasicallyaimtorestructuretogrowmarginson(inaudible)sales,wouldyousuggestthatwebaseourmodelsonthatbasis,Dave?


Ithinkit's--partofmybeliefisyou'vegottowaituntilIgetthroughthese--I'vegottwobigmoundsthatwe'vegottogetthroughhereboththefourthquarter,whichwasaprettystrongforuslastyearandthefirstquarter.We'vegottoseehowwegetthroughthesemounds,howweseetheunderlyingorderpace.HasitreachedthatbottomandIthinkit'salittlebittooearlytobankonthat.


Okay,fairenough.AndfinallyDave,ontheProcessmarginsrecoveredfromQ2intoQ3upabout3pointsQtoQex-structuringwithverylittlehelpfromvolumes.SoI'mwonderingwhatdrovethat,wasthatcostsavesfromrestructuring,wasthereamixbenefitQtoQ?


We'regettingthecostsout.





Okay,thanksDave.


Thankyou.

Operator :

We'lltakeournextquestionfromJeffSpraguewithVerticalResearch.

Jef f Sprague (Analyst-VerticalResearchPartners):

DavebacktothisMROandOpExversusCapExdiscussion.We'veheardfromalotofcompaniesactuallyalittlebittheoppositethattheOpExhasbeencutbecausethat'swhattheircustomerscaneasilycutandperhapstheCapExcomeslaterdowntheroad.Isthere--doesthatintuitivelymakesense?Istheresomethingdifferentinyourbusinessmix?


WhatIsaidisthatuptonow,they'vebeencuttingtheprojectspending,theircapitalspending.Andnowmyconcerniswiththemostrecenttwoweeksofwhatalltheannouncementscomingoutofthemajoroilandgascustomerbaseouttherethatthey'recuttingcapitalagain,they'recuttingprojectagainandmyconcernisthey'regoingtostartcuttingintotheMRObasewhichhasheldupuntilnow.I'mjustgivingyoumygutfeelforthisthing,that'swhyIwastellingpeople,thatastheycontinuetogetpushedbytheirshareholderbasetocuttheircapitalspendingandprotecttheirfreecashflow,thatthey'regoingtostartgoingintoMROhereintheProcessworld.We'veseenitinthepast.


HowmuchdoyouthinkEmersoninternalCapExdeclinesin2016?


Dependswherewefinishthisyear.It'llgodownnextyear.Iwouldsaythatwe'regoingtobedownto2.8%ofsaleslevel.


Andthenjustlastoneforme,Dave,sharerepoyoudohaveafairamountofliquidityyouexpressedthewillingnesstododeals.Butjustwonderyoufeelliketheorganizationcouldtakeonalargedealinthemidstofallthischangeandwouldyoupreferrepooverdealsoristhereanyparticularprioritizationthere?


Iftherightstrategicdealcamealong,wewillslowdownrepoanddothedeal.Inthemeantime,rightnowwe'rebankingonprobablyaround$1billionrightnowfornextyearinsharerepurchase.Andsothat'swherewe'regoingtofocusbuttherightdealcomesalong,we'lldoit.


Thankyou.

Operator :




We'lltakeournextquestionfromChristopherGlynnwithOppenheimer.

ChristopherGlynn (Analyst-Oppenheimer&Co.):

Dave,thethirdquarterrestructuringwaswellbelowplan.Nowyouhaveabigtargetforthefourthquarter,sojustwonderingwhatwerethetimingfactors,someoftheprioritizationthatcausedthattomovearound?


Itisfunctionaroundannouncingincertainmarketsandgivingoutthedual--thepropernoticeinparticularoutsidetheUnitedStates.Andsoittookusalittlelongertogetapprovalsandnowwe'removingforward.Wehavethoseandweprettywellhadthisinsinkrightnowaswemoveintothisforthquarter.

Sometimesyouguessalittle--notguess,youplanalittlelongandifittakeslongertodothediscussionsandnegotiations,thenyoumissitby30daysorso.Andthat'sbasicallywhat'sgoneonthere.Butit'sinthepipeline,it'scoming.Andthequestionishowmuchcanbeannouncedanddiscussedwiththeorganizationsaroundtheworld.Andthat'swhyIthinkwehadsuchabroadrangehereforthefourthquarter,it'safunctionofwhatcanbeformalizedwiththediscussionsandnegotiations.


Okay,makessense.AndtheninNetworkPower,couldyougointoalittlemoredetailonthenegativepricethere?Idon'tthinkthatwasmentionedlastquarter.


China.It'sreally--itwasvery--asthatmarket--themarketsdroppedoffandthebigenterprisesusingitsleveragetodrivepricedown.Thelocalproducersarealllookingforbusinessrightnow.Themarketsweakenedandtheirexportabilityhasweakenedbecauseoftheirmarketplacesandsothereforethey'relookingatdroppingpricestotrytoprotectandthat'sgoingto--we'regoingtohavethatsituationgoingonhardandinthePowerareaandinparticularacrosstoChina.


Okay,thanks.

Operator :

We'lltakeournextquestionfromRichKwaswithWellsFargo.

RichKwas (Analyst-WellsFargoSecurities,LLC):

OnProcesssoat$45to$50oilrelativetotherestructuringyouhaveinplacenowifthiscontinuesdoyouenvisionhavingtodoalotmorebeyondthat?


Ithinkwe'reprettywellsizedinthe$40to$50rangerightnowandmynextthresholdisitpossiblethatthatwillcreate--thatthat'sgoingtocreatesomeverydifficultchallengesthatwe'regoingtohavetolookathowwereorganizeandtotakecostsouttoprotectthatprofitability.


Okaybutinthisrangeyoufeelokay?





Yes,wefeelokayhere.


Okay,okay.AndthengoingbacktonotthispastInvestorDay,theonebeforein2014,soyouhadthisbiginitiativearoundspending.Iknowthatprobablyaffectedsomeofyourbusinessesthatarebeingseparated,butwhat'sthelatestonthat?AndIassumethatthat'sbeencutbackinameaningfulfashionhere.


It'sbeencutbackinaverymeaningfulfactor.Clearlytheopportunitiesforgrowthrightnowarenotthere,sowe'recurtailingthatspendingandwhereitdoesn'tmakesenseandit'sbeencutbackquitesignificantly.


Isthereanythingthatyou'redoingspendingoninthisenvironment?


Yes,westillhavefromatechnologystandpoint,someinnovationstandpoint,we'restillspendingmoneybutwe'rebeingveryselectiveandalotofprojectsbeingpushedoutanddelayedandsloweddown.Soyes,includingsomeoftheOracleinvestments,otherthingslikethatthatweevenhavesloweddownthatstuff.


Okay,andthenthelastone,quickmodelingquestionfornextyeartypicallyyourunonathree-yearincentivecompwhereitgetsthere'sadoubleupeverythreeyears.Soaswethinkaboutnextyear,usuallyit'saprettybigrampwhenyougetintoayearlikenextyear,soisthatstillthecase?Idon'tknowifFrankcancommentonthat?

FrankDellaquila(EVPandCFO):

Yes,there'llbetheoverlapnextyear.Rightnowwe'relookingat[50to75]butit'searly,yettotellexactlywhatthat'sgoingtobe.Butyou'rerightaboutthestructureofit,there'llbeanoverlapnextyearandthatwillbethebiggestyearforthat.


Okay,great,thankyou.

Operator :

We'lltakeournextquestionfromDeaneDraywithRBC.

DeaneDray(Analyst-RBCCapitalMarkets):

IwashopingtogetalittlemorebycalibrationontherestructuringintermsofyousaidheadcountandSG&Acouldcomedownbetween8%and12%.





8%and10%,I'msorry.


8%and10%,okay.Isthat--howdoesthatcomparetothepreviousrestructuringactionsthatyou'vetakenandhowquicklydoyouthinkyoucangetthatdepthofcutsdone?


Onasalarybasisheadcountthat'sprettynormallywhatwe'vegonethroughbefore.Yougobackinthe2003,2004timeperiodbecausemostofthisrestructuringiscomingfromnotmanufacturing,it'scomingfromasalarybase.We'renotclosingfacilitiesdown.Wehaveacoupleminorones,butthey'revery,verysmallaswemovethemaround.

Sothisisinlinewithothersignificantprogramswehadacrossthiscompany.AndIwouldsaybasedonhowwestartitandwherewearerightnow,ourgoalistohavethisdoneaswegetintothemiddleof2016.


Andthiswasn'tclearorImayhavemissedit,doesthisincluderestructuringactionsinNetworkPower?


Thisincludes--yes,NetworkPowerwillbe--isgoingtobewithusin2016,yes.


Andyoualsomentionedthattherearechangesneededtothebalancesheet.Isthisrelatedtothespinanddivestituresorwasthereanythingelseyou'rereferringtowhenyoutalkedaboutbalancesheet?


WhatIrefertothebalancesheetwasIwanttogetthebalancesheetstrengthenedandfromthestandpointofasthisvolumeisdroppedoffwehaveworkingcapitalcapturedonourbalancesheetrightnow,bothfromourreceivablesandourinventorystandpoint,andwewanttogetthoselevelsdowntoanappropriatelevel.ItusuallytakesusacouplequartersoncewestabilizeandweexpectthattobedoneIwouldsaysometimeearlyinthecalendaryearof2016.That'sonpathlooksatitandwherethetrendlinehasgonerightnowthat'swhereI'dsayit'sgoingtobe.


Gotit.Thankyou.


You'rewelcome.

Operator :

We'lltakeournextquestionfromShannonO'CallaghanwithUBS.

ShannonO'Callaghan (Analyst-UBS):

Dave,justontheideaofordersortryingtofindthebottomhere,atleastgeographicallyitdoesn'tsoundlikethat'sgoingtobefromChinaright?Thatstillsoundslikeit'sgettingworse.Isthereeither




geographicallyorbybusiness,doyouthinkthere'sanoffset?IsEuropefeelingmuchbettertoyouorwhatwouldbetheoffsettoChinagettingworseinthatstabilizationoforders?


Fromourperspective,thestabilitywillcomeinfromtheEuropeandIthinkthere'snotbeenarobustrecoveryinEurope.IthinkEuropehasmuddledalongatalowpacebutthat'swhereIwouldseesomeimprovementversusourChina.IwouldexpectustoseesomeimprovementinNorthAmericaaswecomeintothistimeperiodandthat'swhereI'mseeingitrightnow.That'swhereI'llseeit,we'renotgoingtoseeitinChina,you'reright.


AndthenspecifictoNetworkPowerobviously,thebusinessthereisunderatonofpressureandChina'sabigpartofthatbutjustbroadlyprettyweakandyetyousaydemandisexpectedtoremainmixedandyoutalkaboutopportunitiesindatacenterandtelecom.Istherealightattheendofthetunneltherewhereyou'reactuallyseeingthingsyou'rebiddingandopportunitiesfororderimprovementinthatpiece?


Idon'tthinkyou'regoingtoseeanythinginChinauntiltheSpringof2016relativetonewopportunitiesofsubstance.Ithinkyouseedaytoday.Ourday-to-daybusinessisokayinthosemarketplaces,butIthinkuntilyouseesomebigopportunities,Ithinkit'sgoingtobeintotheSpringof2016.


Okay,thanksalot.


Welcome.

Operator :

We'lltakeournextquestionfromSteveTusawithJPMorgan.

SteveT usa(Analyst-JPMorgan):

OntheProcesssideinthemargins,soIguessshouldwestillthinkofthismixdynamicasMROgood,projectsalittlebitweaker?Isthatsomethingyou'replanningonsightingthroughifthisMROdropsofforisthat--doesthat--whenthingsgodownlikethisit'smoreabouttakingthebluntactionsonrestructuringtooffsetthat?


AcouplethingshappenSteveonthistypeofbusiness.Whenthelargeprojectsslowdownwehavetypicallywhatwe'llseeisasmallertypeofprojectbusinessandthatbusinessisusuallybetterprofitabilitywise.Soifyouthinkabouttheprofitabilitythehardestforusislarge,thesmallerprojectsaregoodandtheMROisevenbetter.

Andsorightnowwe'reseeingasthelargeprojectsarecutback,they'restilldoingsmallerstuff,mediumsizestuffandthat'sgoodprojectbusinessforus.SoIthinkthemixrightnowisstillhelpingusalittlebitinprofitabilitybutit'snotabigmovement.Westillhavethepressureofsomeofthebigprojectsmovingawaythroughandsomeofthatmix.




Butwe'regoingtohavetogetthecostouttodealwiththeissueofageneralslowerdownpaceofbusiness.ButIthinkit'sgoingtobealittlebitofbothbutit'snotjustMROandlarge,there'ssomegoodandmediumsizedprojectswhichthere'sagoodpaceofthatgoingonoutthererightnow.


Okayandthenwhat--onyourmindset,Iaskedaquestion--Iaskedasimilarquestiontoanotheroneofthecompanieswecoverlastweekaboutrestructuringinthisenvironmentbutacknowledgingthecompetitivethreatsthatoutthere.Howdoyouweighthatbecauseyoujusttalkedabouttrimmingsomeofthoseinvestments,howdoyoukeepyourguysfocusedonthemindsetofdefendingorevengrowingsharewhilereallybatteningdownthehatchesanddeliveringforguyslikeusonthecostside?


Youhavealengthydebatewitheachofthebusinessleadersonthisveryspecificissuethatnoonewantstojeopardizethelongerturnopportunity.Soyou'regoingto--we'regoingtolookatthingsthatmaybearen'tascriticalandthat'swhereyou'regoingtocut.Andyou'regoingtofigureoutweredcircle,wecircle,weringfencedareasthatwemustprotectforthosestrategicreasonsandthenwe'llgodeeperontheotherside.That'showwegoaboutdoingthat.


Allright,onelastquestion.The--Ithinkyouissuedsomedebtinthequarter.NetdebtisupIthinklike$600millionor$700millionquartertoquarter.Willthat--howwillthattrend?Iknowthefilingssaidyou'lluseitforcorporatepurposes.Howdoesthattrendoverthenextcouplequarters?Willthatbegintocomedownoristhatnowuseditforsomebuyback,maybesomecashmanagementdynamicsbecauseofyourforeigncashthat'soverseas,what'sgoingonwiththedebtlevelsoverthenextcouplequarters?


It'snotgoingtochangemuch.Itwon'tchangemuchifwe'reeffectiveofgettingoutthecashbytheendofthesecondfiscalquarternextyearthenthedebtlevelswillcomedownalittlebitbutit'snotgoingtochangemuch.


Okay,greatthanksalot.


You'rewelcome.

Operator :

We'lltakeournextquestionfromGautamKhannawithCowenandCompany.

GautamKhanna(Analyst-CowenandCompany):

Youmentionedadesiretobringdowninventoryandtheresultingabsorptionthatyou'regoingtohavetotake.Isthatgoingtobeconcentratedinaprocessorareyoutalkingacross-the-board?


Across-the-board.ImeanobviouslyProcessandNetworkPowerhavethebiggestdollarsofinventorybutit'sacross-the-boardandnoone'sreallyoutofline.Justthatwhereweseethepaceofbusinessgoingwhichisgoingtobeweakforseveralquartersnow,weneedtogetthatinventorybackdown.




Sowe'lldoitverysystematically.One,nottoshocktheheckoutofoursupplybasebutalsoworkitdownoverasix,seventimemonthtimeperiod.Andwe'vebeenworkingitoutforthelastcouplemonths.Butclearlytheordershavebeenweakerherethelastseveralmonthswhichcreatesasituationwherewehavetolowerthatwaterevenfurther.Sowedoitverysystematically.Wedon'ttrytoshockit,that'sdangerous.


Okay,thanks.Andjustanotherfollowup.Inyourmonthlyordersthatyougiveus,haveyouhadanymajordebookingsatProcessorIndustrialAutomationorelsewhere?Andthatit'samplifiedthenegativityinthenumbersorhasthatnotreallybeenabigpartofthestoryyet?


It'snotthatbig.It'snotthatbig.We'venothadanythingthatwoulddrivethatthingbigtimethatwe--ifwedidwewouldletyouknow.


Okay.(multiplespeakers)Andlastly,seasonality,normallyfiscalQ4wegetanicelittleplusupinmarginsatProcessandelsewhere.Givenwhat'sgoingonrealtimeinthemarkets,whatkindofbounceareyouexpectingsequentially,ifatallatProcessspecifically?


Weareexpectingprofitabilitytobouncepositivelyinthefourthquarterforvariousreasons.One,restructuring.We'venowgot$90milliondoneinthelast2.5quartersandwe'restartingtoseeapaybackofthat.Andsowe'reseeingthatandalsotypicallythetypeofmixofbusinessandwherethebusinesscomesfrom,soweseesequentiallywehaveabitofimprovementfromsalesandwearegoingtoseeabouncebackinthefourthquarter.


Okay,thanksalotguysandgoodluck.


You'rewelcome.

Operator :

We'lltakeournextquestionfromJohnInchwithDeutscheBank.

JohnInch (Analyst-DeutscheBank):

WhatisyoursenseofMiddleEastbeingabletocontinuetoberesilientinthefaceofoilprices?Thereseemstobealotofpoliticsthat--andemploymentissues,right,thatarecontinuingtodrivetheseprojectsandit'sobviouslyasourceofstrengthforyouandothercompanies.Butdoyouthinkit--doesitcontinuetoholdin,isthat--shouldwejustthinkofitasaplaceholderorwhat'syoursense?


Iwouldn't--Icallnothingaplaceholderbut--





Relativeplaceholder.


Okay,John.Ithinkyou'reexactlyright,theyhavetheissuetheyhavetoproduceoil.theyhavetomaintain,that'swhattheirincomeis,sothey'regoingtohavetoproducemoreoil.They'regoingtoneedtoinvesttoproducemoreoilandthey'reinvestingforotherjobsacrossadiversegroup,soweseen,noteverybusiness,butcertainbusinesseshavedonereasonablywellintheMiddleEast.

Onthedatacenterbusinessside,inwhatIcallnon-resconstructiontypeofdatabaseside,itsbeenverypoor.ButontheProcesssideitsbeenprettygoodandClimatesidehasbeenprettygood.Sorightnowit'sholdingupandtheorderpaceisholdingupsorightnowI'dsaywe'regoingtoseemoderategrowthagainin2016asofrightnowbasedonwhatI'vebeenseeingfromtheorderpace,whichit'ssurprisingtome.


Yes,yes,thatmakessense.CanIswitchgearstoNetworkPowerhere?Wonderingdoyouthinkthere'sanissueperhapsthatwouldbefleetingortemporarybutoneperhapsnonethelessthatmaybethere'ssomedistractioncostsgoingonposttheannouncementyou'regoingtospinthebusiness?AndwhereI'mgoingwiththis,I'mthinkingintheoldendayscertainlyIndia,China,employeeswould--itwashabitualbutemployeeswouldbouncearoundcompanytocompany,alotofcompanieshadveryhighturnover.

I'mwonderingposttheannouncementifperhapstherehavebeenextraworkerlossesaunplannedatthemanageriallevelorwhatnotthatmaybecouldbeexacerbatingtemporarilytheNetworkPowerresultsinChinaorelsewhere?


John,itsbeenactuallytheopposite,it'sbeenverypositive.Peopleareveryhappyaboutit,soit'sapositivenote.It'ssafe--they'vehadsome--they'vehadatoughcoupleyearshereanditgothitagainreallywiththetelecomspendbothhereintheUSandinChinaandenterprisespendinChina,sotheyjustgothitagain.Butwithintheorganization,itsbeenpretty--it'sbeenwellreceived.AndIndia'sstrongforusrightnow.


Yes,sothere'snotreallymuchthatyoucandoaboutthemarketsforthatbusiness?Itsoundsalmostlikethatifthereishypotheticallyfurtherdeterioration,you'rejustgoingtogoaheadwiththespinanyway.Soinotherwordsasanalysts,investorsthere'snothingthatfundamentallyislikelytodetractyoufromtheplantostrategicallyspinthebusinessorarethereotherthingsweshouldconsiderabout?


Idon'tseeanythingstoppingusrightnow.


Gotit.Thankyou.


You'rewelcome.

Operator :





We'lltakeournextquestionfromJeremieCapronwithCLSA.

JeremieCapron (Analyst-CLSA):

FollowingupontherestructuringmostofitseemstobehappeningrightnowandyoujustsaidthatitwouldcontinueintotheDecemberquarter.Doyouexpectrestructuringtocontinueatasimilarpaceinthefirsthalfofnextyear?Howshouldwethinkaboutthetotalcostthatyou'retakingoutofthebusinessbetweenFebruaryofthisyearandthemidpointofnextyear?


Total,I'mstillholdingtoaroundthat$225millionto$240millionfromtheFebruaryatthebeginning,whenwestartedthisprocesstoitsfinishit'sgoingtobeinthat$225millionto$240millionrange.


Okay,sobasicallywe'relookingatanother$70millionintonextyear,isthatright?


We'llseewhatcomesdownthepikehere,whatkindofpacethebusinessis.Butwhenallissaidanddonewedid$90millioninthefirstthreequarters.Let'ssaywedoanother$90millioninthefourthquarter,that's$180million.I'mlookingsomewherebetween$40millionand$60millionprobablynextyear.


Okay,thanks.


Doesthatworkforyou?


Yes,absolutely.


Ididn'thaveacalculator;Iusedapieceofpaperandapenonthatone.


Thatworkswelltoo.I'malittlebitsurprisedtoseenegativemixacrossyourfivedivisions.Isthatanythingtodowithpricemorethanmix?Andthenifyoucouldcommentontheoverallpricelevel,howmuchofadropinpriceyou'veseensofarthisyear.


Yes,we--fromthestandpointwedon'tmeasurequitethataccurate,Iwouldsaythegeneralpricetrendisslightlynegativeacrossthewholecompany.Wethenoffsetthatfromourcostreduction,thatmaterialinflation.Iwouldexpectournegative--we'llhavenegativepriceslightlynegativeagainnextyear.

Whatwe'vebeenseeingismixwithinthebusinesssomeofourmoreprofitablebusinessesarehavingatoughquarterlikeProcess.Andsowehadthisunfortunatesituationwhererightnowwehavealotof




businessestrendingdownquitehardwhicharethemostprofitablebusinesses.Andsometimesthathelpsusandsometimesthathurtsusandrightnowit'shurtingus.


Okay,andwhenyoulookatyourorderintake,anyshiftintermsofpricingherehappeningoverthelastfewmonths,isordersjustatsimilarslightlydownwardbias?


It'sfrommyperspectiverightnowthepricingisobviouslygettingtoughereverymonth,withparticularwiththeeurowhereitisat$1.10andtheyenwhereitis.Butit'snotnoticeablymuchdifferent.Ithinkwe'regoingtohavethesameissueaswegointo2016too.That'swhyourcosts,ourworkonthematerialcontainmentstuffisvery,veryimportanttous.We'regoingtoneedthatbecauseweknowthepricingenvironmentisnotgoingtobeeasyunlessweseethedollarstartweakeningwhichIseenoindicationthedollarisgoingtostartweakening.


Okay,wellgoodluckwiththat.


Thankyouverymuch.Appreciateit.

Withthat,Iwanttothankeverybody.Againitclearlywasextremelychallengingquarter,andnotpleasingtosee.Wearefacinganotherextremelychallengingquarteragainprobablyforthenexttwoquarters.Theorganizationisverymuchfocusedongettingourcostsandourproductiondowninlinerelativetothepaceofbusinesswe'reseeingrightnow.Andwe'remakinggoodheadwayandwewouldexpecttoseeimprovementinprofitabilityhereinthefourthquarterwhichwillgiveus--setuswellaswemoveintothatfirstquarter.SothankyouverymuchforyourtimetodayandIappreciateyoursupport.Bye.

Operator :

Andthatdoesconcludetoday'sconferencecall.Weappreciateyourparticipation.

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Emerson Electric (EMR) Earnings Report: Q3 2015 Conference ...s.t.st/media/xtranscript/2015/Q3/13244467.pdf · Emerson Electric (EMR) Earnings Report: Q3 2015 Conference Call Transcript