Emerson Electric Net Slips 2%; Company Cuts Fiscal Year Outlook
05/01/2012| 06:54pm US/Eastern
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--Emerson takes down fiscal 2012 profit and sales forecast
--Company reports weakness in overseas markets
--China hampered by lower export demand from U.S., Europe
(Updates with comments from analyst in ninth paragraph)
By Bob Tita
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Emerson Electric Co. (>> Emerson Electric Co.) reined in its sales and profit outlook for the year Tuesday, after demand for the company's products in China and Europe continued to deteriorate during its fiscal second quarter.
The diversified industrial company's profit for the quarter slipped 2% from a year ago, as results fell short of analysts' sales and profit expectations.
Shell-shocked investors bailed out of Emerson stock, which ended Tuesday's regular trading session down 6.4%, or $3.36, at $49.18 a share on heavy volume.
The maker of factory-automation equipment and software, household garbage disposals, backup power gear and compressors for heating and air-conditioning systems reported widespread weakness across its business lines. The St. Louis company has been seeing softening demand in overseas markets since the fall, but had anticipated improvement by the second half of the company's fiscal year. That rebound is taking longer than the company expected, held back by recessionary economies in Europe and supply-chain and quality-control problems in the company's process-management business.
"We are clearly not very happy or pleased with the first six months of the [fiscal] year," Chairman and Chief Executive David Farr said during a conference call with analysts and investors. "We do not like to hurt our shareholder base. I want to apologize for the questionable results from the first half of the year."
The St. Louis company aggressively invested in overseas markets to capture growth rates that were far exceeding demand from Emerson's home market in North America. The strategy helped Emerson rack up impressive results in the aftermath of the 2008 recession. But Farr said growth from international markets lately has been "much weaker...than we've seen in that last number of years," especially in China.
Farr said lower demand for Chinese exports from Western Europe and the U.S. is holding back China's economy. Although the U.S. economy has performed better lately, Farr said he doesn't expect U.S. gross domestic product growth to be strong enough to offset the lingering economic weakness in the rest of the world.
Emerson isn't the only U.S. company struggling with emerging-market performance. Engine maker Cummins Inc. (CMI) and construction-equipment maker Caterpillar Inc. (>> Caterpillar Inc.) also reported lower demand from China and Brazil.
"A lot of these firms that have done pretty well riding the emerging-market trend for the last four or five or six years have hit a little slow patch here," said Daniel Holland, an analyst with research firm Morninstar Inc.
Emerson lowered its 2012 earnings outlook to a range of $3.35 to $3.50 a share, from the $3.45 to $3.60 previously expected. Underlying sales and order growth is now expected in the 3% to 5% range, below the 4% to 6% growth the company had previously forecast.
For the quarter ended March 31, the company posted a profit of $545 million, down from a year-earlier profit of $556 million. Earnings per share rose to 74 cents a share from 73 cents on a decline in outstanding shares. Sales from the quarter edged up 1.1% to $5.92 billion.
Emerson's operating margin narrowed to 16.1% from 16.5%. Analysts expected earnings of 80 cents a share on $6 billion in revenue, according to a poll conducted by Thomson Reuters. For the year ending Sept. 30, analysts expect the company to earn $3.50 a share from sales of $25.1 billion.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
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