For you stock market junkies out there, a financial report. Longbow Research analysts Mark Douglass and Eli Lustgarten recently attended Emerson’s Investor Conference and Network Power site visits. Following are highlights from their report.
Management confirmed guidance of slow underlying 2013 sales growth of 2-5%, driven by strong investments in emerging markets (+3-5% GFI), notably China, India and Latin America. EMR anticipates mature markets will grow at a slightly slower pace (+1-3% GFI), with strongest growth in the U.S. (+low to mid-single digits) though W. Europe likely remains weak.
EMR expects continued strength in Process Management, with underlying sales growth of 8-10% front end loaded in 2013. Climate Tech (+4-6% underlying) and
Commercial & Resi Solutions (+3-5%) are also expected to improve, but the divested Knaack business presents a ~$100M y/y headwind. Network Power likely remains flat in FY13, but improves in 2H13; Industrial Automation is expected to be weak.
Updates on January orders: +1% on strong growth out of Climate Tech and C&RS,
and a reasonably positive performance from Network Power, particularly in Asia.
Process Management remains roughly flat; Industrial Automation is still down mid-single digits.
EMR is working diligently to improve a disappointing Network Power business.
EMR still believes the market is attractive long term and it has the global products and service capabilities to succeed. It justified the year-long delay of Trellis, emphasizing it had to create software and hardware to properly address DCIM; EMR believes that it now has the market’s most comprehensive solution. Also, service opportunities and its recent sales agreement with IBM’s Tivoli should be key growth drivers. While not completely out of the woods, we came away feeling better about EMR’s prospects in Network Power.
We maintain our NEUTRAL rating on EMR
Though Process continues to be strong, and appears now to be joined by Climate Tech and Comm & Resi Solutions, Industrial Automation is notably weak and Network Power remains a large question mark for investors. EMR’s FY13 guidance range is reasonable, given the challenging macro and limited visibility, but in light of the slow growth facing many of its end markets and current fair valuation, we prefer to wait for a more attractive entry point.
