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Oil and Gas End Market Subdues Emerson Electric’s 2Q16 Sales

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Emerson revenues slide on weak industry fundamentals

Emerson’s (EMR) consolidated revenues fell 8.7% year-over-year to $4.9 billion in 2Q16. This decline was driven by an organic decline of 5% and a 4% combined impact of divestitures and currency translations.

The company’s revenue declines were led by the Process Management and Industrial Automation units, which lean heavily on the fortunes of the US and Canadian oil and gas industries (XOP).

Process Management revenues fell by 11% to $1.8 billion as oil and gas (VDE) headwinds offset growth in the power and chemical end markets, resulting in an organic decline of 9%.

In the Industrial Automation business, overall revenues fell by 10% year-over-year to $870 million. These results were dented by a soft industrial environment as many manufacturers continue to cut spending year-over-year.

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Emerson sales performance in the US

Among Emerson’s regional markets, organic declines were seen in every market except Europe, where sales were flat year-over-year. Organic declines in the US were held at 3% as a slump in sales from oil and gas customers were partially offset by favorable conditions in the construction and air conditioning businesses. This led to an organic sales growth of 2% in both the Climate Technologies and Residential and Commercial Solutions units.

Sales performance in other regional markets

In China, sales were down by 12% organically as Emerson’s core customers in the region continue to grapple with excess inventory. David Farr, the CEO of Emerson, maintained his mid-single-digit decline outlook for the region while calling a downturn there a “sucker” for the business. Among the oil and gas markets, Canada was down by 18%, and the Middle-East and Africa region posted a year-over-year organic decline of 12%.

In terms of percentage holdings, the PowerShares WilderHill Progressive Energy Portfolio ETF (PUW) had the highest holding for Emerson Electric (EMR) at ~2.4% compared to other ETFs.

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) had the second-highest Emerson holding at ~2.3%. Other major holdings in NOBL are Nucor (NUE) at 2.5%, Dover (DOV) at ~2.2%, and Illinois Tool Works (ITW) at ~2.3%.

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