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Forex Headwinds, Divestitures Dampen Emerson’s Guidance

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Emerson Electric’s orders in 3Q16

Emerson Electric’s (EMR) trailing three-month (or TTM3) orders in June declined 4.4% on an organic basis. Much of the decline was led by the Process Management segment, which is Emerson’s largest segment and also the one with the greatest oil and gas exposure (XOP).

TTM3 orders in June declined 15%–20% for the Process Management segment and 5%–10% for the Industrial Automation segment. Network Power was the only segment that registered a positive order growth of 0%–5%.

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Emerson’s fiscal 2016 guidance

Emerson (EMR) revised its fiscal 2016 guidance downward due to weak end-market demand, anemic global growth, and political uncertainty. These led to reduced investment spending by its customers.

Other industrial (RGI) conglomerates such as Dover (DOV) and Caterpillar (CAT) have also reduced their earnings estimates for similar reasons this quarter. Emerson now expects organic sales to fall 5%–6% compared to its previous estimates of 2%–5%.

The impact of forex (foreign exchange) headwinds in fiscal 2016 has increased from 1% to 2%. Loss in sales due to divestitures is estimated to be approximately 2% as well.

Company estimates peg adjusted EPS (earnings per share) for fiscal 2016 to be $2.90–$3 compared to previous estimates of $3.05–$3.25. Emerson reported fiscal 2015 adjusted EPS of $3.17. This excludes separation costs related to the Network Power sale, which is expected to be around $0.30–$0.38. The company stated that the fourth-quarter loss from the sale of Leroy-Somer and Control Techniques was $0.15.

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