Electrical Products
Group
David N. Farr
Chairman, Chief Executive Officer &
President
May 19, 2010
Safe Harbor Statement
Our commentary and responses to your questions may
contain forward-looking statements and Emerson undertakes
no obligation to update any such statement to reflect later
developments. Information on factors that could cause actual
results to vary materially from those discussed today is
available in our most recent Annual Report on Form 10-K as
filed with the SEC.
Non-GAAP Measures
In this presentation we will discuss some non-GAAP
measures (denoted with an *) in talking about our company’s
performance, and the reconciliation of those measures to the
most comparable GAAP measures is contained within this
presentation or is available at our website www.emerson.com
under the investor relations tab.
Emerson’s Underlying Fixed Rate Order Trends –
We Pivoted In the Sept/October 2009 Timeframe
This slide has been omitted
Asia-Pacific/China Sales – A Balanced
Investment Approach
2009 Sales by Geography
2009 Asia Sales
United
States
45%
Asia
Rest of
Asia
China
46%
21%
54%
13%
ROW
21%
Europe
$20.9B
$4.4B
Emerson Maintains a Balanced Approach to Asia –
Asia-Pacific ≈ $5B in 2010E
3
China Sales Trends
This slide has been omitted
G7 Real GFI Emerson Fiscal Year
–Y/Y % Change
2009
10%
2010E
2011F
4.7%
5%
5.7%
6.7%
2.9%
0.2%
1.4%
0%
(2.6%)
-5%
Still question this
level of GFI recovery
with the continued
European debt
crisis???
(6.4%)
-10%
(9.9%)
(13.4%)
-15%
(14.6%)
(13.4%)
-20%
Q1
April 2010
Data source: Global Insight
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2009
2010E
2011F
(12.0%)
(2.9%)
5.0%
Q4
5
Underlying Global Economics Are Improving
But a Very Weak Recovery, Most Emerging
Markets Show GFI Growth
GFI 2007/08
% Change
(1.8%)
(22.7%)
5.2%
0.0%
3.0%
3.5%
(1.8%)
(2.6%)
3.0%
(0.4%)
GFI 2008/09
% Change
(13.6%)
(22.3%)
(15.7%)
(13.6%)
(6.5%)
(7.4%)
(12.7%)
(12.6%)
(9.6%)
(11.9%)
GFI 2009/10E
% Change
(2-3%)
(2-3%)
(1-2%)
(6-7%)
(3-4%)
(2-3%)
(3-4%)
(3-4%)
+3-4%
(3-4%)
China
India
Eastern Europe/Russia
Latin America
Middle East and Africa
Emerging Markets
8.5%
6.1%
10.9%
11.0%
9.6%
8.6%
15.3%
5.8%
(15.0%)
(7.9%)
(1.1%)
1.2%
+15-17%
+9-10%
(0-2%)
+3-4%
+1-2%
+8-9%
Emerson Global Weighted
2.4%
(8.1%)
+1-2%
United States
Residential
Non-Residential
UK
France
Germany
Italy
Japan
Canada
Mature Markets
This Level of GFI Growth Will Drive 0%-(3%) Underlying Sales*
for Fiscal 2010 – Despite a Weak European Environment
Data source: Global Insight; Emerson
6
Annual Gross Fixed Investment – Mature and
Emerging Market Growth
Mature
Emerging
$10T
~$8.0T
$8T
$6.8T
$6T
$5.6T
$5.8T
Flat!
$3.9T
$4T
$2T
$6.0T
$4.0T
$4.3T
$6.1T
$4.6T
$1.9T
$0T
1999
2008
2009
2010
2011
2019
Global Stimulative Policies Have Helped Maintain Investment Levels
From 2009 to 2010, But the Excess Government and Consumer Debt
Effects of the Crisis Will Dampen Growth Over the Next Cycle
7
Emerson Business Summary:
2010E as of May 19th
Sales
2007-09
2009-10
2007
2008
2009
CAGR
2010E
% Change
$22.1B $24.8B $20.9B (2.8%) $21.3 to $21.9B
2-5%
OP $*
$3.5B
$4.1B
$3.2B
(4.8%)
OP %*
15.8%
16.5%
15.1%
-
+60 to 100 bps
$3.0B
$3.3B
$3.1B
1.2%
$2.9 to $3.1B
$2.3B
$2.6B
$2.6B
4.6%
$2.5 to $2.6B
DPS
$1.05
$1.20
$1.32
12.1%
$1.34
1.5%
EPS
$2.66
$3.06
$2.27
(7.6%)
$2.40 to $2.60
6-15%
ROTC
20.1%
21.8%
16.2%
-
17-18%
Operating
Cash Flow
Free Cash
Flow *
(3%)-0% Underlying*
Emerson Will Be Up on All Key Financial Measures in FY 2010 – We
Had Assumed Euro to USD Exchange Rate at 1.34, but Now It Has
Reduced to 1.25 – Will Hurt Sales in 2nd Half by ~$100M
8
There are Numerous Components
Contributing to a Stronger Recovery
● During the downturn, we efficiently executed our
restructuring plans which resulted in permanent cost
repositions – generating stronger operational leverage on
slower sales growth and recovery
● Our emerging market presence continues to be a
competitive advantage – ~33+% of Sales
● We increased our investment in Engineering & Development
which has allowed us to introduce many new products and
technologies – Strong source of our recovery
–
In 2009, we were awarded more patents than any prior year – 2.5
patents per working day
● Our underlying growth rate will benefit from both
acquisitions and divestitures, as well as other internal
product pricing and promotional efforts
We Expect to Outperform the Early Stages of GFI Recovery –
The First 18-24 Months is the Time to Widen Our Gap
9
Within Our Served Market We Will Continue To
Invest in Higher Growth Technologies
2009 New Product
Sales: 7.7B
37% of Sales
Major and Minor
Revisions
84%
New to the
Business or World
16%
2014 New Product
Sales: ~12B
Target 40% of Sales
Major and Minor
Revisions
70%
New to the
Business or World
Technologies
30%
Examples: New Forward
Product Category CAGR
Wind & Solar
Power Converters
30+%
Intelligent Store
Electronics
30+%
Wireless
Instrumentation
30+%
Digital Scroll
25+%
Data Center
Infrastructure
Management
15+%
Global 4G & 3G
Wireless Rollout
10+%
10
Process Management Summary
Sales
Earnings
2007
2008
2009
2010E
$5.6B
$6.5B
$6.1B
(3%)-(1%)
$1,062M $1,301M $1,060M
% of Sales
18.9%
19.9%
17.3% (20) to +30 bps
Restructuring
$15M
$12M
$55M
ROTC
25%
29%
22%
2009 Sales by Product
Systems,
Solutions
& Services
Measurement
Devices
24%
44%
$45-$50M
Market Dynamics
• Orders rebounding nicely in all World Areas
• Strong rebound in Maintenance, Repair and Overhaul spending
in the U.S.
• Increase in Global Exploration & Production Spending is driving
strong Oil & Gas activity
32%
Valves &
Regulators
2009 Sales by Geography
ROW
• Continue to see strength in Nuclear investments, primarily
22%
outside of US
31%
• Our new DeltaV S-Series Platform is setting the industry
United
States
standard for usability and flexibility
• Wireless adoption is accelerating with over 1,300 customer
sites globally and unanimous International Electrotechnical
Commission (IEC) certification – standard for wireless
communications for industrial process measurement and
control
23%
Europe
24%
Asia
11
Reinventing and Expanding Control
Systems Through Innovative Technologies
and Wireless Solutions
Next Generation Control System
Smart Wireless Solutions
Multi Input
Temperature
Discrete
S-Series
Smart Wireless
THUM Adapter
DeltaV S-Series
Wireless I/O
Conductivity
Single Channel
Characterization
Modules
(CHARMS)
pH
Temperature
Vibrating Fork
Level Switch
Valve Position
Monitor
Vibration
Ultimate Flexibility
 Entire Subsystems and Their
Engineering Eliminated
Wireless
Gateway
Pressure,
Level & Flow
Smart Wireless
Remote Link
The Broadest and Largest
Wireless Offering
Smart Wireless Bookings Will Reach $60M in FY 2010 and ~$100M for CY 2010
– This Represents a Doubling of the Business for a Second Consecutive Year
12
Emerson Innovation Center – Fisher Technology
Totally Unique in the World
Opened:
May 11, 2010
Location:
Marshalltown, Iowa
● Complete product development and testing for Fisher Control
Valves – Includes all Process Management Products!
–
–
–
136,000 sq. ft. of developed space
Largest flow lab in the world can test large valves for LNG, nuclear power (any
power plant) and other scaled up processes
$30+M investment
● Customer benefits in reduced capital investment, greater plant
availability, and safety, health, and environmental compliance
–
–
Gives customer never been done before capabilities
A huge competitive advantage across Emerson Process Management
13
Climate Technologies Summary
2007
2008
2009
2010E
Sales
$3.6B
$3.8B
$3.2B
14%-18%
Earnings
$558M
$569M
$411M
% of Sales
15.4%
14.9%
12.9% +400 to 450 bps
Restructuring
$9M
$22M
$48M
ROTC
27%
29%
22%
•
•
•
•
•
Other
Flow
10% Controls
5% Temperature
6% Sensors
Temperature
7% Controls &
~$15M
Market Dynamics
• Strong momentum for energy responsible solutions
•
2009 Sales by Product
Electronics
Compressors
72%
continues to favor Emerson technologies
China regulations & rebates are driving increased demand:
2009 Sales by Geography
~2M scroll systems sold in 2010E
ROW
U.S. rebates are driving the HVAC market to higher
efficiency residential systems – increased
11%
electronics/scroll solution
Europe
U.S. food retail market is recovering after two years of
15%
down sales
United
Retail solutions business is gaining traction in the U.S.
56% States
18%
Strong India market growth driven primarily by the
Asia
refrigeration market segment.
Europe is showing initial signs of recovery – orders have
Note: Will soon be 50/50
turned positive
14
Technology and Regulations Creating Unique
Opportunities: Climate Technologies
● Scroll and electronics technologies provide a strong
competitive advantage in major global market
segments
– Future regional U.S. regulations will drive the need for energy
responsible products and solutions – expanding opportunities
for differentiation – more value add
– China continues to raise the bar on residential system energy
efficiency that favors scroll technology vs competitive options
– European regulations drive market away from fossil fuels to
renewable energies, leading to strong growth in
environmentally responsible heat pumps
● Integration of electronics into core products creates
new product capabilities and larger solutions offering –
will impact most of our core product lines over the next
5 years
We Continue to Innovate to Meet the Unique Needs of OEMs,
Contractors and Homeowners in all Global Markets
15
Network Power Summary
2007
2008
2009
2010E
Sales
$5.2B
$6.4B
$5.5B
5%-7%
Earnings
$655M
$807M
$578M
% of Sales
12.5%
12.6%
10.6% +310 to 360 bps
Restructuring
$23M
$28M
$118M
ROTC
15%
16%
12%
2009 Sales by Product
12% 14%
$25-$30M
Embedded
Computing
& Power
Market Dynamics
• Telecom Service Providers Continue with Next Generation
•
•
•
•
•
DC Power
Systems
Other
17%
27%
13%
Service
17%
AC Power
Systems
Precision
Wireless Technology (LTE/4G) Commitments Globally
Cooling
Data center build outs continue with pent up demand
2009 Sales by Geography
coming back into the marketplace – stronger recovery in
late 2010 and early 2011
ROW
Computing end market diversification and emerging
11%
market infrastructure demand supporting business
Europe
recovery
40%
17%
United
Strong relationships with global technology providers
enable fast deployment of new products and technologies
States
Strength and positive growth in Asia Pacific markets
32%
Key Electronics Distributors Selectively Raising Inventory
Stocking Levels to Serve Demand from Tier 2 & Tier 3 OEM
Asia
Customers
16
Emerson Network Power Data Center
Infrastructure Management (DCIM) Solutions
MONITOR, ACCESS
and INVENTORY
DATA CAPTURE and
PLANNING
DIAGNOSIS and
INSIGHT
RECOMMEND and
AUTOMATE
Emerson DCIM Solution Suite
Nform,
SiteScan,
DSView
Enablement
Tools
Aperture and
Avocent
Infrastructure
Explorer
Improved
Planning
Aperture
Integrated
Resource
Manager
Improved
Efficiency
And Mean
Time Between
Failure
Availability at
Optimal
Performance
The Emerson DCIM Solution Suite is Targeted to Provide Hardware and
Software Solutions to the Problems of Our Data Center Customers –
Energized by Avocent Acquisition
17
Preliminary Data Center Infrastructure
Management (DCIM) Roadmap
This slide has been omitted
Industrial Automation Summary
2009 Sales by Product
2007
2008
2009
2010E
Sales
$4.3B
$4.9B
$3.7B
(3%)-(1%)
Earnings
$709M
$774M
$384M
% of Sales
16.6%
16.0%
10.4% +40 to 90 bps
Restructuring
$14M
$19M
$47M
ROTC
23%
24%
11%
Industrial
Equipment
Power
Distribution
$55-$60M
Market Dynamics
Fluid
Automation
7%
19%
12%
18%
20%
24%
• April three-month trailing average order trend over 20%
vs. 2009 but still well below 2008 levels
• Power Generation lagging the rest of the business in
order recovery by about 3 months, but – last 2-months
orders up 40+% vs. last year
• China, India and Brazil strong, US picking up well,
Europe weaker but now also positive
Motors &
Drives
Mechanical
Power
Transmission
Power Generation
2009 Sales by Geography
ROW
9%
Asia
13%
• Strong demand in renewable energies (Wind, Solar
39%
United
States
Photovoltaic)
• Finalizing agreement for power distribution acquisition
in Brazil to expand global market presence – $20+M in
sales
39%
Europe
19
Wind Energy and Solar Photovoltaic
Technology Platforms
Solar Photovoltaic
Wind Energy
Generators
30%+
CAGR
~$500M
Solar PV next steps in CT’s PV product line




Launch Date: “V2” 2010,”V3” 2013
Application: Centralized Photovoltaic Inverter
Description: “V2”
– Power range 45 to 1,760 kW
– High efficiency (EU 97.6% – CEC 97.7%)
– Anti-islanding & ride-through
functionalities implemented within inverter
grid tied controller (BDEW, FERC, UL, CEC)
– VAR compensation (PF control)
Markets: Europe, Asia & North America
Couplings
$160M
2010E
2014F
SSB Wind Systems
Pitch Control
2010E Sales: $40M
Vision is to become the #1 supplier
of centralized inverters > 100 kW
20
Appliance and Tools Summary
2007
2008
2009
2010E
2009 Sales by Product
Sales
$4.0B
$3.9B
$3.0B
1%-4%
Tools
Earnings
$564M $527M $365M
% of Sales
14.1%
13.6%
12.0% +380 to 430 bps
Restructuring
$14M
$11M
$27M
ROTC
24%
24%
18%
Commercial
Motors
18%
~$5M
Market Dynamics
• Consumer businesses appear to have bottomed and
31%
Appliance
13%
23%
15%
Appliance
Solutions
Storage
are showing signs of a slow but steady recovery
• Residential housing is recovering slowly from a huge
hole – but projections continue to show strong growth
over the next 12 months
• Non-residential construction continues its decline and
looks to remain weak through 2011 – but bottom has
been reached – some pockets of strength, but from a
very low base
• Continued focus on cost containment and asset
management positions us well to take advantage of
recovery
2009 Sales by Geography
ROW
Asia
9%
Europe 4%
5%
82%
United
States
21
Appliance and Tools – Transition to Smaller,
More Profitable and Faster Growing Business
This slide has been omitted
Operating Capital Efficiency
Drives Higher Cash Flow And Returns
$3.0B
21.2%
Average Trade Working Capital % to Sales
$3.1B
19.6%
$3.3B
19.3%
$3.6B
$4.1B
$4.5B
18.0%
18.0%
17.9%
$4.0B
~$3.6B
19.0%
Operating Cash Flow % to Sales
$1.7B
12.4%
$2.2B
14.2%
$2.2B
12.6%
$2.5B
12.5%
2010E Long Term
Targets
~17%
<15%
of Sales
$3.0B
$3.3B
$3.1B
$2.93.1B
13.4%
13.3%
14.8%
13-15%
12-15%
of Sales
72
~60
Days
<50 Days
Average Days in Cash Cycle
82
2003
Sales $14.0B
Note: Originally reported
73
71
65
65
63
2004
$15.6B
2005
$17.3B
2006
$20.1B
2007
$22.6B
2008
$24.8B
2009
2010E
$20.9B $21.3B-$21.9B
23
Return On Total Capital (ROTC) Performance
23%
20%
21.8%
Through-The-Cycle
Target of
15-25%
17%
20.1%
18.4%
ROTC
Bottomed
in 2009!
16.2%
15.5%
18%
17%
14.2%
14%
11.5%
12.0%
12.7%
11%
8%
5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010E
Emerson has Made Sustainable Improvements in Asset Utilization
and Profit Margins, Resulting in Higher ROTC through-the-cycle
24
2010 Key Messages
● Solid operational performance in the 1st half
–
GP margins up 190 bps despite negative underlying sales,
resulting from strong new products and aggressive 2008 and 2009
restructuring activities
–
Strong cash flow generation
●
Free cash flow* conversion of 138% YTD
●
Operating cash flow in 1H2010 up ~60% vs prior year
● Slow and steady recovery ahead, after we get through the
inventory restocking phase, initial capital spending up-tick
–
Mature market growth will remain muted for some time, as they all
deal with massive debt loads – government spending cuts, tax
increases
–
Emerging market growth will slow slightly but still outperform
mature markets
–
Order trends strengthening versus very low levels, and will slow
rate of acceleration later in 2010
We Like Where We Are Sitting Entering 2nd Half of 2010 – Operations
are Performing Well in Uncertain and “Fluid” Global Markets
25
Reconciliation of Non-GAAP Financial
Measures
The following reconciles each non-GAAP measure (denoted with an *) with the most directly comparable GAAP measure ($ M):
Operating Profit*
% of sales*
Other Deductions,
net
EBIT
% of sales
Interest Expense, net
Pretax Earnings
% of sales
2007
$3,496
15.8%
2008
$4,082
16.5%
2009
$3,167
15.1%
$105
$229
$483
$3,391
15.3%
$227
$3,164
14.3%
$3,853
15.5%
$187
$3,666
14.8%
$2,684
12.8%
$220
$2,464
11.8%
Operating Profit*
% of sales*
Interest Expense and
Other Deductions, Net
Pretax Earnings
% of sales
Underlying Sales*
Currency & Acquisitions
Net Sales
Operating Cash Flow
Capital Expenditures
Free Cash Flow*
Net Earnings
Attributable to EMR:
% of Net Earnings
Operating Cash Flow
Capital Expenditures
Free Cash Flow*
2007
$3,016
$681
$2,335
2008
$3,293
$714
$2,579
2009
$3,086
$531
$2,555
6 Months
2010
$1,319
$178
$1,141
2010E
~$3,345-$3,530
~15.7-16.1%
~$685-$660
~$2,660-$2,870
~12.5-13.1%
2010E
(3%)-0%
+5 pts
+2% to +5%
2010E
~$2.9B-$3.1B
~$0.4B-$0.5B
~$2.5B-$2.6B
$830
159%
21%
138%
Note: Certain segment information in presentation adjusted for noncontrolling interests pursuant to current GAAP requirements
26