Emerson Electric Company (EMR)

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Emerson Electric Company (NYSE: EMR) provides manufacturing equipment and services for pulp/paper and pharmaceuticals processing plants. It also makes air-conditioning units, refrigerators, welders, and motors for both consumer and commercial use. ^[1] Emerson is diversified with the over 60 businesses it has acquired and is extensively international, especially in emerging markets in Asia. ^{[2] [3]}

Emerson competes with General Electric Company (GE) in industrial equipment and healthcare supplies, and with Caterpillar (CAT) and ABB (ABB) in heavy-duty equipment, mining, and farming hardware.^[4]

Business Overview

Business Segments^[5]

• Process Management (28.9% of total sales): Emerson offers engineering services and precision tools that help improve the quality of output, safety and reliability of processing items such as oil refining, pulp/paper, pharmaceuticals, sewage treatment, community water supplies, or beverages.^[6][7]

• Industrial Automation (19.8% of total sales): Unlike Process Mangement, this sector is dedicated to providing the bulk of the manufacturing plant: motors, power fluid, transmissions, material joiners and other such equipment. Some goods are also used in hazardous industries such as oil and gas drilling, construction sites, and petrochemical plants.^[8]

• Network Power (23.9% of total sales): This segment of the business provides precision cooling, power systems and service operations for computers, data centers, telecommunication systems, security systems, and other sensitive equipment to protect them from power surges, blackouts, overheating, or freezing. It also sells ways to transfer data such as wireless communications and fiber optics.^[9]

• Climate Technologies (16.8% of total sales): The climate technologies segment provides residential and commercial air-conditioning and commercial refrigeration services and methods for digitally and remotely monitoring and controlling refrigeration units. These products are used by convenience stores, super markets, and refrigerated trucks as well as in environmental testing facilities and for medical use.^[10]

• Appliance and Tools (18.6% of total sales): This segment makes products such as ceiling fans, garbage disposals, instant hot water dispensers, bolt cutters, and air compressors. They also produce fixed, variable, and multi-speed motors used in washing machines, dishwashers, water heaters and other such products. Many of the products of this sector are also used in mining and farm and construction machinery. They also service hospitals with operating room tables, medical carts, and sterile worktables.^[11]

Business & Financial Metrics^[5]

In 2009, EMR generated a net income of $2.75 billion on $21.52 billion in total revenues. This represents a 29.6% decrease in net income and a 15.6% decrease in total revenues from 2008, when the company earned $3.91 billion on $25.50 billion in revenue.

Key Trends and Forces

Fall in the dollar improves exports

Emerson is heavily dependent on foreign markets and US exchange rates. Just over 50% of all of Emerson's sales are conducted abroad.^[12][13] Tarrifs, trade barriers, taxation, foreign regulation, and exchange controls all have a large influence on the company's business. The fall of the dollar and the relative rise in foreign currencies makes necessary foreign goods relatively more expensive but greatly improves exports. ^[14]

Potential litigation and environmental regulation results in uninsured liabilities

In 2004, Aetna Casualty and Surety Company and 56 other insurance carriers refused to pay for liabilities Emerson incurred from environmental damage to soil and groundwater to 64 sites in 26 different states. Emerson filed a law suit against the 57 insurance companies, but failed to win the court ruling and was forced to pay for the liabilities.^[15] If it faces future litigation or laws due to product liability or environmental concerns, it will result in increased costs. The growth of U.S. environmental legislation to further regulate excess waste and byproducts within the industry will put Emerson at risk to receive noncompliance fees or elevated cleanup costs.^[16]

Competition

Some of the largest competitors include ABB Ltd (ABB), General Electric Company (GE) and Hitachi (HIT) in the Industrial Equipment & Components sector. ABB (ABB) competes with Emerson's Process Management and Industrial Automation. General Electric Company (GE), one of the world's largest conglomerates, competes with the Climate Technologies, Industrial Automation and Appliance & Tools segments. The Tokyo based Hitachi (HIT) competes against Emerson's Network Power.

Within the manufacturers of industrial equipment, Emerson faces:

• United Technologies (UTX) which owns Carrier, the worlds largest HVAC (Heating, Ventilation & Air Conditioning) company.
• Caterpillar (CAT), a competitor in the Tools & Appliance and Industrial Automation sector, is the leader in total sales of heavy duty engines and turbines and construction equipment.
• Mitsubishi Heavy Industries Ltd also produces Industrial Equipment and is an offshoot of the car manufacturer.
• MAN Aktiengesellschaft is a top manufacturer of equipment and supplies used in the processing of metal and plastic.^[17]
• Deere & Company (DE) is the worlds largest producer of farming equipment and machinery
• Illinois Tool Works (ITW) is a large producer of engineering components
• CNH Global N.V. (CNH) is a large producer of agriculture and construction equipment.^[18]
• Parker-Hannifin (PH) produces fluid-power systems and motion control equipments.^[19]
• Komatsu Ltd Ord produces mining and construction equipment.
• ITT Corporation (ITT) produces defense electronics for the U.S. military in addition to highly engineered products for military aircraft and gears and shock absorbers for general aviation.^[20]

Emerson also faces many small, specialized, private companies such as Shupper-Brickle Equipment Co which makes winches, hoists and cranes.

The company's diversity in product range and geographic locations makes it more stable than competitors.^[21] For example, if the commercial refrigeration sector declines, Emerson is able to rely on its other products to maintain it. Its global reach gives it the ability to maintain a consistent revenue even if the economy were to decline in one market.^[22]

References

1. ↑ EMR 10-K 2007, Item 1"Business" p.3-8.
2. ↑ AOL Money & Finance: Emerson Elec Co Profile
3. ↑ Yahoo Finance: Emerson Electric Company
4. ↑ Emerson PR
5. ↑ ^{5.0 5.1} EMR 2009 10-K pg. 44  
6. ↑ EMR 10-K 2007, Item 1, p. 4.
7. ↑ EMR 10-K 2007, Item 1:"Process Management" p. 5.
8. ↑ EMR 10-K 2007, Item 1:"Industrial Automation" p. 6.
9. ↑ EMR 10-K 2007, Item 1:"Network Power" p. 7.
10. ↑ EMR 10-K 2007, Item 1:"Climate Technologies" p. 8.
11. ↑ EMR 10-K 2007, Item 1:"Appliance and Tools" p. 9.
12. ↑ EMR 10-K 2007, Item 1:"Domestic and Foreign Operations" p. 11.
13. ↑ EMR 10-Q 2008 "Results of Operation" p.14.
14. ↑ EMR 10-K 2007, Item 1:"Risks" p. 13.
15. ↑ Circuit Court of Cook County: Background
16. ↑ EMR 10-K 2007, Item 1"Risks" p. 13.
17. ↑ Yahoo Finance: MAN
18. ↑ Google Finance "CNH Global N.V. (CNH)"
19. ↑ Google Finance "Parker-Hannifin"
20. ↑ Reuters: ITT Corp
21. ↑ EMR 10-K 2007, Item 1:"Competition" p. 11.
22. ↑ Yahoo Finance: Emerson Electric Company Competitors