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Emerson Electric Company (EMR)Stock (Conglomerates Industry, Manufacturing Industry)
 The elevated prices of oil and steel have forced Emerson to spend more on its sales -- cost of sales were $7.3 billion in the first 6 months of 2008, up from $6.6 billion during the same period a year ago.[4] Because Emerson conducts 50.1% of its total sales abroad, changes in exchange rates and the fall of the dollar lowers the relative price of exported goods and increases Emerson's international sales.[5] Emerson has had trouble getting insurance to cover its environmental liabilities. In 2004, Aetna Casualty and Surety Company and 56 other insurance carriers refused to pay for environmental damage the company caused at 64 sites in 26 different states.[6] Further U.S. environmental legislation and cleanup costs from waste will also have an impact on the company both in the US and as it expands into new markets abroad. 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.
[edit] Business OverviewEmerson has been able to maintain a growing gross profit since 2004 by increasing sales while maintaining costs and establishing itself in growing regions such as China and other emerging markets.[8] Emerson conducts 17.2% of its business in Asia alone. With the majority of sales outside of the US, Emerson is a fully international and growing company -- its international sales have risen from $8,179 million in 2005, to $9,545 million in 2006, and $11,642 million in 2007.[9] This continued expansion is a result of frequent acquisitions in developing locations. For example, Emerson recently acquired Kirloskar Copeland Limited which is India's leading producer in sales of compressors.[10]
[edit] Business Segments
[edit] Key Trends and Forces[edit] Fall in the dollar improves exportsEmerson is heavily dependent on foreign markets and US exchange rates. Just over 50% of all of Emerson's sales are conducted abroad and 55% of the increase in sales during the first 6 months of 2008 was international[19][20] 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. [21] During the first 6 month of 2008, Emerson's net sales increased 33% or $413 million as a result of a favorable exchange of foreign currency.[22] [edit] Potential litigation and environmental regulation results in uninsured liabilitiesIn 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.[23] 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.[24] [edit] Rising raw material costs results in higher costs of salesEmerson purchases its raw materials from many different distributors and so it is shielded from sudden supply shocks. However, oil prices have risen an average of $.96 from June 2007 to June 2008 and steel prices have risen an average of $200 a ton from August 2007 to Febuary 2008. [25] [26] Because steel and oil are both key inputs, the elevated prices have led to a higher cost of sales from $6,609 million during the first 6 months of 2007 to $7,291 million during the first 6 months of 2008.[27] [edit] Failed acquisitions will upset business strategyEmerson frequently acquires businesses to diversify its product range and geographic presence. In the first 6 months of 2008, 1/6th or $119 million of the rise of total sales was a result of profitable acquisitions. However, failure to smoothly acquire a business or unseen costs that arise during integration will cause a disruption. On March 18, 2008, Emerson offered to buy the Chloride Group for $1.38B. Chloride's Board of Directors rejected the proposal on the grounds that it undervalued the company. The failure of the bid resulted in a 2.47% fall in EMR stock.[28] Emerson also relies on access to capital to successfully undergo such procedures. Inability to access credit lines will have a negative effect on the company.[29] [edit] CompetitionSome 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. The table below shows a comparison of the four companies.[30]
Within the manufacturers of industrial equipment, Emerson faces:
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.[34] 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.[35] [edit] References
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