Swimming against a strong economic current, Emerson Electric Co.’s net sales for its fiscal Q3 sank 22%, the company announced this week, forcing it to make deeper cuts in its corporate infrastructure.
For the quarter, ended June 30, net sales reached $5.09 billion, compared with $6.56 billion in the prior-year period. Net earnings totaled $387 million, off 37% from last year’s $612 million. Earnings per share from continuing operations were down 38% for the quarter to $0.51 from $0.82 in the year-ago quarter, due in part to restructuring expenses.
All five business segments — Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools — saw double-digit revenue declines, with the sharpest fall in Industrial Automation, which experienced a 36% decrease in sales to $813 million, from $1.27 billion in the same quarter last year. The sales slippage is a direct reflection of very weak global industrial markets, the company said, and it reflects a pervasive funk that has beset many of Emerson’s fellow automation vendors.
The Process Management business, which has traditionally been the most resilient — having grown 8% in the first quarter — is undergoing major restructuring on the heels of a 13% sales decline this quarter. The group notched $1.5 billion in sales, down from $1.7 billion in the year-ago quarter. Emerson Chairman, CEO, and President David Farr said on a conference call with analysts today that he expects the underlying sales in the Process Management business to be down 12% to 14% going into 2010. As a result, the group is under pressure to restructure to get costs in line for the quarters to come. Steven Sonnenberg, executive vice president of Process Management, and John Berra, its chairman, are aggressively repositioning the organization for growth when market conditions turn, Farr said today.
“They are tackling the infrastructure of the company … and repositioning things, [such as] taking inventory levels down and restructuring from a cost standpoint,” he explained. In better times, the Process group was in a growth mode, but now “they are under enormous pressure to get the restructuring things done [as they are] getting ready for tough times in 2010,” Farr said.
In fact, Farr and the executive team are working on ways to sustain all of Emerson’s businesses through what they expect will be at least three more down quarters, with a recovery expected in late 2010. To that end, Emerson effected a $275 million operational inventory reduction in the quarter, which allowed for a cash flow increase of 11% vs. the prior year, to $916 million.
In addition, the company reduced headcount, which peaked at 141,000 at the end of last fiscal year, by more than 20,000 people worldwide. The company expects to cut another 5,000 to 6,000 employees as a result of closing non-productive, high-cost facilities in North America, Western Europe, Mexico, and some parts of Asia, Farr said.
“When the economy does come back, production will be in best-cost locations,” he said.
Due to its expectation of a late 2010 recovery, the company will continue to reduce its global inventory, and expects to incur approximately $280 million to $300 million in restructuring expenses in fiscal 2009. Emerson expects full-year earnings per share in the $2.20 to $2.30 range. Underlying sales are expected to decline 12% to 13% from 2008 levels.