Emerson (NYSE: EMR), St. Louis, MO, reported sales for the third quarter ended June 30 of $6.3 billion, a decrease of 2 percent compared to the same period a year ago. Profit decreased 73 percent to $214 million.
The sales decrease reflected a sluggish economic environment and difficult comparisons, as recovery from the Thailand flooding drove robust third quarter sales in the prior year. Underlying sales declined 1 percent, as divestitures deducted 1 percent and currency translation had a negligible impact, with the U.S. down 3 percent, Asia down 3 percent and Europe down 6 percent. Emerging market growth of 2 percent was more than offset by weaker demand in mature economies.
Process management net and underlying sales increased 3 percent, with the U.S. down 6 percent, Asia up 8 percent and Europe flat. Solid demand in energy and chemical end markets supported continued growth despite difficult comparisons in the prior year, when recovery from the Thailand flooding drove robust underlying growth.
Industrial Automation net and underlying sales decreased 7 percent, with the U.S. down 6 percent, Asia flat and Europe down 13 percent, as global demand for industrial goods remained weak. The power generating alternators business experienced the sharpest decline, but channel inventory destocking is beginning to slow.
Network power net and underlying sales declined 5 percent, with the U.S. down 1 percent, Asia down 13 percent and Europe down 4 percent, as demand trends were mixed among businesses. The network power systems business declined slightly, as an increase in demand for data center infrastructure was more than offset by weakness in global telecommunications markets. The embedded computing and power business declined at a double-digit rate, reflecting challenging end markets and continued product line rationalization.
Climate technologies net and underlying sales decreased 2 percent, with the U.S. down 3 percent, Asia down 2 percent and Europe down 5 percent. Residential air conditioning markets paused after strong growth in the previous quarter, as mild weather and inventory destocking affected demand. The global refrigeration business declined slightly but improved sequentially, with recovery from substantial weakness in the transportation business expected to continue. Commercial air conditioning market conditions remained slow, but order trends improved.
Commercial & residential solutions sales declined 2 percent, reflecting a 6 percent deduction from the Knaack business divestiture. Underlying sales increased 4 percent, driven by 6 percent growth in the U.S., supported by strong demand in residential end markets.
For the first nine months, sales for Emerson were $17.9 billion, an increase of 1 percent compared to the same period a year ago. Profit decreased 27 percent to $1.3 billion.
“Despite some soft pockets, emerging markets were encouraging, as strategic investments generated growth,” said CEO David N. Farr. “The near-term is expected to remain slow, but orders growth has resumed, suggesting the economic environment is beginning to stabilize and improve.”
Emerson also announced an agreement to sell a 51 percent stake in the embedded computing and power business to Platinum Equity. With sales of $1.4 billion in 2012, Emerson’s embedded computing and power business, based in Carlsbad, CA, is a supplier of technologies used in communications and computing equipment and other applications. Continued weakness in the technology equipment and mobile device markets that this business serves has resulted in lower sales and earnings growth expectations.
Emerson will receive $300 million in cash and will retain a 49 percent noncontrolling interest in the business, which will operate as an independent company. “The embedded computing and power business is a technology leader in the industry it serves, but no longer fits strategically in our portfolio. The transaction with Platinum will allow us to immediately focus on our core businesses while also participating in the upside from repositioning the business as it focuses on growth as an independent company,” Farr said.
The transaction is expected to close in three to six months.
