Emerson Electric Company · NYSE:EMR
Emerson Electric — Investor Day (February 2017)
181 slides from Emerson Electric's investor day presentation, Feb 16, 2017
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Slide 3: 2017 Investor Conference Business Update
2017 Investor Conference Business Update David N. Farr Chairman and Chief Executive Officer February 16, 2017 Safe Harbor Statement Our commentary and responses to your questions may contain forward-looking statements, including our outlook for the remainder of the year, and Emerson undertakes no ob
Slide 4: 2017 Investor Conference Business Update
2017 Investor Conference Business Update David N. Farr Chairman and Chief Executive Officer February 16, 2017 Safe Harbor Statement Our commentary and responses to your questions may contain forward-looking statements, including our outlook for the remainder of the year, and Emerson undertakes no ob
Slide 5: 2017 Emerson Investor Conference
2017 Emerson Investor Conference New York City, NY Thursday 16 February, 2017 8:30 – 10:00 Business Overview / Strategic Update David Farr 10:00 – 10:15 Break 10:15 – 11:15 Automation Solutions Mike Train 11:15 – 12:15 Commercial & Residential Solutions Bob Sharp 12:15 – 12:45 Questions & Answers 12
Slide 6: 2017 Emerson Investor Conference
2017 Emerson Investor Conference New York City, NY Thursday 16 February, 2017 8:30 – 10:00 Business Overview / Strategic Update David Farr 10:00 – 10:15 Break 10:15 – 11:15 Automation Solutions Mike Train 11:15 – 12:15 Commercial & Residential Solutions Bob Sharp 12:15 – 12:45 Questions & Answers 12
Slide 7: Investor Conference – Emerson Attendees
Investor Conference – Emerson Attendees David Farr Chairman and Chief Executive Officer Ed Monser President Frank Dellaquila Senior Executive Vice President and Chief Financial Officer Ed Purvis Executive Vice President and Chief Operating Officer Steve Pelch Executive Vice President, Organization P
Slide 8: Investor Conference – Emerson Attendees
Investor Conference – Emerson Attendees David Farr Chairman and Chief Executive Officer Ed Monser President Frank Dellaquila Senior Executive Vice President and Chief Financial Officer Ed Purvis Executive Vice President and Chief Operating Officer Steve Pelch Executive Vice President, Organization P
Slide 9: Agenda
Agenda 1 2016 Review 2 2017 Performance Expectations 3 2021 Vision for Value Creation 9
Slide 10: Agenda
Agenda 1 2016 Review 2 2017 Performance Expectations 3 2021 Vision for Value Creation 10
Slide 11: 2016 February Investor Day Versus 2016 Actual Performance
2016 February Investor Day Versus 2016 Actual Performance • Continue restructuring with cost reductions in line with a challenging 2017 Investor global economy, and a smaller, more focused Emerson Day Status: • Global economies are struggling to generate any growth acceleration. Therefore, moderate
Slide 12: Emerson's 2016 Financial Performance
Emerson’s 2016 Financial Performance: Continuing Operations Basis 2015-16 2015 2016 Change Sales $16.2B $14.5B (11%) Underlying* (7%) GP % 43.1% 43.1% - EBIT % Adjusted* 18.1%1 17.2% (90 bps) Operating Cash Flow2 $2.5B $2.9B 14% Shareholder Payout Ratio 149% 63% EPS Reported2 $3.99 $2.52 (37%) EPS A
Slide 13: Restructuring Update -- Costs 2015 – 2017E
Restructuring Update -- Costs 2015 – 2017E Costs Total Costs: $146M Total Costs: $96M Total Costs: ~$50M $120M (+ ~$25M Pentair V&C) $100M $91M $80M $65M $60M $40M $30M $18M $15M $10M $20M $14M $11M $13M $11M $14M $7M $7M $11M $0M Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2E Q3E Q4E 2015 2016 2017E Restructuring
Slide 14: Restructuring Update -- Benefits 2015 – 2017E
Restructuring Update -- Benefits 2015 – 2017E Benefits Total O.P. Benefits: ~$50M Total O.P. Benefits: ~$235M Total O.P. Benefits: ~$355M $120M ~$185M Increase Over 2015 ~$120M Increase Over 2016 $100M $94M $87M $89M $85M $80M $70M $61M $60M $54M $51M $40M $31M $20M $15M $3M $0M Q1 Q2 Q3 Q4 Q1 Q2 Q3
Slide 15: Emerson Global Presence 2016
Emerson Global Presence 2016 -- As We Start 2017 With the New Emerson Global Sales $14.5 billion Employees 74,000 Locations 155 Europe and Russia Sales $2.3 billion United States and Canada Employees 14,000 Sales $7.5 billion Locations 33 Employees 22,000 Locations 59 Asia Latin America Sales $2.9 b
Slide 16: Emerson New Business Focus and Market Growth Opportunities
Emerson New Business Focus and Market Growth Opportunities Market Growth Drivers Automation Commercial & Solutions Residential Solutions • Lifecycle Services • HVAC, Refrigeration • Hybrid and Discrete Lifecycle Services Automation • Environmentally • Wireless Solutions Friendly Refrigerants • Senso
Slide 17: Agenda
Agenda 1 2016 Review 2 2017 Performance Expectations 3 2021 Vision for Value Creation 17
Slide 18: Agenda
Agenda 1 2016 Review 2 2017 Performance Expectations 3 2021 Vision for Value Creation 18
Slide 19: Next Steps: 2017 Game Plan and Priorities
Next Steps: 2017 Game Plan and Priorities • Finish executing on restructuring plans to right-size cost structure given global macroeconomic trends and smaller two platform business footprint Perform as • Use cash proceeds and strong cash flow / balance sheet to aggressively acquire and “New Emerson”
Slide 20: Emerson's 2017 Key Financial Guidance
Emerson’s 2017 Key Financial Guidance -- The Current Business Make-Up % Change 20161 2017E Forecast1 2016-17E Sales (GAAP) $14.5B $14.1 – $14.4B (3%) – (1%) Underlying Growth* (7%) (2%) – 0% Gross Margin 43.1% ~43.4% +30 bps EBIT Margin* 17.2% ~17.9% +70 bps EPS Reported Continuing Ops $2.45 $2.47 –
Slide 21: Quarterly Underlying Sales Growth
Quarterly Underlying Sales* Growth Emerson underlying sales growth (year over year change by quarter) 10% 8% 8% 2+ Year “Industrial Recession” Driven by Dramatic Declines in Oil & Gas, Strong 6% U.S. Dollar, and Weak U.S. and Emerging Market Business Spend 4% • But it is Turning Back Up! 2% 1% 0% (2
Slide 22: Underlying Order Trends
Underlying Order Trends Trailing 3-Month Average vs. Prior Year 30% 25% 20% 15% Commercial 10% & Residential Solutions 5% 0% Emerson (5%) Total (10%) (15%) Automation Solutions (20%) Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Orders at FY17 Base Company Trailing 3-Month Underlyin
Slide 23: World Gross Fixed Investment Trends: Mature Markets
World Gross Fixed Investment (GFI) Trends 2017 Expectations for Mature Markets Canada • Improved outlook for commodity prices driving GFI growth Europe • Brexit-related uncertainties, political instability, and banking problems will • Low Canadian Dollar will bolster restrain Western European grow
Slide 24: World Gross Fixed Investment Trends: Emerging Markets
World Gross Fixed Investment (GFI) Trends 2017 Expectations for Emerging Markets Middle East & Africa • Low oil prices, fiscal tightening, and China • Expected to slow further due to regional instability, have restrained imbalances in credit, housing, and growth industrial markets -- excess capaci
Slide 25: Oil & Gas Industry Capital Expenditures Priorities and Outlook
Oil & Gas Industry Capital Expenditures Priorities and Outlook Total Industry CapEx Wall Street Journal During the “investment boom” in a high oil price environment, many oil and gas “U.S. Oil Producers customers executed capital projects very Ramp Up Spending” 2010-2014 ~$3.6T quickly, often sacrif
Slide 26: 2017 Outlook For Oil & Gas Capital Spending
2017 Outlook For Oil & Gas Capital Spending Global Exploration and Production Key Customers $B (E&P) Capital Spend Capital Expenditures $800 2015 2016 2017E 5% $665 $635 (26%) International $600 Up 3% - 8% Oil Company 20% 7% 7% $492 (23%) Customer $460 $405 $400 $458 $377 $367 $306 National Oil $299
Slide 27: Automation Solutions -- 2017 End Markets Outlook
Automation Solutions -- 2017 End Markets Outlook O&G Midstream O&G Exploration Hybrid & Production 2017E: (3%) – (5%) Industries Continued investment in LNG 2017E: (5%) – (6%) storage and pipeline constructions 2017E: 0% – 2% and expansions Increase in investment led by North Aging population and gr
Slide 28: Commercial & Residential Solutions -- 2017 End Markets Outlook
Commercial & Residential Solutions -- 2017 End Markets Outlook Residential U.S. Home U.S. Non- A/C Improvements Residential Construction 2017E: 4% – 5% 2017E: ~ 5% 2017E: 5% – 7% Solid housing starts; summer Driven by improved consumer Aided by growth in manufacturing weather is key driver wealth an
Slide 29: Quarterly Underlying Sales Growth -- Finally Turning Positive
Quarterly Underlying Sales* Growth -- Finally Turning Positive Emerson underlying sales growth (year over year change by quarter) 10% 8% 8% • 2+ Year “Industrial Recession” Driven by Dramatic 6% Declines in Oil & Gas, Strong U.S. Dollar, and Weak U.S. and Emerging Market Business Spend 4% • But It i
Slide 30: Underlying Order Trends
Underlying Order Trends Trailing 3-Month Average vs. Prior Year 25% 20% 15% 10% Commercial & Residential Solutions 5% 0% Emerson Total (5%) (10%) (15%) Automation Expected Solutions (20%) Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Note: Orders at FY17 Base Co
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Slide 35: New Presidential Administration: Mixed Outlook
New Presidential Administration: Mixed Outlook --- The Next 180 Days Will Be Telling Initiative Business Impact Commentary Shelving of Trans Pacific By relinquishing its role as a trade leader in the region, Partnership (TPP) the U.S. might possibly be opening the door for Chinese influence -- Need
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Slide 37: 2017 Expectations
2017 Expectations • Continue to see slightly better economic activity in the U.S., Europe, and Asia-Pacific -- But do see some negative headwinds from Washington D.C. rhetoric around protectionism and new tax policies • OPEC production cuts will support oil prices spurring a modest recovery in our c
Slide 38: Emerson's 2017 Key Financial Guidance
Emerson’s 2017 Key Financial Guidance -- The Current Business Make-Up % Change 20161 2017E Forecast1 2016-17E Sales (GAAP) $14.5B $14.1 – $14.4B (3%) – (1%) Underlying Growth* (7%) (2%) – 0% Gross Margin 43.1% ~43.4% +30 bps EBIT Margin* 17.2% ~17.9% +70 bps EPS Reported Continuing Ops $2.45 $2.47 –
Slide 39: Emerson Has a History of Strong Cash Flow Generation
Emerson Has a History of Strong Cash Flow Generation Factors of the Decline: • ~$500M taxes paid on divestitures $B Operating Cash Flow • ~$600M lower earnings $4 2001 - 2009 2010 - 2016 $3.6 $3.7 $3.3 $3.3 $3.2 $0.6 $3.0 $3.1 $3.1 $3 $0.5 $2.5 $2.51 ~$2.51 $2.2 $2.2 $2.5 $2 $1.7 $1.8 $1.7 $1 Total
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Slide 41: Repositioning Nearly Complete: Acquisitions & Divestitures Update
Repositioning Nearly Complete: Acquisitions & Divestitures Update Financial Impact We now expect earnings from continuing operations to be $2.47 Continuing Operations – $2.62 per share for Fiscal Year 2017 -- up from $2.45 per share in 2016 The sale of Network Power, Leroy-Somer and Control Divestit
Slide 42: Net Debt Reduced to $2.4B by End of Fiscal 2017
Net Debt Reduced to $2.4B by End of Fiscal 2017 Net Debt 2017 assumes full Balance Sheet 9/30/2017E $B repatriation of Cash1 $2.0B divestiture cash $4 Debt1 $4.4B $3.5B Debt / EBITDA 1.4x $3 $2.3B $2.4B $2.4B $2 $4.4B $2.0B $0.4B $2.0B $1 $0.8B $1.2B $3.2B $0.5B $0 $0.3B ($1) ($0.9)B Sept. 30, Net P
Slide 43: Pentair Valves & Controls Acquisition Update
Pentair Valves & Controls Acquisition Update Fiscal 20171 • Acquisition is projected to be cash accretive -- ~$75M Operating & ~$45M Free Cash Flow • EPS is slightly dilutive including ~$25M of restructuring spend & intangible amortization of ~$50M • Excludes one-time purchase accounting actions at
Slide 44: Delivering Pentair Valves & Controls Acquisition Success Through Integration
Delivering Pentair Valves & Controls Acquisition Success Through Integration • We picked the right target, that fits the Emerson DNA and growth strategy – We know the industry, we know the products, we know the channel, we know the customers. Emerson has done this before -- similar to the Fisher Val
Slide 45: Timeline for Key Strategic Actions in 2017
After Completing Multiple Major Accomplishments in 2016, 2017 Requires Executing the Final Critical Details Timeline for Key Strategic Actions March 31, 2017: Expected Pentair V&C Acquisition Closing Day One Readiness: Ensure Emerson Core Principles Structural Integration Planning Business Continuat
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Slide 47: Agenda
Agenda 1 2016 Review 2 2017 Performance Expectations 3 2021 Vision for Value Creation 47
Slide 48: Agenda
Agenda 1 2016 Review 2 2017 Performance Expectations 3 2021 Vision for Value Creation 48
Slide 49: Bridge to 2019 Sales Compared to Current Expectations
2016 Investor Conference (Austin, TX) Bridge to 2019 Sales Compared to Current Expectations $B Legend: Feb 2016 Expectations • ~$1B reduction from organic sales (Austin, TX) • ~$1B reduction from acquisitions Feb 2017 Expectations (New York, NY) ~$21B ~$3-6B ~$20+B ~($6B) $20 ~$20B ~$2-3B ~$15B ~$18
Slide 50: Bridge to 2021 Sales
2017 Investor Conference (New York, NY) Bridge to 2021 Sales $B Upside ~$1B ~$21B ~$20B ~($6B) ~$2B ~$20B $20 ~$4B Pentair V&C ~$14.5B ~3% Underlying Growth + ~2% Growth from Bolt-on Acquisitions $0 2016E 2016 2016 Strategic Strategic Continuing 2016 Ops1 UnderlyingGrowth Underlying Growth& Pentair
Slide 51: Bridge to 2019 EPS Compared to Current Expectations
2016 Investor Conference (Austin, TX) Bridge to 2019 EPS Compared to Current Expectations Legend: Feb 2016 Expectations $4.00 (Austin, TX) ~$3.60-$3.80 Feb 2017 Expectations (New York, NY) ~$0.12-$0.17 $3.50 ~$3.15 ~$0.70-$0.80 ~$0.18-$0.23 ~($0.55) $3.00 $2.98 ($0.53) ~$0.50 ~$0.10 ~$3.10 ~$2.60 ~$
Slide 52: Bridge to 2021 EPS
2017 Investor Conference (New York, NY) Bridge to 2021 EPS $4.00 Target Is 9+% EPS Growth from New Emerson Base ~$0.40 ~$3.85 5-year CAGR ~9.5% $3.50 ~$0.10 ~$0.45 $2.98 ($0.53) $3.00 ~$0.45 $2.45 $2.50 Underlying Sales Growth: ~3.5% Base EBIT Expansion: ~2.3 pts. $2.00 Strategic 20162016 Share 2016
Slide 53: Gross Fixed Investment Trends 2017-2021: Mature Markets
Gross Fixed Investment (GFI) Trends 2017 - 2021 Expectations for Mature Markets Canada • Prices of oil and other commodities expected Europe • Aggressive monetary stimulus and a weaker to rise, sparking a recovery in the Canadian euro will support growth in Western Europe dollar • Political stabil
Slide 54: Gross Fixed Investment Trends 2017-2021: Emerging Markets
Gross Fixed Investment (GFI) Trends 2017 - 2021 Expectations for Emerging Markets Middle East & Africa • Addressing job growth and economic China • Services will account for ~70% of growth over diversification will be critical to growth in the this time period as China looks to transform its Middl
Slide 55: Emerson's Core Platform Growth
Emerson’s Core Platform Growth Through the Cycle Targets 2000 – 2015 Served Market ~3% ~3% Emerson Platform Growth ~6% ~3% 2016 – 2021F Served Market 1% - 3% 3% - 5% Emerson Platform Growth ~3% 3.5% - 5.5% 2017E – 2021F Served Market 3% - 5% 3% - 5% Emerson Platform Growth 3.5% - 6% 3.5% - 5.5% Emer
Slide 56: 2017 – 2021 Growth Expectations and Market Trends / Drivers
2017 – 2021 Growth Expectations and Market Trends / Drivers • U.S. Presidential Administration – Mixed economic outcome which will largely depend on whether traditional pro-growth deregulation and fiscal stimulus initiatives outweigh the potential protectionist agenda items -- This will unfold throu
Slide 57: Automation Solutions and Commercial & Residential Solutions -- A Strong Foundation
Automation Solutions and Commercial & Residential Solutions -- A Strong Foundation Off of Which to Build! Emerson Technology and Markets and Best Practices and Innovation Customers Global Enterprise The Combined 2 Platform Portfolio Creates a Lean, Global Enterprise With Superb Financial Footing, Le
Slide 58: Strategic Rationale for Maintaining Emerson's Two Platform Portfolio
Strategic Rationale for Maintaining and Leveraging Emerson’s Two Platform Portfolio Technology and Markets and Best Practices and Innovation Customers Global Enterprise 1. Leverage Global Innovation 1. Share Domain Knowledge 1. Share Best Practices and Centers Across Both Across Common End Managemen
Slide 59: Cross-Platform Collaboration on the Technology Stack
Technology and Innovation Cross-Platform Collaboration Opportunities On Multiple Layers of the Technology “Stack” Cross Platform Collaboration Industry Specific Services On Common Advanced Services Application ProAct Backbone Market Specific Apps Synergies Application Among Platform Hardware Sensi C
Slide 60: Leverage Domain Knowledge Across Common End Markets
Markets and Customers Leverage Domain Knowledge Across Common End Markets Common End Life Sciences / Pharmaceuticals Markets: Food & Beverage Key Trends: • Flexible Manufacturing • Pharma 4.0 • Food Safety • Temperature Sensitive Biopharma • Product Traceability and • Continuous Manufacturing Reliab
Slide 61: Share Best Practices in Emerson Management Process
Best Practices and Global Enterprise Share Best Practices in Emerson Management Process Planning Profit Conference • Cost Reductions Review (Growth • Market Assessment • Supply Chain (Margin • Competition • Operations Footprint Focus) Focus) • Technology Trends • Material Containment • Sales Growth
Slide 62: Perfect Execution Facilitates Leveraging Business Model Learnings
Best Practices and Perfect Execution Facilitates Leveraging Global Enterprise Unique Business Model Learnings Across Platforms Business Models Engineer & Make-To-Order Solutions & Services Configure-To-Order • Customer Collaboration • Front-End Processes • Lead Time Stratification Through Business P
Slide 63: Evolving Our Emerson Message to Focus on Critical Issues
63 Evolving Our Emerson Message to Focus on “Critical Issues” and a True Solutions Approach • Making the greatest use of the world’s • Ensuring human comfort and health valuable resources • Protecting food quality • Helping nations move their economies and sustainability forward in a responsible way
Slide 64: Introducing the New Emerson.com
Introducing the New Emerson.com -- An Industries Solution Focus for Our Global Customers Automation Solutions Commercial & Residential Solutions Automotive Mining, Minerals &Metals Commercial Buildings & Construction Chemical Oil & Gas Energy & Utilities Downstream Packaging Facility Management & Ma
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Slide 66: Automation Solutions Market Outlook
Automation Solutions Market Outlook • Successful implementation of OPEC production cuts and stable oil prices will support increased customer spending within our core process markets in late 2017 and into 2018 – We expect a strong rebound in 2018 driven by increased maintenance, repair, and overhaul
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Slide 69: Key Priorities for Automation Solutions Through 2021
Key Priorities for Automation Solutions Through 2021 Invest Acquire • Continue critical internal • Add product & solution investment in technology to exit competency through acquisition industrial recession in a strong -- diversify into non-oil & gas position markets Plantweb digital ecosystem is th
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Slide 72: Commercial & Residential Solutions Market Outlook
Commercial & Residential Solutions Market Outlook • Stronger U.S. economy should fuel U.S. Residential and Commercial construction – We expect to continue to benefit from the strong performance of these markets through 2021 – Focus will be on increasing profitability and cash flow as we grow sales •
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Slide 75: Priorities for Commercial & Residential Solutions Through 2021
Priorities for Commercial & Residential Solutions Through 2021 Perform in Core Markets Invest in Technology • Exploit our industry leading • Invest in and acquire technology to further penetrate technologies that have potential existing and adjacent markets to scale in our ecosystem Minority investm
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Slide 79: Bridge to 2021 Sales
2017 Investor Conference (New York, NY) Bridge to 2021 Sales $B Upside ~$1B ~$21B ~$20B ~($6B) ~$2B ~$20B $20 ~$4B Pentair V&C ~$14.5B ~3% Underlying Growth + ~2% Growth from Bolt-on Acquisitions $0 2016E 2016 2016 Strategic Strategic Continuing 2016 Ops1 UnderlyingGrowth Underlying Growth& Pentair
Slide 80: Bridge to 2021 EPS
2017 Investor Conference (New York, NY) Bridge to 2021 EPS $4.00 Target Is 9+% EPS Growth from New Emerson Base ~$0.40 ~$3.85 5-year CAGR ~9.5% $3.50 ~$0.10 ~$0.45 $2.98 ($0.53) $3.00 ~$0.45 $2.45 $2.50 Underlying Sales Growth: ~3.5% Base EBIT Expansion: ~2.3 pts. $2.00 Strategic 20162016 Share 2016
Slide 81: Operating Capital Efficiency Drives Significantly Higher Cash Flow and Returns
Operating Capital Efficiency Drives Significantly Higher Cash Flow and Returns Average Trade Working Capital (% of Sales) Long Term $4.4B $4.0B $3.7B Targets $4.3B $4.2B ~$2.4B 17.5% 17.7% 17.3% 17.9% 18.2% ~17.1% < 16% of Sales Operating Cash Flow $3.6B $3.7B $3.1B $3.0B1* $3.1B1* 14.8% 15.0% ~$2.5
Slide 82: Emerson Dividend to Free Cash Flow Ratio Plan
Emerson Dividend to Free Cash Flow Ratio Plan 70% Targeting 60% -- $1.2B Dividend: $2.0B FCF 60% ~62%2 50% 56%1 48%1 ~47% 40% 40% 30% 20% 10% 0% 2011 … 1Excludes tax and separation costs on divestitures 2015 2016 2017E … 2021T 2Continuing Operations Better Internal Growth and Acquisitions Will Be Ke
Slide 83: The New Emerson's Roadmap to Creating Value Through 2021
The New Emerson’s Roadmap to Creating Value Through 2021 Sales Growth Operating EBIT Target: 2% - 4% Underlying Margin Margin +3% - 4% Through Acquisitions 18% - 20+% 16% - 19+% Consolidated: 5% - 8% Free Cash Flow ROTC (% of Sales) Target: 18% - 25% Target: 11% – 14% As We Move Through 2017, We Wil
Slide 84: 2017 – 2021 -- Roadmap to a Stronger Emerson
2017 – 2021 -- Roadmap to a Stronger Emerson 20161 2017E1 2021T Sales $14.5B $14.1 - $14.4B ~$20+B Gross Profit % 43.1% ~43.4% ~44% EBIT %* 17.2% ~17.9% ~19% EPS Reported Continuing Ops $2.45 $2.47 - $2.62 ~$3.85 Operating Cash Flow $2.5B ~$2.5B ~$3.3B CapEx $447M ~$475M ~$600M % of Sales 3.1% ~3.5%
Slide 85: Next Steps: 2017 Game Plan and Priorities
Next Steps: 2017 Game Plan and Priorities • Finish executing on restructuring plans to right-size cost structure given global macroeconomic trends and smaller two platform business footprint Perform as • Use cash proceeds and strong cash flow / balance sheet to aggressively acquire and “New Emerson”
Slide 86: Emerson's 2017 Key Financial Guidance
Emerson’s 2017 Key Financial Guidance -- The Current Business Make-Up % Change 20161 2017E Forecast1 2016-17E Sales (GAAP) $14.5B $14.1 – $14.4B (3%) – (1%) Underlying Growth* (7%) (2%) – 0% Gross Margin 43.1% ~43.4% +30 bps EBIT Margin* 17.2% ~17.9% +70 bps EPS Reported Continuing Ops $2.45 $2.47 –
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Slide 89: Automation Solutions Business Overview
2017 Investor Conference Automation Solutions Business Overview Mike Train Executive President February 16, 2017 89
Slide 90: Automation Solutions Business Overview
2017 Investor Conference Automation Solutions Business Overview Mike Train Executive President February 16, 2017 90
Slide 91: Automation Solutions 2016 Summary
Automation Solutions 2016 Summary 2015 – 2016 2015 2016 Change Sales $10.2B $9.0B (12%) EBIT $1.8B $1.5B (21%) % of Sales 18.2% 16.2% (200 bps) ROTC 22% 17% 2016 Major Markets Served 2016 Sales by Geography Middle East & Africa Other Upstream 11% Latin America 8% Oil & Gas 6% North America Discrete
Slide 92: Key Messages
Key Messages • Our problem solving strategy has driven strong growth through the cycle, and is the foundation for Emerson’s continued industry leadership • Global process markets remained challenging in 2016 led by the Oil & Gas reset • Made significant strides to position Automation Solutions for s
Slide 93: Emerson Automation Solutions Trusted Advisor When it Matters Most
Emerson Automation Solutions Trusted Advisor When it Matters Most Taking on the industry’s toughest challenges, and bringing predictable success any time, any place. Measure Control Optimize Power Solve Real-time Control your The decision Safe, productive Achieve your insights to bring process and y
Slide 94: Automation Solutions Has Consistently Outperformed the Market
Automation Solutions Has Consistently Outperformed the Market and Is Well Positioned for the Future Automation Solutions Market Separation Growth Drivers $10.9B • Industries & Regions – Oil & Gas $9.0B • Floating Liquefied Natural Gas, Shale, Middle East, North Sea, Russia, Mexico $7.5B – Power • No
Slide 95: Process Industry Investment Trends
Process Industry Investment Trends 2017 2018-21 Process Industries Outlook Outlook Key Investment Trends: NA shale recovery; increase in Oil & Gas – Upstream international NOC investments NA expansion with Natural Gas exports Oil & Gas – Midstream and Mexico Energy Reform Clean fuels technology inve
Slide 96: Hybrid and Discrete Industry Investment Trends
Hybrid and Discrete Industry Investment Trends 2017 2018-21 Hybrid Industries Outlook Outlook Key Investment Trends: Significant biotech investments in Life Sciences Ireland; generics growth in AP and NA Global increase in operational Food & Beverage improvement and food safety spend Gold and copper
Slide 97: Operational Improvements Will Take Priority Over New Construction
Operational Improvements Will Take Priority Over New Construction as Markets Recover Automation Solutions Market by Type of Business A bottom-up market recovery offers strong margin and 3rd growth opportunity KOB1: Greenfield Projects Customers’ spend KOB2: Brownfield Projects 2nd will be focused on
Slide 98: Process Manufacturers Are Prioritizing Operational Performance Investments
PROCESS Industry Research Confirms Process Manufacturers Are Prioritizing Operational Performance Investments Key Customer Strategies Operational Excellence Research “…we're focused on expanding margins by increasing efficiencies in our “There is a sense of needing to be operations and on capturing
Slide 99: Life Sciences Leads Hybrid Industries Transformation
HYBRID Life Sciences Leads Hybrid Industries Transformation With a Focus on Optimization and Pharma 4.0 Major Industry Trends 69% equipment and technology budgets for pharmaceutical companies over past 3 years1 Continuous Pharma 4.0 “The increased spending for Manufacturing improving equipment and t
Slide 100: Discrete Industries Are Rapidly Increasing Automation
DISCRETE Discrete Industries Are Rapidly Increasing Automation “Henkel will leverage Industry 4.0 to “With our vision of Industry 4.0, we are better plan, source, produce and digitizing the entire value creation deliver its products and solutions.” process — from design and development Henkel 2020+
Slide 101: Top Quartile Programs: Capital Investments
Top Quartile Programs Enable Peer-Leading Results in Capital Investments & On-Going Operations Capital Efficiency $430B 1 to 5 years Opportunity Customer Eliminate Reduce Accommodate Objectives Cost Complexity Change Front End Customer Appraise Engineering & Execute Startup Activities Design Project
Slide 102: Top Quartile Programs: On-Going Operations
Top Quartile Programs Enable Peer-Leading Results in Capital Investments & On-Going Operations Operational Efficiency $1T+ 20 to 60 years Opportunity Customer Optimize Improve Minimize Ensure Objectives Production Reliability Emissions Safety Shutdowns, Customer Maintenance & Optimize, Expand & Turn
Slide 103: Top Quartile Manufacturers Significantly Outperform Their Average Peers
Top Quartile Manufacturers Significantly Outperform Their Average Peers Sources: Refining and Petrochemical Benchmarks,API, Solomon, OSHA, IHS Markit and Company Reports 103
Slide 104: Top Quartile Manufacturers Utilize Advanced Technology and Processes
Top Quartile Manufacturers Utilize Advanced Technology and Processes to Drive Long Term Results Behaviors of Top Quartile Operational Performers Operational Business Performance Refining and Petrochemical Industries For a Typical Facility • Utilize integrated information (Earnings) management, produ
Slide 105: Customers Must Continuously Measure, Analyze & Decide, and Act
To Achieve Top Quartile Results, Customers Must Continuously Measure, Analyze & Decide, and Act Diverse, rich data sets (big data) Logic “Unlimited” storage Analytics and processing (cloud) Modeling Modeling, embedded domain expertise Continuously improving expertise and efficiency Actionable Sensor
Slide 106: Industrial IoT Enables New Deployment Models
Industrial IoT Enables New Deployment Models for Operational Excellence Applications and Expertise Local Experts Centralized Expertise 3rd Party Expert Services On Premise On Premise or Cloud Hosted Cloud Hosted Customer Center 3rd Party Monitoring Integrated Operations Center and Analysis Monitorin
Slide 107: Introducing The Plantweb Digital Ecosystem
Introducing The Plantweb Digital Ecosystem: Industry's Most Comprehensive Industrial IoT Portfolio FOUNDATIONAL NEW SOLUTIONS SOLUTIONS Rich Tools Always Emerson Connected Mobile Services Plantweb Advisor Services & PERFORMANCE HEALTH ENERGY Consulting Applications Services Standalone Plantweb Insig
Slide 108: Plantweb Digital Ecosystem Connects Operational Technology and IT
The Plantweb Digital Ecosystem Expands Our Original Plantweb to Connect Operational Technology and IT Business Planning and Logistics, ERP Production Operations Production Management, Reliability, Safety, Energy, Management Digital Infrastructure, Information Distribution Supervisory Control, Safety
Slide 109: Pervasive Sensing Is the Foundation of Plantweb
Pervasive Sensing Is the Foundation of Plantweb, Building off Industry Leading Presence and Experience Customers can now collect data that’s never been possible before 40+ unique devices and growing Devices are easily deployed and maintained at a fraction of the cost Supported by industry leading wi
Slide 110: Secure First Mile Architecture
Our Secure First Mile™ Architecture Is a Simpler and Safer Approach for Connecting OT and IT Systems The Industrial IoT Emerson Solution: Challenge Secure First Mile™ Secure IT Environment Secure IT Environment Private Three Key Components Clouds Edge Gateway • Converts protocols and provides Edge s
Slide 111: A Scalable Suite of Applications that Delivers Actionable Information
A Scalable Suite of Applications that Delivers Actionable Information Plantweb Insight™ Plantweb Advisor™ PUMPS STEAM TRAPS CORROSION VALVES ENERGY HEALTH PERFORMANCE Lightweight, asset-specific apps providing Integrated suite of enterprise software pre-built analytics with minimal configuration pro
Slide 112: Connected Services Deliver Insights and Outcomes
Connected Services Deliver Insights and Outcomes Through New Monitoring Solutions Emerson Connected Services Automation System Steam Trap Control Valve Machinery Condition Health Monitoring Monitoring Condition Monitoring Monitoring Emerson Monitoring Customer Site Expert Analysis Customer Site Deci
Slide 113: Customers Have Been Investing in Operational Excellence Technologies
Our Customers Have Been Investing in Operational Excellence Technologies for Years The challenge has Control Room been that point Operations Process Operator Management Engineers solutions lead to disconnected, underperforming Operations Equipment ERP silos… Intelligence Health ...and bringing them
Slide 114: Plantweb Digital Ecosystem Designed With Deep Understanding of Customers
Plantweb Digital Ecosystem Is Designed With a Deep Understanding of Our Customers’ Operations Emerson works with customers to, • Understand their AMS operations and Site Mgr. technology investments • Design an architecture AMS Mach. Mgr. that leverages Emerson and 3rd party technologies • Plan and E
Slide 115: Emerson Enables Customers to Make IoT a Reality
Emerson Enables Customers to Make IoT a Reality Today, Whether Monitoring a Single Asset… Plantweb Insight Plantweb Advisor Connected Services Customer: National Refining Customer: International Oil & Customer: International Company Gas Company Chemical Company Pain: Unknown vibration, Pain: Heat ex
Slide 116: Or Creating a Completely Virtual Plant
… Or Creating a Completely Virtual Plant Solutions Impact Benefit Plant Virtualization People • Integrated plant Expertise Utilization control & simulation Productivity • Cybersecurity • Decision support Plant • Plant wide Availability optimization Flexibility Compliance Process Optimization Process
Slide 117: Top Quartile Projects Significantly Outperform Their Average Peers
Top Quartile Projects Significantly Outperform Their Average Peers Capital Project Crisis Project Costs 54% Lower Cost 65% for top quartile projects 4th Quartiles 1st of projects over $1B are… Project Schedules 49% >50% above budget Shorter >25% over schedule Schedules for top quartile 4th Quartiles
Slide 118: Project Certainty Is Emerson's Approach to Top Quartile Project Execution
Project Certainty Is Emerson’s Approach to Helping Customers Achieve Top Quartile Project Execution Project Certainty is showing real world results Where customers are adopting our technology and work process enablers, they are seeing game changing returns. Engineering & Procurement Oil & Gas End Us
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Slide 121: Valves & Controls Expands Emerson's Operational Certainty Capabilities
Valves & Controls Expands Emerson’s Operational Certainty Capabilities One Global Manufacturer Servicing All Valves • Long-term service agreements ensure on-time repair & upgrades to all valves • Diagnostics on critical valves increases uptime and lowers onsite inventory New Existing Valves in a typ
Slide 122: Valves & Controls Expands Project Certainty Capabilities
Valves & Controls Expands Project Certainty Capabilities With Transformational Approaches to Valve Projects Main Valve Partner Automated Isolation Valve Opportunity Lower Procurement Traditional Approach Costs • Offers components Standardized - Instrument Products - Actuator - Isolation valve
Slide 123: Emerson Has Enabled Major Shifts in the Life Sciences Industry
Emerson Has Enabled Major Shifts in the Life Sciences Industry Through Innovative Technologies & Services Recent Industry Focus: Optimizing Manufacturing Capabilities Increasing Electronic Accelerating Regulatory Records Product Pipelines Compliance Management Systems Validation Batch Recipe Softwar
Slide 124: Continuing to Lead With Forward Thinking Innovations
We Will Continue to Lead the Industry With Forward Thinking Innovations to Maximize Business Results Future Industry Focus: Maximizing Enterprise Performance Continuous Manufacturing Pharma 4.0 Connecting modular operations Improving technology transfer, data with real-time monitoring, analytics, ea
Slide 125: Established Product Portfolio Serving Discrete Industries
Emerson Has an Established Product Portfolio Serving Discrete Industries Pneumatics Directional Proportional Air Cylinders & Actuators Grippers Valves Valves Preparation Material Joining Vibration Infrared Laser Ultrasonic Joining Joining Joining Joining Electrical Power Supplies Lighting Electrical
Slide 126: Our Existing Capabilities Provide Unique and Differentiated Solutions
Our Existing Capabilities Provide Unique and Differentiated Solutions Packaging Automotive Aerospace Filling & Sealing Paint Shop Ground Support Equipment • Filling control • Lighting and power • Container sealing • Flow Control Automated Testing Systems Material Handling Press Room & Stamping • Gri
Slide 127: Enhancing Our Position in the Smart Factory
Enhancing Our Position in the Smart Factory Will Complement Our Strong Process Market Leadership Enterprise & Other Become a trusted partner Operations for machine builders and Management end-users • Build upon our history as a leader in sensing and Automation control Platform Process Machine • Enab
Slide 128: Target Markets With Strong Growth and Differentiated Technologies
We Have Identified Target Markets With Strong Growth, Differentiated Technologies and Viable Entry Points Growth CAGR (%) 16% 12 Focus segments: • High growth and high 10 innovation • High value to design of machines 8 • Industry 4.0 enablers • Presence of available 6 partners and acquisitions 4 Cap
Slide 129: Automation Solutions Strategic Direction to Drive Growth
Automation Solutions Strategic Direction to Drive Growth Across the Entire Portfolio People Development Technology Leadership • Talent Management & • Plantweb Digital Development Ecosystem • High Performance • Breakthrough Leadership Customer Innovation & Work Culture • Additive • Strategic Accounts
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Slide 131: Automation Solutions 2016 Summary & 2017 Guidance
Automation Solutions 2016 Summary & 2017 Guidance 2015 2016 2017E (5%) - (3%) Sales $10.2B $9.0B Underlying Growth* EBIT $1.8B $1.5B % of Sales 18.2% 16.2% 17% - 18% ROTC 22% 17% 2016 Major Markets Served 2016 Sales by Geography Middle East & Africa Other Upstream 11% Latin America 8% Oil & Gas 6% N
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Slide 135: Commercial & Residential Solutions Business Overview
2017 Investor Conference Commercial & Residential Solutions Business Overview Bob Sharp Executive President February 16, 2017 135
Slide 136: Commercial & Residential Solutions Business Overview
2017 Investor Conference Commercial & Residential Solutions Business Overview Bob Sharp Executive President February 16, 2017 136
Slide 137: Commercial & Residential Solutions 2016 Summary
Commercial & Residential Solutions 2016 Summary 2015 – 2016 2015 2016 Change Sales $5.6B $5.5B (1%) EBIT $1.2B $1.3B 7% % of Sales 21.3% 23.2% 190 bps ROTC 42% 45% 2016 Sales by Market 2016 Sales by Geography Other Commercial and Industrial Latin America Middle East & Africa Residential 5%4% 18% AC
Slide 138: Key Messages
Key Messages • Commercial & Residential Solutions has a long-term history of growth and profitability, built upon franchise businesses and industry stewardship • We have favorable market dynamics, and trends around efficiency, sustainability, comfort, and new refrigerants provide catalysts for new g
Slide 139: Core Business Platforms
Core Business Platforms We concentrate on the most complex and important challenges facing the world in the process, industrial, commercial and residential markets EMERSON AUTOMATION SOLUTIONS EMERSON COMMERCIAL & RESIDENTIAL SOLUTIONS • Making the greatest use of the world’s • Ensuring human comfor
Slide 140: Technologies and Solutions
Com eee sche of Technologies and Solutions & ~VLULIONS IP Helping Customers, Contractors and End Users Navigate Change
Slide 141: Increased Collaboration Can Unleash Greater Value Creation
Increased Collaboration as Commercial & Residential Solutions Can Unleash Greater Value Creation 141
Slide 142: Internal, Channel, and Customer Facing Synergy Programs
Internal, Channel, and Customer Facing Synergy Programs Are Underway Tools & Home Air Sensors & Electronics & Products Conditioning Refrigeration Controls Solutions Consumers / End Users Contractors / Facilities Engineers Customers Government / Utilities OEMs Marquee Accounts Food Retail / Service e
Slide 143: Growth Summary by Key Market Space
Growth Summary by Key Market Space Industry Forward Market Trends • Energy efficiency / conservation Residential 2%-5% • Home automation / wireless • Channel dynamics • Emerging market & population growth Commercial 2%-5% • Energy scarcity & regulations • Building automation & indoor air quality • R
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Slide 145: Technologies and Solutions
Com eee sche of Technologies and Solutions & ~VLULIONS IP Helping Customers, Contractors and End Users Navigate Change
Slide 146: Bringing Comfort and Convenience to Homes
Bringing Comfort and Convenience to Homes 146
Slide 147: Enabling High Performance Buildings
Enabling High Performance Buildings 147
Slide 148: Keeping Food Fresh Throughout the Cold Chain
Keeping Food Fresh Throughout the Cold Chain 148
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Slide 150: Growing Base of Sensi Comfort Monitoring Installations
Growing Base of Sensi Comfort Monitoring Installations Big Box Channel a Key Opportunity • Sensi Comfort Monitoring and Smart Service • Improves customer experience and ensures quality installation • Provides ongoing relationship with customer Contractor Install & Maintenance Support • 7 sensors, wi
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Slide 153: Scroll Technology Supports China Clean Air Initiatives
Our Scroll Technology Supports China Clean Air Initiatives Including Home and District Heat Pumps Heat Pump China Heating Coverage • Government actively working to address air quality issues Rural • Air source heat pump Coal Boiler recognized as the best solution versus coal boiler heating systems •
Slide 154: Leveraging Industry Stewardship Position to Engage With Entire Value Chain
Leveraging Industry Stewardship Position to Engage With Entire Value Chain COMPRESSOR OEM CONTRACTOR END USER Core component and Providing technical Understanding needs application specific training for installation and supporting solutions and ongoing service ease of use Traditional Relationship ST
Slide 155: Our Components and Solutions Are the Backbone of HVAC and Refrigeration Systems
Our Components and Solutions Are the Backbone of HVAC and Refrigeration Systems Refrigeration Commercial AC & Heating Residential Heating System Level Cases, Racks, Units Chillers Heat Pumps Application Specific Solutions Core Components 155
Slide 156: Solutions Partnership With European Refrigerated Display Case Producer
Example of Solutions Partnership With European Refrigerated Display Case Producer Central Plant Architecture Requires Integral Cases Provide Mechanical Room and Extensive Piping Flexibility and More Selling Space Integral Display Case Infrastructure Delivers 21% Savings to the Retailer Driven by Ser
Slide 157: Expanding Our Portfolio of Commercial AC Efficiency Solutions
Expanding Our Portfolio of Commercial AC Efficiency Solutions Replace - New HVAC equipment with higher efficiency HVAC - High first cost competes with lower operating costs Equipment - Capital outlay may be impediment Upgrade - Retrofit existing equipment to improve efficiency Installed - Rebate inc
Slide 158: Delivery of Commercial Building Solutions Through New Technologies
Delivery of Commercial Building Solutions Through New Technologies and Helix Innovation Copeland Scroll Copeland Scroll CoreSense Two-Stage Variable Speed Communications Catalyst Lite Catalyst eIQ eIQ Platform Variable speed drive Variable speed drive Cloud-based for rooftop units plus sensors, cont
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Slide 161: Refrigeration Industry Also Facing Many Complex Challenges
Refrigeration Industry Also Facing Many Complex Challenges 161
Slide 162: E360 Industry Program Helps Make Sense of Pressing Issues in Refrigeration
E360 Industry Program Helps Make Sense of the Most Pressing Issues in Refrigeration 90K Industry Touchpoints Participants recognize our domain expertise • 97% rated content highly valuable • 94% would recommend to a colleague 9K Live Event Participants Oct March E360 Forum DOE SNAP Ruling & AHR Expo
Slide 163: The Importance of Serving Contractors Extends to Plumbing
The Importance of Serving Contractors Extends to Plumbing – RIDGID Is a Leader in the Space Contractor Education Contractor Efficiency • Extensive use of YouTube for Solder Joining contractor education - Drain line - 200k hours of RIDGID video watched - Prep tube - Apply flux • Hands-on tool demonst
Slide 164: IoT Solutions Extend Throughout the Commercial & Residential Platform
IoT Solutions Extend Throughout the Commercial & Residential Solutions Platform DEVICE RIDGID R889 Battery Life: 45% Wi-Fi Signal: Strong Algorithms Cable Distance: 40’ Runtime: 2:48 Machine Learning Speed: 254 RPM CrossChek Smart Drain Cleaning Thermal Imaging Connected Solutions Helping Contractor
Slide 165: Increased Attention to Cold Chain for Traceability and Loss Prevention
Increased Attention to Cold Chain for Both Traceability and Loss Prevention Big, high-stakes impact areas for Space constraints and local regulations participants and retailers are restricting food waste in landfills Stakeholders Across the Cold Chain Need Energy Efficiency, Food Safety and Sustaina
Slide 166: Emerson Solutions Are Helping Stakeholders Across the Cold Chain
Emerson Solutions Are Helping Stakeholders at Multiple Points Across the Cold Chain Delivering Benefits to Our Customers Connected Solutions Grind2Energy • End-to-end food quality Delivered major sustainability impact in 2016: • Reduced food shrinkage • Diverted 7K tons of food waste • Shelf life st
Slide 167: End to End Monitoring Presence Across the Cold Chain
We Now Have an End to End Monitoring Presence Across the Cold Chain Focus from grower-forward Focus from retailer-back - Food temperature sensors Monitoring the - Remote food monitoring cargo - Compliance reporting - Real-time monitoring, tracking & control of container Monitoring the - Monitoring s
Slide 168: Grind2Energy Solving Food Waste Management Challenges
Grind2Energy Solving Food Waste Management Challenges for Retail and Commercial Kitchens • No upfront costs. Monthly subscription service: - Installation - Maintenance - Monitoring - Pickups / delivery • Emerson monitors tank levels in real-time via sensors - Partnering with AT&T on IoT connectivity
Slide 169: Industry and Customer Response to the Helix Center Has Been Tremendous
Industry and Customer Response to the Helix Center Has Been Tremendous 169
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Slide 173: Commercial & Residential Solutions 2016 Summary & 2017 Guidance
Commercial & Residential Solutions 2016 Summary & 2017 Guidance 2015 2016 2017E Sales $5.6B $5.5B +3 to 5% Underlying* Growth EBIT $1.2B $1.3B % of Sales 21.3% 23.2% ~23.5% ROTC 42% 45% 2016 Sales by Market 2016 Sales by Geography Other Commercial Middle East & Africa Latin America and Industrial Re
Slide 174: Key Messages
Key Messages • Commercial & Residential Solutions has a long-term history of growth and profitability, built upon franchise businesses and industry stewardship • We have favorable market dynamics, and trends around efficiency, sustainability, comfort, and new refrigerants provide catalysts for new g
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Slide 179: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures In this presentation non-GAAP measures (denoted with an *) are used when talking about the Company's performance, and a reconciliation of those measures to the most comparable GAAP measures is contained below. 2015 Sales % chg. vs. PY Q1 Q2 Q3 Q4 FY Sales change (
Slide 180: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures In this presentation non-GAAP measures (denoted with an *) are used when talking about the Company's performance, and a reconciliation of those measures to the most comparable GAAP measures is contained below. EBIT Margin 2015 2016 2017E 2021T 15 vs '16 16 vs '17E
Slide 181: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures In this presentation non-GAAP measures (denoted with an *) are used when talking about the Company's performance, and a reconciliation of those measures to the most comparable GAAP measures is contained below. Free Cash Flow to Net Earnings Common Stockholders 201