Can Emerson Earnings Survive Increased Competition?
Emerson Electric will release its quarterly report on Tuesday, and investors are pleased by the stock's recent run to all-time record highs. But as competition starts to get more aggressive in the lucrative electrical equipment and services industry, Emerson earnings face pressures that could put a halt to the stock's strong performance.
Emerson has capitalized on the demand from business customers to find ways to improve their overall energy efficiency, with its suite of equipment and services helping companies find ways to cut their energy usage and benefit from the resulting cost savings. Other companies, though, have seen the success that Emerson and other longtime peers have had and are starting to take more aggressive steps to capture their share of the business. Let's take an early look at what's been happening with Emerson Electric over the past quarter and what we're likely to see in its quarterly report.
Stats on Emerson Electric
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Will Emerson earnings keep falling in the future?
In recent months, analysts have cut back on their views on Emerson earnings, chopping $0.08 per share from their June-quarter estimates and a full dime per share on full-year fiscal 2013 predictions. The stock, though, has still risen, with gains of 16% since early May.
Much of the analyst pessimism about Emerson came from the company's March-quarter report, in which the company cut back on its full-year outlook due to a drop in overall demand under sluggish economic conditions. Reducing its previous earnings forecast range by a nickel per share, Emerson CEO David Farr said that he saw no reason to expect stronger economic growth for at least six to nine months, with headwinds potentially continuing for years. The company also noted weak order activity in April, boding ill for the June quarter as well.
Of greater long-term concern to Emerson, though, is the rising tide of competition. Ever since Eaton bought out Cooper Industries in 2012, it has boosted its efforts to increase its exposure to the energy-infrastructure area, and although Eaton missed its own earnings estimates in its report on Friday, the ongoing integration of the Cooper purchase should help it in the long run. More recently, Schneider Electric's $5.2 billion buyout last week of software and control-systems maker Invensys will add to Schneider's reach across the industry, creating a greater obstacle for Emerson to face.
Still, Emerson has plenty of opportunities of its own. Last week, Sasol chose Emerson to help it automate its planned Louisiana gas-to-liquids and ethane-cracker facility. With the boom in oil and gas production in the U.S., Emerson is well-placed to lend its expertise on projects similar to Sasol's, especially as calls to increase exports of natural gas spur further investment in growing export capacity.
In the Emerson earnings report, watch to see whether the company is able to buck the trend across the industry or falls prey to the same macroeconomic difficulties that plagued Eaton. In order to justify its increasingly pricey valuation, Emerson needs to find new catalysts for growth and take full advantage rather than letting earnings remain depressed. Otherwise, increased competition could take away its growth opportunities in the long run.
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The article Can Emerson Earnings Survive Increased Competition? originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Emerson Electric and Sasol. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.