UPDATE 5-Emerson profit misses, says recovery uncertain

* Q2 shr $0.54 vs. $0.55 expected

* Q2 sales up 1 pct to $5.14 bln

* Sees 2010 EPS $2.40 to $2.55

* Shares down 6.3 pct
(Adds CEO comment from conference call, analyst comment,
updates stock reaction)

By Nick Zieminski

NEW YORK, May 4 (BestGrowthStock) – U.S. conglomerate Emerson
Electric Co (EMR.N: ) reported lower-than-expected quarterly
profit on Tuesday amid rising expenses, and said U.S. and
European economies may not come back as strongly as in past
economic cycles.

The maker of industrial automation systems and technology
for energy and chemical plants said industrial markets have
bottomed and started to turn around, and it raised its
full-year forecast. Orders in its biggest segment, process
management, turned higher during the quarter.

But Chief Executive David Farr said he remained concerned
“about the sustainability of the U.S. and European economies,”
even though he was confident about Emerson’s improved outlook.

“I personally believe the U.S. economic numbers will slow
down a little bit as the second half emerges here,” Farr told
analysts on the company’s conference call, but added the
company’s sales and profits were exceeding his expectations.

“In Western Europe I remain concerned with the excessive
debt levels, excessive spending, bailouts and the impact that’s
going to have on the European economy.”

Farr said Western Europe would grow less than 2 percent
this year, compared to about 3.5 percent U.S. growth.

Emerson shares, which have outperformed the broader stock
market since the end of the previous earnings season, were down
6.3 percent at $50.24 in afternoon trading on the New York
Stock Exchange, giving up all of their April gains.

The broader market was down 2 percent, as investors sold
export-heavy sectors like industrials, energy and technology.
Greece’s debt problems continued to worry investors, who fear
an agreement among European countries and the International
Monetary Fund to provide a 110 billion euro aid package to
Greece will not be adequate.

Europe’s debt problems probably will not derail an economic
recovery but could make it more muted, said Sterne Agee analyst
Nick Heymann.

“This sovereign debt that seems to be mushrooming beyond
the borders of Greece probably puts a bit of a damper on
Emerson’s 22 percent of sales that come out of Europe,” Heymann
said. Heymann on Tuesday downgraded Emerson to “neutral” from
“buy,” saying recovery was fully reflected in the stock.

HIGHER ORDERS AND PROFIT

Emerson, which does not give quarterly earnings forecasts,
said order trends improved, rising between 10 percent and 15
percent over trailing three months, the company said in a
regulatory filing. The strongest order growth was in the
climate business, while higher demand from oil, gas and nuclear
markets supported the process management segment.

“If you had just the order numbers, the stock would have
reacted favorably,” said analyst Matt Collins at Edward Jones
in St. Louis. CEO Farr’s comment about the recovery was also
weighing on the stock, since Farr is “known for calling it as
he sees it and has a good pulse on the global economy.”

Emerson had beat forecasts in the prior two quarters and
many of its industrial peers had beaten estimates this quarter,
so expectations were high, Collins said.

Net earnings rose 9 percent to $405 million, or 53 cents
per share, for the fiscal second quarter ended March 31,
compared with $373 million, or 49 cents per share, a year
earlier.

Earnings from continuing operations were 54 cents a share,
missing Wall Street estimates by 1 cent, according to Thomson
Reuters I/B/E/S.

Sales rose 1 percent to $5.14 billion, below Wall Street
forecasts for $5.21 billion. China’s stimulus helped drive a
24-percent sales gain in Emerson’s early-cycle segment that
makes heating and cooling technology.

Emerson generates about a third of its sales from emerging
markets like India and China, a higher proportion than all of
its large industrial peers except 3M Co (MMM.N: ), according to
JP Morgan analysts.

Sales of later-cycle industrial automation systems such as
motors and power transmission products fell 10 percent to $867
million, and segment operating profits were down. Profit and
revenue were also down in the process management segment, but
they rose in other Emerson business units.

St. Louis based Emerson, which also makes tools and
uninterruptible power systems, said it expects full-year
earnings per share between $2.40 and $2.55. In February,
Emerson had forecast 2010 earnings of $2.20 to $2.40. Analysts
have been looking for earnings of $2.43 a share.

Last month, Britain’s Chloride Group Plc (CHLD.L: ) rejected
a $1.1 billion approach from Emerson, saying the offer — and
an earlier 2008 bid — undervalued the company. Emerson has
argued that a combination with Chloride makes strategic sense.

Sterne Agee’s Heymann said he saw the bid as a way for
Emerson to expand in Eastern European markets, in order to
better compete with rivals like Eaton Corp (ETN.N: ) and France’s
Schneider Electric (SCHN.PA: ).
(Reporting by Nick Zieminski; Editing by Derek Caney, Gerald
E. McCormick, Dave Zimmerman)

UPDATE 5-Emerson profit misses, says recovery uncertain