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Emerson reported $0.80 EPS ex-items, which compares to $0.64 WRe and guidance for $0.56-0.64; consensus was at the midpoint of guidance. We mark this as a 4c beat vs. our model, driven by lower corporate and stock comp costs vs. our model, with sales/segment EBIT in line. Taxes were also a significant driver of upside (5-6c). Free cash flow of $738m, represents 181% conversion. See Ex 1-3 for more detail on segment performance.
IR reported a very comfortable beat with adjusted EPS of $0.31 vs. $0.21 WRe/0.19 Street. Note that High Pressure Solutions (HPS) lost $15m ($0.03/share) vs. breakeven expectations (albeit on much weaker volumes). We mark this as an $0.08 core beat ($0.13 ex-HPS), as significantly stronger revenues (-19%), were allied to better decrementals of 19% (10% ex-HPS). FCF of $230m marks conversion of 177% on headline income - this is an all-in number, inclusive of restructuring etc. See Ex 1-3 for details.
RBC reported $0.95 vs. $0.93 WRe/0.67 Street. This is a 42% headline beat, which is well ahead of the 30% bogey QTD. The basic message is that revenues were very weak (-25% core) but largely in line with consensus, with outperformance driven by much better decremental margins of 15%, vs. 18-22% guidance and 17% WRe. Overall, we view this as in-line at the core level vs. our high-end model, but a significant beat vs. consensus. Free cash flow of $77m is flat with prior year, with conversion of 200%.
Global Industrials Trader #23: The HVAC stocks have been driving outperformance in the US as these stocks have benefitted from the infamously resilient US consumer and the hotter summer. Elsewhere, consensus revisions largely explain relative performance across cap goods, which accounts for lags in Japan and the A&D centric stocks.
WIW #655: We lean tactically positive RBC (upside to FY21e) and IR (negative positioning), while remain tactically cautious EMR (downside to FY21e). PH is a little too tough to call: we think FY21 estimates lean a little too low, but June order rates will still likely remain at the lower end of the cap goods spectrum. AME should be solid, but the expectation bar here may be a little too high.
Our WR CGMI index expanded by 12.5pts to 53.3 in July. Not only does this mark the first reading above 50 since COVID-19 hit the lexicon, it also brings us the highest reading since the halcyon days of 1H18, before trade wars and tariffs also entered into the equation. Momentum is improving across all major economic blocs and we see continued M/M strength in the T3M reading in Aug. This suggests that the top-line upside we have seen emerge through 2Q20 reporting season could extend into 3Q20, and supports a rotation into short cycle industrials at a reasonable valuation (ETN, PH, FTV, DOV, SWK).
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