Recruiter’s View

For job growth, we’ll need to hang around customers and contractors for Emerson’s Climate Technology division. Heating, air conditioning, and refrigeration is a big deal. Especially in China.

Emerson is finally getting some traction, showing a significantly improved quarter, ending June 30. Revenue is up again. Gross Profits are up.  And management continues to push Operating Costs lower.

Result: A nice jump in Net Income.

Record Free Cash Flow

Chairman, CEO, and President David N. Farr’s statement emphasized that “Free cash flow remains a priority and we expect a record level…”

Indeed, you can see that management is jacking cash way up, almost double what it was six months ago. They’re essentially doing it by raising debt. Not something you really want to see, but it’s an understandable strategy these days, when access to credit could be anybody’s guess.

Putting Cash To Work

On the flip side, Mr. Farr was also very clear that Emerson is “putting that cash to work to strengthen our core business and invest for future growth…”

Emerson has already made acquisitions that are contributing half again what the normal underlying sales have generated.

By extension, we might expect Emerson’s debt to climb and the cash to fall if the company makes more acquisitions.

In a rising market, that could work. Mr. Farr addressed that:

Slow, Steady Recovery

“Global markets continue to recover, at a slower pace than in previous cycles, but in-line with our expectations. We expect this slow, but steady, recovery to continue for the next several years. We do not expect a double-dip recession in our end markets.”

There are five sectors in Emerson’s business. Fastest growth was in Climate Technologies (think heating, air conditioning, and refrigeration) with third quarter global sales increasing 29%. In China, where higher efficiency standards were enacted, sales surged 49%.

Industrial Automation is working its way back, up 16% plus 2% from acquisitions.

Process Management was positive but soft. Mega-projects aren’t expected until 2011.

Bottom Line

Emerson is betting that business will improve, especially overseas. The company is raising cash at the expense of the debt load, then investing some of that cash into acquisitions and technology to generate more sales.

Mr. Farr’s strategy is slightly aggressive, but not unusual. It works if overseas purchases continue to climb. I think they will.

Emerson’s bets are hedged slightly by holding costs down.

The opinion of the markets: EMR trades near its 52 week high. P/E is 15.7. Quarterly dividends have been holding steady at $0.335 per share.

Recruiter’s View

The folks at Emerson obviously know what they’re doing.

They are telling us that the global economy is increasing slowly but surely.

If you want to be where the action is, they tell us to go overseas, especially to China, and help them heat and cool their buildings, refrigerate their food, and automate their factories. A year out, Emerson is also pointing us to Natural Gas.