Emerson 2004 Annual Report Download - page 25

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Network power segment sales of $2.7 billion for 2004 increased 16 percent compared to the prior year,
as Emerson benefited from favorable market dynamics that are driving demand for power systems and
cooling, as well as global services and embedded power modules. An underlying sales increase of 13 percent,
primarily due to volume, helped drive the increase in sales and a 77 percent increase in segment earnings.
Underlying sales exclude a 3 percentage point favorable impact from currency and a less than 0.5 percent net
impact from the prior-year Dura-Line divestiture and the current-year Marconi acquisition. The underlying
sales increase includes penetration gains, particularly in the OEM power business, which are estimated to
have contributed approximately 4 percentage points of the sales growth, offset by an estimated 4 percentage
point impact from lower prices, due in part to the introduction of next generation products at lower price
points. These results reflect increases in all major geographic regions, led by a 22 percent increase in Asia, an
11 percent increase in the United States and a 10 percent increase in Europe. The U.S. increase reflects the
strong upturn in U.S. investment in communication and non-residential computer equipment in 2004.
Emerson continues to build upon its Emerson Network Power China (Avansys) acquisition by increasing the
Company’s penetration in China and Asia, and leveraging its engineering resources to design next generation
products. Improvements in capital spending in nearly all of this segment’s served markets also helped drive
increased sales in the climate and power systems business. Earnings increased $129 million to $297 million,
compared with $168 million in the prior year, primarily reflecting increased volume and leverage from higher
sales. Earnings also reflect lower material costs, benefits from prior cost reduction efforts, and a $13 million
reduction in rationalization costs, partially offset by the impact from lower sales prices. Rationalization costs
during 2004 included severance and lease termination costs related to certain power systems operations
in Western Europe shifting to China and Eastern Europe in order to leverage product platforms and lower
production and engineering costs to remain competitive on a global basis.
Climate Technologies
(dollars in millions) 2003 2004 Change
Sales $2,614) 2,983) 14%)
Earnings $ 386) 467) 21%)
Margin 14.8%) 15.7%)
Sales of the climate technologies segment were $3.0 billion in 2004, an increase of 14 percent compared to
the prior year period, due to an underlying sales increase of nearly 12 percent and a more than 2 percentage
point favorable impact from currency. The underlying sales increase was driven by favorable end market
conditions and penetration gains which are estimated to have contributed approximately 7 percentage
points of the sales growth. The underlying sales increase reflects 15 percent growth in the United States,
11 percent growth in Asia and increases in all of the businesses. In particular, increased demand in the North
American and Asian residential air-conditioning markets led to very strong sales growth in the compressor
business in these regions. Sales of Emerson’s Copeland Scroll compressor continue to grow as a result of
the trend towards higher-efficiency equipment in served markets, the expansion of scroll technology into
large commercial applications and the introduction of new modulated capacity scroll product offerings. In
addition, the controls, thermostat and valves businesses all had very strong growth for the year. Climate
technologies’ earnings increased 21 percent to $467 million compared to $386 million in the prior year,
primarily due to increased volume and leverage from higher sales. Earnings also reflect benefits from prior
cost reduction efforts and material cost containment, partially offset by pricing pressures, particularly in Asia.
Appliance and Tools
(dollars in millions) 2003 2004 Change
Sales $3,453) 3,749) 9%)
Earnings $ 479) 530) 11%)
Margin 13.9%) 14.1%)
Earnings from continuing
operations increased 24 percent
to $1.3 billion in 2004.
Earnings from
Continuing Operations
99 04030201
$1,500
$750
$1,125
00
$375
(dollars in millions)