Emerson 2005 Annual Report Download - page 35

E M E R S O N 2 0 0 5 2 3
Climate Technologies
‘03 - ‘04 ‘04 - ‘05
(dollars in millions) 2003 2004 2005 Change Change
Sales $2,614 2,983 3,041 14% 2%
Earnings $ 386 467 453 21% (3%)
Margin 14.8% 15.7% 14.9%
Climate Technologies segment sales were $3.0 billion in 2005, an increase of 2 percent compared to 2004.
Excluding a 1 percent positive impact from currency translation, underlying sales grew 1 percent versus
strong 2004 results. Higher sales prices of approximately 2 percent and market share gains were substantially
offset by volume decreases due to inventory reductions in the supply chain in the United States and
China, as well as decreased wholesaler exports from Europe due to the strong Euro. Sales results for 2005
were mixed across the businesses, with strong growth in U.S. air-conditioning compressors during the
fourth quarter driving the overall increase. The growth in the compressor business reflects replenishment
of inventories in the distribution channel in the fourth quarter due to late season, warm weather in the
United States, as well as anticipatory demand due to the pending transition in the United States to higher
efficiency standards. The underlying sales reflect a 3 percent increase in the United States, an 8 percent
decline in Europe and a 4 percent decline in Asia, while sales in Latin America increased 35 percent off a smaller
base. Earnings from Climate Technologies decreased 3 percent to $453 million in 2005 compared to
$467 million in 2004, primarily due to negative impacts from lower sales volume, product mix and higher
wage costs, partially offset by benefits from prior cost reduction efforts and lower rationalization costs
compared to 2004. Higher sales prices substantially offset higher material costs, which had a dilutive impact
on the margin.
Sales of the Climate Technologies segment were $3.0 billion in 2004, an increase of 14 percent compared to
2003, due to an underlying sales increase of nearly 12 percent and a more than 2 percent 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 percent 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 continued 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 2003, 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
‘03 - ‘04 ‘04 - ‘05
(dollars in millions) 2003 2004 2005 Change Change
Sales $3,453 3,749 4,008 9% 7%
Earnings $ 479 530 534 11% 1%
Margin 13.9% 14.1% 13.3%
Capital Expenditures
and as a Percent of Sales
Emerson continues to effectively
manage capital spending.
$700
$525
$350
$175
(dollars in millions)
6.0%
4.5%
3.0%
1.5%
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