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Rating Action:

Moody's assigns A2 rating to Emerson's new unsecured notes

08 Jan 2019

New York, January 08, 2019 -- Moody's Investors Service ("Moody's") assigned an A2 rating to Emerson Electric Company's ("Emerson") new unsecured notes due 2025 and 2029. The issuance does not impact other ratings of Emerson, including the A2 senior unsecured or P-1 short-term ratings. The rating outlook is stable.

RATINGS RATIONALE

Emerson's debt ratings reflect the company's sizeable and broadly diversified revenue base, and its leading market positions among its largest product offerings. The ratings are also supported by the company's strong EBITA margins of close to 20% and expectations for free cash flow generation in excess of $1 billion in FY2019. We expect that the company will continue to manage its balance sheet conservatively and maintaining debt to EBITDA below 2 times. However, the ratings also reflect key risks including company's exposure to highly cyclical end-markets, in particular the energy markets. Also, although transformative strategic activity is unlikely, an increase in the pace or size of acquisitions would weigh negatively on the company's credit profile, given the potential for increased debt load and heightened financial and integration risks.

Proceeds from the notes will be used for general corporate purposes, although Moody's believes that the majority of proceeds applied toward reduction in the company's commercial paper balances. Therefore, we estimate this transaction to be approximately debt-neutral.

The stable rating outlook reflects our expectations of mid-single digits organic revenue growth through FY2019, based on strong order levels in the Automation Solutions segment reflecting sustained industrial and North American energy related demand. We expect that management will remain measured with respect to capital allocation and broader financial policies, with tempered shareholder return initiatives. We estimate that the company will maintain EBITA margins at close 20%, with return on assets in the mid-teens range. The stable outlook factors in modestly-sized acquisitions that can be efficiently integrated into Emerson's operations, without a material increase in the company's debt or a significant change to its current capital structure.

The rating could be upgraded if the company can further solidify its leadership position through technology, product or scale, while lowering commodity related volatility in revenue. Free Cash Flow-to-Debt consistently above 30% and the maintenance of EBITA margins at approximately 20% would also support higher rating consideration

The rating could be downgraded if the company undertakes large, transformative acquisitions, entailing substantial integration risk or higher leverage, or if the company's competitive profile weakens. Free cash flow below $500 million annually or debt-to-EBITDA sustained above 2 times, would support downgrade, especially if accompanied by a sizable increase in share repurchases, as would a decline in operating margins or asset returns to low double-digit levels.

The following summarizes today's rating action:

Moody's assigned the following rating:

Issuer: Emerson Electric Company

Proposed Senior Unsecured Regular Bond/Debentures due 2025, A2

Proposed Senior Unsecured Regular Bond/Debentures due 2029, A2

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Emerson Electric Company produces products and systems which address a wide range of industrial, commercial and consumer markets. Emerson is organized in two business segments: Automation Solutions, which includes its process management and industrial automation businesses, and Commercial and Residential Solutions, which comprises Emerson's Climate Technologies and Tools & Home Products businesses. Total revenue for FY2018 ended September 30, 2018 was $17.4 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

David Berge
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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