摩根大通航空、运输和工业板块开盘前下跌

1、North America Equity Research 04 March 2019Electrical Equipment & MultiIndustryC. Stephen Tusa, Jr CFA AC(1-212) 622-6623 HYPERLINK mailto:stephen.tusajpmorgan stephen.tusajpmorgan Bloomberg JPMA TUSA Patrick M. Baumann, CFA(1-212) 622-0160 HYPERLINK mailto:patrick.m.baumannjpmchase patrick.m.bauman

2、njpmchase Lawrence M Stavitski(1-212) 622-0091 HYPERLINK mailto:lawrence.stavitskijpmorgan lawrence.stavitskijpmorgan Nicole Q Cai(1-212) 622-1050 HYPERLINK mailto:nicole.caijpmorgan nicole.caijpmorgan J.P. Morgan Securities LLCJ. P MorganEE/MIJ.P. Morgan Aviation, Transportation and Industrials Con

3、f Pre-gameHeading into our 2019 Aviation, Transportation, and Industrial conference this week, in this note we provide a quick preview and detailed list of questions for the 13 companies in our coverage that will be attending.J.P Morgan Aviation, Transportation and Industrial Conference this week, M

4、arch 5th to 7th. ee/MI company presentations include LII (3/5, 8:00am), MMM (3/5, 8.45am), WSO (3/5, 9:30am), FTV (3/5, 10:15am), HUBB (3/5, 11:00am), EMR (3/5, 11:45am), GE (3/5, 12:30pm), IR (3/6, 11:00am), PNR (3/6, 11:45am), ROP (3/6, 2:05pm), DOV (3/6, 2:50pm), HON (3/7, 8:45am), and ROK (3/7,

5、11:00am).Themes are global macro (Europe/China), US industrial short cycle activity, customer capex budgets, price/cost/tariffs, and portfolio actions/capital deployment opportunities. Macro indicators remain mixed, with the global manufacturing PMI stable at low levels in Feb (just above 50), and t

6、he US ISM cooling following the Jan bounce, with a decline in the orders/inventory index. Early commentary from conference season has been mostly status quo, though March is always a key month, and we will look for better color on trends to date. On price/cost, while US/China trade has gotten plenty

7、 of press of late, with potential for a not as bad as feared situation on tariffs driving relief in the stocks, we hope to get a better sense on who stands to benefit most in this regard relative to what had been embedded in standing guidance. Lastly, capital deployment/portfolio actions are expecte

8、d to remain a topic of discussion as a key source of earnings upside and differentiation in the event the economy doesnt play out as anticipated.Key items for stocks. For LII, we look for an update on how the tornado has impacted its market share, and how the company plans to gain back the loss, as

9、well as progress on recovery of heating offerings at the plant, and their view on the resi HVAC cycle. On MMM, we look for an update on trends across the different businesses, including color on near- term organic growth expectations, and confidence in margin improvement to offset. On WSO, we hope t

10、o get more perspective on competitive and market dynamics as it relates to recent revenue growth trends, as well as the incremental margin opportunity both in the near and long term. For FTV, we look for an update on the current M&A environment and how recent deals are tracking vs expectations, as w

11、ell as a macro update (China/Europe). On HUBB, we look for a refreshed view on price/cost expectations if China tariffs arent implemented as planned, more detail on the footprint consolidation savings, and conviction on the targeted $500+mm in FCF in 2020. For EMR, we look for additional color on th

12、e recent Intelligent Platform acquisition and the potential benefits it adds from a PLC perspective, as well as theSee page 39 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should b

13、e aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK :/ jpmorganmarkets jpmorganmarkets Why was advertising expense down so much last year (

14、went from $25mm in 2017 to $17mm in 2018, a 20bps tailwind to margins)?What type of traction are you seeing on the recent technology initiatives? Are they driving share gain vs competitors? Any way to quantify ROI? How do you think your platforms stand up versus OEMs?OEM partnerships: Any additional

15、 implication from Carrier split from UTX?M&A pipeline: What is the tone talking to the family-owned distributors? If there is a good selling season this year, do you think they would consider selling? Why is consolidating the market in this fashion not a bigger priority given a still fragmented mark

16、et? Is there intention to own all of Russell Sigler at some point near-term?Why was FCF so weak in 2018, and how do you see this playing out in 2019? What is the long-term FCF conversion target?FTV (3/5,10:15am, Jim Lico, President and CEO)We look for updated thoughts on the macro environment (parti

17、cularly Europe and China). As always, we expect nuinagement to discuss current M&A environment, including current thoughts on the deal pipeline and expected timing of the ASP close. We look for further color on the financing for this transaction, which looks to be coming in at 70% manufacturing & OE

18、M)?Your O&G exposure and offerings are different from the last cycle, given your increased reliance on KOB3 projects, and this has obviously helped margins and visibility. Is maintaining the KOB3 project mix above 50% sustainable? Can you walk us through how youve changed your planning processes, an

19、d particularly how your customers have changed their planning processes, since last cycle? How do we see this evolving over time? When do you see KOB1 project spend returning to past peak levels, if at all?Your project funnel has evolved over the last several years to include more programs in the LN

20、G, life sciences and refining/chemical verticals. Talk about your initiatives to drive this evolution and where you see it developing from here.Talk about the tradeoff between organic growth and margins at AS. In the past you have talked about the tradeoff between organic growth and investing in mor

21、e people to manage project activity. Where are we now in this tradeoff as order growth continues to accelerate? Outside of this, what other levers can you potentially pull to ensure youre getting an appropriate level of drop-through on higher growth?Talk about some of the strategic investments in th

22、e product and channel that you plan to make with these new acquisitions. How does this change the way you go to market in terms of channel and distribution partners? You expect to spend $10-15mm/year in the first three years for the integration with the DCS platform and PLC. Where is the majority of

23、 this spend taking place? What is the payback here? What are some of the challenges you foresee in terms of this integration?Other (General Company Specific):Youve obviously talked about a return to positive order growth at C&RS in 2H, based on a resumption of spending in China HVAC (and weve starte

24、d seeing a trough in December and January orders). What gives you confidence that a potential return to positive order growth will support your 3-5% organic growth guide for the year?If orders return to positive growth in 2H19 (as expected) and given the fact that youre up against pretty easy y/y qu

25、arterly comps at C&RS, what is your preliminary outlook for organic growth in FY20 for C&RS? Do fundamentals support M-HSD organic growth?What have you been hearing from customers/suppliers in China given the tariff situation? Some players have talked about a production/facility shift from China to

26、other parts of Asia; have you seen this? What is your take here?Remind us of your exposure to raw materials and what is sourced from China. What is the typical lag between input cost increases and price increases? Are you still comfortable with $125mm as total inflation headwind for 2019? What other

27、 levers can you pull aside from price increases to offset price/inflation at C&RS?Regionally, China has slowed but you are still expecting 5-7% organic growth for the region for the year. Looking ahead, what verticals in particular do you see outperforming in China? What about Europe? Talk about the

28、 backdrop there and how the Brexit dynamics have affected spending in the region. When do you expect this to normalize? AS was up DD in LatAm in 1Q19. What drove this and how sustainable is this? What is outlook for rest of year there?Your O&G exposure and offerings are different from the last cycle

29、, given your increased reliance on KOB3 projects, and this has obviously helped margins and visibility. Is maintaining the KOB3 project mix above 50% sustainable? Can you walk us through how youve changed your planning processes, and particularly how your customers have changed their planning proces

30、ses, since last cycle?How do we see this evolving over time? When do you see KOB1 project spend returning to past peak levels, if at all?Your project funnel has evolved over the last several years to include more programs in the LNG, life sciences and refining/chemical verticals. Talk about your ini

31、tiatives to drive this evolution and where you see it developing from here.Talk about the tradeoff between organic growth and margins at AS. In the past you have talked about the tradeoff between organic growth and investing in more people to manage project activity. Where are we now in this tradeof

32、f as order growth continues to accelerate? Outside of this, what other levers can you potentially pull to ensure youre getting an appropriate level of drop-through on higher growth?At your investor day, it sounded like your appetite for near-term deals was a bit subdued (targeting $400500mm of deals

33、 at best for FYI 9). Can you walk us through your view of the deal environment and what has changed over the last 6- 12 months (if at all in your view)? Remind us again of your longer-term M&A firepower and what areas, specifically, are your preference right now. Your current long-term plan contempl

34、ates leverage of 1.6x by 2021. Do you see the ability to go beyond these levels/would you be willing to stretch the balance sheet for a substantial deal?How about a stepped-up buyback? Would you be more willing to deploy more aggressively if organic growth stepped back?In cold chain, youve talked ab

35、out the shift from larger supermarkets to smaller/medium stores with less infrastructure. What have you been hearing from OEMs in terms of the effect that this has had given less content (piping/chiller/cooler, etc.)? The N.A. refrigeration market has obviously been tough (Dover has struggled and ex

36、pects 2019 to be tough; LII is selling Kysor Warren mainly due to growth/profitability issues). Is this a structural issue for North America? Talk about how you are differentiated from peers in this environment. How is the landscape different from Europe? When (if at all) do N.A. margins start to ca

37、tch up to Europe?GE (3/5,12:30pm5 Larry Culp, Chairman & CEO)We will be hosting the CEO for the keynote lunch on Day 1 of the conference, where we hope to get insights on a variety of topics following up on the recent BP deal announcement and 10-K filing. Specific items we will look to discuss inclu

38、de his early experiences and ohservatioiis running the company, the appropriate degree of financial leverage, required run-rate levels of investment (capex/R&D) and restructuring, and a variety of segment-related topics. Note that GE will he hosting a conference call the following week on March 14 t

39、o discuss the companys 2019 outlook, so inciy be limited in what it can say on this front.Key Ouestions:GeneralWhat has been most surprising to you since transitioning from the Board to the CEO seat?What do you see as the differences between these long-cycle heavy turbomachinery product type busines

40、ses and the product portfolio at DHR?How are you approaching FP&A to make sure the forecasts are right and are you happy with the way things are presented?You used the term “offense”, but capex + R&D right now is at 5%, way down from the past and most big-ticket OEM-type businesses. What do you thin

41、k is the right level for each of these longer-term?On personnel, Board members have turned over. At the managerial level, are there plans for more change there?LeverageIn the letter you said “too much debt” and a “need to get healthy,. define what healthy is.Why do you roll so much intra-quarter deb

42、t and what is the necessary ultimate level of liquidity needed on the balance sheet? What are the actual mechanics of reducing the intra-quarter funding other than just holding more cash on hand? Is the anecdote on Power from the shareholder letter a good example of this dynamic? Why did they wait u

43、ntil the end of the quarter to collect?What is the definition of EBITDA that you use in this construct? The net debt calc is clearly spelled out, but the EBITDA calc is not. Does it include restructuring?How do the ratings agencies judge insurance capital adequacy given its not part of your debt/equ

44、ity leverage ratio but is clearly a liability? Can you explain the mechanics of how the discount rate at insurance went up as much as it did, while at the same time taking on lower risk?With WCS programs winding down, should we assume working capital is generally a drag for the foreseeable future?On

45、 the $1()B of asset sales left, should we consider that all WCS and does that include mostly inlercoinpany? Or are there discrete assets there to sell for cash?JPMorganC. Stephen Tusa, Jr CFA (1-212) 622-6623 HYPERLINK mailto:stephen.tusajpmorgan stephen.tusajpmorgan North America Equity Research 04

46、 March 2019companys acquisition strategy going forward. On GE, we will look for an update on the appropriate degree of financial leverage, required runrate levels of investment (capex/R&D) and restructuring, and a variety of segment-related topics. For IR, we expect additional commentary on the rece

47、nt PFS acquisition, and an update on non-res activity/order trends. On PNR, we look to get more color on visibility to organic growth this year, price/cost expectations and whats embedded from a tariffs perspective, and capital allocation priorities. For ROP, top of mind for investors will be the co

48、mpanys M&A firepower, the companys view on the current macro environment, and an update on the upcoming resegmentation of the businesses. On HON, we look for an update on trends early in the year, thoughts on the footprint/supply chain opportunity discussed on the 4Q call, and capital deployment pri

49、orities including color on the deal pipeline. On ROK, we will be looking for an update on expected performance into F2Q given weaker trends in some of its end markets, and for more details on its partnerships, including an update on progress with PTC and the recent agreement with SLB.NumbersWhen you

50、 said “up Industrial margins is that off of the 9% base as per the 10-K? Or some other adjusted number?What is your sense as to what the recent restructuring, including other” restructuring, has been accomplishing? Seems like a lot spending for little return. GE has been restructuring for a long tim

51、e and it hasnt seemed to translate - why is this?Your variable costs are up 5% y/y in 2017 and 2018 on flat organic - what is the driver there?What is your sense of total company pricing pressure embedded in revenues?AviationIs the business strategically complete, or do you think it needs to bring n

52、ew capabilities longer-term (thinking UTX/COL)?R&D has declined to 3% of sales - should we think of 5% as more normal?Talk about the inter-play with GECAS.PowerIn a historical sense, what do you think has gone wrong at Power?You said in your letter H-frame is a record-setting product so standing by

53、what the company has said, can you provide more color on what exactly the problem was and why you have so much confidence in the remedy with some specifics?You also said in your letter that the world would need gas longer-term, but you have said recently flat market at low level - do you see growth

54、here long-term in OE?What is the normal level of annual attrition in services?How quickly can you move on Power Portfdlio“ and is that a story about cost takeout or asset sales?What will the new segment structure show financially for Gas Power vs Power? Would either business have been profitable in

55、2018? Why does it take so long to complete the reorg (indicated 2H19)?GE Capital (GECS)What is your take on the history of GECS going back 10 years or so and what purpose it served for the company?What does the GE Capital of the future look like? Is it just GECAS? How much cash do you need to have o

56、n hand there?On revenues, why was WCS revenue flat on $ 1 OB lower assets, and why is the revenue yield for GECAS (revenues/assets) going down, competition or asset mix churn as you sell higher-yielding planes?Will GECS ever have to pay taxes?RenewablesYou mentioned price pressure was stabilizing -

57、why did this happen? What is the long-term trend on price and what drives that?Talk about the dynamics around pivot to offshore and how effective you think your product can be.How much were Wind advances in 2018?What will the new segment look like with grid, et cetera? Will it have much impact on fi

58、nancial metrics? Is this a cost-cutting exercise or more about commercial/innovation opportunities?IR (3/6,11:00am, Mike Lamach, Chairman & CEO)We look for an update on the companys price/cost dynamics heading into IQ as well as how expectations have changed since the companys discussion on its 4Q e

59、arnings call. Also top of mind will be the recent PFS acquisition and what the opportunities are herefrom a fluid management perspective. Also, how, if at all this acquisition will affect the companys capital allocation strategy in the near/mid-term in terms of both M&A and share repurchases. We wil

60、l look for an update on non-res activity/order trends coming off a very robust 4Q and how the recent strength in service vs equipment is expected to play out in the coming quarters. We also look for an update on US short-cycle industrial activity and how trends have tracked vs expectations so farKey