摩根大通航空、运输和工业板块开盘前下跌.docx

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1、North America Equity Research 04 March 2019Electrical Equipment & MultiIndustryC. Stephen Tusa, Jr CFA AC(1-212) 622-6623stephen.tusajpmorgan Bloomberg JPMA TUSA Patrick M. Baumann, CFA(1-212) 622-0160patrick.m.baumannjpmchase Lawrence M Stavitski(1-212) 622-0091lawrence.stavitskijpmorgan Nicole Q C

2、ai(1-212) 622-1050nicole.caijpmorgan J.P. Morgan Securities LLCJ. P MorganEE/MIJ.P. Morgan Aviation, Transportation and Industrials Conf 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

3、 for the 13 companies in our coverage that will be attending. J.P Morgan Aviation, Transportation and Industrial Conference this week, March 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:

4、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, 11:00am). Themes are global macro (Europe/China), US industrial short cycle activity, customer capex budgets, price/cost/tariffs, and portfolio actions/capital depl

5、oyment opportunities. Macro indicators remain mixed, with the global manufacturing PMI stable at low levels in Feb (just above 50), and the 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, thoug

6、h 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 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 bene

7、fit most in this regard relative to what had been embedded in standing guidance. Lastly, capital deployment/portfolio actions are expected 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 sto

8、cks. 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 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 differen

9、t businesses, including color on near- term organic growth expectations, and confidence in margin improvement to offset. On WSO, we hope to 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

10、 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 well 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

11、on the footprint consolidation savings, and conviction on the targeted $500+mm in FCF in 2020. For EMR, we look for additional color on the recent Intelligent Platform acquisition and the potential benefits it adds from a PLC perspective, as well as theSee page 39 for analyst certification and impor

12、tant disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be 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 fac

13、tor in making their investment decision. jpmorganmarkets Why was advertising expense down so much last year (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?

14、Any way to quantify ROI? How do you think your platforms stand up versus OEMs? OEM partnerships: Any additional 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 consi

15、der selling? Why is consolidating the market in this fashion not a bigger priority given a still fragmented market? 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

16、target?FTV (3/5,10:15am, Jim Lico, President and CEO)We look for updated thoughts on the macro environment (particularly 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 lo

17、ok for further color on the financing for this transaction, which looks to be coming in at 1% cost (recent convert offering), As for recent deals, we look for color on how Gordian, Accruent, Landauer, and ISC are tracking vs expectations. We also look for an update on how IQ is tracking across diffe

18、rent platforms. In addition, we look for an update on the status of EM V dynamics driving growth this year and beyond, given recent management commentary it might extend into 202 LKey Ouestions:High-Level StrategyGoing into 2019, can you broadly elaborate the puts and takes across different platform

19、s in terms of near-term macro and micro trends? Also regionally what is expected to change most in 2019 vs last year? What are you seeing in short-cycle capex confidence generally among your customers? Can you provide regional color on how things are tracking here? Specifically on China, what is you

20、r latest outlook for 2019? Sounded cautious on 4Q call but results were strong there. 2019 organic profile: Is there enough from growth initiatives/specific industrial end markets to offset potential macro slowing? What would have to happen for you to be at low end of the range (3%)? 2019 margin pro

21、file: You said 50bps of core OMX. What does that imply for total margins -21.5%? Anything to keep in mind here on y/y margin expansion cadence through the year? The EPS growth profile for 2019 is $3.40-3.50 vs $3.06 in 2018. Please walk through the bridge items: $0.20-0.30 core, $0.18-0.23 from clos

22、ed acquisitions, with offsets from FX/tax/interest/shares/other. Remind us how much potentially from ASP, other items to keep in mind. Talk to us about how the current portfolio is positioned cyclically following recent acquisitions and divestitures, as compared to how it was positioned in the last

23、downturn. What type of performance should we expect? M&A: Talk about near-term capacity, M&A wallet/叩petite post ASP. M&A: Talk about priorities or mix of pipeline. Is it skewed towards SaaS/Software/high recurring mix? Are there any new platform moves we could potentially see? M&A: Within the curre

24、nt platforms where is there the most opportunity to expand? M&A: Update on expected closing and financing of ASP acquisition (recent convert offering). How much interest expense will be added to the current $90mm base post this deal? What was assumed in the 30-35c of accretion? FCF: Whats the runway

25、 here from the current 105-110% levels on adjusted EPS? Could you hit 110%+ over time? If so, what would the levers be? Balance sheet: What leverage levels are you comfortable with on a normalized basis? Would you be willing to stretch to 3x+ for the right deal?Professional InstrumentsUpdate on rece

26、nt deals - Accruent and Gordian - and how they are performing organically, how they fit in this portfolio. What are your return thresholds on these deals? Looks heavily dependent on sales growth to achieve. What is your visibility to this? Tektronix: Said you expect LSD to MSD growth here in 2019. C

27、an you point out which end markets and geographies you see picking up and which ones slowing? How different is the profile of growth expected to be vs last year? Tek China looked stronger than we would have expected in 4Q given all the concerns around semis. Can you talk about the trends and outlook

28、 for Tek in that market? How big is China for Tek, and how did it grow in 2018? Tektronix: Talk about product vitality, success in recent launches. Whafs the frequency of new products we should expect going forward? Relatedly, whafs the software roll-out strategy? Tektronix: How would you describe p

29、ricing in this industry and at Tektronix? Tektronix - Digital/SaaS strategy: How big is software revenue here? Is there a FIuke/Accelix-type SaaS revenue opportunity that can supplement your current offering? Would this be more organic or through M&A? Fluke: What kind of organic growth do you expect

30、 here in 2019, and how does that compare to 2018? Which end markets and geographies do you see picking up and which ones slowing? What does pricing look like here? On Fluke Accelix: Whafs the current user base and how do you see this ramping over the next few years? How do we think about the absolut

31、e incremental revenue opportunity from this penetration? Explain how you are getting the SaaS stream. Do the customers need to install a condition monitoring product always along with the legacy Fluke product? Fluke: Can you elaborate on how eMaint fits in here? Talk about how the revenue synergies

32、between Fluke and eMaint have shaped up so far by leveraging each others installed base. How has the go-to-market evolved accordingly with the more solutions approach now? Has this needed a lot of customer education? Update on LDR and ISC acquisitions - clearly a move into Safety as a Service market

33、. How have the businesses performed organically and financially and as compared to your expectations? Discuss traction at iNet. Fluke China has remained strong. What are your expectations for 2019? How broad-based is the exposure here from an end market perspective? How local is your presence here a

34、nd can you describe the competitive landscape? Qualitrol: Update on the challenges you have seen here in 2018 and expectations for 2019. Sensing: This segment looks like it has opportunity for more M&A going forward given trends towards Digital/IIoT. Whafs the strategy in terms of making this platfo

35、rm a bigger portion of FTV?Industrial TechTransportation/GVR: Can you talk about the visibility to US EMV in 2019 and 2020? What kind of growth do you expect? Seems like you think the refresh cycle will extend into 2021 now. What have latest customer conversations pointed to? Transportation/GVR: See

36、ms like IQ comps are particularly easy given last years “air pocket” on EMV. Talk about expected cadence of growth through 2019. Transportation/GVR: How does the business grow through EMV comps early next decade? What are the adjacencies or potential offshoots for EMV, opportunities to sell more tec

37、hnologies? Discuss advanced offerings like Insite 360 and growth potential for SaaS services. Transportation/GVR: Talk about the eventual threat from EVs and how your retail fueling presence plays into all this. What are the different ways you are looking at to diversify or hedge exposure over time?

38、 Discuss the Tritium deal and potential it presents. Telematics: Discuss what is going on here with customer churn. What is the path to turning it around? Franchise Distribution/Matco: Looks like business has returned to LSD-type growth. Any thoughts on 2019 outlook?HUBB (3/5,11:00am, Bill Sperry, S

39、VP & CFO)We look for an update on end markets across Electrical, as well as a refreshed view on potential impact to price/cost expectations if China tariffs aren 7 implemented as planned. In addition, we will be asking far thoughts on Eatons recent announcement to spin off its Lighting business, and

40、 why this wouldn 7 be an appropriate strategy for Hubbell. On Power, we will be asking why Aclara slows to MSD this year after such strong 2018 performcince, as well as an update on core business trends across T&D (ex-Aclara), We also expect more detail on the footprint consolidation opportunities a

41、nd potential cost savings and other related benefits over the next couple years, including from a working capital perspective. Lastly, we will look for conviction around meeting the targeted $5()()+mm in FCF in 2020,Key Questions:Overall Company and StrategyTalk about price/cost generally and how yo

42、u see it trending this year. Standing guidance assumes the full 25% tariffs implemented on March 1. What does it mean now that this has been pushed out? What happens to guidance if the proposed tariffs dont go through at all? How do you view the current portfolio split between Electrical and Power?

43、Is there anything that stands out as non-core? Which areas stand out as opportunities for bolt-ons? Do you think these two businesses need to stay together longer- term? Any thoughts on Eatons recent announcement to spin off its Lighting business? Why wouldnt something like that make sense for Hubbe

44、ll? Balance sheet: What is your target credit rating and what does that mean from a debt/EBITDA perspective? M&A: Talk about the current pipeline, and which areas of the portfolio you are looking to bolster/expand. What is your capacity to do deals this year? Manufacturing footprint consolidation in

45、itiatives - update on expectations for spend and related savings over the next couple years. What does this mean for 2020 margin expectations vs the prior-15%? FCF: Discuss the opportunity for working capital improvement. Do you still see potential for $500mm+ of FCF in 2020 vs the $425mm you expect

46、 this year?ElectricalUpdate on end market trends across the Electrical portfolio. What are you seeing in industrial, non-residential, residential, and O&G markets? ISMs have cooled a bit - are you seeing this in industrial activity? Non-residential: Seems like most are talking to solid environment s

47、till. What are you seeing in the overall construction market - new build vs refurb/retrofit? Do you see any upside/downside to guidance? Discuss commercial vs resi lighting demand trends and competitive dynamics. Lighting: How has pricing been trending? What about price/cost? Peers have cited low co

48、st foreign entrants as driving competitiveness. Do you feel like there is enough differentiated growth opportunity here to avoid having to chase volume with price? What did Lighting margins look like in 2018 vs 2017? How do you see them playing out this year? Walk through the puts and takes. Harsh a

49、nd Hazardous: How are trends looking here given the pullback in oil prices late last year? What is the breakout of the business these days - oil vs gas and onshore vs offshore within oil?PowerAclara: It looks like the business went from just over $500mm in revenues in 2017 to about $650mm in 2018, close to 30% growth, with a strong finish to the year. W