Emerson Electric (TG:EMR)
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Emerson Electric Co. (EMR) Chief Executive and President David Farr said he misjudged the severity of the drop in sales, forcing the company to lower its full-year earnings forecast.

Emerson has been throttling down its production, reducing the number of employees and cutting inventories since late last year. But Farr said the downturn in customer demand has been more severe than he anticipated when he issued an earnings outlook in February.

"I apologize for how badly I missed this forecast," Farr said during a conference call with analysts. "I'm not feeling good that I had to come back and adjust my forecast."

Emerson makes industrial-automation equipment, power network gear, appliance parts and systems and components for heating and cooling equipment.

Farr said businesses dependent on industrial capital spending continue to see rapid declines in demand. He predicted these business will likely continue to suffer well into 2010.

The order decline in businesses linked with consumer products, such as tools and appliance components, has stabilized, but demand has not yet recovered.

The tough business conditions affecting Emerson are likely providing stiff headwinds for other diversified manufacturers that compete in some of the same markets, including Danaher Corp. (DHR) and Parker Hannifin Corp. (PH)

St. Louis-based Emerson now sees full-year earnings of $2.40 to $2.60 a share, down from its February forecast of $2.70 to $2.95 a share. The company also expects net sales for the fiscal year to fall 13% to 15% to $21 billion to $21.7 billion. Sales are expected to be hurt by about 5% because of currency translations, but boosted by 1% because of acquisitions.

Wall Street analysts polled by Thomson Reuters had expected the company to earn $2.47 a share this year on sales of $22.1 billion.

Farr said the company is accelerating reductions in production capacity and overhead expenses. He expects capital spending to decline at least 30% from 2008.

"Capacity is coming down everywhere," he said. "We don't need it now."

As a result, Emerson anticipates restructuring expenses of about $200 million to $250 million this year.

Nevertheless, the company is projecting free cash flow of $2.5 billion to $2.7 billion this year that will used for dividends and acquiring additional businesses.

The company anticipates spending about $1 billion on acquisitions this year.

Emerson's shares were recently down 8 cents at $30.81. Emerson's stock has lost one-third of its value from September.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(John Kell contributed to this report.)