Emerson (NYSE: EMR) today announced that net sales for the first quarter
ended December 31, 2013 increased 1 percent. Underlying sales grew 3
percent, as divestitures deducted 3 percent and acquisitions added 1
percent. Global market conditions reflected slowly improving business
investment with mixed demand among industries, as the U.S. grew 3
percent, Asia grew 10 percent, and Europe was flat. Strong emerging
market growth was led by a 14 percent increase in China.
"Growth was consistent with the modest pace of orders improvement we
have seen over the last quarter, which unfolded consistent with
expectations," said Chairman and Chief Executive Officer David N. Farr.
"Although uneven across markets, overall global demand reflects slowly
improving business confidence and macroeconomic momentum, particularly
in Europe. We continue to see encouraging progress on strategic growth
initiatives – especially in emerging markets – with promising
opportunities for further investment."
Profitability remained strong, with gains in gross profit and business
segment margin contributing to earnings per share of $0.65, an increase
of 5 percent from the prior year. Excluding $21 million in corporate
expense related to the previously announced Virgo and Enardo
acquisitions, earnings per share increased 8 percent to $0.67. Corporate
expense also reflected $30 million in pretax expense related to
accelerated charitable contributions, which resulted in tax benefits
sufficient to substantially offset the impact.
Operating cash flow of $691 million, up 8 percent, provided a solid
start to cash generation for the year. Capital deployment in the quarter
focused on strategic acquisitions, with $576 million invested in the
previously mentioned transactions, and the purchase of the minority
interest in Appleton Group for $574 million, which closed early in the
second quarter, for a total of $1.2 billion of acquisition spending year
to date.
"We executed on several important portfolio management priorities in the
quarter, including closing the embedded computing and power divestiture,
strengthening Process Management through the Virgo and Enardo
acquisitions, and assuming full ownership of Appleton Group, previously
the EGS Electrical joint venture with SPX," Farr said. "These changes
support our ongoing efforts to enhance the underlying growth profile of
Emerson. We are already gaining traction with the strategic
opportunities to generate sales synergies with these businesses."
Business Segment Highlights
Process Management net sales grew 8 percent, supported by
continued strength in global energy and chemical markets. Underlying
sales increased 5 percent, led by near double-digit gains in the systems
and solutions business, with acquisitions contributing 3 percent. Growth
resumed in the U.S., with sales up 6 percent, and Asia increased 14
percent, led by robust growth in China across the segment. Strong
project execution in the North Sea region drove 3 percent growth in
Europe. Segment margin expanded 70 basis points to 18.3 percent. Process
automation markets continue to support elevated investment levels with a
robust project pipeline, particularly in North America.
Industrial Automation net sales increased 1 percent due to a 1
percent contribution from currency translation. Underlying sales were
unchanged from the prior year, with the U.S. flat, Asia up 9 percent,
and Europe down 5 percent, as recovery continued at a slow and uneven
pace for industrial goods. Growth in the fluid automation, motors and
drives, electrical distribution, and materials joining businesses was
offset by weak demand in power transmission markets. The power
generating alternators business was flat, reflecting stabilized but
still sluggish demand after protracted declines. Segment margin
decreased slightly to 14.1 percent. Global industrial goods markets are
expected to trend with the slowly recovering macroeconomic environment,
supporting a modest growth outlook.
Network Power net sales decreased 11 percent and underlying sales
grew 2 percent, which excludes a 12 percent deduction for the embedded
computing and power divestiture (closed at the end of November) and a 1
percent deduction for currency translation. Underlying sales in the U.S.
and Asia increased 2 percent and Europe was up slightly, led by robust
growth in global telecommunications infrastructure markets. Demand was
mixed for data center technologies, as strength in Europe was offset by
slow market conditions in Asia and the Americas. Segment margin declined
to 6.4 percent, primarily due to a one-time R&D credit in the prior
year. Market conditions are expected to be favorable in the near term,
supported by recovery in Europe and momentum in Asia.
Climate Technologies net and underlying sales grew 5 percent, led
by strong demand in the transportation refrigeration business and
supported by stable conditions in air conditioning markets. U.S. sales
declined slightly, with double-digit increase in temperature controls
sales, continued weakness in the field service business, and flat demand
in the air conditioning business after mid-teens growth in the prior
year. Asia increased 13 percent, as growth in China exceeded 20 percent,
with strength in the air conditioning and refrigeration businesses.
Europe grew 5 percent, led by the refrigeration market recovery. Segment
margin improved 20 basis points to 13.6 percent. Orders growth of 8
percent in the quarter supports the outlook for continued moderate
growth in global markets, led by strength in Asia and Europe.
Commercial & Residential Solutions net and underlying sales
increased 3 percent, with the U.S. up 2 percent and international sales
up 6 percent. Growth was led by the professional tools, food waste
disposers, and storage businesses. Segment margin remained strong at
21.4 percent. Market conditions are expected to remain solid in the near
term, as U.S. residential momentum continues.
2014 Outlook
Underlying orders growth has been between 3 and 4 percent for several
months, reflecting a slowly improving but uncertain macroeconomic
environment. Emerson's outlook for 2014 is unchanged, with underlying
sales growth of 3 to 5 percent and net sales of (1) to 1 percent,
reflecting acquisitions, divestitures, and currency translation. Margin
is expected to improve approximately half a percent, as benefits from
portfolio changes and volume leverage are partially offset by
accelerated strategic investments. Excluding impairments and
repatriation charges in the prior year, earnings per share are expected
to increase 4 to 7 percent, or 33 to 38 percent on a reported basis.
Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the first quarter
results during a conference call. Access to a live webcast of the
discussion will be available at www.emerson.com/financial
at the time of the call. A replay of the conference call will remain
available for approximately three months.
On Thursday, February 13, 2014, Emerson will host its annual investor
conference in Boston from 9:00 a.m. to approximately 12:30 p.m. ET.
Access to a live webcast of the presentation will be available at www.emerson.com/financial
at the time of the event. A replay of the conference will remain
available for approximately three months.
Forward-Looking and Cautionary Statements
Statements in this press release that are not strictly historical may be
“forward-looking” statements, which involve risks and uncertainties, and
Emerson undertakes no obligation to update any such statements to
reflect later developments. These risks and uncertainties include
economic and currency conditions, market demand, pricing, protection of
intellectual property, and competitive and technological factors, among
others, as set forth in the Company's most recent Annual Report on Form
10-K and subsequent reports filed with the SEC.
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|
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Table 1
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED OPERATING RESULTS
|
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
Percent
|
|
|
2012
|
|
2013
|
|
Change
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,553
|
|
|
$
|
5,606
|
|
|
1
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of sales
|
|
3,346
|
|
|
3,370
|
|
|
|
SG&A expenses
|
|
1,394
|
|
|
1,444
|
|
|
|
Other deductions, net
|
|
86
|
|
|
95
|
|
|
|
Interest expense, net
|
|
54
|
|
|
54
|
|
|
|
Earnings before income taxes
|
|
673
|
|
|
643
|
|
|
(4
|
)%
|
Income taxes
|
|
207
|
|
|
166
|
|
|
|
Net earnings
|
|
466
|
|
|
477
|
|
|
2
|
%
|
Less: Noncontrolling interests in earnings of subsidiaries
|
|
12
|
|
|
15
|
|
|
|
Net earnings common shareholders
|
|
$
|
454
|
|
|
$
|
462
|
|
|
2
|
%
|
|
|
|
|
|
|
|
Diluted avg. shares outstanding
|
|
726.9
|
|
|
708.1
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.62
|
|
|
$
|
0.65
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
|
|
2012
|
|
2013
|
|
|
Other deductions, net
|
|
|
|
|
|
|
Amortization of intangibles
|
|
$
|
59
|
|
|
$
|
57
|
|
|
|
Rationalization of operations
|
|
16
|
|
|
13
|
|
|
|
Other
|
|
11
|
|
|
25
|
|
|
|
Total
|
|
$
|
86
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
2012
|
|
2013
|
Assets
|
|
|
|
|
Cash and equivalents
|
|
$
|
2,527
|
|
|
$
|
2,737
|
Receivables, net
|
|
4,556
|
|
|
4,429
|
Inventories
|
|
2,308
|
|
|
2,162
|
Other current assets
|
|
695
|
|
|
671
|
Total current assets
|
|
10,086
|
|
|
9,999
|
Property, plant & equipment, net
|
|
3,503
|
|
|
3,639
|
Goodwill
|
|
8,068
|
|
|
7,871
|
Other intangible assets
|
|
1,798
|
|
|
1,839
|
Other
|
|
316
|
|
|
776
|
Total assets
|
|
$
|
23,771
|
|
|
$
|
24,124
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
Short-term borrowings and current maturities of long-term debt
|
|
$
|
1,912
|
|
|
$
|
1,958
|
Accounts payables
|
|
2,431
|
|
|
2,425
|
Accrued expenses
|
|
2,648
|
|
|
2,526
|
Income taxes
|
|
212
|
|
|
199
|
Total current liabilities
|
|
7,203
|
|
|
7,108
|
Long-term debt
|
|
3,542
|
|
|
3,834
|
Other liabilities
|
|
2,408
|
|
|
2,299
|
Total equity
|
|
10,618
|
|
|
10,883
|
Total liabilities and equity
|
|
$
|
23,771
|
|
|
$
|
24,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 3
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
2012
|
|
2013
|
Operating activities
|
|
|
|
|
Net earnings
|
|
$
|
466
|
|
|
$
|
477
|
|
Depreciation and amortization
|
|
206
|
|
|
209
|
|
Changes in operating working capital
|
|
(119
|
)
|
|
(54
|
)
|
Other, net
|
|
86
|
|
|
59
|
|
Net cash provided by operating activities
|
|
639
|
|
|
691
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
Capital expenditures
|
|
(200
|
)
|
|
(236
|
)
|
Purchase of businesses, net of cash and equivalents acquired
|
|
—
|
|
|
(576
|
)
|
Divestiture of businesses
|
|
3
|
|
|
268
|
|
Other, net
|
|
(22
|
)
|
|
(11
|
)
|
Net cash used by investing activities
|
|
(219
|
)
|
|
(555
|
)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Net increase in short-term borrowings
|
|
424
|
|
|
387
|
|
Principal payments on long-term debt
|
|
(264
|
)
|
|
(314
|
)
|
Dividends paid
|
|
(297
|
)
|
|
(304
|
)
|
Purchases of treasury stock
|
|
(113
|
)
|
|
(390
|
)
|
Other, net
|
|
(8
|
)
|
|
(54
|
)
|
Net cash used by financing activities
|
|
(258
|
)
|
|
(675
|
)
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
(2
|
)
|
|
1
|
|
|
|
|
|
|
Increase (decrease) in cash and equivalents
|
|
160
|
|
|
(538
|
)
|
|
|
|
|
|
Beginning cash and equivalents
|
|
2,367
|
|
|
3,275
|
|
|
|
|
|
|
Ending cash and equivalents
|
|
$
|
2,527
|
|
|
$
|
2,737
|
|
|
|
|
|
|
|
|
|
|
|
Note: First quarter 2013 capital expenditures and operating cash
flow were increased $85 million by an adjustment to reflect capital
expenditures on a cash basis. The totals reported for fiscal year
2013 will be unchanged.
|
|
|
|
|
|
|
|
|
|
|
Table 4
|
EMERSON AND SUBSIDIARIES
|
SEGMENT SALES AND EARNINGS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
2012
|
|
2013
|
Sales
|
|
|
|
|
Process Management
|
|
$
|
1,896
|
|
|
$
|
2,041
|
|
Industrial Automation
|
|
1,137
|
|
|
1,149
|
|
Network Power
|
|
1,459
|
|
|
1,303
|
|
Climate Technologies
|
|
752
|
|
|
786
|
|
Commercial & Residential Solutions
|
|
453
|
|
|
466
|
|
|
|
5,697
|
|
|
5,745
|
|
Eliminations
|
|
(144
|
)
|
|
(139
|
)
|
Net sales
|
|
$
|
5,553
|
|
|
$
|
5,606
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
Process Management
|
|
$
|
333
|
|
|
$
|
373
|
|
Industrial Automation
|
|
164
|
|
|
162
|
|
Network Power
|
|
105
|
|
|
83
|
|
Climate Technologies
|
|
101
|
|
|
107
|
|
Commercial & Residential Solutions
|
|
97
|
|
|
100
|
|
|
|
800
|
|
|
825
|
|
Differences in accounting methods
|
|
50
|
|
|
57
|
|
Corporate and other
|
|
(123
|
)
|
|
(185
|
)
|
Interest expense, net
|
|
(54
|
)
|
|
(54
|
)
|
Earnings before income taxes
|
|
$
|
673
|
|
|
$
|
643
|
|
|
|
|
|
|
Rationalization of operations
|
|
|
|
|
Process Management
|
|
$
|
3
|
|
|
$
|
3
|
|
Industrial Automation
|
|
5
|
|
|
2
|
|
Network Power
|
|
4
|
|
|
4
|
|
Climate Technologies
|
|
1
|
|
|
3
|
|
Commercial & Residential Solutions
|
|
3
|
|
|
1
|
|
Total
|
|
$
|
16
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5
|
Reconciliations of Non-GAAP Financial Measures
|
|
|
The following reconciles non-GAAP measures (denoted by *) with the
most directly comparable GAAP measure (dollars in millions, except
per share amounts):
|
|
|
|
|
|
|
Sales growth
|
|
|
2014E
|
|
|
Underlying*
|
|
|
3-5%
|
|
|
Acq./Div./FX
|
|
|
(4)%
|
|
|
Net
|
|
|
(1)-1%
|
|
|
|
|
|
|
|
|
Earnings per share
|
Q1 2013
|
|
Q1 2014
|
|
Change
|
Earnings per share
|
$
|
0.62
|
|
|
$
|
0.65
|
|
|
5%
|
Acquisition costs
|
—
|
|
|
0.02
|
|
|
3%
|
Earnings per share excl. acq. costs
|
$
|
0.62
|
|
|
$
|
0.67
|
|
|
8%
|
|
|
|
|
|
|
Earnings per share
|
2013
|
|
2014E
|
|
Change
|
Earnings per share
|
$
|
2.76
|
|
|
$ 3.68-3.80
|
|
33-38%
|
Goodwill impairment and tax charges
|
0.78
|
|
|
—
|
|
|
~30%
|
Earnings per share excl. charges*
|
$
|
3.54
|
|
|
$ 3.68-3.80
|
|
4-7%
|
|
|
|
|
|
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Copyright Business Wire 2014