Emerson (NYSE: EMR) today announced that sales for the second quarter
ended March 31, 2014 declined 2 percent, with the Artesyn divestiture
deducting 5 percent and acquisitions adding 1 percent. Underlying sales
increased 2 percent, as orders timing, disruptive winter weather and
weak first quarter GDP growth in the U.S., and slower implementation of
large projects in the global process industry hampered growth. By
geography, the U.S. grew 3 percent, Asia increased 4 percent, including
China up 9 percent, and Europe was up 1 percent, while Middle
East/Africa declined 9 percent following robust growth in the prior
year. More positively, orders growth of 9 percent reflected stronger
market conditions, particularly toward the end of the quarter, driving
March up over 15 percent, as orders benefited from large, multi-year
industrial projects, recovering demand for capital goods, and
improvement in the U.S., Europe, and Asia.
Gross profit margin improved 140 basis points from the prior year to
41.2 percent, reflecting portfolio changes and cost containment.
Offsetting the margin gains, pretax earnings comparisons were
unfavorably affected by $35 million from currency volatility and $34
million from losses in the Artesyn Technologies equity investment
(formerly the embedded computing and power business), primarily due to
significant restructuring costs. As a result, earnings per share equaled
the prior year at $0.77.
Operating cash flow of $575 million was unchanged from the prior year,
as strong cash generation offset the Artesyn divestiture impact.
Strategic growth and productivity investments increased capital
expenditures versus the prior year, resulting in lower free cash flow.
Substantial cash returns to shareholders continued in the quarter, with
$1.2 billion allocated to dividends and share repurchase year to date,
and an equal amount invested in acquisitions. Expectations for full year
operating cash flow of $3.4 billion remain unchanged, reflecting solid
execution after last year's record performance.
“The second quarter results reflect several unanticipated external
factors, including unusual weather and weaker business investment in the
U.S., and a more cautious approach by customers on large global project
execution,” said Chairman and Chief Executive Officer David N. Farr.
“Looking through these issues, operational performance was strong, with
improving profitability and solid cash flow. As we had been expecting,
order trends accelerated significantly late in the quarter, with
momentum expected to continue as global economies strengthen. Demand
improvement along with continued technology and capacity investments are
expected to drive stronger growth in the second half and next year.”
Business Segment Highlights
Process Management net sales grew 4 percent and underlying sales
increased 1 percent, as acquisitions added 4 percent and currency
translation deducted 1 percent. Global oil and gas, power, and chemical
markets continued to support growth, although customers stretched out
execution of large projects, slowing down the pace of spending and
reflecting a more cautious sentiment. At the same time, customers
proceeded with plans for future investment, as orders increased 12
percent in the quarter, driving up backlog and providing momentum for
growth into next year. By geography, underlying sales in the U.S. grew 8
percent, Europe was up 4 percent, and Asia declined 1 percent, as
softness and difficult comparisons in India and Australia offset
continued strength in China. Segment margin of 18.2 percent declined, in
large part due to $31 million (150 basis points) in unfavorable currency
impact compared to the prior year. As order trends suggest, high levels
of investment continue in process automation markets, led by
strengthening demand in North America, supporting a solid growth outlook.
Industrial Automation sales increased 2 percent as demand
improved for capital goods, particularly in emerging markets, which were
up 6 percent. The U.S. and Europe were flat, as sales across mature
markets were unchanged from the prior year, while Asia grew 6 percent,
with robust growth in China. Modest growth in the fluid automation,
motors and drives, electrical distribution, and hermetic motors
businesses offset modest declines in the mechanical power transmission
and power generating alternators businesses. Segment margin decreased
slightly to 15.2 percent. Order trends accelerated significantly in
February and March across the segment, led by double-digit growth in the
power generating alternators business, supporting the expectation for
sales growth improvement in the second half of the year.
Network Power net sales decreased 21 percent and underlying sales
grew 1 percent, as the Artesyn divestiture deducted 21 percent and
currency translation deducted 1 percent. Underlying sales in the U.S.
grew 1 percent, Europe decreased 3 percent, and Asia increased 4
percent. The global telecommunications infrastructure business
experienced solid growth, led by North America and Europe. Demand was
mixed in data center markets, as growth in Asia and North America was
more than offset by weakness in Europe and Latin America. Segment margin
expanded 70 basis points to 8.2 percent, reflecting portfolio changes
and continued strategic investment programs. Expectations remain
unchanged for modest growth in 2014, as robust orders growth in large,
multi-year projects strengthened backlog and provides momentum into next
year.
Climate Technologies net sales increased 5 percent, led by
strength in global refrigeration markets, with transportation
particularly robust. Underlying sales grew nearly 6 percent, as currency
translation deducted less than 1 percent, with the U.S. up 2 percent,
Asia up 11 percent, and Europe up 3 percent. The U.S. air conditioning
business increased moderately, with mid-single-digit growth in
residential markets and low-single-digit growth in the commercial
business. Strong demand in China drove growth in Asia, led by the
refrigeration, solutions, and temperature sensors businesses. Market
conditions continued to improve in Europe. Segment margin improved 20
basis points to 17.9 percent. Refrigeration markets are expected to
remain strong, along with improving market conditions in the U.S.
Commercial & Residential Solutions sales grew 1 percent, as
harsh winter weather contributed to 1 percent decline in the U.S., which
was more than offset by 8 percent growth in international markets.
Strong growth in the professional tools, wet/dry vacuums, and food waste
disposers businesses offset declines in the storage businesses. Segment
margin of 21.4 percent improved slightly from the prior year quarter.
After a slow to start to the year, U.S. residential and commercial
construction markets are expected to improve, supporting stronger growth
in the second half.
2014 Outlook
Robust orders growth in the quarter reflects continued improvement in
the global macroeconomic environment, although uncertainty persists in
some markets, especially the U.S. after anemic GDP growth in the first
calendar quarter. Based on current market conditions, the outlook for
2014 is unchanged, with underlying sales growth of 3 to 5 percent and
net sales of (1) to 1 percent, reflecting completed acquisitions,
divestitures, and currency translation. Margin improvement expectations
remain unchanged, excluding the Artesyn equity investment loss, and the
earnings per share outlook is reaffirmed at $3.68 to 3.80 on a reported
basis.
“The slower than expected sales growth in the second quarter increases
pressure on the second half of the year, but the strong orders
inflection suggests momentum is building,” Farr said. “Continued
short-cycle orders strength and conversion of elevated backlog will be
key for meeting expectations in 2014. Current demand trends indicate the
pace of growth should accelerate into next year.”
Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the second 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 Wednesday, May 21, 2014, Emerson President and Chief Operating
Officer Edward L. Monser will present at the Electrical Products Group
Conference in Longboat Key, Florida, at 7:30 a.m. ET. The presentation
will be posted on Emerson's website at www.emerson.com/financial
at the time of the event and remain available for approximately three
months.
On Thursday, May 29, 2014, Emerson Chairman and Chief Executive David N.
Farr will present at the Sanford C. Bernstein Strategic Decisions
Conference in New York City, at 10:00 a.m. ET.
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.
|
|
|
|
|
Table 1
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED OPERATING RESULTS
|
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
Percent
|
|
|
2013
|
|
2014
|
|
Change
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,960
|
|
|
$
|
5,812
|
|
(2
|
)%
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of sales
|
|
3,587
|
|
|
3,417
|
|
|
SG&A expenses
|
|
1,426
|
|
|
1,394
|
|
|
Other deductions, net
|
|
59
|
|
|
137
|
|
|
Interest expense, net
|
|
57
|
|
|
47
|
|
|
Earnings before income taxes
|
|
831
|
|
|
817
|
|
(2
|
)%
|
Income taxes
|
|
253
|
|
|
263
|
|
|
Net earnings
|
|
578
|
|
|
554
|
|
(4
|
)%
|
Less: Noncontrolling interests in earnings of subsidiaries
|
|
17
|
|
|
7
|
|
|
Net earnings common shareholders
|
|
$
|
561
|
|
|
$
|
547
|
|
(2
|
)%
|
|
|
|
|
|
|
|
Diluted avg. shares outstanding
|
|
725.3
|
|
|
705.2
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.77
|
|
|
$
|
0.77
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
|
|
2013
|
|
2014
|
|
|
Other deductions, net
|
|
|
|
|
|
|
Amortization of intangibles
|
|
$
|
54
|
|
|
$
|
58
|
|
|
Rationalization of operations
|
|
16
|
|
|
21
|
|
|
Artesyn equity loss
|
|
—
|
|
|
34
|
|
|
Other
|
|
(11
|
)
|
|
24
|
|
|
Total
|
|
$
|
59
|
|
|
$
|
137
|
|
|
|
|
|
|
|
|
Table 2
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED OPERATING RESULTS
|
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
|
Percent
|
|
|
2013
|
|
2014
|
|
Change
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
11,513
|
|
$
|
11,418
|
|
(1
|
)%
|
Costs and expenses:
|
|
|
|
|
|
|
Cost of sales
|
|
6,933
|
|
6,787
|
|
|
SG&A expenses
|
|
2,820
|
|
2,838
|
|
|
Other deductions, net
|
|
145
|
|
232
|
|
|
Interest expense, net
|
|
111
|
|
101
|
|
|
Earnings before income taxes
|
|
1,504
|
|
1,460
|
|
(3
|
)%
|
Income taxes
|
|
460
|
|
429
|
|
|
Net earnings
|
|
1,044
|
|
1,031
|
|
(1
|
)%
|
Less: Noncontrolling interests in earnings of subsidiaries
|
|
29
|
|
22
|
|
|
Net earnings common shareholders
|
|
$
|
1,015
|
|
$
|
1,009
|
|
(1
|
)%
|
|
|
|
|
|
|
|
Diluted avg. shares outstanding
|
|
726.1
|
|
706.7
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.39
|
|
$
|
1.42
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
|
|
|
|
2013
|
|
2014
|
|
|
Other deductions, net
|
|
|
|
|
|
|
Amortization of intangibles
|
|
$
|
113
|
|
$
|
115
|
|
|
Rationalization of operations
|
|
32
|
|
34
|
|
|
Artesyn equity loss
|
|
—
|
|
34
|
|
|
Other
|
|
—
|
|
49
|
|
|
Total
|
|
$
|
145
|
|
$
|
232
|
|
|
|
|
|
|
|
|
Table 3
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
2013
|
|
2014
|
Assets
|
|
|
|
|
Cash and equivalents
|
|
$
|
2,615
|
|
$
|
2,724
|
Receivables, net
|
|
|
4,559
|
|
|
4,563
|
Inventories
|
|
|
2,327
|
|
|
2,233
|
Other current assets
|
|
|
688
|
|
|
683
|
Total current assets
|
|
|
10,189
|
|
|
10,203
|
Property, plant & equipment, net
|
|
|
3,481
|
|
|
3,692
|
Goodwill
|
|
|
8,007
|
|
|
7,875
|
Other intangible assets
|
|
|
1,734
|
|
|
1,810
|
Other
|
|
|
313
|
|
|
766
|
Total assets
|
|
$
|
23,724
|
|
$
|
24,346
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
Short-term borrowings and current maturities of long-term debt
|
|
$
|
1,485
|
|
$
|
2,661
|
Accounts payables
|
|
|
2,460
|
|
|
2,522
|
Accrued expenses
|
|
|
2,651
|
|
|
2,583
|
Income taxes
|
|
|
48
|
|
|
66
|
Total current liabilities
|
|
|
6,644
|
|
|
7,832
|
Long-term debt
|
|
|
4,059
|
|
|
3,836
|
Other liabilities
|
|
|
2,347
|
|
|
2,153
|
Total equity
|
|
|
10,674
|
|
|
10,525
|
Total liabilities and equity
|
|
$
|
23,724
|
|
$
|
24,346
|
|
|
|
|
|
|
Table 4
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
|
|
2013
|
|
2014
|
Operating activities
|
|
|
|
|
Net earnings
|
|
$
|
1,044
|
|
|
$
|
1,031
|
|
Depreciation and amortization
|
|
411
|
|
|
419
|
|
Changes in operating working capital
|
|
(337
|
)
|
|
(273
|
)
|
Other, net
|
|
95
|
|
|
89
|
|
Net cash provided by operating activities
|
|
1,213
|
|
|
1,266
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
Capital expenditures
|
|
(297
|
)
|
|
(397
|
)
|
Purchase of businesses, net of cash and equivalents acquired
|
|
—
|
|
|
(576
|
)
|
Divestiture of business
|
|
3
|
|
|
268
|
|
Other, net
|
|
(48
|
)
|
|
(55
|
)
|
Net cash used by investing activities
|
|
(342
|
)
|
|
(760
|
)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Net increase in short-term borrowings
|
|
21
|
|
|
1,090
|
|
Proceeds from long-term debt
|
|
499
|
|
|
1
|
|
Principal payments on long-term debt
|
|
(270
|
)
|
|
(322
|
)
|
Dividends paid
|
|
(593
|
)
|
|
(606
|
)
|
Purchases of treasury stock
|
|
(271
|
)
|
|
(596
|
)
|
Purchase of noncontrolling interest
|
|
—
|
|
|
(574
|
)
|
Other, net
|
|
14
|
|
|
(37
|
)
|
Net cash used by financing activities
|
|
(600
|
)
|
|
(1,044
|
)
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
(23
|
)
|
|
(13
|
)
|
|
|
|
|
|
Increase (decrease) in cash and equivalents
|
|
248
|
|
|
(551
|
)
|
|
|
|
|
|
Beginning cash and equivalents
|
|
2,367
|
|
|
3,275
|
|
|
|
|
|
|
Ending cash and equivalents
|
|
$
|
2,615
|
|
|
$
|
2,724
|
|
|
|
|
|
|
|
Table 5
|
EMERSON AND SUBSIDIARIES
|
SEGMENT SALES AND EARNINGS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Quarter Ended March 31,
|
|
|
2013
|
|
2014
|
Sales
|
|
|
|
|
Process Management
|
|
$
|
2,020
|
|
|
$
|
2,108
|
|
Industrial Automation
|
|
1,213
|
|
|
1,232
|
|
Network Power
|
|
1,481
|
|
|
1,171
|
|
Climate Technologies
|
|
988
|
|
|
1,041
|
|
Commercial & Residential Solutions
|
|
457
|
|
|
460
|
|
|
|
6,159
|
|
|
6,012
|
|
Eliminations
|
|
(199
|
)
|
|
(200
|
)
|
Net sales
|
|
$
|
5,960
|
|
|
$
|
5,812
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
Process Management
|
|
$
|
403
|
|
|
$
|
383
|
|
Industrial Automation
|
|
186
|
|
|
187
|
|
Network Power
|
|
111
|
|
|
96
|
|
Climate Technologies
|
|
175
|
|
|
186
|
|
Commercial & Residential Solutions
|
|
98
|
|
|
99
|
|
|
|
973
|
|
|
951
|
|
Differences in accounting methods
|
|
54
|
|
|
60
|
|
Corporate and other
|
|
(139
|
)
|
|
(147
|
)
|
Interest expense, net
|
|
(57
|
)
|
|
(47
|
)
|
Earnings before income taxes
|
|
$
|
831
|
|
|
$
|
817
|
|
|
|
|
|
|
Rationalization of operations
|
|
|
|
|
Process Management
|
|
$
|
4
|
|
|
$
|
5
|
|
Industrial Automation
|
|
5
|
|
|
3
|
|
Network Power
|
|
5
|
|
|
6
|
|
Climate Technologies
|
|
1
|
|
|
7
|
|
Commercial & Residential Solutions
|
|
1
|
|
|
—
|
|
Total
|
|
$
|
16
|
|
|
$
|
21
|
|
|
|
|
|
|
|
Table 6
|
EMERSON AND SUBSIDIARIES
|
SEGMENT SALES AND EARNINGS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
Six Months Ended March 31,
|
|
|
2013
|
|
2014
|
Sales
|
|
|
|
|
Process Management
|
|
$
|
3,916
|
|
|
$
|
4,149
|
|
Industrial Automation
|
|
2,350
|
|
|
2,381
|
|
Network Power
|
|
2,940
|
|
|
2,474
|
|
Climate Technologies
|
|
1,740
|
|
|
1,827
|
|
Commercial & Residential Solutions
|
|
910
|
|
|
926
|
|
|
|
11,856
|
|
|
11,757
|
|
Eliminations
|
|
(343
|
)
|
|
(339
|
)
|
Net sales
|
|
$
|
11,513
|
|
|
$
|
11,418
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
Process Management
|
|
$
|
736
|
|
|
$
|
756
|
|
Industrial Automation
|
|
350
|
|
|
349
|
|
Network Power
|
|
216
|
|
|
179
|
|
Climate Technologies
|
|
276
|
|
|
293
|
|
Commercial & Residential Solutions
|
|
195
|
|
|
199
|
|
|
|
1,773
|
|
|
1,776
|
|
Differences in accounting methods
|
|
104
|
|
|
117
|
|
Corporate and other
|
|
(262
|
)
|
|
(332
|
)
|
Interest expense, net
|
|
(111
|
)
|
|
(101
|
)
|
Earnings before income taxes
|
|
$
|
1,504
|
|
|
$
|
1,460
|
|
|
|
|
|
|
Rationalization of operations
|
|
|
|
|
Process Management
|
|
$
|
7
|
|
|
$
|
8
|
|
Industrial Automation
|
|
10
|
|
|
5
|
|
Network Power
|
|
9
|
|
|
10
|
|
Climate Technologies
|
|
2
|
|
|
10
|
|
Commercial & Residential Solutions
|
|
4
|
|
|
1
|
|
Total
|
|
$
|
32
|
|
|
$
|
34
|
|
|
|
|
|
|
|
Reconciliations of Non-GAAP Financial Measures & Other
|
|
Table 7
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Profit margin
|
|
2013
|
|
|
2014E
|
|
Change
|
|
EBIT excl. impairment/equity loss*
|
|
16.0
|
%
|
|
~16.5
|
%
|
|
~50 bps
|
|
Goodwill impairment
|
|
(2.2
|
)%
|
|
—
|
%
|
|
220 bps
|
|
Artesyn equity loss
|
|
—
|
%
|
|
(0.3
|
)%
|
|
(30) bps
|
|
EBIT*
|
|
13.8
|
%
|
|
~16.2
|
%
|
|
~240 bps
|
|
Interest expense, net
|
|
(0.8
|
)%
|
|
~(0.8
|
)%
|
|
— bps
|
|
Pretax
|
|
13.0
|
%
|
|
~15.4
|
%
|
|
~240 bps
|
|
|
|
Copyright Business Wire 2014