Emerson (NYSE: EMR) today announced that net sales in the first quarter
ended December 31, 2014 were flat, as underlying sales growth of 6
percent was offset by 3 percent declines each from currency translation
and divestitures. Demand was mixed across geographies and markets, with
the U.S. up 8 percent and Asia up 2 percent, while Europe grew slightly
as large projects offset pronounced short cycle weakness. Underlying
sales were led by 17 percent growth in Climate Technologies, which
benefited from U.S. air conditioning customers increasing inventory in
anticipation of regulatory changes effective January 1, 2015.
Profitability improvement continued, as gross profit margin expanded 90
basis points to 40.8 percent, flowing through to segment margin gains,
including the effect of portfolio repositioning. Earnings per share grew
15 percent to $0.75, primarily on margin expansion, favorable currency
transactions and favorable corporate expense comparisons. Lower
operating cash flow reflected primarily timing of working capital
investment. Full year cash generation is expected to remain strong.
"The first quarter was a solid start to the year despite an increasingly
uncertain and volatile macroeconomic backdrop," said Chairman and Chief
Executive Officer David N. Farr. "The strength of the U.S. dollar and
rapid decline of oil prices present a challenging and unpredictable
global operating environment. Emerson's margin expansion and underlying
sales growth reflected solid execution and the benefits of recent
portfolio repositioning. We will continue to focus on factors within our
control and invest to strengthen our franchises for the long term while
executing on the actions necessary to protect our cost structure in this
new global economic environment."
Business Segment Highlights
Process Management net sales grew 3 percent. Underlying sales
increased 6 percent supported by strong backlog and continued orders
momentum despite the significant oil price decline. Market conditions
were strongest in North America, up 9 percent, led by downstream
projects and MRO investment. Demand was mixed in Asia, up 1 percent,
with robust growth in India, challenging comparisons in Australia, and a
modest increase in China. Europe grew 4 percent, as double-digit growth
in emerging countries offset a modest decline in mature western European
markets. Segment margin increased 40 basis points to 18.7 percent,
reflecting favorable currency transaction comparisons. Although lower
oil prices have resulted in a more uncertain outlook for the process
industry, backlog remains strong, with underlying orders up 7 percent in
the quarter, and downstream momentum building. Near term demand is
expected to moderate but continue to grow through fiscal 2015.
Industrial Automation net sales were flat, with underlying sales
up 4 percent offset by unfavorable currency translation of 4 percent.
Geographic results reflected wide variation, with North America up 13
percent, Asia up 5 percent, and Europe down 8 percent. Growth was led by
the HVAC-related hermetic motors business, up over 20 percent, and the
electrical distribution and power transmission businesses. Short cycle
demand in Europe was weak, contributing to declines in the power
generating alternators and motors and drives businesses. Segment margin
improved slightly to 14.2 percent. Market conditions are expected to
remain mixed in the near term, as the U.S. and European economies trend
in opposite directions. Order rates in the power generating alternators
business are expected to slow further as increased pressure from lower
oil prices reduces capital spending in the upstream oil and gas market.
Network Power net sales decreased 14 percent, as
divestitures deducted 12 percent and currency translation deducted 3
percent. Underlying sales grew 1 percent, with North America up
slightly, Asia flat and Europe up 13 percent, reflecting a large data
center project. Globally, data center market conditions were mixed, with
growth in North America and Europe and declines in Asia and Latin
America. The telecommunications infrastructure business declined at a
double-digit rate, with growth in Asia more than offset by weakness in
other regions. Segment margin increased 70 basis points to 7.1 percent,
reflecting divestitures. Demand is expected to remain mixed in the near
term, with favorable data center market conditions and reduced levels of
telecommunications investment; but the business fundamentals continue to
improve in a challenging global market.
Climate Technologies net sales increased 15 percent, as U.S. air
conditioning customers built inventory in the quarter ahead of
regulatory changes that went into effect January 1, 2015. Underlying
sales grew 17 percent, led by North America up 26 percent, as the
residential air conditioning business nearly doubled from the inventory
increase and commercial markets grew at a high-single-digit rate. Asia
increased 2 percent, as strength in India and Southeast Asia in the air
conditioning and refrigeration businesses offset slower market
conditions in China. Europe declined 3 percent, reflecting broad
economic weakness in the region. Sales for sensors and controls were
flat. Segment margin expanded 40 basis points to 14.0 percent. While
growth in the U.S. is expected to slow significantly in the near term as
customers consume inventory built in the quarter, end user demand is
expected to remain favorable, led by continued momentum in North America
and Asia. We expect solid underlying growth in this business segment
based upon new products, new solutions and improved global penetration.
Commercial & Residential Solutions net sales increased 3
percent, with underlying sales up 4 percent, led by solid market
conditions in the U.S. Growth in professional tools, wet/dry vacuums and
food waste disposers more than offset declines in the storage
businesses. Segment margin improved to 21.5 percent. Favorable momentum
in U.S. residential and commercial construction markets is expected to
continue in the near term, supporting the outlook for moderate levels of
growth in 2015.
2015 Outlook
The global macroeconomic environment is mixed, with favorable trends in
North America contrasting with continued weakness in Europe, Latin
America and Middle East/Africa. The rapid decrease in oil prices and
strengthening of the U.S. dollar have contributed to extraordinary
business conditions and significant uncertainty. This is especially true
in Europe, which has not recovered from the global recession in 2008 and
2009. Despite this environment, orders have been solid and backlog
levels are high, supporting an outlook for 3 to 5 percent underlying
sales growth for 2015. Currency translation is expected to reduce sales
by 4 to 5 percent, with another 2 percent deduction from the Power
Transmission Solutions divestiture, for a reported sales decline of 1 to
4 percent. Profitability is expected to continue to improve modestly
from favorable mix and accelerated restructuring. Additionally, on
Friday, January 30, 2015, the previously announced $1.4 billion
divestiture of the Power Transmission Solutions business closed.
Full year earnings will be meaningfully affected by several factors,
including unfavorable currency translation, continued weakness in Europe
and certain emerging markets, expected pressure from lower oil prices
primarily in the second half of 2015, and the sale of the Power
Transmission Solutions business. The divestiture will result in an
after-tax gain of approximately $520 million. Net proceeds from the
divestiture will be applied to incremental 2015 share repurchase, with
total repurchase expected to exceed $2 billion. Given our concerns about
the global environment we have decided to accelerate restructuring to
approximately $100 million. The increased level of spending will
selectively reposition the global cost structure, impacting
approximately 1,000 salaried and 1,000 hourly employees respectively.
Reported earnings per share are expected to be $4.50 to $4.60, including
a significant reduction from currency translation, an estimated
divestiture gain of $0.75 per share and accelerated restructuring costs
of $0.05 per share.
"As we sensed after last quarter, there is significant uncertainty in
the global industrial marketplace, which has increased further in recent
months," Farr said. "As we continue to strengthen the portfolio for the
long run, additional restructuring will reposition Emerson for higher
levels of growth and profitability in select regions and businesses. We
remain focused on our priorities of investing for the future, returning
high levels of cash to our shareholders, and operating Emerson for
long-term, sustainable value creation."
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 19, 2015, Emerson will host its annual investor
conference in New York 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.
(tables attached)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 1
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED OPERATING RESULTS
|
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
Percent
|
|
|
|
2013
|
|
|
2014
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
5,606
|
|
|
$
|
5,587
|
|
|
—%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
3,370
|
|
|
3,307
|
|
|
|
SG&A expenses
|
|
|
1,444
|
|
|
1,405
|
|
|
|
Other deductions, net
|
|
|
95
|
|
|
64
|
|
|
|
Interest expense, net
|
|
|
54
|
|
|
46
|
|
|
|
Earnings before income taxes
|
|
|
643
|
|
|
765
|
|
|
19%
|
Income taxes
|
|
|
166
|
|
|
236
|
|
|
|
Net earnings
|
|
|
477
|
|
|
529
|
|
|
11%
|
Less: Noncontrolling interests in earnings of subsidiaries
|
|
|
15
|
|
|
4
|
|
|
|
Net earnings common shareholders
|
|
|
$
|
462
|
|
|
$
|
525
|
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
Diluted avg. shares outstanding
|
|
|
708.1
|
|
|
694.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
|
$
|
0.65
|
|
|
$
|
0.75
|
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
|
|
|
2013
|
|
|
2014
|
|
|
|
Other deductions, net
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
$
|
57
|
|
|
$
|
55
|
|
|
|
Rationalization of operations
|
|
|
13
|
|
|
9
|
|
|
|
Currency loss/(gain)
|
|
|
13
|
|
|
(6
|
)
|
|
|
Other
|
|
|
12
|
|
|
6
|
|
|
|
Total
|
|
|
$
|
95
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
Assets
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
$
|
2,737
|
|
|
$
|
3,122
|
Receivables, net
|
|
|
4,429
|
|
|
4,404
|
Inventories
|
|
|
2,162
|
|
|
2,121
|
Other current assets
|
|
|
671
|
|
|
836
|
Total current assets
|
|
|
9,999
|
|
|
10,483
|
Property, plant & equipment, net
|
|
|
3,639
|
|
|
3,631
|
Goodwill
|
|
|
7,871
|
|
|
6,940
|
Other intangible assets
|
|
|
1,839
|
|
|
1,649
|
Other
|
|
|
776
|
|
|
1,021
|
Total assets
|
|
|
$
|
24,124
|
|
|
$
|
23,724
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
Short-term borrowings and current maturities of long-term debt
|
|
|
$
|
1,958
|
|
|
$
|
3,484
|
Accounts payables
|
|
|
2,425
|
|
|
2,468
|
Accrued expenses
|
|
|
2,526
|
|
|
2,640
|
Income taxes
|
|
|
199
|
|
|
285
|
Total current liabilities
|
|
|
7,108
|
|
|
8,877
|
Long-term debt
|
|
|
3,834
|
|
|
3,289
|
Other liabilities
|
|
|
2,299
|
|
|
2,002
|
Total equity
|
|
|
10,883
|
|
|
9,556
|
Total liabilities and equity
|
|
|
$
|
24,124
|
|
|
$
|
23,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 3
|
EMERSON AND SUBSIDIARIES
|
CONSOLIDATED STATEMENT OF CASH FLOWS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
Operating activities
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
477
|
|
|
$
|
529
|
|
Depreciation and amortization
|
|
|
209
|
|
|
207
|
|
Changes in operating working capital
|
|
|
(54
|
)
|
|
(192
|
)
|
Other, net
|
|
|
59
|
|
|
27
|
|
Net cash provided by operating activities
|
|
|
691
|
|
|
571
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(236
|
)
|
|
(207
|
)
|
Purchase of businesses, net of cash and equivalents acquired
|
|
|
(576
|
)
|
|
(143
|
)
|
Divestiture of business
|
|
|
268
|
|
|
—
|
|
Other, net
|
|
|
(11
|
)
|
|
(26
|
)
|
Net cash used by investing activities
|
|
|
(555
|
)
|
|
(376
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
Net increase in short-term borrowings
|
|
|
387
|
|
|
999
|
|
Principal payments of long-term debt
|
|
|
(314
|
)
|
|
(251
|
)
|
Dividends paid
|
|
|
(304
|
)
|
|
(326
|
)
|
Purchases of common stock
|
|
|
(390
|
)
|
|
(509
|
)
|
Other, net
|
|
|
(54
|
)
|
|
(59
|
)
|
Net cash used by financing activities
|
|
|
(675
|
)
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
|
1
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and equivalents
|
|
|
(538
|
)
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
Beginning cash and equivalents
|
|
|
3,275
|
|
|
3,149
|
|
|
|
|
|
|
|
|
|
Ending cash and equivalents
|
|
|
$
|
2,737
|
|
|
$
|
3,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4
|
EMERSON AND SUBSIDIARIES
|
SEGMENT SALES AND EARNINGS
|
(DOLLARS IN MILLIONS, UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
|
2013
|
|
|
2014
|
|
Sales
|
|
|
|
|
|
|
|
Process Management
|
|
|
$
|
2,041
|
|
|
$
|
2,099
|
|
Industrial Automation
|
|
|
1,149
|
|
|
1,152
|
|
Network Power
|
|
|
1,303
|
|
|
1,119
|
|
Climate Technologies
|
|
|
786
|
|
|
900
|
|
Commercial & Residential Solutions
|
|
|
466
|
|
|
480
|
|
|
|
|
5,745
|
|
|
5,750
|
|
Eliminations
|
|
|
(139
|
)
|
|
(163
|
)
|
Net sales
|
|
|
$
|
5,606
|
|
|
$
|
5,587
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
|
Process Management
|
|
|
$
|
373
|
|
|
$
|
392
|
|
Industrial Automation
|
|
|
162
|
|
|
164
|
|
Network Power
|
|
|
83
|
|
|
79
|
|
Climate Technologies
|
|
|
107
|
|
|
126
|
|
Commercial & Residential Solutions
|
|
|
100
|
|
|
103
|
|
|
|
|
825
|
|
|
864
|
|
Differences in accounting methods
|
|
|
57
|
|
|
58
|
|
Corporate and other
|
|
|
(185
|
)
|
|
(111
|
)
|
Interest expense, net
|
|
|
(54
|
)
|
|
(46
|
)
|
Earnings before income taxes
|
|
|
$
|
643
|
|
|
$
|
765
|
|
|
|
|
|
|
|
|
|
Rationalization of operations
|
|
|
|
|
|
|
|
Process Management
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Industrial Automation
|
|
|
2
|
|
|
2
|
|
Network Power
|
|
|
4
|
|
|
1
|
|
Climate Technologies
|
|
|
3
|
|
|
2
|
|
Commercial & Residential Solutions
|
|
|
1
|
|
|
1
|
|
Total
|
|
|
$
|
13
|
|
|
$
|
9
|
|
|
|
|
|
Reconciliations of Non-GAAP Financial Measures & Other
|
|
|
Table 5
|
The following reconciles non-GAAP measures (denoted by *) with the
most directly comparable GAAP measure (dollars in millions, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process
|
|
|
Industrial
|
|
|
Network
|
|
|
Climate
|
|
|
Comm &
|
|
|
|
|
Q1 sales change
|
|
|
Mgmt
|
|
|
Auto
|
|
|
Power
|
|
|
Tech
|
|
|
Res Solns
|
|
|
Total
|
|
Underlying*
|
|
|
6
|
%
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
17
|
%
|
|
|
4
|
%
|
|
|
6
|
%
|
|
Acq/Div
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
(12
|
)%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
(3
|
)%
|
|
FX
|
|
|
(3
|
)%
|
|
|
(4
|
)%
|
|
|
(3
|
)%
|
|
|
(2
|
)%
|
|
|
(1
|
)%
|
|
|
(3
|
)%
|
|
Reported
|
|
|
3
|
%
|
|
|
—
|
%
|
|
|
(14
|
)%
|
|
|
15
|
%
|
|
|
3
|
%
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015E sales change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying*
|
|
|
~3-5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acq/Div
|
|
|
~(2)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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FX
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~(5)-(4)%
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Reported
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~(4)-(1)%
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Note: Underlying sales and orders exclude the impact of
acquisitions, divestitures and currency translation.
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Copyright Business Wire 2015