Emerson Reports First Quarter 2017 Results
- First quarter sales and profit exceeded expectations
- Net sales were $3.2 billion, down 4 percent, or 3 percent on an underlying basis
- Earnings per share from continuing operations increased 22 percent to $0.56
- Operating cash flow from continuing operations increased 6 percent versus the prior year
Emerson (NYSE: EMR) today announced net sales in the first quarter ended December 31, 2016 were down 4 percent, with underlying
sales down 3 percent excluding unfavorable currency translation. The first quarter results reflected mixed but generally improving
global economic conditions in our key served markets. Growth in the Commercial & Residential Solutions platform resulted from
favorable HVAC, refrigeration and U.S. and Asian construction markets, while the Automation Solutions platform remained down due to
the low price of oil but witnessed improving order rates, particularly in North America, as we exited the quarter.
Pretax margin of 14.4 percent exceeded the prior year by 140 basis points. EBIT margin of 15.8 percent also increased 140 basis
points primarily due to savings from restructuring activities. Earnings per share from continuing operations of $0.56 increased 22
percent, including an income tax benefit of $0.07 per share. Operating cash flow from continuing operations of $410 million
increased 6 percent versus the prior year. Including the impact of discontinued operations (Network Power, Leroy-Somer and Control
Techniques), earnings per share were $0.48, down 9 percent, and operating cash flow was $238 million, down 51 percent.
"Our strong first quarter results, which surpassed expectations, represent a solid start to the fiscal year and reflect an
improving overall economic environment," said Chairman and Chief Executive Officer David N. Farr. "The benefits from our
restructuring actions during the past two years played a critical role in our ability to deliver higher margins across many of our
businesses. Considering the improving demand conditions during the quarter, particularly in the automation markets, we are
increasing our 2017 full-year EPS guidance by 12 cents at both the top and bottom end of the range, including the 7 cent income tax
benefit in the first quarter."
Business Platform Results
Automation Solutions net sales decreased 9 percent. Underlying sales were down 8 percent excluding unfavorable currency.
Spending in energy related and general industrial markets remained down but the pace of business improved during the quarter.
Globally, power, chemical and life sciences markets continue to provide opportunities for growth. Underlying sales in North America
were down 11 percent, with the U.S. down 9 percent. Spending by oil and gas customers remained down, but MRO activity levels were
more favorable and are expected to be a benefit for at least the next two quarters. Asia was down 2 percent, with China up 4
percent reflecting stabilizing market conditions. In other regions, Europe was down 5 percent, Middle East/Africa was up 3 percent
and Latin America was down 29 percent. Margin increased 80 basis points to 16.6 percent, primarily due to savings from prior year
restructuring actions. The business will remain under pressure during the second quarter from continued low levels of customer
spending, with the expectation that market conditions will continue to improve during the fiscal year.
Commercial & Residential Solutions net sales increased 6 percent reflecting strong demand in global HVAC and
refrigeration markets and favorable conditions in professional tools. Underlying sales increased 7 percent excluding unfavorable
currency. Underlying sales in North America increased 4 percent, led by strong growth in U.S. residential and commercial air
conditioning as well as a recovery in professional tools within the oil and gas sector. Asia increased 26 percent as broad strength
in air conditioning and refrigeration markets was evident across most of the region. Growth in Asia was led by China, up 40
percent, where significant demand acceleration has occurred over the last two quarters. Europe was up 7 percent with solid growth
in air conditioning and professional construction tools. Margin increased 140 basis points to 19.9 percent, primarily due to
leverage on higher volume and savings from restructuring actions across the new platform structure. A favorable outlook for global
demand in air conditioning, refrigeration and U.S. construction markets supports the expectation for low to mid-single digit growth
in fiscal 2017.
2017 Outlook
Considering the first quarter results and recent order trends, we are raising our outlook for 2017. Full-year net sales are
expected to be down 1 to 3 percent, with underlying sales flat to down 2 percent excluding unfavorable currency translation of
approximately 1 percent. Earnings per share from continuing operations are now expected to be $2.47 to $2.62, including the $0.07
income tax benefit in the first quarter. Automation Solutions net sales are now expected to be down 5 to 7 percent, with underlying
sales down 3 to 5 percent excluding unfavorable currency of approximately 2 percent. Commercial & Residential Solutions net and
underlying sales are now expected to be up 3 to 5 percent. This outlook continues to exclude any impact related to the pending
acquisition of the Pentair Valves & Controls business.
"Our first quarter results reflect the positive momentum building within our two platform businesses as we begin the fiscal
year," continued Farr. "While we expect significant challenges to persist throughout 2017, we are optimistic that the improving
market conditions and broad-based increase in demand within many of our global served markets will benefit Emerson in the second
half of the year. With this in mind, our focus will continue to be on executing our portfolio repositioning strategy and making the
necessary adjustments to deliver improved profitability and cash flow to increase shareholder value."
Upcoming Investor Events
Today at 2:00 p.m. ET, Emerson management will discuss the first quarter 2017 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 16, 2017, Emerson will host its annual investor conference in New York City from 8:30 a.m. to
approximately 12:45 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.
The outlook contained herein represents the Company's expectations for its consolidated results from continuing operations, and
excludes the results of discontinued operations and any results attributable to the pending acquisition of the Pentair Valves &
Controls business.
|
|
|
|
|
Table 1
|
EMERSON AND SUBSIDIARIES |
CONSOLIDATED OPERATING RESULTS |
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
|
Percent |
|
|
|
|
2015
|
|
|
2016
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
$ |
3,337 |
|
|
$ |
3,216 |
|
|
|
(4 |
)% |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
1,923 |
|
|
|
1,851 |
|
|
|
|
SG&A expenses |
|
|
|
|
879 |
|
|
|
822 |
|
|
|
|
Other deductions, net |
|
|
|
|
54 |
|
|
|
33 |
|
|
|
|
Interest expense, net |
|
|
|
|
47 |
|
|
|
46 |
|
|
|
|
Earnings from continuing operations before income taxes |
|
|
|
|
434 |
|
|
|
464 |
|
|
|
7 |
% |
Income taxes |
|
|
|
|
127 |
|
|
|
94 |
|
|
|
|
Earnings from continuing operations |
|
|
|
|
307 |
|
|
|
370 |
|
|
|
21 |
% |
Discontinued operations, net of tax |
|
|
|
|
46 |
|
|
|
(55 |
) |
|
|
|
Net Earnings |
|
|
|
|
353 |
|
|
|
315 |
|
|
|
|
Less: Noncontrolling interests in earnings of subsidiaries |
|
|
|
|
4 |
|
|
|
6 |
|
|
|
|
Net earnings common stockholders |
|
|
|
$ |
349 |
|
|
$ |
309 |
|
|
|
(12 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Diluted avg. shares outstanding |
|
|
|
|
652.5 |
|
|
|
644.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share common stockholders |
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations |
|
|
|
$ |
0.46 |
|
|
$ |
0.56 |
|
|
|
22 |
% |
Discontinued operations |
|
|
|
$ |
0.07 |
|
|
|
($0.08 |
) |
|
|
|
Diluted earnings per common share |
|
|
|
$ |
0.53 |
|
|
$ |
0.48 |
|
|
|
(9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
|
|
|
|
|
|
2015
|
|
|
2016
|
|
|
|
Other deductions, net |
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles |
|
|
|
$ |
22 |
|
|
$ |
22 |
|
|
|
|
Restructuring costs |
|
|
|
|
7 |
|
|
|
11 |
|
|
|
|
Other |
|
|
|
|
25 |
|
|
|
— |
|
|
|
|
Total |
|
|
|
$ |
54 |
|
|
$ |
33 |
|
|
|
|
|
|
|
|
|
|
|
Table 2
|
EMERSON AND SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS |
(DOLLARS IN MILLIONS, UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
|
|
|
2015
|
|
|
2016
|
Assets |
|
|
|
|
|
|
|
Cash and equivalents |
|
|
|
$ |
3,109 |
|
|
$ |
4,151 |
Receivables, net |
|
|
|
|
2,490 |
|
|
|
2,426 |
Inventories |
|
|
|
|
1,320 |
|
|
|
1,278 |
Other current assets |
|
|
|
|
706 |
|
|
|
552 |
Current assets held-for-sale |
|
|
|
|
2,069 |
|
|
|
470 |
Total current assets |
|
|
|
|
9,694 |
|
|
|
8,877 |
Property, plant & equipment, net |
|
|
|
|
2,885 |
|
|
|
2,861 |
Goodwill |
|
|
|
|
3,825 |
|
|
|
3,861 |
Other intangible assets |
|
|
|
|
917 |
|
|
|
879 |
Other |
|
|
|
|
220 |
|
|
|
179 |
Noncurrent assets held-for-sale |
|
|
|
|
3,998 |
|
|
|
814 |
Total assets |
|
|
|
$ |
21,539 |
|
|
$ |
17,471 |
|
|
|
|
|
|
|
|
Liabilities and equity |
|
|
|
|
|
|
|
Short-term borrowings and current |
|
|
|
|
|
|
|
maturities of long-term debt |
|
|
|
$ |
3,409 |
|
|
$ |
254 |
Accounts payable |
|
|
|
|
1,344 |
|
|
|
1,335 |
Accrued expenses |
|
|
|
|
1,907 |
|
|
|
1,872 |
Income taxes |
|
|
|
|
103 |
|
|
|
396 |
Current liabilities held-for-sale |
|
|
|
|
1,439 |
|
|
|
289 |
Total current liabilities |
|
|
|
|
8,202 |
|
|
|
4,146 |
Long-term debt |
|
|
|
|
4,030 |
|
|
|
3,815 |
Other liabilities |
|
|
|
|
1,479 |
|
|
|
1,667 |
Noncurrent liabilities held-for-sale |
|
|
|
|
331 |
|
|
|
89 |
Total equity |
|
|
|
|
7,497 |
|
|
|
7,754 |
Total liabilities and equity |
|
|
|
$ |
21,539 |
|
|
$ |
17,471 |
|
|
|
|
|
|
|
Table 3
|
EMERSON AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(DOLLARS IN MILLIONS, UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
|
|
|
2015
|
|
|
2016
|
Operating activities |
|
|
|
|
|
|
|
Net earnings |
|
|
|
$ |
353 |
|
|
|
$ |
315 |
|
(Earnings) Loss from discontinued operations, net of tax |
|
|
|
|
(46 |
) |
|
|
|
55 |
|
Adjustments to reconcile net earnings to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
144 |
|
|
|
|
143 |
|
Changes in operating working capital |
|
|
|
|
(155 |
) |
|
|
|
(138 |
) |
Other, net |
|
|
|
|
90 |
|
|
|
|
35 |
|
Cash from continuing operations |
|
|
|
|
386 |
|
|
|
|
410 |
|
Cash from discontinued operations |
|
|
|
|
101 |
|
|
|
|
(172 |
) |
Cash provided by operating activities |
|
|
|
|
487 |
|
|
|
|
238 |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
(124 |
) |
|
|
|
(100 |
) |
Purchases of businesses, net of cash and equivalents acquired |
|
|
|
|
(6 |
) |
|
|
|
(16 |
) |
Other, net |
|
|
|
|
(13 |
) |
|
|
|
(20 |
) |
Cash from continuing operations |
|
|
|
|
(143 |
) |
|
|
|
(136 |
) |
Cash from discontinued operations |
|
|
|
|
(20 |
) |
|
|
|
3,894 |
|
Cash provided by (used in) investing activities |
|
|
|
|
(163 |
) |
|
|
|
3,758 |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings |
|
|
|
|
34 |
|
|
|
|
(2,225 |
) |
Proceeds from short-term borrowings greater than three months |
|
|
|
|
827 |
|
|
|
|
— |
|
Payments of short-term borrowings greater than three months |
|
|
|
|
— |
|
|
|
|
(90 |
) |
Payments of long-term debt |
|
|
|
|
(251 |
) |
|
|
|
(251 |
) |
Dividends paid |
|
|
|
|
(310 |
) |
|
|
|
(311 |
) |
Purchases of common stock |
|
|
|
|
(507 |
) |
|
|
|
— |
|
Other, net |
|
|
|
|
(4 |
) |
|
|
|
(43 |
) |
Cash used in financing activities |
|
|
|
|
(211 |
) |
|
|
|
(2,920 |
) |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents |
|
|
|
|
(58 |
) |
|
|
|
(107 |
) |
Increase (Decrease) in cash and equivalents |
|
|
|
|
55 |
|
|
|
|
969 |
|
Beginning cash and equivalents |
|
|
|
|
3,054 |
|
|
|
|
3,182 |
|
Ending cash and equivalents |
|
|
|
$ |
3,109 |
|
|
|
$ |
4,151 |
|
|
|
|
|
|
|
|
Table 4
|
EMERSON AND SUBSIDIARIES |
SEGMENT SALES AND EARNINGS |
(DOLLARS IN MILLIONS, UNAUDITED) |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
|
|
|
2015
|
|
|
2016
|
Sales |
|
|
|
|
|
|
|
Automation Solutions |
|
|
|
$ |
2,162 |
|
|
|
$ |
1,967 |
|
|
|
|
|
|
|
|
|
Climate Technologies |
|
|
|
|
786 |
|
|
|
|
859 |
|
Tools & Home Products |
|
|
|
|
392 |
|
|
|
|
393 |
|
Commercial & Residential Solutions |
|
|
|
|
1,178 |
|
|
|
|
1,252 |
|
|
|
|
|
|
|
|
|
Eliminations |
|
|
|
|
(3 |
) |
|
|
|
(3 |
) |
Net sales |
|
|
|
$ |
3,337 |
|
|
|
$ |
3,216 |
|
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
|
Automation Solutions |
|
|
|
$ |
341 |
|
|
|
$ |
326 |
|
|
|
|
|
|
|
|
|
Climate Technologies |
|
|
|
|
133 |
|
|
|
|
161 |
|
Tools & Home Products |
|
|
|
|
85 |
|
|
|
|
88 |
|
Commercial & Residential Solutions |
|
|
|
|
218 |
|
|
|
|
249 |
|
|
|
|
|
|
|
|
|
Differences in accounting methods |
|
|
|
|
44 |
|
|
|
|
33 |
|
Corporate and other |
|
|
|
|
(122 |
) |
|
|
|
(98 |
) |
Interest expense, net |
|
|
|
|
(47 |
) |
|
|
|
(46 |
) |
Earnings before income taxes |
|
|
|
$ |
434 |
|
|
|
$ |
464 |
|
|
|
|
|
|
|
|
|
Restructuring costs |
|
|
|
|
|
|
|
Automation Solutions |
|
|
|
$ |
5 |
|
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
Climate Technologies |
|
|
|
|
1 |
|
|
|
|
4 |
|
Tools & Home Products |
|
|
|
|
1 |
|
|
|
|
1 |
|
Commercial & Residential Solutions |
|
|
|
|
2 |
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
7 |
|
|
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of Non-GAAP Financial Measures & Other |
Table 5
|
|
|
Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure
(dollars in millions, except per share amounts):
|
|
|
|
Q1 2017 Underlying Sales Change |
|
|
Auto Solns |
|
Comm &
Res Solns
|
|
Emerson |
|
|
Reported (GAAP) |
|
|
(9 |
)% |
|
6 |
% |
|
(4 |
)% |
|
|
Unfavorable FX |
|
|
1 |
% |
|
1 |
% |
|
1 |
% |
|
|
Underlying* |
|
|
(8 |
)% |
|
7 |
% |
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT Margin |
|
|
Q1 FY17 |
|
Q1 FY16 |
|
Change |
|
|
Pretax margin (GAAP) |
|
|
14.4 |
% |
|
13 |
% |
|
140 bps |
|
|
|
Interest expense, net |
|
|
1.4 |
|
|
1.4 |
|
|
- bps |
|
|
|
EBIT margin* |
|
|
15.8 |
% |
|
14.4 |
% |
|
140 bps |
|
|
|
|
|
|
The Commercial & Residential Solutions business includes the results of both our Climate
Technologies and Tools & Home Products segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Emerson
Mark Polzin, 314-982-1758
View source version on businesswire.com: http://www.businesswire.com/news/home/20170207005793/en/