Emerson Reports First Quarter 2013 Results

Tue Feb 5, 2013 6:30am EST

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* Sales increased 5 percent to $5.6 billion, with underlying sales up 6 percent 
* EBIT margin expansion of 160 basis points 
* Earnings per share of $0.62 increased 24 percent

ST. LOUIS--(Business Wire)--
Emerson (NYSE: EMR) today announced that net sales for the first quarter ended
December 31, 2012, increased 5 percent from the prior year to $5.6 billion.
Underlying sales grew 6 percent, as currency translation and divestitures
together deducted 1 percent, with the U.S. up 6 percent, Asia up 6 percent, and
Europe down 2 percent. Sales reflected mixed results across end markets, and
favorable comparisons from the supply chain disruption in the prior year. EBIT
margin of 13.1 percent improved 160 basis points, as volume leverage and cost
reduction benefits offset unfavorable product mix. Pretax margin expanded 170
basis points to 12.1 percent. Earnings per share of $0.62 improved 24 percent
from the prior year. 

"Results for the quarter reflected solid performance amid what remains a
challenging and uncertain global economy," said Chairman and Chief Executive
Officer David N. Farr. "The pockets of growth our businesses captured were
encouraging even though the level of total investment in our end markets
continues to be slow. Recent order trends suggest market conditions have
stabilized and may be poised for improvement, particularly in the emerging
markets." 

Operating cash flow of $554 million grew 66 percent from the prior year,
reflecting earnings growth and lower working capital growth. Capital
expenditures of $115 million declined compared with the prior year by $15
million. Free cash flow of $439 million increased 115 percent, reflecting
conversion from earnings of 97 percent. 

"The growth in cash flow provided an excellent start to the year and was
consistent with our expectation for strong receivables collection during the
quarter," Farr said. "As suggested by lower capital expenditures, we remain
guarded with investments until economic visibility improves. At the same time,
we are investing in key strategic programs to ensure we are well-positioned when
global economic growth accelerates." 

Business Segment Highlights

Process Management sales increased 24 percent, as robust growth resulted from
global energy investment and favorable comparisons from the supply chain
disruption in the prior year. Underlying sales increased 24 percent as well,
with the U.S. up 26 percent, Asia up 25 percent, and Europe up 11 percent. Large
project activity remained strong, while higher-margin maintenance investments
slowed, particularly in the U.S., as customers became more cautious with capital
budgets. Segment margin of 17.6 percent expanded 520 basis points, primarily
driven by volume leverage. Continued investment in the oil and gas, chemical,
and power industries is expected to support solid end market demand in the near
term. 

Industrial Automation sales declined 7 percent during the quarter, as industrial
investment in capital goods remained weak. Underlying sales decreased 6 percent,
as currency translation deducted 1 percent, with the U.S. down 7 percent, Asia
down 7 percent, and Europe down 9 percent. The electrical drives and power
generating alternators and industrial motors businesses reflected the most
pronounced weakness, which was partially offset by strength in the hermetic
motors business driven by HVAC compressor demand. Segment margin of 14.4 percent
contracted 40 basis points, primarily due to volume deleverage. In the near
term, demand is expected to remain under pressure, especially in Europe and in
the power generating alternators business. 

Network Power sales decreased 2 percent, as telecommunications and information
technology end market weakness persisted. Underlying sales also declined 2
percent, with the U.S. flat, Asia down 3 percent, and Europe down 8 percent. End
market demand was mixed within the network power systems business, with strength
led by the uninterruptible power supply business in North America, and weakness
most severe in Europe. Sales were unchanged in the embedded computing and power
business. Segment margin of 7.2 percent decreased 100 basis points, primarily
due to volume deleverage and unfavorable product mix, but remains on track for
solid improvement in 2013. Order trends support the expectation for improving
market conditions in the near term for the network power systems business, led
by increased investment in telecommunications end markets. 

Climate Technologies sales grew 2 percent, reflecting growth for the first time
in six quarters. Underlying sales increased 3 percent, as currency translation
deducted 1 percent, with the U.S. up 1 percent, Asia up 7 percent, and Europe up
2 percent. Segment margin of 13.4 percent declined 20 basis points, as strong
growth in Asia and improvement in the U.S. primarily came from lower-margin
residential air conditioning end markets. Global refrigeration demand remained
weak, particularly in the transportation business. Growth is expected to
continue in the near term with an outlook for steady demand in residential end
markets in Asia and the U.S., and potentially continued improvement in Europe. 

Commercial & Residential Solutions sales declined 1 percent, reflecting a 5
percent deduction from the Knaack business divestiture. Underlying sales grew 4
percent, driven by a 7 percent increase in U.S. sales, which was supported by
strong demand in residential end markets, in particular the food waste disposer
business. Segment margin of 21.5 percent expanded 30 basis points, primarily
driven by cost reductions and the divestiture mix benefit. Recovery in North
America residential end markets is expected to continue in the near term. 

Outlook

Business investment remains slow and cautious globally, particularly in Europe,
but there have been indications of thawing demand in certain markets. Visibility
remains challenging, but based on current market conditions, reported and
underlying sales in 2013 are expected to grow 2 to 5 percent, with EBIT margin
expansion of 10 to 20 basis points1. Earnings per share are expected to be
between $3.53 and $3.63, with the continued expectation that 70 to 80 percent of
the growth will occur in the first half of the year. Business segment forecasts
for 2013 will be provided at the annual investor conference next week in
Columbus, Ohio. 

1 Excludes the effect of the goodwill impairment of 240 basis points in 2012.
Reported pretax earnings margin is expected to expand 250 to 260 basis points. 

Upcoming Investor Events

Today at 2:00 p.m. ET, Emerson management will discuss first quarter results
during an investor conference call. Interested parties may listen to the live
conference call via the Internet by visiting Emerson`s website at
www.Emerson.com/financial and completing a brief registration form. A replay of
the conference call will remain available for approximately three months after
the call. 

Emerson will host its 2013 Investor Conference in Columbus, Ohio, beginning at
3:00 p.m. ET on Monday, February 11, and ending at 1:00 p.m. ET on Tuesday,
February 12. Management will provide a company overview and a detailed review of
Emerson Network Power, including tours of two nearby facilities. Access to a
webcast of select conference material, as well as related presentation slides,
will be available by visiting Emerson`s website at www.Emerson.com/financial at
the time of the event. A replay of the webcast and the presentation slides will
be available for approximately three months after the conference. 

Forward-Looking and Cautionary Statements

Statements in this 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 December 31,                  Percent     
                                                                   2011                        2012            Change      
                                                                                                                           
 Net sales                                                         $      5,309                $      5,553    5     %     
 Costs and expenses:                                                                                                       
                                 Cost of sales                            3,254                       3,346                
                                 SG&A expenses                            1,354                       1,394                
                                 Other deductions, net                    90                          86                   
                                 Interest expense, net                    58                          54                   
 Earnings before income taxes                                             553                         673      22    %     
 Income taxes                                                             172                         207                  
 Net earnings                                                             381                         466      22    %     
 Less: Noncontrolling interests in earnings of subsidiaries               10                          12                   
 Net earnings common stockholders                                  $      371                  $      454      22    %     
                                                                                                                           
 Diluted avg. shares outstanding                                          738.3                       726.9                
                                                                                                                           
 Diluted earnings per common share                                 $      0.50                 $      0.62     24    %     
                                                                                                                           
                                                                                                                           
                                                                   Quarter Ended December 31,                              
                                                                   2011                        2012                        
 Other deductions, net                                                                                                     
                                 Amortization of intangibles       $      58                   $      59                   
                                 Rationalization of operations            23                          16                   
                                 Other                                    11                          11                   
                                 Gains, net                               (2     )                    -                    
                                 Total                             $      90                   $      86                   


                                                                                                                         
                                                                                                                         
                                                                                                                         
                                                                                                                         
                                                                                                                         
                                                                                                                         
 TABLE 2                                                                                                                 
 EMERSON AND SUBSIDIARIES                                                                                                
 CONSOLIDATED BALANCE SHEETS                                                                                             
 (DOLLARS IN MILLIONS, UNAUDITED)                                                                                        
                                                                                                                         
                                                                                 Quarter Ended December 31,              
                                                                                 2011                    2012            
 Assets                                                                                                                  
           Cash and equivalents                                                  $       2,076           $       2,527   
           Receivables, net                                                              4,040                   4,556   
           Inventories                                                                   2,317                   2,308   
           Other current assets                                                          642                     695     
                                             Total current assets                        9,075                   10,086  
           Property, plant & equipment, net                                              3,415                   3,503   
           Goodwill                                                                      8,723                   8,068   
           Other intangible assets                                                       1,893                   1,798   
           Other                                                                         338                     316     
                                                                                                                         
           Total assets                                                          $       23,444          $       23,771  
                                                                                                                         
 Liabilities and Equity                                                                                                  
           Short-term borrowings and current maturities of long-term debt        $       1,578           $       1,912   
           Accounts payables                                                             2,302                   2,431   
           Accrued expenses                                                              2,484                   2,648   
           Income taxes                                                                  170                     212     
                                             Total current liabilities                   6,534                   7,203   
           Long-term debt                                                                4,041                   3,542   
           Other liabilities                                                             2,509                   2,408   
           Total equity                                                                  10,360                  10,618  
                                                                                                                         
           Total liabilities and equity                                          $       23,444          $       23,771  


                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
 TABLE 3                                                                                                                            
 EMERSON AND SUBSIDIARIES                                                                                                           
 CONSOLIDATED STATEMENT OF CASH FLOWS                                                                                               
 (DOLLARS IN MILLIONS, UNAUDITED)                                                                                                   
                                                                                                                                    
                                                                                        Quarter Ended December 31,                  
                                                                                        2011                     2012               
 Operating activities                                                                                                               
                      Net earnings                                                      $     381                $     466          
                      Depreciation and amortization                                           204                      206          
                      Changes in operating working capital                                    (293   )                 (204   )     
                      Other                                                                   42                       86           
                                           Net cash provided by operating activities          334                      554          
                                                                                                                                    
 Investing activities                                                                                                               
                      Capital expenditures                                                    (130   )                 (115   )     
                      Other, net                                                              (10    )                 (19    )     
                                           Net cash used in investing activities              (140   )                 (134   )     
                                                                                                                                    
 Financing activities                                                                                                               
                      Net increase in short-term borrowings                                   666                      424          
                      Principal payments on long-term debt                                    (250   )                 (264   )     
                      Dividends paid                                                          (294   )                 (297   )     
                      Purchases of treasury stock                                             (244   )                 (113   )     
                      Other                                                                   (48    )                 (8     )     
                                           Net cash used in financing activities              (170   )                 (258   )     
                                                                                                                                    
 Effect of exchange rate changes on cash and equivalents                                      -                        (2     )     
                                                                                                                                    
 Increase in cash and equivalents                                                             24                       160          
                                                                                                                                    
 Beginning cash and equivalents                                                               2,052                    2,367        
                                                                                                                                    
 Ending cash and equivalents                                                            $     2,076              $     2,527        


                                                                                                   
                                                                                                   
                                                                                                   
                                                                                                   
                                                                                                   
                                                                                                   
 TABLE 4                                                                                           
 EMERSON AND SUBSIDIARIES                                                                          
 SEGMENT SALES AND EARNINGS                                                                        
 (DOLLARS IN MILLIONS, UNAUDITED)                                                                  
                                                                                                   
                                                       Quarter Ended December 31,                  
                                                       2011                     2012               
 Sales                                                                                             
             Process Management                        $     1,527              $     1,896        
             Industrial Automation                           1,229                    1,137        
             Network Power                                   1,495                    1,459        
             Climate Technologies                            733                      752          
             Commercial & Residential Solutions              457                      453          
                                                             5,441                    5,697        
             Eliminations                                    (132   )                 (144   )     
             Net Sales                                 $     5,309              $     5,553        
                                                                                                   
 Earnings                                                                                          
             Process Management                        $     190                $     333          
             Industrial Automation                           182                      164          
             Network Power                                   122                      105          
             Climate Technologies                            100                      101          
             Commercial & Residential Solutions              97                       97           
                                                             691                      800          
             Differences in accounting methods               49                       50           
             Corporate and other                             (129   )                 (123   )     
             Interest expense, net                           (58    )                 (54    )     
             Earnings before income taxes              $     553                $     673          
                                                                                                   
 Rationalization of operations                                                                     
             Process Management                        $     5                  $     3            
             Industrial Automation                           4                        5            
             Network Power                                   10                       4            
             Climate Technologies                            2                        1            
             Commercial & Residential Solutions              2                        3            
                                                       $     23                 $     16           


                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
 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):                                                              
                                                                                                              
                                                                                                              
                                                        Q1 2012        Q1 2013             Change             
 Profit margin                                                                                                
             EBIT*                                      $611           $727                                   
             EBIT margin*                               11.5   %       13.1        %       160 bps            
             Interest expense, net                      58             54                                     
             Pretax earnings                            $553           $673                                   
             Pretax earnings margin                     10.4   %       12.1        %       170 bps            
                                                                                                              
                                                                                                              
                                                        2012           2013E               Change             
 Profit margin as % of sales                                                                                  
             EBIT excluding impairment*                 16.1   %       16.2-16.3   %       10-20 bps          
             Goodwill impairment                        (2.4   %)      0.0         %       240 bps            
             EBIT*                                      13.7   %       16.2-16.3   %       250-260 bps        
             Interest expense, net                      (0.9   %)      (0.9        %)      0 bps              
             Pretax earnings                            12.8   %       15.3-15.4   %       250-260 bps        
                                                                                                              
 Earnings per share                                                                                           
             Net earnings per share                     $2.67          $3.53-3.63          32-36        %     
             Goodwill impairment                        $0.72          $0.00               (28-29       %)    
             Normalized earnings per share*             $3.39          $3.53-3.63          4-7          %     
                                                                                                              
                                                                                                              
                                                                       Q1 2013                                
 Cash Flow                                                                                                    
             Operating cash flow                                       $554                                   
             Capital expenditures                                      ($115       )                          
             Free cash flow*                                           $439                                   
                                                                                                              
             Net earnings common stockholders                          $454                                   
                                % of net earnings                                                             
                                Operating cash flow                    122         %                          
                                Capital expenditures                   (25         %)                         
                                Free cash flow*                        97          %                          
                                                                                                              
                                                                                                              
                                                                                                              


For Emerson
Mark Polzin, 314-982-1758 

Copyright Business Wire 2013

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