By Lewis Krauskopf
Aug 6 Emerson Electric Co reported a 75
percent drop in quarterly earnings on Tuesday, hurt by an
impairment charge for its embedded computing and power business,
and said it was selling a majority stake in the unit for about
Profit and sales missed Wall Street targets. The diversified
U.S. manufacturer of industrial controls, power supplies and
home-storage equipment said earnings were trending toward the
low end of its forecast, which it had cut in May.
Emerson shares fell 1 percent in morning trading.
Parker Hannifin Corp dropped more than 4 percent
after the smaller industrial manufacturer reported quarterly
earnings far below estimates.
Emerson said it would sell 51 percent of the embedded
business to private equity firm Platinum Equity and retain a
noncontrolling interest. The business makes a range of power
conversion products, including adapters for mobile devices and
computers, and embedded computer systems used by medical,
defense and other industries.
"Continued weakness in the technology equipment and mobile
device markets that this business serves has resulted in lower
sales and earnings growth expectations," Emerson said in a
The St. Louis-based company is taking a $503 million pretax
goodwill impairment charge for the business, which it said was
no longer a strategic fit.
Emerson also plans to increase its share buybacks by $600
million to offset earnings dilution from the deal, which it
expects to close in three to six months.
The deal valuation was "unimpressive," said Mike Wood, an
analyst with Macquarie Research, but "it was ultimately a good
thing that they found a buyer." The business clashed with
Emerson's focus on products that support large capital projects,
"This has become a commoditized electronic product, and
that's something that Emerson cannot overcome with its good
execution and cost control," Wood said.
Earlier this month, Samsung Electronics supplier
Audience Inc, which makes chips that improve voice
quality in mobile devices, warned it faced a loss in the current
REVENUE FALLS 2.2 PERCENT
Emerson's net income fell to $194 million, or 27 cents per
share, in the third quarter ended June 30, from $770 million, or
$1.04 per share, a year earlier.
Excluding charges for goodwill impairment and repatriating
cash from the embedded computing unit, Emerson reported earnings
of 97 cents per share. That was a penny below the analysts'
average estimate, according to Thomson Reuters I/B/E/S.
Revenue was off 2.2 percent to $6.34 billion, about $100
million below Wall Street's target.
U.S. sales were down 3 percent, while revenue in Europe
slumped 6 percent.
"Low levels of business investment continue to reflect a
cautious climate, particularly in mature markets," Chief
Executive David Farr said in a statement.
The company expects fiscal-year earnings, excluding items,
around the lower end of its target range of $3.48 to $3.55 per
share. Analysts targeted $3.49.
Emerson forecast a rise of about 1 percent in fiscal-year
sales, slightly below prior expectations.
Emerson shares were down 62 cents at $61.72 in morning
trading on the New York Stock Exchange. Through Monday, the
stock had risen about 18 percent this year, just below the
performance of the broader U.S. market.