Emerson Reports Full Year and Fourth Quarter 2012 Results

  Emerson Reports Full Year and Fourth Quarter 2012 Results

Fiscal 2012 Highlights:

  *Sales increased 1 percent to $24.4 billion, with underlying sales up 3
    percent
  *Record gross and operating profit margins
  *Net earnings per share of $2.67 reflects $592 million pretax noncash
    goodwill impairment on telecommunications and information
    technology-related businesses
  *Normalized earnings per share of $3.39, excluding $0.72 impairment charge

Business Wire

ST. LOUIS -- November 06, 2012

Emerson (NYSE: EMR) today announced that net sales for fiscal 2012 increased 1
percent from the prior year to $24.4 billion, led by two consecutive years of
double-digit growth in Process Management. Underlying sales grew 3percent,
reflecting a substantial deceleration in global economic growth as the year
progressed. Currency translation deducted 2 percent and acquisitions, net of
divestitures, had a negligible impact. Underlying sales in the U.S. grew 2
percent, Asia grew 3 percent, and Europe declined 1 percent from the prior
year.

Gross profit margin reached a record of 40.0 percent, up 50 basis points from
the prior year, reflecting the benefits of technology innovation, portfolio
management, and cost repositioning. Operating profit margin also reached an
historic high of 17.7 percent^1, as cost containment programs drove 20 basis
points of expansion from 2011. The protracted slowdown in global
telecommunications and information technology end markets has resulted in
slower growth expectations for the embedded computing and power and DC power
businesses, requiring a noncash goodwill impairment charge of $592 million.
Net earnings per share of $2.67 includes this charge and compares to $3.27 in
the prior year. Excluding impairments, normalized earnings per share was $3.39
versus $3.30 in the prior year.

“Emerson delivered another solid year of operational performance in 2012
despite a challenging global macroeconomic environment,” said Chairman and
Chief Executive Officer David N. Farr. “The global economic climate is
unusually weak for this stage in a normal recovery cycle. Our businesses
remained focused on execution and managing through uncertain market conditions
– hallmarks of Emerson’s culture. The record operating margin performance
reflects our continuing efforts to drive innovation and operational excellence
despite unique challenges, and provides a solid foundation as we move into
2013.”

Fourth Quarter Results

Net sales in the fourth quarter increased 2 percent from the prior year,
reflecting unfavorable currency translation of 3 percent and a negligible
impact from acquisitions, net of divestitures. Underlying sales grew 5
percent, as the U.S. increased 2 percent, Asia grew 8 percent, and Europe was
flat. Process Management led the sales growth (reported up 18 percent,
underlying up 21 percent), benefiting from strong energy-related end markets
and continued conversion of backlog related to the Thailand flooding.

Fourth quarter gross profit margin of 41.0 percent improved 140 basis points
from the prior year and was the second consecutive quarter above 40 percent.
This enabled operating profit margin to increase to 20.4 percent^2, a record
for any prior quarter. Net earnings per share of $0.39 reflects the previously
mentioned goodwill impairment charge, resulting in a decrease of 61 percent
from the prior year. Normalized earnings per share of $1.11 grew 7 percent
from the prior year.

“Our businesses performed very well during the fourth quarter even while
underlying economic demand reached its lowest level in the year,” Farr said.
“Closing out 2012 with such strong profitability is a testament to the
execution capabilities of our global management teams that got the job done
and provides operational momentum to respond to the challenging business
climate and limited economic visibility.”

Balance Sheet / Cash Flow

Operating cash flow of $1.3 billion increased 4 percent in the quarter from
the prior year, while free cash flow of $1.1 billion grew 6 percent. Full-year
2012 operating cash flow decreased 6 percent from the prior year, as year-end
trade working capital of 16.2 percent of sales deteriorated from the prior
year due to higher receivables related to strong end of year sales, but showed
improvement from the third quarter. Dividends and share repurchases in 2012 of
$1.2 billion and $0.8 billion, respectively, represented an operating cash
flow payout ratio to shareholders of 64 percent. Fiscal 2012 was the 56th
consecutive year of annual dividend increases. On Monday, November 5, the
Board of Directors voted to increase the first quarter cash dividend from
forty cents ($0.40) to forty-one cents ($0.41) per share of common stock,
representing an annual rate of $1.64 per share. The new dividend is payable on
December 10, 2012, to shareholders of record on November 16, 2012.

“Returning cash to shareholders remains a core tenet of Emerson’s value
creation philosophy,” Farr said. “Our strong cash generation allows us to
employ a balanced capital allocation approach, creating sustainable value
through a combination of dividends, share repurchases, acquisitions, and
investment in growth. The Board of Directors’ decision to increase the first
quarter 2013 dividend reflects this firm commitment to our shareholders, which
will remain a core belief of this management team.”

Business Segment Highlights

Process Management sales increased 18 percent in the fourth quarter, as global
energy investment and backlog conversion related to the Thailand flooding
drove growth across all businesses. Underlying sales increased 21 percent and
currency translation deducted 3 percent, with the U.S. up 16 percent, Asia up
21 percent, and Europe up 11 percent. Underlying orders, which exclude the
impact of currency translation, acquisitions, and divestitures, grew 5 percent
in the quarter, led by 20 percent growth in the systems business, which was
partially subdued by weakness in Europe and difficult comparisons. Segment
margin of 24.3 percent increased 200 basis points from the prior year,
primarily driven by volume leverage and cost reduction benefits. Recovery of
sales delayed by the Thailand flooding progressed as expected, contributing to
strong volume leverage, and the supply chain distribution impact has now been
fully recovered. Consecutive years of double-digit sales and orders growth in
2011 and 2012 reflect a strong process automation industry position built on
technology innovation and integrated solutions. Looking ahead, continued
project activity in oil and gas, chemical, and power end markets is expected
to support solid growth in the near term that will drive another excellent
year for Process Management.

Industrial Automation sales declined 6 percent during the quarter, as currency
translation deducted 4 percent and global capital goods demand slowed,
particularly in Europe. Underlying sales decreased 2 percent, as the U.S. and
Asia were flat, and Europe declined 5 percent, with the most significant
decrease in the power generating alternators and industrial motors business.
The fluid automation, electrical distribution, and mechanical power
transmission businesses had modest underlying sales growth that was more than
offset by currency translation. Segment margin of 17.5 percent expanded 280
basis points from the prior year, primarily benefiting from cost containment
programs and lower restructuring expense. The near term outlook is for
sluggish end market demand, especially in Europe, which represents
approximately 40 percent of segment sales. The strong profitability
underscores a well-positioned cost structure poised for further gains when
demand recovers, but in the near term sales growth will be a challenge.

Network Power sales decreased 4 percent in the fourth quarter, as weakness
continued in telecommunications and information technology end markets.
Underlying sales declined 3 percent, as currency translation deducted 2
percent and acquisitions added 1 percent, with the U.S. down 7 percent, Asia
up 5 percent, and Europe down 9 percent. In the network power systems
business, underlying sales, which exclude unfavorable currency translation,
grew slightly, as execution of the National Broadband Network project in
Australia and solid growth in Latin America offset broader weakness in data
center markets. Market pressures continued in the embedded computing and power
business, where a double-digit sales decrease reflected persistent weakness in
demand and structural challenges in the industry. The previously mentioned
goodwill impairment charge, the significant majority of which relates to this
business, was due to the sustained weakness in these end markets. Management
and the Board of Directors have discussed the unique market and technology
challenges facing the embedded computing and power business, and concluded
that the Company will pursue strategic alternatives to maximize shareholder
value, including a potential sale of this $1.4 billion sales business. Segment
margin of 11.6 percent declined 190 basis points from the prior year,
primarily due to volume deleverage and restructuring expense. Profitability
improved 130 basis points sequentially, benefiting from cost reductions and
higher sales in the network power systems business, providing favorable
momentum moving into next year.

Climate Technologies sales declined 4 percent, as global HVAC end markets
reflected mixed demand across businesses and geographies, with soft industry
conditions overall. Underlying sales declined 3 percent, as currency
translation deducted 2 percent and acquisitions added 1 percent, with the U.S.
down 4 percent, Asia down 7 percent, and Europe down 1 percent. In the U.S.,
residential, commercial, and refrigeration end markets all exhibited weakness,
with the decline in the transportation refrigeration business particularly
severe. Sales in China continued to decrease, as weak residential demand was
partially offset by strength in commercial end markets. Deterioration in
Europe slowed as comparisons eased, but demand remained under pressure.
Segment margin of 18.5 percent increased 150 basis points from the prior year.
While global market conditions are expected to remain uneven and generally
sluggish in the near term, a strong technology position and cost structure has
prepared this business for a difficult global environment.

Commercial & Residential Solutions sales were unchanged in the quarter, as
underlying sales increased 5 percent, offset by the divested Knaack business
(4 percent) and currency translation (1 percent). The commercial storage and
food waste disposers businesses reported strong growth driven by U.S.
commercial and residential markets. Segment margin of 21.9 percent improved
130 basis points from the prior year, primarily benefiting from cost
containment programs. The segment is strongly positioned to deliver excellent
profitability as North America residential end markets continue steady
improvement in the near term.

2013 Outlook

Orders have slowed as near-term business investment has become more cautious
and market visibility has deteriorated due to economic uncertainty in the
U.S., China and Europe. This has resulted in a challenging and tenuous
planning environment. Based on current market conditions with slowing economic
momentum, reported and underlying sales in 2013 are expected to grow at a rate
in a low-single-digit range of 0 to 5 percent. Excluding the goodwill
impairment, EBIT margin is expected to improve 10 to 20 basis points^3, which
would result in earnings per share growth in the mid-to-high single digits
from $3.39 in 2012. The majority of sales and earnings growth is expected to
be realized in the first half of the year, due in large part to the quarterly
impact of the Thailand flooding in 2012. Business segment and other financial
metric forecasts for 2013 will be provided at the annual investor conference
in February 2013.

Upcoming Investor Events

Today at 3:00 p.m. ET (2:00 p.m. CT), Emerson management will discuss fourth
quarter and full year 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.

On Wednesday, November 7, 2012, Emerson Chairman and Chief Executive Officer
David N. Farr will present at the Baird Industrials Conference in Chicago, IL,
at 11:10 a.m. ET (10:10 a.m. CT).

^1 Reported pretax earnings margin of 12.8 percent declined 220 basis points
and reflects the $592 million noncash goodwill impairment charge ($528 million
after-tax)

^2 Reported pretax earnings margin of 8.9 percent reflects the $592 million
noncash goodwill impairment charge ($528 million after-tax)

^3 Reported pretax earnings margin improvement of 250 to 260 basis points

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, 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 September 30,   Percent
                                         2011              2012        Change
                                                                       
Net Sales                                $   6,545         $  6,700    2    %
Costs and expenses:
      Cost of sales                          3,955            3,951
      SG&A expenses                          1,339            1,385
      Goodwill impairment*                   19               592
      Other deductions, net                  90               122
      Interest expense, net                 49             57
Earnings before income taxes                 1,093            593      (46  %)
Income taxes                                345            293
Earnings from continuing operations          748              300
Discontinued operations, net of tax         26             -
Net earnings                                 774              300      (61  %)
Less: Noncontrolling interests in           13             18
earnings of subsidiaries
Net earnings common stockholders         $   761          $  282      (63  %)
                                                                       
Diluted avg. shares outstanding              745.3            729.1
                                                                       
Diluted earnings per share common
stockholders:
Earnings from continuing operations      $   0.98          $  0.39
Discontinued operations                     0.03           -
Diluted earnings per common share        $   1.01         $  0.39     (61  %)

                                                                       
                                         Quarter Ended September 30,
                                         2011              2012
Other deductions, net
      Amortization of intangibles        $   66            $  59
      Rationalization of operations          27               30
      Gains, net                             (2      )        -
      Other                                 (1      )       33
      Total                              $   90           $  122
                                                                       
                                                                       
*After-tax goodwill impairment of $528 or $0.72 per share in 2012







TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
                                                                  
                                            Year Ended September 30,   Percent
                                            2011          2012         Change
                                                                       
Net Sales                                   $  24,222     $ 24,412     1    %
Costs and expenses:
     Cost of sales                             14,665       14,644
     SG&A expenses                             5,328        5,436
     Goodwill impairment*                      19           592
     Other deductions, net                     356          401
     Interest expense, net                    223        224    
Earnings before income taxes                   3,631        3,115      (14  %)
Income taxes                                  1,127      1,091  
Earnings from continuing operations            2,504        2,024
Discontinued operations, net of tax           26         -      
Net earnings                                   2,530        2,024      (20  %)
Less: Noncontrolling interests in             50         56     
earnings of subsidiaries
Net earnings common stockholders            $  2,480     $ 1,968     (21  %)
                                                                       
Diluted avg. shares outstanding                753.5        734.6
                                                                       
Diluted earnings per share common
stockholders:
Earnings from continuing operations         $  3.24       $ 2.67
Discontinued operations                       0.03       -      
Diluted earnings per common share           $  3.27      $ 2.67      (18  %)

                                                                       
                                            Year Ended September 30,
                                            2011          2012
Other deductions, net
     Amortization of intangibles            $  261        $ 241
     Rationalization of operations             81           119
     Gains, net                                (24    )     (50    )
     Other                                    38         91     
     Total                                  $  356       $ 401    
                                                                       
                                                                       
*After-tax goodwill impairment of $528 or $0.72 per share in 2012







TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                              
                                                      Year Ended September 30,
                                                      2011          2012
Assets
  Cash and equivalents                                $  2,052      $  2,367
  Receivables, net                                       4,502         4,983
  Inventories                                            2,100         2,125
  Other current assets                                  691          651
              Total current assets                       9,345         10,126
  Property, plant & equipment, net                       3,437         3,509
  Goodwill                                               8,771         8,026
  Other intangible assets                                1,969         1,838
  Other                                                 339          319
                                                                    
  Total assets                                        $  23,861     $  23,818
                                                                    
Liabilities and Equity
  Short-term borrowings and current maturities of     $  877        $  1,506
  long-term debt
  Accounts payable                                       2,677         2,767
  Accrued expenses                                       2,772         2,732
  Income taxes                                          139          128
              Total current liabilities                  6,465         7,133
  Long-term debt                                         4,324         3,787
  Other liabilities                                      2,521         2,456
  Total equity                                          10,551       10,442
                                                                    
  Total liabilities and equity                        $  23,861     $  23,818







TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                               
                                                      Year Ended September 30,
                                                      2011          2012
Operating Activities
  Net earnings                                        $  2,530      $ 2,024
  Depreciation and amortization                          867          823
  Changes in operating working capital                   (301   )     (340   )
  Pension funding                                        (142   )     (163   )
  Goodwill impairment                                    19           528
  Other                                                 260        181    
     Net cash provided by operating activities          3,233      3,053  
                                                                    
Investing Activities
  Capital expenditures                                   (647   )     (665   )
  Purchases of businesses, net of cash and               (232   )     (187   )
  equivalents acquired
  Divestitures of businesses                             103          125
  Other                                                 (72    )    (79    )
     Net cash used in investing activities              (848   )    (806   )
                                                                    
Financing Activities
  Net increase in short-term borrowings                  185          348
  Proceeds from long-term debt                           1            4
  Principal payments on long-term debt                   (57    )     (262   )
  Dividends paid                                         (1,039 )     (1,171 )
  Purchases of treasury stock                            (935   )     (797   )
  Other                                                 (42    )    (21    )
     Net cash used in financing activities              (1,887 )    (1,899 )
                                                                    
Effect of exchange rate changes on cash and             (38    )    (33    )
equivalents
                                                                    
Increase in cash and equivalents                         460          315
                                                                    
Beginning cash and equivalents                          1,592      2,052  
                                                                    
Ending cash and equivalents                           $  2,052     $ 2,367  







TABLE 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                  
                                        Quarter Ended September 30,
                                        2011            2012
Sales
   Process Management                   $  2,016        $  2,381
   Industrial Automation                   1,385           1,297
   Network Power                           1,843           1,767
   Climate Technologies                    1,000           961
   Commercial & Residential Solutions     464           464    
                                           6,708           6,870
   Eliminations                           (163   )       (170   )
   Net Sales                            $  6,545       $  6,700  
                                                        
Earnings
   Process Management                   $  450          $  578
   Industrial Automation                   205             227
   Network Power                           248             205
   Climate Technologies                    170             178
   Commercial & Residential Solutions     95            101    
                                           1,168           1,289
   Differences in accounting methods       62              63
   Corporate and other*                    (88    )        (702   )
   Interest expense, net                  (49    )       (57    )
   Earnings before income taxes         $  1,093       $  593    
                                                        
Rationalization of operations
   Process Management                   $  3            $  6
   Industrial Automation                   14              6
   Network Power                           4               13
   Climate Technologies                    3               3
   Commercial & Residential Solutions     3             2      
                                        $  27          $  30     
                                                        
                                                        
*Includes goodwill impairment of $592 in 2012 and $19 in 2011







TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                   
                                         Year Ended September 30,
                                         2011          2012
Sales
    Process Management                   $  7,000      $ 7,899
    Industrial Automation                   5,294        5,188
    Network Power                           6,811        6,399
    Climate Technologies                    3,995        3,766
    Commercial & Residential Solutions     1,837      1,877  
                                            24,937       25,129
    Eliminations                           (715   )    (717   )
    Net Sales                            $  24,222    $ 24,412 
                                                       
Earnings
    Process Management                   $  1,402      $ 1,599
    Industrial Automation                   830          871
    Network Power                           756          624
    Climate Technologies                    709          668
    Commercial & Residential Solutions     375        396    
                                            4,072        4,158
    Differences in accounting methods       231          226
    Corporate and other*                    (449   )     (1,045 )
    Interest expense, net                  (223   )    (224   )
    Earnings before income taxes         $  3,631     $ 3,115  
                                                       
Rationalization of operations
    Process Management                   $  11         $ 19
    Industrial Automation                   32           27
    Network Power                           20           53
    Climate Technologies                    11           11
    Commercial & Residential Solutions     7          9      
                                         $  81        $ 119    
                                                       
                                                       
*Includes goodwill impairment of $592 in 2012 and $19 in 2011







TABLE 7
Reconciliations of Non-GAAP Financial Measures
The following reconciles Non-GAAP measures with the most directly comparable
GAAP measure (dollars in millions):


                   4Q 2011         4Q 2012         2011         2012

Net Sales           $  6,545         $ 6,700          $ 24,222      $ 24,412

Gross Profit
  Gross Profit     $  2,590         $ 2,749          $ 9,557       $ 9,768
   Gross Profit        39.6   %        41.0      %      39.5   %      40.0   %
   Margin %
   SG&A Expenses      1,339         1,385          5,328       5,436  
   Operating        $  1,251         $ 1,364          $ 4,229       $ 4,332
   Profit*
   Operating
   Profit Margin       19.1   %        20.4      %      17.5   %      17.7   %
   %*
   Goodwill            19              592              19            592
   Impairment
   Other
   Deductions,         90              122              356           401
   Net
   Interest           49            57             223         224    
   Expense, Net
   Pretax           $  1,093         $ 593            $ 3,631       $ 3,115
   Earnings
   Pretax
   Earnings            16.7   %        8.9       %      15.0   %      12.8   %
   Margin %

Earnings Per
Share
   Net Earnings     $  1.01          $ 0.39           $ 3.27        $ 2.67
   Per Share
   Goodwill           0.03          0.72           0.03        0.72   
   Impairment
   Normalized
   Earnings Per     $  1.04          $ 1.11           $ 3.30        $ 3.39
   Share*


                    4Q 2011          4Q 2012          Change
Cash Flow
   Operating        $  1,255         $ 1,311            4      %
   Cash Flow
   Capital            244           237            (2     %)
   Expenditures
   Free Cash        $  1,011         $ 1,074            6      %
   Flow*


                    2012             2013E            Change
Profit Margin as
% of Sales
   EBIT Excl.
   Goodwill            16.1   %        16.2-16.3 %    10-20 bps
   Impairment*
   Goodwill           (2.4   %)      0.0       %    240 bps
   Impairment
   EBIT                13.7   %        16.2-16.3 %    250-260 bps
   Reported*
   Interest           (0.9   %)      (0.9      %)   0 bps
   Expense, Net
   Pretax              12.8   %        15.3-15.4 %    250-260 bps
   Reported

*Represents Non-GAAP measure




Contact:

For Emerson
Mark Polzin, 314-982-1758
 
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