Emerson Reports First Quarter 2013 Results

  Emerson Reports First Quarter 2013 Results

  *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

Business Wire

ST. LOUIS -- February 5, 2013

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 6percent, 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 8percent.
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
5percent deduction from the Knaack business divestiture. Underlying sales
grew 4percent, 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 points^1. 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            10            12
earnings of subsidiaries
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   $   1,578       $  1,912
  long-term debt
  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           -             (2    )
equivalents
                                                                    
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                          $454
   stockholders
         % of net earnings
          Operating cash flow                   122        %
          Capital expenditures                  (25        %)
          Free cash flow*                       97         %




Contact:

For Emerson
Mark Polzin, 314-982-1758
 
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