Emerson Reports First Quarter 2014 Results

  Emerson Reports First Quarter 2014 Results

  *Sales of $5.6 billion increased 1 percent, with underlying sales up 3
    percent
  *Emerging markets grew 7 percent, with strength across all business
    segments
  *Earnings per share of $0.65 increased 5 percent, or $0.67 excluding $0.02
    of acquisition costs

Business Wire

ST. LOUIS -- February 4, 2014

Emerson (NYSE: EMR) today announced that net sales for the first quarter ended
December 31, 2013 increased 1 percent. Underlying sales grew 3 percent, as
divestitures deducted 3 percent and acquisitions added 1 percent. Global
market conditions reflected slowly improving business investment with mixed
demand among industries, as the U.S. grew 3 percent, Asia grew 10 percent, and
Europe was flat. Strong emerging market growth was led by a 14 percent
increase in China.

"Growth was consistent with the modest pace of orders improvement we have seen
over the last quarter, which unfolded consistent with expectations," said
Chairman and Chief Executive Officer David N. Farr. "Although uneven across
markets, overall global demand reflects slowly improving business confidence
and macroeconomic momentum, particularly in Europe. We continue to see
encouraging progress on strategic growth initiatives – especially in emerging
markets – with promising opportunities for further investment."

Profitability remained strong, with gains in gross profit and business segment
margin contributing to earnings per share of $0.65, an increase of 5 percent
from the prior year. Excluding $21 million in corporate expense related to the
previously announced Virgo and Enardo acquisitions, earnings per share
increased 8 percent to $0.67. Corporate expense also reflected $30 million in
pretax expense related to accelerated charitable contributions, which resulted
in tax benefits sufficient to substantially offset the impact.

Operating cash flow of $691 million, up 8 percent, provided a solid start to
cash generation for the year. Capital deployment in the quarter focused on
strategic acquisitions, with $576 million invested in the previously mentioned
transactions, and the purchase of the minority interest in Appleton Group for
$574 million, which closed early in the second quarter, for a total of $1.2
billion of acquisition spending year to date.

"We executed on several important portfolio management priorities in the
quarter, including closing the embedded computing and power divestiture,
strengthening Process Management through the Virgo and Enardo acquisitions,
and assuming full ownership of Appleton Group, previously the EGS Electrical
joint venture with SPX," Farr said. "These changes support our ongoing efforts
to enhance the underlying growth profile of Emerson. We are already gaining
traction with the strategic opportunities to generate sales synergies with
these businesses."

Business Segment Highlights

Process Management net sales grew 8 percent, supported by continued strength
in global energy and chemical markets. Underlying sales increased 5 percent,
led by near double-digit gains in the systems and solutions business, with
acquisitions contributing 3 percent. Growth resumed in the U.S., with sales up
6 percent, and Asia increased 14 percent, led by robust growth in China across
the segment. Strong project execution in the North Sea region drove 3 percent
growth in Europe. Segment margin expanded 70 basis points to 18.3 percent.
Process automation markets continue to support elevated investment levels with
a robust project pipeline, particularly in North America.

Industrial Automation net sales increased 1 percent due to a 1 percent
contribution from currency translation. Underlying sales were unchanged from
the prior year, with the U.S. flat, Asia up 9 percent, and Europe down 5
percent, as recovery continued at a slow and uneven pace for industrial goods.
Growth in the fluid automation, motors and drives, electrical distribution,
and materials joining businesses was offset by weak demand in power
transmission markets. The power generating alternators business was flat,
reflecting stabilized but still sluggish demand after protracted declines.
Segment margin decreased slightly to 14.1 percent. Global industrial goods
markets are expected to trend with the slowly recovering macroeconomic
environment, supporting a modest growth outlook.

Network Power net sales decreased 11 percent and underlying sales grew 2
percent, which excludes a 12 percent deduction for the embedded computing and
power divestiture (closed at the end of November) and a 1 percent deduction
for currency translation. Underlying sales in the U.S. and Asia increased 2
percent and Europe was up slightly, led by robust growth in global
telecommunications infrastructure markets. Demand was mixed for data center
technologies, as strength in Europe was offset by slow market conditions in
Asia and the Americas. Segment margin declined to 6.4 percent, primarily due
to a one-time R&D credit in the prior year. Market conditions are expected to
be favorable in the near term, supported by recovery in Europe and momentum in
Asia.

Climate Technologies net and underlying sales grew 5 percent, led by strong
demand in the transportation refrigeration business and supported by stable
conditions in air conditioning markets. U.S. sales declined slightly, with
double-digit increase in temperature controls sales, continued weakness in the
field service business, and flat demand in the air conditioning business after
mid-teens growth in the prior year. Asia increased 13 percent, as growth in
China exceeded 20 percent, with strength in the air conditioning and
refrigeration businesses. Europe grew 5 percent, led by the refrigeration
market recovery. Segment margin improved 20 basis points to 13.6 percent.
Orders growth of 8 percent in the quarter supports the outlook for continued
moderate growth in global markets, led by strength in Asia and Europe.

Commercial & Residential Solutions net and underlying sales increased 3
percent, with the U.S. up 2 percent and international sales up 6 percent.
Growth was led by the professional tools, food waste disposers, and storage
businesses. Segment margin remained strong at 21.4 percent. Market conditions
are expected to remain solid in the near term, as U.S. residential momentum
continues.

2014 Outlook

Underlying orders growth has been between 3 and 4 percent for several months,
reflecting a slowly improving but uncertain macroeconomic environment.
Emerson's outlook for 2014 is unchanged, with underlying sales growth of 3 to
5 percent and net sales of (1) to 1 percent, reflecting acquisitions,
divestitures, and currency translation. Margin is expected to improve
approximately half a percent, as benefits from portfolio changes and volume
leverage are partially offset by accelerated strategic investments. Excluding
impairments and repatriation charges in the prior year, earnings per share are
expected to increase 4 to 7 percent, or 33 to 38 percent on a reported basis.

Upcoming Investor Events

Today at 2 p.m. ET, Emerson management will discuss the first quarter 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 13, 2014, Emerson will host its annual investor
conference in Boston from 9:00 a.m. to approximately 12:30 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.

                                                                   
                                                                       Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
                                                                       
                                          Quarter Ended December 31    Percent
                                          2012             2013        Change
                                                                       
Net sales                                 $   5,553        $ 5,606     1   %
Costs and expenses:
Cost of sales                             3,346            3,370
SG&A expenses                             1,394            1,444
Other deductions, net                     86               95
Interest expense, net                     54              54      
Earnings before income taxes              673              643         (4  )%
Income taxes                              207             166     
Net earnings                              466              477         2   %
Less: Noncontrolling interests in         12              15      
earnings of subsidiaries
Net earnings common shareholders          $   454         $ 462      2   %
                                                                       
Diluted avg. shares outstanding           726.9            708.1
                                                                       
Diluted earnings per common share         $   0.62         $ 0.65      5   %
                                                                 
                                                                       
                                          Quarter Ended December 31,
                                          2012             2013
Other deductions, net
Amortization of intangibles               $   59           $ 57
Rationalization of operations             16               13
Other                                     11              25      
Total                                     $   86          $ 95    
                                                                       

                                                                 
                                                                     Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                                     
                                                    Quarter Ended December 31,
                                                    2012             2013
Assets
Cash and equivalents                                $  2,527         $  2,737
Receivables, net                                    4,556            4,429
Inventories                                         2,308            2,162
Other current assets                                695             671
Total current assets                                10,086           9,999
Property, plant & equipment, net                    3,503            3,639
Goodwill                                            8,068            7,871
Other intangible assets                             1,798            1,839
Other                                               316             776
Total assets                                        $  23,771       $  24,124
                                                                     
Liabilities and equity
Short-term borrowings and current maturities of     $  1,912         $  1,958
long-term debt
Accounts payables                                   2,431            2,425
Accrued expenses                                    2,648            2,526
Income taxes                                        212             199
Total current liabilities                           7,203            7,108
Long-term debt                                      3,542            3,834
Other liabilities                                   2,408            2,299
Total equity                                        10,618          10,883
Total liabilities and equity                        $  23,771       $  24,124
                                                                        

                                                      
                                                            Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                            
                                  Quarter Ended December 31,
                                  2012                      2013
Operating activities
Net earnings                      $     466                 $    477
Depreciation and                  206                       209
amortization
Changes in operating              (119            )         (54           )
working capital
Other, net                        86                       59            
Net cash provided by              639                      691           
operating activities
                                                            
Investing activities
Capital expenditures              (200            )         (236          )
Purchase of businesses, net
of cash and equivalents           —                         (576          )
acquired
Divestiture of businesses         3                         268
Other, net                        (22             )         (11           )
Net cash used by investing        (219            )         (555          )
activities
                                                            
Financing activities
Net increase in short-term        424                       387
borrowings
Principal payments on             (264            )         (314          )
long-term debt
Dividends paid                    (297            )         (304          )
Purchases of treasury stock       (113            )         (390          )
Other, net                        (8              )         (54           )
Net cash used by financing        (258            )         (675          )
activities
                                                            
Effect of exchange rate
changes on cash and               (2              )         1             
equivalents
                                                            
Increase (decrease) in cash       160                       (538          )
and equivalents
                                                            
Beginning cash and                2,367                    3,275         
equivalents
                                                            
Ending cash and equivalents       $     2,527              $    2,737    
                                                            
                                                            
Note: First quarter 2013 capital expenditures and operating cash flow were
increased $85 million by an adjustment to reflect capital expenditures on a
cash basis. The totals reported for fiscal year 2013 will be unchanged.


                                                 
                                                     Table 4
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
                                                     
                                     Quarter Ended December 31,
                                     2012            2013
Sales
Process Management                   $  1,896        $  2,041
Industrial Automation                1,137           1,149
Network Power                        1,459           1,303
Climate Technologies                 752             786
Commercial & Residential Solutions   453            466      
                                     5,697           5,745
Eliminations                         (144      )     (139     )
Net sales                            $  5,553       $  5,606 
                                                     
Earnings
Process Management                   $  333          $  373
Industrial Automation                164             162
Network Power                        105             83
Climate Technologies                 101             107
Commercial & Residential Solutions   97             100      
                                     800             825
Differences in accounting methods    50              57
Corporate and other                  (123      )     (185     )
Interest expense, net                (54       )     (54      )
Earnings before income taxes         $  673         $  643   
                                                     
Rationalization of operations
Process Management                   $  3            $  3
Industrial Automation                5               2
Network Power                        4               4
Climate Technologies                 1               3
Commercial & Residential Solutions   3              1        
Total                                $  16          $  13    
                                                              

                                                                  
                                                                      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, except per share
amounts):
                                              
Sales growth                                      2014E
Underlying*                                       3-5%
Acq./Div./FX                                      (4)%
Net                                               (1)-1%
                                                                      
Earnings per share           Q1 2013              Q1 2014             Change
Earnings per share           $    0.62            $    0.65           5%
Acquisition costs            —                   0.02               3%
Earnings per share excl.     $    0.62            $    0.67           8%
acq. costs
                                                                      
Earnings per share           2013                 2014E               Change
Earnings per share           $    2.76            $ 3.68-3.80         33-38%
Goodwill impairment and tax  0.78                —                  ~30%
charges
Earnings per share excl.     $    3.54            $ 3.68-3.80         4-7%
charges*
                                                                      

Contact:

For Emerson
Mark Polzin, 314-982-1758
 
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