01—Abstract
Summary
Summary of the 10-K filed November 19, 2007. Cited figures are marked; the original filing is the authoritative source.
Emerson Electric's fiscal 2007 10-K (fiscal year ended September 30, 2007) reports a record year: net sales rose 12% to $22.6 billiona, net earnings rose 16% to $2.1 billion, and diluted EPS rose 19% to $2.66.
Growth was broad-based across all five segments, driven by strong international demand (international destination sales reached $11.6 billionb, or 52% of sales), acquisitions (Artesyn, Knürr and Bristol in 2006; Damcos and Stratos in 2007), and favorable currency translation. Underlying sales grew roughly 7%, with about 3% from volume, 2% from penetration gains and 2% from price. Gross margin improved modestly to 35.9%, and operating cash flow rose 20% to $3.0 billion, producing free cash flow of $2.3 billion.
The balance sheet strengthened over the year. The total debt-to-capital ratio fell to 30.1% from 33.1%, and the operating cash flow-to-debt ratio rose to 79.9%. Emerson returned substantial capital to shareholders through $837 millionc in dividends and $849 million in treasury stock purchases, and the board approved a 14% dividend increase to an annualized $1.20 per share.
Backlog grew to $4.9 billiond from $4.1 billion, and management guided fiscal 2008 to 5-7% underlying sales growth and 10-15% EPS growth, while noting that the U.S. consumer and housing markets were a drag on the Climate Technologies and Appliance and Tools segments. The filing also flags a pending $350 million acquisition of Motorola's Embedded Communications Computing business, expected to close by the end of calendar 2007.
The company disclosed no material contingent liabilities and reported effective internal controls, as audited by KPMG. Key risks include competitive pricing pressure, reliance on global production (with most facilities outside the U.S.), raw material cost volatility (copper and steel), and exposure to cyclical end markets.
02—Key points
Key Highlights
- Record fiscal 2007 results: net sales of $22.6B (+12%), net earnings of $2.1B (+16%), and diluted EPS of $2.66 (+19%), with all five segments growing sales and earnings.
- Underlying sales growth of about 7%, supplemented by roughly 3% from acquisitions and 2% from favorable currency translation; international destination sales reached $11.6B, or 52% of total sales.
- Operating cash flow rose 20% to $3.0B, and free cash flow rose 22% to $2.3B, with operating working capital improving to 8.5% of sales from 10.1%.
- Balance sheet strengthened: total debt-to-capital fell to 30.1% (from 33.1%), and net debt-to-net capital fell to 23.6%; the company holds an A2/A rating and a $2.8B revolving credit facility.
- Shareholder returns: $837M in dividends ($1.05/share, up 18%), a November 2007 dividend increase of 14% to an annualized $1.20/share, and $849M of share repurchases.
- Fiscal 2008 guidance calls for underlying sales growth of 5-7%, reported sales growth of 7-10%, and EPS growth of 10-15% above the $2.66 earned in fiscal 2007.
- Backlog rose to $4.9B from $4.1B, and a pending $350M acquisition of Motorola's ECC business (about $520M in 2006 revenue) is expected to close by end of calendar 2007.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Emerson Electric Co kept $0.10.
- Revenue$22.13B100.0%
- Cost of revenue−$14.07B63.6%
- Gross profit$8.06B36.4%
- Operating costs−$5.94B26.8%
- Operating income$2.13B9.6%
- Interest, other & tax$7.0M0.0%
- Net income$2.14B9.7%
Where FY2007 revenue went
$22.13B- Cost of revenue: $14.07B, 64% of revenue
- SG&A: $4.57B, 21% of revenue
- Operating income: $2.13B, 9.6% of revenue
- Other operating costs: $1.37B, 6.2% of revenue
Kept 9.6% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed November 19, 200705—Questions
Frequently Asked Questions
How did Emerson perform financially in fiscal 2007?
Emerson reported record results for fiscal 2007. Net sales increased 12% to $22.6 billion, net earnings rose 16% to $2.1 billion, and diluted EPS grew 19% to $2.66. Gross margin improved slightly to 35.9%, and return on equity reached 25.2%.
What drove growth, and which segments were strongest?
Growth came from higher volume in global industrial and energy markets, international expansion (especially Asia and Europe), acquisitions, and favorable currency translation. Network Power had the largest earnings gain (+33%) on Artesyn and Knürr acquisitions, Process Management sales rose 17% on oil, gas and power project strength, and Industrial Automation grew sales 13%. Climate Technologies (+6% sales) and Appliance and Tools (+3%) were held back by weakness in U.S. housing and consumer markets.
What is Emerson's outlook for fiscal 2008?
Management expects underlying sales growth of 5-7% (excluding a 2-3% benefit from currency, acquisitions and divestitures), reported sales growth of 7-10%, and EPS growth of 10-15% above the $2.66 earned in fiscal 2007. Management describes the outlook as positive but expects growth rates to moderate from 2007 levels.
How strong is Emerson's financial position and how does it return cash to shareholders?
Emerson generated $2.3B of free cash flow in 2007 and reduced its total debt-to-capital ratio to 30.1%. It returned $837M in dividends and $849M through share repurchases, and the board raised the quarterly dividend 14% to an annualized $1.20 per share. The company had 14.8 million shares remaining under its repurchase authorization at year-end.
What are the main risks highlighted in the filing?
Key risks include competitive pricing pressure, reliance on production facilities outside the U.S. (about 165 of roughly 265 plants), exposure to foreign currency and political instability in emerging markets, raw material cost volatility (steel, copper and aluminum), cyclical end-market demand, integration risk from acquisitions, and product liability and environmental litigation.
06—Continue