01—Abstract
Summary
Summary of the 10-K filed November 22, 2011. Cited figures are marked; the original filing is the authoritative source.
Emerson Electric's fiscal 2011 10-K (year ended September 30, 2011) reports a strong year: net sales rose 15% to $24.2 billiona, with underlying sales up 11%, acquisitions contributing 2% and favorable currency 2%.
Earnings from continuing operations to common stockholders increased 24% to $2.45 billionb, and diluted EPS from continuing operations rose 25% to $3.24. Operating cash flow was $3.2 billion and free cash flow $2.6 billion. Growth was led by Process Management (sales up 16%, earnings up 28%) and Industrial Automation (sales up 23%, earnings up 40%), while Network Power earnings declined 6% on Asian weakness, amortization from the Chloride and Avocent acquisitions, and pricing pressure in China.
The balance sheet strengthened. Total debt-to-capital fell to 33.3% from 34.1%, the net debt-to-net capital ratio improved to 23.2%, and the interest coverage ratio rose to 15.8x from 11.3x. Emerson also raised its quarterly dividend 16% to an annualized $1.60c per share and repurchased $958 million of stock during the year.
Management guides fiscal 2012 to underlying sales growth of 5%d to 7%, total net sales growth of 4% to 6%, an operating margin of about 18%, and EPS growth of 8% to 12%. The filing notes that business conditions were weakening at the time, particularly in the U.S. and Europe, and that Thai flooding is a near-term supply risk for Process Management.
Key risks flagged include materials cost inflation (steel, copper, rare earths), currency and emerging-market exposure (over one-third of sales now come from emerging markets), goodwill impairment sensitivity in Network Power and Tools and Storage, and reliance on acquisitions for growth. The company's pension plans were underfunded by $732 million at year end.
02—Key points
Key Highlights
- Net sales rose 15% to $24.2 billion, with underlying sales up 11%, a 2% contribution from acquisitions, and a 2% favorable currency effect.
- Diluted EPS from continuing operations rose 25% to $3.24, and earnings from continuing operations to common stockholders rose 24% to $2.45 billion.
- Process Management (28% of sales) and Industrial Automation (21%) drove growth, with segment earnings up 28% and 40% respectively; Network Power earnings fell 6%.
- Operating cash flow was $3.2 billion and free cash flow was $2.6 billion, with capital expenditures rising to $647 million.
- Balance sheet strengthened: total debt-to-capital fell to 33.3%, net debt-to-net capital to 23.2%, and interest coverage rose to 15.8x.
- Shareholder returns were significant: the quarterly dividend was raised 16% to an annualized $1.60 per share, and $958 million of stock was repurchased.
- Fiscal 2012 guidance calls for 5%–7% underlying sales growth, 4%–6% total sales growth, roughly 18% operating margin, and 8%–12% EPS growth, against a backdrop of weakening business conditions.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Emerson Electric Co kept $0.10.
- Revenue$24.22B100.0%
- Cost of revenue−$14.66B60.5%
- Gross profit$9.56B39.5%
- Operating costs−$7.10B29.3%
- Operating income$2.45B10.1%
- Interest, other & tax$26.0M0.1%
- Net income$2.48B10.2%
Where FY2011 revenue went
$24.22B- Cost of revenue: $14.66B, 61% of revenue
- SG&A: $5.33B, 22% of revenue
- Operating income: $2.45B, 10% of revenue
- R&D: $555.0M, 2.3% of revenue
- Other operating costs: $1.22B, 5.0% of revenue
Kept 10% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed November 22, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $24.22B$21.04B | +15.1% |
| Cost of Revenue | $14.66B$12.71B | +15.4% |
| Gross Profit | $9.56B$8.33B | +14.8% |
| R&D Expenses | $555.00M$473.00M | +17.3% |
| SG&A Expenses | $5.33B$4.82B | +10.6% |
| Operating Income | $2.45B$1.98B | +24.1% |
| Net Income | $2.48B$2.16B | +14.6% |
| EPS (Basic) | $3.29$2.87 | +14.6% |
| EPS (Diluted) | $3.27$2.84 | +15.1% |
| Shares Outstanding (Basic) | 748.50M750.70M | −0.3% |
| Shares Outstanding (Diluted) | 753.50M757.00M | −0.5% |
05—Questions
Frequently Asked Questions
What drove Emerson's strong fiscal 2011 results?
Growth came mainly from volume recovery in capital goods end markets and continued expansion in emerging markets. Underlying sales rose 11%, with volume up about 10%. Process Management and Industrial Automation led, benefiting from oil and gas, power, and industrial demand. Cost reduction savings and lower incentive stock compensation also lifted margins.
Why did Network Power earnings decline despite sales growth?
Network Power sales rose 17% to $6.8 billion, but earnings fell 6%. The decline reflected about $67 million of higher intangible amortization from the Chloride and Avocent acquisitions, Chloride-related costs, weak embedded computing demand, aggressive pricing in China telecom, and investment in data center technologies. Margin fell about 2.6 percentage points to 11.1%.
What is the outlook for fiscal 2012 and what are the main risks?
Management expects underlying sales growth of 5%–7% (about 1 point of currency headwind), total net sales growth of 4%–6%, an operating margin near 18%, and EPS growth of 8%–12%. Risks include weakening conditions in the U.S. and Europe, raw material cost increases, currency volatility, emerging-market political and regulatory risk, Thai flood disruption to Process Management suppliers, and reliance on successful acquisition integration.
Is Emerson's balance sheet and capital allocation position sound?
Yes. Total debt was $5.2 billion, and the company held $2.1 billion in cash. The total debt-to-capital ratio improved to 33.3%, and the company has a $2.75 billion backup credit facility, which it did not draw on. Operating cash flow fully funded capital expenditures, dividends, share repurchases, and acquisitions in 2011. Pension plans were underfunded by $732 million, and about $5.9 billion of non-U.S. earnings are held offshore, with no U.S. tax provided on that amount.
06—Continue