01—Abstract
Summary
Summary of the 10-K filed November 16, 2016. Cited figures are marked; the original filing is the authoritative source.
Emerson Electric Co. (EMR) is undergoing a significant strategic portfolio repositioning, marked by agreements to sell its Network Power Systems business and its Power Generation, Motors, and Drives businesses, while simultaneously agreeing to acquire Pentair's Valves & Controls business for approximately $3.15 billiona.
These divestitures are reported as discontinued operations. The company's core continuing operations are organized into Process Management, Industrial Automation, Climate Technologies, and Commercial & Residential Solutions segments. For fiscal year 2016, Emerson experienced a notable decline in net sales, largely attributed to weak global oil and gas prices, reduced industrial spending, and general economic uncertainty.
This led to a significant decrease in earnings from continuing operations and diluted EPS compared to the prior year. Despite the sales and earnings headwinds in 2016, Emerson is actively reshaping its business to focus on higher-growth end markets and improve profitability. The planned acquisition of Pentair's Valves & Controls business is expected to strengthen its Process Management segment.
The company is emphasizing its core strengths in automation solutions and climate technologies while managing through a challenging macroeconomic environment. Investors should monitor the successful integration of acquired businesses and the impact of ongoing portfolio adjustments on future financial performance.
02—Key points
Key Highlights
- Strategic portfolio repositioning underway with agreements to divest Network Power Systems and Power Generation, Motors, and Drives businesses.
- Agreement to acquire Pentair's Valves & Controls business for approximately $3.15 billion to enhance the Process Management segment.
- Net sales for fiscal year 2016 decreased by 11% to $14.5 billion, with underlying sales down 7%, impacted by weak oil & gas prices and industrial spending.
- Earnings from continuing operations decreased significantly by 37% to $1.59 billion, or $2.45 per diluted share.
- Process Management and Commercial & Residential Solutions segments saw substantial sales declines in 2016.
- The company generated strong operating cash flow of $2.9 billion, with $2.5 billion from continuing operations.
- Emerson is forecasting a challenging fiscal year 2017, with consolidated net and underlying sales expected to decline 1-3%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Emerson Electric Co kept $0.11.
- Revenue$14.52B100.0%
- Cost of revenue−$8.26B56.9%
- Gross profit$6.26B43.1%
- Operating costs−$4.67B32.2%
- Operating income$1.59B10.9%
- Interest, other & tax$45.0M0.3%
- Net income$1.64B11.3%
Where FY2016 revenue went
$14.52B- Cost of revenue: $8.26B, 57% of revenue
- SG&A: $3.46B, 24% of revenue
- Operating income: $1.59B, 11% of revenue
- R&D: $320.0M, 2.2% of revenue
- Other operating costs: $888.0M, 6.1% of revenue
Kept 11% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed November 16, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $14.52B$16.25B | −10.6% |
| Cost of Revenue | $8.26B$9.24B | −10.6% |
| Gross Profit | $6.26B$7.01B | −10.6% |
| R&D Expenses | $320.00M$336.00M | −4.8% |
| SG&A Expenses | $3.46B$3.73B | −7.3% |
| Operating Income | $1.59B$2.52B | −36.8% |
| Net Income | $1.64B$2.71B | −39.7% |
| EPS (Basic) | $2.53$4.01 | −36.9% |
| EPS (Diluted) | $2.52$3.99 | −36.8% |
| Shares Outstanding (Basic) | 644.00M673.30M | −4.4% |
| Shares Outstanding (Diluted) | 646.80M676.50M | −4.4% |
05—Questions
Frequently Asked Questions
What are the main strategic changes Emerson Electric is undertaking?
Emerson Electric is actively repositioning its business portfolio. This includes agreements to sell its Network Power Systems business and its Power Generation, Motors, and Drives businesses, which are now reported as discontinued operations. Concurrently, Emerson is acquiring Pentair's Valves & Controls business for approximately $3.15 billion to bolster its Process Management segment.
How did Emerson Electric perform financially in fiscal year 2016?
In fiscal year 2016, Emerson Electric experienced a decline in net sales, down 11% to $14.5 billion, primarily driven by a 7% decrease in underlying sales. This was influenced by macroeconomic factors like low oil and gas prices and weak industrial spending. Earnings from continuing operations also saw a significant drop of 37% to $1.59 billion, with diluted earnings per share falling to $2.45.
Which business segments were most affected by the 2016 downturn?
The Process Management segment experienced a 12% sales decrease, significantly impacted by reduced spending from oil and gas customers. The Commercial & Residential Solutions segment also saw a notable 16% decline in sales, partly due to a prior year divestiture. The Industrial Automation segment's sales decreased by 15%, also affected by divestitures and market weakness.
What is Emerson Electric's outlook for fiscal year 2017?
Emerson Electric anticipates fiscal year 2017 to remain challenging, particularly for its automation businesses. The company expects consolidated net and underlying sales to decline by 1-3%. Reported earnings per share from continuing operations are projected to be between $2.35 and $2.50, excluding the impact of the pending Pentair acquisition.
06—Continue