10-QPeriod: Q3 FY2004

EMERSON ELECTRIC CO Quarterly Report for Q3 Ended Jun 30, 2004

Filed August 12, 2004For Securities:EMR

Summary

Emerson Electric Co. reported strong results for the third quarter and the first nine months of fiscal year 2004, demonstrating robust sales growth across all segments. Net sales increased by 13% for the quarter and 12% for the nine-month period, driven by both domestic recovery and international demand, particularly in Asia and Latin America. Profit margins improved due to higher sales volume, benefits from prior rationalization efforts, and favorable currency exchange rates, though these were partially offset by pricing pressures and higher wage costs. The company's financial position remains strong, with a notable reduction in total debt to total capital to 36.5% and an increase in cash and equivalents. Free cash flow saw a significant increase of 86% for the nine-month period. Looking ahead, Emerson anticipates continued solid sales and earnings growth, projecting fiscal year 2004 earnings per share of approximately $2.90.

Key Highlights

  • 1Net sales increased by 13% to $4.04 billion for the three months ended June 30, 2004, compared to $3.57 billion in the prior year period.
  • 2Earnings from continuing operations for the three months increased by 23% to $341 million ($0.81 per share), up from $278 million ($0.66 per share) in the prior year.
  • 3All five business segments—Process Control, Industrial Automation, Electronics and Telecommunications, HVAC, and Appliance and Tools—reported sales growth.
  • 4The company reduced its total debt to total capital ratio to 36.5% from 41.9% year-over-year.
  • 5Cash and equivalents increased significantly, with cash flow from operating activities rising by 67% to $1.49 billion for the nine months ended June 30, 2004.
  • 6Emerson raised its full-year fiscal 2004 earnings per share guidance to approximately $2.90.
  • 7The company announced an agreement to acquire Marconi Corporation PLC's outside plant and power systems business for $375 million in cash.

Frequently Asked Questions

Sales growth was driven by a combination of recovering domestic markets, particularly in HVAC and appliance/tools businesses, and strong international demand, with significant growth observed in Asia and Latin America across various segments like process control, industrial automation, and electronics/telecommunications. Underlying sales growth was estimated at 11% for the quarter and 9% for the nine-month period.

Profitability improved, with gross profit margin increasing slightly and earnings from continuing operations showing significant growth. This improvement was largely attributed to higher sales volumes leading to better leverage, benefits realized from prior rationalization and cost reduction efforts, and favorable currency exchange rates. However, these positive factors were partially offset by competitive pricing pressures and increases in wages and benefits, including pension costs.

Emerson provided a positive outlook, expecting continued solid sales and earnings growth. The company raised its fiscal year 2004 earnings per share guidance to approximately $2.90, with estimated rationalization expense around $125 million. Operating cash flow and capital expenditures were also projected at $2 billion and $0.4 billion, respectively.

Yes, Emerson's financial health appears strong. The company reduced its total debt to total capital ratio and net debt to net capital ratio. Cash and equivalents saw a substantial increase, and free cash flow grew significantly by 86% for the nine-month period. The company also maintains strong credit ratings and has renewed credit lines to ensure financial flexibility.