10-QPeriod: Q3 FY2008

EMERSON ELECTRIC CO Quarterly Report for Q3 Ended Jun 30, 2008

Filed August 6, 2008For Securities:EMR

Summary

Emerson Electric Co. reported a strong third quarter and first nine months of fiscal year 2008, demonstrating robust sales growth and improved profitability across most segments. Net sales increased by 14% for the third quarter and 12% for the nine-month period, driven by significant international growth and contributions from acquisitions. The company's Process Management, Industrial Automation, and Network Power segments were key growth drivers, benefiting from expanding international gross fixed investment and demand in energy and power markets. Profit margins remained strong, reflecting leverage from increased sales volume, successful cost reduction initiatives, and favorable foreign currency translation, although this was partially offset by higher material and wage costs. The company's financial position remains strong, with increased cash and equivalents and a healthy interest coverage ratio, providing resources for reinvestment and capital management.

Financial Highlights

24 data points
Beta

Revenue

$6.57B

36.7% Gross Margin

Net Income

$612.00M

9.3% Net Margin

EPS (Diluted)

$0.78

Cash & Equivalents

$2.06B

Free Cash Flow

$2.00B

Financial Statements
Beta
Revenue$6.57B
Cost of Revenue$4.16B
Gross Profit$2.41B
SG&A Expenses$1.32B
Operating Income$1.76B
Net Income$612.00M
EPS (Basic)$0.79
EPS (Diluted)$0.78

Key Highlights

  • 1Net sales for the third quarter ended June 30, 2008, increased by 14% to $6.6 billion compared to the prior year, with international sales showing significant growth.
  • 2Earnings from continuing operations for the quarter rose 13% to $647 million, and diluted EPS from continuing operations increased 15% to $0.82.
  • 3Process Management and Network Power segments showed robust sales growth of 18% and 26% respectively in the third quarter, driven by strong demand in key markets.
  • 4The company generated strong operating cash flow of $1.998 billion for the first nine months of fiscal 2008, an increase of $224 million from the prior year.
  • 5Significant acquisitions, including Motorola's Embedded Computing business, contributed to sales growth, particularly in the Network Power segment.
  • 6The company is experiencing challenges in the Appliance and Tools segment, with sales declining due to the downturn in the U.S. residential market, leading to an impairment charge.
  • 7Emerson Electric reaffirmed its outlook for fiscal year 2008, expecting underlying sales growth of approximately 6% and earnings per share from continuing operations between $3.05 and $3.10.

Frequently Asked Questions

The primary drivers of Emerson Electric's sales growth in the third quarter of fiscal 2008 were strong international sales, which increased by 10% on an underlying basis, and contributions from acquisitions. The Process Management, Network Power, and Industrial Automation segments performed particularly well.

Emerson Electric maintained strong profit margins by leveraging increased sales volume and benefiting from previous cost reduction efforts. While higher material and wage costs were present, they were largely offset by higher sales prices and operational efficiencies. Gross profit margins improved to 36.7% in the third quarter from 36.3% in the prior year.

Yes, the Appliance and Tools segment experienced a sales decrease of 1% in the third quarter and 4% for the nine-month period, primarily due to the downturn in the U.S. residential market. This segment also incurred a $9 million impairment charge related to the appliance control business. The company is also actively pursuing the sale of its European appliance motor and pump business, which was classified as discontinued operations and resulted in a significant loss in the current quarter.

Emerson Electric expects underlying sales growth of approximately 6% for fiscal year 2008, excluding currency translation, acquisitions, and divestitures. Reported sales are anticipated to be around $25 billion. The company forecasts earnings per share from continuing operations to be in the range of $3.05 to $3.10, with a return on total capital of approximately 21%.