10-QPeriod: Q2 FY2009

EMERSON ELECTRIC CO Quarterly Report for Q2 Ended Mar 31, 2009

Filed May 5, 2009For Securities:EMR

Summary

Emerson Electric Co. (EMR) reported a challenging second quarter and first six months of fiscal year 2009, reflecting the significant global economic downturn. Net sales for the three months ended March 31, 2009, decreased by 16% to $5,087 million, and for the six months, sales fell by 9% to $10,502 million. This decline was primarily driven by reduced underlying sales across most segments, particularly in Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools, impacted by decreased business investment and consumer spending. Unfavorable foreign currency translation also negatively affected results. Despite the revenue decline, the company demonstrated resilience through cost reduction efforts and strategic acquisitions. The company maintained a strong financial position with robust operating cash flow, although net cash did decrease by $270 million in the first six months of 2009. Management anticipates continued economic weakness for the remainder of the fiscal year but forecasts 2009 earnings per share between $2.40 and $2.60. The company also made strategic acquisitions, including Roxar ASA, Trident Power, and System Plast S.p.A., to bolster its portfolio.

Financial Highlights

27 data points
Beta

Revenue

$4.88B

37.0% Gross Margin

Net Income

$373.00M

7.6% Net Margin

EPS (Diluted)

$0.49

Cash & Equivalents

$1.51B

Free Cash Flow

$359.00M

Financial Statements
Beta
Revenue$4.88B
Cost of Revenue$3.25B
Gross Profit$1.80B
SG&A Expenses$1.12B
Operating Income$372.00M
Net Income$373.00M
EPS (Basic)$0.50
EPS (Diluted)$0.49

Key Highlights

  • 1Net sales declined significantly, down 16% for the quarter and 9% year-to-date, reflecting the challenging economic environment.
  • 2Earnings per share (EPS) also saw a substantial decrease, with diluted EPS falling to $0.49 for the quarter and $1.09 for the six months, down from $0.69 and $1.40 respectively in the prior year.
  • 3Operating cash flow decreased to $818 million for the six months ended March 31, 2009, from $1,171 million in the prior year, impacting overall cash generation.
  • 4The company is undertaking rationalization efforts, with $107 million in expenses for the six months, impacting "Other deductions, net" which increased significantly.
  • 5Despite the downturn, Emerson made several strategic acquisitions, including Roxar ASA, Trident Power, and System Plast S.p.A., indicating a focus on long-term growth.
  • 6The balance sheet shows a decrease in cash and equivalents to $1,507 million from $1,777 million, and an increase in total debt to total capital ratio to 39.8% from 33.1%.
  • 7The company provided an outlook for fiscal year 2009, forecasting sales between $21.0 billion and $21.7 billion and earnings per share in the range of $2.40 to $2.60.

Frequently Asked Questions

The primary driver was the challenging global economic environment, characterized by significant declines in gross domestic product, business investment, consumer spending, and construction. This led to reduced demand across most of Emerson's business segments, particularly in Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools. Unfavorable foreign currency translation also contributed to the sales decline.

Emerson implemented cost reduction efforts and productivity improvements across its businesses. They also incurred rationalization expenses related to operational efficiency improvements and global expansion. Selling, General, and Administrative (SG&A) expenses decreased in absolute terms due to lower sales volume and cost reductions, though they increased as a percentage of sales due to sales deleverage.

Emerson anticipates continued economic weakness for the remainder of the year. However, they forecast reported sales in the range of $21.0 billion to $21.7 billion and earnings per share between $2.40 and $2.60 for the full fiscal year 2009. Operating cash flow is estimated to be between $3.1 billion and $3.3 billion.

Emerson completed several strategic acquisitions during the period, including Roxar ASA, Trident Power, and System Plast S.p.A. These acquisitions are expected to contribute positively to future growth and were reported in the Process Management and Industrial Automation segments. While they had a modest positive impact on sales for the six-month period, they also contributed to increased debt levels.