10-QPeriod: Q2 FY2012

EMERSON ELECTRIC CO Quarterly Report for Q2 Ended Mar 31, 2012

Filed May 2, 2012For Securities:EMR

Summary

Emerson Electric Co. reported mixed results for the six months ended March 31, 2012. While net sales saw a slight decrease of 1% to $11.23 billion compared to the prior year, driven by challenges in Network Power and Climate Technologies segments, the Process Management and Commercial & Residential Solutions segments showed growth. Diluted earnings per share also declined by 9% to $1.24. The company experienced increased SG&A expenses due to volume deleverage in certain segments and higher rationalization costs, impacting profitability. However, Emerson is implementing cost reduction measures and expects an improvement in underlying sales growth in the second half of fiscal year 2012, projecting a 3-5% increase. The company also completed two small acquisitions in March 2012, strengthening its presence in power equipment testing and marine controls, while initiating the divestiture of its Knaack business unit.

Financial Highlights

53 data points
Beta

Revenue

$5.92B

39.5% Gross Margin

Net Income

$545.00M

9.2% Net Margin

EPS (Diluted)

$0.74

Total Assets

$24.13B

Cash & Equivalents

$2.15B

Free Cash Flow

$405.00M

Financial Statements
Beta
Revenue$5.92B
Cost of Revenue$3.58B
Gross Profit$2.34B
SG&A Expenses$1.36B
Operating Income$545.00M
Net Income$545.00M
EPS (Basic)$0.74
EPS (Diluted)$0.74
Shares Outstanding (Basic)732.70M
Shares Outstanding (Diluted)736.80M

Key Highlights

  • 1Net sales for the six months ended March 31, 2012, decreased by 1% to $11.23 billion compared to $11.39 billion in the prior year.
  • 2Diluted earnings per share for the six-month period declined by 9% to $1.24, down from $1.36 in the same period last year.
  • 3The Process Management segment showed strong sales growth (6% increase for six months), driven by investments in oil and gas, while Network Power and Climate Technologies segments experienced sales declines (7% and 9% respectively).
  • 4Selling, general, and administrative (SG&A) expenses increased as a percentage of net sales (24.2% vs 23.0% for the six-month period), impacted by volume deleverage and rationalization costs.
  • 5Cash provided by operating activities decreased by $179 million to $896 million, influenced by lower earnings and increased investment in working capital, particularly inventory.
  • 6The company acquired two businesses for $170 million in March 2012 (Avtron Loadbank and a marine controls business) and is divesting its Knaack business unit.
  • 7Emerson reaffirmed its fiscal year 2012 outlook, forecasting underlying sales growth of 3-5% and earnings per share in the range of $3.35 to $3.50.

Frequently Asked Questions

The net sales decrease was primarily driven by significant declines in the Network Power (down 7%) and Climate Technologies (down 9%) segments. This was attributed to weak demand in telecommunications and information technology markets, softness in residential air conditioning, and volume decreases in various product lines. These declines were partially offset by growth in Process Management and Commercial & Residential Solutions.

Profitability saw a decline, with net earnings for common stockholders decreasing by 12% and diluted EPS falling by 9%. Key factors contributing to this were lower sales volumes in several segments leading to deleverage, increased SG&A expenses (rising as a percentage of sales), and higher rationalization expenses. Additionally, the comparative effect of a prior year acquisition gain also impacted year-over-year earnings.

Emerson expects underlying sales growth to improve in the second half of fiscal year 2012, with a full-year forecast of 3-5% growth. However, the company noted that the European and Chinese economies, along with HVAC, telecommunications, and IT end markets, are expected to improve at a slower pace than previously anticipated. The main concerns revolve around macroeconomic uncertainty, particularly in Europe, and mixed performance across its various end markets.

Cash provided by operating activities decreased in the first half of 2012 due to lower earnings and increased investment in working capital, especially inventory. Despite this, the company has a conservative financial structure and expects sufficient funds through operations, existing resources, and debt capacity to meet its needs, including reinvestment, acquisitions, and managing its capital structure. Free cash flow for the first half was $609 million, down from $867 million in the prior year.