10-QPeriod: Q3 FY2013

EMERSON ELECTRIC CO Quarterly Report for Q3 Ended Jun 30, 2013

Filed August 7, 2013For Securities:EMR

Summary

Emerson Electric Co. reported its third-quarter and nine-month results for fiscal year 2013, ending June 30, 2013. For the third quarter, net sales decreased by 2% to $6.3 billion, primarily impacted by challenging global macroeconomic trends and sluggish business environments. Net earnings for common stockholders significantly declined by 75% to $194 million, or $0.27 per diluted share, largely due to a substantial non-cash goodwill impairment charge of $503 million related to the embedded computing and power business. Excluding this charge, adjusted net earnings were $702 million, down 9% from the prior year. The nine-month period showed a 1% increase in net sales to $17.9 billion, but net earnings common stockholders decreased by 28% to $1.21 billion, or $1.66 per diluted share, also heavily influenced by the aforementioned goodwill impairment. Operationally, the company experienced mixed segment performance. Process Management and Climate Technologies saw modest sales growth for the nine-month period, while Industrial Automation and Network Power faced declines due to weak end markets, particularly in Europe. The company is in the process of selling a 51% controlling interest in its embedded computing and power business, expecting to close the transaction within three to six months, with proceeds intended for share repurchases. Despite the near-term headwinds, Emerson maintained a positive outlook for improving business investment and projected modest growth in various end markets for the remainder of fiscal 2013, targeting operating cash flow of approximately $3.4 billion.

Financial Highlights

53 data points
Beta

Revenue

$6.34B

40.5% Gross Margin

Net Income

$194.00M

3.1% Net Margin

EPS (Diluted)

$0.27

Total Assets

$23.51B

Cash & Equivalents

$2.81B

Free Cash Flow

$850.00M

Financial Statements
Beta
Revenue$6.34B
Cost of Revenue$3.78B
Gross Profit$2.57B
SG&A Expenses$1.40B
Operating Income$194.00M
Net Income$194.00M
EPS (Basic)$0.27
EPS (Diluted)$0.27
Shares Outstanding (Basic)716.90M
Shares Outstanding (Diluted)722.20M

Key Highlights

  • 1Third-quarter net sales decreased by 2% to $6.34 billion compared to the prior year, reflecting a challenging global business environment.
  • 2Significant goodwill impairment charge of $503 million recognized in the third quarter, primarily impacting the Network Power segment's embedded computing and power business.
  • 3Net earnings for common stockholders in Q3 declined sharply by 75% to $194 million ($0.27/share), heavily affected by the $503 million goodwill impairment charge.
  • 4For the first nine months of fiscal 2013, net sales increased 1% to $17.86 billion, while net earnings common stockholders decreased 28% to $1.21 billion ($1.66/share).
  • 5The company is proceeding with the sale of a 51% controlling interest in its embedded computing and power business, expected to close within 3-6 months.
  • 6Operating cash flow for the nine-month period increased by 23% to $2.15 billion, supporting capital expenditures, dividends, and share repurchases.
  • 7Despite the charges, underlying sales growth was positive for the nine months, driven by Process Management and Climate Technologies, while Industrial Automation and Network Power faced headwinds.

Frequently Asked Questions

The primary reason for the significant drop in net earnings was a non-cash goodwill impairment charge of $503 million related to the embedded computing and power business. This charge, coupled with related tax impacts, reduced net earnings common stockholders by $508 million after-tax.

Emerson Electric has entered into an agreement to sell a 51% controlling interest in its embedded computing and power business. The transaction is expected to close in three to six months, and the proceeds will be used for share repurchases. The company will retain a noncontrolling interest and will account for it on the equity basis after the transaction closes.

Emerson expects reported and underlying sales growth for the full fiscal year 2013 to be approximately 1%. This outlook is based on improving orders activity, with solid demand in energy end markets, and a resumption of growth in residential air conditioning and refrigeration. However, industrial goods end markets are expected to remain slow, especially in Europe.

For the first nine months of 2013, the interest coverage ratio decreased to 12.6X from 13.9X in the prior year, impacted by lower earnings due to the non-cash charges. The total debt-to-total capital ratio slightly increased to 35.4% from 34.0%, while net debt-to-net capital decreased slightly to 21.3% from 22.1%. Working capital increased, and the current ratio improved slightly from 1.4 to 1.5.