10-QPeriod: Q2 FY2015

EMERSON ELECTRIC CO Quarterly Report for Q2 Ended Mar 31, 2015

Filed May 6, 2015For Securities:EMR

Summary

Emerson Electric Co. (EMR) reported its second-quarter and year-to-date results for the period ending March 31, 2015. The company experienced a notable increase in net earnings driven by a significant gain from the divestiture of its power transmission solutions business, which contributed $932 million pre-tax ($528 million after-tax, or $0.77 per share). Excluding this one-time gain, net earnings and earnings per share saw a decline compared to the prior year, reflecting challenging macroeconomic conditions. Sales for the quarter were down 7% year-over-year, impacted by a strong U.S. dollar, divestitures, and a slowdown in short-cycle industrial spending, particularly in energy-related markets. Despite the top-line challenges and a dip in gross profit margin, the company maintained its focus on cost containment and strategic initiatives. Management provided a cautious outlook for the remainder of fiscal year 2015, anticipating continued headwinds, but emphasized efforts to align costs with sales and position the company for future profit growth.

Financial Highlights

52 data points
Beta

Revenue

$3.93B

42.9% Gross Margin

Net Income

$973.00M

24.7% Net Margin

EPS (Diluted)

$1.42

Total Assets

$22.97B

Cash & Equivalents

$3.26B

Free Cash Flow

$206.00M

Financial Statements
Beta
Revenue$3.93B
Cost of Revenue$3.23B
Gross Profit$1.69B
SG&A Expenses$1.32B
Operating Income$936.00M
Net Income$973.00M
EPS (Basic)$1.42
EPS (Diluted)$1.42
Shares Outstanding (Basic)680.90M
Shares Outstanding (Diluted)684.10M

Key Highlights

  • 1Net earnings for the quarter significantly increased to $973 million, primarily due to a $932 million pre-tax gain from the divestiture of the power transmission solutions business.
  • 2Excluding the divestiture gain, net earnings decreased by 19% year-over-year, indicating underlying operational pressures.
  • 3Total net sales for the quarter decreased by 7% to $5.4 billion, influenced by a 5% negative impact from foreign currency translation and a 2% reduction from divestitures.
  • 4Underlying sales (excluding currency and divestitures) were flat for the quarter, but declined in key segments like Industrial Automation and Network Power.
  • 5Gross profit margin declined to 40.1% from 41.2% in the prior year, attributed to unfavorable mix, a stronger dollar, and deleverage in certain businesses.
  • 6The company repurchased approximately $15 million worth of common stock during January, February, and March 2015.
  • 7Management expects full-year 2015 net sales to decline between 5% and 7%, with underlying sales growth projected between 0% and 2%.

Frequently Asked Questions

The primary driver of the significant increase in net earnings was the gain of $932 million ($528 million after-tax, or $0.77 per share) from the divestiture of Emerson's power transmission solutions business, which was completed on January 30, 2015.

Excluding the impact of foreign currency translation (which had a 5% negative impact) and divestitures (which reduced sales by 2%), Emerson's underlying sales were flat for the second quarter compared to the prior year. However, performance varied by segment, with some experiencing declines.

Emerson anticipates a challenging macroeconomic environment for the rest of fiscal 2015, citing headwinds from lower oil prices, a strong U.S. dollar, and a slowdown in industrial spending. The company now expects full-year net sales to decline between 5% and 7%, with underlying sales growth projected between 0% and 2%. Efforts will focus on aligning costs with sales to improve margins and prepare for profit growth in 2016.

The divestiture resulted in a substantial pre-tax gain of $932 million ($528 million after-tax) which significantly boosted net earnings for the period. It also reduced net sales by 2% and impacted segment reporting, primarily within the Industrial Automation segment. The after-tax proceeds of approximately $1 billion were earmarked for share repurchase.