10-QPeriod: Q3 FY2015

EMERSON ELECTRIC CO Quarterly Report for Q3 Ended Jun 30, 2015

Filed August 5, 2015For Securities:EMR

Summary

Emerson Electric Co. reported a challenging third quarter for fiscal year 2015, with net sales down 13% year-over-year to $5,503 million, driven by a 5% decrease in underlying sales, a 5% negative impact from foreign currency translation, and a 3% impact from divestitures. This sales decline was attributed to a slowdown in capital spending, particularly in oil and gas markets, the strength of the U.S. dollar, and softer conditions in emerging markets. Net earnings for common stockholders decreased by 23% to $564 million, resulting in diluted earnings per share of $0.84, down 18% from the prior year. The company is actively pursuing strategic actions to streamline its portfolio, including the planned spin-off of its Network Power business and the exploration of strategic alternatives for other business units, aiming to create a more focused company positioned for future growth. Despite the near-term headwinds, Emerson is focused on cost reduction and operational efficiency.

Financial Highlights

53 data points
Beta

Revenue

$4.08B

43.1% Gross Margin

Net Income

$564.00M

13.8% Net Margin

EPS (Diluted)

$0.84

Total Assets

$23.46B

Cash & Equivalents

$3.39B

Free Cash Flow

$342.00M

Financial Statements
Beta
Revenue$4.08B
Cost of Revenue$3.27B
Gross Profit$1.76B
SG&A Expenses$1.28B
Operating Income$502.00M
Net Income$564.00M
EPS (Basic)$0.84
EPS (Diluted)$0.84
Shares Outstanding (Basic)665.70M
Shares Outstanding (Diluted)668.90M

Key Highlights

  • 1Net sales declined 13% to $5.5 billion for the third quarter due to lower volume, unfavorable currency, and divestitures.
  • 2Net earnings for common stockholders fell 23% to $564 million, with diluted EPS down 18% to $0.84.
  • 3The company announced plans to spin off its Network Power business and explore strategic alternatives for other units to streamline its portfolio.
  • 4Underlying sales decreased across key segments like Process Management (-4%), Industrial Automation (-5%), and Network Power (-11%) due to challenging market conditions, particularly in oil and gas.
  • 5Gross profit margin decreased to 40.6% from 41.8% due to deleverage on lower volume and unfavorable mix.
  • 6The company's financial position remains conservative, with a stated ability to meet funding requirements through various means.
  • 7Emerson reported a significant gain of $932 million pretax ($528 million after-tax) from the sale of its power transmission solutions business in January 2015.

Frequently Asked Questions

The primary drivers for the sales decline were a general slowdown in capital spending, particularly in oil and gas markets, the strength of the U.S. dollar negatively impacting international sales, weaker performance in emerging markets, and the impact of recent divestitures.

Emerson is actively streamlining its portfolio by planning to spin off its Network Power business into a separate, publicly traded company and is exploring strategic alternatives, including potential sales, for its motors and drives, power generation, and storage businesses. These actions are intended to create a smaller, more focused company better positioned for future growth.

The sale of the power transmission solutions business on January 30, 2015, resulted in a significant pretax gain of $932 million ($528 million after-tax), which positively impacted the reported earnings for the nine-month period. However, the divestiture also contributed to the year-over-year decrease in net sales for the period.

Emerson anticipates continued difficult market conditions with headwinds from lower oil prices, a strong U.S. dollar, and broad industrial spending slowdowns. The company expects full-year net sales to decline approximately 9% and reported earnings per share to be in the range of $3.97 to $4.07, which includes the gain from the power transmission solutions divestiture.