10-QPeriod: Q1 FY2017

EMERSON ELECTRIC CO Quarterly Report for Q1 Ended Dec 31, 2016

Filed February 8, 2017For Securities:EMR

Summary

Emerson Electric Co. reported its financial results for the quarter ended December 31, 2016. The company experienced a 4% decline in net sales, primarily driven by a 9% decrease in its Automation Solutions segment, which was impacted by lower capital spending in energy-related markets. Conversely, the Commercial & Residential Solutions segment saw a 6% increase in sales, benefiting from favorable conditions in HVAC, refrigeration, and construction markets. Despite lower sales, earnings from continuing operations saw a significant 20% increase, reaching $364 million, with diluted EPS from continuing operations rising to $0.56. This improvement was supported by cost reduction initiatives and a favorable tax benefit. However, net earnings decreased by 12% to $309 million, largely due to the impact of discontinued operations, which included a net loss of $55 million for the quarter. The company also completed the sale of its Network Power business and expects to complete the acquisition of Pentair's Valves & Controls business. Emerson is strategically repositioning its portfolio, focusing on its core platforms. The company's financial position has been strengthened by the proceeds from asset sales, providing flexibility for future investments and acquisitions. The outlook for fiscal year 2017 anticipates continued challenges but also points to improving market conditions in the latter half of the year.

Financial Highlights

52 data points
Beta

Revenue

$3.22B

42.4% Gross Margin

Net Income

$309.00M

9.6% Net Margin

EPS (Diluted)

$0.48

Total Assets

$17.47B

Cash & Equivalents

$4.15B

Free Cash Flow

$138.00M

Financial Statements
Beta
Revenue$3.22B
Cost of Revenue$1.85B
Gross Profit$1.36B
SG&A Expenses$822.00M
Operating Income$364.00M
Net Income$309.00M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)642.80M
Shares Outstanding (Diluted)644.30M

Key Highlights

  • 1Net sales decreased by 4% to $3,216 million, primarily due to a 9% decline in the Automation Solutions segment, impacted by lower energy market spending.
  • 2Commercial & Residential Solutions segment sales increased by 6% to $1,252 million, driven by growth in Climate Technologies.
  • 3Earnings from continuing operations common stockholders increased by 20% to $364 million, with diluted EPS from continuing operations rising 22% to $0.56.
  • 4Net earnings common stockholders decreased by 12% to $309 million, largely influenced by a $55 million loss from discontinued operations.
  • 5The company completed the sale of its Network Power business for $4 billion and its Power Generation, Motors and Drives business for $1.2 billion, reclassifying them as discontinued operations.
  • 6Emerson expects to close the acquisition of Pentair's Valves & Controls business for $3.15 billion, which is expected to complement its Automation Solutions segment.
  • 7The effective tax rate decreased to 20% from 29% due to a significant $47 million tax benefit from restructuring a foreign subsidiary.

Frequently Asked Questions

The primary driver for the sales decline was a 9% decrease in the Automation Solutions segment. This was attributed to lower capital spending in energy-related and general industrial markets, influenced by low oil prices and excess supply. Foreign currency translation also had an unfavorable impact.

Discontinued operations had a significant negative impact on net earnings. The company reported a net loss of $55 million from discontinued operations in the quarter, which included operational losses, a write-down for one divested business, and substantial income tax expenses related to the repatriation of sales proceeds. This contributed to the 12% decrease in net earnings common stockholders.

Emerson anticipates full-year fiscal 2017 net sales to be down 1-3%, with underlying sales flat to down 2%. Earnings per share from continuing operations are projected between $2.47 and $2.62. While challenges are expected to persist, the company anticipates improving market conditions, particularly in the second half of the year, driven by its core platforms.

The proceeds from the divestitures, notably the $4 billion from the Network Power business sale, are being used to fund strategic initiatives, including the planned acquisition of Pentair's Valves & Controls business. This acquisition is expected to strengthen the Automation Solutions segment.