10-QPeriod: Q2 FY2017

EMERSON ELECTRIC CO Quarterly Report for Q2 Ended Mar 31, 2017

Filed May 4, 2017For Securities:EMR

Summary

Emerson Electric Co. (EMR) reported its financial results for the period ending March 31, 2017, showcasing a company undergoing significant strategic repositioning. While net sales remained largely flat year-over-year for the quarter, the company saw improved earnings from continuing operations, driven by the Commercial & Residential Solutions segment. However, significant impacts from discontinued operations, primarily the sales of its network power systems and power generation, motors and drives businesses, led to a notable decline in reported net earnings and EPS. The company's balance sheet reflects the substantial cash inflows from these divestitures, leading to improved working capital and a significantly lower debt-to-capital ratio. Management is focused on integrating recent acquisitions, such as Pentair's valves & controls business, and expects continued improvement in its Automation Solutions segment in the latter half of the fiscal year. Investors should note the divergence between the performance of continuing operations and the reported net results due to the substantial divestiture activities.

Financial Highlights

52 data points
Beta

Revenue

$3.57B

43.6% Gross Margin

Net Income

$292.00M

8.2% Net Margin

EPS (Diluted)

$0.45

Total Assets

$17.28B

Cash & Equivalents

$5.04B

Free Cash Flow

$78.00M

Financial Statements
Beta
Revenue$3.57B
Cost of Revenue$2.02B
Gross Profit$1.56B
SG&A Expenses$868.00M
Operating Income$376.00M
Net Income$292.00M
EPS (Basic)$0.45
EPS (Diluted)$0.45
Shares Outstanding (Basic)643.60M
Shares Outstanding (Diluted)644.80M

Key Highlights

  • 1Net sales for the second quarter were flat year-over-year at $3.57 billion, while the six-month sales decreased by 2% to $6.79 billion, reflecting ongoing portfolio transformation.
  • 2Earnings from continuing operations common stockholders increased by 2% to $376 million for the quarter and 10% to $740 million for the six months, driven by improved performance in Commercial & Residential Solutions.
  • 3Net earnings common stockholders saw a significant decrease of 21% to $292 million for the quarter and 16% to $601 million for the six months, heavily impacted by losses from discontinued operations.
  • 4The company completed the sale of its network power systems business for $4 billion and its power generation, motors and drives business for $1.2 billion, which are now reported as discontinued operations.
  • 5Balance sheet improvements include a substantial increase in cash and equivalents to $5.04 billion and a significant reduction in the total debt-to-total capital ratio to 33.7% from 46.7%, largely due to proceeds from divestitures.
  • 6The company completed the acquisition of Pentair's valves & controls business for $3.15 billion on April 28, 2017, which is expected to complement its Automation Solutions segment.
  • 7Full-year fiscal 2017 guidance projects net sales to be approximately flat, with underlying sales up 1% and earnings per share from continuing operations expected between $2.55 and $2.65.

Frequently Asked Questions

The substantial decrease in net earnings is primarily due to the impact of discontinued operations. Emerson completed the sale of its network power systems and power generation, motors and drives businesses. The losses and costs associated with these divestitures, as well as repatriation of cash, are reflected in net earnings, overshadowing the stable performance of the company's continuing operations.

The company's financial position has significantly strengthened. The proceeds from the sale of businesses have resulted in a large increase in cash and equivalents to over $5 billion. This has also led to a substantial reduction in the debt-to-capital ratio, from 46.7% to 33.7%, and an improvement in the current ratio. This provides the company with considerable financial flexibility.

The Automation Solutions segment experienced a sales decrease of 3% for the quarter and 6% for the six months, primarily due to continued low capital spending in energy-related markets impacted by oil prices. However, the company expects results to improve in the second half of fiscal year 2017, with underlying sales turning positive, driven by maintenance, repair, and operations (MRO) activity and smaller project work. The acquisition of Pentair's valves & controls business is also expected to bolster this segment.

Emerson is actively engaged in a strategic portfolio repositioning to become a more focused enterprise. Key initiatives include divesting non-core businesses (Network Power, Power Generation, Motors & Drives), acquiring complementary businesses (Pentair's Valves & Controls), and driving operational efficiencies across its remaining segments. These actions aim to streamline operations, enhance profitability, and create shareholder value.