10-QPeriod: Q2 FY2019

EMERSON ELECTRIC CO Quarterly Report for Q2 Ended Mar 31, 2019

Filed May 9, 2019For Securities:EMR

Summary

Emerson Electric Co. (EMR) reported strong financial results for the six months ended March 31, 2019, demonstrating growth driven by both organic sales increases and strategic acquisitions. Net sales increased by 8% year-over-year, reaching $8.7 billion, with underlying sales (excluding currency fluctuations and M&A) up 4%. This growth was primarily fueled by the Automation Solutions segment, which saw a 9% sales increase, driven by demand in energy-related and industrial markets, and bolstered by recent acquisitions like GE's Intelligent Platforms business. The Commercial & Residential Solutions segment also grew, albeit at a slower pace, primarily due to the acquisition of Textron's tools and test equipment business, though performance was impacted by softer conditions in certain regions and product lines. Profitability metrics showed positive movement, with net earnings attributable to common stockholders rising 13% to $985 million for the first six months. Diluted earnings per share (EPS) increased by 15% to $1.58. The company's financial condition remains robust, with a continued focus on cash deployment through dividends, share repurchases, and strategic investments. Despite an increase in debt-to-capital ratios, largely due to financing share repurchases, the company maintains a strong interest coverage ratio, indicating continued financial flexibility and the ability to fund its strategic objectives.

Financial Highlights

53 data points
Beta

Revenue

$4.57B

42.1% Gross Margin

Net Income

$520.00M

11.4% Net Margin

EPS (Diluted)

$0.84

Total Assets

$21.07B

Cash & Equivalents

$1.38B

Free Cash Flow

$414.00M

Financial Statements
Beta
Revenue$4.57B
Cost of Revenue$2.65B
Gross Profit$1.93B
SG&A Expenses$1.15B
Net Income$520.00M
EPS (Basic)$0.85
EPS (Diluted)$0.84
Shares Outstanding (Basic)614.00M
Shares Outstanding (Diluted)618.10M

Key Highlights

  • 1Total net sales increased by 8% to $8.7 billion for the six months ended March 31, 2019, compared to the prior year.
  • 2Underlying sales, excluding currency effects and acquisitions/divestitures, grew by 4%, indicating solid organic demand.
  • 3Automation Solutions segment revenue rose 9% to $5.8 billion, driven by broad demand and strategic acquisitions.
  • 4Net earnings attributable to common stockholders increased by 13% to $985 million for the six-month period.
  • 5Diluted earnings per share (EPS) saw a significant increase of 15% to $1.58 for the six months ended March 31, 2019.
  • 6The company completed several strategic acquisitions, including GE's Intelligent Platforms business within Automation Solutions and Textron's tools and test equipment business within Commercial & Residential Solutions.
  • 7Total debt-to-total capital ratio increased to 42.6% as of March 31, 2019, up from 34.7% at September 30, 2018, primarily due to increased borrowings to fund share repurchases.

Frequently Asked Questions

Emerson's sales growth was driven by a combination of underlying organic sales increases and strategic acquisitions. Underlying sales, which exclude the impact of foreign currency translation and M&A activity, increased by 4% due to higher volume and slightly higher prices across various global markets. The Automation Solutions segment, in particular, benefited from broad-based global demand in energy-related and general industrial markets, as well as the integration of acquired businesses like GE's Intelligent Platforms. The Commercial & Residential Solutions segment also contributed to growth, largely due to the acquisition of Textron's tools and test equipment business, although certain sub-segments faced softer demand.

Profitability improved significantly, with net earnings attributable to common stockholders increasing by 13% to $985 million for the six months ended March 31, 2019. Diluted earnings per share (EPS) rose by 15% to $1.58. This improvement was supported by higher sales volumes, favorable pricing, and the integration of acquisitions. Additionally, lower acquisition/divestiture-related costs, favorable pension impacts, and a reduction in effective tax rate due to the Tax Cuts and Jobs Act also contributed positively to earnings.

Emerson projects continued growth for the remainder of fiscal year 2019. They anticipate modest improvement in the second half of the year, supported by a strong macroeconomic backdrop for energy investments and a recovery in the Commercial & Residential Solutions Asia business. For the full year, consolidated net sales are expected to increase by 7% to 8.5%, with underlying sales up 4% to 5.5%. Reported EPS is forecasted to be between $3.60 and $3.70. The company also expects strong operating cash flow of approximately $3.2 billion and free cash flow of approximately $2.5 billion.

The company's debt-to-capital ratios increased in the first six months of fiscal 2019. The total debt-to-total capital ratio rose to 42.6% from 34.7%, and net debt-to-net capital increased to 36.7% from 29.1%. This increase is primarily attributed to higher short-term borrowings used to fund accelerated share repurchases. Despite the increased leverage, the interest coverage ratio remained strong at 13.3X, indicating the company's continued ability to service its debt obligations.