10-QPeriod: Q1 FY2020

EMERSON ELECTRIC CO Quarterly Report for Q1 Ended Dec 31, 2019

Filed February 5, 2020For Securities:EMR

Summary

Emerson Electric Co. reported flat net sales of $4.15 billion for the three months ended December 31, 2019, a slight increase of $4 million compared to the prior year. However, net earnings for common stockholders saw a significant decline of 30%, falling to $326 million from $465 million in the prior year. This was driven by a 28% decrease in diluted earnings per share to $0.53. The decline in profitability is primarily attributed to increased restructuring costs, special advisory fees, higher stock compensation expenses due to a rising stock price, and increased pension expenses. Despite the earnings drop, the company's financial condition remains stable, with a slight increase in total assets and a manageable debt-to-total capital ratio. Operating cash flow improved significantly, and the company reiterated its positive outlook for free cash flow generation in fiscal year 2020.

Financial Highlights

51 data points
Beta

Revenue

$4.15B

42.4% Gross Margin

Net Income

$326.00M

7.9% Net Margin

EPS (Diluted)

$0.53

Total Assets

$21.10B

Cash & Equivalents

$1.64B

Free Cash Flow

$310.00M

Financial Statements
Beta
Revenue$4.15B
Cost of Revenue$2.39B
Gross Profit$1.76B
SG&A Expenses$1.12B
Net Income$326.00M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)610.00M
Shares Outstanding (Diluted)614.10M

Key Highlights

  • 1Net sales remained flat at $4.15 billion for the quarter ended December 31, 2019, demonstrating resilience in revenue generation.
  • 2Net earnings for common stockholders decreased by 30% to $326 million, impacting profitability.
  • 3Diluted earnings per share declined by 28% to $0.53, signaling a reduction in per-share profitability.
  • 4Significant increases in restructuring costs and special advisory fees, totaling $0.14 per share, negatively impacted earnings.
  • 5Higher stock compensation expenses, driven by a rising stock price, and increased pension costs also contributed to the earnings decline.
  • 6Operating cash flow saw a substantial increase of $101 million to $424 million, indicating strong cash generation from operations.
  • 7Free cash flow improved to $310 million, reflecting both increased operating cash flow and lower capital expenditures.

Frequently Asked Questions

The primary drivers for the decrease in net earnings and diluted earnings per share were higher restructuring costs ($87 million increase), special advisory fees ($13 million), increased stock compensation expense ($63 million due to a rising stock price), and higher pension expenses ($14 million). These factors combined to reduce earnings per share by approximately $0.24.

Automation Solutions saw a 2% increase in sales, driven by growth in Valves, Actuators & Regulators and Process Control Systems & Solutions, despite weaknesses in Measurement & Analytical Instrumentation and Industrial Solutions. Commercial & Residential Solutions experienced a 3% decline in sales, with Climate Technologies down 1% and Tools & Home Products down 6%. Underlying sales were flat overall, with mixed performance across segments and geographies.

Emerson expects a challenging economic environment. Consolidated net and underlying sales are projected to range between down 2% to up 2%. Earnings per share are forecasted to be between $3.27 and $3.52, with adjusted earnings per share (excluding restructuring costs) projected between $3.55 and $3.80. The company anticipates operating cash flow of approximately $3.15 billion and free cash flow of approximately $2.5 billion.

Yes, during the quarter ending December 31, 2019, Emerson purchased approximately 1,956,000 shares under its publicly announced share repurchase programs, averaging $66.09 per share. As of December 31, 2019, approximately 19,984,000 shares remained available for repurchase under authorized plans.