10-QPeriod: Q3 FY2020

EMERSON ELECTRIC CO Quarterly Report for Q3 Ended Jun 30, 2020

Filed August 5, 2020For Securities:EMR

Summary

Emerson Electric Co. reported its fiscal third quarter and nine-month results for the period ending June 30, 2020. The company experienced a significant decline in net sales and net earnings, largely attributed to the global impact of the COVID-19 pandemic, which affected demand across most of its end markets and geographies. While sales and profitability were down year-over-year for both the quarter and the nine-month period, the company has implemented cost-saving measures, including restructuring and expense reductions, to mitigate the impact and improve operating margins. Despite the challenging environment, Emerson maintained a strong liquidity position, evidenced by an increase in cash and equivalents and a conservative financial structure. The company also provided an outlook for the full fiscal year 2020, anticipating continued demand challenges but expecting a steadily improving environment in the fourth quarter, with specific guidance on sales, earnings per share, operating cash flow, and free cash flow. Emerson's focus remains on employee safety, customer service, and navigating the ongoing economic uncertainties.

Financial Highlights

52 data points
Beta

Revenue

$3.91B

41.3% Gross Margin

Net Income

$399.00M

10.2% Net Margin

EPS (Diluted)

$0.67

Total Assets

$21.73B

Cash & Equivalents

$2.45B

Free Cash Flow

$738.00M

Financial Statements
Beta
Revenue$3.91B
Cost of Revenue$2.30B
Gross Profit$1.62B
SG&A Expenses$934.00M
Net Income$399.00M
EPS (Basic)$0.67
EPS (Diluted)$0.67
Shares Outstanding (Basic)596.90M
Shares Outstanding (Diluted)600.00M

Key Highlights

  • 1Net sales for the third quarter of fiscal 2020 decreased by 16% to $3.9 billion compared to the prior year, primarily due to the impact of COVID-19 on global demand.
  • 2Net earnings attributable to common stockholders for the third quarter fell 34% to $399 million, resulting in diluted earnings per share of $0.67, down from $0.97 in the prior year.
  • 3The company reported increased restructuring costs, totaling $216 million for the nine months ended June 30, 2020, as part of ongoing efforts to improve operational efficiency.
  • 4Despite the sales decline, cash provided by operating activities for the nine months increased slightly to $1.9 billion, and free cash flow rose to $1.5 billion.
  • 5Emerson issued $1.5 billion in long-term debt in April 2020 to further manage liquidity and balance sheet, increasing its cash holdings to $2.5 billion as of June 30, 2020.
  • 6The Automation Solutions segment saw a 14% sales decrease in the third quarter, heavily impacted by industrial weakness, while the Commercial & Residential Solutions segment experienced a 20% sales decline.
  • 7The company anticipates full-year fiscal 2020 net sales to be down 9% to 10%, with diluted earnings per share projected between $2.80 and $2.95.

Frequently Asked Questions

COVID-19 had a substantial negative impact, leading to a 16% decrease in net sales for the third quarter to $3.9 billion, and a 34% drop in net earnings to $399 million. This was due to reduced demand across most of Emerson's end markets and geographies, particularly in North America.

Emerson is implementing significant cost-saving initiatives, including ongoing restructuring and cost reset actions aimed at improving operating margins. This involves workforce reductions, curtailed travel, hiring freezes, and other discretionary spending controls. Restructuring costs for the nine months reached $216 million.

Emerson maintains a strong liquidity position. Cash and equivalents increased to $2.5 billion as of June 30, 2020. The company issued $1.5 billion in long-term debt in April 2020 to bolster liquidity. While total debt-to-total capital increased to 48.0% and net debt-to-net capital to 37.9%, the interest coverage ratio remained robust at 12.9X, indicating a solid ability to service its debt.

Emerson expects continued challenges but anticipates a steadily improving demand environment in the fourth quarter. Full-year fiscal 2020 net sales are projected to be down 9% to 10%, with underlying sales down 7.5% to 9%. Diluted earnings per share are forecasted to be between $2.80 and $2.95. The company also expects operating cash flow of approximately $2.8 billion and free cash flow of approximately $2.25 billion.