Why did GAAP EPS fall 55% while adjusted EPS rose 56%?

The gap reflects acquisition accounting and deal costs tied to NI (now Test & Measurement). GAAP results absorbed $0.36 per share of intangibles amortization, $0.38 of inventory step-up, $0.17 of acquisition/divestiture fees, $0.12 of restructuring, and $0.04 of Copeland losses, partly offset by a $0.10 discrete tax benefit. Adjusted EPS excludes these items, so it better reflects operating performance, though investors should weigh the recurring nature of some of these costs.

How much of the 22% sales growth was organic?

Only about 10 points were underlying growth. Acquisitions contributed roughly 12 points and currency about 1 point. Software and Control sales rose 55% reported but just 9% underlying, while Intelligent Devices grew 11% underlying, with Measurement & Analytical up 28% underlying.

What drove the guidance increase and what does it imply for the rest of the year?

The outlook now reflects a strong start and a higher reported sales range of 14.5%-17.0%, largely from acquisitions adding about 10-10.5 points. Underlying growth of 4.5%-6.5% and adjusted EPS of $5.30-$5.45 are the key organic and profitability markers. Q2 guidance calls for adjusted EPS of $1.22-$1.26 and underlying growth of 3.5%-5.5%, implying a slower second quarter.

What are the main balance sheet and capital allocation implications?

Cash declined to $2.1B from $8.1B after roughly $8.3B of acquisition purchases, and short-term borrowings rose to $3.2B from $0.5B. Emerson plans about $500M of buybacks and $1.2B of dividends in fiscal 2024, so free cash flow of $2.6-$2.7B will be an important source of funding for debt reduction and shareholder returns.

What risks should investors monitor from this report?

Key risks include integration and synergy delivery at Test & Measurement, which posted GAAP losses of $78M in the quarter due to amortization and restructuring, the high level of intangible amortization weighing on GAAP earnings, underlying orders growth of only 4%, and macro factors such as the Russia-Ukraine conflict, currency, tariffs, and demand in discrete markets, where Discrete Automation sales declined 2% underlying.

EMR 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 7, 2024. Cited figures are marked; the original filing is the authoritative source.

Emerson reported first quarter fiscal 2024 results (quarter ended December 31, 2023) with net sales up 22% to $4,117 million^a, though this headline growth is largely inorganic.

Underlying sales grew 10% and underlying orders rose 4%, driven by the NI (now Test & Measurement) acquisition, which contributed roughly 46 points of Software and Control growth. Adjusted EPS rose 56% to $1.22^b, ahead of management's expectations, and adjusted segment EBITA margin expanded 190 bps to 24.6%. GAAP results were much weaker: GAAP EPS fell 55% to $0.25, pretax margin compressed to 3.4% from 12.5%, and pretax earnings dropped to $139 million, driven by a $274 million intangibles amortization charge, $231 million of acquisition-related inventory step-up, $130 million of acquisition/divestiture costs, and a $36 million Copeland equity loss.

Emerson raised its fiscal 2024 outlook: reported net sales growth is now guided to 14.5%-17.0% and underlying sales growth to 4.5%-6.5%, with adjusted EPS guided to $5.30^c-$5.45 and free cash flow to $2.6-$2.7 billion. The company expects to return roughly $500 million through buybacks and about $1.2 billion through dividends. Management highlighted the Test & Measurement segment's strong start and an accelerated synergy plan.

The balance sheet reflects the NI acquisition: cash fell to $2.1 billion^d from $8.1 billion, short-term borrowings rose to $3.2 billion, and goodwill and intangibles increased substantially, leaving investors to monitor leverage and integration execution. For investors, the key takeaways are solid underlying demand and margin expansion on an adjusted basis, a raised adjusted EPS outlook, and the need to look past GAAP noise from purchase accounting. Sustained execution on NI integration, Test & Measurement margins, and conversion of the higher amortization-heavy earnings base into cash will determine whether the guidance is achieved.

02—Key points

Key Highlights

Net sales rose 22% to $4,117M; underlying sales grew 10% and underlying orders grew 4%, with the NI acquisition driving most of the reported increase.
Adjusted EPS rose 56% to $1.22 versus $0.78 a year ago, while GAAP EPS fell 55% to $0.25 due to acquisition-related charges.
Adjusted segment EBITA margin expanded 190 bps to 24.6%; Measurement & Analytical margin reached 27.3% and Test & Measurement adjusted margin reached 26.5%.
GAAP pretax margin fell to 3.4% from 12.5%, pressured by $274M intangibles amortization, $231M inventory step-up, $130M acquisition/divestiture costs, and $83M restructuring.
FY2024 guidance raised: adjusted EPS $5.30-$5.45, underlying sales growth 4.5%-6.5%, reported net sales growth 14.5%-17.0%, and free cash flow $2.6-$2.7B.
Operating cash flow from continuing operations rose 47% to $444M and free cash flow rose 51% to $367M.
Balance sheet shifted materially after the NI acquisition: cash fell to $2.1B from $8.1B, short-term borrowings rose to $3.2B, and other intangible assets increased to $11.3B.

03—Questions

Frequently Asked Questions

Why did GAAP EPS fall 55% while adjusted EPS rose 56%?
The gap reflects acquisition accounting and deal costs tied to NI (now Test & Measurement). GAAP results absorbed $0.36 per share of intangibles amortization, $0.38 of inventory step-up, $0.17 of acquisition/divestiture fees, $0.12 of restructuring, and $0.04 of Copeland losses, partly offset by a $0.10 discrete tax benefit. Adjusted EPS excludes these items, so it better reflects operating performance, though investors should weigh the recurring nature of some of these costs.
How much of the 22% sales growth was organic?
Only about 10 points were underlying growth. Acquisitions contributed roughly 12 points and currency about 1 point. Software and Control sales rose 55% reported but just 9% underlying, while Intelligent Devices grew 11% underlying, with Measurement & Analytical up 28% underlying.
What drove the guidance increase and what does it imply for the rest of the year?
The outlook now reflects a strong start and a higher reported sales range of 14.5%-17.0%, largely from acquisitions adding about 10-10.5 points. Underlying growth of 4.5%-6.5% and adjusted EPS of $5.30-$5.45 are the key organic and profitability markers. Q2 guidance calls for adjusted EPS of $1.22-$1.26 and underlying growth of 3.5%-5.5%, implying a slower second quarter.
What are the main balance sheet and capital allocation implications?
Cash declined to $2.1B from $8.1B after roughly $8.3B of acquisition purchases, and short-term borrowings rose to $3.2B from $0.5B. Emerson plans about $500M of buybacks and $1.2B of dividends in fiscal 2024, so free cash flow of $2.6-$2.7B will be an important source of funding for debt reduction and shareholder returns.
What risks should investors monitor from this report?
Key risks include integration and synergy delivery at Test & Measurement, which posted GAAP losses of $78M in the quarter due to amortization and restructuring, the high level of intangible amortization weighing on GAAP earnings, underlying orders growth of only 4%, and macro factors such as the Russia-Ukraine conflict, currency, tariffs, and demand in discrete markets, where Discrete Automation sales declined 2% underlying.

04—Continue

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