PRESS RELEASE
Published on May 6, 2008
Exhibit 99.1
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For immediate release |
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Contact: Mark Polzin (314) 982-1758 |
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or John Hastings (314) 982-8622 |
EMERSON REPORTS STRONG SECOND-QUARTER 2008 RESULTS
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Sales increased 12 percent to $6.0 billion |
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Earnings per share from continuing operations rose 23 percent to $0.75; Reported earnings per share up 13 percent to $0.69 |
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Strong operating cash flow of $748 million increased 37 percent |
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Full year guidance for earnings per share from continuing operations raised to $3.00 to $3.10 |
ST. LOUIS, May 6, 2008 Emerson (NYSE: EMR) announced net sales for the second quarter ended March 31, 2008 of $6.0 billion, an increase of 12 percent compared with $5.4 billion in the prior year. Earnings from continuing operations in the second quarter increased 21 percent to $598 million, or $0.75 per share. This represents an increase of 23 percent in earnings per share from the $0.61 earned in the same period last year. Results for the quarter include a $52 million impairment charge relating to Emersons intent to sell its European appliance motor and pump business within the next twelve months. This business was previously reported in the Appliance and Tools segment and its financial results for 2007 and 2008 have been reclassified as discontinued operations. Impact of the charge is a negative $0.06 per share, resulting in net earnings per share for the second quarter of $0.69 per share, up 13 percent.
Underlying sales increased 6 percent in the quarter, which excludes the impact of favorable foreign currency exchange rates (4 percent) and impact from acquisitions, net of divestitures (2 percent). Strong international results led the growth, where sales increased by 10 percent on an underlying basis. Regional underlying sales growth
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included increases of 18 percent in both Asia and Latin America and 19 percent in Middle East/Africa. As expected, underlying sales in the United States softened and were up approximately 1 percent.
Emersons strong performance for the second quarter and first half of 2008 clearly demonstrates our continued ability to execute, even in a tougher economic environment, said Chairman, Chief Executive Officer and President David N. Farr. Our focus hasnt changed. We continue to invest in technology leadership, stronger business platforms, a broader global position and greater operational efficiency to create significant value for our shareholders.
Operating profit margin for the second quarter improved 100 basis points to 16.4 percent from 15.4 percent in the prior year period. The operating margin improvement was driven mainly by cost containment programs, volume leverage and hedging gains. The profit margin improvement included a mark-to-market benefit of $30 million relating to commodity hedging. Pretax earnings margin increased 90 basis points to 14.5 percent.
Segment Highlights
Process Management continued to demonstrate strong global performance with reported sales increasing 19 percent in the quarter. Underlying sales grew 16 percent, led by strength in global energy sectors and continued project wins in a range of industries. Reported sales included a favorable 5 percent impact from currency and a negative 2 percent impact from divestitures, net of an acquisition. During the quarter, major project awards were announced to digitally automate the smelter expansion for the largest copper producer in China as well as new power plants in the United States. The margin for this segment expanded by 20 basis points to 17.9 percent. Continued investment was made for long-term global growth and increasing new product efforts.
Industrial Automation revenues increased 11 percent in the quarter with 5 percent underlying sales growth and favorable currency translation of 6 percent. Sales growth was balanced geographically, with underlying growth in the United States
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at 4 percent and international at 5 percent. The profit margin for this segment increased 20 basis points to 14.5 percent from the prior year quarter.
Network Power sales grew 27 percent in the quarter, which included underlying sales growth of 11 percent, a favorable impact of 12 percent from acquisitions, and 4 percent from currency translation. The core uninterruptible power supply (UPS), precision cooling and China power systems businesses led the growth. The margin for this segment was flat at 12.3 percent versus the same quarter last year. Cost containment programs and volume leverage were offset by margin dilution from the Motorola Embedded Communications Computing acquisition.
Climate Technologies sales increased 1 percent in the second quarter. Underlying sales decreased 2 percent with weakness in the United States and Europe offsetting strength in Asia. Reported sales included 3 percent favorable currency translation. The margin for this segment declined 10 basis points to 14.9 percent compared to the same prior year quarter due to material pressures and a more challenging U.S. residential market.
Appliance and Tools sales decreased 6 percent in the quarter. Underlying sales decreased 6 percent, with currency translation adding 1 percent and divestitures subtracting 1 percent. Weakness in consumer spending and residential investment continued to contribute to the negative underlying sales growth. Profitability for this segment improved by 140 basis points to 14.6 percent due primarily to benefits resulting from restructuring undertaken in the last two years, cost containment programs and effective management of the price/cost exposure.
Balance Sheet / Cash Flow
Strong operating cash flow of $748 million in the second quarter of 2008 represented a 37 percent increase from the second quarter 2007 driven by higher operating earnings and improved asset management. Free cash flow (operating cash flow less capital expenditures) was $569 million, an increase of 45 percent compared to $393 million in the prior year quarter. The capital expenditure target for the year remains unchanged at $0.8 billion.
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Great execution by our operational management allowed Emerson to deliver a strong quarter in terms of cash generation. Operating cash flow is key to a strong future, allowing us to invest for growth through technology and geographic expansion, as well as maintain our focus on returning a significant portion of cash to shareholders through dividends and share repurchase, Farr said. Based on our strong performance in the first half of 2008, we still expect operating cash flow of approximately $3.2 billion and a 21 percent return on total capital (ROTC) for the full fiscal year.
The companys commitment to returning cash to shareholders is shown by its record of 51 consecutive years of dividend increases and by an active share repurchase program. As of the end of March 2008, the company had purchased 74.4 million of the 80 million shares authorized by the board of directors in 2001 (as adjusted for Emersons December 2006 two-for-one stock split). Management is recommending to the board today the authorization to repurchase an additional 80 million shares which is expected to be completed over the next four to five years, subject to market conditions and other investment opportunities.
2008 Outlook
Based on the strong first half results of fiscal 2008 and the favorable order trends, Emerson has increased the earnings per share outlook for the year. The company now expects earnings per share from continuing operations in the range of $3.00-$3.10. Emerson still expects full year underlying sales growth in the range of 5 to 7 percent and reported sales of approximately $25 billion, an increase of 11 to 13 percent over fiscal year 2007 sales of $22.1 billion, excluding discontinued operations.
Upcoming Investor Events
On Tuesday, May 6, 2008, at 2:00 p.m. EDT (1:00 p.m. CDT), Emerson senior management will discuss the second quarter fiscal 2008 results during an investor conference call. All interested parties may listen to the live conference call via the Internet by going to the Investor Relations area of Emersons website at
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www.emerson.com/financial and completing a brief registration form. A replay of the conference call will be available for the next three months at the same location on the website.
On May 21, 2008, Emerson Chairman, Chief Executive Officer and President David N. Farr will present at the 2008 Electrical Products Group Conference in Longboat Key, Florida. The presentation will begin at 10:45 a.m. EDT and conclude at approximately 11:25 a.m. EDT. The presentation slides will be posted at the presentation starting time in the Investor Relations area of Emersons website at www.emerson.com/financial. The presentation slides will be available for approximately one week at the same location on the website.
Details of upcoming events will be posted as they occur on the Events Calendar in the Investor Relations section of the website.
Forward-Looking and Cautionary Statements
Statements in this release that are not strictly historical may be forward-looking statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the companys most recent Form 10-K filed with the SEC.
(tables attached)
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TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
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Quarter ended March 31, |
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Percent | ||||
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2007 |
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2008 |
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Change | |
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Net sales |
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$ |
5,394 |
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$ |
6,023 |
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12% |
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Less: Costs and expenses |
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Cost of sales |
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3,455 |
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3,781 |
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SG&A expenses |
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1,109 |
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1,252 |
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Other deductions, net |
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39 |
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67 |
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Interest expense, net |
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58 |
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51 |
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Earnings from continuing operations |
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733 |
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872 |
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19% |
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Income taxes |
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240 |
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274 |
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Earnings from continuing operations |
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$ |
493 |
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$ |
598 |
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21% |
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Discontinued Operations, net of tax |
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1 |
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(51 |
) |
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Net earnings |
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$ |
494 |
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$ |
547 |
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Diluted avg. shares outstanding (millions) |
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804.9 |
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792.0 |
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Diluted earnings per common share |
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Earnings from continuing operations |
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$ |
0.61 |
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$ |
0.75 |
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23% |
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Discontinued operations |
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(0.06 |
) |
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Diluted earnings per common share |
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$ |
0.61 |
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$ |
0.69 |
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13% |
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Quarter Ended March 31, |
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2007 |
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2008 |
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Other deductions, net |
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Rationalization of operations |
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$ |
20 |
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$ |
16 |
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Amortization of intangibles |
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16 |
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22 |
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Other |
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27 |
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29 |
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Gains |
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(24 |
) |
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Total |
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$ |
39 |
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$ |
67 |
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TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
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Six Months Ended March 31, |
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Percent | ||||
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2007 |
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2008 |
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Change | ||
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Net sales |
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$ |
10,331 |
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$ |
11,543 |
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12% |
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Less: Costs and expenses |
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Cost of sales |
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6,609 |
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7,291 |
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SG&A expenses |
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2,180 |
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2,436 |
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Other deductions, net |
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57 |
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70 |
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Interest expense, net |
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117 |
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101 |
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Earnings from continuing operations |
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1,368 |
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1,645 |
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20% |
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Income taxes |
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433 |
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528 |
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Earnings from continuing operations |
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$ |
935 |
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$ |
1,117 |
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19% |
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Discontinued Operations, net of tax |
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4 |
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(5 |
) |
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Net earnings |
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$ |
939 |
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$ |
1,112 |
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Diluted avg. shares outstanding (millions) |
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806.7 |
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794.2 |
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Diluted earnings per common share |
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Earnings from continuing operations |
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$ |
1.16 |
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$ |
1.41 |
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22% |
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Discontinued operations |
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( 0.01 |
) |
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Diluted earnings per common share |
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$ |
1.16 |
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$ |
1.40 |
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21% |
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Six Months Ended March 31, |
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2007 |
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2008 |
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Other deductions, net |
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Rationalization of operations |
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$ |
36 |
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$ |
25 |
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Amortization of intangibles |
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30 |
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39 |
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Other |
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57 |
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|
70 |
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|
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Gains |
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(66 |
) |
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(64 |
) |
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Total |
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$ |
57 |
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$ |
70 |
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TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
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March 31, |
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2007 |
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2008 |
| |
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Assets |
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Cash and equivalents |
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$ |
1,094 |
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$ |
1,767 |
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Receivables, net |
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3,888 |
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|
4,377 |
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Inventories |
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2,388 |
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|
2,532 |
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Other current assets |
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|
619 |
|
|
762 |
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Total current assets |
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7,989 |
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|
9,438 |
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Property, plant & equipment, net |
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3,259 |
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|
3,413 |
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Goodwill |
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|
6,240 |
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|
6,658 |
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Other |
|
|
2,044 |
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|
1,941 |
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|
|
|
|
|
|
|
|
|
|
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$ |
19,532 |
|
$ |
21,450 |
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|
|
|
|
|
|
|
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Liabilities and Stockholders Equity |
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|
|
|
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Short-term borrowings and current |
|
$ |
1,349 |
|
$ |
1,609 |
|
|
Accounts payable |
|
|
2,137 |
|
|
2,403 |
|
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Accrued expenses |
|
|
2,016 |
|
|
2,342 |
|
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Income taxes |
|
|
284 |
|
|
234 |
|
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Total current liabilities |
|
|
5,786 |
|
|
6,588 |
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Long-term debt |
|
|
3,375 |
|
|
3,338 |
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Other liabilities |
|
|
2,025 |
|
|
2,044 |
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Stockholders equity |
|
|
8,346 |
|
|
9,480 |
|
|
|
|
|
|
|
|
|
|
|
|
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$ |
19,532 |
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$ |
21,450 |
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TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
|
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Six Months Ended March 31, |
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|
|
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2007 |
|
|
2008 |
| |
|
Operating Activities |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
939 |
|
$ |
1,112 |
|
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Depreciation and amortization |
|
|
328 |
|
|
350 |
|
|
Changes in operating working capital |
|
|
(464 |
) |
|
(319 |
) |
|
Other (including gains on sales of assets and |
|
|
72 |
|
|
28 |
|
|
Net cash provided by operating activities |
|
|
875 |
|
|
1,171 |
|
|
|
|
|
|
|
|
|
|
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Investing Activities |
|
|
|
|
|
|
|
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Capital expenditures |
|
|
(276 |
) |
|
(306 |
) |
|
Purchases of businesses, net of cash and |
|
|
(172 |
) |
|
(440 |
) |
|
Other (including sale of assets) |
|
|
86 |
|
|
168 |
|
|
Net cash used in investing activities |
|
|
(362 |
) |
|
(578 |
) |
|
|
|
|
|
|
|
|
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Financing Activities |
|
|
|
|
|
|
|
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Net increase in short-term borrowings |
|
|
398 |
|
|
688 |
|
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Proceeds from long-term debt |
|
|
248 |
|
|
399 |
|
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Principal payments on long-term debt |
|
|
(3 |
) |
|
(1 |
) |
|
Dividends paid |
|
|
(421 |
) |
|
(473 |
) |
|
Purchases of treasury stock |
|
|
(478 |
) |
|
(483 |
) |
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Other |
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|
6 |
|
|
(45 |
) |
|
Net cash provided by (used in) financing |
|
|
(250 |
) |
|
85 |
|
|
|
|
|
|
|
|
|
|
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Effect of exchange rate changes on cash and |
|
|
21 |
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and equivalents |
|
|
284 |
|
|
759 |
|
|
|
|
|
|
|
|
|
|
|
Beginning cash and equivalents |
|
|
810 |
|
|
1,008 |
|
|
|
|
|
|
|
|
|
|
|
Ending cash and equivalents |
|
$ |
1,094 |
|
$ |
1,767 |
|
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TABLE 5 |
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
|
|
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Quarter Ended March 31, |
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|
|
2007 |
|
|
2008 |
| |
|
Sales |
|
|
|
|
|
|
|
|
Process Management |
|
$ |
1,345 |
|
$ |
1,597 |
|
|
Industrial Automation |
|
|
1,057 |
|
|
1,176 |
|
|
Network Power |
|
|
1,191 |
|
|
1,520 |
|
|
Climate Technologies |
|
|
945 |
|
|
956 |
|
|
Appliance and Tools |
|
|
1,014 |
|
|
956 |
|
|
|
|
|
5,552 |
|
|
6,205 |
|
|
Eliminations |
|
|
(158 |
) |
|
(182 |
) |
|
Net Sales |
|
$ |
5,394 |
|
$ |
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, |
| ||||
|
|
|
|
2007 |
|
|
2008 |
|
|
Earnings |
|
|
|
|
|
|
|
|
Process Management |
|
$ |
239 |
|
$ |
286 |
|
|
Industrial Automation |
|
|
151 |
|
|
171 |
|
|
Network Power |
|
|
146 |
|
|
187 |
|
|
Climate Technologies |
|
|
141 |
|
|
142 |
|
|
Appliance and Tools |
|
|
134 |
|
|
139 |
|
|
|
|
|
811 |
|
|
925 |
|
|
Differences in accounting methods |
|
|
52 |
|
|
57 |
|
|
Corporate and other |
|
|
(72 |
) |
|
(59 |
) |
|
Interest expense, net |
|
|
(58 |
) |
|
(51 |
) |
|
Earnings from continuing operations |
|
$ |
733 |
|
$ |
872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31, |
| ||||
|
|
|
|
2007 |
|
|
2008 |
|
|
Rationalization of operations |
|
|
|
|
|
|
|
|
Process Management |
|
$ |
4 |
|
$ |
3 |
|
|
Industrial Automation |
|
|
3 |
|
|
3 |
|
|
Network Power |
|
|
5 |
|
|
5 |
|
|
Climate Technologies |
|
|
4 |
|
|
4 |
|
|
Appliance and Tools |
|
|
4 |
|
|
1 |
|
|
Total Emerson |
|
$ |
20 |
|
$ |
16 |
|
|
|
|
|
|
|
|
|
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Add Ten
TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
|
|
|
Six Months Ended March 31, |
| ||||
|
|
|
2007 |
|
2008 |
| ||
|
Sales |
|
|
|
|
|
|
|
|
Process Management |
|
$ |
2,563 |
|
$ |
3,033 |
|
|
Industrial Automation |
|
|
2,051 |
|
|
2,301 |
|
|
Network Power |
|
|
2,390 |
|
|
2,926 |
|
|
Climate Technologies |
|
|
1,633 |
|
|
1,722 |
|
|
Appliance and Tools |
|
|
1,988 |
|
|
1,888 |
|
|
|
|
|
10,625 |
|
|
11,870 |
|
|
Eliminations |
|
|
(294 |
) |
|
(327 |
) |
|
Net Sales |
|
$ |
10,331 |
|
$ |
11,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
| ||||
|
|
|
|
2007 |
|
|
2008 |
|
|
Earnings |
|
|
|
|
|
|
|
|
Process Management |
|
$ |
456 |
|
$ |
544 |
|
|
Industrial Automation |
|
|
317 |
|
|
342 |
|
|
Network Power |
|
|
263 |
|
|
367 |
|
|
Climate Technologies |
|
|
231 |
|
|
244 |
|
|
Appliance and Tools |
|
|
263 |
|
|
271 |
|
|
|
|
|
1,530 |
|
|
1,768 |
|
|
Differences in accounting methods |
|
|
100 |
|
|
110 |
|
|
Corporate and other |
|
|
(145 |
) |
|
(132 |
) |
|
Interest expense, net |
|
|
(117 |
) |
|
(101 |
) |
|
Earnings from continuing operations |
|
$ |
1,368 |
|
$ |
1,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, |
| ||||
|
|
|
|
2007 |
|
|
2008 |
|
|
Rationalization of operations |
|
|
|
|
|
|
|
|
Process Management |
|
$ |
6 |
|
$ |
4 |
|
|
Industrial Automation |
|
|
6 |
|
|
6 |
|
|
Network Power |
|
|
9 |
|
|
8 |
|
|
Climate Technologies |
|
|
7 |
|
|
5 |
|
|
Appliance and Tools |
|
|
8 |
|
|
2 |
|
|
Total Emerson |
|
$ |
36 |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
- more -
Add Eleven
TABLE 7
Reconciliations of Non-GAAP Financial Measures
The following reconciles non-GAAP measures with the most directly comparable GAAP measures (dollars in millions):
|
|
|
2007 |
|
2008 |
|
Percent |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Operating Profit |
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
5,394 |
|
$ |
6,023 |
|
12% |
|
|
Cost of Sales |
|
|
3,455 |
|
|
3,781 |
|
|
|
|
SG&A Expenses |
|
|
1,109 |
|
|
1,252 |
|
|
|
|
Operating Profit (Non-GAAP) |
|
|
830 |
|
|
990 |
|
19% |
|
|
Operating Profit Margin% (Non-GAAP) |
|
|
15.4% |
|
|
16.4% |
|
|
|
|
Other Deductions, Net |
|
|
39 |
|
|
67 |
|
|
|
|
Interest Expense, Net |
|
|
58 |
|
|
51 |
|
|
|
|
Pretax Earnings |
|
$ |
733 |
|
$ |
872 |
|
19% |
|
|
Pretax Earnings Margin % |
|
|
13.6% |
|
|
14.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter Cash Flow |
|
Q2 2007 |
|
Q2 2008 |
|
| |||
|
Operating Cash Flow |
|
$ |
548 |
|
$ |
748 |
|
|
|
|
Capital Expenditures |
|
|
(155 |
) |
|
(179 |
) |
|
|
|
Free Cash Flow (Non-GAAP) |
|
$ |
393 |
|
$ |
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
Q2 2008 |
|
|
2008E |
|
|
| |
|
Underlying Sales (Non-GAAP) |
|
|
6% |
|
|
5-7% |
|
|
|
|
Currency / Acq. / Div. |
|
|
6% |
|
|
~6% |
|
|
|
|
Net Sales |
|
|
12% |
|
|
11-13% |
|
|
|
All amounts above are GAAP financial measures except as noted.
# # #