Published on February 2, 2010
|
Contact:
|
Mark
Polzin (314) 982-1758
or
William Walkowiak (314) 982-8622
|
EMERSON
REPORTS FIRST QUARTER 2010 RESULTS
|
●
|
Sales
of $5.0 billion, down 7 percent
|
|
●
|
Earnings
per share of $0.56, down 7 percent
|
|
●
|
Solid
operating cash flow of $687 million, up 115
percent
|
|
●
|
Expect
full year earnings per share of $2.20 to $2.40, based on improving
business conditions
|
ST.
LOUIS, February 2, 2010– Emerson (NYSE: EMR) announced that net sales for the
first quarter ended December 31, 2009 were $5.0 billion, a decline of 7 percent
from $5.4 billion reported in the prior year quarter. Underlying
sales in the quarter declined 13 percent, which excludes a 3 percent favorable
impact each from currency exchange rates and acquisitions. Underlying
sales in emerging markets declined only 4 percent in the quarter, helped by
growth in Asia of 4 percent, compared to a decline of 18 percent in mature
markets.
Diluted
earnings per share for the first quarter were down 7 percent to $0.56 per share.
Despite the decline in sales, gross profit margin expanded 110 basis points to
38.0 percent and operating profit margin was even with the prior year at 14.8
percent, impacted positively by cost reduction initiatives and restructuring
benefits. The pretax earnings margin for the first quarter was 11.7
percent compared to 12.6 percent in the prior year period primarily due to
increased acquisition amortization and interest expense.
“Considering
the continuing economic pressures, this was a solid quarter and an encouraging
start for 2010,” said Chairman, CEO and President David N. Farr. “Our margin
improvement demonstrates that we are doing the right things to drive global best
cost and increase shareholder value. To successfully manage through the
uncertain
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Page
Two
economic
conditions that remain in most of our markets, we are focused on accelerating
new product programs, investing in emerging markets, and making strategic
acquisitions in our core and adjacent markets. This is positioning us
for sustainable sales and profit improvements as global economic conditions
improve.”
Business
Segment Highlights
Process
Management sales declined 9 percent in the quarter, versus their highest
first quarter sales on record in fiscal 2009. Underlying sales
decreased 17 percent against tough comparisons to the prior year period, and
exclude a positive 5 percent impact from acquisitions and a favorable currency
impact of 3 percent. The EIM acquisition in October provides significant entry
into the electric valve actuation market segment, with products targeted for
energy-related and water and waste industries. Segment margin
declined to 15.6 percent, versus the prior year margin of 19.6 percent, impacted
by volume deleverage (approximately 3 margin points) and negative mix
(approximately 1 margin point).
Industrial
Automation sales decreased 21 percent in the quarter against a tough
comparison to the prior year quarter in which underlying sales were still
growing. Underlying sales decreased 28 percent, currency added 4
percent and acquisitions added 3 percent. In October, Emerson
completed the acquisition of SSB Wind Systems, a leading global supplier of
electrical pitch control systems for the wind turbine market. This
acquisition further strengthens Emerson’s presence in this fast-growing market,
which includes alternators, converters and couplings. The margin for
this segment was 9.8 percent versus 14.9 percent in the prior year period,
impacted by volume deleverage (approximately 4 margin points) and a $15 million
increase in restructuring. Margin expanded sequentially from the
fourth quarter, reflecting benefits from cost reduction and restructuring
efforts.
Sales in
the Network
Power segment declined 5 percent in the first quarter, including an
underlying sales decline of 10 percent, a 3 percent favorable impact from
currency and a 2 percent favorable impact from the Avocent
acquisition. Strength
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Page
Three
continued
in Asia, which was up 7 percent in the quarter, and positive growth resumed in
the embedded power business. Segment margin improved 4.5 points with
positive impacts realized from the aggressive cost reductions and restructuring
efforts as well as reduced restructuring expense. The acquisition of
Avocent Corporation was completed on December 11, 2009 and it is being
integrated into the Network Power business. Emerson decided that the
LANDesk business unit of Avocent is not a strategic fit for Emerson and it is
expected to be sold within six months. Therefore, the results of
LANDesk are being reported as discontinued operations. Avocent had
revenues of $390 million in 2009, excluding $150 million from
LANDesk.
Climate
Technologies sales growth turned positive, increasing 13 percent in the
quarter. Underlying sales were up 7 percent, acquisitions added 3
percent and currency added 3 percent. Asia and the U.S. led with
growth of 52 and 7 percent respectively. Margin for this segment
expanded to 14.5 percent versus 7.9 percent in the prior year period reflecting
positive impacts from cost reduction and restructuring efforts, effective
price/cost management and decreased restructuring costs versus the prior year
period.
Appliance
and Tools sales decreased 5 percent in the quarter, which included an
underlying sales decrease of 7 percent and a 1 percent favorable impact each
from currency translation and acquisitions. Sales growth resumed in
some of the consumer related businesses. Segment margin improved to
15.2 percent, up 5.0 points from 10.2 percent in the prior year quarter, driven
by cost reductions and effective price/cost management.
Balance
Sheet / Cash Flow
Strong
operating cash flow of $687 million in the first quarter represented a 115
percent increase from the same quarter last year, driven primarily by improved
asset management and stable margins. Free cash flow (operating cash
flow less capital expenditures) was $598 million, up 219 percent compared to the
prior year quarter, and was 141 percent of net earnings.
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Page
Four
“Our
strong cash flow generation is allowing us to take advantage of growth and
investment opportunities to position ourselves for long-term global trends,”
Farr said. “We completed $1.3 billion in acquisitions in our first
quarter, including Avocent, which significantly enhances Emerson’s datacenter
solutions capability and positions us strongly for the growing importance of
energy management in datacenters worldwide. We continue to reposition
our business portfolio to expand Emerson’s served markets as well as shift our
sales to higher growth emerging markets. A strong balance sheet makes
this possible.”
2010
Outlook
Based on
the improving business conditions in the first quarter, improving recent order
patterns, and strong profit improvement from the last 18 months of global
restructuring efforts, Emerson expects full year earnings per share in the range
of $2.20 to $2.40, which includes the impact of the Avocent
acquisition. This estimate is based on an anticipated underlying
sales decline in the range of negative 3 percent to negative 6
percent. Emerson is estimating a 2 percent favorable impact
from currency translation and a 4 percent favorable impact from acquisitions
resulting in reported sales which are
flat to up 3 percent, or $20.9 to $21.5 billion. Operating profit margin
and pretax margin are expected to be in the range of 15.1 to 15.6 percent and
11.7 to 12.3 percent respectively. The operating cash flow target is
$2.7 to $3 billion. Detailed assumptions on the 2010 outlook will be
provided in the company’s investor conference in New York City on Friday,
February 5.
Upcoming
Investor Events
Today at
2:00 p.m. EST (1:00 p.m. CST), Emerson senior management will discuss the first
quarter 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 Emerson's website at www.Emerson.com/financial
and completing a brief
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Page
Five
registration
form. A replay of the conference call will be available for the next
three months at the same location on the website.
On
February 5, Emerson senior management will host the company’s annual investor
conference in New York. The presentations will begin at 8:30 a.m. EST
and conclude at approximately 11:45 a.m. EST. All interested
parties may listen to a webcast of the conference presentations via the Internet
by going to the Investor Relations area of Emerson's website at www.Emerson.com/financial
and completing a brief registration form. The presentation slides
will be posted on the company website at the beginning of the
conference. A replay of the webcast and the presentation slides will
be available for approximately one week at the same location on 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 company's most recent Form 10-K filed with the SEC.
(tables
attached)
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Page
Six
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TABLE
1
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|
EMERSON
AND SUBSIDIARIES
|
|
CONSOLIDATED
OPERATING RESULTS
|
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(AMOUNTS
IN MILLIONS EXCEPT PER SHARE,
UNAUDITED)
|
|
Quarter
Ended December 31,
|
Percent
|
|||||||||||
|
2008
|
2009
|
Change
|
||||||||||
|
Net
sales
|
$ | 5,415 | $ | 5,011 | -7 | % | ||||||
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Less: Costs
and expenses
|
||||||||||||
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Cost
of sales
|
3,419 | 3,108 | ||||||||||
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SG&A
expenses
|
1,193 | 1,161 | ||||||||||
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Other
deductions, net
|
79 | 93 | ||||||||||
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Interest
expense, net
|
43 | 65 | ||||||||||
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Earnings
from continuing operations before income taxes
|
681 | 584 | -14 | % | ||||||||
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Income
taxes
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210 | 150 | ||||||||||
|
Earnings
from continuing operations
|
$ | 471 | $ | 434 | -8 | % | ||||||
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Discontinued
operations, net of tax
|
- | 3 | ||||||||||
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Net
Earnings
|
$ | 471 | $ | 437 | -7 | % | ||||||
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Less:
Noncontrolling interests in earnings of
subsidiaries
|
13 | 12 | ||||||||||
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Net
earnings attributable to common
stockholders
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$ | 458 | $ | 425 | -7 | % | ||||||
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Diluted
avg. shares outstanding
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767.9 | 755.5 | ||||||||||
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Diluted
earnings per share attributable to
common
stockholders:
|
||||||||||||
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Earnings
from continuing operations
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$ | 0.60 | $ | 0.56 | -7 | % | ||||||
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Discontinued
operations
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- | - | ||||||||||
|
Diluted
earnings per common share
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$ | 0.60 | $ | 0.56 | -7 | % | ||||||
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Quarter
Ended December 31,
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||||||||||||
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2008
|
2009
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|||||||||||
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Other
deductions, net
|
||||||||||||
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Rationalization
of operations
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$ | 43 | $ | 38 | ||||||||
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Amortization
of intangibles
|
23 | 35 | ||||||||||
|
Other
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17 | 24 | ||||||||||
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Gains
|
(4 | ) | (4 | ) | ||||||||
|
Total
|
$ | 79 | $ | 93 | ||||||||
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Page
Seven
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TABLE
2
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|||
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EMERSON
AND SUBSIDIARIES
|
|||
|
CONSOLIDATED
BALANCE SHEETS
|
|||
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(DOLLARS
IN MILLIONS, UNAUDITED)
|
|
December
31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Assets
|
||||||||
|
Cash
and equivalents
|
$ | 1,668 | $ | 1,840 | ||||
|
Receivables,
net
|
4,007 | 3,650 | ||||||
|
Inventories
|
2,470 | 1,956 | ||||||
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Other
current assets
|
728 | 617 | ||||||
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Total
current assets
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8,873 | 8,063 | ||||||
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Property,
plant & equipment, net
|
3,459 | 3,475 | ||||||
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Goodwill
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6,556 | 7,647 | ||||||
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Other
|
1,634 | 2,304 | ||||||
| $ | 20,522 | $ | 21,489 | |||||
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Liabilities
and Stockholders’ Equity
|
||||||||
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Short-term
borrowings and current
maturities
of long-term debt
|
$ | 2,042 | $ | 1,240 | ||||
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Accounts
payable
|
2,171 | 1,991 | ||||||
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Accrued
expenses
|
2,412 | 2,474 | ||||||
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Income
taxes
|
203 | 100 | ||||||
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Total
current liabilities
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6,828 | 5,805 | ||||||
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Long-term
debt
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3,234 | 4,558 | ||||||
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Other
liabilities
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1,900 | 2,188 | ||||||
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Total
equity
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8,560 | 8,938 | ||||||
| $ | 20,522 | $ | 21,489 | |||||
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Page
Eight
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TABLE
3
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|||
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EMERSON
AND SUBSIDIARIES
|
|||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||
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(DOLLARS
IN MILLIONS, UNAUDITED)
|
|
Quarter
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Operating
Activities
|
||||||||
|
Net
earnings
|
$ | 471 | $ | 437 | ||||
|
Depreciation
and amortization
|
176 | 196 | ||||||
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Changes
in operating working capital
|
(316 | ) | 15 | |||||
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Other
|
(12 | ) | 39 | |||||
|
Net
cash provided by operating activities
|
319 | 687 | ||||||
|
Investing
Activities
|
||||||||
|
Capital
expenditures
|
(132 | ) | (89 | ) | ||||
|
Purchases
of businesses, net of cash and
|
||||||||
|
equivalents
acquired
|
(271 | ) | (1,301 | ) | ||||
|
Other
|
(12 | ) | 38 | |||||
|
Net
cash used in investing activities
|
(415 | ) | (1,352 | ) | ||||
|
Financing
Activities
|
||||||||
|
Net
increase in short-term borrowings
|
968 | 662 | ||||||
|
Proceeds
from long-term debt
|
2 | 596 | ||||||
|
Principal
payments on long-term debt
|
(186 | ) | (36 | ) | ||||
|
Dividends
paid
|
(252 | ) | (251 | ) | ||||
|
Purchases
of treasury stock
|
(433 | ) | - | |||||
|
Other
|
(35 | ) | (15 | ) | ||||
|
Net
cash provided by financing activities
|
64 | 956 | ||||||
|
Effect
of exchange rate changes on cash and
equivalents
|
(77 | ) | (11 | ) | ||||
|
Increase
(decrease) in cash and equivalents
|
(109 | ) | 280 | |||||
|
Beginning
cash and equivalents
|
1,777 | 1,560 | ||||||
|
Ending
cash and equivalents
|
$ | 1,668 | $ | 1,840 | ||||
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Page
Nine
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TABLE
4
|
|||
|
EMERSON
AND SUBSIDIARIES
|
|||
|
SEGMENT
SALES AND EARNINGS
|
|||
|
(DOLLARS
IN MILLIONS, UNAUDITED)
|
|
Quarter
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Sales
|
||||||||
|
Process
Management
|
$ | 1,526 | $ | 1,382 | ||||
|
Industrial
Automation
|
1,103 | 876 | ||||||
|
Network
Power
|
1,461 | 1,381 | ||||||
|
Climate
Technologies
|
692 | 784 | ||||||
|
Appliance
and Tools
|
771 | 731 | ||||||
| 5,553 | 5,154 | |||||||
|
Eliminations
|
(138 | ) | (143 | ) | ||||
|
Net
Sales
|
$ | 5,415 | $ | 5,011 | ||||
|
Quarter
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Earnings
|
||||||||
|
Process
Management
|
$ | 299 | $ | 216 | ||||
|
Industrial
Automation
|
164 | 85 | ||||||
|
Network
Power
|
152 | 206 | ||||||
|
Climate
Technologies
|
54 | 113 | ||||||
|
Appliance
and Tools
|
79 | 111 | ||||||
| 748 | 731 | |||||||
|
Differences
in accounting methods
|
50 | 46 | ||||||
|
Corporate
and other
|
(74 | ) | (128 | ) | ||||
|
Interest
expense, net
|
(43 | ) | (65 | ) | ||||
|
Earnings
before income taxes
|
$ | 681 | $ | 584 | ||||
|
Quarter
Ended December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Rationalization
of operations
|
||||||||
|
Process
Management
|
$ | 2 | $ | 7 | ||||
|
Industrial
Automation
|
3 | 18 | ||||||
|
Network
Power
|
20 | 7 | ||||||
|
Climate
Technologies
|
14 | 3 | ||||||
|
Appliance
and Tools
|
4 | 3 | ||||||
|
Total
Emerson
|
$ | 43 | $ | 38 | ||||
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Page Ten
TABLE
5
Reconciliations
of Non-GAAP Financial Measures
The
following reconciles Non-GAAP measures with the most directly comparable GAAP
measure (dollars in millions):
|
Forecast
|
||||
|
Net
Sales
|
Fiscal
2010
|
|||
|
Underlying
Sales (Non-GAAP)
|
-6%
to -3%
|
|||
|
Currency
Translation
|
+2
pts
|
|||
|
Completed
Acquisitions
|
+4
pts
|
|||
|
Net
Sales
|
0%
to +3%
|
|||
|
Forecast
Fiscal Year 2010 Operating Profit
|
Forecast
Fiscal
2010
|
|||
|
Operating
Profit (Non-GAAP)
|
~$3,160
– 3,350
|
|||
|
Operating
Profit Margin % (Non-GAAP)
|
15.1%
- 15.6%
|
|||
|
Interest
Expense and Other Deduction, Net
|
~ ($705)
|
|||
|
Pretax
Earnings
|
~
$2,455 - 2,645
|
|||
|
Pretax
Earnings Margin %
|
11.7%
- 12.3%
|
|||
|
First
Quarter Operating Profit
|
Q1
2009
|
Q1
2010
|
Change
|
|||||||||
|
Net
Sales
|
$ | 5,415 | $ | 5,011 | -7 | % | ||||||
|
Cost
of Sales
|
3,419 | 3,108 | ||||||||||
|
SG&A
Expenses
|
1,193 | 1,161 | ||||||||||
|
Operating
Profit (Non-GAAP)
|
803 | 742 | -8 | % | ||||||||
|
Operating
Profit Margin % (Non-GAAP)
|
14.8 | % | 14.8 | % | ||||||||
|
Other
Deductions, Net
|
79 | 93 | ||||||||||
|
Interest
Expense, Net
|
43 | 65 | ||||||||||
|
Pretax
Earnings
|
$ | 681 | $ | 584 | -14 | % | ||||||
|
Pretax
Earnings Margin %
|
12.6 | % | 11.7 | % |
|
First
Quarter Cash Flow
|
Q1
2009
|
Q1
2010
|
Change
|
|||||||||
|
Operating
Cash Flow
|
$ | 319 | $ | 687 | ||||||||
|
Capital
Expenditures
|
132 | 89 | ||||||||||
|
Free
Cash Flow (Non-GAAP)
|
$ | 187 | $ | 598 | 219 | % | ||||||
|
Net
Earnings
|
$ | 425 | ||||||||||
|
%
of Net Earnings:
|
||||||||||||
|
Operating
Cash Flow
|
162 | % | ||||||||||
|
Capital
Expenditures
|
(21 | )% | ||||||||||
|
Free
Cash Flow (Non-GAAP)
|
141 | % | ||||||||||
|
All
amounts above are GAAP financial measures, except as noted
|
||||||||||||
# # #