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Press release from Business Wire

Emerson Reports Third Quarter 2010 Results

<ul class='bwtextalignleft'> <li class='bwlistitemmarginbottom'> Third quarter sales increased 11 percent, to $5.6 billion </li> <li class='bwlistitemmarginbottom'> EPS from continuing operations increased 53 percent, to $0.78 </li> <li class='bwlistitemmarginbottom'> Operating profit margin expanded 330 basis points to 18.0 percent </li> <li class='bwlistitemmarginbottom'> Full year EPS guidance raised to $2.60 to $2.70 </li> </ul>

Tuesday, August 03, 2010

Emerson Reports Third Quarter 2010 Results06:45 EDT Tuesday, August 03, 2010 ST. LOUIS (Business Wire) -- Emerson (NYSE: EMR) today announced that net sales for the third quarter ended June 30, 2010 were $5.6 billion, an increase of 11 percent from the prior year quarter. Underlying sales increased 7 percent, which excludes a 3 percent impact from acquisitions and a 1 percent impact from favorable currency exchange rates. Growth resumed in the U.S. and Europe, up 11 percent and 9 percent, respectively. Asia continued to grow, as it has each quarter this year, increasing 3 percent. Earnings from continuing operations for the third quarter were $0.78 per share, increasing 53 percent compared with $0.51 last year. Including discontinued operations, net earnings per share increased 51 percent, to $0.77. “Global markets continue to recover, at a slower pace than previous economic cycles, but in-line with our expectations. We expect this slow, but steady, recovery to continue for the next several years. We do not expect a double-dip recession in our end markets. This will be an environment where well-managed, global industrial companies can operate quite efficiently,” said Chairman, CEO and President David N. Farr. “Our solid third quarter results prove the actions we're taking to strengthen Emerson's performance and accelerate growth in key markets around the world continue to be the right ones. We delivered substantial improvements in sales, profits and margins during the quarter and have positive momentum globally as we finish out our fiscal year.” Gross profit margin and operating profit margin expansion were strong as a result of leverage on higher sales volume, new product and technology programs, and our aggressive global restructuring and repositioning efforts. Gross profit margin improved to 39.2 percent compared with 36.1 percent in the prior year quarter, and operating profit margin increased to 18.0 percent, compared with 14.7 percent in the prior year period. Pretax margin improved 4.8 points from 10.9 percent to 15.7 percent. Business Segment HighlightsProcess Management sales moved positive, up 2 percent in the quarter, which included a 1 percent underlying sales decrease, a 2 percent favorable impact from acquisitions and a positive currency impact of 1 percent. Segment margin improved to 20.6 percent, increasing 5.8 points from 14.8 percent in the prior year quarter, driven primarily by cost reductions, positive mix, lower restructuring expense and foreign currency transactions. Orders have continued to strengthen and project quoting activity has increased, although mega-projects are not expected to have an impact until later in 2011. Process Management was recently selected as the main automation contractor for Shell's floating LNG (liquefied natural gas) facility, potentially the world's first floating LNG development. Process Management also opened a $30 million global innovation center, including the world's largest flow lab, to develop and test high-performance valves. Industrial Automation sales increased 18 percent in the quarter with 16 percent underlying sales growth and a 2 percent favorable impact from acquisitions. Sales growth resumed across all businesses and geographies in this segment. Segment margin increased 7.1 points to 12.8 percent, with positive impacts from volume leverage and aggressive cost reduction actions, compared with significant deleverage in the prior year quarter. Network Power sales increased 7 percent in the quarter, including an underlying sales decline of 1 percent, a 7 percent favorable impact from the Avocent acquisition and a positive currency impact of 1 percent. Growth remained solid in the earlier cycle embedded power business. Sales in Asia weakened against solid growth last year as well as a reduction in stimulus benefits in China versus the prior year quarter, but are expected to grow in the fourth quarter. Orders continue to improve for the uninterruptible power supply and precision cooling business. Margin for this segment expanded 2.4 points to 12.8 percent, due primarily to aggressive cost repositioning actions, lower restructuring expense and a favorable impact from foreign currency transactions. Climate Technologies demonstrated strong global growth with sales increasing 29 percent in the third quarter. International growth was 35 percent and U.S. growth was 23 percent. Underlying sales were up 28 percent and acquisitions added 1 percent. Strength in Asia continued, with sales up 49 percent compared with the prior year quarter with positive impacts from stimulus programs and recently enacted higher-efficiency standards in China. U.S. sales growth remained broad-based among residential, refrigeration and commercial end markets. Europe moved positive and grew 22 percent in the quarter, with strength in refrigeration. Margin increased 4.4 points to 20.1 percent reflecting benefits from volume leverage, restructuring efforts and lower restructuring expense. Appliance and Tools sales grew 10 percent in the quarter, including an 8 percent increase in underlying sales and a 2 percent favorable impact from acquisitions. Sales growth was solid across the professional tools, motors and appliance businesses, partially offset by weakness in residential storage. Segment margin expanded 4.0 points to 18.0 percent, driven primarily by benefits from restructuring programs and volume leverage. Balance Sheet / Cash Flow For the third quarter, operating cash flow was $703 million and capital expenditures were $122 million resulting in free cash flow (operating cash flow less capital expenditures) of $581 million. Free cash flow was 99 percent of net earnings attributable to Emerson in the quarter. Operating cash flow for the nine months ended in June was $2.0 billion, an increase of 17 percent, primarily driven by increased earnings. “Our operating management has delivered strong trade working capital performance, as demonstrated by working capital improving to 16.3 percent of sales this quarter,” Farr said. “Free cash flow remains a priority and we expect a record level of free cash flow and trade working capital as a percent of sales this year. We are putting that cash to work to strengthen our core businesses and invest for future growth, both internally and with strong strategic acquisitions. We will remain disciplined in using the strength of our balance sheet as we have historically. We fully understand it is our responsibility to invest for shareholders to deliver long-term incremental value.” 2010 Outlook Based on improving business conditions and continued strength in order trends, Emerson now expects full year earnings per share in the range of $2.60 to $2.70. This does not include any impact from the recently announced offer to purchase Chloride Group PLC or any potential divestitures of LANDesk or our North American motors and controls businesses. For the year, underlying sales are expected to be approximately flat. Emerson estimates a 3 percent favorable impact from already completed acquisitions and a 2 percent favorable impact from currency translation, resulting in net sales that are up approximately 4 to 5 percent. Operating profit margin and pretax margin are expected to be in the range of 16.2 to 16.5 percent and 13.3 to 13.7 percent, respectively. Upcoming Investor Events Today at 2:00 p.m. EDT (1:00 p.m. CDT), Emerson senior management will discuss the third 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 registration form. A replay of the conference call will be available for the next three months at the same location on the website. On August 31, 2010, Emerson Chief Operating Officer Edward L. Monser will present at the Morgan Stanley Global Industrials Unplugged Conference in New York City. The presentation will begin at 9:00 a.m. EDT and conclude at approximately 9:40 a.m. EDT. 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 company's most recent Form 10-K filed with the SEC. TABLE 1 EMERSON AND SUBSIDIARIES CONSOLIDATED OPERATING RESULTS (AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)       Quarter Ended June 30, Percent 20092010Change   Net sales $ 5,091 $ 5,641 11 % Less: Costs and expenses Cost of sales 3,253 3,430 SG&A expenses 1,089 1,194 Other deductions, net 131 70 Interest expense, net   65     64   Earnings from continuing operations before income taxes 553 883 59 % Income taxes   155     273   Earnings from continuing operations $ 398 $ 610 53 % Discontinued operations, net of tax   -     (9) Net earnings $ 398 $ 601 51 % Less: Noncontrolling interests in earnings of subsidiaries 11 16   Net earnings attributable to Emerson$387   $585   51 %   Diluted avg. shares outstanding 754.7 757.7   Diluted earnings per share attributable to Emerson: Earnings from continuing operations $ 0.51 $ 0.78 53 % Discontinued operations   -     (0.01) Diluted earnings per common share $0.51   $0.77   51 %   Earnings attributable to Emerson: Earnings from continuing operations $ 387 $ 594 Discontinued operations   -     (9) Net earnings attributable to Emerson $387   $585                   Quarter Ended June 30,20092010Other deductions, net Rationalization of operations $ 83 $ 27 Amortization of intangibles 31 44 Other 23 (1 ) (Gains)/losses, net   (6 )   -   Total $131   $70   TABLE 2 EMERSON AND SUBSIDIARIES CONSOLIDATED OPERATING RESULTS (AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)       Nine Months Ended June 30, Percent 20092010Change   Net sales $ 15,593 $ 15,796 1 % Less: Costs and expenses Cost of sales 9,922 9,682 SG&A expenses 3,401 3,585 Other deductions, net 321 255 Interest expense, net   157     196   Earnings from continuing operations before income taxes 1,792 2,078 16 % Income taxes   541     607   Earnings from continuing operations $ 1,251 $ 1,471 18 % Discontinued operations, net of tax   -     (15) Net earnings $ 1,251 $ 1,456 16 % Less: Noncontrolling interests in earnings of subsidiaries 33 41 Net earnings attributable to Emerson$1,218   $1,415   16 %   Diluted avg. shares outstanding 759.8 756.9   Diluted earnings per share attributable to Emerson: Earnings from continuing operations $ 1.60 $ 1.88 18 % Discontinued operations   -     ($ 0.02) Diluted earnings per common share $1.60   $1.86   16 %   Earnings attributable to Emerson: Earnings from continuing operations $ 1,218 $ 1,430 Discontinued operations   -     (15) Net earnings attributable to Emerson $1,218   $1,415                   Nine Months Ended June 30,20092010Other deductions, net Rationalization of operations $ 190 $ 101 Amortization of intangibles 78 124 Other 88 33 (Gains)/losses, net (35 ) (3) Total $321   $255   TABLE 3 EMERSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS, UNAUDITED)     June 30,20092010Assets Cash and equivalents $ 1,382 $ 3,424 Receivables, net 3,720 3,793 Inventories 2,062 2,114 Other current assets   554   627 Total current assets 7,718 9,958 Property, plant & equipment, net 3,475 3,289 Goodwill 6,976 7,596 Other   2,155   2,115   $20,324$22,958   Liabilities and Stockholders' Equity Short-term borrowings and current maturities of long-term debt $ 837 $ 2,290 Accounts payable 1,824 2,228 Accrued expenses 2,308 2,616 Income taxes   24   123 Total current liabilities 4,993 7,257 Long-term debt 4,464 4,586 Other liabilities 2,057 2,026 Total equity   8,810   9,089   $20,324$22,958TABLE 4 EMERSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS, UNAUDITED)     Nine Months Ended June 30,20092010Operating Activities Net earnings $ 1,251 $ 1,456 Depreciation and amortization 542 605 Changes in operating working capital 69 28 Pension funding (263 ) (209 ) Other   135     142   Net cash provided by operating activities   1,734     2,022     Investing Activities Capital expenditures (388 ) (300 ) Purchases of businesses, net of cash and equivalents acquired (735 ) (1,372 ) Other   18     17   Net cash used in investing activities   (1,105 )   (1,655 )   Financing Activities Net increase in short-term borrowings 40 1,747 Proceeds from long-term debt 1,254 601 Principal payments on long-term debt (680 ) (50 ) Dividends paid (749 ) (756 ) Purchases of treasury stock (718 ) (71 ) Other   (94)   109   Net cash provided by (used in) financing activities   (947)   1,580     Effect of exchange rate changes on cash and equivalents   (77)   (83)   Increase (decrease) in cash and equivalents (395 ) 1,864   Beginning cash and equivalents   1,777     1,560     Ending cash and equivalents$1,382   $3,424   TABLE 5 EMERSON AND SUBSIDIARIES SEGMENT SALES AND EARNINGS (DOLLARS IN MILLIONS, UNAUDITED)   Quarter Ended June 30,2009   2010Sales Process Management $ 1,481 $ 1,511 Industrial Automation 813 956 Network Power 1,330 1,418 Climate Technologies 859 1,106 Appliance and Tools   771     850   5,254 5,841 Eliminations   (163 )   (200 ) Net Sales $5,091   $5,641     Quarter Ended June 30,20092010Earnings Process Management $ 220 $ 311 Industrial Automation 47 122 Network Power 137 182 Climate Technologies 135 221 Appliance and Tools   108     152   647 988 Differences in accounting methods 48 52 Corporate and other (77 ) (93 ) Interest expense, net   (65 )   (64 ) Earnings from continuing operations before income taxes $553   $883     Quarter Ended June 30,20092010Rationalization of operations Process Management $ 18 $ 6 Industrial Automation 13 11 Network Power 32 5 Climate Technologies 14 4 Appliance and Tools   6     1   Total Emerson $83   $27   TABLE 6 EMERSON AND SUBSIDIARIES SEGMENT SALES AND EARNINGS (DOLLARS IN MILLIONS, UNAUDITED)   Nine Months Ended June 30,2009   2010Sales Process Management $ 4,512 $ 4,321 Industrial Automation 2,876 2,699 Network Power 4,095 4,150 Climate Technologies 2,284 2,798 Appliance and Tools   2,269     2,341   16,036 16,309 Eliminations   (443 )   (513 ) Net Sales $15,593   $15,796     Nine Months Ended June 30,20092010Earnings Process Management $ 776 $ 768 Industrial Automation 313 301 Network Power 397 545 Climate Technologies 258 497 Appliance and Tools   248     396   1,992 2,507 Differences in accounting methods 145 147 Corporate and other (188 ) (380 ) Interest expense, net   (157 )   (196 ) Earnings from continuing operations before income taxes $1,792   $2,078     Nine Months Ended June 30,20092010Rationalization of operations Process Management $ 26 $ 22 Industrial Automation 25 44 Network Power 82 21 Climate Technologies 36 9 Appliance and Tools   21     5   Total Emerson $190   $101   TABLE 7Reconciliations of Non-GAAP Financial Measures The following reconciles Non-GAAP measures with the most directly comparable GAAP measure (dollars in millions):     Forecast FY2010 Net Sales Underlying Sales (Non-GAAP) ~(1%) to 0% Currency Translation +2 pts Completed Acquisitions +3 pts Net Sales ~ +4% to +5%   Forecast FY2010 Operating Profit Operating Profit (Non-GAAP) ~$3,505 – 3,600 Operating Profit Margin % (Non-GAAP) 16.2% - 16.5% Interest Expense and Other Deductions, Net ~($610 - 620) Pretax Earnings ~ $2,885 - 2,990 Pretax Earnings Margin % 13.3% - 13.7%     Operating ProfitQ3 2009Q3 2010 Net Sales $ 5,091 $ 5,641 Cost of Sales 3,253 3,430 SG&A Expenses   1,089     1,194   Operating Profit (Non-GAAP) 749 1,017 Operating Profit Margin % (Non-GAAP) 14.7 % 18.0 % Other Deductions, Net 131 70 Interest Expense, Net   65     64   Pretax Earnings $ 553 $ 883 Pretax Earnings Margin % 10.9 % 15.7 %   Cash FlowQ3 2009Q3 2010 Operating Cash Flow $ 916 $ 703 Capital Expenditures   116     122   Free Cash Flow (Non-GAAP) $ 800 $ 581   Net Earnings Attributable to Emerson $ 585 % of Net Earnings Operating Cash Flow 120 % Capital Expenditures   (21)% Free Cash Flow (Non-GAAP) 99 %   All amounts above are GAAP financial measures, except as noted