EMERSON ELECTRIC CO - FORM 8-K - EX-99.1 - 99.1 ATTACHMENT - February 4, 2014

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Media Contact: Mark Polzin (314) 982-1758

EMERSON REPORTS FIRST QUARTER 2014 RESULTS

•
Sales of $5.6 billion increased 1 percent, with underlying sales up 3 percent
•
Emerging markets grew 7 percent, with strength across all business segments
•
Earnings per share of $0.65 increased 5 percent, or $0.67 excluding $0.02 of acquisition costs

ST. LOUIS, February 4, 2014 – Emerson (NYSE: EMR) today announced that net sales for the first quarter ended December 31, 2013 increased 1 percent. Underlying sales grew 3 percent, as divestitures deducted 3 percent and acquisitions added 1 percent. Global market conditions reflected slowly improving business investment with mixed demand among industries, as the U.S. grew 3 percent, Asia grew 10 percent, and Europe was flat. Strong emerging market growth was led by a 14 percent increase in China.
"Growth was consistent with the modest pace of orders improvement we have seen over the last quarter, which unfolded consistent with expectations," said Chairman and Chief Executive Officer David N. Farr. "Although uneven across markets, overall global demand reflects slowly improving business confidence and macroeconomic momentum, particularly in Europe. We continue to see encouraging progress on strategic growth initiatives – especially in emerging markets – with promising opportunities for further investment."
Profitability remained strong, with gains in gross profit and business segment margin contributing to earnings per share of $0.65, an increase of 5 percent from the prior year. Excluding $21 million in corporate expense related to the previously announced Virgo and Enardo acquisitions, earnings per share increased 8 percent to $0.67. Corporate expense also reflected $30 million in pretax expense related to accelerated charitable contributions, which resulted in tax benefits sufficient to substantially offset the impact.
Operating cash flow of $691 million, up 8 percent, provided a solid start to cash generation for the year. Capital deployment in the quarter focused on strategic acquisitions, with $576 million invested in the previously mentioned transactions, and the purchase of the minority interest in Appleton Group for $574 million, which closed early in the second quarter, for a total of $1.2 billion of acquisition spending year to date.

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"We executed on several important portfolio management priorities in the quarter, including closing the embedded computing and power divestiture, strengthening Process Management through the Virgo and Enardo acquisitions, and assuming full ownership of Appleton Group, previously the EGS Electrical joint venture with SPX," Farr said. "These changes support our ongoing efforts to enhance the underlying growth profile of Emerson. We are already gaining traction with the strategic opportunities to generate sales synergies with these businesses."

Business Segment Highlights
Process Management net sales grew 8 percent, supported by continued strength in global energy and chemical markets. Underlying sales increased 5 percent, led by near double-digit gains in the systems and solutions business, with acquisitions contributing 3 percent. Growth resumed in the U.S., with sales up 6 percent, and Asia increased 14 percent, led by robust growth in China across the segment. Strong project execution in the North Sea region drove 3 percent growth in Europe. Segment margin expanded 70 basis points to 18.3 percent. Process automation markets continue to support elevated investment levels with a robust project pipeline, particularly in North America.
Industrial Automation net sales increased 1 percent due to a 1 percent contribution from currency translation. Underlying sales were unchanged from the prior year, with the U.S. flat, Asia up 9 percent, and Europe down 5 percent, as recovery continued at a slow and uneven pace for industrial goods. Growth in the fluid automation, motors and drives, electrical distribution, and materials joining businesses was offset by weak demand in power transmission markets. The power generating alternators business was flat, reflecting stabilized but still sluggish demand after protracted declines. Segment margin decreased slightly to 14.1 percent. Global industrial goods markets are expected to trend with the slowly recovering macroeconomic environment, supporting a modest growth outlook.
Network Power net sales decreased 11 percent and underlying sales grew 2 percent, which excludes a 12 percent deduction for the embedded computing and power divestiture (closed at the end of November) and a 1 percent deduction for currency translation. Underlying sales in the U.S. and Asia increased 2 percent and Europe was up slightly, led by robust growth in global telecommunications infrastructure markets. Demand was mixed for data center technologies, as strength in Europe was offset by slow market conditions in Asia and the Americas. Segment margin declined to 6.4 percent, primarily due to a one-time R&D credit in the prior year. Market conditions are expected to be favorable in the near term, supported by recovery in Europe and momentum in Asia.
Climate Technologies net and underlying sales grew 5 percent, led by strong demand in the transportation refrigeration business and supported by stable conditions in air conditioning markets. U.S. sales declined slightly, with double-digit increase in temperature controls sales, continued weakness in the field service business, and flat demand in the air conditioning business after mid-teens growth in the prior year. Asia increased 13 percent, as growth in China exceeded 20 percent, with strength in the air

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conditioning and refrigeration businesses. Europe grew 5 percent, led by the refrigeration market recovery. Segment margin improved 20 basis points to 13.6 percent. Orders growth of 8 percent in the quarter supports the outlook for continued moderate growth in global markets, led by strength in Asia and Europe.
Commercial & Residential Solutions net and underlying sales increased 3 percent, with the U.S. up 2 percent and international sales up 6 percent. Growth was led by the professional tools, food waste disposers, and storage businesses. Segment margin remained strong at 21.4 percent. Market conditions are expected to remain solid in the near term, as U.S. residential momentum continues.

2014 Outlook
Underlying orders growth has been between 3 and 4 percent for several months, reflecting a slowly improving but uncertain macroeconomic environment. Emerson's outlook for 2014 is unchanged, with underlying sales growth of 3 to 5 percent and net sales of (1) to 1 percent, reflecting completed acquisitions, divestitures, and currency translation. Margin is expected to improve approximately half a percent, as benefits from portfolio changes and volume leverage are partially offset by accelerated strategic investments. Excluding impairments and repatriation charges in the prior year, earnings per share are expected to increase 4 to 7 percent, or 33 to 38 percent on a reported basis.

Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the first quarter results during a conference call. Access to a live webcast of the discussion will be available at www.emerson.com/financial at the time of the call. A replay of the conference call will remain available for approximately three months.
On Thursday, February 13, 2014, Emerson will host its annual investor conference in Boston from 9:00 a.m. to approximately 12:30 p.m. ET. Access to a live webcast of the presentation will be available at www.emerson.com/financial at the time of the event. A replay of the conference will remain available for approximately three months.
 
Forward-Looking and Cautionary Statements
Statements in this press 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, protection of intellectual property, and competitive and technological factors, among others, as set forth in the Company's most recent Annual Report on Form 10-K and subsequent reports filed with the SEC.
(tables attached)

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Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Quarter Ended December 31
 
Percent
 
2012
 
2013
 
Change
 
 
 
 
 
 
Net sales
$
5,553

 
$
5,606

 
1%
Costs and expenses:
 
 
 
 
 
     Cost of sales
3,346

 
3,370

 
 
     SG&A expenses
1,394

 
1,444

 
 
     Other deductions, net
86

 
95

 
 
     Interest expense, net
54

 
54

 
 
Earnings before income taxes
673

 
643

 
(4)%
Income taxes
207

 
166

 
 
Net earnings
466

 
477

 
2%
Less: Noncontrolling interests in earnings of subsidiaries
12

 
15

 
 
Net earnings common shareholders
$
454

 
$
462

 
2%
 
 
 
 
 
 
Diluted avg. shares outstanding
726.9

 
708.1

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.62

 
$
0.65

 
5%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended December 31,
 
 
 
2012
 
2013
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
59

 
$
57

 
 
     Rationalization of operations
16

 
13

 
 
     Other
11

 
25

 
 
          Total
$
86

 
$
95

 
 


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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended December 31,
 
2012
 
2013
Assets
 
 
 
     Cash and equivalents
$
2,527

 
$
2,737

     Receivables, net
4,556

 
4,429

     Inventories
2,308

 
2,162

     Other current assets
695

 
671

          Total current assets
10,086

 
9,999

     Property, plant & equipment, net
3,503

 
3,639

     Goodwill
8,068

 
7,871

     Other intangible assets
1,798

 
1,839

     Other
316

 
776

          Total assets
$
23,771

 
$
24,124

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt
$
1,912

 
$
1,958

     Accounts payables
2,431

 
2,425

     Accrued expenses
2,648

 
2,526

     Income taxes
212

 
199

          Total current liabilities
7,203

 
7,108

     Long-term debt
3,542

 
3,834

     Other liabilities
2,408

 
2,299

     Total equity
10,618

 
10,883

          Total liabilities and equity
$
23,771

 
$
24,124


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended December 31,
 
2012
 
2013
Operating activities
 
 
 
     Net earnings
$
466

 
$
477

     Depreciation and amortization
206

 
209

     Changes in operating working capital
(119
)
 
(54
)
     Other, net
86

 
59

          Net cash provided by operating activities
639

 
691

 
 
 
 
Investing activities
 
 
 
     Capital expenditures
(200
)
 
(236
)
     Purchase of businesses, net of cash and equivalents acquired
—

 
(576
)
     Divestiture of businesses
3

 
268

     Other, net
(22
)
 
(11
)
          Net cash used by investing activities
(219
)
 
(555
)
 
 
 
 
Financing activities
 
 
 
     Net increase in short-term borrowings
424

 
387

     Principal payments on long-term debt
(264
)
 
(314
)
     Dividends paid
(297
)
 
(304
)
     Purchases of treasury stock
(113
)
 
(390
)
     Other, net
(8
)
 
(54
)
          Net cash used by financing activities
(258
)
 
(675
)
 
 
 
 
Effect of exchange rate changes on cash and equivalents
(2
)
 
1

 
 
 
 
Increase (decrease) in cash and equivalents
160

 
(538
)
 
 
 
 
Beginning cash and equivalents
2,367

 
3,275

 
 
 
 
Ending cash and equivalents
$
2,527

 
$
2,737

 
 
 
 
 
 
 
 
Note: First quarter 2013 capital expenditures and operating cash flow were increased $85 million by an adjustment to reflect capital expenditures on a cash basis. The totals reported for full fiscal year 2013 will be unchanged.


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Table 4
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended December 31,
 
2012
 
2013
Sales
 
 
 
     Process Management
$
1,896

 
$
2,041

     Industrial Automation
1,137

 
1,149

     Network Power
1,459

 
1,303

     Climate Technologies
752

 
786

     Commercial & Residential Solutions
453

 
466

 
5,697

 
5,745

     Eliminations
(144
)
 
(139
)
          Net sales
$
5,553

 
$
5,606

 
 
 
 
Earnings
 
 
 
     Process Management
$
333

 
$
373

     Industrial Automation
164

 
162

     Network Power
105

 
83

     Climate Technologies
101

 
107

     Commercial & Residential Solutions
97

 
100

 
800

 
825

     Differences in accounting methods
50

 
57

     Corporate and other
(123
)
 
(185
)
     Interest expense, net
(54
)
 
(54
)
          Earnings before income taxes
$
673

 
$
643

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
3

 
$
3

     Industrial Automation
5

 
2

     Network Power
4

 
4

     Climate Technologies
1

 
3

     Commercial & Residential Solutions
3

 
1

          Total
$
16

 
$
13


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Reconciliations of Non-GAAP Financial Measures
 
Table 5
The following reconciles non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
 
 
 
 
 
 
 
Sales growth
 
 
2014E
 
 
 
Underlying*
 
 
3-5%

 
 
 
Acq./Div./FX
 
 
(4
)%
 
 
 
Net
 
 
(1)-1%

 
 
 
 
 
 
 
 
 
Earnings per share
Q1 2013
 
Q1 2014
 
Change
 
Earnings per share
$
0.62

 
$
0.65

 
5
%
 
Acquisition costs
—

 
0.02

 
3
%
 
Earnings per share excl. acq. costs
$
0.62

 
$
0.67

 
8
%
 
 
 
 
 
 
 
Earnings per share
2013
 
2014E
 
Change
 
Earnings per share
$
2.76

 
$ 3.68-3.80

 
33-38%

 
Goodwill impairment and tax charges
0.78

 
—

 
~30%

 
Earnings per share excl. charges*
$
3.54

 
$ 3.68-3.80

 
4-7%



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