EMERSON ELECTRIC CO - FORM 8-K - EX-99.1 - 99.1 EXHIBIT - May 6, 2014

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Media Contact: Mark Polzin (314) 982-1758

EMERSON REPORTS SECOND QUARTER 2014 RESULTS

•
Net sales of $5.8 billion decreased 2 percent, with underlying sales up 2 percent, and orders up 9 percent
•
Gross profit margin expansion of 140 basis points to 41.2 percent
•
Earnings per share of $0.77, including $0.03 loss from Artesyn equity investment, unchanged from the prior year.
•
Strong cash generation offset divestiture impact

ST. LOUIS, May 6, 2014 – Emerson (NYSE: EMR) today announced that sales for the second quarter ended March 31, 2014 declined 2 percent, with the Artesyn divestiture deducting 5 percent and acquisitions adding 1 percent. Underlying sales increased 2 percent, as orders timing, disruptive winter weather and weak first quarter GDP growth in the U.S., and slower implementation of large projects in the global process industry hampered growth. By geography, the U.S. grew 3 percent, Asia increased 4 percent, including China up 9 percent, and Europe was up 1 percent, while Middle East/Africa declined 9 percent following robust growth in the prior year. More positively, orders growth of 9 percent reflected stronger market conditions, particularly toward the end of the quarter, driving March up over 15 percent, as orders benefited from large, multi-year industrial projects, recovering demand for capital goods, and improvement in the U.S., Europe, and Asia.
Gross profit margin improved 140 basis points from the prior year to 41.2 percent, reflecting portfolio changes and cost containment. Offsetting the margin gains, pretax earnings comparisons were unfavorably affected by $35 million from currency volatility and $34 million from losses in the Artesyn Technologies equity investment (formerly the embedded computing and power business), primarily due to significant restructuring costs. As a result, earnings per share equaled the prior year at $0.77.
Operating cash flow of $575 million was unchanged from the prior year, as strong cash generation offset the Artesyn divestiture impact. Strategic growth and productivity investments increased capital expenditures versus the prior year, resulting in lower free cash flow. Substantial cash returns to shareholders continued in the quarter, with $1.2 billion allocated to dividends and share repurchase year to date, and an equal amount invested in acquisitions. Expectations for full year operating cash flow of $3.4 billion remain unchanged, reflecting solid execution after last year's record performance.

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"The second quarter results reflect several unanticipated external factors, including unusual weather and weaker business investment in the U.S., and a more cautious approach by customers on large global project execution," said Chairman and Chief Executive Officer David N. Farr. "Looking through these issues, operational performance was strong, with improving profitability and solid cash flow. As we had been expecting, order trends accelerated significantly late in the quarter, with momentum expected to continue as global economies strengthen. Demand improvement along with continued technology and capacity investments are expected to drive stronger growth in the second half and next year."

Business Segment Highlights
Process Management net sales grew 4 percent and underlying sales increased 1 percent, as acquisitions added 4 percent and currency translation deducted 1 percent. Global oil and gas, power, and chemical markets continued to support growth, although customers stretched out execution of large projects, slowing down the pace of spending and reflecting a more cautious sentiment. At the same time, customers proceeded with plans for future investment, as orders increased 12 percent in the quarter, driving up backlog and providing momentum for growth into next year. By geography, underlying sales in the U.S. grew 8 percent, Europe was up 4 percent, and Asia declined 1 percent, as softness and difficult comparisons in India and Australia offset continued strength in China. Segment margin of 18.2 percent declined, in large part due to $31 million (150 basis points) in unfavorable currency impact compared to the prior year. As order trends suggest, high levels of investment continue in process automation markets, led by strengthening demand in North America, supporting a solid growth outlook.
Industrial Automation sales increased 2 percent as demand improved for capital goods, particularly in emerging markets, which were up 6 percent. The U.S. and Europe were flat, as sales across mature markets were unchanged from the prior year, while Asia grew 6 percent, with robust growth in China. Modest growth in the fluid automation, motors and drives, electrical distribution, and hermetic motors businesses offset modest declines in the mechanical power transmission and power generating alternators businesses. Segment margin decreased slightly to 15.2 percent. Order trends accelerated significantly in February and March across the segment, led by double-digit growth in the power generating alternators business, supporting the expectation for sales growth improvement in the second half of the year.
Network Power net sales decreased 21 percent and underlying sales grew 1 percent, as the Artesyn divestiture deducted 21 percent and currency translation deducted 1 percent. Underlying sales in the U.S. grew 1 percent, Europe decreased 3 percent, and Asia increased 4 percent. The global telecommunications infrastructure business experienced solid growth, led by North America and Europe. Demand was mixed in data center markets, as growth in Asia and North America was more than offset by weakness in Europe and Latin America. Segment margin expanded 70 basis points to 8.2 percent,

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reflecting portfolio changes and continued strategic investment programs. Expectations remain unchanged for modest growth in 2014, as robust orders growth in large, multi-year projects strengthened backlog and provides momentum into next year.
Climate Technologies net sales increased 5 percent, led by strength in global refrigeration markets, with transportation particularly robust. Underlying sales grew nearly 6 percent, as currency translation deducted less than 1 percent, with the U.S. up 2 percent, Asia up 11 percent, and Europe up 3 percent. The U.S. air conditioning business increased moderately, with mid-single-digit growth in residential markets and low-single-digit growth in the commercial business. Strong demand in China drove growth in Asia, led by the refrigeration, solutions, and temperature sensors businesses. Market conditions continued to improve in Europe. Segment margin improved 20 basis points to 17.9 percent. Refrigeration markets are expected to remain strong, along with improving market conditions in the U.S.
Commercial & Residential Solutions sales grew 1 percent, as harsh winter weather contributed to 1 percent decline in the U.S., which was more than offset by 8 percent growth in international markets. Strong growth in the professional tools, wet/dry vacuums, and food waste disposers businesses offset declines in the storage businesses. Segment margin of 21.4 percent improved slightly from the prior year quarter. After a slow to start to the year, U.S. residential and commercial construction markets are expected to improve, supporting stronger growth in the second half.

2014 Outlook
Robust orders growth in the quarter reflects continued improvement in the global macroeconomic environment, although uncertainty persists in some markets, especially the U.S. after anemic GDP growth in the first calendar quarter. Based on current market conditions, the 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 improvement expectations remain unchanged, excluding the Artesyn equity investment loss, and the earnings per share outlook is reaffirmed at $3.68 to 3.80 on a reported basis.
"The slower than expected sales growth in the second quarter increases pressure on the second half of the year, but the strong orders inflection suggests momentum is building," Farr said. "Continued short-cycle orders strength and conversion of elevated backlog will be key for meeting expectations in 2014. Current demand trends indicate the pace of growth should accelerate into next year."

Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the second 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.

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On Wednesday, May 21, 2014, Emerson President and Chief Operating Officer Edward L. Monser will present at the Electrical Products Group Conference in Longboat Key, Florida, at 7:30 a.m. ET. The presentation will be posted on Emerson's website at www.emerson.com/financial at the time of the event and remain available for approximately three months.
On Thursday, May 29, 2014, Emerson Chairman and Chief Executive David N. Farr will present at the Sanford C. Bernstein Strategic Decisions Conference in New York City, at 10:00 a.m. ET.
 
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 March 31,
 
Percent
 
2013
 
2014
 
Change
 
 
 
 
 
 
Net sales
$
5,960

 
$
5,812

 
(2)%
Costs and expenses:
 
 
 
 
 
     Cost of sales
3,587

 
3,417

 
 
     SG&A expenses
1,426

 
1,394

 
 
     Other deductions, net
59

 
137

 
 
     Interest expense, net
57

 
47

 
 
Earnings before income taxes
831

 
817

 
(2)%
Income taxes
253

 
263

 
 
Net earnings
578

 
554

 
(4)%
Less: Noncontrolling interests in earnings of subsidiaries
17

 
7

 
 
Net earnings common shareholders
$
561

 
$
547

 
(2)%
 
 
 
 
 
 
Diluted avg. shares outstanding
725.3

 
705.2

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.77

 
$
0.77

 
—%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31,
 
 
 
2013
 
2014
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
54

 
$
58

 
 
     Rationalization of operations
16

 
21

 
 
     Artesyn equity loss
—

 
34

 
 
     Other
(11
)
 
24

 
 
          Total
$
59

 
$
137

 
 

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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Six Months Ended March 31,
 
Percent
 
2013
 
2014
 
Change
 
 
 
 
 
 
Net sales
$
11,513

 
$
11,418

 
(1)%
Costs and expenses:
 
 
 
 
 
     Cost of sales
6,933

 
6,787

 
 
     SG&A expenses
2,820

 
2,838

 
 
     Other deductions, net
145

 
232

 
 
     Interest expense, net
111

 
101

 
 
Earnings before income taxes
1,504

 
1,460

 
(3)%
Income taxes
460

 
429

 
 
Net earnings
1,044

 
1,031

 
(1)%
Less: Noncontrolling interests in earnings of subsidiaries
29

 
22

 
 
Net earnings common shareholders
$
1,015

 
$
1,009

 
(1)%
 
 
 
 
 
 
Diluted avg. shares outstanding
726.1

 
706.7

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
1.39

 
$
1.42

 
2%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31,
 
 
 
2013
 
2014
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
113

 
$
115

 
 
     Rationalization of operations
32

 
34

 
 
     Artesyn equity loss
—

 
34

 
 
     Other
—

 
49

 
 
          Total
$
145

 
$
232

 
 


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31,
 
2013
 
2014
Assets
 
 
 
     Cash and equivalents
$
2,615

 
$
2,724

     Receivables, net
4,559

 
4,563

     Inventories
2,327

 
2,233

     Other current assets
688

 
683

          Total current assets
10,189

 
10,203

     Property, plant & equipment, net
3,481

 
3,692

     Goodwill
8,007

 
7,875

     Other intangible assets
1,734

 
1,810

     Other
313

 
766

          Total assets
$
23,724

 
$
24,346

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt
$
1,485

 
$
2,661

     Accounts payables
2,460

 
2,522

     Accrued expenses
2,651

 
2,583

     Income taxes
48

 
66

          Total current liabilities
6,644

 
7,832

     Long-term debt
4,059

 
3,836

     Other liabilities
2,347

 
2,153

     Total equity
10,674

 
10,525

          Total liabilities and equity
$
23,724

 
$
24,346


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Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Six Months Ended March 31,
 
2013
 
2014
Operating activities
 
 
 
     Net earnings
$
1,044

 
$
1,031

     Depreciation and amortization
411

 
419

     Changes in operating working capital
(337
)
 
(273
)
     Other, net
95

 
89

          Net cash provided by operating activities
1,213

 
1,266

 
 
 
 
Investing activities
 
 
 
     Capital expenditures
(297
)
 
(397
)
     Purchase of businesses, net of cash and equivalents acquired
—

 
(576
)
     Divestiture of business
3

 
268

     Other, net
(48
)
 
(55
)
          Net cash used by investing activities
(342
)
 
(760
)
 
 
 
 
Financing activities
 
 
 
     Net increase in short-term borrowings
21

 
1,090

     Proceeds from long-term debt
499

 
1

     Principal payments on long-term debt
(270
)
 
(322
)
     Dividends paid
(593
)
 
(606
)
     Purchases of treasury stock
(271
)
 
(596
)
     Purchase of noncontrolling interest
—

 
(574
)
     Other, net
14

 
(37
)
          Net cash used by financing activities
(600
)
 
(1,044
)
 
 
 
 
Effect of exchange rate changes on cash and equivalents
(23
)
 
(13
)
 
 
 
 
Increase (decrease) in cash and equivalents
248

 
(551
)
 
 
 
 
Beginning cash and equivalents
2,367

 
3,275

 
 
 
 
Ending cash and equivalents
$
2,615

 
$
2,724

 
 
 
 
 
 
 
 
 


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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31,
 
2013
 
2014
Sales
 
 
 
     Process Management
$
2,020

 
$
2,108

     Industrial Automation
1,213

 
1,232

     Network Power
1,481

 
1,171

     Climate Technologies
988

 
1,041

     Commercial & Residential Solutions
457

 
460

 
6,159

 
6,012

     Eliminations
(199
)
 
(200
)
          Net sales
$
5,960

 
$
5,812

 
 
 
 
Earnings
 
 
 
     Process Management
$
403

 
$
383

     Industrial Automation
186

 
187

     Network Power
111

 
96

     Climate Technologies
175

 
186

     Commercial & Residential Solutions
98

 
99

 
973

 
951

     Differences in accounting methods
54

 
60

     Corporate and other
(139
)
 
(147
)
     Interest expense, net
(57
)
 
(47
)
          Earnings before income taxes
$
831

 
$
817

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
4

 
$
5

     Industrial Automation
5

 
3

     Network Power
5

 
6

     Climate Technologies
1

 
7

     Commercial & Residential Solutions
1

 
—

          Total
$
16

 
$
21


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Six Months Ended March 31,
 
2013
 
2014
Sales
 
 
 
     Process Management
$
3,916

 
$
4,149

     Industrial Automation
2,350

 
2,381

     Network Power
2,940

 
2,474

     Climate Technologies
1,740

 
1,827

     Commercial & Residential Solutions
910

 
926

 
11,856

 
11,757

     Eliminations
(343
)
 
(339
)
          Net sales
$
11,513

 
$
11,418

 
 
 
 
Earnings
 
 
 
     Process Management
$
736

 
$
756

     Industrial Automation
350

 
349

     Network Power
216

 
179

     Climate Technologies
276

 
293

     Commercial & Residential Solutions
195

 
199

 
1,773

 
1,776

     Differences in accounting methods
104

 
117

     Corporate and other
(262
)
 
(332
)
     Interest expense, net
(111
)
 
(101
)
          Earnings before income taxes
$
1,504

 
$
1,460

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
7

 
$
8

     Industrial Automation
10

 
5

     Network Power
9

 
10

     Climate Technologies
2

 
10

     Commercial & Residential Solutions
4

 
1

          Total
$
32

 
$
34



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Reconciliations of Non-GAAP Financial Measures & Other
 
Table 7
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%

 
 
 
 
 
 
 
 
 
Profit margin
2013
 
2014E
 
Change
 
EBIT excl. impairment/equity loss*
16.0
 %
 
~16.5%

 
~50 bps
 
Goodwill impairment
(2.2
)%
 
— %

 
220 bps
 
Artesyn equity loss
—
 %
 
(0.3)%

 
(30) bps
 
EBIT*
13.8
 %
 
~16.2%

 
~240 bps
 
Interest expense, net
(0.8
)%
 
~(0.8)%

 
— bps
 
Pretax
13.0
 %
 
~15.4%

 
~240 bps
 
 
 
 
 
 
 
 
 

 

 



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