EMERSON ELECTRIC CO - FORM 8-K - EX-99 - August 5, 2014

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Media Contact: Mark Polzin (314) 982-1758

EMERSON REPORTS THIRD QUARTER 2014 RESULTS

•
Reported sales of $6.3 billion declined slightly, with underlying sales up 3 percent
•
Strong profitability improvement, with gross profit margin up 130 basis points
•
Earnings per share of $1.03, up 6 percent excluding prior year charges
•
Record backlog, up over 20 percent year-to-date, excluding divestitures

ST. LOUIS, August 5, 2014 – Emerson (NYSE: EMR) today announced that sales for the third quarter ended June 30, 2014 decreased 1 percent, with the Artesyn divestiture deducting 5 percent and acquisitions adding 1 percent. Underlying sales grew 3 percent, with North America and Europe up 4 percent and Asia up 3 percent, as business conditions continued to improve, albeit slowly and unevenly across markets and geographies. Growth in mature markets was stronger than in emerging regions, reflecting global political instability and economic uncertainty in some developing countries. Underlying orders have grown 5 percent year-to-date, increasing backlog to a record level.
Profitability expansion continued, with strong improvement in gross profit and EBIT margin reflecting portfolio changes and operational efficiencies. Earnings per share of $1.03 grew 6 percent excluding Artesyn related charges in the prior year despite a $0.03 headwind from difficult tax rate comparisons, with reported earnings per share up 281 percent.
Operating cash flow of just over $1 billion exceeded expectations, supported by solid conversion from earnings and on track for another strong year. Strategic growth and productivity investments increased capital expenditures versus the prior year, resulting in slightly lower free cash flow. Share repurchase activity remained high, with over $700 million completed year-to-date. Proceeds from the completion of the Connectivity Solutions business unit divestiture in the fourth quarter will augment share repurchase by approximately $100 million, increasing the full year to approximately $1 billion. Cash returned to shareholders through share repurchase and dividends remains on track to exceed 60 percent of operating cash flow for the full year.
"Underlying sales growth improved, increasing 3 percent from the prior year despite the global business environment struggling to sustain growth momentum," said Chairman and Chief Executive Officer David N. Farr. "Fundamentals continue to gradually strengthen, but persisting economic

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challenges in some markets and rising geopolitical tension have hampered growth, which is not expected to improve in the near term. In light of the sluggish conditions, operations executed well in the quarter, driving margin expansion, generating robust cash and maintaining focus on strategic investment programs, emphasizing our commitment to investing for long-term growth."

Business Segment Highlights
Process Management net sales grew 6 percent, supported by stable and sustained levels of investment in the global energy and chemical industries. Underlying sales increased 2 percent, reflecting mixed market conditions across regions and continued cautious project execution by customers. Acquisitions added 4 percent. North America grew 7 percent, as unconventional oil and gas projects remained robust, and Europe increased 5 percent, led by strong growth in developing countries. Asia decreased 2 percent, as softness and difficult comparisons in Australia offset continued strength in China. Segment margin remained solid at 20.4 percent, declining from the prior year as strategic investments continued to support future profitable growth. Solid near term growth is expected, supported by strengthening in North America, anticipated recovery in Asia, and record backlog.
Industrial Automation net sales increased 1 percent and underlying sales were flat, with North America flat, Asia up 3 percent, and Europe down 5 percent. Demand for industrial goods continued to recover slowly, with underlying orders up 4 percent in the quarter, but trends across markets and geographies was mixed. Growth was strongest in the fluid automation, electrical distribution and materials joining business, offset by declines in power generating alternators and motors and drives, with Europe particularly weak. Segment margin of 16.6 percent improved 50 basis points. Market conditions are expected to continue to recover, but with slow improvement due to uneven economic trends and demand, especially in Europe and the Middle East.
Network Power net sales declined 18 percent, reflecting the Artesyn divestiture impact of 20 percent. Underlying sales grew 2 percent, with North America up 2 percent, Asia up 6 percent, and Europe up 10 percent. Growth was strong in the global telecommunications infrastructure business, led by double-digit gains in Asia. Data center market conditions remained mixed but flat overall, as strength in Europe and Asia was offset by slow demand in North America and weakness in Latin America. Segment margin expanded 60 basis points to 8.7 percent, reflecting portfolio changes and continued investment in strategic programs. Backlog strength and improving market conditions support the outlook for modest growth and improving profitability into next year.
Climate Technologies net and underlying sales increased 6 percent, as growth was balanced across all geographies, with North America up 4 percent, Asia up 9 percent, and Europe up 9 percent. The global refrigeration business remained strong, with double-digit growth, as market conditions in China and Europe were particularly robust. Moderate growth in the U.S. air conditioning business reflected strong demand in the service business, mid-single-digit growth in residential markets, and low-

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single-digit growth in commercial. Gains continued in the temperature sensors business, particularly in China. Segment margin remained strong at 21.0 percent. Favorable market conditions are expected to continue globally, led by improvement in U.S. air conditioning demand.
Commercial & Residential Solutions net and underlying sales grew 4 percent, with sequential improvement reflecting the impact of harsh winter weather in North America in the previous quarter. Growth was led by the professional tools and residential storage businesses. Segment margin improved 170 basis points to 22.1 percent. Recovery momentum is expected to continue in the near term, benefiting from improvement in U.S. residential and commercial construction markets.

2014 Outlook
Despite areas of ongoing uncertainty around the world, economic momentum continues to improve gradually but unevenly. Order trends are expected to improve modestly in the fourth quarter to between 5 and 7 percent underlying growth, led by better conditions in emerging markets and firming demand in the U.S. As the end of the fiscal year approaches, the slower than expected economic environment year-to-date is expected to result in financial performance trending to the low end of previously communicated expectations of 3 to 5 percent underlying sales growth, (1) to 1 percent net sales change, and earnings per share of $3.68 to $3.80. Strong cash generation year-to-date supports the outlook for operating cash flow of approximately $3.5 billion.
"We see the pace of growth improving through the fourth quarter, as global business confidence improves and investment levels recover," Farr said. "Robust orders growth in the spring has driven backlog to a record level, supported by large projects with long lead times, and strategic investment programs continue to progress well, providing a foundation for a more favorable growth environment next year."

Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the third 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, September 4, 2014, Emerson President and Chief Operating Officer Edward L. Monser will present at the Vertical Research Partners Industrials Conference in Westbrook, Connecticut. The presentation will be posted on Emerson's website at www.emerson.com/financial and remain available for approximately three months after the event.
On Tuesday, September 16, 2014, Emerson Chairman and Chief Executive Officer David N. Farr will present at the Morgan Stanley Laguna Conference in Dana Point, California. The presentation will be

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posted on Emerson's website at www.emerson.com/financial and remain available for approximately three months after the event.
 
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 June 30,
 
Percent
 
2013
 
2014
 
Change
 
 
 
 
 
 
Net sales
$
6,344

 
$
6,312

 
(1)%
Costs and expenses:
 
 
 
 
 
     Cost of sales
3,776

 
3,674

 
 
     SG&A expenses
1,396

 
1,424

 
 
     Goodwill impairment
503

 
—

 
 
     Other deductions, net
107

 
96

 
 
     Interest expense, net
51

 
46

 
 
Earnings before income taxes
511

 
1,072

 
110%
Income taxes
297

 
334

 
 
Net earnings
214

 
738

 
245%
Less: Noncontrolling interests in earnings of subsidiaries
20

 
10

 
 
Net earnings common shareholders
$
194

 
$
728

 
277%
 
 
 
 
 
 
Diluted avg. shares outstanding
722.2

 
703.3

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.27

 
$
1.03

 
281%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30,
 
 
 
2013
 
2014
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
53

 
$
55

 
 
     Rationalization of operations
33

 
11

 
 
     Other
21

 
30

 
 
          Total
$
107

 
$
96

 
 

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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Nine Months Ended June 30,
 
Percent
 
2013
 
2014
 
Change
 
 
 
 
 
 
Net sales
$
17,857

 
$
17,730

 
(1)%
Costs and expenses:
 
 
 
 
 
     Cost of sales
10,709

 
10,461

 
 
     SG&A expenses
4,216

 
4,262

 
 
     Goodwill impairment
503

 
—

 
 
     Other deductions, net
252

 
328

 
 
     Interest expense, net
162

 
147

 
 
Earnings before income taxes
2,015

 
2,532

 
26%
Income taxes
757

 
763

 
 
Net earnings
1,258

 
1,769

 
41%
Less: Noncontrolling interests in earnings of subsidiaries
49

 
32

 
 
Net earnings common shareholders
$
1,209

 
$
1,737

 
44%
 
 
 
 
 
 
Diluted avg. shares outstanding
724.8

 
705.6

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
1.66

 
$
2.45

 
48%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30,
 
 
 
2013
 
2014
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
166

 
$
170

 
 
     Rationalization of operations
65

 
45

 
 
     Artesyn equity loss
—

 
34

 
 
     Other
21

 
79

 
 
          Total
$
252

 
$
328

 
 


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended June 30,
 
2013
 
2014
Assets
 
 
 
     Cash and equivalents
$
2,810

 
$
3,049

     Receivables, net
4,725

 
4,772

     Inventories
2,304

 
2,253

     Other current assets
667

 
739

          Total current assets
10,506

 
10,813

     Property, plant & equipment, net
3,475

 
3,737

     Goodwill
7,514

 
7,917

     Other intangible assets
1,698

 
1,768

     Other
320

 
880

          Total assets
$
23,513

 
$
25,115

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt
$
1,486

 
$
2,975

     Accounts payables
2,614

 
2,645

     Accrued expenses
2,783

 
2,736

     Income taxes
67

 
177

          Total current liabilities
6,950

 
8,533

     Long-term debt
4,059

 
3,565

     Other liabilities
2,240

 
2,144

     Total equity
10,264

 
10,873

          Total liabilities and equity
$
23,513

 
$
25,115


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Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Nine Months Ended June 30,
 
2013
 
2014
Operating activities
 
 
 
     Net earnings
$
1,258

 
$
1,769

     Depreciation and amortization
612

 
623

     Changes in operating working capital
(259
)
 
(157
)
     Pension funding
(109
)
 
(90
)
     Goodwill impairment, net of tax
475

 
—

     Other, net
226

 
139

          Net cash provided by operating activities
2,203

 
2,284

 
 
 
 
Investing activities
 
 
 
     Capital expenditures
(437
)
 
(573
)
     Purchase of businesses, net of cash and equivalents acquired
(20
)
 
(610
)
     Divestiture of business
3

 
264

     Other, net
(76
)
 
(107
)
          Net cash used by investing activities
(530
)
 
(1,026
)
 
 
 
 
Financing activities
 
 
 
     Net increase in short-term borrowings
273

 
1,133

     Proceeds from long-term debt
499

 
1

     Principal payments on long-term debt
(521
)
 
(323
)
     Dividends paid
(888
)
 
(910
)
     Purchases of treasury stock
(573
)
 
(783
)
     Purchase of noncontrolling interest
—

 
(574
)
     Other, net
12

 
(19
)
          Net cash used by financing activities
(1,198
)
 
(1,475
)
 
 
 
 
Effect of exchange rate changes on cash and equivalents
(32
)
 
(9
)
 
 
 
 
Increase (decrease) in cash and equivalents
443

 
(226
)
 
 
 
 
Beginning cash and equivalents
2,367

 
3,275

 
 
 
 
Ending cash and equivalents
$
2,810

 
$
3,049

 
 
 
 
 
 
 
 
 


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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended June 30,
 
2013
 
2014
Sales
 
 
 
     Process Management
$
2,182

 
$
2,317

     Industrial Automation
1,277

 
1,289

     Network Power
1,506

 
1,237

     Climate Technologies
1,119

 
1,191

     Commercial & Residential Solutions
472

 
492

 
6,556

 
6,526

     Eliminations
(212
)
 
(214
)
          Net sales
$
6,344

 
$
6,312

 
 
 
 
Earnings
 
 
 
     Process Management
$
470

 
$
473

     Industrial Automation
206

 
214

     Network Power
122

 
107

     Climate Technologies
235

 
250

     Commercial & Residential Solutions
96

 
108

 
1,129

 
1,152

     Differences in accounting methods
56

 
63

     Corporate and other
(623
)
 
(97
)
     Interest expense, net
(51
)
 
(46
)
          Earnings before income taxes
$
511

 
$
1,072

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
4

 
$
4

     Industrial Automation
14

 
2

     Network Power
12

 
3

     Climate Technologies
—

 
1

     Commercial & Residential Solutions
3

 
1

          Total
$
33

 
$
11


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Nine Months Ended June 30,
 
2013
 
2014
Sales
 
 
 
     Process Management
$
6,098

 
$
6,466

     Industrial Automation
3,627

 
3,670

     Network Power
4,446

 
3,711

     Climate Technologies
2,859

 
3,018

     Commercial & Residential Solutions
1,382

 
1,418

 
18,412

 
18,283

     Eliminations
(555
)
 
(553
)
          Net sales
$
17,857

 
$
17,730

 
 
 
 
Earnings
 
 
 
     Process Management
$
1,206

 
$
1,229

     Industrial Automation
556

 
563

     Network Power
338

 
286

     Climate Technologies
511

 
543

     Commercial & Residential Solutions
291

 
307

 
2,902

 
2,928

     Differences in accounting methods
160

 
180

     Corporate and other
(885
)
 
(429
)
     Interest expense, net
(162
)
 
(147
)
          Earnings before income taxes
$
2,015

 
$
2,532

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
11

 
$
12

     Industrial Automation
24

 
7

     Network Power
21

 
13

     Climate Technologies
2

 
11

     Commercial & Residential Solutions
7

 
2

          Total
$
65

 
$
45



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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):
 
 
 
 
 
 
 
 
 
 
Process
Industrial
Network
Climate
Comm &
 
Q3 Sales growth
Mgmt
Auto
Power
Tech
Res Solns
Total
 
Underlying*
2
 %
—
%
2
 %
6
%
4
%
3
 %
 
Acq/Div
4
 %
—
%
(20
)%
—
%
—
%
(4
)%
 
FX
—
 %
1
%
—
 %
—
%
—
%
—
 %
 
Net
6
 %
1
%
(18
)%
6
%
4
%
(1
)%
 
 
 
 
 
 
 
 
Q3 Earnings per share
2013
2014
Change
 
 
 
 
Excluding charges*
$
0.97

$
1.03

6
 %
 
 
 
 
Artesyn charges
(0.70
)
—

275
 %
 
 
 
 
Reported
$
0.27

$
1.03

281
 %
 
 
 
 
 
 
 
 
 
 
 
2014E Sales growth
 
 
 
 
 
 
 
Underlying*
3-5%

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

 
 
 
 
 
 
 
 
 
 



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 






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