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

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Media Contact: Mark Polzin (314) 982-1758

EMERSON REPORTS FULL YEAR AND FOURTH QUARTER 2014 RESULTS

Fiscal 2014 Highlights:
•
Net sales declined slightly to $24.5 billion, with underlying sales up 3 percent, and underlying orders up 6 percent
•
Earnings per share of $3.75 excluding Chloride impairment; reported earnings per share of $3.03
•
Record operating cash flow of $3.7 billion, with over 60 percent returned to shareholders
•
Completed 58th consecutive year of increased dividends; targeting dividend increase of 9 percent to $0.47 for first quarter 2015

ST. LOUIS, November 4, 2014 – Emerson (NYSE: EMR) today announced that net sales in fiscal 2014 declined less than 1 percent, as 3 percent underlying sales growth and 1 percent contribution from acquisitions was offset by divestitures. Growth was led by a 6 percent increase in Climate Technologies and 7 percent growth in Process Management. Global business conditions remained sluggish, as the low-single-digit growth macroeconomic environment continued for a third consecutive year. Growth in the U.S., up over 4 percent, and China, up 7 percent, combined to contribute over 80 percent of the total underlying sales increase, as geopolitical instability and structural challenges limited growth in several emerging markets and in Europe.
Profitability reached new highs as gross profit margin expanded 110 basis points to 41.4 percent, reflecting more favorable business and technology mix flowing through to record segment margin. The margin improvement funded accelerated strategic investment programs, and drove stronger than expected earnings per share of $3.75, up 6 percent excluding charges in both years. Protracted weakness and deteriorating economic conditions in Europe and Middle East/Africa resulted in more cautious expectations for Network Power, with a reduced outlook requiring a noncash pretax impairment charge in the fourth quarter of $508 million ($0.72 per share) related to the Chloride business. Weak economic growth in Europe has persisted since Chloride was acquired in 2010, and expectations are low for European economic improvement in the next two to three years. Reported earnings per share of $3.03 increased 10 percent.
Operating cash flow of $3.7 billion surpassed last year's record level and outperformed expectations, reflecting a robust conversion rate. Cash returned to shareholders through dividends and share repurchase exceeded 60 percent for the fourth consecutive year. Today, the first quarter cash

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dividend is expected to be increased by 9 percent to $0.47, equivalent to an annual rate of $1.88 and representing 44 percent of 2014 free cash flow.
"Operationally, we closed 2014 with a strong finish, as profitability, earnings growth and cash generation met or exceeded our targets communicated at the start of the year," said Chairman and Chief Executive Officer David N. Farr. "Once again, global business investment struggled to sustain momentum, with growth fading through the year as economic uncertainty increased. I am very pleased with how we executed in this environment, delivering solid results while maintaining our strategic investment programs to continue to position Emerson for stronger long-term growth and enhance shareholder value."

Fourth Quarter Results
Net sales in the fourth quarter were unchanged, as 4 percent underlying sales growth was offset by divestitures and currency translation. Underlying sales increased in all segments, with Climate Technologies strongest. North America grew 8 percent, reflecting improved economic conditions, while sales in Europe were flat due to weaker market conditions, and growth in Asia eased to 2 percent, with difficult comparisons in China. Emerging market growth improved to 5 percent from 2 percent in the third quarter, but remained mixed across regions.
Earnings per share of $1.30, excluding charges in both years, increased 10 percent, benefiting from stronger than anticipated profitability. Gross profit margin expanded 120 basis points to 42.4 percent, with strong segment margin improvement driven by Process Management and Industrial Automation. Reported earnings per share of $0.58 declined 47 percent. Operating cash flow of $1.4 billion exceeded expectations on strong conversion and working capital management.

Business Segment Highlights
Process Management net sales grew 8 percent in the quarter, with underlying sales up 5 percent, supported by continued strength in global energy and chemical markets. Growth was strongest in North America, up 13 percent, as investments in oil and gas production and processing projects remained robust. Market conditions were mixed in Asia, up 1 percent, as strength in Southeast Asia and India was balanced by declines in Australia and China on challenging comparisons. Europe was flat, with improvement in Russia offset by project timing in the North Sea region. Segment margin expanded 130 basis points to 25.3 percent, benefiting from significant favorable currency comparisons. Recent order trends have been robust, with growth of 12 percent in the quarter, excluding 9 percent unfavorable currency translation, reflecting resilience of global energy investments and providing strong momentum into next year.
Industrial Automation sales increased 5 percent in the quarter, as demand for capital goods improved but remained mixed across markets, with North America up 12 percent, Asia up 5 percent, and

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Europe down 2 percent. Growth was led by the HVAC-related hermetic motors business, up over 20 percent, with strength in electrical distribution as well. All businesses grew except for motors and drives, which declined slightly, reflecting recent weakness in Europe. Segment margin improved 60 basis points to 18.1 percent. Varied market conditions are expected in the near term, as favorable momentum in North America and Asia continues, while weakening economic trends in Europe are discouraging.
Network Power net sales in the quarter decreased 20 percent, primarily related to the Artesyn divestiture, and underlying sales grew 1 percent, with North America up 1 percent, Asia down 3 percent, and Europe up 7 percent. Demand for data center solutions improved globally, led by large project activity in Europe and better conditions in North America. The telecommunications infrastructure business slowed, declining at a double-digit rate after strong growth the previous quarter, reflecting the timing of large global projects. Segment margin of 12.7 percent was unchanged from the prior year and up 400 basis points sequentially, a strong close to the year. Business conditions remain mixed globally, with gradual improvement in the data center business and inconsistent demand in telecommunications markets expected. The outlook for near term demand is conservative, especially in Europe and Middle East/Africa, with industry trends supporting more favorable expectations over the long term.
Climate Technologies sales increased 7 percent in the quarter, as 7 percent growth in North America and 8 percent growth in Asia more than offset a 3 percent decline in Europe. The air conditioning business in North America was strongest, with residential up over 20 percent on demand acceleration related to regulatory changes effective January 1, 2015, along with improvement in commercial markets. Strength in Asia benefited from continued momentum in China, up 7 percent on robust growth in the refrigeration business. Europe slowed, as economic conditions softened. Demand for sensors and controls decreased moderately. Segment margin declined 240 basis points to 17.8 percent, driven by unfavorable mix, higher investment spending, and customer accommodation expense related to a manufacturing process improvement. Robust growth is expected to continue in North America residential markets into the next quarter as channel inventory increases ahead of the regulatory changes, after which demand will slow through the first half of calendar 2015. Otherwise, market conditions are expected to remain favorable, with growth momentum continuing in North America and Asia.
Commercial & Residential Solutions sales increased 5 percent, the strongest quarter of the year, as 7 percent growth in North America more than offset a slight decline in international markets. Growth was led by the professional tools, wet/dry vacuums and food waste disposers businesses. Profitability remained at a high level, with segment margin of 23.2 percent. Solid trends in residential and commercial construction markets in North America are expected to continue, supporting the outlook for moderate levels of growth next year.



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2015 Outlook
Strong underlying orders, up 9 percent in the quarter, and record year-end backlog of $6.7 billion support the outlook for improved underlying sales growth in the near term. Global macroeconomic trends are mixed but gradually improving, with solid momentum in the NAFTA region and China balanced by increasing uncertainty in Europe and some emerging markets. Based on current conditions, underlying sales are expected to grow between 4 and 5 percent next year, better than in 2014, with unfavorable currency translation and the potential power transmission divestiture deducting 2 percent each, for a reported sales change of 0 to 1 percent. Profitability is expected to continue to improve modestly.
"Global business investment continues to be stubbornly slow, as several economies struggle to institute the critical reforms required for sustained growth," Farr said. "As such, we are planning conservatively for a 3 to 4 percent global gross fixed investment growth environment. The accelerated growth investments are starting to generate solid returns, as seen in our strong order trends, which will help drive improved underlying growth next year despite the absence of better economics. I am encouraged by the progress on our strategic initiatives across the businesses that continue to strengthen our position for long-term value creation."

Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the fourth quarter and fiscal year 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 Tuesday, November 11, 2014, at 8:30 a.m. CT, Emerson Chairman and Chief Executive Officer David N. Farr will present at the R. W. Baird Industrial Conference in Chicago, Illinois.

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 September 30,
 
Percent
 
2013
 
2014
 
Change
 
 
 
 
 
 
Net sales
$
6,812

 
$
6,807

 
—%
Costs and expenses:
 
 
 
 
 
     Cost of sales
4,008

 
3,918

 
 
     SG&A expenses
1,432

 
1,453

 
 
     Goodwill impairment
25

 
508

 
 
     Other deductions, net
110

 
65

 
 
     Interest expense, net
56

 
47

 
 
Earnings before income taxes
1,181

 
816

 
(31)%
Income taxes
373

 
401

 
 
Net earnings
808

 
415

 
(49)%
Less: Noncontrolling interests in earnings of subsidiaries
13

 
5

 
 
Net earnings common shareholders
$
795

 
$
410

 
(49)%
 
 
 
 
 
 
Diluted avg. shares outstanding
717.3

 
699.6

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
1.10

 
$
0.58

 
(47)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended September 30,
 
 
 
2013
 
2014
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
54

 
$
55

 
 
     Rationalization of operations
13

 
10

 
 
     Currency loss/(gain)
35

 
(8
)
 
 
     Other
8

 
8

 
 
          Total
$
110

 
$
65

 
 

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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Year Ended September 30,
 
Percent
 
2013
 
2014
 
Change
 
 
 
 
 
 
Net sales
$
24,669

 
$
24,537

 
(1)%
Costs and expenses:
 
 
 
 
 
     Cost of sales
14,717

 
14,379

 
 
     SG&A expenses
5,648

 
5,715

 
 
     Goodwill impairment
528

 
508

 
 
     Other deductions, net
362

 
393

 
 
     Interest expense, net
218

 
194

 
 
Earnings before income taxes
3,196

 
3,348

 
5%
Income taxes
1,130

 
1,164

 
 
Net earnings
2,066

 
2,184

 
6%
Less: Noncontrolling interests in earnings of subsidiaries
62

 
37

 
 
Net earnings common shareholders
$
2,004

 
$
2,147

 
7%
 
 
 
 
 
 
Diluted avg. shares outstanding
722.9

 
704.1

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
2.76

 
$
3.03

 
10%
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended September 30,
 
 
 
2013
 
2014
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
220

 
$
225

 
 
     Rationalization of operations
78

 
55

 
 
     Currency loss/(gain)
52

 
32

 
 
     Artesyn equity loss
—

 
34

 
 
     Other
12

 
47

 
 
          Total
$
362

 
$
393

 
 


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Year Ended September 30,
 
2013
 
2014
Assets
 
 
 
     Cash and equivalents
$
3,275

 
$
3,149

     Receivables, net
4,808

 
5,019

     Inventories
1,895

 
2,057

     Other current assets
1,021

 
642

          Total current assets
10,999

 
10,867

     Property, plant & equipment, net
3,605

 
3,802

     Goodwill
7,509

 
7,182

     Other intangible assets
1,672

 
1,689

     Other
926

 
637

          Total assets
$
24,711

 
$
24,177

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt
$
1,587

 
$
2,465

     Accounts payables
2,725

 
2,951

     Accrued expenses
3,184

 
2,876

     Income taxes
129

 
162

          Total current liabilities
7,625

 
8,454

     Long-term debt
4,055

 
3,559

     Other liabilities
2,313

 
1,997

     Total equity
10,718

 
10,167

          Total liabilities and equity
$
24,711

 
$
24,177


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Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Year Ended September 30,
 
2013
 
2014
Operating activities
 
 
 
     Net earnings
$
2,066

 
$
2,184

     Depreciation and amortization
819

 
831

     Changes in operating working capital
42

 
114

     Pension funding
(160
)
 
(130
)
     Goodwill impairment, net of tax
496

 
508

     Other, net
386

 
185

          Net cash provided by operating activities
3,649

 
3,692

 
 
 
 
Investing activities
 
 
 
     Capital expenditures
(678
)
 
(767
)
     Purchase of businesses, net of cash and equivalents acquired
(19
)
 
(610
)
     Divestiture of business
3

 
363

     Other, net
(95
)
 
(145
)
          Net cash used by investing activities
(789
)
 
(1,159
)
 
 
 
 
Financing activities
 
 
 
     Net increase in short-term borrowings
374

 
622

     Proceeds from long-term debt
496

 
1

     Principal payments on long-term debt
(521
)
 
(329
)
     Dividends paid
(1,181
)
 
(1,210
)
     Purchases of common stock
(1,110
)
 
(1,048
)
     Purchase of noncontrolling interests
(10
)
 
(574
)
     Other, net
19

 
(21
)
          Net cash used by financing activities
(1,933
)
 
(2,559
)
 
 
 
 
Effect of exchange rate changes on cash and equivalents
(19
)
 
(100
)
 
 
 
 
Increase (decrease) in cash and equivalents
908

 
(126
)
 
 
 
 
Beginning cash and equivalents
2,367

 
3,275

 
 
 
 
Ending cash and equivalents
$
3,275

 
$
3,149

 
 
 
 
 
 
 
 
 


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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended September 30,
 
2013
 
2014
Sales
 
 
 
     Process Management
$
2,512

 
$
2,723

     Industrial Automation
1,258

 
1,320

     Network Power
1,709

 
1,362

     Climate Technologies
1,017

 
1,091

     Commercial & Residential Solutions
483

 
506

 
6,979

 
7,002

     Eliminations
(167
)
 
(195
)
          Net sales
$
6,812

 
$
6,807

 
 
 
 
Earnings
 
 
 
     Process Management
$
603

 
$
689

     Industrial Automation
221

 
239

     Network Power
216

 
173

     Climate Technologies
205

 
194

     Commercial & Residential Solutions
113

 
117

 
1,358

 
1,412

     Differences in accounting methods
61

 
72

     Corporate and other
(182
)
 
(621
)
     Interest expense, net
(56
)
 
(47
)
          Earnings before income taxes
$
1,181

 
$
816

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
4

 
$
5

     Industrial Automation
3

 
—

     Network Power
4

 
2

     Climate Technologies
1

 
3

     Commercial & Residential Solutions
1

 
—

          Total
$
13

 
$
10


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Year Ended September 30,
 
2013
 
2014
Sales
 
 
 
     Process Management
$
8,610

 
$
9,189

     Industrial Automation
4,885

 
4,990

     Network Power
6,155

 
5,073

     Climate Technologies
3,876

 
4,109

     Commercial & Residential Solutions
1,865

 
1,924

 
25,391

 
25,285

     Eliminations
(722
)
 
(748
)
          Net sales
$
24,669

 
$
24,537

 
 
 
 
Earnings
 
 
 
     Process Management
$
1,809

 
$
1,918

     Industrial Automation
777

 
802

     Network Power
554

 
459

     Climate Technologies
716

 
737

     Commercial & Residential Solutions
404

 
424

 
4,260

 
4,340

     Differences in accounting methods
221

 
252

     Corporate and other
(1,067
)
 
(1,050
)
     Interest expense, net
(218
)
 
(194
)
          Earnings before income taxes
$
3,196

 
$
3,348

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
15

 
$
17

     Industrial Automation
27

 
7

     Network Power
25

 
15

     Climate Technologies
3

 
14

     Commercial & Residential Solutions
8

 
2

          Total
$
78

 
$
55



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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 &
 
 
Q4 sales change
Mgmt
 
Auto
 
Power
 
Tech
 
Res Solns
 
Total
 
Underlying*
5
 %
 
5
%
 
1
 %
 
7
%
 
5
%
 
4
 %
 
Acq/Div
4
 %
 
—
%
 
(20
)%
 
—
%
 
—
%
 
(3
)%
 
FX
(1
)%
 
—
%
 
(1
)%
 
—
%
 
—
%
 
(1
)%
 
Reported
8
 %
 
5
%
 
(20
)%
 
7
%
 
5
%
 
—
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Q4 earnings per share
2013
 
2014
 
Change
 
 
 
 
 
 
 
Excluding charges*
$
1.18

 
$
1.30

 
10
 %
 
 
 
 
 
 
 
Impairment/tax charges
(0.08
)
 
(0.72
)
 
(57
)%
 
 
 
 
 
 
 
Reported
$
1.10

 
$
0.58

 
(47
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Process
 
Industrial
 
Network
 
Climate
 
Comm &
 
 
2014 sales change
Mgmt
 
Auto
 
Power
 
Tech
 
Res Solns
 
Total
 
Underlying*
4
 %
 
2
%
 
2
 %
 
6
%
 
3
%
 
3
 %
 
Acq/Div
4
 %
 
—
%
 
(19
)%
 
—
%
 
—
%
 
(4
)%
 
FX
(1
)%
 
—
%
 
(1
)%
 
—
%
 
—
%
 
—
 %
 
Reported
7
 %
 
2
%
 
(18
)%
 
6
%
 
3
%
 
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 earnings per share
2013
 
2014
 
Change
 
 
 
 
 
 
 
Excluding charges*
$
3.54

 
$
3.75

 
6
 %
 
 
 
 
 
 
 
Impairment/tax charges
(0.78
)
 
(0.72
)
 
4
 %
 
 
 
 
 
 
 
Reported
$
2.76

 
$
3.03

 
10
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
% 2015E
 
 
 
 
 
 
 
 
Cash flow
2014
 
Dividend
 
 
 
 
 
 
 
 
 
Operating cash flow
$
3,692

 
35
%
 
 
 
 
 
 
 
 
 
Capital expenditures
(767
)
 
 
 
 
 
 
 
 
 
 
 
Free cash flow*
$
2,925

 
44
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015E sales change
 
 
 
 
 
 
 
 
 
 
 
 
Underlying*
4-5%
 
 
 
 
 
 
 
 
 
 
 
Acq/Div
(2
)%
 
 
 
 
 
 
 
 
 
 
 
FX
(2
)%
 
 
 
 
 
 
 
 
 
 
 
Reported
0-1%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.


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