EMERSON ELECTRIC CO - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 1, 2018

Attached files

file filename
8-K - 8-K - EMERSON ELECTRIC COa2018q2release_8k.htm

emrlogoa02a11.jpg
Investor Contact: Tim Reeves (314) 553-2197
Media Contact: Pat Kane (314) 982-8726

EMERSON REPORTS STRONG SECOND QUARTER 2018 RESULTS AND RAISES FULL-YEAR GUIDANCE

•
Net sales of $4.2 billion increased 19 percent, or 8 percent on an underlying basis
•
EPS from continuing operations increased 31 percent to $0.76
•
Raised full-year guidance based on strong operational performance
•
Returned more than $550 million to shareholders, including $250 million of share repurchases
•
Closed Cooper-Atkins and ProSys acquisitions and announced the Tools & Test acquisition, expected to close in the fiscal fourth quarter

ST. LOUIS, May 1, 2018 – Emerson (NYSE: EMR) today announced net sales were up 19 percent in the second quarter ended March 31, 2018, with underlying sales up 8 percent excluding favorable currency of 3 percent and an impact from acquisitions and divestitures of 8 percent. The second quarter results reflect strong global economic conditions and continued favorable demand. Both mature and emerging markets delivered high-single digit underlying growth.
Margins improved versus prior year, excluding the impact of recent acquisitions, driven by leverage on higher sales and the benefit of prior year restructuring actions. Reported pretax margin of 15.5 percent and EBIT margin of 16.3 percent decreased 30 and 70 basis points, respectively. EBIT margin of 18.7 percent increased 170 basis points excluding Valves & Controls. GAAP earnings per share from continuing operations increased 31 percent to $0.76.
“Our second quarter results close out an excellent first half in which strong global markets drove underlying growth, and our businesses delivered healthy incremental margins and earnings that exceeded our expectations,” said Chairman and Chief Executive Officer David N. Farr. “Across the Company, our teams are executing well, and have positioned Emerson to deliver strong earnings and cash flow growth in 2018.”
    
Business Platform Results
Automation Solutions net sales increased 31 percent in the quarter, with underlying sales up 10 percent excluding favorable currency of 4 percent and an impact from acquisitions of 17 percent. Growth continued to reflect strong short cycle repair and maintenance (MRO) demand and small and mid-sized


Page 2

projects focused on expansion and optimization of existing facilities. Globally, the business saw growth across all key process automation market verticals, including upstream, midstream and downstream oil and gas, chemical and power generation. In addition, Emerson's global power business grew net sales and orders in the first half, despite difficult market dynamics, due to strong participation in plant retrofit opportunities and in greenfield projects for combined cycle and natural gas.
North American underlying sales were up 16 percent reflecting continued favorable trends in energy-related, chemical, life sciences and discrete markets. Asia underlying sales were up 7 percent, with China up 20 percent due to continued strong demand across process, hybrid and discrete markets. Project timing impacted Latin America negatively, down 10 percent, and Middle East/Africa positively, up 29 percent, while order trends in both regions were positive. Europe was down 1 percent, but order trends were favorable. Margin increased 20 basis points to 15.7 percent compared with the prior year. Excluding the dilutive impact of the Valves & Controls acquisition, margin increased 240 basis points to 17.9 percent, driven by leverage on higher sales and restructuring benefits. The Final Control management team continued to execute restructuring and integration plans around the Valves & Controls acquisition, which delivered strong performance in the quarter and meaningful sequential margin improvement.
Commercial & Residential Solutions second quarter net sales were up 2 percent and underlying sales increased 4 percent excluding favorable currency of 2 percent and an impact from divestitures net of acquisitions of 4 percent. Underlying sales in North America were up 1 percent as strong demand for professional tools was offset by slower than expected air conditioning demand. Underlying economics in air conditioning markets remain positive and we expect demand to accelerate in the second half. Asia grew 17 percent, driven by continued strong refrigeration and air conditioning demand in China and elsewhere in the region. Europe was up 5 percent, reflecting favorable demand in air conditioning and construction-related markets. Margin continues to run at a high level, but decreased 10 basis points to 23.6 percent compared with the prior year.

2018 Outlook
Based on favorable global demand trends and strong first half operational performance, the Company is raising full-year sales guidance to the high-end of the previously communicated range and increasing the expected earnings per share range. The updated guidance does not include the results of the recently announced $810 million Tools & Test acquisition, expected to close in the fiscal fourth quarter.
Management expects increasing capital investment in Automation Solutions' end markets, and continued steady demand in Commercial & Residential Solutions' end markets for the remainder of 2018. Total Emerson net sales growth is now expected to be approximately 13 percent, with Automation Solutions up 20 percent and Commercial & Residential Solutions up 2 percent. Excluding a 6 percent impact from acquisitions, divestitures and currency translation, total Emerson underlying sales growth is


Page 3

expected to be approximately 7 percent, with Automation Solutions up 8 percent and Commercial & Residential Solutions up 5 percent.
The GAAP earnings per share guidance range is increased to $3.10 to $3.20 from prior guidance of $3.05 to $3.15.
“We achieved some encouraging milestones in the first half of 2018 that give us a high degree of confidence in the strength of our businesses and end markets,” said Farr. “These achievements include strong execution in China, where underlying sales grew over 20 percent across both business platforms; the broad-based growth of Automation Solutions, up 10 percent underlying in the first half; and the outstanding integration progress and meaningful sequential margin improvement at Valves & Controls."
    
Upcoming Investor Events
Today, beginning at 2:00 p.m. Eastern Time, Emerson management will discuss the second quarter results during an investor 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 90 days.
        
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, competitive and technological factors, and the impact of the Tax Cuts and Jobs Act, 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)



Page 4

 
 
 
 
 
Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Quarter Ended March 31
 
Percent
 
2017
 
2018
 
Change
 
 
 
 
 
 
Net sales

$3,574

 

$4,248

 
19%
Costs and expenses:
 
 
 
 
 
     Cost of sales
2,017

 
2,423

 
 
     SG&A expenses
868

 
1,032

 
 
     Other deductions, net
83

 
99

 
 
     Interest expense, net
41

 
36

 
 
Earnings from continuing operations before income taxes
565

 
658

 
16%
Income taxes
181

 
169

 
 
Earnings from continuing operations
384

 
489

 
27%
Discontinued operations, net of tax
(84
)
 
—

 
 
Net earnings
300

 
489

 
 
Less: Noncontrolling interests in earnings of subsidiaries
8

 
7

 
 
Net earnings common stockholders

$292

 

$482

 
65%
 
 
 
 
 
 
Diluted avg. shares outstanding
644.8

 
636.0

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
 
 
 
 
 
Earnings from continuing operations

$0.58

 

$0.76

 
31%
Discontinued operations

($0.13
)
 
—

 
 
Diluted earnings per common share

$0.45

 

$0.76

 
69%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
2017
 
2018
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles

$21

 

$51

 
 
     Restructuring costs
13

 
9

 
 
     Other
49

 
39

 
 
          Total

$83

 

$99

 
 



Page 5

 
 
 
 
 
Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Six Months Ended March 31
 
Percent
 
2017
 
2018
 
Change
 
 
 
 
 
 
Net sales

$6,790

 

$8,064

 
19%
Costs and expenses:
 
 
 
 
 
     Cost of sales
3,868

 
4,618

 
 
     SG&A expenses
1,690

 
2,024

 
 
     Other deductions, net
116

 
187

 
 
     Interest expense, net
87

 
74

 
 
Earnings from continuing operations before income taxes
1,029

 
1,161

 
13%
Income taxes
275

 
278

 
 
Earnings from continuing operations
754

 
883

 
17%
Discontinued operations, net of tax
(139
)
 
—

 
 
Net earnings
615

 
883

 
 
Less: Noncontrolling interests in earnings of subsidiaries
14

 
9

 
 
Net earnings common stockholders

$601

 

$874

 
46%
 
 
 
 
 
 
Diluted avg. shares outstanding
644.5

 
638.3

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
 
 
 
 
 
Earnings from continuing operations

$1.14

 

$1.37

 
20%
Discontinued operations

($0.21
)
 
—

 
 
Diluted earnings per common share

$0.93

 

$1.37

 
47%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31
 
 
 
2017
 
2018
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles

$43

 

$107

 
 
     Restructuring costs
24

 
24

 
 
     Other
49

 
56

 
 
          Total

$116

 

$187

 
 



Page 6

 
 
 
Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31
 
2017
 
2018
Assets
 
 
 
     Cash and equivalents

$5,039

 

$2,444

     Receivables, net
2,479

 
3,042

     Inventories
1,331

 
1,897

     Other current assets
597

 
342

          Total current assets
9,446

 
7,725

     Property, plant & equipment, net
2,880

 
3,299

     Goodwill
3,891

 
5,821

     Other intangible assets
869

 
2,203

     Other
191

 
737

          Total assets

$17,277

 

$19,785

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt

$252

 

$1,833

     Accounts payable
1,368

 
1,603

     Accrued expenses
1,952

 
2,362

     Income taxes
199

 
147

          Total current liabilities
3,771

 
5,945

     Long-term debt
3,816

 
3,357

     Other liabilities
1,633

 
1,946

     Total equity
8,057

 
8,537

          Total liabilities and equity

$17,277

 

$19,785



Page 7

 
 
 
 
Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
 
Six Months Ended March 31
 
 
2017
 
2018
Operating activities
 
 
 
 
Net earnings
 
$615
 
$883
Loss from discontinued operations, net of tax
 
139

 
—

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
        Depreciation and amortization
 
283

 
378

        Changes in operating working capital
 
(126
)
 
(363
)
        Other, net
 
100

 
46

            Cash from continuing operations
 
1,011

 
944

            Cash from discontinued operations
 
(601
)
 
—

            Cash provided by operating activities
 
410

 
944

 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(194
)
 
(194
)
Purchases of businesses, net of cash and equivalents acquired
 
(16
)
 
(770
)
Divestitures of businesses
 
—

 
221

Other, net
 
(50
)
 
(42
)
    Cash from continuing operations
 
(260
)
 
(785
)
    Cash from discontinued operations
 
5,051

 
—

    Cash provided by (used in) investing activities
 
4,791

 
(785
)
 
 
 
 
 
Financing activities
 
 
 
 
Net increase (decrease) in short-term borrowings
 
(2,318
)
 
782

Payments of long-term debt
 
(252
)
 
(251
)
Dividends paid
 
(621
)
 
(618
)
Purchases of common stock
 
(120
)
 
(750
)
Other, net
 
29

 
(6
)
    Cash used in financing activities
 
(3,282
)
 
(843
)
 
 
 
 
 
Effect of exchange rate changes on cash and equivalents
 
(62
)
 
66

Increase (Decrease) in cash and equivalents
 
1,857

 
(618
)
Beginning cash and equivalents
 
3,182

 
3,062

Ending cash and equivalents
 
$5,039
 
$2,444
 
 
 
 
 




Page 8

 
 
 
Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31
 
2017
 
2018
Sales
 
 
 
     Automation Solutions

$2,117

 

$2,771

 
 
 
 
     Climate Technologies
1,058

 
1,128

     Tools & Home Products
402

 
355

     Commercial & Residential Solutions
1,460

 
1,483

 
 
 
 
     Eliminations
(3
)
 
(6
)
          Net sales

$3,574

 

$4,248

 
 
 
 
Earnings
 
 
 
     Automation Solutions

$328

 

$436

 
 
 
 
     Climate Technologies
249

 
253

     Tools & Home Products
96

 
96

     Commercial & Residential Solutions
345

 
349

 
 
 
 
     Differences in accounting methods
35

 
55

     Corporate and other
(102
)
 
(146
)
     Interest expense, net
(41
)
 
(36
)
          Earnings before income taxes

$565

 

$658

 
 
 
 
Restructuring costs
 
 
 
     Automation Solutions

$9

 

$7

 
 
 
 
     Climate Technologies
3

 
2

     Tools & Home Products
—

 
—

     Commercial & Residential Solutions
3

 
2

 
 
 
 
     Corporate
1

 
—

          Total

$13

 

$9




Page 9

 
 
 
Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Six Months Ended March 31
 
2017
 
2018
Sales
 
 
 
     Automation Solutions

$4,084

 

$5,343

 
 
 
 
     Climate Technologies
1,917

 
2,050

     Tools & Home Products
795

 
685

     Commercial & Residential Solutions
2,712

 
2,735

 
 
 
 
     Eliminations
(6
)
 
(14
)
          Net sales

$6,790

 

$8,064

 
 
 
 
Earnings
 
 
 
     Automation Solutions

$654

 

$822

 
 
 
 
     Climate Technologies
410

 
418

     Tools & Home Products
184

 
183

     Commercial & Residential Solutions
594

 
601

 
 
 
 
     Differences in accounting methods
68

 
106

     Corporate and other
(200
)
 
(294
)
     Interest expense, net
(87
)
 
(74
)
          Earnings before income taxes

$1,029

 

$1,161

 
 
 
 
Restructuring costs
 
 
 
     Automation Solutions

$15

 

$17

 
 
 
 
     Climate Technologies
7

 
7

     Tools & Home Products
1

 
—

     Commercial & Residential Solutions
8

 
7

 
 
 
 
     Corporate
1

 
—

          Total

$24

 

$24




Page 10

 
Reconciliations of Non-GAAP Financial Measures & Other
 
Table 7
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
 
 
 
 
 
 
 
 
 
 
 
 
 
Q2 2018 Underlying Sales Change
Auto Solns
 
Comm & Res
Solns
 
Emerson
 
 
Reported (GAAP)
 
31
 %
 
2
 %
 
19
 %
 
 
FX
(4
)%
 
(2
)%
 
(3
)%
 
 
Acquisitions/Divestitures
(17
)%
 
4
 %
 
(8
)%
 
 
Underlying*
10
 %
 
4
 %
 
8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
FY 2018E Underlying Sales Change
Auto Solns
 
Comm & Res
Solns
 
Emerson
 
 
Reported (GAAP)
 
~ 20%

 
~ 2%

 
~ 13%

 
 
FX
~ (3)%

 
~ (2)%

 
~ (2)%

 
 
Acquisitions/Divestitures
 
~ (9)%

 
~ 5%

 
~ (4)%

 
 
Underlying*
 
~ 8%

 
~ 5%

 
~ 7 %

 
 
 
 
 
 
 
 
 
 
Q2 2018 EBIT Margins
Q2 FY17
 
Q2 FY18
 
Change
 
 
Pretax margin (GAAP)
15.8
 %
 
15.5
 %
 
(30) bps

 
 
Interest expense, net
1.2
 %
 
0.8
 %
 
(40) bps

 
 
Earnings before interest and taxes margin*
17.0
 %
 
16.3
 %
 
(70) bps

 
 
Valves & Controls impact
—
 %
 
2.4
 %
 
240 bps

 
 
Earnings before interest and taxes margin excluding
17.0
 %
 
18.7
 %
 
170 bps

 
 
  Valves & Controls*
 
 
 
 
 
 
 
 
 
Automation Solutions Segment EBIT Margin
Q2 FY17
 
Q2 FY18
 
Change
 
 
Automation Solutions Segment EBIT margin (GAAP)
15.5
 %
 
15.7
 %
 
20 bps

 
 
Valves & Controls impact
—
 %
 
2.2
 %
 
220 bps

 
 
Automation Solutions Segment EBIT margin excluding
15.5
 %
 
17.9
 %
 
240 bps

 
 
  Valves & Controls*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.
 
 
 
 
 
 
 
 
 
 
 
 
###


Stock widget

Investing forum

EMERSON ELECTRIC CO Reports