Emerson Reports First-Quarter 2007 Sales Up 11 Percent To $5.1 Billion; 15 Percent Increase In Earnings Per Share To $0.55.ST. LOUIS -- Emerson (NYSE NYSE See: New York Stock Exchange : EMR (ElectroMagnetic Radiation) The emanation of energy from everything in the universe. Although the EMR from electrical and electronic devices is typically measured for practical, every-day situations, every object, including humans, emanates energy. ) announced net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the first quarter ended December December: see month. 31, 2006 were $5.1 billion, an increase of 11 percent over the $4.5 billion reported in the same period last year. Net earnings for the first quarter increased 12 percent to $445 million, or $0.55 per share. This represents a 15 percent increase in earnings per share from the $0.48 earned in the same period last year. All per share amounts reflect the 2-for-1 stock split in the form of a stock dividend that was paid on December 11, 2006. Underlying sales grew 4 percent in the quarter, which excludes the net impact of growth from acquisitions and divestitures (5 percent) and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. exchange rates (2 percent). Underlying international sales increased 11 percent, including strong growth in Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , Asia and Latin
America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. . This quarter marked the first time that international sales
were over 50 percent of total sales. As expected, underlying growth in
the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. was down 2 percent driven primarily by weakness in the
residential air-conditioning air-conditioningControl of temperature, humidity, purity, and motion of air in an enclosed space, independent of outside conditions. In a self-contained air-conditioning unit, air is heated in a boiler unit or cooled by being blown across a refrigerant-filled coil and then markets for the Climate Technologies segment, which experienced exceptionally strong growth last year as the industry converted to 13-SEER energy standards. "Emerson's first quarter demonstrates the strength of the global balance across our portfolio of businesses," said Emerson Chairman, Chief Executive Officer and President David N. Farr FARR Find and Run Robot FARR Friedreich Ataxia with Retained Reflexes FARR Forward Area Alerting Radar Receiver FARR Focused Area Risk Reduction (Air Force) FARR Forward Area Refueling and Rearming . "The Company's performance in the first quarter represents a solid start to what is expected to be another year of strong sales and earnings growth for Emerson." Segment Highlights Process Management delivered another quarter of strong sales and earnings performance. Reported sales grew by 11 percent which included an underlying sales increase of 6 percent and the favorable impact of currency translation (3 percent) and acquisitions (2 percent). Orders grew at a double digit Noun 1. double digit - a two-digit integer; from 10 to 99 integer, whole number - any of the natural numbers (positive or negative) or zero; "an integer is a number that is not a fraction" rate in the quarter as strong capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. in global energy markets continued to support the growth. The margin for this segment expanded by 170 basis points to 17.8 percent driven by leverage on the sales volume increase, benefits from new products and benefits from prior cost reduction activities. Industrial Automation achieved sales growth of 16 percent in the quarter. Underlying sales growth was 11 percent, which excludes the favorable impact of currency translation (4 percent) and acquisitions, net of divestitures (1 percent). Growth was led by Europe and Asia, which saw underlying growth of 15 percent and 18 percent, respectively. The capital spending environment continued to drive growth in these markets. Also, global demand for both primary and back-up In cartography, an image printed on the reverse side of a map sheet already printed on one side. Also the printing of such images. power generation capacity continued to drive strong growth for the power generating alternator alternator: see generator. alternator Source of direct electric current in modern vehicles for ignition, lights, fans, and other uses. The electric power is generated by an alternator mechanically coupled to the engine, with a rotor field coil business. The profit margin for this segment was 16.7 percent, an increase of 10 basis points from the prior year quarter. Network Power sales grew 28 percent in the quarter, which included a favorable impact of 17 percent from acquisitions, net of divestitures, and 2 percent from currency translation. Growth remained strong in the core uninterruptible power supply See UPS. (hardware) Uninterruptible Power Supply - (UPS) A battery powered power supply unit that is guaranteed to provide power to a computer in the event of interruptions in the incoming mains electrical power. (UPS), precision cooling and China power systems businesses which offset weakness in the North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. telecom power business. The margin for this segment was 9.8 percent versus 11.5 percent in the prior year quarter driven primarily by dilution Dilution A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Notes: Adding to the number of shares outstanding reduces the value of holdings of existing shareholders. from acquisitions and deleverage Deleverage The reduction of financial instruments or borrowed capital previously used to increase the potential return of an investment. It is the opposite of leverage. Notes: Increasing leverage increases a firm's risk, therefore, deleveraging attempts to lower risk. on significantly lower sales volumes in the North American telecom business. Climate Technologies sales decreased 8 percent in the first quarter of 2007. Underlying sales decreased 11 percent, which excludes the favorable impact of acquisitions (2 percent) and currency translation (1 percent). The sales decrease is primarily attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the North American residential air-conditioning market, where sales in the prior year quarter were exceptionally strong because of pending 13-SEER energy efficiency standards. Business was strong in Europe and Asia for this segment, with underlying sales growth of 33 percent and 11 percent, respectively. The margin for this business declined by 70 basis points, mainly due to deleverage on the North American sales volume declines, capacity expansion investments and margin dilution from acquisitions. Appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and Tools had sales growth of 5 percent in the quarter which included more than 1 percent of favorable currency translation and more than 1 percent from acquisitions. Strong growth from the tools and storage businesses was offset by a decline from the motors and appliance components businesses. Profitability for this segment improved by 70 basis points to 12.2 percent, driven primarily by benefits from prior cost reduction activities. Balance Sheet / Cash Flow Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. was $327 million in the first quarter of 2007, an increase of 2 percent from the first quarter of 2006. The cash flow increase was driven by increased earnings, which were mostly offset by increased working capital. The Company's financial position is strong, evidenced by the ratio of operating cash flow to debt at over 55 percent on a trailing 12 month basis. "Despite a slower start to the year, Emerson remains committed to generating significant amounts of cash flow in the current growth environment," Farr said. "We expect to generate approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $2.7 billion of operating cash flow and $2.0 billion of free cash flow in fiscal 2007. The key priorities for using this cash will continue to be funding internal growth and new products, dividends, share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. and acquisitions that strengthen our businesses." 2007 Outlook The first quarter provided a solid start to the year. Earnings performance slightly exceeded expectations and order trends remained healthy during the quarter. Based on these factors Emerson expects full year earnings per share in the range of $2.50 to $2.60, which would represent growth in the range of 12 percent to 16 percent. This earnings performance is predicated on underlying sales growth in the range of 5 percent to 7 percent and reported sales growth in the range of 8 percent to 11 percent. Upcoming Investor Events On February February: see month. 6, 2007, at 2:30 p.m. EST P.M. also p.m. or p.m. abbr. post meridiem Usage Note: By definition, 12 a.m. (1:30 p.m. CST CST abbr. 1. Central Standard Time 2. convulsive shock treatment CST Central Standard Time Noun 1. ), Emerson senior management will discuss the quarterly results during an investor conference call. All interested parties may listen to the live conference call via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the by going to the Investor Relations Investor relations The process by which the corporation communicates with its investors. area of Emerson's Web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the conference call will be available for the next three months at the same location on the Web site. On February 9, 2007, Emerson senior management will host the Company's annual investment community update meeting in New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . The meeting will discuss expectations for the Company's performance in 2007 as well as updates of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. initiatives being pursued to create value for shareholders. The presentations will begin at 8:30 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy and conclude at approximately 11:30 a.m. EST. All interested parties may listen to the webcast via the Internet by going to the Investor Relations area of Emerson's Web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the webcast will be available for approximately one week at the same location on the Web site. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site. Forward-Looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and Cautionary Statements Statements in this 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, and competitive and technological factors, among others, as set forth in the Company's most recent Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. filed with the SEC.
TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Quarter Ended December 31, Percent
2005 2006 Change
Net sales $4,548 $5,051 11%
Less: Costs and expenses
Cost of sales 2,955 3,256
SG&A expenses 950 1,078
Other deductions, net 23 19
Interest expense, net 50 58
Earnings before income taxes 570 640 12%
Income taxes 171 195
Net earnings $ 399 $ 445 12%
Diluted avg. shares outstanding
(millions) 827.2 808.5
Diluted earnings per common share $ 0.48 $ 0.55 15%
Quarter Ended December 31,
2005 2006
Other deductions, net
Rationalization of operations $ 12 $ 16
Amortization of intangibles 9 14
Other 26 31
Gains (24) (42)
Total $ 23 $ 19
TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
December 31,
2005 2006
Assets
Cash and equivalents $ 624 $ 1,090
Receivables, net 3,222 3,673
Inventories 1,942 2,410
Other current assets 501 573
Total current assets 6,289 7,746
Property, plant & equipment, net 2,969 3,220
Goodwill 5,477 6,077
Other 1,891 2,060
$16,626 $19,103
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 453 $ 1,167
Accounts payable 1,738 2,086
Accrued expenses 1,648 1,951
Income taxes 260 322
Total current liabilities 4,099 5,526
Long-term debt 3,128 3,375
Other liabilities 1,782 1,996
Stockholders' equity 7,617 8,206
$16,626 $19,103
TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Quarter Ended December 31,
2005 2006
Operating Activities
Net earnings $ 399 $ 445
Depreciation and amortization 141 161
Changes in operating working capital (263) (327)
Other 42 48
Net cash provided by
operating activities 319 327
Investing Activities
Capital expenditures (101) (121)
Purchases of businesses, net of cash
and equivalents acquired (57) -
Other (5) 43
Net cash used in
investing activities (163) (78)
Financing Activities
Net increase (decrease) in
short-term borrowings (262) 270
Proceeds from long-term debt - 248
Principal payments on long-term debt (254) (1)
Dividends paid (183) (211)
Purchases of treasury stock (41) (283)
Other (17) (6)
Net cash provided by (used in)
financing activities (757) 17
Effect of exchange rate changes on
cash and equivalents (8) 14
Increase (decrease) in cash and equivalents (609) 280
Beginning cash and equivalents 1,233 810
Ending cash and equivalents $ 624 $1,090
TABLE 4
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Quarter Ended December 31,
2005 2006
Sales
Process Management $1,097 $1,218
Industrial Automation 860 994
Network Power 939 1,199
Climate Technologies 748 688
Appliance and Tools 1,040 1,088
4,684 5,187
Eliminations (136) (136)
Net Sales $4,548 $5,051
Quarter Ended December 31,
2005 2006
Earnings
Process Management $ 176 $ 217
Industrial Automation 143 166
Network Power 108 117
Climate Technologies 102 90
Appliance and Tools 120 133
649 723
Differences in accounting methods 40 48
Corporate and other (69) (73)
Interest expense, net (50) (58)
Earnings before income taxes $ 570 $ 640
Quarter Ended December 31,
2005 2006
Rationalization of operations
Process Management $ 2 $ 2
Industrial Automation 2 3
Network Power 3 4
Climate Technologies 1 3
Appliance and Tools 4 4
Total Emerson $ 12 $ 16
TABLE 5
Reconciliations of Non-GAAP Financial Measures
The following reconciles each Non-GAAP measure with the most directly
comparable GAAP measure (dollars in millions):
Full Year 2007 Expected Cash Flow
Operating Cash Flow approx. $ 2,700
Capital Expenditures approx. 700
Free Cash Flow (Non-GAAP) approx. $ 2,000
Expected
Net Sales Fiscal 2007
Underlying Sales (Non-GAAP) 5% to 7%
Currency Translation / Acq. / Divest. +3 to +4 pts
Net Sales 8% to 11%
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