Emerson Reports Fourth-Quarter Earnings Per Share of $1.01, Driven by Sales Increase of 13 Percent.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. ):
Strong Full-Year Results
- Record Sales of $17.3 billion, up 11 percent
- Record Reported Earnings per Share of $3.40, up 14 percent
- Earnings per Share of $3.55, up 19 percent excluding tax
provision for earnings repatriation
- Return on Total Capital of 15.5 percent, up 130 basis points
from fiscal 2004
Emerson (NYSE:EMR) 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 fourth quarter ended September September: see month. 30, 2005 were $4.6 billion, an increase of 13 percent over the $4.1 billion reported in the same period last year. The Company achieved underlying sales growth in the quarter of 9 percent, which excludes 4 percent for acquisitions. The strong sales growth generated net earnings in the quarter of $419 million, an 18 percent increase versus the prior year period. Earnings per share increased 20 percent to $1.01 from $0.84 in the fourth quarter of 2004. Earnings per share for the current quarter includes an additional $0.01 impact related to repatriation Repatriation The process of converting a foreign currency into the currency of one's own country. Notes: If you are American, converting British Pounds back to U.S. dollars is an example of repatriation. of foreign earnings under the American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Jobs Creation Act. The Company had previously recognized a tax expense of $0.14 per share for repatriation in the quarter ended June June: see month. 30, 2005. Net sales increased 11 percent to $17.3 billion for the fiscal year ended September 30, 2005. This represents a $1.7 billion increase from last year's sales of $15.6 billion. Earnings per share rose 19 percent to $3.55 in fiscal 2005, which excludes the $0.15 impact of earnings repatriation. Reported earnings per share were $3.40, a 14 percent increase from the $2.98 reported in fiscal 2004. "Emerson delivered another strong year in fiscal 2005, as record sales and earnings per share both saw double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. increases for the second consecutive year," said Emerson Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. 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 . "Our focus on the eight key growth initiatives and operational excellence programs continues to generate excellent results for our shareholders." 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 $2.2 billion in fiscal 2005, a 1 percent decrease from fiscal 2004 results which included a $140 million capital gain tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. . The strong cash flow performance was achieved while also supporting working capital investments required to sustain continued strong sales and order growth. Despite these investments in working capital, Emerson saw continued improvement in working capital efficiency as average days-in-the-cash-cycle improved from 73 days in fiscal 2004 to 71 days in fiscal 2005. "Emerson's ability to successfully manage working capital and cash flow is driven by our sharp focus on creating value for shareholders. This focus helped us achieve a return on total capital of 16.1 percent excluding the $63 million tax provision for earnings repatriation. This represents a 190 basis point improvement from fiscal 2004 and our fourth consecutive year of improvement on this very important measure," Farr said. On a reported basis return on total capital was 15.5 percent. Fiscal 2005 Operating Highlights Process Management had an exceptional year in 2005. Robust end market conditions, market leading technologies, and superior operational execution led to a record year for this segment. Sales for fiscal 2005 were $4.2 billion, an increase of 13 percent versus prior year. Underlying sales growth, which excludes the impact of acquisitions and currency, was 9 percent, driven by increases in all regions and included 22 percent growth in Asia, 29 percent growth in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , and 13 percent growth in 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. . Reported sales included a 2 percent favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact from acquisitions and 2 additional points from currency translation. The margin for this segment was 16 percent, a 310 basis point improvement versus fiscal 2004. The margin improvement was primarily driven by leverage on the sales increase and savings from prior year restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). . Industrial Automation also saw terrific results across the segment. Total sales were $3.2 billion, an increase of over 10 percent versus the prior year. Underlying sales growth was nearly 8 percent, led by 11 percent 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. and 4 percent growth in both 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). and Asia. Reported sales growth included a favorable currency impact of
nearly 3 percent. The margin for this segment was 14.3 percent, an
increase of 100 basis points from fiscal 2004. The margin improvement
reflects leverage on higher sales but was impacted negatively by
price-cost impacts during the year, primarily for steel and copper. In
addition, the recent years' restructuring has continued to improve
profitability.
Network Power sales were $3.3 billion in fiscal 2005, an increase of 23 percent versus the prior year. End markets remain strong across this business with particular strength in the AC power systems, uninterruptible power supplies 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), and precision cooling businesses. Underlying sales growth was 8 percent with acquisitions adding approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 14 percent and currency adding 1 percent. The margin for this segment was 11.2 percent, an increase of 20 basis points versus the prior year. Sales volume leverage and cost reduction efforts were substantially offset by pricing pressure and integration costs related to the acquisition of Marconi's North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. power systems business. Climate Technologies sales for the year increased 2 percent to $3.0 billion. This was a volatile With regard to computer memory, it means "temporary" and not "highly changeable," which is the usual meaning of the word. See volatile memory. 1. (programming) volatile - volatile variable. 2. (storage) volatile - See non-volatile storage. year for this segment as many unique market dynamics were experienced. Underlying sales growth was 1 percent excluding currency translation of 1 percent. The fiscal year growth was achieved on the strength of the fourth quarter, with underlying sales up 11 percent. Hot weather in the late summer months, combined with low inventory in the distribution channel helped to offset the effects of cooler-than-normal weather patterns in the late spring and early summer. Additionally, the pending transition in the United States to higher efficiency standards has driven some anticipatory demand. The fiscal 2005 margin for this segment was 14.9 percent, a decrease of 80 basis points from fiscal 2004, primarily due to negative product mix and material cost inflation. Appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and Tools achieved sales of $4.0 billion, an increase of 7 percent which included underlying sales growth of 3 percent. The growth was led by strength in the storage businesses and modest growth from the industrial motor business offset by softness in the appliance motor and component businesses. Reported sales included a favorable impact of 3 percent from acquisitions and 1 percent from currency translation. The margin for this segment was 13.3 percent, a decrease of 80 basis points as the segment was heavily affected by negative price-cost impacts and the dilutive impact of acquisitions. The necessary cost reduction and restructuring activities are under way to reverse this lower profit margin going forward. First Quarter 2006 Outlook The outlook for Emerson remains very favorable as we move into fiscal 2006. Many of Emerson's end markets remain strong, a trend that is evidenced by orders increasing approximately 15 percent during the fourth quarter of 2005. Based on record backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. levels at the end of fiscal 2005 and near term market expectations, Emerson is expecting first quarter sales growth in the range of 8 percent to 10 percent and earnings per share growth in the range of 12 percent to 15 percent. Emerson will provide an update on the full fiscal year 2006 expectations at our annual investment community update in February February: see month. 2006. Upcoming Investor Events On Tuesday Tuesday: see week. , November November: see month. 1, 2005, at 2:00 p.m. EST P.M. also p.m. or p.m. abbr. post meridiem Usage Note: By definition, 12 a.m. (1:00 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 and fiscal year 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. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site. On Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant morning, February 10, 2006, Emerson senior management will host Emerson's annual investment community update meeting in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. . Additional details will be available in December December: see month. . 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. These 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. The Company expects to file the Form 10-K including audited financial statements within the next 30 days.
TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Quarter Ended September 30, Percent
2004 2005 Change
Net sales $4,120 $4,643 13%
Less: Costs and expenses
Cost of sales 2,631 2,974
SG&A expenses 860 923
Other deductions, net 49 76
Interest expense, net 50 51
Earnings before income taxes 530 619 17%
Income taxes 176 200
Net earnings $ 354 $ 419 18%
Diluted avg. shares outstanding
(millions) 421.5 414.9
Diluted earnings per common
Share $ 0.84 $ 1.01 20%
Quarter Ended September 30,
2004 2005
Other deductions, net
Rationalization of operations $ 37 $ 28
Amortization of intangibles 7 7
Other 5 41
Total $ 49 $ 76
TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Year Ended September 30, Percent
2004 2005 Change
Net sales $15,615 $17,305 11%
Less: Costs and expenses
Cost of sales 10,049 11,122
SG&A expenses 3,281 3,595
Other deductions, net 223 230
Interest expense, net 210 209
Earnings before income taxes 1,852 2,149 16%
Income taxes 595 727
Net earnings $ 1,257 $ 1,422 13%
Diluted avg. shares outstanding
(millions) 422.2 418.9
Diluted earnings per common share $ 2.98 $ 3.40 14%
Year Ended September 30,
2004 2005
Other deductions, net
Rationalization of operations $ 129 $ 110
Amortization of intangibles 21 28
Other 100 118
Gains (27) (26)
Total $ 223 $ 230
TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
September 30,
2004 2005
Assets
Cash and equivalents $ 1,346 $ 1,233
Receivables, net 2,932 3,256
Inventories 1,705 1,813
Other current assets 433 535
Total current assets 6,416 6,837
Property, plant & equipment, net 2,937 3,003
Goodwill 5,259 5,479
Other 1,749 1,908
$16,361 $17,227
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 902 $ 970
Accounts payable 1,629 1,841
Accrued expenses 1,695 1,839
Income taxes 113 281
Total current liabilities 4,339 4,931
Long-term debt 3,136 3,128
Other liabilities 1,648 1,768
Stockholders' equity 7,238 7,400
$16,361 $17,227
TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Year Ended September 30,
2004 2005
Operating Activities
Net earnings $1,257 $1,422
Depreciation and amortization 557 562
Changes in operating working capital 322 110
Pension funding (167) (124)
Other 247 217
Net cash provided by operating activities 2,216 2,187
Investing Activities
Capital expenditures (400) (518)
Purchases of businesses, net of cash and
equivalents acquired (414) (366)
Other 97 (44)
Net cash used in investing activities (717) (928)
Financing Activities
Net increase (decrease) in short-term
borrowings (106) 320
Proceeds from long-term debt 29 251
Principal payments on long-term debt (16) (625)
Dividends paid (675) (694)
Treasury stock, net (121) (621)
Net cash used in financing activities (889) (1,369)
Effect of exchange rate changes on cash and
equivalents 40 (3)
Increase (decrease) in cash and equivalents 650 (113)
Beginning cash and equivalents 696 1,346
Ending cash and equivalents $1,346 $1,233
TABLE 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Quarter Ended September 30,
2004 2005
Sales
Process Management $1,024 $1,168
Industrial Automation 774 821
Network Power 737 941
Climate Technologies 744 825
Appliance and Tools 943 1,020
4,222 4,775
Eliminations (102) (132)
Net Sales $4,120 $4,643
Quarter Ended September 30,
2004 2005
Earnings
Process Management $ 167 $ 203
Industrial Automation 111 120
Network Power 91 131
Climate Technologies 113 115
Appliance and Tools 131 137
613 706
Differences in accounting methods 34 38
Corporate and other (67) (74)
Interest expense, net (50) (51)
Earnings before income taxes $ 530 $ 619
Quarter Ended September 30,
2004 2005
Rationalization of operations
Process Management $ 7 $ 6
Industrial Automation 3 3
Network Power 5 6
Climate Technologies 4 6
Appliance and Tools 16 7
Corporate 2 -
Total Emerson $ 37 $ 28
TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Year Ended September 30,
2004 2005
Sales
Process Management $ 3,703 $ 4,200
Industrial Automation 2,936 3,242
Network Power 2,692 3,317
Climate Technologies 2,983 3,041
Appliance and Tools 3,749 4,008
16,063 17,808
Eliminations (448) (503)
Net Sales $15,615 $17,305
Year Ended September 30,
2004 2005
Earnings
Process Management $ 476 $ 671
Industrial Automation 391 464
Network Power 297 373
Climate Technologies 467 453
Appliance and Tools 530 534
2,161 2,495
Differences in accounting methods 126 145
Corporate and other (225) (282)
Interest expense, net (210) (209)
Earnings from continuing operations
before income taxes $ 1,852 $ 2,149
Year Ended September 30,
2004 2005
Rationalization of operations
Process Management $ 31 $ 20
Industrial Automation 14 15
Network Power 26 35
Climate Technologies 17 15
Appliance and Tools 47 24
Corporate (6) 1
Total Emerson $ 129 $ 110
TABLE 7
Reconciliations of Non-GAAP Financial Measures
The following reconciles each non-GAAP measure with the most directly
comparable GAAP measure (dollars in millions):
Fiscal
4Q 2005 2005
Net Sales
Underlying Sales (Non-GAAP) 9% 6%
Currency Translation 0 pts 2 pts
Acquisitions 4 pts 3 pts
Net Sales 13% 11%
2004 2005 Change
Fiscal Year Cash Flow
Operating Cash Flow $ 2,216 $ 2,187 (1%)
Percent to Earnings 176% 154%
Capital Expenditures 400 518
Free Cash Flow (Non-GAAP) $ 1,816 $ 1,669 (8%)
Percent to Earnings (Non-GAAP) 144% 117%
Excl. Tax
Tax Charge
Reported Charge(1) (Non-GAAP)
Fiscal Year Excluding Tax Charge
Earnings before income taxes $ 2,149 $ 2,149
Income taxes 727 (63) 664
Effective tax rate 33.8% 30.9%
Net earnings $ 1,422 63 $ 1,485
Diluted earnings per common share $ 3.40 $0.15 $ 3.55
Tax ROTC excl.
Return on Total Capital Reported Charge(1) Tax Charge
Net Operating Profit After Tax $ 1,561 63 $ 1,624
Average Operating Capital $10,074 32 $10,106
Return on Total Capital 15.5% 16.1%
(1) Tax Charge relating to repatriation of foreign earnings under
American Jobs Creation Act.
All amounts above are GAAP financial measures except as noted.
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