Emerson Reports Second-Quarter 2005 Sales Up 10 Percent To $4.2 Billion; Earnings Per Share Of $0.83.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. ): --Strength in Process Management, Industrial Automation and Network Power segments --Price increases and cost reduction efforts more than offset higher raw material costs --FY 2005 earnings per share target raised to 12-to-16 percent growth Emerson (NYSE:EMR) announced that 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 increased 10 percent to $4.2 billion in the second quarter ended March 31, 2005, led by double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. sales growth in Process Management, Industrial Automation, and Network Power. Underlying sales were up 5 percent for the quarter, excluding the impact of exchange rates (2 percent) and acquisitions (3 percent). Net earnings for the second quarter increased 10 percent to $348 million, or $0.83 per share, an increase of 11 percent versus the prior-year period. Net earnings in the second quarter of fiscal 2004 were $318 million, or $0.75 per share. Excluding the impact of gains totaling $0.04 per share in the prior year, earnings per share were up 17 percent in the second quarter. "Emerson had an excellent second quarter, with continued strong gains in sales and earnings," 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 . "In particular, our second-quarter results reflect outstanding strength in Process Management, which saw reported sales increase 12 percent and profits grow 55 percent as it continues to win major projects around the world. The Network Power segment also posted excellent results, with the introduction of new global solutions platforms and the Marconi (Marconi Communications, Warrendale, PA, www.marconi.com) A leading manufacturer of networking equipment. Founded in 1990 as FORE Systems by four Carnegie Mellon University faculty members, the company name was derived from its founders' first names: Francois, Onat, Robert and Eric. Power acquisition made in the fourth quarter of 2004 contributing to a 22 percent gain in reported sales and a 31 percent increase in profits. The margin for this segment was up 70 basis points as operating improvements resulting from prior-period cost reductions enabled the group to overcome the dilutive impact of the Marconi Power acquisition. "The strong sales increase for the quarter was also driven by the company's global positioning in faster growing emerging markets. Underlying sales 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 5 percent in the second quarter, led by strength in Process Management, Industrial Automation, and Network Power. Underlying international sales also grew 5 percent in the second quarter, led by demand in emerging markets in Asia, 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. , and Russia Russia, officially the Russian Federation, Rus. Rossiya, republic (2005 est. pop. 143,420,000), 6,591,100 sq mi (17,070,949 sq km). . Our continued investment in these areas provides a solid foundation for future growth. "Margins improved during the quarter, as benefits from sales volume leverage and our previous 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). actions more than offset significantly higher material costs and the impact of the Marconi Power acquisition. The operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: improved 20 basis points versus the prior-year quarter, driven by solid improvements in Process Management, Network Power, and Industrial Automation. The Appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and Tools and Climate Technologies segments experienced margin pressure due to higher commodity prices. We expect this situation to improve in the second half of the year as price increases are expected to more fully offset commodity inflation and our continued restructuring efforts deliver planned benefits. Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta margin for the quarter was down 30 basis points reflecting prior-year gains of $27 million. "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 $441 million for the quarter, compared to $451 million in the second quarter of 2004, reflecting investment in working capital to support higher sales. Free cash flow was $301 million versus $371 million in the prior-year period, primarily the result of increased capital investment to expand scroll compressor A scroll compressor, also known as scroll pump and scroll vacuum pump, uses two interleaved spiral-like vanes to pump or compress fluids such as liquids and gases. The vane geometry may be involute, archimedean spiral, or hybrid curves. capacity to meet future demand as global markets move toward more efficient air conditioning air conditioning, mechanical process for controlling the humidity, temperature, cleanliness, and circulation of air in buildings and rooms. Indoor air is conditioned and regulated to maintain the temperature-humidity ratio that is most comfortable and healthful. . We continue to focus sharply on operational efficiency and lean manufacturing Lean manufacturing is the production of goods using less of everything compared to mass production: less human effort, less manufacturing space, less investment in tools, and less engineering time to develop a new product. initiatives, with the average 'days-in-the-cash-cycle' improving to 74 days in the quarter from 79 days in the prior-year period. We remain committed to the full-year targets of $2.1 billion of operating cash flow and $1.6 billion of free cash flow, which includes $0.5 billion of capital expenditures. "The ratio of net debt to net capital at the end of the second quarter improved to 27.1 percent, from 30.5 percent in the prior-year period. Operating cash flow to total debt also showed significant improvement, increasing to 49.1 percent from 41.9 percent in the prior year period. Our strong financial position allows us to create value for our shareholders by investing in our existing businesses and making strategic acquisitions that expand our capabilities and strengthen our market positions. "Our strong sales performance clearly demonstrates the power of our technological leadership and strong customer relationships. Process Management continues to win large, complex projects around the globe with industry-leading PlantWeb technology and a world-class world-class adj. 1. Ranking among the foremost in the world; of an international standard of excellence; of the highest order: a world-class figure skater. 2. solutions organization. Among these is the recent $7 million contract award to automate To turn a set of manual steps into an operation that goes by itself. See automation. the Datang The Datang group is a Chinese telecommunication equipment vendor best known for its leading role in developing the Chinese TD-SCDMA 3G mobile telecommunications standard through subsidiary Datang Mobile. Ningde Ningde (Simplified Chinese: 宁德; Traditional Chinese: 寕德; Pinyin: Níngdé), also known as Mindong Power Plant in China, the first large-scale large-scale adj. 1. Large in scope or extent. 2. Drawn or made large to show detail. large-scale Adjective 1. wide-ranging or extensive 2. coal-fired Adj. 1. coal-fired - fueled by burning coal; "a coal-fired ship" coal-burning fueled - heated, driven, or produced by burning fuel power plant to be built in China's Fujian Fujian (f  `jēĕn`) or Fukien (f`kēĕn`), province (1994 est. pop. Province. Network Power is achieving similar results with a tremendous
product, service, and solution capability focused on meeting all of our
customers' global power needs. This segment continues to integrate
the Marconi Power acquisition, which perfectly fits our strategy of
making synergistic synergistic /syn·er·gis·tic/ (sin?er-jis´tik)1. acting together. 2. enhancing the effect of another force or agent. syn·er·gis·tic adj. 1. acquisitions that fill product and geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. gaps. Growth in Industrial Automation was again driven by strong demand in the United States, particularly in 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 and power transmission businesses. "The continued order strength in March coupled with our strong financial results in the first six months of the year has solidified so·lid·i·fy v. so·lid·i·fied, so·lid·i·fy·ing, so·lid·i·fies v.tr. 1. To make solid, compact, or hard. 2. To make strong or united. v.intr. our outlook for fiscal 2005. We expect that order momentum and 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. should drive sales growth for the year between 9 percent and 11 percent and our operating improvements should allow Emerson to deliver earnings per share of between $3.35 and $3.45. This would represent earnings per share growth of between 12 percent and 16 percent, an increase over our prior guidance of EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. growth between 10 percent and 15 percent." The fiscal 2005 forecast for earnings growth of 12 percent to 16 percent excludes the tax impact of potentially repatriating 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. As of March 31, 2005, the company had not decided whether, and to what extent, it might repatriate repatriate To bring home assets that are currently held in a foreign country. Domestic corporations are frequently taxed on the profits that they repatriate, a factor inducing the firms to leave overseas the profits earned there. foreign earnings under this Act. Upcoming Investor Events On Tuesday Tuesday: see week. , May 3, 2005, at 2:00 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT (1:00 p.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT ), Emerson senior management will discuss the second-quarter fiscal 2005 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. 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.
TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Quarter Ended March 31, Percent
2004 2005 Change
Net sales $3,859 $4,227 10%
Less: Costs and expenses
Cost of sales 2,503 2,725
SG&A expenses 807 893
Other deductions, net 30 59
Interest expense, net 53 52
Earnings before income taxes 466 498 7%
Income taxes 148 150
Net earnings $318 $348 10%
Diluted earnings per common share $0.75 $0.83 11%
Quarter Ended March 31,
2004 2005
Other deductions, net
Rationalization of operations $28 $28
Amortization of intangibles 4 7
Other 25 24
Gains from divestitures (27) -
Total $30 $59
TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Six Months Ended March 31, Percent
2004 2005 Change
Net sales $7,459 $8,197 10%
Less: Costs and expenses
Cost of sales 4,821 5,283
SG&A expenses 1,597 1,765
Other deductions, net 108 111
Interest expense, net 110 106
Earnings before income taxes 823 932 13%
Income taxes 261 287
Net earnings $562 $645 15%
Diluted earnings per common share $1.33 $1.53 15%
Six Months Ended March 31,
2004 2005
Other deductions, net
Rationalization of operations $61 $57
Amortization of intangibles 10 13
Other 64 41
Gains from divestitures (27) -
Total $108 $111
TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
March 31,
2004 2005
Assets
Cash and equivalents $1,165 $1,606
Receivables, net 2,874 3,155
Inventories 1,631 1,907
Other current assets 638 478
Total current assets 6,308 7,146
Property, plant & equipment, net 2,906 2,976
Goodwill 5,022 5,406
Other 1,785 1,735
$16,021 $17,263
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $504 $1,569
Accounts payable 1,400 1,653
Accrued expenses 1,556 1,736
Income taxes 152 149
Total current liabilities 3,612 5,107
Long-term debt 3,756 2,881
Other liabilities 1,648 1,664
Stockholders' equity 7,005 7,611
$16,021 $17,263
TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN MILLIONS)
Six Months Ended March 31,
2004 2005
Operating Activities
Net earnings $562 $645
Depreciation and amortization 270 276
Changes in operating working capital (130) (284)
Other 33 65
Net cash provided by operating activities 735 702
Investing Activities
Capital expenditures (147) (232)
Purchases of businesses, net of cash &
equivalents acquired - (97)
Other 33 (29)
Net cash used in investing activities (114) (358)
Financing Activities
Net increase in short-term borrowings 105 414
Proceeds from long-term debt 28 1
Principal payments on long-term debt (7) (17)
Dividends paid (337) (349)
Net issuances (purchases) of treasury stock 21 (199)
Net cash used in financing activities (190) (150)
Effect of exchange rate changes on
cash and equivalents 38 66
Increase in cash and equivalents 469 260
Beginning cash and equivalents 696 1,346
Ending cash and equivalents $1,165 $1,606
TABLE 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Quarter Ended March 31,
2004 2005
Sales
Process Management $905 $1,009
Industrial Automation 723 799
Network Power 628 765
Climate Technologies 770 775
Appliance and Tools 950 1,011
3,976 4,359
Eliminations (117) (132)
Total Emerson $3,859 $4,227
Quarter Ended March 31,
2004 2005
Earnings
Process Management $100 $154
Industrial Automation 95 106
Network Power 58 77
Climate Technologies 125 121
Appliance and Tools 135 134
513 592
Differences in accounting methods 30 35
Corporate and other (24) (77)
Interest expense, net (53) (52)
Earnings before income taxes $466 $498
Quarter Ended March 31,
2004 2005
Rationalization of operations
Process Management $9 $4
Industrial Automation 3 4
Network Power 5 10
Climate Technologies 1 3
Appliance and Tools 11 6
Corporate (1) 1
Total Emerson $28 $28
TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Six Months Ended March 31,
2004 2005
Sales
Process Management $1,754 $1,971
Industrial Automation 1,418 1,595
Network Power 1,285 1,538
Climate Technologies 1,366 1,379
Appliance and Tools 1,851 1,949
7,674 8,432
Eliminations (215) (235)
Total Emerson $7,459 $8,197
Six Months Ended March 31,
2004 2005
Earnings
Process Management $190 $284
Industrial Automation 181 226
Network Power 128 144
Climate Technologies 205 207
Appliance and Tools 262 253
966 1,114
Differences in accounting methods 59 68
Corporate and other (92) (144)
Interest expense, net (110) (106)
Earnings before income taxes $823 $932
Six Months Ended March 31,
2004 2005
Rationalization of operations
Process Management $17 $9
Industrial Automation 7 8
Network Power 17 22
Climate Technologies 8 5
Appliance and Tools 17 12
Corporate (5) 1
Total Emerson $61 $57
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):
Percent
2004 2005 Change
Second-Quarter Cash Flow
Operating Cash Flow $451 $441 (2%)
Capital Expenditures 80 140
Free Cash Flow (Non-GAAP) $371 $301 (19%)
Second-Quarter Operating Profit
Net Sales $3,859 $4,227 10%
Cost of Sales 2,503 2,725
SG&A Expenses 807 893
Operating Profit (Non-GAAP) 549 609 11%
OP % (Non-GAAP) 14.2% 14.4%
Other Deductions, Net 30 59
Interest Expense, Net 53 52
Pre-Tax Earnings $466 $498 7%
Earnings % 12.1% 11.8%
2Q 2005
Net Sales
Underlying Sales (Non-GAAP) 5%
Currency Translation 2 pts
Acquisitions/Divestitures 3 pts
Net Sales 10%
Percent
Second-Quarter Earnings per Share 2004 2005 Change
Diluted earnings per common share $0.75 $0.83 11%
Gains from sale of MKS Instruments
and Louisville Ladder $0.04 -
Earnings per share excluding
gains (Non-GAAP) $0.71 $0.83 17%
All amounts above are GAAP financial measures except as noted.
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