Emerson Reports Strong Second-Quarter 2007 Results.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. ): - Sales increased 14 percent to $5.5 billion, led by international strength - Earnings per share increased 17 percent to $0.61 - Solid 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. of $548 million - Full-year outlook confirmed 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 second quarter ended March 31, 2007 were $5.5 billion, an increase of 14 percent over the $4.9 billion reported in the prior year period. Net earnings for the second quarter increased 14 percent to $494 million, or $0.61 per share. This represents a 17 percent increase in earnings per share from the $0.52 earned in the same period last year. The Company achieved underlying sales growth of more than 7 percent in the quarter, which excludes the impact of favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. exchange rates (over 2 percent) and growth from acquisitions, net of divestitures (4 percent). The growth was led by strong international results, where sales increased by 12 percent on an underlying basis. "Emerson's second-quarter performance, on top of the excellent results achieved in the prior year quarter, demonstrates continued momentum for the Company. The top-line growth achieved in the quarter illustrates the broad 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. capabilities we have established through many years of investing to globalize glob·al·ize tr.v. glob·al·ized, glob·al·iz·ing, glob·al·iz·es To make global or worldwide in scope or application. glob Emerson," said 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 global reach of Emerson, along with the diverse end-market exposures across the Company, allows us to achieve high levels of growth in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite softness that may be experienced in certain regions or customer segments," Farr said. Second-quarter operating profit margin Operating profit margin The ratio of operating profit to net sales. improved to 15.2 percent from 15.0 percent in the prior year period. Segment margins improved in four of the five business segments, largely as a result of leverage on the volume increases and benefits from prior cost reduction activities. Pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern margins improved to 13.3 percent from 12.9 percent in the prior year period. Commodity inflation remains persistent Permanent. See persistent data, persistent name and persistent object. persistent - persistence and has continued to put pressure on gross and operating profit margins. Segment Highlights Process Management delivered a strong quarter of sales and earnings performance. Reported sales grew by 18 percent which included an underlying sales increase of 11 percent and the favorable impact of currency translation (3 percent) and acquisitions (4 percent). Sales growth was balanced geographically ge·o·graph·ic also ge·o·graph·i·cal adj. 1. Of or relating to geography. 2. Concerning the topography of a specific region. ge , with 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. of 13 percent and 9 percent internationally. Orders rose at a double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. 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 drive the growth. The margin for this segment expanded by 110 basis points to 17.7 percent. Margins for this segment have improved for more than two years due to leverage on sales volume increases as well as its technology leadership, global footprint The amount of geographic space covered by an object. A computer footprint is the desk or floor surface it occupies. A satellite's footprint is the earth area covered by its downlink. See form factor. 1. , and cost reduction and productivity programs. Industrial Automation reported its fifth consecutive quarter of double-digit growth in reported and underlying sales. In the quarter, reported sales increased by 13 percent with 10 percent underlying growth, favorable currency translation of 4 percent and a 1 percent unfavorable impact from divestitures. Underlying international growth was 15 percent in the quarter, while the United States experienced 4 percent growth. The profit margin for this segment was 14.3 percent, an increase of 20 basis points from the prior year quarter. Network Power sales grew 19 percent in the quarter, which included underlying sales growth of 6 percent, a favorable impact of 11 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, all of which experienced double-digit growth during the quarter. The margin for this segment was 12.3 percent versus 11.9 percent in the prior year quarter. Compared to the first quarter of fiscal 2007, the margin for this segment improved by 250 basis points as the segment is realizing the benefits of prior cost reduction efforts. Climate Technologies sales increased 11 percent in the second quarter. Underlying sales increased more than 6 percent, acquisitions added 3 percent and currency translation added over 1 percent. Underlying sales in the United States were down nearly 3 percent reflecting slower residential construction rates and tough comparisons to the prior year period due to the 13-SEER transition. International growth for this segment was 23 percent as 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 both provided
exceptional growth. Adoption of heat pump heat pump: see air conditioning. heat pump Device for transferring heat from a substance or space at one temperature to another at a higher temperature. technologies in Europe continued to fuel strong compressor compressor, machine that decreases the volume of air or other gas by the application of pressure. Compressor types range from the simple hand pump and the piston-equipped compressor used to inflate tires to machines that use a rotating, bladed element to achieve sales growth in this segment. The margin for this segment expanded 40 basis points driven primarily by benefits from prior cost reduction activities and lower 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). spending. Appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and Tools sales grew 6 percent in the quarter which included more than 3 percent growth in underlying sales, reflecting higher sales prices and lower volume. Reported sales also included 1 percent favorable currency translation and 1 percent from acquisitions. Profitability for this segment declined by 210 basis points to 12.0 percent driven by 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 volume declines and the negative impact of store reset costs at the big-box retailers. These reset costs will drive sales growth in late 2007 and early 2008. Balance Sheet / Cash Flow Operating cash flow was $548 million in the second quarter of 2007, essentially flat compared to the prior year quarter. Improvements were made during the quarter on working capital programs. This is evidenced by the ratio of trade working capital as a percent of sales, which declined to 18.8 percent from 19.8 percent in the first quarter of 2007. "Our progress during the second quarter on improving working capital performance is encouraging. We are executing on the plans put in place to drive a more efficient balance sheet. This allows Emerson to generate significant cash flows which fund internal growth programs, while also funding 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 dividends for shareholders," Farr said. "Based on the second quarter results we still expect to generate 2007 operating cash flow of $2.7 billion, free cash flow of $2.0 billion and a return on total capital (ROTC) of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 19 percent." 2007 Outlook The first half of fiscal 2007 has provided a strong foundation for the full year, with global economic conditions generally matching expectations. Order trends across the business have also remained supportive supportive adjective Pertaining to a Pt management philosophy in which only the Sx of a particular condition are treated; supportive measures are often taken when no specific and/or effective therapy is available or accessible–eg, viral meningitis, or of our fiscal 2007 sales and earnings growth objectives. Based on these factors Emerson still expects full year underlying sales in the range of 5 to 7 percent, reported sales growth in the range of 9 to 11 percent and earnings per share in the range of $2.50 to $2.60. Upcoming Investor Events On Tuesday Tuesday: see week. , May 1, 2007, 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 2007 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.emerson.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, 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 March 31, Percent
2006 2007 Change
Net sales $4,852 $5,513 14%
Less: Costs and expenses
Cost of sales 3,118 3,561
SG&A expenses 1,005 1,115
Other deductions, net 54 43
Interest expense, net 50 58
Earnings before income taxes 625 736 18%
Income taxes 191 242
Net earnings $ 434 $ 494 14%
Diluted avg. shares
outstanding (millions) 829.0 804.9
Diluted earnings per common share $ 0.52 $ 0.61 17%
Quarter Ended March 31,
2006 2007
Other deductions, net
Rationalization of operations $ 22 $ 24
Amortization of intangibles 10 16
Other 28 27
Gains (6) (24)
Total $ 54 $ 43
TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Six Months Ended March 31, Percent
2006 2007 Change
Net sales $9,400 $10,564 12%
Less: Costs and expenses
Cost of sales 6,073 6,817
SG&A expenses 1,955 2,193
Other deductions, net 77 62
Interest expense, net 100 116
Earnings before income taxes 1,195 1,376 15%
Income taxes 362 437
Net earnings $ 833 $ 939 13%
Diluted avg. shares
outstanding (millions) 828.1 806.7
Diluted earnings per common share $ 1.00 $ 1.16 16%
Six Months Ended March 31,
2006 2007
Other deductions, net
Rationalization of operations $ 34 $ 40
Amortization of intangibles 19 30
Other 54 58
Gains (30) (66)
Total $ 77 $ 62
TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
March 31,
2006 2007
Assets
Cash and equivalents $ 604 $ 1,094
Receivables, net 3,404 3,888
Inventories 2,063 2,388
Other current assets 560 619
Total current assets 6,631 7,989
Property, plant & equipment, net 2,990 3,259
Goodwill 5,636 6,240
Other 1,952 2,044
$17,209 $19,532
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 412 $ 1,349
Accounts payable 1,867 2,137
Accrued expenses 1,705 2,016
Income taxes 279 284
Total current liabilities 4,263 5,786
Long-term debt 3,132 3,375
Other liabilities 1,867 2,025
Stockholders' equity 7,947 8,346
$17,209 $19,532
TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Six Months Ended March 31,
2006 2007
Operating Activities
Net earnings $ 833 $ 939
Depreciation and amortization 294 328
Changes in operating working capital (376) (464)
Other 117 72
Net cash provided by operating activities 868 875
Investing Activities
Capital expenditures (214) (276)
Purchases of businesses, net of cash &
equivalents acquired (269) (172)
Other 13 86
Net cash used in investing activities (470) (362)
Financing Activities
Net increase (decrease) in
short-term borrowings (311) 398
Proceeds from long-term debt 5 248
Principal payments on long-term debt (257) (3)
Dividends paid (367) (421)
Purchases of treasury stock (111) (478)
Other 15 6
Net cash used in financing activities (1,026) (250)
Effect of exchange rate changes
on cash and equivalents (1) 21
Increase (decrease) in cash and equivalents (629) 284
Beginning cash and equivalents 1,233 810
Ending cash and equivalents $ 604 $1,094
TABLE 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Quarter Ended March 31,
2006 2007
Sales
Process Management $1,143 $1,345
Industrial Automation 931 1,057
Network Power 1,004 1,191
Climate Technologies 852 945
Appliance and Tools 1,072 1,133
5,002 5,671
Eliminations (150) (158)
Total Emerson $4,852 $5,513
Quarter Ended March 31,
2006 2007
Earnings
Process Management $ 190 $ 239
Industrial Automation 131 151
Network Power 119 146
Climate Technologies 125 141
Appliance and Tools 151 137
716 814
Differences in accounting methods 42 52
Corporate and other (83) (72)
Interest expense, net (50) (58)
Earnings before income taxes $ 625 $ 736
Quarter Ended March 31,
2006 2007
Rationalization of operations
Process Management $ 1 $ 4
Industrial Automation 3 3
Network Power 3 5
Climate Technologies 8 4
Appliance and Tools 7 8
Total Emerson $ 22 $ 24
TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
Six Months Ended March 31,
2006 2007
Sales
Process Management $2,240 $ 2,563
Industrial Automation 1,791 2,051
Network Power 1,943 2,390
Climate Technologies 1,600 1,633
Appliance and Tools 2,112 2,221
9,686 10,858
Eliminations (286) (294)
Total Emerson $9,400 $10,564
Six Months Ended March 31,
2006 2007
Earnings
Process Management $ 366 $ 456
Industrial Automation 274 317
Network Power 227 263
Climate Technologies 227 231
Appliance and Tools 271 270
1,365 1,537
Differences in accounting methods 82 100
Corporate and other (152) (145)
Interest expense, net (100) (116)
Earnings before income taxes $1,195 $ 1,376
Six Months Ended March 31,
2006 2007
Rationalization of operations
Process Management $ 3 $ 6
Industrial Automation 5 6
Network Power 6 9
Climate Technologies 9 7
Appliance and Tools 11 12
Total Emerson $ 34 $ 40
TABLE 7
Reconciliations of Non-GAAP Financial Measures
The following reconciles non-GAAP measures with the most directly
comparable GAAP measures (dollars in millions):
Percent
2006 2007 Change
Second-Quarter Operating Profit
Net Sales $4,852 $5,513 14%
Cost of Sales 3,118 3,561
SG&A Expenses 1,005 1,115
Operating Profit (Non-GAAP) 729 837 15%
Operating Profit % (Non-GAAP) 15.0% 15.2%
Other Deductions, Net 54 43
Interest Expense, Net 50 58
Pretax Earnings $ 625 $ 736 18%
Pretax Earnings % 12.9% 13.3%
Expected
Fiscal 2007
Net Sales
Underlying Sales (Non-GAAP) 5 - 7%
Fgn. Currency Translation / Acq / Div 4 pts
Net Sales 9 - 11%
Full Year 2007 Expected Cash Flow
Operating Cash Flow approx. $2,700
Capital Expenditures approx. 700
Free Cash Flow (Non-GAAP) approx. $2,000
All amounts above are GAAP financial measures except as noted.
|
|
||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion