Emerson Reports Third-Quarter Sales Up 13 Percent To $4 Billion, Earnings Per Share of $0.81, and Operating Cash Flow of $755 Million.ST. LOUIS -- --Sales in Emerging Markets Up More Than 20 Percent --Operating Profit Increased 19 Percent --Pretax Profit Increased 51 Percent --Continued Improvement in Working Capital Management 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 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 for the third quarter of fiscal 2004, which ended June June: see month. 30, 2004, increased 13 percent to $4,036 million, from $3,573 million in the third quarter of fiscal 2003. Underlying sales, which exclude the impact of exchange rates, acquisitions, and divestitures, were up 11 percent for the quarter, with solid gains in every major region and strength 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. , 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 Asia. Earnings from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the for the third quarter increased 23 percent to $341 million, or $0.81 per share, from $278 million, or $0.66 per share, for the third quarter of 2003. Net earnings per share were $0.81 for the three months ended June 30, 2004, compared to net earnings per share of $0.85 for the prior year period, which included a net gain from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. of $82 million, or $0.19 per share. 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. for the third quarter of 2004 increased 258 percent to $755 million from $210 million in the prior-year period, and free cash flow (operating cash flow minus capital expenditures) increased 423 percent to $672 million. These increases reflect strong operational performance, as well as the $140 million tax refund Tax refund Money back from the government when too much tax has been paid or withheld from a salary. from the sale of the Jordan Jordan, country, Asia Jordan, officially Hashemite Kingdom of Jordan, kingdom (2005 est. pop. 5,760,000), 35,637 sq mi (92,300 sq km), SW Asia. It borders on Israel and the West Bank in the west, on Syria in the north, on Iraq in the northeast, and on Saudi stock including its Dura-Line operations, lower pension funding of $185 million in the current year, and continued improvements in working capital even with the strong sales growth. The ratio of trade working capital to sales improved to 19.2 percent in the third quarter from 21.8 percent in the prior year third quarter and sequentially from the second quarter ratio of 20.1 percent, further demonstrating the continued success of Emerson's capital efficiency initiatives. "This was an outstanding quarter, with strong performance across all businesses and all geographies," said Chief Executive 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 . "Emerson continued to outperform Outperform An analyst recommendation meaning a stock is expected to do slightly better than the market return. Notes: Exact definitions vary by brokerage, but in general this rating is better than neutral and worse than buy or strong buy. the competition with 13 percent sales growth, driven by the combination of strong market demand and the success of our growth initiatives. Sales increased in every major region of the world, led by more than 20 percent growth in emerging markets in Asia, Latin America, and Eastern Europe Eastern Europe The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. , and helped by increasing strength in the United States, where sales grew 12 percent during the quarter. "Our strategy in emerging markets has been to establish broad global positions that enable us to leverage the strength of Emerson's business platforms to provide services, systems, products, and solutions for local customers around the world. During the quarter we added to our leading worldwide position in the process control business with the $18 million acquisition of Metran Industrial Group, one of the top suppliers of flow products and services for the process industry in 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). and Eastern Europe. "Sales growth in the United States was driven by strong residential air-conditioning air-conditioning Control 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 demand, solid consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. , and an upturn in industrial fixed investment. Sales 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). was
moderate despite sluggish market growth and tougher prior-year
comparisons. Sales in Asia increased nearly 24 percent with double-digit dou·ble-dig·itadj. Being between 10 and 99 percent: double-digit inflation. increases in every business segment, and more than 40 percent growth in China. Latin America sales grew nearly 16 percent, led by robust sales in process control, HVAC (Heating Ventilation Air Conditioning) In the home or small office with a handful of computers, HVAC is more for human comfort than the machines. In large datacenters, a humidity-free room with a steady, cool temperature is essential for the trouble-free , and the electronics and telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. business. "Each of Emerson's segments delivered significant earnings growth during the quarter, led by strong improvements in the electronics and telecommunications business and the HVAC business. Our operating profit margin Operating profit margin The ratio of operating profit to net sales. improved 80 basis points, with margin increases in each of our businesses, delivering the payoff of all the 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). performed by Emerson's employees across the company in the last three years. Of all our accomplishments, we are especially pleased with our ability to continue taking tough actions to improve profitability despite pressure from materials and pension costs. "In addition to the profitability improvements, Emerson also excelled on its operational efficiency/lean initiatives and cash flow performance. The average 'days-in-the-cash-cycle' dropped to 76 days in the quarter from 86 days in the prior year, driving further improvements in working capital, which was a net contributor to operating cash flow during the quarter. The triple-digit operating and free cash flow improvements achieved during this quarter should allow us to exceed our previous stretch targets of $2 billion and $1.6 billion for operating cash flow and free cash flow, respectively, in fiscal 2004. "We are very excited about our recently announced acquisition of 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 business. We expect to close this transaction by the end of Emerson's fourth fiscal quarter, having recently received regulatory approval. The Marconi power business expands our North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. presence in DC products, solutions, and services, and enhances our position as a global leader in DC power systems. "Our June underlying orders improved, driven by solid demand across the company, particularly in the industrial automation, process control, and electronics and telecommunications markets. Based on the outstanding performance this quarter in conjunction with continued strong order rates, we expect our fiscal year 2004 earnings per share to be approximately $2.90. This is an increase from our previous earnings per share guidance of $2.75 to $2.85." Operating Highlights Sales of the heating, ventilating ventilating Natural or mechanically induced movement of fresh air into or through an enclosed space. The hazards of poor ventilation were not clearly understood until the early 20th century. Expired air may be laden with odors, heat, gases, or dust. , and 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. segment increased 19 percent to $873 million, with gains in all of the businesses. Penetration gains and strong demand for Emerson's Copeland Copeland may refer to: Places
adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact from currency translation. Underlying sales growth of 18 percent was driven by 22 percent growth in the United States and 10 percent growth in international sales, reflecting more than 12 percent growth in Asia and very strong growth in the Middle East/Africa regions. This increase in third-quarter U.S. sales was primarily due to residential air conditioning compressors from the continued strong housing market, while international sales primarily reflect growth in China and the Middle East. The underlying sales increase also reflects volume and penetration gains in the temperature sensor A device that measures or detects a real-world condition, such as motion, heat or light and converts the condition into an analog or digital representation. An optical sensor detects the intensity or brightness of light, or the intensity of red, green and blue for color systems. and controls business. Earnings from HVAC operations increased 33 percent during the quarter to $149 million, reflecting higher sales volume and leverage, as well as benefits from prior cost reduction efforts. Electronics and telecommunications segment sales of $670 million were up 17 percent over the prior-year period. Underlying sales, excluding a more than 1 percent favorable impact from currency and a more than 2 percent negative impact from the Dura-Line divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). in the prior year, improved nearly 18 percent. Underlying sales reflect a 29 percent increase in Asia (primarily China), a 15 percent increase in Europe, and a 13 percent increase in the United States. Three distinct trends continued in this market: 1) strong sales of servers and network equipment drove demand for embedded Inserted into. See embedded system. power modules; 2) continued spending by telecommunications providers in Asia drove the DC power systems business; and 3) increased investment in data computing computing - computer systems, primarily in the United States and Europe, boosted demand for 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. and precision air-conditioning. Earnings increased $38 million, or 97 percent, to $78 million, reflecting higher sales volume and leverage as well as benefits from prior cost reduction efforts. Process control segment sales increased 9 percent to $925 million, from $850 million for the same period a year ago, as this segment continues to grow in international markets and to win large projects and displace dis·place tr.v. dis·placed, dis·plac·ing, dis·plac·es 1. To move or shift from the usual place or position, especially to force to leave a homeland: competitors. During the quarter Emerson Process Management was awarded a $32 million contract by Petrobras PETROBRAS Petróleo Brasileiro SA (Brazilian oil company) , one of the world's largest integrated oil and gas companies, to ensure reliable measurement of offshore oil and gas production units in Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. . Also in the quarter, significant progress was made on completion of automation with PlantWeb(R) architecture and FOUNDATION(TM) Fieldbus (1) A control network used in process control and industrial automation. Fieldbuses are bi-directional, digital serial networks that offer services at layers 1 and 2 of the OSI model (physical and data link). Some fieldbuses offer services at layer 7 as well. for the Shell Deer Park Deer Park. 1 Uninc. village (1990 pop. 28,840), Babylon town, Suffolk co., SE N.Y., a primarily residential suburb on Long Island. 2 City (1990 pop. 27,652), Harris co., SE Tex. Refining refining, any of various processes for separating impurities from crude or semifinished materials. It includes the finer processes of metallurgy, the fractional distillation of petroleum into its commercial products, and the purifying of cane, beet, and maple sugar Company, the sixth largest oil refinery in the U.S. - a $32 million project announced in 2002. Underlying sales increased 7 percent, excluding the impact of divestitures, net of acquisitions, and a 2 percent positive impact from currency translation. Underlying results reflect growth in almost all businesses, particularly measurement and analytical analytical, analytic pertaining to or emanating from analysis. analytical control control of confounding by analysis of the results of a trial or test. instrumentation instrumentation, in music: see orchestra and orchestration. instrumentation In technology, the development and use of precise measuring, analysis, and control equipment. , and power and water and systems/solutions. The underlying sales gain also reflects 26 percent growth in Asia, 1 percent growth in Europe and very strong gains in Latin America, as well as a nearly 3 percent increase in U.S. sales. Earnings increased 27 percent to $119 million due to the increased volume and leverage from higher sales, as well as savings from prior cost reduction actions and lower rationalization rationalization, in psychology: see defense mechanism. costs. Industrial automation segment sales increased 13 percent to $744 million for the three months ended June 30, 2004, with underlying sales increasing 9 percent and a nearly 4 percent favorable impact from currency translation. The 9 percent increase in underlying sales reflects a 13 percent increase in the United States and international sales growth of nearly 7 percent, with 31 percent growth in Asia and 2 percent growth in Europe. The underlying sales increase was due to growth in all businesses, with particular strength in power generating alternators, as well as in the power transmission and fluid power and control businesses, reflecting the rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective in the U.S. industrial production and manufacturing construction. Earnings increased 16 percent to $99 million, primarily reflecting benefits from prior cost reduction efforts and increased volume and leverage from higher sales. Appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and tools segment sales increased 10 percent to $955 million. This increase reflects a 10 percent increase in underlying sales and a 1 percent favorable impact from currency, partially offset by a less than 1 percent negative impact related to exiting the manufacturing of bench top and stationary Stationary can mean:
v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. increases reflect a strong U.S. residential construction market and higher demand at major retailers. The increase in sales of hermetic hermetic /her·met·ic/ (her-met´ik) impervious to air. her·met·ic or her·met·i·cal adj. Completely sealed, especially against the escape or entry of air. motors was primarily due to demand for residential air conditioning units. The professional tools business benefited from the upturn in U.S. 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. by manufacturers. Sales in the United States grew over 7 percent while total international sales grew nearly 6 percent. Earnings of the appliance and tools segment increased 20 percent to $137 million, primarily due to increased volume and leverage from higher sales. Upcoming Investor Events On Tuesday, August 3, 2004, 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 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. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site. Forward-Looking 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.
Emerson and Subsidiaries
Consolidated Operating Results
(Dollars In Millions Except Per Share Amounts)
Quarter Ended June 30, Percent
2003 2004 Change
Net sales $3,573 $4,036 13%
Less: Costs and expenses
Cost of sales 2,323 2,597
SG&A expenses 734 824
Other deductions, net 127 66
Interest expense, net 60 50
Earnings from continuing operations
before income taxes 329 499 51%
Income taxes 51 158
Earnings from continuing operations 278 341 23%
Net gain from discontinued operations 82 -
Net earnings $ 360 $ 341 (5%)
Diluted earnings per common share:
Earnings from continuing operations $ 0.66 $ 0.81 23%
Discontinued operations 0.19 -
Diluted earnings per common share $ 0.85 $ 0.81 (5%)
Quarter Ended June 30,
2003 2004
Other deductions, net
Gains from divestitures of business
interests $ (9) $ -
Impairment 54 -
Rationalization of operations 43 31
Amortization of intangibles 4 4
Other 35 31
Total $ 127 $ 66
Emerson and Subsidiaries
Consolidated Operating Results
(Dollars In Millions Except Per Share Amounts)
Nine Months Ended June 30, Percent
2003 2004 Change
Net sales $10,264 $11,495 12%
Less: Costs and expenses
Cost of sales 6,660 7,418
SG&A expenses 2,182 2,421
Other deductions, net 239 174
Interest expense, net 175 160
Earnings from continuing operations
before income taxes 1,008 1,322 31%
Income taxes 271 419
Earnings from continuing operations 737 903 22%
Net loss from discontinued operations 76 -
Net earnings $ 813 $ 903 11%
Diluted earnings per common share:
Earnings from continuing operations $ 1.75 $ 2.14 22%
Discontinued operations 0.18 -
Diluted earnings per common share $ 1.93 $ 2.14 11%
Nine Months Ended June 30,
2003 2004
Other deductions, net
Gains from divestitures of business
interests $ (24) $ (27)
Impairment 54 -
Rationalization of operations 100 92
Amortization of intangibles 12 14
Other 97 95
Total $ 239 $ 174
Emerson and Subsidiaries
Consolidated Balance Sheets
(Dollars In Millions)
June 30,
2003 2004
Assets
Cash and equivalents $ 709 $ 1,386
Receivables, net 2,668 2,874
Inventories 1,656 1,608
Other current assets 581 475
Total current assets 5,614 6,343
Property, plant & equipment, net 2,993 2,844
Goodwill 4,956 5,024
Other 1,820 1,726
$15,383 $15,937
Liabilities and Stockholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 936 $ 878
Accounts payable 1,214 1,387
Accrued expenses 1,522 1,662
Income taxes 61 186
Total current liabilities 3,733 4,113
Long-term debt 3,735 3,149
Other liabilities 1,431 1,673
Stockholders' equity 6,484 7,002
$15,383 $15,937
Emerson and Subsidiaries
Consolidated Statements Of Cash Flow
(Dollars In Millions)
Nine Months Ended June 30,
2003 2004
Operating Activities
Net earnings $ 813 $ 903
Depreciation and amortization 406 410
Changes in operating working capital (89) 149
Pension funding (286) (101)
Gains from divestitures and other 47 129
Net cash provided by operating
activities 891 1,490
Investing Activities
Capital expenditures (213) (230)
Purchases of businesses, net of cash
and equivalents acquired (1) (18)
Divestitures of businesses and other,
net 40 102
Net cash used in investing activities (174) (146)
Financing Activities
Net decrease in short-term borrowings (673) (102)
Proceeds from long-term debt 746 27
Principal payments on long-term debt (13) (14)
Dividends paid (496) (506)
Treasury stock, net 7 (81)
Net cash used in financing activities (429) (676)
Effect of exchange rate changes on cash and
equivalents 40 22
Increase in cash and equivalents 328 690
Beginning cash and equivalents 381 696
Ending cash and equivalents $ 709 $1,386
Emerson and Subsidiaries
Segment Sales And Earnings
(Dollars In Millions)
Quarter Ended June 30,
2003 2004
Sales
Process Control $ 850 $ 925
Industrial Automation 660 744
Electronics and Telecommunications 574 670
Heating, Ventilating, and Air
Conditioning 733 873
Appliance and Tools 869 955
3,686 4,167
Discontinued operations (13) -
Eliminations (100) (131)
Net Sales $ 3,573 $ 4,036
Quarter Ended June 30,
2003 2004
Earnings
Process Control $ 94 $ 119
Industrial Automation 85 99
Electronics and Telecommunications 40 78
Heating, Ventilating, and Air
Conditioning 112 149
Appliance and Tools 115 137
446 582
Discontinued operations 2 -
Differences in accounting methods 32 33
Corporate and other (91) (66)
Interest expense, net (60) (50)
Earnings from continuing operations
before income taxes $ 329 $ 499
Quarter Ended June 30,
2003 2004
Rationalization of operations
Process Control $ 13 $ 7
Industrial Automation 5 4
Electronics and Telecommunications 7 4
Heating, Ventilating, and Air
Conditioning 6 5
Appliance and Tools 16 14
Corporate (4) (3)
Total Emerson $ 43 $ 31
Emerson and Subsidiaries
Segment Sales and Earnings
(Dollars in Millions)
Nine Months Ended June 30,
2003 2004
Sales
Process Control $ 2,441 $ 2,679
Industrial Automation 1,929 2,162
Electronics and Telecommunications 1,697 1,955
Heating, Ventilating,
and Air Conditioning 1,938 2,239
Appliance and Tools 2,591 2,806
10,596 11,841
Discontinued operations (41) -
Eliminations (291) (346)
Net Sales $ 10,264 $ 11,495
Nine Months Ended June 30,
2003 2004
Earnings
Process Control $ 258 $ 309
Industrial Automation 248 280
Electronics and Telecommunications 98 206
Heating, Ventilating,
and Air Conditioning 285 354
Appliance and Tools 354 399
1,243 1,548
Discontinued operations 12 -
Differences in accounting methods 96 92
Corporate and other (168) (158)
Interest expense, net (175) (160)
Earnings from continuing operations
before income taxes $ 1,008 $ 1,322
Nine Months Ended June 30,
2003 2004
Rationalization of operations
Process Control $ 25 $ 24
Industrial Automation 14 11
Electronics and Telecommunications 32 21
Heating, Ventilating,
and Air Conditioning 17 13
Appliance and Tools 28 31
Corporate (8) (8)
Discontinued operations (8) -
Total Emerson $ 100 $ 92
Reconciliations of Non-GAAP Financial Measures
The following reconciles each non-GAAP measure with the most directly
comparable GAAP measure (dollars in millions):
Percent
2003 2004 Change
Third-Quarter Cash Flow
Operating Cash Flow $ 210 $ 755 258%
Capital Expenditures 82 83
Free Cash Flow (Non-GAAP) $ 128 $ 672 423%
2004E
Cash Flow
Operating Cash Flow ~$2B
Capital Expenditures ~$0.4B
Free Cash Flow (Non-GAAP) ~$1.6B
2003 2004
Third-Quarter Operating Profit
Net Sales $ 3,573 $ 4,036 13%
Cost of Sales 2,323 2,597
SG&A Expenses 734 824
Operating Profit (Non-GAAP) 516 615 19%
OP % (Non-GAAP) 14.4% 15.2%
Other Deductions, Net 127 66
Interest Expense, Net 60 50
Pre-Tax Earnings $ 329 $ 499 51%
Pre-Tax Earnings % 9.2% 12.4%
3Q 2004
Net Sales
Underlying Sales (Non-GAAP) 11%
Currency Translation 2 pts
Acquisitions/Divestitures -
Net Sales 13%
All amounts above are GAAP financial measures except as noted.
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