Emerson Electric Company (EMR) reported fiscal first-quarter 2014, ended Dec 31, 2014, earnings of 67 cents per share compared with 62 cents per share in the year-ago period. The earnings were in line with Zacks Consensus Estimate of 67 cents per share.
The year-over-year growth was driven by increasing demand and improving macroeconomic conditions across most of the regions. Moreover, the company’s business is benefiting from the accelerated growth conditions in the emerging markets.
Total Revenue
Total revenue in the quarter was up 1% year over year to $5,606 million. Organic sales in the quarter increased 3% despite a negative impact from the divestitures. The company’s revenues from the U.S. and Asia were up 3% and 10% respectively while those in Europe remained flat year over year. In addition, accelerated economic growth driven by increasing demand, particularly in the emerging markets is reflected in the top-line development. Revenues beat the Zacks Consensus Estimate of $5,573 million.
Segment Results
Process Management segment’s net sales surged by 8% while its underlying sales increased by 5%. The rise was mainly due to good performances in the energy and chemical end markets. On a geographical basis, the segment’s sales grew 14% in Asia, 3% in Europe and 6% in the U.S., all on a year-over-year basis.
The Industrial Automation segment reported 1% increase in revenues driven by the positive impact from the currency translation. However, underlying sales in the U.S. remained flat year over year, sales in Europe went down 5% and Asia’s sales rose up 9%, while end markets for global capital goods remained weak. The power generating alternators remained flat due to persistently sluggish demands. However, recovering macroeconomic environment indicates that orders might turn positive.
Network Power revenues contracted 11% despite a 2% increase in the underlying sales. The revenues were lowered by a 12% negative impact from the divesture of embedded computing and power business. The segment’s underlying sales demand was mixed in different regions. The U.S. and Asia’s underlying sales were up by 2% each driven by the growth in telecommunications industry across the globe. The company’s datacenter business performed well in Europe but was offset by sluggish demand in Asia and the U.S. The business is likely to benefit in the near term led by the ongoing recovery in Europe and increasing scope for growth in Asia.
Revenues in the Climate Technologies division increased 5% year over year driven by the company’s transport refrigeration and residential air conditioning businesses. Sales in the U.S. declined marginally. However, the revenues from Europe and Asia increased by 5% and 13% respectively with sales in China increasing by more than 20%. After a robust performance in Asia and Europe, the segment reported order growth of 8% in the quarter.
Revenues in the Commercial & Residential Solutions segment increased 3%, attributable to improvement in professional tools, food waste disposers, and storage businesses. Sales in the U.S. increased 2% year over year and it was up by 6% in the International markets.
Balance Sheet & Cash Flow
Exiting the quarter, the company had cash and cash equivalents of $2.7 billion with a long-term debt of $3.8 billion. Net cash from operating activities during the reported quarter were $691 million compared with $639 million during the prior-year period.
Outlook
Along with the earnings release, the company has reaffirmed its outlook for fiscal 2014. The company continues to expect the earnings per share to be in the range $3.68-$3.80 reflecting an increase of 4% to 7% or an increase of 33% to 38% on a reported basis.
The underlying sales are likely to grow in the range of 3-5% while net sales can lie anywhere between a decline of 1% to an increase of 1% given the impact of acquisitions, divestitures, and currency translation on the business.
The company expects the operating margins to increase by 0.5% driven by change in business mix and increasing volumes. However, the increasing strategic investments made by the company might prove to be a drag for the company’s margins.
Business Update
In the quarter, Emerson completed divesting its embedded computing and power business while it made some strategic acquisitions including that of Appleton Group valued at $574 million. Previously, Appleton Group was a part of the company’s joint venture with SPX Corp. (SPW). The company also acquired the Virgo and Enardo businesses in the quarter.
Emerson currently holds a Zacks Rank # 3 (Hold). However, other companies that can be considered at the moment include Franklin Electric Co., Inc. (FELE) and Eaton Corp. plc (ETN) both having Zacks Rank #2 (Buy).
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