Emerson Reports Strong Fourth Quarter and Full Year 2018 Results, Provides 2019 Outlook

Emerson (NYSE: EMR) today reported results for the fourth quarter and fiscal year ended September 30, 2018.

Strong global demand continued in the quarter as both mature and emerging markets delivered high-single digit underlying growth. Fourth quarter net sales were up 10 percent, with underlying sales up 8 percent excluding unfavorable currency of 2 percent and a positive impact from acquisitions net of divestitures of 4 percent. Emerson’s trailing three-month underlying orders growth remained in the 5 to 10 percent range throughout the quarter, with September three-month underlying orders up 8 percent. For the full year, net sales were up 14 percent, with underlying sales up 8 percent.

Fourth quarter gross profit margin of 42.2 percent improved 150 basis points compared with the prior year, driven by the benefit of restructuring actions, favorable mix and leverage on higher sales. Pretax margin of 15.1 percent and EBIT margin of 16.0 percent decreased 40 basis points and 30 basis points, respectively, reflecting dilution from recent acquisitions and the impact of a special one-time 401(k) contribution to U.S. employees in the fourth quarter. GAAP earnings per share were $0.97 in the quarter and $3.46 for the full year, and were $0.89 and $3.38, respectively, excluding an $0.08 discrete tax benefit.

Fourth quarter operating cash flow from continuing operations was $1.0 billion, up 13 percent compared with the prior year, and free cash flow from continuing operations was $0.7 billion, down 1 percent. Full year operating cash flow from continuing operations was up 8 percent to $2.9 billion and free cash flow from continuing operations was up 3 percent to $2.3 billion, reflecting 103 percent conversion of net earnings, or 114 percent excluding discrete, non-cash tax benefits recognized in net earnings. Capital expenditures of $0.6 billion were up 29 percent, reflecting global investments to support future growth.

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 

The fourth quarter capped a year of exceptional results for our company, said Chairman and Chief Executive Officer David N. Farr. In 2018, we drove strong operational performance while continuing to build a firm foundation for our future, including funding $2.2 billion of bolt-on acquisitions and delivering results ahead of plan for the integration of Valves & Controls into our Final Control business “ evidence of our focus on seamlessly integrating acquired businesses to achieve our long-term strategic and financial goals.

For our shareholders, we returned more than $2.2 billion through dividends and share repurchases and drove improvement in dividends paid as a share of free cash flow, an important indicator of our financial strength and ability to continue increasing our annual dividend, as we have done every year since 1956. This unblemished 62-year track record is a testament to the extraordinary commitment of our employees, of our global management teams and of our board to deliver value to our shareholders.

Business Platform Results

Automation Solutions net sales increased 11 percent in the quarter, with underlying sales up 9 percent excluding unfavorable currency of 2 percent and a positive impact from acquisitions of 4 percent. Growth continued to reflect strong maintenance and repair (MRO) demand and brownfield investment activity focused on expansion and optimization of existing facilities. Trends were positive across all key market verticals and world areas.

North America underlying sales increased 11 percent, reflecting strong investment in oil and gas production and midstream infrastructure, as well as continued favorable trends across most key verticals. Asia underlying sales were up 11 percent driven by strong investment activity in China and India as well as in most developed countries. Latin America was up 12 percent, reflecting strengthened investment activity in Brazil and Chile. Europe was up 2 percent and Middle East/Africa was up 7 percent. Trailing three-month underlying orders growth was strong throughout the quarter, with September up 11 percent. Margin increased 80 basis points to 17.7 percent and was up 140 basis points to 18.3 percent excluding the results of the Aventics acquisition, which closed early in the quarter. Margin improvement was driven by leverage on higher sales, restructuring actions and favorable mix.

Commercial & Residential Solutions net sales were up 7 percent in the quarter, and underlying sales increased 5 percent excluding unfavorable currency of 1 percent and a positive impact from acquisitions net of divestitures of 3 percent. Growth was driven by strong demand in North American commercial and residential air conditioning markets as well as strong demand in global professional tools and cold chain markets. Underlying sales in North America were up 8 percent on strong demand across all key end markets. Europe was up 4 percent, reflecting favorable trends in cold chain and professional tools markets. Latin America grew 5 percent and Asia increased 3 percent, driven by 8 percent growth in China. Middle East/Africa was down 16 percent. September trailing three-month underlying orders were up 3 percent. Margin decreased 150 basis points to 22.0 percent. Excluding the Tools & Test acquisition, which closed early in the fourth quarter, margin was 23.1 percent.

2019 Outlook

The following table presents the 2019 guidance framework and does not include the impact of the GE Intelligent Platforms acquisition, which is expected to close in the first half of 2019.

Sales Growth Guidance         EPS and Cash Flow Guidance
Net Sales Growth 6 “ 9% GAAP EPS $3.55 “ $3.70
Acquisitions Impact 4% Operating Cash Flow ~$3.2B
Foreign Currency Translation Impact (2%) Free Cash Flow ~$2.5B
Underlying Sales Growth 4 “ 7%
Automation Solutions 5 “ 8%
Commercial Residential Solutions 3 “ 5%
 

Automation Solutions growth will continue to be driven by MRO activity, as well as brownfield capital investments in existing assets to expand capacity or to improve the efficiency, safety and uptime of those facilities. In addition, Emerson expects to continue seeing steady progress in greenfield capital projects across upstream, midstream infrastructure, natural gas, chemical and hybrid markets, including life sciences and food and beverage. Such projects are anticipated to convert to orders in 2019, weighted toward the second half of the year.

Commercial & Residential Solutions growth will be supported by continued strong demand in residential and commercial air conditioning markets in the U.S., as well as cold chain and professional tools demand in the U.S., Asia and Europe.

Our strong performance this year positions us for ongoing success, providing momentum as we head into the new fiscal year. Globally, we expect continued demand in both mature and emerging markets and across industries, Farr said.

We have much to do in 2019 across both business platforms to integrate new acquisitions – including Aventics, Tools & Test and GE Intelligent Platforms. For Valves & Controls, the largest acquisition in Emerson’s history, we will build on strong first-year results to continue accelerating sales, margin improvement and cash flow performance. Were also investing in our businesses to drive long-term outperformance in our markets. For example, Automation Solutions is enhancing our after-market and lifecycle service capabilities by adding engineering personnel and field offices to bolster Emersons local presence in key markets. Likewise, Commercial & Residential Solutions is investing in our global innovation infrastructure, adding a new research facility in Suzhou to enhance cold chain and solutions engineering capabilities for China and across our markets in Asia, as well as a new headquarters and engineering center in Racine, Wis., for the InSinkErator waste disposal business,” Farr continued.

We look forward to executing against key milestones and driving higher sales, margins and cash flow versus strong 2018 results. In 2019, Emerson is positioned to deliver 4 to 7 percent underlying sales growth and EPS growth of 3 to 7 percent, despite an expected reduction from foreign currency translation and more than 20 cents of net headwinds from discrete tax benefits and other one-time items recognized in 2018.”

Upcoming Investor Events

Today, beginning at 2:30 p.m. Eastern Time, Emerson management will discuss the fourth quarter and fiscal year 2018 results during an investor conference call. Access to a live webcast of the discussion will be available at www.emerson.com/financial at the time of the call. A replay of the conference call will remain available for 90 days.

Forward-Looking and Cautionary Statements

Statements in this press 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, protection of intellectual property, competitive and technological factors, and the impact of the Tax Cuts and Jobs Act, among others, as set forth in the Company’s most recent Annual Report on Form 10-K and subsequent reports filed with the SEC.

 
 
 
 
 
 
  Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
             

Quarter Ended September 30

Percent

2017

2018

Change

 
Net sales $ 4,435 $ 4,888 10 %
Costs and expenses:
Cost of sales 2,631 2,823
SG&A expenses 997 1,180
Other deductions, net 83 101
Interest expense, net   39     46
Earnings from continuing operations before income taxes 685 738 8 %
Income taxes   183     116
Earnings from continuing operations 502 622 24 %
Discontinued operations, net of tax   8    
Net earnings 510 622
Less: Noncontrolling interests in earnings of subsidiaries   6     5
Net earnings common stockholders $ 504   $ 617 22 %
 
Diluted avg. shares outstanding 640.5 631.9
 
Diluted earnings per share common stockholders
Earnings from continuing operations $ 0.77 $ 0.97 26 %
Discontinued operations $ 0.01    
Diluted earnings per common share $ 0.78   $ 0.97 24 %
 
 

Quarter Ended September 30

2017

2018

Other deductions, net
Amortization of intangibles $ 52 $ 57
Restructuring costs 33 27
Other   (2 )   17
Total $ 83   $ 101
 
 
 
 
 
 
    Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
           

Year Ended September 30

Percent

2017

2018

Change

 
Net sales $ 15,264 $ 17,408 14 %
Costs and expenses:
Cost of sales 8,860 9,948
SG&A expenses 3,618 4,258
Other deductions, net 286 376
Interest expense, net   165     159
Earnings from continuing operations before income taxes 2,335 2,667 14 %
Income taxes   660     443
Earnings from continuing operations 1,675 2,224 33 %
Discontinued operations, net of tax   (125 )  
Net earnings 1,550 2,224
Less: Noncontrolling interests in earnings of subsidiaries   32     21
Net earnings common stockholders $ 1,518   $ 2,203 45 %
 
Diluted avg. shares outstanding 643.4 635.3
 
Diluted earnings per share common stockholders
Earnings from continuing operations $ 2.54 $ 3.46 36 %
Discontinued operations   ($0.19 )  
Diluted earnings per common share $ 2.35   $ 3.46 47 %
 
 

Year Ended September 30

2017

2018

Other deductions, net
Amortization of intangibles $ 136 $ 211
Restructuring costs 78 65
Other   72     100
Total $ 286   $ 376
 
 
 
 
 
 
 
    Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
       

Year Ended September 30

2017

2018

Assets
Cash and equivalents $ 3,062 $ 1,093
Receivables, net 3,072 3,344
Inventories 1,696 1,813
Other current assets   422   369
Total current assets 8,252 6,619
Property, plant & equipment, net 3,321 3,562
Goodwill 5,316 6,455
Other intangible assets 1,890 2,751
Other   810   1,003
Total assets $ 19,589 $ 20,390
 
Liabilities and equity

Short-term borrowings and current maturities of long-term debt

$ 862 $ 1,623
Accounts payable 1,776 1,943
Accrued expenses 2,342 2,534
Income taxes   65   64
Total current liabilities 5,045 6,164
Long-term debt 3,794 3,137
Other liabilities 1,980 2,099
Total equity   8,770   8,990
Total liabilities and equity $ 19,589 $ 20,390
 
 
 
 
 
 
    Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
       

Year Ended September 30

2017

2018

Operating activities
Net earnings $ 1,550 $ 2,224
Loss from discontinued operations, net of tax 125
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 636 758
Changes in operating working capital 160 (83 )
Pension funding (45 ) (61 )
Other, net   264     54  
Cash from continuing operations 2,690 2,892
Cash from discontinued operations   (778 )    
Cash provided by operating activities   1,912     2,892  
 
Investing activities
Capital expenditures (476 ) (617 )
Purchases of businesses, net of cash and equivalents acquired (2,990 ) (2,203 )
Divestitures of businesses 39 201
Other, net   (106 )   (101 )
Cash from continuing operations (3,533 ) (2,720 )
Cash from discontinued operations   5,047      
Cash provided by (used in) investing activities   1,514     (2,720 )
 
Financing activities
Net increase (decrease) in short-term borrowings (1,725 ) 343
Payments of long-term debt (254 ) (241 )
Dividends paid (1,239 ) (1,229 )
Purchases of common stock (400 ) (1,000 )
Other, net   27     35  
Cash used in financing activities   (3,591 )   (2,092 )
 
Effect of exchange rate changes on cash and equivalents   45     (49 )
Increase (Decrease) in cash and equivalents (120 ) (1,969 )
Beginning cash and equivalents   3,182     3,062  
Ending cash and equivalents $ 3,062   $ 1,093  
 
 
 
 
 
 
    Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
       

Quarter Ended September 30

2017

2018

Sales
Automation Solutions $ 2,894 $ 3,228
 
Climate Technologies 1,108 1,168
Tools & Home Products   435     487  
Commercial & Residential Solutions 1,543 1,655
 
Eliminations   (2 )   5  
Net sales $ 4,435   $ 4,888  
 
Earnings
Automation Solutions $ 490 $ 570
 
Climate Technologies 260 260
Tools & Home Products   102     104  
Commercial & Residential Solutions 362 364
 
Differences in accounting methods 42 55
Corporate and other (170 ) (205 )
Interest expense, net   (39 )   (46 )
Earnings before income taxes $ 685   $ 738  
 
Restructuring costs
Automation Solutions $ 28 $ 15
 
Climate Technologies 2 9
Tools & Home Products   1     3  
Commercial & Residential Solutions 3 12
 
Corporate   2      
Total $ 33   $ 27  
 
 
 
 
 
 
    Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
       

Year Ended September 30

2017

2018

Sales
Automation Solutions $ 9,418 $ 11,441
 
Climate Technologies 4,212 4,454
Tools & Home Products   1,645     1,528  
Commercial & Residential Solutions 5,857 5,982
 
Eliminations   (11 )   (15 )
Net sales $ 15,264   $ 17,408  
 
Earnings
Automation Solutions $ 1,522 $ 1,886
 
Climate Technologies 975 972
Tools & Home Products   383     380  
Commercial & Residential Solutions 1,358 1,352
 
Differences in accounting methods 148 218
Corporate and other (528 ) (630 )
Interest expense, net   (165 )   (159 )
Earnings before income taxes $ 2,335   $ 2,667  
 
Restructuring costs
Automation Solutions $ 63 $ 41
 
Climate Technologies 10 20
Tools & Home Products   2     3  
Commercial & Residential Solutions 12 23
 
Corporate   3     1  
Total $ 78   $ 65  
 
 
 
 
 
 
Reconciliations of Non-GAAP Financial Measures & Other   Table 7
             
Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
 
Underlying Sales Change

FY18

Reported (GAAP) 14 %
(Favorable) / Unfavorable FX (1 )%
Acquisitions/Divestitures (5 )%
Underlying* 8 %
 
Q4 2018 Underlying Sales Change Auto Solns

Comm & Res

Solns

Emerson
Reported (GAAP) 11 % 7 % 10 %
(Favorable) / Unfavorable FX 2 % 1 % 2 %
Acquisitions/Divestitures (4 )% (3 )% (4 )%
Underlying* 9 % 5 % 8 %
 
FY 2019E Underlying Sales Change Auto Solns

Comm & Res Solns

Emerson
Reported (GAAP) ~ 6 – 9% ~ 8 – 10% ~ 6 – 9%
(Favorable) / Unfavorable FX ~ 2% ~ 1% ~ 2%
Acquisitions/Divestitures ~ (3)% ~ (6)% ~ (4)%
Underlying* ~ 5 – 8% ~ 3 – 5% ~ 4 – 7%
 
Earnings Per Share FY18 Q4 FY18
Earnings per share from continuing operations (GAAP) $ 3.46 $ 0.97
Discrete tax benefit (0.08 ) (0.08 )

Earnings per share from continuing operations, excluding discrete tax benefit*

$ 3.38 $ 0.89
 
Continuing Operations Margin Q4 FY17 Q4 FY18 Change
Pretax margin (GAAP) 15.5 % 15.1 % (40) bps
Interest expense, net 0.8 % 0.9 % 10 bps
Earnings before interest and taxes margin* 16.3 % 16.0 % (30) bps
 
Automation Solutions Segment EBIT Margin Q4 FY17 Q4 FY18 Change
Automation Solutions Segment EBIT margin (GAAP) 16.9 % 17.7 % 80 bps
Aventics impact % 0.6 % 60 bps

Automation Solutions Segment EBIT margin, excluding Aventics*

16.9 % 18.3 % 140 bps
 
Commercial & Residential EBIT Margin Q4 FY17 Q4 FY18 Change
Commercial & Residential EBIT margin (GAAP) 23.5 % 22.0 % (150) bps
Tools & Test impact % 1.1 % 110 bps

Commercial & Residential EBIT margin, excluding Tools & Test*

23.5 % 23.1 % (40) bps

 

Q4 Cash Flow From Continuing Operations Q4 FY17 Q4 FY18 Change
Operating cash flow from continuing operations (GAAP) $ 905 $ 1,024 13 %
Capital expenditures (176 ) (303 ) (14 )%
Free cash flow from continuing operations* $ 729 $ 721 (1 )%
 
Cash Flow From Continuing Operations FY17 FY18 Change
Operating cash flow from continuing operations (GAAP) $ 2,690 $ 2,892 8 %
Capital expenditures (476 ) (617 ) (5 )%
Free cash flow from continuing operations* $ 2,214 $ 2,275 3 %
 
FY 2019E Cash Flow FY 2019E
Operating cash flow (GAAP) ~ 3,200
Capital expenditures ~ (650)
Free cash flow* ~ 2,500
 
Cash Flow to Net Earnings Conversion FY18
Operating cash flow to net earnings (GAAP) 131 %
Capital expenditures (28 )%
Free cash flow to net earnings* 103 %
Discrete non-cash tax benefits

11

%

Free cash flow to net earnings, excluding discrete non-cash tax benefits*

114

%
 
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.
 

 

Emerson
Investor Contact:
Tim Reeves, 314-553-2197
or
Media
Contact:
Casey Murphy, 314-982-6220

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 
Close
Stay Updated To Save Money & Time. Join Our Free Newsletter. 
. Indepth Analysis & Opinion       Interviews          . Exclusive Reports 
. Free Digital Magazines        . News & updates        . Event Invitations
& Much More Delivered To Your Inbox For Free. 
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.
 
Close