07.08.2007 10:50:00
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Emerson Announces Third Quarter 2007 Results
Emerson (NYSE: EMR) today announced record net sales and earnings for
the third quarter ended June 30, 2007. Net sales totaled $5.9 billion,
an increase of 13 percent from the $5.2 billion reported in the prior
year period. For the quarter, underlying sales increased 9 percent which
excludes the impact of favorable currency exchange rates (3 percent) and
growth from acquisitions, net of divestitures (1 percent). Four of
Emerson’s five business segments reported
double-digit sales growth in the quarter.
Net earnings increased 18 percent to $574 million, or $0.72 per share.
The earnings per share amount represents an increase of 22 percent from
the $0.59 of earnings per share achieved in the third quarter of 2006.
Operating profit margins improved to 16.1% in the quarter, a 40 basis
point improvement from the 2006 period. Margins improved in four of the
Company’s five business segments. Pretax
earnings margins were 14.0 percent compared to 13.7 percent in the prior
year period.
"Emerson’s continued
strong performance this quarter demonstrates that our long-term
strategies are working,” said Emerson
Chairman, Chief Executive Officer and President David N. Farr. "Our
strong organic growth and profit margin improvements would not be
possible without market leading technologies and global business
platforms to serve our customers. Investing in these technologies and
business platforms, while expanding our global footprint, will continue
to be Emerson’s focus moving forward.”
For the nine months ended June 30, 2007, net sales were $16.4 billion,
an increase of 12 percent over the same period last year. Earnings per
share for the first nine months of the fiscal year were $1.88, an
increase of 18 percent over the prior year period.
Balance Sheet / Cash Flow:
Operating cash flow in the quarter was $899 million, an increase of 45
percent compared to $620 million in the third quarter of 2006. Free cash
flow (operating cash flow less capital expenditures) for the quarter was
$755 million, a 57 percent increase versus the prior year quarter. The
Company’s full-year target for capital
spending is unchanged at approximately $700 million, but the full year
targets for operating and free cash flow have been increased to $2.8
billion and $2.1 billion, respectively.
"The Company’s
cash flow performance in the quarter was very good and is a testament to
the operating management who were key to delivering these strong results,”
Farr said. "Focus on cash flow generation and
return on total capital continues to be a high priority at Emerson. This
focus provides the Company with the ability to make internal growth
investments and acquisitions, while also returning significant amounts
of cash to shareholders in the form of dividends and share repurchases.”
Through the first nine months of fiscal 2007, the Company has paid $629
million in dividends and repurchased $628 million of stock. Emerson’s
goal is to return between 50 and 60 percent of operating cash flow to
shareholders and the Company expects to be at the high end of this range
in 2007.
Operating Highlights:
Process Management had another strong quarter as revenue grew by 19
percent. This increase was comprised of 14 percent underlying sales
growth, 3 percent favorable impact from currency and 2 percent growth
from acquisitions. The momentum of this business is evidenced by
continued large project wins around the world. During the quarter,
Process announced project awards to digitally automate facilities in the
oil sands of Canada as well as the largest lignite-fired power plant in
Europe.
Industrial Automation revenues increased by 13 percent during the
quarter with growth led by the power generating alternator business.
Underlying sales growth in the quarter was 9 percent which excludes a 4
percent favorable impact from currency translation. Growth rates for
this segment were highest internationally, where underlying sales grew
12 percent.
Network Power sales increased by 14 percent in the quarter. Underlying
sales were up 11 percent, favorable currency translation added more than
2 percent and acquisitions, net of divestitures, contributed
approximately 1 percent. In the quarter, growth was in excess of 20
percent for the uninterruptible power supply (UPS) and precision cooling
businesses as well as the power systems business in Asia.
Climate Technologies grew by 13 percent in the quarter, with Europe and
Asia leading the growth. Underlying sales in the quarter increased by 8
percent, acquisitions added 3 percent of growth and currency translation
added 2 percent. Favorable conditions outside the United States led to
18 percent underlying sales growth internationally. Growth in the United
States was 3 percent in spite of continued softness from residential
construction markets.
Appliance and Tools experienced revenue growth of 1 percent in the third
quarter. Underlying sales for this segment decreased by 1 percent and
was offset by favorable 1 percent impacts from both currency translation
and acquisitions. The consumer exposures in this segment, primarily
related to big box retailers and residential construction, were soft and
led to the negative underlying sales growth.
Full Year Earnings Outlook:
Based on strong results for the first three quarters of fiscal 2007 and
continued solid order trends, Emerson has increased the outlook for the
full year. The Company now expects full year earnings per share in the
range of $2.58 to $2.63, an increase from the previous guidance of $2.50
to $2.60. The new range equates to earnings per share growth of 15 to 17
percent. For the year, underlying sales growth is expected in the range
of 6 to 7 percent and reported sales growth is expected to be in the
range of 10 to 12 percent.
Upcoming Investor Events
On Tuesday, August 7, 2007, at 2:00 p.m. EDT (1:00 p.m. CDT), Emerson
senior management will discuss the third-quarter fiscal 2007 results
during an investor conference call. All interested parties may listen to
the live conference call via the Internet by going to the Investor
Relations 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 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 filed with the SEC.
TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(Dollars in millions, except per share amounts; unaudited)
Quarter Ended June 30,
PercentChange 2006 2007
Net sales
$
5,217
$
5,874
13
%
Less: Costs and expenses
Cost of sales
3,361
3,769
SG&A expenses
1,037
1,160
Other deductions, net
54
59
Interest expense, net
51
62
Earnings before income taxes
714
824
16
%
Income taxes
228
250 Net earnings $ 486 $ 574
18
%
Diluted avg. shares outstanding (millions)
825.8
802.1
Diluted earnings per common share
$ 0.59 $ 0.72
22
%
Quarter Ended June 30,
2006
2007 Other deductions, net
Rationalization of operations
$
19
$
20
Amortization of intangibles
13
16
Other
34
26
Gains
(12
)
(3
)
Total
$ 54 $ 59
TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(Dollars in millions, except per share amounts; unaudited)
Nine Months Ended June 30,
PercentChange 2006 2007
Net sales
$
14,617
$
16,438
12
%
Less: Costs and expenses
Cost of sales
9,434
10,586
SG&A expenses
2,992
3,353
Other deductions, net
131
121
Interest expense, net
151
178
Earnings before income taxes
1,909
2,200
15
%
Income taxes
590
687 Net earnings $ 1,319 $ 1,513
15
%
Diluted avg. shares outstanding (millions)
827.3
805.2
Diluted earnings per common share
$ 1.59 $ 1.88
18
%
Nine Months Ended June 30, 2006 2007 Other deductions, net
Rationalization of operations
$
53
$
60
Amortization of intangibles
32
46
Other
88
84
Gains
(42
)
(69
)
Total
$ 131 $ 121
TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, unaudited)
June 30, 2006 2007 Assets
Cash and equivalents
$
695
$
1,331
Receivables, net
3,668
4,083
Inventories
2,212
2,309
Other current assets
592
648
Total current assets
7,167
8,371
Property, plant & equipment, net
3,076
3,279
Goodwill
6,005
6,289
Other
2,136
2,136
$ 18,384 $ 20,075
Liabilities and Stockholders’ Equity
Short-term borrowings and current maturities of long-term debt
$
984
$
954
Accounts payable
2,031
2,247
Accrued expenses
1,892
2,198
Income taxes
303
283
Total current liabilities
5,210
5,682
Long-term debt
3,132
3,623
Other liabilities
1,946
2,067
Stockholders’ equity
8,096
8,703
$ 18,384 $ 20,075
TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions, unaudited)
Nine Months Ended June 30, 2006 2007 Operating Activities
Net earnings
$
1,319
$
1,513
Depreciation and amortization
454
491
Changes in operating working capital
(373
)
(281
)
Pension funding
(100
)
(100
)
Other
188
151
Net cash provided by operating activities
1,488
1,774
Investing Activities
Capital expenditures
(354
)
(420
)
Purchases of businesses, net of cash & equivalents acquired
(708
)
(187
)
Other
28
72
Net cash used in investing activities
(1,034
)
(535
)
Financing Activities
Net increase in short-term borrowings
172
9
Proceeds from long-term debt
5
496
Principal payments on long-term debt
(260
)
(3
)
Dividends paid
(550
)
(629
)
Purchases of treasury stock
(411
)
(628
)
Other
38
7
Net cash used in financing activities
(1,006
)
(748
)
Effect of exchange rate changes on cash and equivalents
14
30
Increase (decrease) in cash and equivalents
(538
)
521
Beginning cash and equivalents
1,233
810
Ending cash and equivalents $ 695 $ 1,331
TABLE 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(Dollars in millions, unaudited)
Quarter Ended June 30, 2006 2007 Sales
Process Management
$
1,233
$
1,471
Industrial Automation
968
1,095
Network Power
1,155
1,322
Climate Technologies
923
1,043
Appliance and Tools
1,099
1,107
5,378
6,038
Eliminations
(161
)
(164
)
Total Emerson
$ 5,217 $ 5,874
Quarter Ended June 30, 2006 2007 Earnings
Process Management
$
221
$
269
Industrial Automation
142
161
Network Power
139
178
Climate Technologies
155
174
Appliance and Tools
141
146
798
928
Differences in accounting methods
46
56
Corporate and other
(79
)
(98
)
Interest expense, net
(51
)
(62
)
Earnings before income taxes
$ 714 $ 824
Quarter Ended June 30,
2006
2007 Rationalization of operations
Process Management
$
3
$
2
Industrial Automation
4
5
Network Power
3
5
Climate Technologies
2
2
Appliance and Tools
7
6
Total Emerson
$ 19 $ 20
TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(Dollars in millions, unaudited)
Nine Months Ended June 30, 2006 2007 Sales
Process Management
$
3,473
$
4,034
Industrial Automation
2,759
3,146
Network Power
3,098
3,712
Climate Technologies
2,523
2,676
Appliance and Tools
3,211
3,328
15,064
16,896
Eliminations
(447
)
(458
)
Total Emerson
$ 14,617 $ 16,438
Nine Months Ended June 30, 2006 2007 Earnings
Process Management
$
587
$
725
Industrial Automation
416
478
Network Power
366
441
Climate Technologies
382
405
Appliance and Tools
412
416
2,163
2,465
Differences in accounting methods
128
156
Corporate and other
(231
)
(243
)
Interest expense, net
(151
)
(178
)
Earnings before income taxes
$ 1,909 $ 2,200
Nine Months Ended June 30, 2006 2007 Rationalization of operations
Process Management
$
6
$
8
Industrial Automation
9
11
Network Power
9
14
Climate Technologies
11
9
Appliance and Tools
18
18
Total Emerson
$ 53 $ 60
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 Third-Quarter Cash Flow
Operating Cash Flow
$
620
$
899
45
%
Capital Expenditures
140
144
Free Cash Flow (Non-GAAP)
$
480
$
755
57
%
Full Year 2007 Expected Cash Flow
Operating Cash Flow
~ $ 2,800
Capital Expenditures
~ 700
Free Cash Flow (Non-GAAP)
~ $ 2,100
Third-Quarter Operating Profit
Net Sales
$
5,217
$
5,874
13
%
Cost of Sales
3,361
3,769
SG&A Expenses
1,037
1,160
Operating Profit (Non-GAAP)
819
945
15
%
Operating Profit Margin % (Non-GAAP)
15.7
%
16.1
%
Other Deductions, Net
54
59
Interest Expense, Net
51
62
Pretax Earnings
$
714
$
824
16
%
Pretax Earnings Margin %
13.7
%
14.0
%
Expected
FY 2007 Net Sales
Underlying Sales (Non-GAAP)
6 - 7
%
Currency Translation / Acq. / Div.
4 – 5 pts
Net Sales
10 - 12
%
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