- March Trailing Three-Month Underlying Orders up 13
percent
- Net Sales were $4.8 billion, up 8 percent from the year
prior; Underlying Sales were up 10 percent
- GAAP EPS was $1.13, up 22 percent from the year prior;
Adjusted EPS (as defined below) was $1.29, up 21
percent
- Increased 2022 Full Year Outlook to reflect continued
strong demand and execution
- Announced decision to exit Russia business
- Declared quarterly cash dividend of $0.515 per share of
common stock payable June 10, 2022 to stockholders of record May
13, 2022
Emerson (NYSE: EMR) today reported results for its second fiscal
quarter ended March 31, 2022 and updated its full year outlook for
fiscal 2022.
March Trailing Three-Month Underlying Orders were up 13
percent, as demand continued to be strong across both platforms.
Second quarter Net Sales were up 8 percent and Underlying
Sales were up 10 percent. By geography, the Americas grew 14
percent, Europe grew 2 percent and Asia, Middle East & Africa
grew 7 percent. China grew 11 percent.
Second quarter Pretax Margin of 16.9 percent was up 30
basis points. Adjusted EBITA Margin, which excludes
restructuring, first year purchase accounting charges, transaction
costs and intangibles amortization expense, was 20.2 percent, up 20
basis points.
Earnings Per Share were $1.13 for the quarter, up 22
percent. Adjusted Earnings Per Share, which excludes
restructuring, first year purchase accounting charges, transaction
and AspenTech pre-closing costs and intangibles amortization
expense, were $1.29, up 21 percent. Earnings in the quarter
benefited from leverage, continued savings from effective cost
management and favorable mix despite the ongoing supply chain
headwinds and inflationary pressures. Earnings included a tax
benefit of 8 cents.
Operating Cash Flow was $442 million for the quarter,
down 45 percent, and Free Cash Flow was $333 million, down
53 percent. Cash flow results reflected mainly higher inventory due
to supply chain constraints.
“Emerson continues to execute through a dynamic and challenging
environment. In the second quarter, we delivered solid margins and
drove 10 percent underlying sales growth and over 20 percent
adjusted EPS growth. Our performance was indicative of strong end
market demand and successful navigation through supply chain
constraints and inflationary pressures,” said Emerson President and
Chief Executive Officer Lal Karsanbhai. “Despite ongoing
uncertainty, our strong performance gives us confidence to increase
our 2022 full year outlook.
“Today, Emerson is also announcing our decision to exit our
Russia business and, as part of this exit, we are exploring
strategic options to divest Metran, our Russia-based manufacturing
subsidiary,” Karsanbhai continued. “We are committed to an orderly
transfer of these assets and will support our employees through
this process.”
Business Platform
Results
Automation Solutions March trailing three-month
underlying orders were up 17 percent driven by strong demand in all
business groups and world areas. Backlog increased $400 million
compared to the prior quarter to $6.4 billion.
Net sales increased 5 percent in the quarter, with underlying
sales up 7 percent. The Americas were up 13 percent, Europe was
down 3 percent and Asia, Middle East & Africa was up 6 percent.
China was up 17 percent.
Segment EBIT margin increased 210 basis points to 18.9 percent
and Adjusted Segment EBITA margin, which excludes restructuring and
intangibles amortization expense, increased 170 basis points to
21.5 percent. Favorable profitability was driven by increased
volume, leverage, continued cost management and mix despite
increased costs due to inflationary pressures.
Commercial & Residential Solutions March trailing
three-month underlying orders were up 7 percent driven by continued
strength in both the residential and commercial businesses. Backlog
increased $100 million compared to the prior quarter to $1.4
billion.
Net sales increased 13 percent in the quarter, with underlying
sales up 14 percent. The Americas were up 15 percent, Europe was up
14 percent and Asia, Middle East & Africa was up 11 percent.
China was down 6 percent.
Segment EBIT margin decreased 200 basis points to 19.7 percent
and Adjusted Segment EBITA margin (as defined above) decreased 230
basis points to 20.5 percent. Profitability continues to be
challenged by inflationary costs but was up sequentially as price
less net material inflation continues to improve.
2022 Updated Outlook
Emerson updated its 2022 full year outlook to reflect overall
strong business performance while considering continued
macroeconomic and geopolitical uncertainty, supply chain
constraints and challenges related to COVID-19. Net and
Underlying Sales guidance is increased by 2 percent to 8 to
10 percent and 9 to 11 percent, respectively. Earnings Per
Share guidance of $4.77 to $4.92 is increased to reflect the
operational impact of increased sales guidance. Adjusted
Earnings Per Share are increased to $4.95 to $5.10.
Operating Cash Flow is now expected to be $3.6 billion due
to increased inventory resulting from supply chain constraints.
Capital spending was reduced to approximately $600 million and
Free Cash Flow is now expected to be $3.0 billion. Free cash
flow conversion is expected to be approximately 100 percent for
2022.
The following tables summarize the updated fiscal year 2022 and
third quarter 2022 guidance framework. Our guidance does not
include the operational impact of the transaction with AspenTech,
which is expected to close in the second calendar quarter of 2022,
but has been updated to include estimated transaction fees and
interest expense on $3.0 billion of debt already issued to fund the
transaction. Our guidance also excludes the effect of the
Therm-O-Disc sale, expected to close in the second calendar quarter
of 2022. It includes the estimated operational impact of exiting
our Russia business, but excludes any potential charges or other
costs associated with the exit.
2022 Guidance
Net Sales Growth
8% - 10%
Operating Cash Flow
$3.6B
Automation Solutions
6% - 8%
Capital Spend
$600M
Commercial & Residential Solutions
11% - 13%
Free Cash Flow
$3.0B
Dividend
$1.2B
Underlying Sales Growth
9% - 11%
Share Repurchase
$250M - $500M
Automation Solutions
7% - 9%
Commercial & Residential Solutions
12% - 14%
Tax Rate
22%
Restructuring Actions
$150M
GAAP EPS
$4.77 - $4.92
Adjusted EPS
$4.95 - $5.10
2022 Q3 Guidance
Net Sales Growth
7% - 9%
Automation Solutions
4% - 6%
Commercial & Residential Solutions
11% - 13%
Underlying Sales Growth
9% - 11%
Automation Solutions
7% - 9%
Commercial & Residential Solutions
13% - 15%
GAAP EPS
$1.00 - $1.05
Adjusted EPS
$1.25 - $1.30
Note 1: All figures are approximate
Upcoming Investor Events
Today, beginning at 8:00 a.m. Central Time / 9:00 a.m. Eastern
Time, Emerson management will discuss the second quarter results
during an investor conference call. Participants can access a live
webcast available at www.emerson.com/financial at the time of the
call. A replay of the call will be available for 90 days.
Conference call slides will be posted in advance of the call on the
company website.
Emerson also announces it will host an in-person investor
conference on Nov. 29, 2022 in New York City. Event details will be
distributed closer to this date.
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 the Company's ability to successfully
complete on the terms and conditions contemplated, and the
financial impact of, the proposed AspenTech transaction, the scope,
duration and ultimate impacts of the COVID-19 pandemic and the
Russia-Ukraine conflict, as well as economic and currency
conditions, market demand, including related to the pandemic and
oil and gas price declines and volatility, pricing, protection of
intellectual property, cybersecurity, tariffs, competitive and
technological factors, inflation, among others, as set forth in the
Company's most recent Annual Report on Form 10-K and subsequent
reports filed with the SEC. The outlook contained herein represents
the Company's expectation for its consolidated results, excluding
the expected AspenTech and Therm-O-Disc transactions, and the
impact related to exiting our Russia business, other than as noted
herein.
Table
1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING
RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER
SHARE, UNAUDITED)
Quarter
Ended March 31
Percent
2021
2022
Change
Net sales
$4,431
$4,791
8%
Cost of sales
2,569
2,839
SG&A expenses
1,054
1,049
Other deductions, net
33
40
Interest expense, net
38
52
Earnings before income taxes
737
811
10%
Income taxes
169
136
Net earnings
568
675
Less: Noncontrolling interests in
subsidiaries
7
1
Net earnings common
stockholders
$561
$674
20%
Diluted avg. shares outstanding
602.8
596.5
Diluted earnings per share common
share
$0.93
$1.13
22%
Quarter
Ended March 31
2021
2022
Other deductions, net
Amortization of intangibles
$74
$62
Restructuring costs
17
10
Other
(58
)
(32
)
Total
$33
$40
Table
2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING
RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER
SHARE, UNAUDITED)
Six Months
Ended March 31
Percent
2021
2022
Change
Net sales
$8,592
$9,264
8%
Cost of sales
5,007
5,490
SG&A expenses
2,052
2,060
Gain on subordinated interest
—
(453
)
Other deductions, net
155
91
Interest expense, net
78
90
Earnings before income taxes
1,300
1,986
53%
Income taxes
280
416
Net earnings
1,020
1,570
Less: Noncontrolling interests in
subsidiaries
14
—
Net earnings common
stockholders
$1,006
$1,570
56%
Diluted avg. shares outstanding
602.3
597.3
Diluted earnings per share common
share
$1.67
$2.63
57%
Six Months
Ended March 31
2021
2022
Other deductions, net
Amortization of intangibles
$152
$125
Restructuring costs
83
19
Other
(80
)
(53
)
Total
$155
$91
Table
3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS,
UNAUDITED)
Quarter
Ended March 31
2021
2022
Assets
Cash and equivalents
$2,342
$6,929
Receivables, net
2,754
2,958
Inventories
2,016
2,399
Other current assets
849
1,253
Total current assets
7,961
13,539
Property, plant & equipment, net
3,663
3,567
Goodwill
7,787
7,631
Other intangible assets
3,095
2,699
Other
1,294
2,061
Total assets
$23,800
$29,497
Liabilities and equity
Short-term borrowings and current
maturities of long-term debt
$1,456
$2,762
Accounts payable
1,797
2,049
Accrued expenses
3,041
3,261
Total current liabilities
6,294
8,072
Long-term debt
5,823
8,203
Other liabilities
2,503
2,608
Total equity
9,180
10,614
Total liabilities and equity
$23,800
$29,497
Table
4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(DOLLARS IN MILLIONS,
UNAUDITED)
Six Months
Ended March 31
2021
2022
Operating activities
Net earnings
$1,020
$1,570
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
483
452
Stock compensation
125
91
Pension expense
16
2
Changes in operating working capital
66
(588
)
Gain on subordinated interest
—
(453
)
Other, net
(95
)
(109
)
Cash provided by operating activities
1,615
965
Investing activities
Capital expenditures
(222
)
(225
)
Purchases of businesses, net of cash and
equivalents acquired
(1,611
)
(37
)
Proceeds from subordinated interest
—
438
Other, net
61
(17
)
Cash provided by (used in) investing
activities
(1,772
)
159
Financing activities
Net increase in short-term borrowings
60
871
Proceeds from short-term borrowings
greater than three months
—
1,040
Proceeds from long-term debt
—
2,975
Payments of long-term debt
(301
)
(504
)
Dividends paid
(606
)
(613
)
Purchases of common stock
(78
)
(285
)
Other, net
83
15
Cash provided by (used in) financing
activities
(842
)
3,499
Effect of exchange rate changes on cash
and equivalents
26
(48
)
Increase (Decrease) in cash and
equivalents
(973
)
4,575
Beginning cash and equivalents
3,315
2,354
Ending cash and equivalents
$2,342
$6,929
Table
5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS,
UNAUDITED)
Quarter
Ended March 31
2021
2022
Sales
Measurement & Analytical
Instrumentation
$732
$767
Valves, Actuators & Regulators
836
883
Industrial Solutions
555
602
Systems & Software
670
685
Automation Solutions
2,793
2,937
Climate Technologies
1,160
1,341
Tools & Home Products
485
516
Commercial & Residential
Solutions
1,645
1,857
Eliminations
(7
)
(3
)
Net sales
$4,431
$4,791
Earnings
Automation Solutions
$471
$556
Climate Technologies
245
262
Tools & Home Products
112
103
Commercial & Residential
Solutions
357
365
Stock compensation
(61
)
(50
)
Unallocated pension and postretirement
costs
23
25
Corporate and other
(15
)
(33
)
Interest expense, net
(38
)
(52
)
Earnings before income taxes
$737
$811
Restructuring costs
Automation Solutions
$12
$8
Climate Technologies
3
1
Tools & Home Products
1
1
Commercial & Residential
Solutions
4
2
Corporate
1
—
Total
$17
$10
The table above does not include $4 and $5
of costs related to restructuring actions that were reported in
cost of sales and selling, general and administrative expenses for
the three months ended March 31, 2021 and 2022, respectively.
Depreciation and Amortization
Automation Solutions
$156
$147
Climate Technologies
47
46
Tools & Home Products
20
19
Commercial & Residential
Solutions
67
65
Corporate and other
16
9
Total
$239
$221
Table
6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS,
UNAUDITED)
Six Months
Ended March 31
2021
2022
Sales
Measurement & Analytical
Instrumentation
$1,430
$1,502
Valves, Actuators & Regulators
1,642
1,699
Industrial Solutions
1,063
1,168
Systems & Software
1,350
1,373
Automation Solutions
5,485
5,742
Climate Technologies
2,191
2,504
Tools & Home Products
930
1,024
Commercial & Residential
Solutions
3,121
3,528
Eliminations
(14
)
(6
)
Net sales
$8,592
$9,264
Earnings
Automation Solutions
$832
$1,082
Climate Technologies
457
454
Tools & Home Products
210
210
Commercial & Residential
Solutions
667
664
Stock compensation
(125
)
(91
)
Unallocated pension and postretirement
costs
47
51
Corporate and other
(43
)
(83
)
Gain on subordinated interest
—
453
Interest expense, net
(78
)
(90
)
Earnings before income taxes
$1,300
$1,986
Restructuring costs
Automation Solutions
$76
$13
Climate Technologies
4
3
Tools & Home Products
2
2
Commercial & Residential
Solutions
6
5
Corporate
1
1
Total
$83
$19
The table above does not include $7 and
$14 of costs related to restructuring actions that were reported in
cost of sales and selling, general and administrative expenses for
the six months ended March 31, 2021 and 2022, respectively.
Depreciation and Amortization
$312
$302
Automation Solutions
Climate Technologies
96
93
Tools & Home Products
39
39
Commercial & Residential
Solutions
135
132
Corporate and other
36
18
Total
$483
$452
Table
7
EMERSON AND SUBSIDIARIES
ADJUSTED EBITA & EPS
SUPPLEMENTAL
(AMOUNTS IN MILLIONS EXCEPT PER
SHARE, UNAUDITED)
The following tables, which show results on an adjusted EBITA
basis and diluted earnings per share on an adjusted basis, are
intended to supplement the Company's discussion of its results of
operations herein. The Company defines adjusted EBITA as earnings
excluding interest expense, net, income taxes, intangibles
amortization expense, restructuring expense, first year purchase
accounting related items and transaction fees, and certain gains,
losses or impairments. Adjusted earnings per share excludes
intangibles amortization expense, restructuring expense, first year
purchase accounting related items and transaction fees, and certain
gains, losses or impairments. Adjusted EBITA, adjusted EBITA
margin, and adjusted earnings per share are measures used by
management and may be useful for investors to evaluate the
Company's operational performance.
Quarter
Ended March 31
2021
2022
Pretax earnings
$737
$811
Percent of sales
16.6
%
16.9
%
Interest expense, net
38
52
Restructuring and related costs
21
15
Amortization of intangibles
82
76
Acquisition/divestiture costs
—
13
OSI first year acquisition accounting
charges
10
—
Adjusted EBITA
$888
$967
Percent of sales
20.0
%
20.2
%
Quarter
Ended March 31
2021
2022
GAAP earnings per share
$0.93
$1.13
Restructuring and related costs
0.03
0.02
Amortization of intangibles
0.10
0.10
Acquisition/divestiture costs and interest
on AspenTech debt
—
0.04
OSI first year acquisition accounting
charges
0.01
—
Adjusted earnings per share
$1.07
$1.29
Table
8
EMERSON AND SUBSIDIARIES
ADJUSTED EBITA & EPS
SUPPLEMENTAL
(AMOUNTS IN MILLIONS EXCEPT PER
SHARE, UNAUDITED)
Six Months
Ended March 31
2021
2022
Pretax earnings
$1,300
$1,986
Percent of sales
15.1
%
21.4
%
Interest expense, net
78
90
Restructuring and related costs
90
33
Amortization of intangibles
163
153
Gain on subordinated interest
—
(453
)
Acquisition/divestiture costs
—
36
Gain on acquisition of full ownership of
equity investment
(17
)
—
OSI first year acquisition accounting
charges and fees
31
—
Adjusted EBITA
$1,645
$1,845
Percent of sales
19.2
%
19.9
%
Six Months
Ended March 31
2021
2022
GAAP earnings per share
$1.67
$2.63
Restructuring and related costs
0.12
0.04
Amortization of intangibles
0.20
0.20
Gain on subordinated interest
—
(0.60
)
Acquisition/divestiture costs and interest
on AspenTech debt
—
0.07
Gain on acquisition of full ownership of
equity investment
(0.03
)
—
OSI first year acquisition accounting
charges and fees
0.04
—
Adjusted earnings per share
$2.00
$2.34
Table
9
EMERSON AND SUBSIDIARIES
SEGMENT EBITA
(DOLLARS IN MILLIONS,
UNAUDITED)
Quarter
Ended March 31
2021
2022
Automation
Solutions
Automation Solutions EBIT
$471
$556
Percent of sales
16.8
%
18.9
%
Restructuring and related costs
14
11
Amortization of intangibles
69
64
Automation Solutions EBITA
$554
$631
Percent of sales
19.8
%
21.5
%
Commercial &
Residential Solutions
Commercial & Residential Solutions
EBIT
$357
$365
Percent of sales
21.7
%
19.7
%
Restructuring and related costs
5
3
Amortization of intangibles
13
12
Commercial & Residential Solutions
EBITA
$375
$380
Percent of sales
22.8
%
20.5
%
Table
10
EMERSON AND SUBSIDIARIES
SEGMENT EBITA
(DOLLARS IN MILLIONS,
UNAUDITED)
Six Months
Ended March 31
2021
2022
Automation
Solutions
Automation Solutions EBIT
$832
$1,082
Percent of sales
15.2
%
18.8
%
Restructuring and related costs
78
23
Amortization of intangibles
137
129
Automation Solutions EBITA
$1,047
$1,234
Percent of sales
19.1
%
21.5
%
Commercial &
Residential Solutions
Commercial & Residential Solutions
EBIT
$667
$664
Percent of sales
21.4
%
18.8
%
Restructuring and related costs
8
7
Amortization of intangibles
26
24
Commercial & Residential Solutions
EBITA
$701
$695
Percent of sales
22.4
%
19.7
%
Reconciliations of Non-GAAP Financial
Measures & Other
Table
11
Reconciliations of Non-GAAP measures
(denoted by *) with the most directly comparable GAAP measure
(dollars in millions, except per share amounts). See tables 7
through 10 for additional non-GAAP reconciliations.
Q2 2022 Underlying Sales Change
Auto Solns
Comm & Res Solns
Emerson
Reported (GAAP)
5
%
13
%
8
%
(Favorable) / Unfavorable FX
2
%
1
%
2
%
Acquisitions / Divestitures
—
%
—
%
—
%
Underlying*
7
%
14
%
10
%
Q3 2022E Underlying Sales
Change
Auto Solns
Comm & Res Solns
Emerson
Reported (GAAP)
4% - 6
%
11% - 13
%
7% - 9
%
(Favorable) / Unfavorable FX
3
%
2
%
2
%
Acquisitions / Divestitures
—
%
—
%
—
%
Underlying*
7% - 9
%
13% - 15
%
9% - 11
%
FY 2022E Underlying Sales
Change
Auto Solns
Comm & Res Solns
Emerson
Reported (GAAP)
6% - 8
%
11% - 13
%
8% - 10
%
(Favorable) / Unfavorable FX
1
%
1
%
1
%
Acquisitions / Divestitures
—
%
—
%
—
%
Underlying*
7% - 9
%
12% - 14
%
9% - 11
%
Q2 Earnings Per Share
Q2 FY21
Q2 FY22
Change
Earnings per share (GAAP)
$
0.93
$
1.13
22
%
Restructuring and related costs
0.03
0.02
(1
)%
Amortization of intangibles
0.10
0.10
(3
)%
Acquisition/divestiture costs and interest
on AspenTech debt
—
0.04
4
%
OSI purchase accounting
0.01
—
(1
)%
Adjusted earnings per share*
$
1.07
$
1.29
21
%
Earnings Per Share
Q3 FY22E
FY22E
Earnings per share (GAAP)
$1.00 - $1.05
$4.77 - $4.92
Restructuring and related costs
0.05
0.20
Amortization of intangibles
0.10
0.39
Gain on subordinated interest
—
(0.60
)
Acquisition/divestiture costs and interest
on AspenTech debt
0.10
0.19
Adjusted earnings per share*
$1.25 - $1.30
$4.95 - $5.10
EBIT and EBITA Margin
Q2 FY21
Q2 FY22
Change
Pretax margin (GAAP)
16.6
%
16.9
%
30 bps
Interest expense, net
0.9
%
1.1
%
20 bps
Restructuring and related costs
0.5
%
0.3
%
(20) bps
Amortization of intangibles
1.8
%
1.6
%
(20) bps
Acquisition/divestiture costs and interest
on AspenTech debt
—
%
0.3
%
30 bps
OSI purchase accounting items
0.2
%
—
%
(20) bps
Adjusted EBITA margin*
20.0
%
20.2
%
20 bps
Automation Solutions Segment EBIT
Margin
Q2 FY21
Q2 FY22
Change
Automation Solutions Segment EBIT margin
(GAAP)
16.8
%
18.9
%
210 bps
Restructuring and related costs
0.5
%
0.4
%
(10) bps
Amortization of intangibles impact
2.5
%
2.2
%
(30) bps
Automation Solutions Adjusted Segment
EBITA margin*
19.8
%
21.5
%
170 bps
Commercial & Residential EBIT
Margin
Q2 FY21
Q2 FY22
Change
Commercial & Residential EBIT margin
(GAAP)
21.7
%
19.7
%
(200) bps
Restructuring and related costs
0.3
%
0.2
%
(10) bps
Amortization of intangibles impact
0.8
%
0.6
%
(20) bps
Commercial & Residential Adjusted
EBITA margin*
22.8
%
20.5
%
(230) bps
Q2 Cash Flow
Q2 FY21
Q2 FY22
Change
Operating cash flow (GAAP)
$
807
$
442
(45
)%
Capital expenditures
(100
)
(109
)
(8
)%
Free cash flow*
$
707
$
333
(53
)%
FY 2022E Cash Flow
FY 2022E
Operating cash flow (GAAP)
~ $3.6B
Capital expenditures
(600)M
Free cash flow*
~ $3.0B
Cash Flow to Net Earnings
Conversion
FY 2022E
Operating cash flow to net earnings
(GAAP)
~ 120
%
Capital expenditures
(20
)%
Free cash flow to net earnings*
~ 100
%
Note 1: Underlying sales and orders
exclude the impact of acquisitions, divestitures and currency
translation.
Note 2: All fiscal year 2022E figures are
approximate, except where range is given.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220503006363/en/
For Emerson Investor Contact: Colleen Mettler (314) 553-2197
Media Contact: Charlotte Boyd (952) 994-8607
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