• Sales increased 3 percent from the prior year to $6.5 billion, with underlying sales up 6 percent • Strong margin improvement benefited from continued recovery of Process Management • Record third quarter earnings per share of $1.04, up 16 percent from the prior year
ST. LOUIS, August 7, 2012 – Emerson (NYSE: EMR) today announced that net sales for the third quarter ended June 30, 2012, increased 3 percent to $6.5 billion, led by robust growth in Process Management. Underlying sales grew 6 percent, as currency translation deducted 3 percent and acquisitions, net of divestitures, had a negligible impact, with the U.S. up 6 percent, Asia up 9 percent, and Europe unchanged from the prior year.
Operating profit margin of 19.9 percent improved 180 basis points from the prior year and 340 basis points from the second quarter, as volume leverage and cost reduction benefits drove 55 percent sequential operating profit leverage. The strong profitability benefited from exceptional leverage in Process Management as backlog related to the Thailand flooding converted into sales at high margin. Pretax earnings margin expanded 200 basis points from the prior year to 17.8 percent and 400 basis points from the second quarter as sequential pretax earnings leverage was 60 percent. Earnings per share of $1.04, a record for the third quarter, increased 16 percent from the prior year.
“This was a strong quarter in what has become an increasingly uncertain and weakening global economy,” said Chairman and Chief Executive Officer David N. Farr. “We continued to recover from a challenging start to the year despite some obvious signs of slowness around the world. In the current business environment, underlying sales growth and margin expansion of this magnitude reflect strong operational execution and returns generated from our growth and restructuring investments.”
Balance Sheet / Cash Flow Operating cash flow of $846 million decreased 6 percent from the prior year quarter, as strong earnings growth was offset by higher receivables related to sales timing. Inventory performance improved compared with the prior year and prior quarter, benefiting from resolution of the Thailand flooding supply chain disruption, other operational improvements, and the stronger U.S. dollar. Trade working capital of 16.8 percent of sales was equal to the prior year and reflected sequential improvement of 130 basis points. Free cash flow was unchanged from the prior year at $705 million, as capital expenditures decreased to $141 million, resulting in conversion from earnings of 90 percent. Approval of the fourth quarter dividend payment is anticipated at today’s Board of Directors meeting, completing the 56th consecutive year of dividend increases.
“Operations generated substantial cash flow in the quarter, keeping us on pace for a record year,” Farr said. “We accelerated share repurchases as the market valuation became increasingly attractive and acquisition activity remained limited. Our stable cash generation and flexible capital structure allow us to maintain focus on returning cash to shareholders, regardless of the economic environment.”
Business Segment Highlights Process Management sales grew 19 percent, as global energy investments and