Emerson Electric (EMR) Up 2.5% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Emerson Electric (EMR). Shares have added about 2.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Emerson Electric due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Emerson's Q3 Earnings & Revenues Beat Estimates
Emerson reported third-quarter fiscal 2023 (ended Jun 30, 2023) adjusted earnings of $1.29 per share, which beat the Zacks Consensus Estimate of adjusted earnings of $1.09 per share. The bottom line declined 6.5% in the reported quarter.
Emerson’s net sales of $3,946 million beat the consensus estimate of $3,886 million. The top line increased 14% year over year driven by solid segmental performance. The underlying sales were up 14% as well.
Segmental Details
Effective from the fiscal first quarter of 2023, the company started reporting under two segments, namely Intelligent Devices and Software and Control Automation Solutions.
The Intelligent Devices segments’ net sales came in at $2,979 million, increasing 11% year over year. Our estimate for segmental revenues was $2,966.2 million. The segment consists of four subgroups, namely Final Control, Measurement & Analytical, Discrete Automation and Safety & Productivity.
Final Control’s revenues increased to $1,035 million from $905 million in the fiscal third quarter 2023. Measurement & Analytical generated revenues of $913 million, up from $788 million reported in the year-ago period. Discrete Automation’s revenues totaled $668 million, compared with $633 million reported in the year-ago quarter. Safety & Productivity’s revenues increased to $363 million in the fiscal third quarter of 2023 from $360 million reported in the year-ago quarter.
The Software and Control Automation Solutions segment generated net sales of $983 million in the fiscal third quarter, up 22% year over year. Our estimate for segmental revenues was $920.2 million. The segment consists of two subgroups, namely Control Systems & Software, and AspenTech.
Control Systems & Software reported revenues of $663 million, compared with $568 million reported in the year-ago quarter. AspenTech generated net sales of $320 million, up 34% year over year.
Margin Details
In the quarter under review, Emerson's cost of sales increased 3.9% year over year to $1,952 million. The pretax earnings margin in the quarter was 19.3%, compared with 10.9% in the year-ago period. Adjusted EBITA margin came in at 26%, compared with 23.1% in the year-ago quarter. Selling, general and administrative expenses increased 16.6% to $1,042 million.
Balance Sheet and Cash Flow
Exiting third-quarter fiscal 2023, Emerson had cash and cash equivalents of $9,957 million, compared with $2,529 million in the year-ago quarter. Long-term debt was $8,367 million, compared with $7,642 million in the year-ago period. In the first nine months of fiscal 2023, the company repaid debts of $744 million.
In the same time period, the company generated net cash of $1,280 million from operating activities, reflecting a decrease of 24.9% from the year-ago period. Capital expenditure was $194 million, down from $199 million in the year-ago period.
The company paid out dividends of $900 million and repurchased common stocks worth $2000 million in the same time period.
Fiscal 2023 Outlook
The company has revised its fiscal 2023 outlook for continuing operations. Emerson anticipates net sales growth of approximately 10.5% year over year in fiscal 2023, compared with 9-10.5% predicted earlier. Underlying sales are expected to rise approximately 10% in the year, compared with 8.5-10% predicted before.
EMR anticipates earnings per share of $3.54-$3.59 for fiscal 2023, compared with $3.58-$3.68 expected earlier. Adjusted earnings per share is estimated to be $4.40–$4.45, compared with $4.15–$4.25 predicted before. The Zacks Consensus Estimate for the same stands at $4.21.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Emerson Electric has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Emerson Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Emerson Electric belongs to the Zacks Manufacturing - Electronics industry. Another stock from the same industry, A.O. Smith (AOS), has gained 0.3% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.
A.O. Smith reported revenues of $960.8 million in the last reported quarter, representing a year-over-year change of -0.5%. EPS of $1.01 for the same period compares with $0.82 a year ago.
For the current quarter, A.O. Smith is expected to post earnings of $0.77 per share, indicating a change of +11.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.9% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for A.O. Smith. Also, the stock has a VGM Score of C.
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