Emerson Electric (EMR) Down 0.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Emerson Electric (EMR). Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Emerson Electric due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Emerson's Q4 Earnings Meet Estimates, Increase Y/Y

Emerson’s fourth-quarter fiscal 2019 (ended Sep 30, 2019) earnings of $1.07 per share came in line with the Zacks Consensus Estimate. The company’s earnings matched estimates in the last reported quarter as well. On a year-over-year basis, the bottom line increased 20.2% from 89 cents on the back of healthy sales growth.

For fiscal 2019, the company’s adjusted earnings came in at $3.69.

Organic Sales and Acquired Assets Drive Revenues

Emerson’s revenues were $4,971 million in the quarter, reflecting growth of 2% from the year-ago quarter. Underlying sales jumped 3% as favorable trends in key served markets supported operations. In addition, acquired assets boosted sales by 1% and forex woes had a 2% adverse impact. However, the top line lagged the Zacks Consensus Estimate of $5,047 million.

For fiscal 2019, net sales came in at $18,372 million, up 6% year over year, indicating strengthening industrial market demand.

The company reports net sales under two segments — Automation Solutions and Commercial & Residential Solutions. The segmental information is briefly discussed below:

Automation Solutions revenues were $3,368 million, increasing 4% year over year. Underlying sales grew 5% while acquired assets expanded sales by 1%. Forex woes had an adverse impact of 2%.

Commercial & Residential Solutions generated revenues of $1,608 million in the fiscal fourth quarter, down 3% year over year. Underlying sales were down 2%, while forex woes adversely impacted sales by 1%. Under this segment, Climate Technologies’ sales declined 2.2% year over year to $1,142 million while that from Tools & Home Products decreased 4.3% to $466 million.

Gross Margin

In the quarter, Emerson's cost of sales increased 0.5% year over year to $2,843 million. It represented 57.2% of net revenues compared with 57.9% in the year-ago quarter. Gross margin was up 70 basis points (bps) to 42.8% due to strong operational execution and favorable price-cost.

Selling, general and administrative expenses (SG&A) declined 6.1% to $1,109 million. As a percentage of sales, SG&A expenses were 22.3%, down from 24.2%.

Balance Sheet and Cash Flow

Exiting the fiscal fourth quarter, Emerson had cash and cash equivalents of $1,494 million, up from $1,093 million year over year. Long-term debt balance increased 36.3% to $4,277 million.

In fiscal 2019, it generated net cash of $3,006 million from operating activities, reflecting increase of 3.9% from fiscal 2018. Capital expenditure was $594 million, down from $617 million.

During fiscal 2019, the company paid dividends amounting $1,209 million and repurchased shares worth $1,250 million.

Outlook

For fiscal 2020 (ending September 2020), the company anticipates net sales in the range of a 3% decline to 1% increase. Underlying sales are expected to be in the range of 2% decline to 2% increase.

Earnings per share are predicted to be $3.48-$3.72 for fiscal 2020.

Emerson estimates Automation Solutions net sales to be in the band of 2% decline to 2% increase, while Commercial & Residential Solutions net sales are projected to decline 1% to 5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Emerson Electric has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Emerson Electric has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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