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Emerson (EMR) to Post Q3 Earnings: What's in the Offing?

Zacks Equity Research

Emerson Electric Co. EMR is set to release third-quarter fiscal 2020 (ended Jun 2020) results on Aug 4, before market open.

Notably, the company’s earnings results met estimates thrice in the last four quarters and surpassed once, the positive earnings surprise being 4.28%, on average. In the last reported quarter, Emerson’s earnings of 89 cents per share beat the Zacks Consensus Estimate of 76 cents by 17.11%.

In the past three months, the company’s shares have increased 16.5% compared with the industry’s rise of 27.8%.



Factors at Play

Emerson is likely to have benefited from strength in its medical and life science business, owing to robust growth in demand for its products and solutions in third-quarter fiscal 2020. Also, the company is likely to have benefited from its robust backlog level in the quarter.  In addition, benefits from the company’s focus on greater operational efficacy are likely to have boosted the company’s margins and profitability in the to-be-reported quarter.

Acquired assets are likely to have supported Emerson’s third-quarter fiscal 2020 top-line performance, owing to the benefits from its buyout of Intelligent Platforms business of General Electric Company (GE) in February 2019.  Notably, the Intelligent Platforms business has strengthened the company’s growth opportunities across process and discrete industries as well as hybrid markets such as metals and mining, food and beverage, life sciences, and packaging. Also, the buyouts of Verdant (completed in March 2020) and American Governor Company (completed in April 2020) have strengthened its product offerings, which might get reflected in the upcoming results.

However, weak demand environment on account of the coronavirus outbreak and persistent weakness in the North American upstream oil and gas end markets are likely to have adversely impacted the company’s top-line performance. Also, continued weakness in the downstream refining end market is likely to get reflected on its top-line number. Notably, the company anticipates its fiscal third-quarter organic sales to have declined 13-16%.

Moreover, given Emerson’s diverse geographic presence, its operations are subject to global economic and political risks as well as forex woes. For instance, unfavorable movements in foreign currencies adversely impacted sales by 1% and 2% in the first and second quarters of fiscal 2020, respectively. A stronger U.S. dollar might have hurt the company's overseas business in third-quarter fiscal 2020.

Amid this backdrop, the Zacks Consensus Estimate for Automation Solutions’ revenues for the fiscal third quarter is currently pegged at $2,519 million, indicating decline of 7% on a sequential basis. The consensus estimate for revenues from the Commercial and Residential Solutions segment is pegged at $1,320 million, indicating a decline of 9.5% from the previous quarter’s reported figure.

Earnings Whispers

According to our quantitative model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: Emerson has an Earnings ESP of -0.94% as the Most Accurate Estimate is pegged at 60 cents, lower than the Zacks Consensus Estimate of 61 cents.

Emerson Electric Co. Price and EPS Surprise


Emerson Electric Co. Price and EPS Surprise
Emerson Electric Co. Price and EPS Surprise

Emerson Electric Co. price-eps-surprise | Emerson Electric Co. Quote

Zacks Rank: Emerson carries a Zacks Rank #3.

Key Picks

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Deere Company DE has an Earnings ESP of +4.64% and a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alta Equipment Group Inc. ALTG presently has a Zacks Rank #2 and an Earnings ESP of +36.84%.

Greif, Inc. GEF currently has a Zacks Rank #3 and an Earnings ESP of +3.41%.

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