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Emerson (EMR) Q3 Earnings In Line With Estimates, Up Y/Y

Zacks Equity Research

Emerson Electric Co. EMR third-quarter fiscal 2019 (ended Jun 30, 2019) earnings of 94 cents per share came in line with the Zacks Consensus Estimate. Notably, the company’s earnings matched estimates in the last reported quarter as well.

On a year-over-year basis, the bottom line increased 7% from 88 cents on the back of healthy sales growth.

Organic Sales and Acquired Assets Drive Revenues

Emerson’s revenues were $4,684 million in the quarter, reflecting growth of 5% from the year-ago quarter. Underlying sales expanded 2% as favorable trends in key served markets supported operations. In addition, acquired assets boosted sales by 5% and forex woes had a 2% adverse impact.

However, the top line lagged the Zacks Consensus Estimate of $4,814 million.

Emerson Electric Co. Price, Consensus and EPS Surprise

Emerson Electric Co. Price, Consensus and EPS Surprise

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

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 $3,025 million, increasing 5.4% year over year. Underlying sales in the quarter grew 3% while acquired assets expanded sales by 5%. Forex woes adversely impacted sales by 3%.

Commercial & Residential Solutions segment generated revenues of $1,662 million in the fiscal third quarter, up 4.4% year over year. Underlying sales were down 1%, while acquired assets expanded sales by 6%. Forex woes adversely impacted sales by 1%. Under this segment, Climate Technologies’ sales declined 3% year over year to $1,199 million while that from Tools & Home Products increased 30.1% to $463 million.

Gross Margin

In the quarter under review, Emerson's cost of sales increased 6.7% year over year to $2,683 million. It represented 57.3% of net revenues compared with 56.4% in the year-ago quarter. Gross margin was down 90 basis points (bps) to 42.7% due to acquired assets and unfavorable mix. Selling, general and administrative expenses (SG&A) expanded 6.4% to $1,126 million. As a percentage of sales, SG&A expenses were 24%, up from 23.7%.

Balance Sheet and Cash Flow

Exiting the fiscal third quarter, Emerson had cash and cash equivalents of $1,603 million, down from $3,411 million at the year-end quarter. Long-term debt balance increased 38.7% to $4,336 million.

Notably, during the first nine months of fiscal 2019, the company raised $1,691 million from long-term debts while repaid debts of $655 million.

In the first three quarters of fiscal 2019, it generated net cash of $1,802 million from operating activities, reflecting decline of 3.5% from the year-ago period. Capital expenditure was $395 million, up from $314 million.

During the first nine months of fiscal 2019, the company paid dividends amounting $909 million and repurchased shares worth $1,000 million.

Outlook

For fiscal 2019 (ending September 2019), the company anticipates net sales to increase 6%, with underlying sales to be up 3%.

Earnings per share are predicted to be $3.60-$3.70 for the fiscal, consistent with the earlier guidance.

Emerson estimates Automation Solutions net sales to be up 5%, while Commercial & Residential Solutions sales are projected to be flat.

Zacks Rank & Key Picks

Emerson currently carries a Zacks Rank #3(Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are Roper Technologies, Inc. ROP, Dover Corporation DOV and Tetra Tech, Inc. TTEK. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Roper delivered average positive earnings surprise of 6.92% in the trailing four quarters.

Dover pulled off average positive earnings surprise of 6.91% in the trailing four quarters.

Tetra Tech delivered average positive earnings surprise of 8.72% in the trailing four quarters.

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