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Emerson (EMR) to Report Q3 Earnings: Beat in the Cards?

Zacks Equity Research

Emerson Electric Co. EMR is set to release third-quarter fiscal 2019 (ended June 2019) results on Aug 6, before market open.

The company pulled off average positive earnings surprise of 2.80% over the last four quarters, beating estimates twice. Notably, in the last reported quarter, Emerson’s earnings of 84 cents per share came in line with the Zacks Consensus Estimate.

Year to date, the company’s shares have rallied 5.1% compared with the industry’s rise of 8%.



We expect it to score an earnings beat in the fiscal third quarter.

Why a Likely Positive Surprise?

Our proven model shows that Emerson has the right combination of the two key ingredients to beat earnings. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

This is the case here as you will see below:

Earnings ESP: Emerson has an Earnings ESP of +0.43%.

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: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Likely to Drive Better-Than-Expected Q3 Results

Emerson expects strength in brownfield, greenfield as well as maintenance, repair and operations projects to bolster revenues of its Automation Solutions segment in the to-be reported quarter. Also, favorable residential and commercial air-conditioning markets in North America, and strength in global professional tools markets, will drive the top line of the company’s Commercial & Residential Solutions segment.

The company’s acquisitions are also anticipated to be conducive to its revenues in the to-be reported quarter. The company used $243 million for making acquisitions (net of cash acquired) in the first half of fiscal 2019 (ended March 2019). As noted, it added six buyout assets to the Automation Solutions segment, including the Intelligent Platforms business of General Electric Company GE in February 2019. We expect the acquisitions to drive sales in the fiscal third quarter as well.

Moreover, Emerson believes that benefits from its cost-reduction efforts and greater operational efficacy will boost profitability.

Amid this backdrop, the Zacks Consensus Estimate for revenues from the Automation Solutions segment in third-quarter fiscal 2019 is currently pegged at $3,108 million, higher than $2,870 million reported in the year-ago quarter. Revenues from Commercial & Residential Solutions segment are expected to be $1,726 million, indicating a rise from $1,592 million reported a year ago.

Despite these positives, escalating cost of sales and expenses are a major concern for Emerson. As a matter of fact, increase in costs might dent profits and lead to margin contraction.

Other Key Picks

Here are two other companies from the Zacks Industrial Products sector you may want to consider as our model shows that these have the right combination of elements to beat estimates this earnings season:

Axon Enterprise, Inc. AAXN has an Earnings ESP of +10.21% and a Zacks Rank of 1.You can see the complete list of today’s Zacks #1 Rank stocks here.

Sealed Air Corporation SEE has an Earnings ESP of +1.34% and a Zacks Rank of 2.

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