Emerson Misses Q3 Earnings Estimates
Emerson Electric Company (EMR) reported third-quarter fiscal 2013 earnings of $194 million or 27 cents per share compared with net income of $770 million or $1.04 per share in the year-ago period. The year-over-year decline was due to a sluggish macroeconomic environment and tough comparisons compared to last year.
However, excluding the charges related to the divestiture of embedded computing and power business, the company reported non-GAAP EPS of 97 cents compared with $1.04 in the year-earlier quarter, missing the Zacks Consensus Estimate by 2 cents.
Total Revenue
Total revenue in the quarter was down 2% year over year to $6.3 billion. Organic sales during the quarter dropped 1% due the impact of divestitures of 1 %, with sales from the U.S. and Asia down 3% each and Europe down 6%. Top-line growth was impacted by mixed results across the end markets and geographies.
In addition, slow economic growth due to stalled business investment, particularly in mature markets, affected top-line growth. Revenues were below the Zacks Consensus Estimate of $6.4 billion.
Segment Results
Process Managementsegment’s net and underlying sales surged a sales nudged up 3%. The rise was mainly due to good performances in the energy and chemical end markets.
On a geographical basis, the segment’s sales grew 8% growth in Asia, remained flat in Europe and fell 6% in the U.S., all on a year-over-year basis. Orders increased 8% due to solid growth in the systems and solutions business, strong demand improvement in North America and double-digit rise in sales in China.
The Industrial Automation segment reported revenues and underlying sales decline of 7%, with the U.S. sales down 6%, Europe down 13% and Asia’s sales remaining flat year over year, as end markets for global capital goods remained weak. The power generating alternators was the worst performing sub-category in the segment. However, channel inventory destocking is slowing which indicates that orders should turn positive.
Network Powerrevenues as well as underlying sales contracted 5% each, with the U.S. sales down 1%, Asia down 13% and Europe down 4% year over year, due to mix business demand trends. The computing and power business also declined double-digits, reflecting weak and fluctuating demand for technology equipment and mobile devices.
Furthermore, underlying sales fell marginally in the network power systems business, as an increase in demand for data center infrastructure was more than offset by the weak global telecommunications markets.
Both overall revenues and organic sales in the Climate Technologies division fell 2%, with the U.S., Europe and Asia registering decreases in revenues. After a robust performance from the U.S. residential air conditioning business in the previous quarter, the segment reported lackluster growth in the said quarter as mild weather and inventory de-stocking affected consumers’ demand.
Additionally, commercial air conditioning and global refrigeration demand remained weak, with particular weakness in the transportation business.
Revenues in the Commercial & Residential Solutions segment contracted 2%, attributable to a 6% deduction from the Knaack business divestiture. Organic sales rose 4%, driven by a 6% increase in the U.S., led by strong demand in residential end market.
Margins
Operating margins fell to 8% during the quarter from 17.8% in the year-ago period, due to high goodwill impairment charges. Net margins fell to 3% from 11.9 % reported in the prior-year period.
Balance Sheet & Cash Flow
Exiting the quarter, the company had cash and cash equivalents of $2.8 billion with a long-term debt of $4.1 billion. Net cash from operating activities during the nine month period were $2.1 billion compared with $1.7 billion during the prior-year period.
Divesture
Along with its earnings release, Emerson announced that it has inked a deal with Platinum Equity to sell 51% stake in its computing and power business. The company cited weaker demand from the technology equipment and mobile device markets as one of primary reasons for the divesture.
Outlook
Along with the earnings release, the company lowered its guidance for fiscal 2013, given the sluggish economic growth. Further, the order trend had no signs of improvement in the reported quarter.
Therefore, Emerson has narrowed its guidance and now expects earnings to be in the range of $3.48 to $3.55, excluding the goodwill and tax charges related to the embedded computing and power business, down from its previous range of $3.48 to $3.58 a share.
Both revenues and underlying sales growth is now expected to be approximately 1% lower than its previous guidance of 1.5% to 2.5%, with EBIT and pre-tax margin projected to be flat year over year.
The company expects operating cash flow to be approximately $3.4 billion with free cash flow of approximately $2.7 billion.
Emerson currently has a Zacks Rank # 3 (Hold). However, other companies that can be considered at the moment are Alamo Group, Inc. (ALG), CECO Environmental Corp. (CECE) and Calgon Carbon Corporation (CCC), all having Zacks Rank #1 (Strong Buy).
Read the Full Research Report on EMR
Read the Full Research Report on CCC
Read the Full Research Report on ALG
Read the Full Research Report on CECE
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