Why Is Emerson Electric (EMR) Up 9.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Emerson Electric (EMR). Shares have added about 9.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Emerson Electric due for a pullback? 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 catalysts.
Emerson Q4 Earnings Beat, Soar Y/Y on Higher Revenues
Emerson fourth-quarter fiscal 2022 (ended Sep 30, 2022) adjusted earnings of $1.53 per share, which outperformed the Zacks Consensus Estimate of $1.39. This compares with our estimate of $1.38. The bottom line improved by double digits in the reported quarter. Results benefited from continued automation demand and a robust backlog level.
Emerson’s net sales of $5,360 million surpassed the Zacks Consensus Estimate of $5,355 million. This compares with our estimate of $5,351.6 million. The top line increased 8% year over year. Underlying sales were up 12%.
Segmental Details
Automation Solutions’ net sales came in at $3,307 million, increasing 7% year over year. This compares with the Zacks Consensus Estimate of $3,338 million. Our estimate for the quarter was $3,351.7 million. Underlying sales of the segment increased 13%.
Commercial & Residential Solutions generated net sales of $1,803 million in the fiscal fourth quarter, up 2% year over year. This compares with the Zacks Consensus Estimate of $1,890 million. Our estimate for the quarter was $1,899.8 million. Underlying sales were up 10%. AspenTech generated net sales of $251 million in the quarter. This compares with the Zacks Consensus Estimate of $195 million. Our estimate for the quarter was $133.2 million.
Margin Details
In the quarter under review, Emerson's cost of sales increased 3.1% year over year to $3,043 million. The pretax margin in the quarter was 16.9% compared with 16.7% in the year-ago period. Adjusted EBITA margin came in at 23.3% compared with 20.7% in the year-ago quarter. Selling, general and administrative expenses increased 7.8% to $1,136 million.
Balance Sheet and Cash Flow
Exiting fourth-quarter fiscal 2022, Emerson had cash and cash equivalents of $1,804 million compared with $2,354 million in the year-ago quarter. Long-term debt was $8,259 million compared with $ 5,793 million in the year-ago period. In 2022, the company repaid debts of $522 million.
In fiscal 2022, the company generated net cash of $2,922 million from operating activities, reflecting a decrease of 18.3% from the year-ago period. Capital expenditure was $531 million, down from $581 million in the year-ago period.
In fiscal 2022, the company paid out dividends of $1,223 million and repurchased shares worth $500 million.
Fiscal 2023 Outlook
Emerson will report financial results for Climate Technologies, InSinkErator and Therm O Disc as discontinued operations beginning in 2023, following the announcement of its Climate Technologies divestiture. The company expects earnings from discontinued operations for 2023 to be $10-$11 billion or $17-$19 per share, including the net gains on 2023 divestitures.
Emerson anticipates net sales growth of 7-9% year over year in fiscal 2023. Underlying sales are expected to rise 6.5-8.5% in the year.
EMR anticipates earnings per share of $3.51-$3.66 for fiscal 2022. Adjusted earnings per share are estimated to be $4.00–$4.15 per share. Free cash flow conversion is predicted to be approximately 100%. EMR expects to pay a dividend of approximately $1.2 billion and to buy back shares worth approximately $2 billion in fiscal 2023.
For the fiscal first quarter of 2023, Emerson anticipates net sales growth of 6-8% and Underlying Sales Growth of 6-8%, year over year. Adjusted EPS is anticipated to be 85-89 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -26.17% due to these changes.
VGM Scores
At this time, Emerson Electric has a nice Growth Score of B, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Emerson Electric has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Emerson Electric belongs to the Zacks Manufacturing - Electronics industry. Another stock from the same industry, ABB (ABB), has gained 9.9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
ABB reported revenues of $7.41 billion in the last reported quarter, representing a year-over-year change of +5.4%. EPS of $0.20 for the same period compares with $0.37 a year ago.
ABB is expected to post earnings of $0.37 per share for the current quarter, representing a year-over-year change of +8.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -28.2%.
ABB has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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