Emerson Electric (EMR) Down 6.1% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Emerson Electric (EMR). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Emerson Electric due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Emerson Q3 Earnings Beat, Soar Y/Y on Higher Revenues

Emerson Electric Co. reported third-quarter fiscal 2022 (ended Jun 30, 2022) adjusted earnings (excluding 16 cents from non-recurring items) of $1.38 per share, which outperformed the Zacks Consensus Estimate of $1.29. This compares with our estimate of $1.27. The bottom line improved in double digits in the reported quarter. Results benefited from strong growth in underlying orders and increased demand for technology, software and solutions.

Emerson’s net sales of $5,005 million fell short of the Zacks Consensus Estimate of $5,120.2 million. This compares with our estimate of $5,089.8 million. The top line increased 6.6% year over year. Underlying sales were up 7%.

Segmental Details

Automation Solutions’ net sales were $2,872 million, flat year over year. This compares with the Zacks Consensus Estimate of $3,452 million. Our estimate for the quarter was $3,102.2 million. Underlying sales of the segment increased by 4%. Commercial & Residential Solutions generated net sales of $1,902 million in the fiscal third quarter, up 8% year over year. This compares with the Zacks Consensus Estimate of $1,937 million. Our estimate for the quarter was $1,992.7 million. Underlying sales were up 13%. Within the segment, Climate Technologies’ sales jumped more than 100% to $239 million, and that from Tools & Home Products augmented 6.7% to $522 million.

Margin Details

In the quarter under review, Emerson's cost of sales increased 7% year over year to $2,908 million. Pretax margin in the quarter was 23.9% compared with 16.7% in the year-ago period. Adjusted EBITA margin came in at 22.8% compared with 20.1% in the year-ago quarter. Selling, general and administrative expenses decreased 2.1% to $1,052 million.

Balance Sheet and Cash Flow

Exiting third-quarter fiscal 2022, Emerson had cash and cash equivalents of $2,529 million compared with $2,860 million in the year-ago quarter. Long-term debt was $8,367 million compared with $5,835 million in the year-ago period. During the first nine months of 2022, the company repaid debts of $512 million.

In the first nine months of fiscal 2022, it generated net cash of $1,705 million from operating activities, reflecting a decrease of 37.3% from the year-ago period. Capital expenditure was $335 million, down from $350 million in the year-ago period.

During the first nine months of fiscal 2022, the company paid out dividends of $918 million and repurchased shares worth $418 million.

Fiscal 2022 Outlook

Emerson anticipates net sales of 7-8% year over year (8-10% increase anticipated earlier) in fiscal 2022. Underlying sales are now expected to rise 9-10% compared with 9-11% increase estimated earlier.

EMR anticipates earnings per share of $5.25-$5.35 for fiscal 2022. Adjusted earnings per share are estimated to be $5.05-$5.15 compared with $4.95-$5.10 expected earlier. The Zacks Consensus Estimate for the same stands at $5.05.

Operating cash flow is forecast to be $3 billion in fiscal 2022 compared with $3.6 billion anticipated earlier. The company expects capital spending of approximately $525 million in fiscal 2022.  Free cash flow is predicted to be $2.5 billion compared with $3 billion anticipated earlier. EMR expects to buyback shares worth approximately $500 million in fiscal 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Emerson Electric has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 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. Notably, Emerson Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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