Yahoo Finance Emerson Reports First Quarter 2023 Results; Updates 2023 Outlook
Net sales were $3.4 billion, up 7 percent from the year prior; underlying sales1 were up 6 percent
Strong operational performance to start 2023 offset by foreign exchange and stock compensation headwinds
GAAP EPS was $0.56; adjusted EPS2 was $0.78, including $0.09 unfavorable impact from stock compensation
Completed $2 billion of share repurchase in the first quarter
Updated 2023 full year net sales and GAAP EPS outlook; maintained underlying sales and adjusted EPS outlook despite stock compensation headwind
Announced St. Louis selected as global headquarters
Declared quarterly cash dividend of $0.52 per share of common stock payable March 10, 2023 to stockholders of record February 17, 2023
ST. LOUIS, Feb. 8, 2023 /PRNewswire/ -- Emerson (NYSE: EMR) today reported results for its first quarter ended December 31, 2022 and updated its full year outlook for fiscal 2023, which are presented on a continuing operations basis.
"Emerson continues to execute on the strategy we presented at our November 29th Investor Conference," said Emerson President and Chief Executive Officer Lal Karsanbhai. "Continued strength in our end markets and operational excellence, enabled by our Emerson Management System, resulted in a great start to 2023. We delivered underlying sales growth of 6 percent and strong segment margin expansion with operational leverage above our targets. Continued operational performance gives us confidence to reiterate our 2023 underlying sales and adjusted EPS outlook, overcoming the impact of higher than expected stock compensation expense."
"Emerson remains committed to disciplined capital allocation and shareholder return, completing $2 billion of share repurchase in the first quarter," Karsanbhai continued. "We continue to actively pursue opportunities to deploy capital effectively, including our proposal to acquire National Instruments (NI) for $53 per share, a unique value creation opportunity for Emerson and NI shareholders."
"Lastly, following a comprehensive review, we selected St. Louis, Missouri as our headquarters and are working to identify an appropriate location in the area," Karsanbhai ended.
Underlying orders3 were up 5 percent. Net sales were up 7 percent for the quarter and underlying sales were up 6 percent. The Americas were up 13 percent, Europe was down 2 percent, and Asia, Middle East & Africa was flat.
Pretax margin was 12.5 percent for the quarter, down 1730 basis points. Adjusted segment EBITA margin4 was 22.7 percent, up 130 basis points.
Earnings per share were $0.56 for the quarter, down 55 percent. Earnings per share growth was impacted by a prior year gain of $0.60 related to our Vertiv subordinated interest. Adjusted earnings per share were $0.78, down 1 percent. The quarter was unfavorably impacted by $0.09 due to a 31 percent increase in the company stock price in the quarter and resulting impact on mark-to-market stock compensation plans.
Operating cash flow was $302 million for the quarter, down 20 percent, and free cash flow was $243 million, down 20 percent. Cash flow results reflected higher working capital versus prior year.
2023 Outlook
The Company's 2023 continuing operations after the Climate Technologies divestiture (assumed to close March 31, 2023 for the purposes of guidance) will reflect the 45% common equity ownership in the income, or loss, of Climate Technologies. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the amount of its 45% share of Climate Technologies' post-close results. The effect of Emerson's 45% share of Climate Technologies is expected to be immaterial to post-closing cash flows.
The following tables summarize the fiscal year 2023 guidance framework for continuing operations5. Full year net sales and GAAP EPS outlook have been updated. Underlying sales and adjusted EPS outlook remain unchanged despite stock compensation headwind. The 2023 outlook includes $2 billion returned to shareholders through share repurchases completed in the first quarter and approximately $1.2 billion of dividend payments. Guidance figures are approximate.
2023 Guidance - Continuing Operations5
2023 Q2 | 2023 | |
Net Sales Growth | 10.5% - 12.5% | 8% - 10% |
Underlying Sales Growth | 8% - 10% | 6.5% - 8.5% |
Earnings Per Share6 | $0.75 - $0.80 | $3.55 - $3.70 |
Amortization of Intangibles | ~$0.15 | ~$0.60 |
Restructuring / Related Costs | ~$0.05 | ~$0.12 |
Russia Exit Costs | --- | $0.08 |
AspenTech Micromine Purchase Price Hedge | --- | ($0.03) |
Interest on Note Receivable From Climate Technologies | --- | ~($0.09) |
Interest Income on Undeployed Proceeds | --- | ~($0.23) |
Adjusted Earnings Per Share | $0.95 - $1.00 | $4.00 - $4.15 |
Notes: |
1 Underlying sales excludes the impact of currency translation, and acquisitions and divestitures including heritage AspenTech and Emerson's businesses contributed to AspenTech. |
2 Adjusted EPS excludes restructuring, a gain on subordinated interest, acquisition/divestiture costs, write-offs associated with Emerson's announced Russia exit, an AspenTech Micromine purchase price hedge and intangibles amortization expense. |
3 Underlying orders does not include heritage AspenTech or Emerson's contributed businesses to AspenTech. |
4 Adjusted segment EBITA margin excludes corporate items and interest expense, restructuring, a gain on subordinated interest, acquisition/divestiture costs, write-offs associated with Emerson's announced Russia exit, an AspenTech Micromine purchase price hedge and intangibles amortization expense. |
5 Following the announcement of its Climate Technologies divestiture, Emerson will report financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, beginning in 2023. The earnings from discontinued operations for 2023 are expected to be $10.5 billion to $11.5 billion, or $18 to $20 per share, including the net gains on 2023 divestitures. The Company's 2023 continuing operations after the Climate Technologies divestiture (assumed to close March 31, 2023 for the purposes of guidance) will include interest income from the $2.25 billion note receivable from Climate Technologies and reflect the 45% common equity ownership in the income, or loss, of Climate Technologies. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the amount of its 45% share of Climate Technologies' post-close results. The Company will exclude the interest income from the note receivable from Climate Technologies and its share of Climate Technologies' operations in its calculation of 2023 adjusted earnings per share. Also excluded from adjusted earnings per share is the interest income on any undeployed net proceeds. The effect of Emerson's 45% share of Climate Technologies is expected to be immaterial to post-closing cash flows. |
6 2023 earnings per share guidance from continuing operations excludes any potential impact from the 45% common equity ownership in Climate Technologies' income or loss post-close. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the probable significance or impact on our earnings per share results from the 45% share of Climate Technologies' post-close results. Emerson will exclude its 45% share of Climate Technologies' post-close operations from the calculation of its 2023 adjusted earnings per share. |
Upcoming Investor Events
Today, beginning at 7:30 a.m. Central Time / 8:30 a.m. Eastern Time, Emerson management will discuss the first quarter results during an investor conference call. Participants can access a live webcast available at www.emerson.com/investors at the time of the call. A replay of the call will be available for 90 days. Conference call slides will be posted in advance of the call on the company website.
Forward-Looking and Cautionary Statements
Statements in this press release that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the Company's ability to successfully complete on the terms and conditions contemplated, and the financial impact of, the proposed Climate Technologies transaction, the potential National Instruments transaction, the scope, duration and ultimate impacts of the COVID-19 pandemic and the Russia-Ukraine conflict, as well as economic and currency conditions, market demand, including related to the pandemic and oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, inflation, among others, as set forth in the Company's most recent Annual Report on Form 10-K and subsequent reports filed with the SEC. The outlook contained herein represents the Company's expectation for its consolidated results, other than as noted herein.
Table 1 | |||||
EMERSON AND SUBSIDIARIES | |||||
CONSOLIDATED OPERATING RESULTS | |||||
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED) | |||||
Quarter Ended Dec 31 | Percent | ||||
2021 | 2022 | Change | |||
Net sales | $3,156 | $3,373 | 7 % | ||
Cost of sales | 1,741 | 1,753 | |||
SG&A expenses | 849 | 1,030 | |||
Gain on subordinated interest | (453) | — | |||
Other deductions, net | 38 | 120 | |||
Interest expense, net | 39 | 48 | |||
Earnings before income taxes | 942 | 422 | (55) % | ||
Income taxes | 196 | 98 | |||
Earnings from continuing operations | 746 | 324 | (57) % | ||
Discontinued operations, net of tax | 149 | 2,002 | |||
Net earnings | 895 | 2,326 | |||
Less: Noncontrolling interests in subsidiaries | (1) | (5) | |||
Net earnings common stockholders | $896 | $2,331 | 160 % | ||
Diluted avg. shares outstanding | 598.1 | 586.7 | |||
Diluted earnings per share common stockholders | |||||
Earnings from continuing operations | $1.25 | $0.56 | (55) % | ||
Discontinued operations | 0.25 | 3.41 | |||
Diluted earnings per common share | $1.50 | $3.97 | 165 % | ||
Quarter Ended Dec 31 | |||||
2021 | 2022 | ||||
Other deductions, net | |||||
Amortization of intangibles | $57 | $118 | |||
Restructuring costs | 6 | 10 | |||
Other | (25) | (8) | |||
Total | $38 | $120 | |||
Table 2 | |||
EMERSON AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEETS | |||
(DOLLARS IN MILLIONS, UNAUDITED) | |||
Quarter Ended Dec 31 | |||
2021 | 2022 | ||
Assets | |||
Cash and equivalents | $4,726 | $2,271 | |
Receivables, net | 2,005 | 2,231 | |
Inventories | 1,752 | 1,999 | |
Other current assets | 986 | 1,290 | |
Current assets held-for-sale | 1,391 | 1,209 | |
Total current assets | 10,860 | 9,000 | |
Property, plant & equipment, net | 2,392 | 2,263 | |
Goodwill | 6,941 | 14,087 | |
Other intangible assets | 2,617 | 6,460 | |
Other | 1,776 | 2,268 | |
Noncurrent assets held-for-sale | 2,373 | 2,163 | |
Total assets | $26,959 | $36,241 | |
Liabilities and equity | |||
Short-term borrowings and current | |||
maturities of long-term debt | $37 | $1,792 | |
Accounts payable | 1,208 | 1,219 | |
Accrued expenses | 2,751 | 3,949 | |
Current liabilities held-for-sale | 1,335 | 1,200 | |
Total current liabilities | 5,331 | 8,160 | |
Long-term debt | 8,718 | 8,159 | |
Other liabilities | 2,403 | 3,057 | |
Noncurrent liabilities held-for-sale | 219 | 151 | |
Equity | |||
Common stockholders' equity | 10,249 | 10,727 | |
Noncontrolling interests in subsidiaries | 39 | 5,987 | |
Total equity | 10,288 | 16,714 | |
Total liabilities and equity | $26,959 | $36,241 | |
Table 3 | ||||
EMERSON AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(DOLLARS IN MILLIONS, UNAUDITED) | ||||
Three Months Ended Dec 31 | ||||
2021 | 2022 | |||
Operating activities | ||||
Net earnings | $895 | $2,326 | ||
Earnings from discontinued operations, net of tax | (149) | (2,002) | ||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||
Depreciation and amortization | 178 | 260 | ||
Stock compensation | 34 | 102 | ||
Changes in operating working capital | (125) | (289) | ||
Gain on subordinated interest | (453) | — | ||
Other, net | (3) | (95) | ||
Cash from continuing operations | 377 | 302 | ||
Cash from discontinued operations | 146 | 116 | ||
Cash provided by operating activities | 523 | 418 | ||
Investing activities | ||||
Capital expenditures | (73) | (59) | ||
Purchases of businesses, net of cash and equivalents acquired | (39) | — | ||
Proceeds from subordinated interest | 438 | 15 | ||
Other, net | 3 | (23) | ||
Cash from continuing operations | 329 | (67) | ||
Cash from discontinued operations | (44) | 2,953 | ||
Cash provided by investing activities | 285 | 2,886 | ||
Financing activities | ||||
Net increase in short-term borrowings | (335) | (539) | ||
Proceeds from long-term debt | 2,975 | — | ||
Payments of long-term debt | (501) | (9) | ||
Dividends paid | (307) | (306) | ||
Purchases of common stock | (253) | (2,000) | ||
Other, net | 22 | (41) | ||
Cash provided by (used in) financing activities | 1,601 | (2,895) | ||
Effect of exchange rate changes on cash and equivalents | (37) | 58 | ||
Increase in cash and equivalents | 2,372 | 467 | ||
Beginning cash and equivalents | 2,354 | 1,804 | ||
Ending cash and equivalents | $4,726 | $2,271 | ||
Table 4 | |||
EMERSON AND SUBSIDIARIES | |||
SEGMENT SALES AND EARNINGS | |||
(DOLLARS IN MILLIONS, UNAUDITED) | |||
Quarter Ended Dec 31 | |||
2021 | 2022 | ||
Sales | |||
Final Control | $817 | $862 | |
Measurement & Analytical | 737 | 749 | |
Discrete Automation | 617 | 618 | |
Safety & Productivity | 351 | 310 | |
Intelligent Devices | 2,522 | 2,539 | |
Control Systems & Software | 570 | 606 | |
AspenTech | 82 | 243 | |
Software and Control | 652 | 849 | |
Eliminations | (18) | (15) | |
Net sales | $3,156 | $3,373 | |
Earnings | |||
Final Control | $ 122 | $ 158 | |
Measurement & Analytical | 170 | 175 | |
Discrete Automation | 120 | 121 | |
Safety & Productivity | 65 | 63 | |
Intelligent Devices | 477 | 517 | |
Control Systems & Software | 116 | 107 | |
AspenTech | (2) | ||
