Emerson's (EMR) Q1 Earnings Meet Estimates, Decrease Y/Y

Emerson Electric Co. EMR first-quarter fiscal 2020 (ended Dec 31, 2019) earnings of 67 cents per share came in line with the Zacks Consensus Estimate. Notably, the company’s earnings had matched estimates in the last reported quarter as well. On a year-over-year basis, the bottom line decreased 9.5% from 74 cents.

Organic Sales and Acquired Assets Drive Revenues

Emerson’s revenues were $4,151 million in the quarter, reflecting marginal growth of 0.1% from the year-ago quarter. Underlying sales were flat. Acquired assets boosted sales by 1% but forex woes had a 1% adverse impact.

However, the top line lagged the Zacks Consensus Estimate of $4,166 million.

The company reports net sales under two segments — Automation Solutions, and Commercial & Residential Solutions. Fiscal first-quarter segmental results are briefly discussed below:

Emerson Electric Co. Price, Consensus and EPS Surprise

Emerson Electric Co. Price, Consensus and EPS Surprise

Emerson Electric Co. price-consensus-eps-surprise-chart | Emerson Electric Co. Quote

Automation Solutions revenues were $2,852 million, increasing 1.9% year over year. Underlying sales grew 1% while acquired assets boosted sales by 2%. Forex woes adversely impacted sales by 1%.

Commercial & Residential Solutions generated revenues of $1,303 million in the fiscal first quarter, down 3% year over year. Underlying sales were down 1%, while divestitures had an adverse impact of 1% on sales. Forex woes adversely impacted sales by 1%. Under this segment, Climate Technologies’ sales declined 0.8% year over year to $873 million while that from Tools & Home Products decreased 6.1% to $430 million.

Gross Margin

In the quarter under review, Emerson's cost of sales increased 0.3% year over year to $2,392 million. It represented 57.6% of net revenues compared with 57.5% in the year-ago quarter. Gross margin was relatively flat at 42.4%. Selling, general and administrative expenses (SG&A) expanded 4.3% to $1,123 million. As a percentage of sales, SG&A expenses were 27.1%, up from 26%.

Balance Sheet and Cash Flow

Exiting the fiscal first quarter, Emerson had cash and cash equivalents of $1,635 million, up from $1,248 million at the end of year-ago quarter. Long-term debt balance increased 52.1% to $4,018 million. During the first three months of fiscal 2020, the company repaid debts of $502 million.

In the quarter, it generated net cash of $424 million from operating activities, reflecting increase of 31.3% from the year-ago quarter. Capital expenditure was $114 million, down from $155 million.

During the first three months of fiscal 2020, the company paid dividends amounting $305 million and repurchased shares worth $129 million.

Outlook

For fiscal 2020 (ending September 2020), the company anticipates net sales in the range of a 2% decline to 2% increase. Underlying sales are expected to be in the band of 2% decline to 2% increase.

Earnings per share are predicted to be $3.55-$3.80 for fiscal 2020.

Emerson estimates Automation Solutions net sales to be in the band of 1% decline to 3% increase, while Commercial & Residential Solutions net sales are projected in the range of 4% decline to breakeven.

Zacks Rank & Key Picks

Emerson currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks from the Zacks Industrial Products sector are Barnes Group, Inc. B, Berry Global Group, Inc. BERY and Cintas Corporation CTAS. All these companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Barnes Group delivered positive earnings surprise of 4.21%, on average, in the trailing four quarters.

Berry Global pulled off positive earnings surprise of 0.26%, on average, in the trailing four quarters.

Cintas delivered positive earnings surprise of 8.50%, on average, in the trailing four quarters.

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