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Emerson's (EMR) Q4 Earnings Meet Estimates, Increase Y/Y

Zacks Equity Research

Emerson Electric Co. EMR fourth-quarter fiscal 2019 (ended Sep 30, 2019) earnings of $1.07 per share came in line with the Zacks Consensus Estimate. The company’s earnings matched estimates in the last reported quarter as well. On a year-over-year basis, the bottom line increased 20.2% from 89 cents on the back of healthy sales growth.

For fiscal 2019, the company’s adjusted earnings came in at $3.69.

Organic Sales and Acquired Assets Drive Revenues

Emerson’s revenues were $4,971 million in the quarter, reflecting growth of 2% from the year-ago quarter. Underlying sales jumped 3% as favorable trends in key served markets supported operations. In addition, acquired assets boosted sales by 1% and forex woes had a 2% adverse impact. However, the top line lagged the Zacks Consensus Estimate of $5,047 million.

For fiscal 2019, net sales came in at $18,372 million, up 6% year over year, indicating strengthening industrial market demand.

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

The company reports net sales under two segments — Automation Solutions and Commercial & Residential Solutions. The segmental information is briefly discussed below:

Automation Solutions revenues were $3,368 million, increasing 4% year over year. Underlying sales grew 5% while acquired assets expanded sales by 1%. Forex woes had an adverse impact of 2%.

Commercial & Residential Solutions generated revenues of $1,608 million in the fiscal fourth quarter, down 3% year over year. Underlying sales were down 2%, while forex woes adversely impacted sales by 1%. Under this segment, Climate Technologies’ sales declined 2.2% year over year to $1,142 million while that from Tools & Home Products decreased 4.3% to $466 million.

Gross Margin

In the quarter, Emerson's cost of sales increased 0.5% year over year to $2,843 million. It represented 57.2% of net revenues compared with 57.9% in the year-ago quarter. Gross margin was up 70 basis points (bps) to 42.8% due to strong operational execution and favorable price-cost.

Selling, general and administrative expenses (SG&A) declined 6.1% to $1,109 million. As a percentage of sales, SG&A expenses were 22.3%, down from 24.2%.

Balance Sheet and Cash Flow

Exiting the fiscal fourth quarter, Emerson had cash and cash equivalents of $1,494 million, up from $1,093 million year over year. Long-term debt balance increased 36.3% to $4,277 million.

In fiscal 2019, it generated net cash of $3,006 million from operating activities, reflecting increase of 3.9% from fiscal 2018. Capital expenditure was $594 million, down from $617 million.

During fiscal 2019, the company paid dividends amounting $1,209 million and repurchased shares worth $1,250 million.

Outlook

For fiscal 2020 (ending September 2020), the company anticipates net sales in the range of a 3% decline to 1% increase. Underlying sales are expected to be in the range of 2% decline to 2% increase.

Earnings per share are predicted to be $3.48-$3.72 for fiscal 2020.

Emerson estimates Automation Solutions net sales to be in the band of 2% decline to 2% increase, while Commercial & Residential Solutions net sales are projected to decline 1% to 5%.

Zacks Rank & Key Picks

Emerson currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Zacks Industrial Products sector are Cimpress N.V CMPR, Cintas Corporation CTAS and Dover Corporation DOV. While Cimpress sports a Zacks Rank #1 (Strong Buy), Cintas and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cimpress delivered average positive earnings surprise of 34.63% in the trailing four quarters.

Cintas delivered average positive earnings surprise of 6.26% in the trailing four quarters.

Dover pulled off average positive earnings surprise of 6.70% in the trailing four quarters.

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