Why Is Emerson Electric (EMR) Up 5.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Emerson Electric (EMR). Shares have added about 5.8% 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 drivers.

Emerson Electric Q1 Earnings & Revenues Top Estimates

Emerson Electric’s first-quarter fiscal 2021 (ended Dec 31, 2020) adjusted earnings of 83 cents per share beat the Zacks Consensus Estimate of 68 cents. On a year-over-year basis, the bottom line improved 23.9%.

Inside the Headlines

Emerson’s net sales were $4,161 million in the quarter, reflecting an increase of 0.2% from the year-ago quarter. Underlying sales were down 2%, while both acquired assets and forex woes had each 1% positive impact on sales. Notably, the top line beat the Zacks Consensus Estimate of $3,955 million.

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

Automation Solutions’ net sales were $2,692 million, decreasing 5.6% year over year. Underlying sales of the segment declined 9%. Commercial & Residential Solutions generated net sales of $1,476 million in the fiscal first quarter, up 13.3% year over year. Underlying sales were up 12%. Under the segment, Climate Technologies’ sales increased 18.1% to $1,031 million, and that from Tools & Home Products jumped 3.5% to $445 million.

Gross Margin

In the quarter under review, Emerson's cost of sales increased 1.9% year over year to $2,438 million. It represented 58.6% of net sales compared with 57.6% in the year-ago quarter. Gross margin was at 41.4%, down 100 basis points. Selling, general and administrative (SG&A) expenses declined 11.1% to $998 million. As a percentage of sales, SG&A expenses were 24% compared with 27.1% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting first-quarter fiscal 2021, Emerson had cash and cash equivalents of $2,197 million, up from $1,635 million at the year-ago quarter. Long-term debt balance increased 46.6% to $5,892 million. During the first three months of fiscal 2021, the company repaid debts of $301 million.

In first three months of fiscal 2021, it generated net cash of $808 million from operating activities, reflecting an increase of 90.6% from the year ago period. Capital expenditure was $122 million, up from $114 million.

During the quarter, the company paid out dividends amounting to $303 million and repurchased shares worth $13 million.

Outlook

For fiscal 2021 (ending September 2021), it anticipates net sales growth of 4-8%. Underlying sales are expected to be flat to 4% up.

Adjusted earnings per share are predicted to be in the range of $3.60-$3.80 for fiscal 2021.

Emerson expects Automation Solutions’ net sales to grow in the range of 2-6%, while Commercial & Residential Solutions’ net sales are projected to increase 10-12%.

Notably, the company anticipates a gradual improvement in demand environment in the fiscal second quarter and ahead.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.59% due to these changes.

VGM Scores

At this time, Emerson Electric has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Emerson Electric has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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