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Why Is Emerson Electric (EMR) Down 8.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Emerson Electric (EMR). Shares have lost about 8.3% 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 catalysts.

Emerson Q2 Earnings Surpass Estimates, Sales Rise Y/Y

Emerson reported second-quarter fiscal 2024 (ended Mar 31, 2024) adjusted earnings of $1.36 per share, which beat the Zacks Consensus Estimate of $1.26. The bottom line increased 25% year over year.

Emerson’s net sales of $4.38 billion beat the consensus estimate of $4.29 billion. The top line increased 17% year over year, driven by a solid segmental performance. The underlying sales were up 8% year over year.

Segmental Details

Effective from the first quarter of fiscal 2023, the company started reporting under two segments, namely Intelligent Devices, and Software and Control Automation Solutions.

The Intelligent Devices business’ net sales were $3.06 billion, up 5% year over year. Our estimate was $2.96 billion. The business consists of four subgroups, namely Final Control, Measurement & Analytical, Discrete Automation and Safety & Productivity.

Final Control’s revenues increased 6% year over year to $1.05 billion. Measurement & Analytical generated revenues of $1.01 billion, up 14% year over year. Discrete Automation’s revenues totaled $632 million, reflecting a decline of 8% on a year-over-year basis. Safety & Productivity’s revenues increased 1% year over year to $365 million.

The Software and Control Automation Solutions business generated net sales of $1.33 billion, up 56% year over year. Our estimate was $1.31 billion. The business consists of three subgroups, namely Control Systems & Software, AspenTech and Test & Measurement.

Control Systems & Software reported revenues of $687 million, reflecting an increase of 11% year over year. AspenTech generated net sales of $278 million, up 21% year over year. Test & Measurement revenues of $367 million remained flat on a year-over-year basis.

Margin Details

Cost of sales increased 7% year over year to $2.09 billion. The pretax earnings margin was 14.9% compared with 17% in the year-ago period. Adjusted EBITA margin was 24.5% compared with 23.3% in the year-earlier quarter. Selling, general and administrative expenses increased 29.6% year over year to $1.3 billion.

Balance Sheet & Cash Flow

Exiting second-quarter fiscal 2024, Emerson had cash and cash equivalents of $2.3 billion compared with $8.1 billion at the end of fiscal 2023 (ended September 2023). Long-term debt of $7.61 billion remained relatively stable compared with the figure reported at the end of fiscal 2023. In the first six months of fiscal 2024, the company made a payment of long-term debt worth $1 million.

In the same period, the company generated net cash of $1.16 billion from operating activities, up 138.3% year over year. Capital expenditure was $159 million, up from $121 million in the year-ago period. Emerson paid out dividends of $600 million in the quarter under review.

Q3 Outlook

For the third quarter of fiscal 2024 (ending June 2024), Emerson anticipates net sales growth of 11.0-12.5% and underlying sales growth of 3.0-4.5% from the year-ago levels.

EMR anticipates earnings per share of 92-96 cents. Adjusted earnings per share are anticipated to be $1.38-$1.42.

FY24 Outlook Revised

Emerson has updated its sales outlook for fiscal 2024. The company now anticipates net sales growth of 15-16% from the year-earlier levels compared with 14.5-17% expected before. Underlying sales are expected to rise 5.5-6.5% compared with 4.5-6.5% anticipated earlier.

EMR projects earnings per share of $2.98-$3.08 compared with $2.80-$2.95 expected earlier. Adjusted earnings per share are estimated in the range of $5.40-$5.50 compared with $5.30-$5.45 expected earlier. The company expects operating cash flow to be $3.1 billion. Free cash flow is suggested to be $2.7 billion.

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How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Emerson Electric has a poor Growth Score of F, however its Momentum Score is doing a bit better 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 F. 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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