Emerson Reports Third Quarter 2021 Results; Raises 2021 Outlook

·16 min read
  • Net Sales were $4.7 billion up 20 percent from the year prior; Underlying Sales were up 15 percent

  • GAAP EPS was $1.04, up 55 percent from the year prior; Adjusted EPS, which excludes restructuring and first year purchase accounting charges, was $1.09, up 36 percent

  • Operating Cash Flow was $1.1 billion, up 31 percent; Free Cash Flow (FCF) was $977 million, up 32 percent, resulting in FCF conversion of 154 percent

  • Restructuring and related actions of $32 million were initiated in the quarter, continuing execution of the comprehensive cost reset program to return the company to record adjusted EBIT margins

  • Declared regular quarterly cash dividend of $0.505 per share of common stock payable September 10, 2021 to stockholders of record August 13, 2021

  • Published new Environmental, Social, and Governance (ESG) Report in June, introducing goal of doubling representation of women globally and U.S. minorities at the leadership level by 2030

ST. LOUIS, August 04, 2021--(BUSINESS WIRE)--Emerson (NYSE: EMR) today reported results for the third fiscal quarter ended June 30, 2021.

"We are pleased with our results this quarter, as accelerating sales growth in key end markets combined with strong execution by operations helped us deliver exceptional financial results," said Emerson President and Chief Executive Officer Lal Karsanbhai. "In particular, we saw ongoing strength in our residential businesses and rapid improvement in both commercial and industrial end markets. Importantly, our core North American process automation markets turned sharply back to growth, complementing the ongoing strength in discrete and hybrid markets. These results contributed to solid margin improvement as we fully leveraged the benefits of our broad ongoing cost reset plan. Cash flow performance was strong as a result of earnings growth and effective working capital management. This gives us optionality with regard to capital allocation in 2022 and beyond."

"Despite a challenging operating environment – material costs, availability, logistics, and labor constraints all required diligent management – I am extremely proud of our operations team, which has worked tirelessly to limit the impact of these issues as the world reopens and demand rebounds across our customer base. The hard work of our global teams – combined with our reset cost structure and improving demand in longer-cycle markets – is allowing us to improve our outlook for the year. It has also facilitated acceleration of investment in key technologies that are expected to drive further differentiation and increased relevance with our customers."

"We are energized by our financial performance and operational management, and by the momentum around modernization of the Emerson culture," Karsanbhai continued. "In our most recent ESG report, we announced a goal to double the number of women globally and U.S. minorities at the leadership level by 2030. We are modernizing work practices and are actively refreshing our management process to continue advancing ESG transparency and reporting. In the long run, I firmly believe these cultural efforts will be important and tangible business enablers."

June Trailing Three-Month Underlying Orders were up 26 percent, as strength in residential, cold chain, professional tools, hybrid and discrete automation markets was bolstered by recovery in later cycle process automation markets.

Third quarter Net Sales were up 20 percent and Underlying Sales were up 15 percent, excluding favorable currency of 4 percent and an impact of 1 percent from acquisitions. Revenue for the quarter came in ahead of expectations driven by strength across commercial and residential markets, as well as a sharp recovery in core North American process automation markets. By geography, the Americas grew 18 percent, Europe grew 13 percent, and Asia, Middle East & Africa grew 11 percent. China grew 7 percent.

Third quarter Gross Profit Margin of 42.2 percent was up 90 basis points from the previous year primarily due to cost reductions and leverage across the enterprise. Pretax Margin of 16.7 percent was up 500 basis points while EBIT Margin of 17.5 percent was up 460 basis points, as ongoing cost reduction actions and leverage more than offset price cost headwinds. Adjusted EBIT Margin, which excludes restructuring and first year purchase accounting charges, was 18.4 percent, up 310 basis points.

Earnings Per Share were $1.04 for the quarter, up 55 percent, and Adjusted Earnings Per Share, which excludes restructuring and first year purchase accounting charges, were $1.09, up 36 percent. Earnings in the quarter were ahead of management expectations, benefiting from higher volume and ongoing cost reduction actions.

Operating Cash Flow was $1.1 billion for the quarter, up 31 percent, and $2.7 billion year-to-date, up 47 percent. Free Cash Flow was $977 million, up 32 percent, and $2.4 billion year-to-date, up 55 percent. Cash flow results reflected higher earnings due to volume, operational execution across the two business platforms and favorable trade working capital.

Business Platform Results

Automation Solutions June trailing three-month underlying orders were up 17 percent. By geography, the Americas showed the most improvement, up 29 percent. Europe was up 8 percent. Asia, Middle East & Africa grew 8 percent, with China orders increasing sharply by 23 percent. Backlog increased $200 million compared to the prior quarter to $5.5 billion, and was up 17 percent year-to-date.

Net sales increased 14 percent in the quarter, with underlying sales up 8 percent. Results reflected ongoing strength across discrete and hybrid markets, and sharp improvement in longer cycle core process automation markets. Importantly, the Americas underlying sales recovered sharply, growing by 9 percent, driven by continued momentum in life sciences, food & beverage, and medical markets paired with growth trends across process automation and sustainability related business. As expected, KOB3/MRO and KOB2/modernization business led the recovery, however some KOB1 project activity began to materialize, particularly in chemical, biofuels, and power markets. Europe underlying sales were up 6 percent, driven by life sciences and biofuels demand. Asia, Middle East & Africa underlying sales grew 7 percent while China grew by 5 percent.

Segment EBIT margin increased 570 basis points to 17.7 percent, as savings from cost actions paired with strong volume leverage. Adjusted segment EBIT margin, which excludes restructuring and related costs, increased 320 basis points to 18.3 percent. Total restructuring and related actions in the quarter totaled $18 million.

Commercial & Residential Solutions June trailing three-month underlying orders were up 43 percent. The Americas grew by 43 percent, while Europe was up 64 percent. Asia, Middle East & Africa orders increased by 30 percent, with China up 11 percent. Backlog ended the quarter at $1.1 billion.

Net sales increased 32 percent and underlying sales were up 29 percent, with all businesses and geographies showing strong double-digit underlying growth. Underlying sales in the Americas were up 29 percent, reflecting ongoing strength in residential markets, bolstered by cold chain and professional tools momentum. Europe was up 37 percent as heat pump demand remained robust and demand for professional tools surged. Asia, Middle East & Africa was up 25 percent driven by cold chain and heating technologies. China grew by 15 percent.

Segment EBIT margin increased 220 basis points to 21.3 percent as leverage and cost reduction actions were somewhat offset by price-cost headwinds. Adjusted segment EBIT margin, which excludes restructuring and related costs, increased 170 basis points to 21.7 percent. Total restructuring and related actions in the quarter totaled $7 million.

2021 Updated Outlook

Despite ongoing pandemic challenges with the COVID delta variant, we expect overall continued improvement in industrial and commercial demand over the remainder of 2021. We also expect the operational, supply chain, and materials inflation environment to remain challenging through the remainder of the fiscal year.

The following table summarizes the updated 2021 guidance framework:

2021 Guidance

Net Sales Growth

9% - 10%

Operating Cash Flow

$3.6B

Automation Solutions

5% - 6%

Capital Spend

$600M

Commercial & Residential Solutions

17% - 18%

Free Cash Flow

$3.0B

Dividend

$1.2B

Underlying Sales Growth

5% - 6%

Share Repurchase

$500M

Automation Solutions

flat - 1%

Commercial & Residential Solutions

15% - 16%

Tax Rate

22%

Restructuring Actions

$200M

Pretax Margin

16%

Adjusted EBIT

18%

Adjusted EBITDA

23%

GAAP EPS

$3.79 +/- $.01

Adjusted EPS

$4.07 +/- $.01

Note 1: All figures are approximate

Upcoming Investor Events

Today, beginning at 8:30 a.m. Central Time / 9:30 a.m. Eastern Time, Emerson management will discuss the third quarter results during an investor conference call. Participants can access a live webcast available at www.emerson.com/financial 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 scope, duration and ultimate impact of the COVID-19 pandemic 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, among others, as set forth in the Company's most recent Annual Report on Form 10-K and subsequent reports filed with the SEC.

Table 1

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

Quarter Ended June 30

Percent

2020

2021

Change

Net sales

$3,914

$4,697

20

%

Costs and expenses:

Cost of sales

2,296

2,715

SG&A expenses

934

1,073

Other deductions, net

181

88

Interest expense, net

45

37

Earnings before income taxes

458

784

71

%

Income taxes

51

151

Net earnings

407

633

Less: Noncontrolling interests in earnings of subsidiaries

8

6

Net earnings common stockholders

$399

$627

57

%

Diluted avg. shares outstanding

600.0

602.1

Diluted earnings per share common share

$0.67

$1.04

55

%

Quarter Ended June 30

2020

2021

Other deductions, net

Amortization of intangibles

$60

$71

Restructuring costs

88

28

Other

33

(11

)

Total

$181

$88

Table 2

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

Nine Months Ended June 30

Percent

2020

2021

Change

Net sales

$12,227

$13,289

9

%

Costs and expenses:

Cost of sales

7,100

7,722

SG&A expenses

3,040

3,125

Other deductions, net

401

243

Interest expense, net

116

115

Earnings before income taxes

1,570

2,084

33

%

Income taxes

310

431

Net earnings

1,260

1,653

Less: Noncontrolling interests in earnings of subsidiaries

18

20

Net earnings common stockholders

$1,242

$1,633

31

%

Diluted avg. shares outstanding

608.4

602.3

Diluted earnings per share common share

$2.04

$2.71

33

%

Nine Months Ended June 30

2020

2021

Other deductions, net

Amortization of intangibles

$178

$223

Restructuring costs

216

111

Special advisory fees

13

Other

(6

)

(91

)

Total

$401

$243

Table 3

EMERSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS, UNAUDITED)

Quarter Ended June 30

2020

2021

Assets

Cash and equivalents

$3,315

$2,860

Receivables, net

2,802

2,754

Inventories

1,928

2,114

Other current assets

761

1,038

Total current assets

8,806

8,766

Property, plant & equipment, net

3,688

3,664

Goodwill

6,734

7,777

Other intangible assets

2,468

2,993

Other

1,186

1,284

Total assets

$22,882

$24,484

Liabilities and equity

Short-term borrowings and current

maturities of long-term debt

$1,160

$1,478

Accounts payable

1,715

1,966

Accrued expenses

2,910

3,226

Total current liabilities

5,785

6,670

Long-term debt

6,326

5,835

Other liabilities

2,324

2,640

Total equity

8,447

9,339

Total liabilities and equity

$22,882

$24,484

Table 4

EMERSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN MILLIONS, UNAUDITED)

Nine Months Ended June 30

2020

2021

Operating activities

Net earnings

$1,260

$1,653

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

631

720

Stock compensation

69

191

Pension expense

50

23

Changes in operating working capital

(86

)

246

Other, net

(70

)

(113

)

Cash provided by operating activities

1,854

2,720

Investing activities

Capital expenditures

(329

)

(350

)

Purchases of businesses, net of cash and equivalents acquired

(114

)

(1,611

)

Other, net

(65

)

53

Cash used in investing activities

(508

)

(1,908

)

Financing activities

Net increase in short-term borrowings

269

31

Proceeds from short-term borrowings greater than three months

546

71

Payments of short-term borrowings greater than three months

(340

)

Proceeds from long-term debt

1,488

Payments of long-term debt

(502

)

(305

)

Dividends paid

(910

)

(909

)

Purchases of common stock

(942

)

(268

)

Other, net

28

89

Cash used in financing activities

(363

)

(1,291

)

Effect of exchange rate changes on cash and equivalents

(27

)

24

Increase (Decrease) in cash and equivalents

956

(455

)

Beginning cash and equivalents

1,494

3,315

Ending cash and equivalents

$2,450

$2,860

Table 5

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS, UNAUDITED)

Quarter Ended June 30

2020

2021

Sales

Measurement & Analytical Instrumentation

$709

$781

Valves, Actuators & Regulators

842

880

Industrial Solutions

469

593

Systems & Software

569

693

Automation Solutions

2,589

2,947

Climate Technologies

970

1,268

Tools & Home Products

357

489

Commercial & Residential Solutions

1,327

1,757

Eliminations

(2

)

(7

)

Net sales

$3,914

$4,697

Earnings

Automation Solutions

$311

$521

Climate Technologies

195

274

Tools & Home Products

58

101

Commercial & Residential Solutions

253

375

Stock compensation

(51

)

(66

)

Unallocated pension and postretirement costs

12

24

Corporate and other

(22

)

(33

)

Interest expense, net

(45

)

(37

)

Earnings before income taxes

$458

$784

Restructuring costs

Automation Solutions

$76

$18

Climate Technologies

5

4

Tools & Home Products

4

2

Commercial & Residential Solutions

9

6

Corporate

3

4

Total

$88

$28

The table above does not include $6 and $4 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the three months ended June 30, 2020 and 2021, respectively.

Depreciation and Amortization

Automation Solutions

$137

$152

Climate Technologies

44

48

Tools & Home Products

20

20

Commercial & Residential Solutions

64

68

Corporate and other

8

17

Total

$209

$237

Table 6

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS, UNAUDITED)

Nine Months Ended June 30

2020

2021

Sales

Measurement & Analytical Instrumentation

$2,280

$2,211

Valves, Actuators & Regulators

2,609

2,522

Industrial Solutions

1,470

1,656

Systems & Software

1,791

2,043

Automation Solutions

8,150

8,432

Climate Technologies

2,869

3,459

Tools & Home Products

1,219

1,419

Commercial & Residential Solutions

4,088

4,878

Eliminations

(11

)

(21

)

Net sales

$12,227

$13,289

Earnings

Automation Solutions

$1,012

$1,353

Climate Technologies

563

731

Tools & Home Products

233

311

Commercial & Residential Solutions

796

1,042

Stock compensation

(69

)

(191

)

Unallocated pension and postretirement costs

37

71

Corporate and other

(90

)

(76

)

Interest expense, net

(116

)

(115

)

Earnings before income taxes

$1,570

$2,084

Restructuring costs

Automation Solutions

$182

$94

Climate Technologies

14

8

Tools & Home Products

12

4

Commercial & Residential Solutions

26

12

Corporate

8

5

Total

$216

$111

The table above does not include $15 and $11 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the six months ended June 30, 2020 and 2021, respectively.

Depreciation and Amortization

$414

$464

Automation Solutions

Climate Technologies

133

144

Tools & Home Products

58

59

Commercial & Residential Solutions

191

203

Corporate and other

26

53

Total

$631

$720

Reconciliations of Non-GAAP Financial Measures & Other

Table 7

Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):

Q3 2021 Underlying Sales Change

Auto Solns

Comm & Res Solns

Emerson

Reported (GAAP)

14

%

32

%

20

%

(Favorable) / Unfavorable FX

(4

)%

(3

)%

(4

)%

Acquisitions / Divestitures

(2

)%

%

(1

)%

Underlying*

8

%

29

%

15

%

FY 2021E Underlying Sales Change

Auto Solns

Comm & Res Solns

Emerson

Reported (GAAP)

5% - 6

%

17% - 18

%

9% - 10

%

(Favorable) / Unfavorable FX

(3

)%

(2

)%

(3

)%

Acquisitions / Divestitures

(2

)%

-

%

(1

)%

Underlying*

flat - 1

%

15% - 16

%

5% - 6

%

Q3 Earnings Per Share

Q3 FY20

Q3 FY21

Change

Earnings per share (GAAP)

$

0.67

$

1.04

55

%

Restructuring

0.13

0.04

(20

)%

OSI purchase accounting items

0.01

1

%

Adjusted earnings per share*

$

0.80

$

1.09

36

%

Earnings Per Share

FY2021E

Earnings per share (GAAP)

$3.78 - $3.80

Restructuring

0.24

OSI purchase accounting items & fees

0.07

Equity investment gain

(0.03

)

Adjusted earnings per share*

$4.06 - $4.08

EBIT and EBITDA Margin

Q3 FY20

Q3 FY21

Change

FY21E

Pretax margin (GAAP)

11.7

%

16.7

%

500 bps

16

%

Interest expense, net

1.2

%

0.8

%

(40) bps

1

%

Earnings before interest and taxes margin*

12.9

%

17.5

%

460 bps

17

%

Restructuring

2.4

%

0.7

%

(170) bps

1

%

OSI purchase accounting items

-

%

0.2

%

20 bps

-

%

Equity investment gain

-

%

-

%

- bps

-

%

Adjusted earnings before interest and taxes margin*

15.3

%

18.4

%

310 bps

18

%

Depreciation and amortization expense

5

%

Adjusted earnings before interest, taxes, depreciation and amortization margin*

23

%

Automation Solutions Segment EBIT Margin

Q3 FY20

Q3 FY21

Change

Automation Solutions Segment EBIT margin (GAAP)

12.0

%

17.7

%

570 bps

Restructuring and related charges impact

3.1

%

0.6

%

(250) bps

Automation Solutions Adjusted Segment EBIT margin*

15.1

%

18.3

%

320 bps

Commercial & Residential EBIT Margin

Q3 FY20

Q3 FY21

Change

Commercial & Residential EBIT margin (GAAP)

19.1

%

21.3

%

220 bps

Restructuring and related charges impact

0.9

%

0.4

%

(50) bps

Commercial & Residential Adjusted EBIT margin*

20.0

%

21.7

%

170 bps

Q3 Cash Flow

Q3 FY20

Q3 FY21

Change

Operating cash flow (GAAP)

$

842

$

1,105

31

%

Capital expenditures

(104

)

(128

)

1

%

Free cash flow*

$

738

$

977

32

%

YTD Cash Flow

Q3 YTD

FY20

Q3 YTD

FY21

% Change

Operating cash flow (GAAP)

$

1,854

$

2,720

47

%

Capital expenditures

(329

)

(350

)

8

%

Free cash flow*

$

1,525

$

2,370

55

%

FY 2021E Cash Flow

FY 2021E

Operating cash flow (GAAP)

$3.6B

Capital expenditures

(600

)

Free cash flow*

$3.0B

Cash Flow to Net Earnings Conversion

Q3 FY21

Operating cash flow to net earnings (GAAP)

174

%

Capital expenditures

(20

)%

Free cash flow to net earnings*

154

%

Note 1: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.

Note 2: All fiscal year 2021E figures are approximate, except where range is given.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210804005512/en/

Contacts

Emerson
Investor Contact: Colleen Mettler (314) 553-2197
Media Contact: Casey Murphy (314) 982-6220

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting