Emerson Electric Company
) reported second-quarter 2013 results with earnings per share of
77 cents a share falling a penny shy of the Zacks Consensus
Estimate. However, earnings improved 4% year over year. Despite a
sluggish economy, underlying growth in the emerging markets was
strong during the quarter.
Total revenue in the quarter was up 1% year over year to $5.9
billion. Organic growth during the quarter was 2% as unfavorable
currency translation and divestitures together reduced 1%, with
the U.S. increasing 1%, Asia up 2% but Europe down 3%. Top line
was impacted by mixed results across the end markets and
In addition, slow economic growth due to stalled business
investment, particularly in mature markets, further affected the
top line. Revenues were below the Zacks Consensus Estimate of
sales surged 8%, as global oil and gas, chemical and power
industry investment delivered strong results. Underlying sales
for the segment grew 9%, (with currency translation impacting 1%)
due to 10% growth in the systems and solutions business.
On a geographical basis, the segment generated 14% growth in
Asia, benefiting from strong project activity in Australia.
Further, investment in the North Sea region and Russia generated
7% growth in Europe. However, revenue from the US declined 1%, as
higher natural gas inventories contributed to slower
segment reported revenues and underlying sales decline of 6%,
with the U.S. down 1%, Europe down 15% and Asia down 3%, as end
markets for global capital goods were weak. The power generating
alternators and industrial motors and electrical drives
businesses were particularly weak, which was partially offset by
strength in the hermetic motors business which was driven by HVAC
revenues as well as underlying sales contracted 5%, with U.S.
organic sales down 2%, Asia down 6% and Europe down 3%. In
addition, continued weakness in information technology and
telecommunications end markets also led to the decline in the top
line. The computing and power business also declined
double-digits, reflecting weak and unstable demand for technology
equipment and mobile devices.
Furthermore, underlying sales declined marginally in the
network power systems business, as global investment in data
center and telecommunications infrastructure remained low,
especially in Europe.
Both revenues and organic revenues in the
division grew 7%, driven by strong demand in the residential air
conditioning markets. Geographically, the U.S. and Europe organic
sales expanded 8% while Asia grew 4%. The U.S. residential air
conditioning business was particularly strong with 23% growth,
primarily due to improving residential construction and easier
However, commercial air conditioning and refrigeration demand
remained weak, with particular weakness in the transportation
Revenues in the
Commercial & Residential
segment contracted 4%, attributable to a 6% deduction from the
Knaack business divestiture. Organic sales inched up 2%, due to a
5% increase in the US, led by the residential storage
Income and Expenses
Earnings before taxes for the quarter grew 2.1% to $831
million compared with $814 million in the prior-year quarter.
Selling and general cost $1.43 billion compared with $1.36
billion in the prior-year quarter.
EBIT margin during the quarter improved 20 basis points to
14.9%, benefiting primarily from cost containment measures.
Exiting the quarter, the company had cash and cash equivalents
of $2.6 billion with a long-term debt of $4.1 billion and
debt-to-capitalization ratio of 28%. Net cash from operating
activities during the quarter were $1.2 billion compared with
$896 million a year ago, due to efficient working capital
Concurrent with the earnings release, the company lowered its
guidance for fiscal 2013, given the sluggish economic growth.
Further, the order trend also had no sign improvement in the
Therefore, Emerson expects earnings to be in the range of
$3.48 to $3.58 a share, compared with $3.53 to $3.63 mentioned
Both revenues and underlying sales growth is now expected to
be in the range of 1.5% to 2.5%, with EBIT and pre-tax margin
projected to be flat year over year.
Emerson currently has a Zacks Rank # 3 (Hold). However, other
companies that can be considered at the moment are
Honeywell International Inc
Raven Industries Inc
), all having Zacks Rank #2 (Buy).
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