Emerson Electric Company
) reported third-quarter fiscal 2014 results, ended Jun 30, 2014.
Excluding one-time items, earnings for the quarter came in at $1.03
per share compared with 97 cents per share in the year-ago period.
Also, quarterly earnings were below the Zacks Consensus Estimate of
Emerson Electric Co - Earnings Surprise |
Despite several macroeconomic headwinds, year-over-year profits
benefited from accelerated growth conditions in emerging
Total revenue was down a marginal 1% year over year to $6.3
billion. However, organic sales in the quarter increased 3% despite
a negative 5% impact from the Artesyn divestiture, which was again
partially offset by a favorable 1% impact from an acquisition. The
upside in organic sales can be attributed to improved business
conditions. Geographically, revenues in the U.S. and Europe grew 4%
each and in Asia rose 3%.
Nevertheless, orders increased 5% reflecting stronger market
conditions, particularly toward the end of the quarter. However,
revenues fell short of the Zacks Consensus Estimate of $6.5
Net sales at the Process Management segment grew 6% while
underlying sales increased by 2%. The revenue growth was primarily
driven by mixed market conditions across regions and cautious
execution of projects by customers.
Further, acquisitions contributed 4%. Revenues in North America
grew 7% as unconventional oil and gas projects remained robust
while the same in Europe increased 5% led by strong growth across
developing countries. Asia revenues deteriorated 2% owing to
softness and difficult comparisons in Australia which hurt
continued strength in China.
The Industrial Automation segment reported a 1% increase in
revenues while organic sales were flat year over year. On a
geographic basis, North America reported flat revenues while sales
in Asia was up 3% and down 5% in Europe in the quarter.
Demand for industrial goods is recovering steadily, with
underlying orders up 4% in the quarter, albeit trends across
markets and geographies were mixed. However, the company reported
strong growth in the fluid automation, electrical distribution and
materials joining businesses, offset by declines in power
generating alternators and motors and drives, with Europe
Network Power revenues contracted 18% despite a 2% increase in
underlying sales. Revenues were lowered by a 20% reduction in sales
owing to the Artesyn sale. Organic sales improved 2% in the U.S.,
10% in Europe and 6% in Asia. Strong growth in the global
telecommunications infrastructure business driven by double-digit
gains in Asia was offset by flat Data center market conditions.
This was because strength in Europe and Asia was marred by soft
demand in North America and weakness in Latin America.
Climate Technologies reported net and underlying sales increase
of 6%, as the segment reported balanced growth across all
geographies, with North America up 4%, Asia up 9% and Europe up 9%.
Further, the global refrigeration business posted double-digit
growth as market conditions in China and Europe were strong.
On the other hand, the segment witnessed moderate growth in the
U.S. air conditioning business and strong demand in the service
business, mid-single-digit growth in residential markets and
low-single-digit growth in commercial business. Moreover, Emerson
Electric continued to gain traction in the temperature sensors
business in China.
Net and underlying revenues in the
Commercial & Residential Solutions
segment grew 4%, driven by sequential improvement in demand
reflecting the impact of a harsh winter in North America in the
previous quarter. The upside in revenues was also supported by
strength in the professional tools and residential storage
In the third quarter of fiscal 2014, gross profit margin
contracted 132 basis points (bps) to 40.5%, owing to portfolio
changes and cost-containment efforts. Operating income for the
quarter declined 52.3% to $511 million.
Balance Sheet & Cash Flow
Exiting the quarter, the company had cash and cash equivalents
of $2.8 billion with a long-term debt of $4.1 billion. Net cash
from operating activities were $2.2 million compared with $2.3
million during the prior-year quarter.
Along with the earnings release, Emerson Electric has reaffirmed
its outlook for fiscal 2014. The company continues to expect
earnings per share in the range $3.68−$3.80. Underlying sales are
likely to grow in the range of 3−5% while net sales can span
anywhere between a decline of 1% to an increase of 1% given the
impact of acquisitions, divestitures and currency translation.
Meanwhile, the company expects orders in the fourth quarter to
register moderate growth, given the ongoing macroeconomic
Emerson currently has a Zacks Rank #3 (Hold). Some better-ranked
stocks in the industry include China Merchants (
), CLARCOR Inc. (
) and Federal Signal Corp. (
). All three carry a Zacks Rank #2 (Buy).
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