Emerson (EMR) to Report Q2 Earnings: What's in the Cards?

Emerson Electric Co. EMR is set to release second-quarter fiscal 2020 (ended March 2020) results on Apr 21, before market open.

Notably, the company’s earnings results met estimates in each of the last four quarters. In the last reported quarter, Emerson’s earnings of 67 cents per share were in line with the Zacks Consensus Estimate.

In the past month, the company’s shares have rallied 15.1% compared with the industry’s rise of 9.6%.



Factors at Play

Emerson is likely to have benefited from persistent strength across most key process and hybrid end markets in second-quarter fiscal 2020. The company’s Automation Solutions segment is likely to have gained from strong momentum across its long-cycle businesses, supported by strength across final control and systems businesses in the quarter. Also, healthy growth in bookings for several large liquefied natural gas projects and robust backlog levels are likely to have supported the segment's top-line performance. The Zacks Consensus Estimate for Automation Solutions’ revenues for the fiscal second quarter is currently pegged at $2,840 million, indicating growth of 1.5% on a sequential basis.

Acquired assets boosted Emerson’s sales by 1% in both fourth-quarter fiscal 2019 and first-quarter fiscal 2020, a trend that is most likely to have continued in the second quarter, owing to the benefits from its buyout of Intelligent Platforms business of General Electric Company GE in February 2019.  Notably, the Intelligent Platforms business has strengthened the company’s growth opportunities across process and discrete industries as well as hybrid markets such as metals and mining, food and beverage, life sciences, and packaging.

In addition, benefits from the company’s focus on greater operational efficacy are likely to have boosted the company’s margins and profitability in the to-be-reported quarter.

However, persistent softness in the global discrete manufacturing, and North American upstream oil and gas end markets is likely to have hurt Emerson’s top-line performance in the fiscal second quarter. Also, weakness in global professional tools and cold chain markets is likely to get reflected on its top-line number. In addition, the company anticipates the coronavirus-related issues to have hurt its fiscal second-quarter sales by $100-$150 million.

Moreover, rising cost of sales has been a persistent concern for the company. In the fourth quarter of fiscal 2019 and first-quarter fiscal 2020, its cost of sales rose 0.5% and 0.3%, respectively, year over year. High costs are likely to have adversely impacted its margin and profitability in the second quarter. Further, given Emerson’s diverse geographic presence, its operations are subject to global economic and political risks as well as forex woes. For instance, unfavorable movements in foreign currencies adversely impacted sales by 2% and 1% in the fourth quarter of fiscal 2019 and first-quarter fiscal 2020, respectively. A stronger U.S. dollar might have hurt the company's overseas business in second-quarter fiscal 2020.

Earnings Whispers

According to our quantitative model, a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

But that is not the case here as we will see below.

Earnings ESP: Emerson has an Earnings ESP of -1.79% as the Most Accurate Estimate is pegged at 72 cents, lower than the Zacks Consensus Estimate of 73 cents.

Emerson Electric Co. Price and EPS Surprise


Emerson Electric Co. Price and EPS Surprise

Emerson Electric Co. price-eps-surprise | Emerson Electric Co. Quote

Zacks Rank: Emerson carries a Zacks Rank #3.

Key Picks

Here are a couple of companies you may want to consider as our model shows that these have the right mix of elements to beat estimates this time around:

Axon Enterprise, Inc. AAXN has an Earnings ESP of +2.13% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ball Corporation BLL has an Earnings ESP of +0.48% and a Zacks Rank of 3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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