EX-99.1 2 a2013q2release_ex991.htm EXHIBIT 99.1 2013 Q2 Release_Ex 99.1

Media Contact: Mark Polzin (314) 982-1758

EMERSON REPORTS SECOND QUARTER 2013 RESULTS

Sales increased slightly to $6.0 billion, as underlying sales grew 2 percent
EBIT margin expansion of 20 basis points to 14.9 percent
Earnings per share increased 4 percent to $0.77

ST. LOUIS, May 7, 2013 – Emerson (NYSE: EMR) today announced that net sales for the second quarter ended March 31, 2013, increased 1 percent from the prior year to $6.0 billion. Underlying sales grew 2 percent as unfavorable currency translation and divestitures together deducted 1 percent, with the U.S. up 1 percent, Asia up 2 percent, and Europe down 3 percent. Sales reflected mixed results across end markets and geographies, but slow economic growth overall as business investment stalled, particularly in mature markets. EBIT margin of 14.9 percent improved 20 basis points, benefiting primarily from cost containment. Pretax margin expanded 10 basis points to 13.9 percent. Earnings per share of $0.77 increased 4 percent from the prior year.
"Economies around the world are struggling for momentum," said Chairman and Chief Executive Officer David N. Farr. "Demand slowed in the second half of the quarter as overall global business confidence deteriorated. We do not see a catalyst to economic growth over the next six to nine months. In light of the current business environment, I was pleased with our underlying growth, especially in emerging markets, which grew 6 percent. We will continue to target investment in growing regions, while remaining cautious in mature markets until the economy accelerates."
Operating cash flow increased 6 percent to $597 million, driven primarily by higher earnings. Working capital performance improved from a slow start to the year, with a 140 basis point reduction from the first quarter to 18.6 percent of sales. Capital expenditures of $120 million were lower than the prior year by $37 million, contributing to free cash flow growth of 18 percent to $477 million. Year-to-date cash generation has been strong, with operating cash flow up 29 percent and free cash flow up 51 percent compared to the prior year.
"Despite the slow economic climate, we continue to expect a record year for operating cash flow," Farr said. "With very strong cash generation through the second quarter compared to the first half of 2012, we are well-positioned to achieve that target. Our priority this year remains returning at least 60 percent of operating cash flow to shareholders through dividends and share repurchases. Supporting

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this commitment, later today we expect the Board of Directors to approve a new program authorizing the repurchase of 70 million shares over the next several years."

Business Segment Highlights
Process Management sales grew 8 percent, as global oil and gas, chemical, and power industry investment remained solid. Underlying sales increased 9 percent with currency translation deducting 1 percent, led by 10 percent growth in the systems and solutions business. By region, 14 percent growth in Asia benefited from strong project activity in Australia; investment in the North Sea region and Russia drove 7 percent growth in Europe; and the U.S. decreased 1 percent, as higher natural gas inventories contributed to slower investment. Segment margin of 20.0 percent increased 170 basis points, as volume leverage, cost containment, and currency gains offset unfavorable mix from lower maintenance investment by customers. Growth is expected to remain stable in the near term despite difficult comparisons and moderating end markets, particularly North America.
Industrial Automation reported and underlying sales decreased 6 percent, with the U.S. down 1 percent, Europe down 15 percent, and Asia down 3 percent, as end markets for global capital goods remained under pressure. The power generating alternators and industrial motors and electrical drives businesses were particularly weak, partially offset by strength in the hermetic motors business which was driven by HVAC compressor demand. Segment margin of 15.4 percent decreased 40 basis points, as cost containment actions partially offset volume deleverage. Demand for industrial goods is expected to remain challenging in the second half of 2013, particularly in Europe.
Network Power reported and underlying sales declined 4 percent, with U.S. underlying sales down 2 percent, Asia down 6 percent, and Europe down 3 percent, as weakness in information technology and telecommunications end markets persisted. The embedded computing and power business declined at a double-digit rate, reflecting weak and volatile demand for technology equipment and mobile devices, and continued product line rationalization. Underlying sales declined slightly in the network power systems business, as global investment in data center and telecommunications infrastructure remained sluggish, especially in Europe. Segment margin declined 110 basis points to 7.5 percent, primarily driven by volume deleverage and higher other costs. Near term end market demand is expected to reflect the uncertainty and caution in the broader macroeconomic environment.
Climate Technologies reported and underlying sales grew 7 percent, as residential air conditioning markets reflected strong demand and comparisons eased. By geography, U.S. and Europe underlying sales increased 8 percent and Asia grew 4 percent. The U.S. residential air conditioning business was particularly strong with 23 percent growth, benefiting from improving residential construction and easier comparisons. Commercial air conditioning and refrigeration demand remained soft, with the transportation business particularly weak. Segment margin of 17.7 percent improved 60 basis points, as volume leverage and cost containment offset unfavorable mix from lower-margin

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residential growth. Industry trends suggest slower growth in the near term, with moderating residential air conditioning growth and continued soft demand in commercial air conditioning and refrigeration markets.
Commercial & Residential Solutions sales declined 4 percent, reflecting a 6 percent deduction from the Knaack business divestiture. Underlying sales grew 2 percent, benefiting from a 5 percent increase in the U.S., which was led by the residential storage business. Segment margin expanded 30 basis points to 21.3 percent, primarily due to cost reductions and the divestiture mix benefit. Modest growth is expected to continue in North America residential end markets in the near term.

Outlook
After a weaker than expected February and March, orders in April continued to trend downward, reflecting further deterioration in business confidence. There is no clear catalyst to improve global economic growth over the next six to nine months. Based on the current business environment, reported and underlying sales growth is now expected to be only 1.5 to 2.5 percent, with EBIT and pretax margin approximately equal to the prior year. Earnings per share are expected to be between $3.48 and $3.58, 5 cents lower than previous estimates and up 3 to 6 percent over last year. (Prior year comparisons exclude the impact of the goodwill impairment in 2012.)

Upcoming Investor Events
Today at 2 p.m. ET, Emerson management will discuss the second quarter results during a conference call. Interested parties may listen to the live conference call via the Internet by visiting Emerson's website at www.Emerson.com/financial and completing a brief registration form. A replay of the conference call will remain available for approximately three months.
On Monday, May 20, 2013, Emerson Chairman and Chief Executive Officer David N. Farr will speak at the Electrical Products Group Conference in Longboat Key, Florida, at 10:45 a.m. ET, and an updated outlook by segment will be provided. The presentation will be posted on Emerson's website at www.Emerson.com/financial at the time of the event and remain available for approximately three months.
 
Forward-Looking and Cautionary Statements
Statements in this Current Report on Form 8-K 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 economic and currency conditions, market demand, pricing, protection of intellectual property, and 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.
(tables attached)

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TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Quarter Ended March 31,
 
Percent
 
2012
 
2013
 
Change
 
 
 
 
 
 
Net sales
$
5,919

 
$
5,960

 
1%
Costs and expenses:
 
 
 
 
 
     Cost of sales
3,583

 
3,587

 
 
     SG&A expenses
1,359

 
1,426

 
 
     Other deductions, net
105

 
59

 
 
     Interest expense, net
58

 
57

 
 
Earnings before income taxes
814

 
831

 
2%
Income taxes
258

 
253

 
 
Net earnings
556

 
578

 
4%
Less: Noncontrolling interests in earnings of subsidiaries
11

 
17

 
 
Net earnings common shareholders
$
545

 
$
561

 
3%
 
 
 
 
 
 
Diluted avg. shares outstanding
736.8

 
725.3

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.74

 
$
0.77

 
4%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31,
 
 
 
2012
 
2013
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
57

 
$
54

 
 
     Rationalization of operations
31

 
16

 
 
     Other
22

 
(10
)
 
 
     Gains, net
(5
)
 
(1
)
 
 
          Total
$
105

 
$
59

 
 


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TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Six Months Ended March 31,
 
Percent
 
2012
 
2013
 
Change
 
 
 
 
 
 
Net sales
$
11,228

 
$
11,513

 
3%
Costs and expenses:
 
 
 
 
 
     Cost of sales
6,837

 
6,933

 
 
     SG&A expenses
2,713

 
2,820

 
 
     Other deductions, net
195

 
145

 
 
     Interest expense, net
116

 
111

 
 
Earnings before income taxes
1,367

 
1,504

 
10%
Income taxes
430

 
460

 
 
Net earnings
937

 
1,044

 
11%
Less: Noncontrolling interests in earnings of subsidiaries
21

 
29

 
 
Net earnings common shareholders
$
916

 
$
1,015

 
11%
 
 
 
 
 
 
Diluted avg. shares outstanding
737.5

 
726.1

 
 
 
 
 
 
 
 
Diluted earnings per common share
$
1.24

 
$
1.39

 
12%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31,
 
 
 
2012
 
2013
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles
$
115

 
$
113

 
 
     Rationalization of operations
54

 
32

 
 
     Other
33

 
1

 
 
     Gains, net
(7
)
 
(1
)
 
 
          Total
$
195

 
$
145

 
 

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TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31,
 
2012
 
2013
Assets
 
 
 
     Cash and equivalents
$
2,153

 
$
2,615

     Receivables, net
4,319

 
4,559

     Inventories
2,402

 
2,327

     Other current assets
670

 
688

          Total current assets
9,544

 
10,189

     Property, plant & equipment, net
3,449

 
3,481

     Goodwill
8,866

 
8,007

     Other intangible assets
1,936

 
1,734

     Other
339

 
313

          Total assets
$
24,134

 
$
23,724

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt
$
1,828

 
$
1,485

     Accounts payables
2,419

 
2,460

     Accrued expenses
2,500

 
2,651

     Income taxes
178

 
48

          Total current liabilities
6,925

 
6,644

     Long-term debt
4,018

 
4,059

     Other liabilities
2,481

 
2,347

     Total equity
10,710

 
10,674

          Total liabilities and equity
$
24,134

 
$
23,724


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TABLE 4

EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Six Months Ended March 31,
 
2012
 
2013
Operating activities
 
 
 
     Net earnings
$
937

 
$
1,044

     Depreciation and amortization
406

 
411

     Changes in operating working capital
(482
)
 
(399
)
     Other, net
35

 
95

          Net cash provided by operating activities
896

 
1,151

 
 
 
 
Investing activities
 
 
 
     Capital expenditures
(287
)
 
(235
)
     Purchase of businesses, net of cash and equivalents acquired
(167
)
 

     Other, net
(43
)
 
(45
)
          Net cash used in investing activities
(497
)
 
(280
)
 
 
 
 
Financing activities
 
 
 
     Net increase in short-term borrowings
891

 
21

     Proceeds from long-term debt

 
499

     Principal payments on long-term debt
(249
)
 
(270
)
     Dividends paid
(588
)
 
(593
)
     Purchases of treasury stock
(329
)
 
(271
)
     Other, net
(29
)
 
14

          Net cash used in financing activities
(304
)
 
(600
)
 
 
 
 
Effect of exchange rate changes on cash and equivalents
6

 
(23
)
 
 
 
 
Increase in cash and equivalents
101

 
248

 
 
 
 
Beginning cash and equivalents
2,052

 
2,367

 
 
 
 
Ending cash and equivalents
$
2,153

 
$
2,615


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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31,
 
2012
 
2013
Sales
 
 
 
     Process Management
$
1,869

 
$
2,020

     Industrial Automation
1,284

 
1,213

     Network Power
1,549

 
1,481

     Climate Technologies
926

 
988

     Commercial & Residential Solutions
475

 
457

 
6,103

 
6,159

     Eliminations
(184
)
 
(199
)
          Net sales
$
5,919

 
$
5,960

 
 
 
 
Earnings
 
 
 
     Process Management
$
341

 
$
403

     Industrial Automation
203

 
186

     Network Power
134

 
111

     Climate Technologies
158

 
175

     Commercial & Residential Solutions
100

 
98

 
936

 
973

     Differences in accounting methods
55

 
54

     Corporate and other
(119
)
 
(139
)
     Interest expense, net
(58
)
 
(57
)
          Earnings before income taxes
$
814

 
$
831

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
4

 
$
4

     Industrial Automation
4

 
5

     Network Power
16

 
5

     Climate Technologies
4

 
1

     Commercial & Residential Solutions
3

 
1

          Total
$
31

 
$
16


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Six Months Ended March 31,
 
2012
 
2013
Sales
 
 
 
     Process Management
$
3,396

 
$
3,916

     Industrial Automation
2,513

 
2,350

     Network Power
3,044

 
2,940

     Climate Technologies
1,659

 
1,740

     Commercial & Residential Solutions
932

 
910

 
11,544

 
11,856

     Eliminations
(316
)
 
(343
)
          Net sales
$
11,228

 
$
11,513

 
 
 
 
Earnings
 
 
 
     Process Management
$
531

 
$
736

     Industrial Automation
385

 
350

     Network Power
256

 
216

     Climate Technologies
258

 
276

     Commercial & Residential Solutions
197

 
195

 
1,627

 
1,773

     Differences in accounting methods
104

 
104

     Corporate and other
(248
)
 
(262
)
     Interest expense, net
(116
)
 
(111
)
          Earnings before income taxes
$
1,367

 
$
1,504

 
 
 
 
Rationalization of operations
 
 
 
     Process Management
$
9

 
$
7

     Industrial Automation
8

 
10

     Network Power
26

 
9

     Climate Technologies
6

 
2

     Commercial & Residential Solutions
5

 
4

          Total
$
54

 
$
32



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Table 7
Reconciliations of Non-GAAP Financial Measures
The following reconciles non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions):
 
 
 
 
 
 
 
 
 
Q2 2012
 
Q2 2013
 
Change
Profit margin
 
 
 
 
 
 
EBIT*
$
872

 
$
888

 
$
16

 
EBIT margin*
14.7
 %
 
14.9
 %
 
20 bps

 
Interest expense, net
58

 
57

 
(1
)
 
Pretax earnings
$
814

 
$
831

 
$
17

 
Pretax earnings margin
13.8
 %
 
13.9
 %
 
10 bps

 
 
 
 
 
 
 
Cash flow
 
 
 
 
 
 
Operating cash flow
$
562

 
$
597

 
$
35

 
Capital expenditures
(157
)
 
(120
)
 
37

 
Free cash flow*
$
405

 
$
477

 
$
72

 
 
 
 
 
 
 
Year-to-date cash flow
 
 
 
 
 
 
Operating cash flow
$
896

 
$
1,151

 
29
 %
 
Capital expenditures
(287
)
 
(235
)
 
(18
)%
 
Free cash flow*
$
609

 
$
916

 
51
 %
 
 
 
 
 
 
 
 
 
2012
 
2013E
 
Change
Profit margin as % of sales
 
 
 
 
 
 
EBIT*
13.7
 %
 
~16.1%

 
~240 bps

 
Goodwill impairment
2.4
 %
 
 %
 
(240) bps

 
EBIT excl. impairment*
16.1
 %
 
~16.1%

 
~0 bps

 
Interest expense, net
(0.9
)%
 
(0.9
)%
 
0 bps

 
Pretax earnings excl. impairment*
15.2
 %
 
~15.2%

 
~0 bps

 
Goodwill impairment
(2.4
)%
 
 %
 
240 bps

 
Pretax earnings
12.8
 %
 
~15.2%

 
~240 bps

 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
Net earnings per share
$
2.67

 
$3.48-3.58

 
30-34%

 
Goodwill impairment
0.72

 

 
(27-28)%

 
Normalized earnings per share*
$
3.39

 
$3.48-3.58

 
3-6%





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