EX-99.1 2 a2021q2release_ex991.htm EX-99.1 Document

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                                 Investor Contact: Pete Lilly (314) 553-2197
                                 Media Contact: Casey Murphy (314) 982-6220

Emerson Reports Second Quarter 2021 Results,
Raises 2021 Outlook
Q2 Net Sales of $4.4 billion up 6 percent from the year prior; Underlying Sales up 2 percent, both ahead of February guidance
Q2 EPS was $0.93, up 11 percent from the year prior; Adjusted EPS, which excludes restructuring and first year purchase accounting charges, was $0.97, up 9 percent, both ahead of February guidance
Operating Cash Flow of $807 million in the quarter, up 37 percent; Free Cash Flow (FCF) was $707 million, up 48 percent, resulting in FCF conversion of 125 percent
Restructuring and related actions of $21 million were initiated in the quarter, continuing execution of the comprehensive cost reset program to return the company to record adjusted EBIT margins

    ST. LOUIS, May 5, 2021 - Emerson (NYSE: EMR) today reported results for the second fiscal quarter ended March 31, 2021.
    “I remain proud, humbled, and energized by the exceptional advances and adaptability I’m seeing across the enterprise,” said Emerson President and CEO Lal Karsanbhai. “We have two major concurrent themes building momentum within the organization. First, the enthusiasm and progress around modernizing our culture is palpable, particularly with regard to diversity and inclusion, work practices, and talent management. These initiatives are not just good practice, but are expected to be key business enablers for Emerson's outperformance and value creation going forward. We will share more details on this vital work and our overall sustainability progress in our upcoming ESG Report which will be published in June.
"Secondly, economic recovery momentum is building across most of our key end markets, which resulted in better than expected top line results this quarter. Trailing three month underlying orders ended on the high side of the guided range, and underlying sales came in above guidance – a strong signal for broadening recovery. Residential markets and shorter cycle automation markets continue to show


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strength, while commercial and longer cycle automation markets should continue their steady recovery during the second half of the year. Importantly, we will continue to drive the remaining elements of our comprehensive cost reset plan as we target achieving record margins. Lastly, we are accelerating investment in innovation and key technologies that drive differentiation, create value for our customers, and are aligned with global macrotrends such as sustainability and digital transformation."
Second quarter Net Sales were up 6 percent and Underlying Sales were up 2 percent, excluding favorable currency of 3 percent and an impact from acquisitions of 1 percent. Revenue for the quarter was ahead of management's February guidance, with both business platforms finishing above expectations. The Americas improved sequentially, but was down 4 percent year over year, as residential and cold chain strength was more than offset by a more sluggish process automation recovery. Europe was up 7 percent, while Asia, Middle East & Africa grew by 12 percent, driven by China which recovered sharply by 45 percent.
    March Trailing Three-Month Underlying Orders were up 4 percent (improved from down 2 percent in February), in the upper portion of guidance, as strength in residential, cold chain, professional tools, hybrid and discrete automation markets more than offset later cycle process automation markets.
    Second quarter Gross Profit Margin of 42.0 percent was down 10 basis points from the previous year primarily due to business mix, as the recovery in Commercial & Residential Solutions outpaced Automation Solutions. Pretax Margin of 16.6 percent was flat while EBIT Margin of 17.5 percent was up 10 basis points, as ongoing comprehensive cost reduction actions were largely offset by higher costs due to the mark-to-market stock compensation plan, which produced an unfavorable impact of 230 basis points. The stock price in the prior year was sharply lower than current year as a result of the pandemic induced drop. Adjusted EBIT Margin, which excludes restructuring and first year purchase accounting charges, was 18.2 percent for the quarter, down 20 basis points.
    Earnings Per Share were $0.93 for the quarter, up 11 percent, and Adjusted Earnings Per Share were $0.97, up 9 percent. Earnings in the quarter exceeded management guidance, benefiting from better volume and ongoing cost reduction actions.
    Operating Cash Flow was $807 million for the quarter, up 37 percent, and $1.6 billion year-to-date, up 60 percent. Free Cash Flow was $707 million, up 48 percent for the quarter, resulting in strong free cash flow conversion of 125 percent. Year-to-date, Free Cash Flow was $1.4 billion, up 77 percent. Cash flow results reflected higher earnings due to operational execution across the two business platforms and favorable trade working capital.
    
Business Platform Results
    Automation Solutions net sales increased 3 percent in the quarter, with underlying sales down 2 percent, which was ahead of February guidance. Results reflected ongoing strength across discrete and hybrid markets, and improvement across MRO and installed base programs (KOB3). Discrete oriented


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businesses grew high single digits, while systems and software grew low single digits. Recovery in the Americas continues to lag, but exceeded our expectations and showed sequential improvement with underlying sales down 12 percent compared to down 20 percent in Q1. Continued momentum in life sciences, food & beverage, and medical markets paired with lagging but stabilizing trends across most process industries. Europe underlying sales were up 6 percent, driven by power and biofuels demand. Asia, Middle East & Africa underlying sales grew 9 percent, as recovery in China (up 42 percent), more than offset softness in SE Asia and the Middle East.
    March trailing three-month underlying orders were down 5 percent (improvement from down 9 percent in February), reflecting an ongoing lagging recovery in many process automation markets, partially offset by strength across most discrete and hybrid automation markets. Importantly, however, process automation MRO and installed base targeted programs (KOB3) showed sequential improvement. The Americas improved, but continues to be the trailing geography, down 10 percent. Asia, Middle East & Africa declined modestly by 4 percent, supported by China orders increasing sharply by 19 percent, largely driven by demand in discrete markets. Europe was up by 7 percent, also supported by discrete businesses. Backlog was unchanged from the prior quarter at $5.3 billion, but was up 14 percent year-to-date.
     Segment EBIT margin increased 240 basis points to 16.8 percent, on down sales, as savings from cost actions and favorable price-cost more than offset volume deleverage and mix. Adjusted segment EBIT margin, which excludes restructuring and related costs, increased 180 basis points to 17.3 percent. Total restructuring and related actions in the quarter totaled $14 million.
    Commercial & Residential Solutions net sales increased 13 percent in the quarter, with underlying sales up 11 percent, at the top end of previous guidance. Underlying sales in the Americas were up 8 percent, reflecting continued strong demand in residential markets and improvement in cold chain and professional tools businesses. Similarly, Europe was up 9 percent as heat pump demand was driven by sustainability regulations and customer technology preferences. Asia, Middle East & Africa was up 24 percent, bolstered by China, up 56 percent due to strong commercial HVAC and cold chain demand.
    March trailing three-month underlying orders were up 21 percent (improvement from up 14 percent in February), with high single digit or double digit growth across all businesses and geographies. Ongoing strength in residential facing markets was bolstered by cold chain and professional tools momentum. The Americas was up 19 percent, while Europe was up 15 percent, driven by demand for heat pumps and other energy efficient appliance technologies. Asia, Middle East & Africa orders increased by 32 percent, driven by growth in China of over 60 percent. Backlog increased by approximately $200 million in the quarter, ending at a record $1.0 billion. Backlog was up 58 percent year-to-date.


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    Segment EBIT margin increased 70 basis points to 21.7 percent as leverage and cost reductions were somewhat offset by price-cost headwinds. Adjusted segment EBIT margin, which excludes restructuring and related costs, increased 40 basis points to 22.0 percent. Total restructuring and related actions in the quarter totaled $5 million.

2021 Updated Outlook
    Despite ongoing pandemic challenges in some parts of the world, we expect overall continued improvement in industrial and commercial demand over the remainder of 2021. We also expect that residential demand will remain robust, but begin to taper in the second half.
    The following table summarizes the updated 2021 guidance framework:
2021 Guidance
Net Sales Growth6% - 9%Operating Cash Flow~$3.3B
   Automation Solutions3% - 5%   Capital Spend~$600M
   Commercial & Residential Solutions14% - 16%Free Cash Flow~$2.7B
   Dividend~$1.2B
Underlying Sales Growth3% - 6%   Share Repurchase
   Automation Solutions(1%) - 1%
   / M&A (excl. OSI)1
$500M - $1.0B
   Commercial & Residential Solutions12% - 14%
Pretax Margin~15.5%Tax Rate~22%
Adjusted EBIT~17.5%Restructuring Actions~$200M
Adjusted EBITDA22.5%+
GAAP EPS$3.60 +/- $.05
Adjusted EPS$3.90 +/- $.05
Note 1: OSI Inc. closed on Oct. 1, 2020, the first day of the fiscal year.

Upcoming Investor Events
    Today, beginning at 8:30 a.m. Central Time / 9:30 a.m. Eastern Time, Emerson management will discuss the second 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


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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.
(tables attached)


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Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
Quarter Ended March 31Percent
20202021Change
Net sales$4,162 $4,431 6%
Costs and expenses:
     Cost of sales2,412 2,569 
     SG&A expenses983 1,054 
     Other deductions, net42 33 
     Interest expense, net36 38 
Earnings before income taxes689 737 7%
Income taxes165 169 
Net earnings524 568 
Less: Noncontrolling interests in earnings of subsidiaries
Net earnings common stockholders$517 $561 9%
Diluted avg. shares outstanding611.0 602.8 
Diluted earnings per share common share$0.84 $0.93 11%
Quarter Ended March 31
20202021
Other deductions, net
     Amortization of intangibles$59 $74 
     Restructuring costs31 17 
     Other(48)(58)
          Total$42 $33 




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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
Six Months Ended March 31Percent
20202021Change
Net sales$8,313 $8,592 3%
Costs and expenses:
     Cost of sales4,804 5,007 
     SG&A expenses2,106 2,052 
     Other deductions, net220 155 
     Interest expense, net71 78 
Earnings before income taxes1,112 1,300 17%
Income taxes259 280 
Net earnings853 1,020 
Less: Noncontrolling interests in earnings of subsidiaries10 14 
Net earnings common stockholders$843 $1,006 19%
Diluted avg. shares outstanding612.6 602.3 
Diluted earnings per share common share$1.37 $1.67 22%
Six Months Ended March 31
20202021
Other deductions, net
     Amortization of intangibles$118 $152 
     Restructuring costs128 83 
     Special advisory fees13 — 
     Other(39)(80)
          Total$220 $155 


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
Quarter Ended March 31
20202021
Assets
     Cash and equivalents$2,583 $2,342 
     Receivables, net2,641 2,754 
     Inventories2,058 2,016 
     Other current assets750 849 
          Total current assets8,032 7,961 
     Property, plant & equipment, net3,553 3,663 
     Goodwill6,520 7,787 
     Other intangible assets2,498 3,095 
     Other 1,108 1,294 
          Total assets$21,711 $23,800 
Liabilities and equity
     Short-term borrowings and current
        maturities of long-term debt$3,741 $1,456 
     Accounts payable1,521 1,797 
     Accrued expenses2,678 3,041 
          Total current liabilities7,940 6,294 
     Long-term debt3,960 5,823 
     Other liabilities2,248 2,503 
     Total equity7,563 9,180 
          Total liabilities and equity$21,711 $23,800 


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Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
Six Months Ended March 31
 20202021
Operating activities  
Net earnings$853$1,020
Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization422483
        Stock compensation18125
        Pension expense3416
        Changes in operating working capital(260)66
        Other, net(55)(95)
            Cash provided by operating activities1,0121,615
Investing activities
Capital expenditures(225)(222)
Purchases of businesses, net of cash and equivalents acquired(96)(1,611)
Other, net(42)61
    Cash used in investing activities(363)(1,772)
Financing activities
Net increase in short-term borrowings2,07660
Proceeds from short-term borrowings greater than three months433
Payments of long-term debt(502)(301)
Dividends paid(611)(606)
Purchases of common stock(942)(78)
Other, net3983
    Cash provided by (used in) financing activities493(842)
Effect of exchange rate changes on cash and equivalents(53)26
Increase (Decrease) in cash and equivalents1,089(973)
Beginning cash and equivalents1,4943,315
Ending cash and equivalents$2,583$2,342







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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
Quarter Ended March 31
20202021
Sales
     Measurement & Analytical Instrumentation$776 $732 
     Valves, Actuators & Regulators854 836 
     Industrial Solutions494 555 
     Systems & Software585 670 
     Automation Solutions2,709 2,793 
     Climate Technologies1,026 1,160 
     Tools & Home Products432 485 
     Commercial & Residential Solutions1,458 1,645 
     Eliminations(5)(7)
          Net sales$4,162 $4,431 
Earnings
     Automation Solutions$391 $471 
     Climate Technologies217 245 
     Tools & Home Products89 112 
     Commercial & Residential Solutions306 357 
     Stock compensation38 (61)
     Unallocated pension and postretirement costs12 23 
     Corporate and other(22)(15)
     Interest expense, net(36)(38)
          Earnings before income taxes$689 $737 


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Table 5 (cont.)
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
Quarter Ended March 31
20202021
Restructuring costs
     Automation Solutions$23 $12 
     Climate Technologies
     Tools & Home Products
     Commercial & Residential Solutions
     Corporate
          Total$31 $17 
The table above does not include $9 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 March 31, 2020 and 2021, respectively.
Depreciation and Amortization
     Automation Solutions$138 $156 
     Climate Technologies45 47 
     Tools & Home Products19 20 
     Commercial & Residential Solutions64 67 
     Corporate and other16 
          Total$211 $239 


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
Six Months Ended March 31
20202021
Sales
     Measurement & Analytical Instrumentation$1,571 $1,430 
     Valves, Actuators & Regulators1,767 1,642 
     Industrial Solutions1,001 1,063 
     Systems & Software1,222 1,350 
     Automation Solutions5,561 5,485 
     Climate Technologies1,899 2,191 
     Tools & Home Products862 930 
     Commercial & Residential Solutions2,761 3,121 
     Eliminations(9)(14)
          Net sales$8,313 $8,592 
Earnings
     Automation Solutions$701 $832 
     Climate Technologies368 457 
     Tools & Home Products175 210 
     Commercial & Residential Solutions543 667 
     Stock compensation(18)(125)
     Unallocated pension and postretirement costs25 47 
     Corporate and other(68)(43)
     Interest expense, net(71)(78)
          Earnings before income taxes$1,112 $1,300 


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Table 6 (cont.)
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
Six Months Ended March 31
20202021
Restructuring costs
     Automation Solutions$106 $76 
     Climate Technologies
     Tools & Home Products
     Commercial & Residential Solutions17 
     Corporate
          Total$128 $83 
The table above does not include $9 and $7 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the six months ended March 31, 2020 and 2021, respectively.
Depreciation and Amortization$277 $312 
     Automation Solutions
     Climate Technologies89 96 
     Tools & Home Products38 39 
     Commercial & Residential Solutions127 135 
     Corporate and other18 36 
          Total$422 $483 


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Reconciliations of Non-GAAP Financial Measures & OtherTable 7
Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
Q2 2021 Underlying Sales ChangeAuto SolnsComm & Res SolnsEmerson
Reported (GAAP)%13 %%
(Favorable) / Unfavorable FX(3)%(2)%(3)%
Acquisitions / Divestitures(2)%— %(1)%
Underlying*(2)%11 %%
FY 2021E Underlying Sales ChangeAuto SolnsComm & Res SolnsEmerson
Reported (GAAP)3% - 5%14% - 16%6% - 9%
(Favorable) / Unfavorable FX~ (3)%~ (2)%~ (2)%
Acquisitions / Divestitures~ (1)%~ - %~ (1)%
Underlying*(1)% - 1%12% - 14%3% - 6%
Q2 Earnings Per ShareQ2 FY20Q2 FY21Change
Earnings per share (GAAP)$0.84 $0.93 11 %
Restructuring 0.05 0.03 (3)%
OSI purchase accounting items— 0.01 %
Adjusted earnings per share*$0.89 $0.97 %
Earnings Per ShareFY2021E
Earnings per share (GAAP)$3.55 - $3.65
Restructuring~ 0.26
OSI purchase accounting items & fees~ 0.07
Equity investment gain~ (0.03)
Adjusted earnings per share*$3.85 - $3.95
EBIT MarginQ2 FY20Q2 FY21ChangeFY21E
Pretax margin (GAAP)16.6 %16.6 %
bps
~ 15.5%
Interest expense, net0.8 %0.9 %10 bps1.0 %
Earnings before interest and taxes margin*17.4 %17.5 %10 bps~16.5%
Restructuring1.0 %0.5 %(50) bps1.0 %
OSI purchase accounting items — %0.2 %20 bps0.1 %
Equity investment gain— %— %
 bps
(0.1)%
Adjusted earnings before interest and taxes margin*18.4 %18.2 %(20) bps~17.5%
Depreciation and amortization expense5.0 %
Adjusted earnings before interest, taxes, depreciation and amortization margin*~22.5%+
Automation Solutions Segment EBIT MarginQ2 FY20Q2 FY21Change
Automation Solutions Segment EBIT margin (GAAP)14.4 %16.8 %240 bps
Restructuring and related charges impact1.1 %0.5 %(60) bps
Automation Solutions Adjusted Segment EBIT margin*15.5 %17.3 %180 bps


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- more -
Commercial & Residential EBIT MarginQ2 FY20Q2 FY21Change
Commercial & Residential EBIT margin (GAAP)21.0 %21.7 %70 bps
Restructuring and related charges impact0.6 %0.3 %(30) bps
Commercial & Residential Adjusted EBIT margin*21.6 %22.0 %40 bps
Q2 Cash FlowQ2 FY20Q2 FY21Change
Operating cash flow (GAAP)$588 $807 37 %
Capital expenditures(111)(100)11 %
Free cash flow*$477 $707 48 %
Cash FlowQ2 YTD
FY20
Q2 YTD
FY21
% Change
Operating cash flow (GAAP)$1,012 $1,615 60 %
Capital expenditures(225)(222)17 %
Free cash flow*$787 $1,393 77 %
FY 2021E Cash Flow FY 2021E
Operating cash flow (GAAP)~ $3,300
Capital expenditures~ (600)
Free cash flow* ~ $2,700
Cash Flow to Net Earnings ConversionQ2 FY21
Operating cash flow to net earnings (GAAP)142 %
Capital expenditures(17)%
Free cash flow to net earnings* 125 %
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.
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