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Emerson Reports First Quarter 2022 Results; Updates 2022 Outlook

  • Demand continued to be strong with December Trailing Three-Month Underlying Orders up 17 percent
  • Net Sales were $4.5 billion, up 8 percent from the year prior; Underlying Sales were up 8 percent
  • GAAP EPS was $1.50, up 103 percent from the year prior; Adjusted EPS (as defined below) was $1.05, up 13 percent
  • Updated 2022 Full Year Outlook to reflect continued strong demand
  • Declared quarterly cash dividend of $0.515 per share of common stock payable March 10, 2022 to stockholders of record February 11, 2022

Emerson (NYSE: EMR) today reported results for its first fiscal quarter ended December 31, 2021 and updated its full year outlook for fiscal 2022.

December Trailing Three-Month Underlying Orders were up 17 percent, as demand continued to be strong across all world areas and major end markets. First quarter Net Sales and Underlying Sales were up 8 percent. By geography, the Americas grew 11 percent, Europe grew 3 percent, and Asia, Middle East & Africa grew 6 percent. China grew 12 percent.

First quarter Pretax Margin of 26.3 percent was up 1280 basis points. Adjusted EBITA Margin, which excludes restructuring, first year purchase accounting charges and transaction fees, intangibles amortization expense and a gain from our Vertiv subordinated interest, was 19.6 percent, up 140 basis points.

Earnings Per Share, which includes a $0.60 gain from our Vertiv subordinated interest, were $1.50 for the quarter, up 103 percent. Adjusted Earnings Per Share, which excludes restructuring, first year purchase accounting charges and transaction fees, intangibles amortization expense and a gain from our Vertiv subordinated interest, were $1.05, up 13 percent. Earnings in the quarter were ahead of management expectations and benefited from better leverage, continued savings from effective cost management and favorable mix despite the ongoing supply chain headwinds.

Operating Cash Flow was $523 million for the quarter, down 35 percent, and Free Cash Flow was $407 million, down 41 percent. Cash flow results reflected higher inventory due to supply chain constraints but are on track to meet full year guidance expectations shared in November.

"We are pleased with our first quarter results. Strong demand continued in both the Automation Solutions and Commercial & Residential Solutions platforms with ongoing growth in residential, discrete and hybrid end markets, as well as strong recovery in our commercial and process automation end markets. Much like the rest of the industry, labor shortages, inflation and supply chain challenges remain a hurdle, but a strong focus on operational excellence and a steadfast commitment to our cost reset targets have proven valuable in offsetting these headwinds,” said Emerson President and Chief Executive Officer Lal Karsanbhai. “Given our first quarter results and the strength in both platforms, we have increased our 2022 full year outlook.

“We feel energized as our teams cultivate a world-class culture and we continue our portfolio evolution while maintaining our long-standing commitment to operational execution and financial results,” Karsanbhai continued. “I speak for the worldwide Emerson team when I say we’re ready to face the challenges of 2022 head on.”

Business Platform Results

Automation Solutions December trailing three-month underlying orders were up 19 percent driven by strong demand in all business groups and world areas. Backlog increased $500 million compared to the prior quarter to $6.0 billion.

Net sales increased 4 percent in the quarter, with underlying sales up 5 percent. The Americas were up 7 percent, Europe was flat, and Asia, Middle East & Africa was up 7 percent. China was up 17 percent.

Segment EBIT margin increased 530 basis points to 18.7 percent and Adjusted Segment EBITA margin, which excludes restructuring and intangibles amortization expense, increased 320 basis points to 21.5 percent. Favorable profitability was driven by increased volume, leverage, cost management and mix.

Commercial & Residential Solutions December trailing three-month underlying orders were up 13 percent driven by continued strength in both the residential and commercial businesses. Backlog increased $150 million compared to the prior quarter to $1.3 billion.

Net and underlying sales increased 13 percent. The Americas were up 17 percent, Europe was up 13 percent, and Asia, Middle East & Africa was up 4 percent. China was flat.

Segment EBIT margin decreased 310 basis points to 17.9 percent and Adjusted Segment EBITA margin (as defined above) decreased 320 basis points to 18.9 percent. Continued headwinds related to price-cost impacted profitability in the quarter but are expected to improve in the second half of the year.

2022 Updated Outlook

Despite ongoing supply chain constraints and challenges related to the COVID-19 pandemic, we continue to see strong demand in both of our platforms resulting in increased sales and updated earnings expectations for the year. Net and Underlying Sales guidance is increased by 1 percent to 6 to 8 percent and 7 to 9 percent, respectively. Earnings Per Share guidance of $4.71 to $4.86 have been updated to reflect the operational impact of increased sales guidance and now includes the impact of estimated AspenTech transaction fees and interest expense on $3 billion of debt already issued to fund the transaction. Adjusted Earnings Per Share have been increased to $4.90 to $5.05.

The following tables summarize the updated fiscal year 2022 and second quarter 2022 guidance framework. The tables below do not include the operational impact of the impending transaction with AspenTech, which is expected to close in the second calendar quarter of 2022.

2022 Guidance

Net Sales Growth

6% - 8%

Operating Cash Flow

$3.8B

Automation Solutions

5% - 7%

Capital Spend

$650M

Commercial & Residential Solutions

8% - 10%

Free Cash Flow

$3.1B

 

 

Dividend

$1.2B

Underlying Sales Growth

7% - 9%

Share Repurchase

$250M - $500M

Automation Solutions

7% - 9%

 

 

Commercial & Residential Solutions

9% - 11%

Tax Rate

22%

 

 

Restructuring Actions

$150M

GAAP EPS

$4.71 - $4.86

Price-Cost

$175M

Adjusted EPS

$4.90 - $5.05

 

 

2022 Q2 Guidance

Net Sales Growth

4% - 6%

Automation Solutions

3% - 5%

Commercial & Residential Solutions

7% - 9%

 

 

Underlying Sales Growth

6% - 8%

Automation Solutions

5% - 7%

Commercial & Residential Solutions

9% - 11%

 

 

GAAP EPS

$0.98 - $1.03

Adjusted EPS

$1.15 - $1.20

Note 1: All figures are approximate

Upcoming Investor Events

Today, beginning at 8:00 a.m. Central Time / 9:00 a.m. Eastern Time, Emerson management will discuss the first 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 Company's ability to successfully complete on the terms and conditions contemplated, and the financial impact of, the proposed AspenTech transaction, the scope, duration and ultimate impact of the COVID-19 pandemic as well as economic and currency conditions, market 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. The outlook contained herein represents the Company's expectation for its consolidated results, excluding the expected AspenTech transaction other than as noted herein.

 

 

 

 

 

Table 1

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

 

 

 

 

 

 

 

Quarter Ended Dec 31

 

Percent

 

2020

 

2021

 

Change

 

 

 

 

 

 

Net sales

$4,161

 

 

$4,473

 

 

8%

Cost of sales

2,438

 

 

2,651

 

 

 

SG&A expenses

998

 

 

1,011

 

 

 

Gain on subordinated interest

 

 

(453

)

 

 

Other deductions, net

122

 

 

51

 

 

 

Interest expense, net

40

 

 

38

 

 

 

Earnings before income taxes

563

 

 

1,175

 

 

109%

Income taxes

111

 

 

280

 

 

 

Net earnings

452

 

 

895

 

 

 

Less: Noncontrolling interests in subsidiaries

7

 

 

(1

)

 

 

Net earnings common stockholders

$445

 

 

$896

 

 

101%

 

 

 

 

 

 

Diluted avg. shares outstanding

601.9

 

 

598.1

 

 

 

 

 

 

 

 

 

Diluted earnings per share common share

$0.74

 

 

$1.50

 

 

103%

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended Dec 31

 

 

 

2020

 

2021

 

 

Other deductions, net

 

 

 

 

 

Amortization of intangibles

$78

 

 

$63

 

 

 

Restructuring costs

66

 

 

9

 

 

 

Other

(22

)

 

(21

)

 

 

Total

$122

 

 

$51

 

 

 

 

 

 

Table 2

EMERSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS, UNAUDITED)

 

 

 

 

 

Quarter Ended Dec 31

 

2020

 

2021

Assets

 

 

 

Cash and equivalents

$2,197

 

$4,726

Receivables, net

2,652

 

2,745

Inventories

2,013

 

2,335

Other current assets

819

 

1,054

Total current assets

7,681

 

10,860

Property, plant & equipment, net

3,693

 

3,685

Goodwill

7,832

 

7,695

Other intangible assets

3,196

 

2,791

Other

1,276

 

1,928

Total assets

$23,678

 

$26,959

 

 

 

 

Liabilities and equity

 

 

 

Short-term borrowings and current

 

 

 

maturities of long-term debt

$1,717

 

$37

Accounts payable

1,694

 

2,100

Accrued expenses

2,965

 

3,194

Total current liabilities

6,376

 

5,331

Long-term debt

5,892

 

8,722

Other liabilities

2,471

 

2,618

Total equity

8,939

 

10,288

Total liabilities and equity

$23,678

 

$26,959

 

 

 

 

Table 3

EMERSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN MILLIONS, UNAUDITED)

 

 

 

 

 

 

 

Quarter Ended Dec 31

 

 

2020

 

2021

Operating activities

 

 

 

 

Net earnings

 

$452

 

 

$895

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

244

 

 

231

 

Stock compensation

 

64

 

 

41

 

Pension expense

 

8

 

 

1

 

Changes in operating working capital

 

71

 

 

(185

)

Gain on subordinated interest

 

 

 

(453

)

Other, net

 

(31

)

 

(7

)

Cash provided by operating activities

 

808

 

 

523

 

 

 

 

 

 

Investing activities

 

 

 

 

Capital expenditures

 

(122

)

 

(116

)

Purchases of businesses, net of cash and equivalents acquired

 

(1,611

)

 

(39

)

Proceeds from subordinated interest

 

 

 

438

 

Other, net

 

13

 

 

2

 

Cash provided by (used in) investing activities

 

(1,720

)

 

285

 

 

 

 

 

 

Financing activities

 

 

 

 

Net increase in short-term borrowings

 

340

 

 

(335

)

Proceeds from long-term debt

 

 

 

2,975

 

Payments of long-term debt

 

(301

)

 

(501

)

Dividends paid

 

(303

)

 

(307

)

Purchases of common stock

 

(13

)

 

(253

)

Other, net

 

42

 

 

22

 

Cash provided by (used in) financing activities

 

(235

)

 

1,601

 

 

 

 

 

 

Effect of exchange rate changes on cash and equivalents

 

29

 

 

(37

)

Increase (Decrease) in cash and equivalents

 

(1,118

)

 

2,372

 

Beginning cash and equivalents

 

3,315

 

 

2,354

 

Ending cash and equivalents

 

$2,197

 

 

$4,726

 

 

 

 

 

 

 

 

 

Table 4

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS, UNAUDITED)

 

 

 

 

 

Quarter Ended Dec 31

 

2020

 

2021

Sales

 

 

 

Measurement & Analytical Instrumentation

$698

 

 

$735

 

Valves, Actuators & Regulators

806

 

 

816

 

Industrial Solutions

508

 

 

566

 

Systems & Software

680

 

 

688

 

Automation Solutions

2,692

 

 

2,805

 

 

 

 

 

Climate Technologies

1,031

 

 

1,163

 

Tools & Home Products

445

 

 

508

 

Commercial & Residential Solutions

1,476

 

 

1,671

 

 

 

 

 

Eliminations

(7

)

 

(3

)

Net sales

$4,161

 

 

$4,473

 

 

 

 

 

Earnings

 

 

 

Automation Solutions

$361

 

 

$526

 

 

 

 

 

Climate Technologies

212

 

 

192

 

Tools & Home Products

98

 

 

107

 

Commercial & Residential Solutions

310

 

 

299

 

 

 

 

 

Stock compensation

(64

)

 

(41

)

Unallocated pension and postretirement costs

24

 

 

26

 

Corporate and other

(28

)

 

(50

)

Gain on subordinated interest

 

 

453

 

Interest expense, net

(40

)

 

(38

)

Earnings before income taxes

$563

 

 

$1,175

 

 

 

 

 

Restructuring costs

 

 

 

Automation Solutions

$64

 

 

$5

 

 

 

 

 

Climate Technologies

1

 

 

2

 

Tools & Home Products

1

 

 

1

 

Commercial & Residential Solutions

2

 

 

3

 

 

 

 

 

Corporate

 

 

1

 

Total

$66

 

 

$9

 

 

The table above does not include $3 and $9 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the three months ended December 31, 2020 and 2021, respectively.

 

 

 

 

Depreciation and Amortization

 

 

 

Automation Solutions

$156

 

 

$155

 

 

 

 

 

Climate Technologies

49

 

 

47

 

Tools & Home Products

19

 

 

20

 

Commercial & Residential Solutions

68

 

 

67

 

 

 

 

 

Corporate and other

20

 

 

9

 

Total

$244

 

 

$231

 

Table 5

EMERSON AND SUBSIDIARIES

ADJUSTED EBITA & EPS SUPPLEMENTAL

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

 

The following tables, which show results on an adjusted EBITA basis and diluted earnings per share on an adjusted basis, are intended to supplement the Company's discussion of its results of operations herein. The Company defines adjusted EBITA as earnings excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments. Adjusted earnings per share excludes intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments. Adjusted EBITA, adjusted EBITA margin, and adjusted earnings per share are measures used by management and may be useful for investors to evaluate the Company's operational performance.

 

 

Quarter Ended Dec 31

 

2020

 

2021

 

 

 

 

Pretax earnings

$563

 

$1,175

Percent of sales

13.5%

 

26.3%

Interest expense, net

40

 

38

Restructuring and related costs

69

 

18

Amortization of intangibles

81

 

77

Gain on subordinated interest

 

(453)

AspenTech transaction costs

 

23

Gain on acquisition of full ownership of equity investment

(17)

 

OSI first year acquisition accounting charges and fees

21

 

Adjusted EBITA

$757

 

$878

Percent of sales

18.2%

 

19.6%

 

 

 

 

 

Quarter Ended Dec 31

 

2020

 

2021

 

 

 

 

GAAP earnings per share

$0.74

 

$1.50

 

 

 

 

Restructuring and related costs

0.09

 

0.02

Amortization of intangibles

0.10

 

0.10

Gain on subordinated interest

 

(0.60)

AspenTech transaction costs

 

0.03

Gain on acquisition of full ownership of equity investment

(0.03)

 

OSI first year acquisition accounting charges and fees

0.03

 

 

 

 

 

Adjusted earnings per share

$0.93

 

$1.05

 

 

 

Table 6

EMERSON AND SUBSIDIARIES

SEGMENT EBITA

(DOLLARS IN MILLIONS, UNAUDITED)

 

 

 

 

 

Quarter Ended Dec 31

 

2020

 

2021

Automation Solutions

 

 

 

 

 

 

 

Automation Solutions EBIT

$361

 

$526

Percent of sales

13.4%

 

18.7%

Restructuring and related costs

64

 

12

Amortization of intangibles

68

 

65

Automation Solutions EBITA

$493

 

$603

Percent of sales

18.3%

 

21.5%

 

 

 

 

 

 

 

 

Commercial & Residential Solutions

 

 

 

 

 

 

 

Commercial & Residential Solutions EBIT

$310

 

$299

Percent of sales

21.0%

 

17.9%

Restructuring and related costs

3

 

4

Amortization of intangibles

13

 

12

Commercial & Residential Solutions EBITA

$326

 

$315

Percent of sales

22.1%

 

18.9%

Table 7

Reconciliations of Non-GAAP Financial Measures & Other
Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
 

Q1 2022 Underlying Sales Change

Auto Solns

 

Comm & Res

Solns

 

Emerson

Reported (GAAP)

 

4 %

 

 

13 %

 

8 %

(Favorable) / Unfavorable FX

 

1 %

 

 

— %

 

— %

Acquisitions / Divestitures

 

— %

 

 

— %

 

— %

Underlying*

 

5 %

 

 

13 %

 

8 %

 

 

 

 

 

 

Q2 2022E Underlying Sales Change

Auto Solns

 

Comm & Res

Solns

 

Emerson

Reported (GAAP)

3% - 5%

 

7% - 9%

 

4% - 6%

(Favorable) / Unfavorable FX

 

2 %

 

 

2 %

 

2 %

Acquisitions / Divestitures

 

— %

 

 

— %

 

— %

Underlying*

5% - 7%

 

9% - 11%

 

6% - 8%

 

 

 

 

 

 

FY 2022E Underlying Sales Change

Auto Solns

 

Comm & Res

Solns

 

Emerson

Reported (GAAP)

5% - 7%

 

8% - 10%

 

6% - 8%

(Favorable) / Unfavorable FX

 

2 %

 

 

1 %

 

1 %

Acquisitions / Divestitures

 

— %

 

 

— %

 

— %

Underlying*

7% - 9%

 

9% - 11%

 

7% - 9%

 

 

 

 

 

 

Q1 Earnings Per Share

Q1 FY21

 

Q1 FY22

 

Change

Earnings per share (GAAP)

$

0.74

 

$

1.50

 

103 %

Restructuring and related costs

 

0.09

 

 

0.02

 

(10)%

Amortization of intangibles

 

0.10

 

 

0.10

 

— %

Gain on subordinated interest

 

 

 

(0.60)

 

(84)%

AspenTech transaction costs

 

 

 

0.03

 

4 %

Gain on acquisition of full ownership of equity investment

 

(0.03)

 

 

 

4 %

OSI purchase accounting and fees

 

0.03

 

 

 

(4)%

Adjusted earnings per share*

$

0.93

 

$

1.05

 

13 %

 

 

 

 

 

 

Earnings Per Share

Q2 FY22E

 

FY22E

 

 

Earnings per share (GAAP)

$0.98 - $1.03

 

$4.71 - $4.86

 

 

Restructuring and related costs

0.04

 

0.20

 

 

Amortization of intangibles

0.10

 

0.39

 

 

Gain on subordinated interest

 

(0.60)

 

 

AspenTech transaction costs and interest expense

0.03

 

0.20

 

 

Adjusted earnings per share*

$1.15 - $1.20

 

$4.90 - $5.05

 

 

 

 

 

 

 

 

EBIT and EBITA Margin

Q1 FY21

 

Q1 FY22

 

Change

Pretax margin (GAAP)

 

13.5 %

 

 

26.3 %

 

1280 bps

Interest expense, net

 

1.0 %

 

 

0.8 %

 

(20) bps

Restructuring and related costs

 

1.7 %

 

 

0.4 %

 

(130) bps

Amortization of intangibles

 

1.9 %

 

 

1.7 %

 

(20) bps

Gain on subordinated interest

 

— %

 

 

(10.1)%

 

(1010) bps

AspenTech transaction costs

 

— %

 

 

0.5 %

 

50 bps

Gain on acquisition of full ownership of equity investment

 

(0.4)%

 

 

— %

 

40 bps

OSI purchase accounting items

 

0.5 %

 

 

— %

 

(50) bps

Adjusted EBITA margin*

 

18.2 %

 

 

19.6 %

 

140 bps

 

 

 

 

 

 

Automation Solutions Segment EBIT Margin

Q1 FY21

 

Q1 FY22

 

Change

Automation Solutions Segment EBIT margin (GAAP)

 

13.4 %

 

 

18.7 %

 

530 bps

Restructuring and related costs

 

2.4 %

 

 

0.5 %

 

(190) bps

Amortization of intangibles impact

 

2.5 %

 

 

2.3 %

 

(20) bps

Automation Solutions Adjusted Segment EBITA margin*

 

18.3 %

 

 

21.5 %

 

320 bps

 

 

 

 

 

 

Commercial & Residential EBIT Margin

Q1 FY21

 

Q1 FY22

 

Change

Commercial & Residential EBIT margin (GAAP)

 

21.0 %

 

 

17.9 %

 

(310) bps

Restructuring and related costs

 

0.2 %

 

 

0.3 %

 

10 bps

Amortization of intangibles impact

 

0.9 %

 

 

0.7 %

 

(20) bps

Commercial & Residential Adjusted EBITA margin*

 

22.1 %

 

 

18.9 %

 

(320) bps

 

 

 

 

 

 

Q1 Cash Flow

Q1 FY21

 

Q1 FY22

 

Change

Operating cash flow (GAAP)

$

808

 

$

523

 

(35) %

Capital expenditures

 

(122)

 

 

(116)

 

(6) %

Free cash flow*

$

686

 

$

407

 

(41) %

 

FY 2022E Cash Flow

FY 2022E

 

 

 

 

Operating cash flow (GAAP)

~ $ 3.8B

 

 

 

 

Capital expenditures

650M

 

 

 

 

Free cash flow*

~ $ 3.1B

 

 

 

 

 

 

 

 

 

 

Note 1: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.

Note 2: All fiscal year 2022E figures are approximate, except where range is given.

 

Contacts

Emerson

Investor Contact: Colleen Mettler (314) 553-2197

Media Contact: Charlotte Boyd (952) 994-8607

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