Manufacturers

Emerson 4Q and FY2021 Earnings Beat Wall Street Expectations

ST. LOUIS — Emerson today reported results for the fourth quarter and fiscal year ended September 30, 2021.

A rigorous focus on culture, our portfolio and operational execution is critical to our continued success, and I am incredibly proud of the initiative from our global team in these key areas,” said Emerson President and CEO Lal Karsanbhai. “Our team has been working hard to mitigate the near-term impact of supply chain challenges which have created obstacles across the essential industries we serve.

We don’t expect the global supply chain landscape to hinder our success around long-term value creation, and we continue to progress toward our cost reset targets.

This past quarter, we took action on our vision of a reimagined Emerson. We are advancing our culture across the organization through employee initiatives and a renewed focus on integrating environmental, social and governance (ESG) priorities. We also took an exceptional step toward expanding our software portfolio by announcing the strategic transaction with AspenTech. This transaction will create an industrial software leader by creating synergies and a differentiated vehicle for software acquisitions. This opportunity to deepen our industrial software capability is a meaningful step in a portfolio evolution that will ultimately drive higher growth and value creation. I’m energized as we enter a new fiscal year, and I know our team is ready to perform.

September Trailing Three-Month Underlying Orders were up 16 percent, as demand continues to be strong in key hybrid and discrete automation as well as residential markets. Late-cycle process automation and commercial markets continue to improve and orders activity is increasing related to customer sustainability initiatives, notably decarbonization programs.

Fourth quarter Net Sales were up 9 percent and Underlying Sales were up 7 percent, excluding favorable currency of 1 percent and an impact of 1 percent from acquisitions. Revenue fell into the lower end of our guidance due to an estimated $175 million impact from supply chain, logistics and labor constraints. North America continued its strong recovery in the fourth quarter despite supply chain challenges, with the Americas up 16 percent, while Europe was down 2 percent. Asia, Middle East & Africa was down 3 percent, with China up 10 percent. For the full year, Net Sales were up 9 percent and Underlying Sales were up 5 percent. The Americas were up 6 percent and Europe and Asia, Middle East & Africa were both up 5 percent, with China up 15 percent.

Fourth quarter Pretax Margin of 16.7 percent was down 10 basis points and Adjusted EBIT Margin, which excludes restructuring and first year purchase accounting charges, was 19.0 percent, down 30 basis points. Adjusted EBIT margin was unfavorably impacted by price-cost headwinds in Commercial & Residential Solutions and lower volume due to supply chain constraints across the enterprise, together worth 200 basis points. For the full year, Pretax Margin of 16.0 percent was up 210 basis points while Adjusted EBIT Margin for the year was 18.0 percent, up 130 basis points and both in line with guidance.

Earnings Per Share were $1.11 for the quarter, down 8 percent, and Adjusted Earnings Per Share, which excludes restructuring and first year purchase accounting charges, were $1.21, up 10 percent. Earnings Per Share for the year were $3.82, up 18 percent, and Adjusted Earnings Per Share were $4.10, up 19 percent. Earnings for the year exceeded guidance and included $0.59 of operational improvements over the prior year.

Operating Cash Flow was $3.6 billion for the full year, up 16 percent, in line with guidance. Free Cash Flow was $3.0 billion for the year, up 18 percent, also in line with guidance, resulting in Free Cash Flow conversion of 129 percent. Full year cash flow results reflected higher earnings due to volume, operational execution across the two business platforms and favorable trade working capital.

Business Platform Results

Automation Solutions September trailing three-month underlying orders were up 20 percent driven by robust improvement in the Americas. The order backlog decreased by $100 million compared to the prior quarter to $5.4 billion, and was up 16 percent versus the prior year.

Net Sales increased 6 percent in the quarter, with Underlying Sales up 3 percent. Results for the quarter reflected strong recovery in the Americas, ongoing strength across discrete and hybrid markets and continued improvement in longer-cycle process automation markets. Sales were unfavorably impacted by an estimated $125 million due to supply chain and logistics constraints in the quarter. Full year Net Sales were up 4 percent and Underlying Sales were flat versus prior year. Europe and Asia, Middle East & Africa saw low single-digit growth while the Americas were down slightly versus the prior year due to recovery timing. China was up mid teens.

Segment EBIT margin in the quarter was 18.7 percent, up 170 basis points. Adjusted Segment EBIT margin in the quarter, which excludes restructuring and related costs, increased 170 basis points to 20.4 percent driven by savings from cost actions and volume leverage. Total restructuring and related actions in the quarter totaled $52 million. Full year Segment EBIT margin was 16.8 percent up 320 basis points. Full year Adjusted Segment EBIT margin of 18.1 percent was up 230 basis points.

Commercial & Residential Solutions September trailing three-month underlying orders were up 9 percent driven by strong growth in all world areas and business groups. Backlog ended the quarter at $1.1 billion, flat compared to the prior quarter.

Net Sales increased 14 percent in the quarter and Underlying Sales were up 13 percent, with all business groups and geographies showing strong underlying growth driven by continued residential demand in the Americas, heat pump and professional tools demand in Europe and cold chain and heating technologies demand in Asia, Middle East & Africa. Full year Net Sales were up 18 percent and Underlying Sales were up 16 percent. Sales in the Americas, Europe and Asia, Middle East & Africa saw growth in the mid teens for the full year. China was up mid teens as well.

Fourth quarter Segment EBIT margin declined 260 basis points to 18.1 percent. Fourth quarter Adjusted Segment EBIT margin, which excludes restructuring and related costs, declined 340 basis points to 18.7 percent mainly due to price-cost headwinds, partially offset by leverage and cost reduction actions. Total restructuring and related actions in the quarter were $11 million. Full year Segment EBIT margin increased 70 basis points to 20.5 percent and full year Adjusted Segment EBIT margin increased 20 basis points to 20.9 percent.

2022 Outlook

We expect that 2022 will be characterized by strong underlying demand. Strength in discrete and hybrid automation markets, further recovery in process markets and expanding opportunities in sustainability projects is expected to drive Automation Solutions full year net sales and underlying sales growth to mid-to-high single digits. For Commercial & Residential Solutions, residential demand is expected to moderate while the commercial and industrial environment is expected to further improve, driving net sales and underlying sales growth to mid-to-high single digits. We also expect operational challenges to continue through the first half of the year. Price-cost will turn to a tailwind during the second half and is expected to be approximately $100 million favorable for the year.

Starting in fiscal 2022, Emerson will revise Adjusted EBIT and Adjusted EPS to exclude intangibles amortization expense in addition to previously excluded restructuring expense and first year purchase accounting related items. The revised metric for Adjusted EBIT will be referred to as Adjusted EBITA. Adjusted EPS guidance in the tables below is presented using the new definition.

Under the new definitions, fiscal 2021 Adjusted EBITA margin was 19.8 percent and Adjusted EPS was $4.51. For the first quarter 2021, Adjusted EBITA margin was 18.2 percent and Adjusted EPS was $0.93.

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