ST. LOUIS — Emerson announced net sales in the first quarter ended December 31, 2016 were down 4 percent, with underlying sales down 3 percent excluding unfavorable currency translation. The first quarter results reflected mixed but generally improving global economic conditions in our key served markets. Growth in the Commercial & Residential Solutions platform resulted from favorable HVAC, refrigeration and U.S. and Asian construction markets, while the Automation Solutions platform remained down due to the low price of oil but witnessed improving order rates, particularly in North America, as we exited the quarter.
Pretax margin of 14.4 percent exceeded the prior year by 140 basis points. EBIT margin of 15.8 percent also increased 140 basis points primarily due to savings from restructuring activities. Earnings per share from continuing operations of $0.56 increased 22 percent, including an income tax benefit of $0.07 per share. Operating cash flow from continuing operations of $410 million increased 6 percent versus the prior year. Including the impact of discontinued operations (Network Power, Leroy-Somer and Control Techniques), earnings per share were $0.48, down 9 percent, and operating cash flow was $238 million, down 51 percent.
“Our strong first quarter results, which surpassed expectations, represent a solid start to the fiscal year and reflect an improving overall economic environment,” said Chairman and Chief Executive Officer David N. Farr. “The benefits from our restructuring actions during the past two years played a critical role in our ability to deliver higher margins across many of our businesses. Considering the improving demand conditions during the quarter, particularly in the automation markets, we are increasing our 2017 full-year EPS guidance by 12 cents at both the top and bottom end of the range, including the 7 cent income tax benefit in the first quarter.”
Business Platform Results
Automation Solutions net sales decreased 9 percent. Underlying sales were down 8 percent excluding unfavorable currency. Spending in energy related and general industrial markets remained down but the pace of business improved during the quarter. Globally, power, chemical and life sciences markets continue to provide opportunities for growth. Underlying sales in North America were down 11 percent, with the U.S. down 9 percent. Spending by oil and gas customers remained down, but MRO activity levels were more favorable and are expected to be a benefit for at least the next two quarters. Asia was down 2 percent, with China up 4 percent reflecting stabilizing market conditions. In other regions, Europe was down 5 percent, Middle East/Africa was up 3 percent and Latin America was down 29 percent. Margin increased 80 basis points to 16.6 percent, primarily due to savings from prior year restructuring actions. The business will remain under pressure during the second quarter from continued low levels of customer spending, with the expectation that market conditions will continue to improve during the fiscal year.
Commercial & Residential Solutions net sales increased 6 percent reflecting strong demand in global HVAC and refrigeration markets and favorable conditions in professional tools. Underlying sales increased 7 percent excluding unfavorable currency. Underlying sales in North America increased 4 percent, led by strong growth in U.S. residential and commercial air conditioning as well as a recovery in professional tools within the oil and gas sector. Asia increased 26 percent as broad strength in air conditioning and refrigeration markets was evident across most of the region. Growth in Asia was led by China, up 40 percent, where significant demand acceleration has occurred over the last two quarters. Europe was up 7 percent with solid growth in air conditioning and professional construction tools. Margin increased 140 basis points to 19.9 percent, primarily due to leverage on higher volume and savings from restructuring actions across the new platform structure. A favorable outlook for global demand in air conditioning, refrigeration and U.S. construction markets supports the expectation for low to mid-single digit growth in fiscal 2017.
2017 Outlook
Considering the first quarter results and recent order trends, we are raising our outlook for 2017. Full-year net sales are expected to be down 1 to 3 percent, with underlying sales flat to down 2 percent excluding unfavorable currency translation of approximately 1 percent. Earnings per share from continuing operations are now expected to be $2.47 to $2.62, including the $0.07 income tax benefit in the first quarter. Automation Solutions net sales are now expected to be down 5 to 7 percent, with underlying sales down 3 to 5 percent excluding unfavorable currency of approximately 2 percent. Commercial & Residential Solutions net and underlying sales are now expected to be up 3 to 5 percent. This outlook continues to exclude any impact related to the pending acquisition of the Pentair Valves & Controls business.
“Our first quarter results reflect the positive momentum building within our two platform businesses as we begin the fiscal year,” continued Farr. “While we expect significant challenges to persist throughout 2017, we are optimistic that the improving market conditions and broad-based increase in demand within many of our global served markets will benefit Emerson in the second half of the year. With this in mind, our focus will continue to be on executing our portfolio repositioning strategy and making the necessary adjustments to deliver improved profitability and cash flow to increase shareholder value.”
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