Emerson Posts Very Strong 2Q, Projects Solid Fiscal Year

  • Net sales of $4.2 billion increased 19 percent, or 8 percent on an underlying basis
  • EPS from continuing operations increased 31 percent to $0.76
  • Raised full-year guidance based on strong operational performance
  • Returned more than $550 million to shareholders, including $250 million of share repurchases
  • Closed Cooper-Atkins and ProSys acquisitions and announced the Tools & Test acquisition, expected to close in the fiscal fourth quarter

ST. LOUIS — Emerson today announced net sales were up 19 percent in the second quarter ended March 31, 2018, with underlying sales up 8 percent excluding favorable currency of 3 percent and an impact from acquisitions and divestitures of 8 percent. The second quarter results reflect strong global economic conditions and continued favorable demand. Both mature and emerging markets delivered high-single digit underlying growth.

Margins improved versus prior year, excluding the impact of recent acquisitions, driven by leverage on higher sales and the benefit of prior year restructuring actions. Reported pretax margin of 15.5 percent and EBIT margin of 16.3 percent decreased 30 and 70 basis points, respectively. EBIT margin of 18.7 percent increased 170 basis points excluding Valves & Controls. GAAP earnings per share from continuing operations increased 31 percent to $0.76.

“Our second quarter results close out an excellent first half in which strong global markets drove underlying growth, and our businesses delivered healthy incremental margins and earnings that exceeded our expectations,” said Chairman and Chief Executive Officer David N. Farr. “Across the Company, our teams are executing well, and have positioned Emerson to deliver strong earnings and cash flow growth in 2018.”

Business Platform Results

Automation Solutions net sales increased 31 percent in the quarter, with underlying sales up 10 percent excluding favorable currency of 4 percent and an impact from acquisitions of 17 percent. Growth continued to reflect strong short cycle repair and maintenance (MRO) demand and small and mid-sized projects focused on expansion and optimization of existing facilities. Globally, the business saw growth across all key process automation market verticals, including upstream, midstream and downstream oil and gas, chemical and power generation. In addition, Emerson’s global power business grew net sales and orders in the first half, despite difficult market dynamics, due to strong participation in plant retrofit opportunities and in greenfield projects for combined cycle and natural gas.

North American underlying sales were up 16 percent reflecting continued favorable trends in energy-related, chemical, life sciences and discrete markets. Asia underlying sales were up 7 percent, with China up 20 percent due to continued strong demand across process, hybrid and discrete markets. Project timing impacted Latin America negatively, down 10 percent, and Middle East/Africa positively, up 29 percent, while order trends in both regions were positive. Europe was down 1 percent, but order trends were favorable. Margin increased 20 basis points to 15.7 percent compared with the prior year. Excluding the dilutive impact of the Valves & Controls acquisition, margin increased 240 basis points to 17.9 percent, driven by leverage on higher sales and restructuring benefits. The Final Control management team continued to execute restructuring and integration plans around the Valves & Controls acquisition, which delivered strong performance in the quarter and meaningful sequential margin improvement.

Commercial & Residential Solutions second quarter net sales were up 2 percent and underlying sales increased 4 percent excluding favorable currency of 2 percent and an impact from divestitures net of acquisitions of 4 percent. Underlying sales in North America were up 1 percent as strong demand for professional tools was offset by slower than expected air conditioning demand. Underlying economics in air conditioning markets remain positive and we expect demand to accelerate in the second half. Asia grew 17 percent, driven by continued strong refrigeration and air conditioning demand in China and elsewhere in the region. Europe was up 5 percent, reflecting favorable demand in air conditioning and construction-related markets. Margin continues to run at a high level, but decreased 10 basis points to 23.6 percent compared with the prior year.

2018 Outlook

Based on favorable global demand trends and strong first half operational performance, the Company is raising full-year sales guidance to the high-end of the previously communicated range and increasing the expected earnings per share range. The updated guidance does not include the results of the recently announced $810 million Tools & Test acquisition, expected to close in the fiscal fourth quarter.

Management expects increasing capital investment in Automation Solutions’ end markets, and continued steady demand in Commercial & Residential Solutions’ end markets for the remainder of 2018. Total Emerson net sales growth is now expected to be approximately 13 percent, with Automation Solutions up 20 percent and Commercial & Residential Solutions up 2 percent. Excluding a 6 percent impact from acquisitions, divestitures and currency translation, total Emerson underlying sales growth is expected to be approximately 7 percent, with Automation Solutions up 8 percent and Commercial & Residential Solutions up 5 percent.

The GAAP earnings per share guidance range is increased to $3.10 to $3.20 from prior guidance of $3.05 to $3.15.

“We achieved some encouraging milestones in the first half of 2018 that give us a high degree of confidence in the strength of our businesses and end markets,” said Farr. “These achievements include strong execution in China, where underlying sales grew over 20 percent across both business platforms; the broad-based growth of Automation Solutions, up 10 percent underlying in the first half; and the outstanding integration progress and meaningful sequential margin improvement at Valves & Controls.”

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