Emerson Reports 1Q 2023 Results, Updates Outlook

ST. LOUIS — Emerson today reported results for its first quarter ended December 31, 2022 and updated its full year outlook for fiscal 2023, which are presented on a continuing operations basis.

• Net sales were $3.4 billion, up 7 percent from the year prior; underlying sales¹ were up 6 percent
• Strong operational performance to start 2023 offset by foreign exchange and stock compensation headwinds
• GAAP EPS was $0.56; adjusted EPS² was $0.78, including $0.09 unfavorable impact from stock compensation
• Completed $2 billion of share repurchase in the first quarter
• Updated 2023 full year net sales and GAAP EPS outlook; maintained underlying sales and adjusted EPS outlook despite stock compensation headwind
• Announced St. Louis selected as global headquarters
• Declared quarterly cash dividend of $0.52 per share of common stock payable March 10, 2023 to stockholders of record February 17, 2023

“Emerson continues to execute on the strategy we presented at our November 29th Investor Conference,” said Emerson President and Chief Executive Officer Lal Karsanbhai. “Continued strength in our end markets and operational excellence, enabled by our Emerson Management System, resulted in a great start to 2023. We delivered underlying sales growth of 6 percent and strong segment margin expansion with operational leverage above our targets. Continued operational performance gives us confidence to reiterate our 2023 underlying sales and adjusted EPS outlook, overcoming the impact of higher than expected stock compensation expense.”

“Emerson remains committed to disciplined capital allocation and shareholder return, completing $2 billion of share repurchase in the first quarter,” Karsanbhai continued. “We continue to actively pursue opportunities to deploy capital effectively, including our proposal to acquire National Instruments (NI) for $53 per share, a unique value creation opportunity for Emerson and NI shareholders.”

“Lastly, following a comprehensive review, we selected St. Louis, Missouri as our headquarters and are working to identify an appropriate location in the area,” Karsanbhai ended.

Underlying orders³ were up 5 percent. Net sales were up 7 percent for the quarter and underlying sales were up 6 percent. The Americas were up 13 percent, Europe was down 2 percent, and Asia, Middle East & Africa was flat.

Pretax margin was 12.5 percent for the quarter, down 1730 basis points. Adjusted segment EBITA margin⁴ was 22.7 percent, up 130 basis points.

Earnings per share were $0.56 for the quarter, down 55 percent. Earnings per share growth was impacted by a prior year gain of $0.60 related to our Vertiv subordinated interest. Adjusted earnings per share were $0.78, down 1 percent. The quarter was unfavorably impacted by $0.09 due to a 31 percent increase in the company stock price in the quarter and resulting impact on mark-to-market stock compensation plans.

Operating cash flow was $302 million for the quarter, down 20 percent, and free cash flow was $243 million, down 20 percent. Cash flow results reflected higher working capital versus prior year.

2023 Outlook

The Company’s 2023 continuing operations after the Climate Technologies divestiture (assumed to close March 31, 2023 for the purposes of guidance) will reflect the 45% common equity ownership in the income, or loss, of Climate Technologies. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the amount of its 45% share of Climate Technologies’ post-close results. The effect of Emerson’s 45% share of Climate Technologies is expected to be immaterial to post-closing cash flows.

The following tables summarize the fiscal year 2023 guidance framework for continuing operations⁵. Full year net sales and GAAP EPS outlook have been updated. Underlying sales and adjusted EPS outlook remain unchanged despite stock compensation headwind. The 2023 outlook includes $2 billion returned to shareholders through share repurchases completed in the first quarter and approximately $1.2 billion of dividend payments. Guidance figures are approximate.

Notes:

¹ Underlying sales excludes the impact of currency translation, and acquisitions and divestitures including heritage AspenTech and Emerson’s businesses contributed to AspenTech.

² Adjusted EPS excludes restructuring, a gain on subordinated interest, acquisition/divestiture costs, write-offs associated with Emerson’s announced Russia exit, an AspenTech Micromine purchase price hedge and intangibles amortization expense.

³ Underlying orders does not include heritage AspenTech or Emerson’s contributed businesses to AspenTech.

⁴ Adjusted segment EBITA margin excludes corporate items and interest expense, restructuring, a gain on subordinated interest, acquisition/divestiture costs, write-offs associated with Emerson’s announced Russia exit, an AspenTech Micromine purchase price hedge and intangibles amortization expense.

⁵ Following the announcement of its Climate Technologies divestiture, Emerson will report financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, beginning in 2023. The earnings from discontinued operations for 2023 are expected to be $10.5 billion to $11.5 billion, or $18 to $20 per share, including the net gains on 2023 divestitures. The Company’s 2023 continuing operations after the Climate Technologies divestiture (assumed to close March 31, 2023 for the purposes of guidance) will include interest income from the $2.25 billion note receivable from Climate Technologies and reflect the 45% common equity ownership in the income, or loss, of Climate Technologies. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the amount of its 45% share of Climate Technologies’ post-close results. The Company will exclude the interest income from the note receivable from Climate Technologies and its share of Climate Technologies’ operations in its calculation of 2023 adjusted earnings per share. Also excluded from adjusted earnings per share is the interest income on any undeployed net proceeds. The effect of Emerson’s 45% share of Climate Technologies is expected to be immaterial to post-closing cash flows.

⁶ 2023 earnings per share guidance from continuing operations excludes any potential impact from the 45% common equity ownership in Climate Technologies’ income or loss post-close. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the probable significance or impact on our earnings per share results from the 45% share of Climate Technologies’ post-close results. Emerson will exclude its 45% share of Climate Technologies’ post-close operations from the calculation of its 2023 adjusted earnings per share.