Emerson Misses Earnings On Uneven Macroeconomic Woes

Emerson Electric Company (EMR - Analyst Report) reported second-quarter fiscal 2015 adjusted earnings per share of 65 cents per share, which fell short of the Zacks Consensus Estimate of 76 cents and came below the year-ago quarter figure of 77 cents.

Emerson Electric Company - Earnings Surprise | FindTheCompany

A strong cut in spending by global customers in oil and gas and industrial markets and strengthening of the U.S. dollar acted as the headwinds.

Quarter in Details

Total revenue decreased 7% year over year to $5,400 million and marginally missed the Zacks Consensus Estimate of $5,495 million. Underlying sales in the quarter were flat, with modest growth in Commercial & Residential Solutions.

As per the segments, Process Management segment net sales dipped 3%, with underlying sales up 2%, attributable to market penetration gains and solid backlog levels.

The Industrial Automation segment reported a 16% decline in year-over-year net sales, with an underlying sales decrease of 2% due to the unfavorable currency translation and negative impact of divestitures.  

Net sales in the Network Power segment contracted 9%, with decline of 3% in underlying sales, owing to negative impact of divestitures and currency translations.

Net sales in the Climate Technologies segment dipped 6% in the quarter, with a 3% decrease in underlying sales, aided by weakness in U.S. air conditioning business and unfavorable currency impacts.

Commercial & Residential Solutions net sales grew 1%, with rise of 3% in underlying sales, driven by strong U.S. market conditions.

Liquidity & Cash Flow

Exiting the quarter, the company had cash and cash equivalents of $3.2 billion with long-term debt of $3.3 billion. Meanwhile, for the six months ended Mar 31, 2015, net cash provided by operating activities totaled $929 million.

2015 Outlook

Emerson expects underlying sales in the range of 0% and 2% in fiscal 2015 (prior range being 3% and 5%). This excludes the negative currency translations and divestiture impacts. On the other hand, Emerson projects reported earnings to be in the range of $4.17 to $4.32 and net sales to decline in the range of 7% to 5%.

For the remainder of fiscal 2015, the company anticipates the global market environment to remain challenging for its business, with strong U.S. dollar and low industrial spending especially in North America and China among the major concerns. Further, Emerson foresees decrease in profitability in the near term owing to volume deleverage stemming from weakness in underlying sales.

Our Take

Emerson came up with dismal earnings this season, with uneven oil & gas and industrial market adding to the woes. Also, negative impact of divestitures and currency translations remains a headwind. Going forward too, the company expects such problems to persist and consequently provided a pessimistic guidance for the year ahead.

Emerson currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include II-VI Incorporated (IIVI -Snapshot Report), A.O. Smith Corp. (AOS - Snapshot Report) and Capstone Turbine Corp. (CPST - Snapshot Report). While II-VI carries a Zacks Rank #1 (Strong Buy), Capstone Turbine and A.O. Smith hold a Zacks Rank #2 (Buy).