Diversified global technology company Emerson Electric Co. (EMR) on Tuesday reported a 36.8% year-over-year drop in profit for the third quarter, hurt by lower operating margins and a double digit sales drop across all its five operating divisions. Earnings per share from continuing operations dropped 37.8%, and missed analysts' expectations by six cents, while quarterly revenues also declined 22%, and missed consensus estimate. The company also lowered its earnings and revenue forecast for the full year 2009.
In a statement, chief executive officer, chairman and president, David Farr said, "While we continue to face considerable challenges in a number of our markets, we are making excellent progress in repositioning and restructuring the company globally to significantly strengthen the foundation of the company. We are generating significant amounts of cash flow, in spite of considerably lower demand compared to last year."
Third Quarter Results
St. Louis, Missouri-based Emerson reported net earnings of $387 million or $0.51 per share for the third quarter, lower than $612 million or $0.78 per share in the prior-year quarter. The year-ago quarter results included a loss from discontinued operations of $35 million or $0.04 per share.
Earnings from continuing operations for the quarter declined to $387 million or $0.51 per share from $647 million or $0.82 per share in the year-ago quarter. On average, 17 analysts polled by Thomson Reuters expected the company to report earnings per share of $0.57 for the third quarter. Analysts' estimate typically exclude special items.
The company stated that higher restructuring in the current year negatively impacted earnings per share comparisons by $0.05 per share.
Net sales for the quarter dropped 22% to $5.09 billion from $6.57 billion in the same quarter last year, and missed thirteen Wall Street analysts' consensus estimate of $5.34 billion.
Underlying sales declined 19%, excluding 4% from unfavorable currency exchange rates and a 1% positive impact from acquisitions. On a sequential basis, sales for quarter were nearly flat with the previous quarter.
Among Emerson's peers, Glenview, Illinois-based Illinois Tool Works, Inc. (ITW) reported last month a sharp year-over-year plunge in profit for the second quarter on lower revenues, as the end markets remained weak around the world. Net income was $176.6 million or $0.35 per share, sharply down from $528.1 million or $1.01 per share last year. Quarterly operating revenues dropped 25.5% to $3.39 billion from the previous year's revenue of $4.56 billion.
Another peer, Zurich, Switzerland-based ABB Ltd. (ABB, ABLZF.PK) also reported last month a year-over-year drop in profit for the second quarter, hurt by a sharp decline in orders on lower volumes and prices as well as some restructuring-related costs. Net income dropped to $675 million or $0.30 per share from $975 million or $0.42 per share in the year-ago quarter. Quarterly revenues were $7.92 billion, 12% lower than $9.03 billion in the prior year.
Segmental Details
All of Emerson's five operating segments - Process Management, Industrial Automation, Network Power, Climate Technologies, and Appliance and Tools, and the end-markets it serves, including residential, nonresidential and capital businesses, are experiencing weaknesses, as many customers have significantly reduced spending in response to tough economic conditions.
Process management sales for the third quarter decreased 13% to $1.51 billion from $1.73 billion last year. Underlying sales declined 9%, excluding 7% from unfavorable currency exchange rates and a 3% positive impact from the Roxar acquisition. Underlying sales from international markets were down 4%, and sales in the U.S. declined 18%. Segment margin declined to 14.8% from last years's 20.0%.
Sales for industrial automation for the quarter were $813 million, a sharp 36% drop from $1.27 billion in the previous year, reflecting very weak global industrial markets. Underlying sales dropped 34%, excluding 5% from unfavorable currency exchange rates and a 3% positive impact from the System Plast and Trident acquisitions. Segment margin plunged to 5.0% from last years's 14.6%.
Network power sales decreased 22% to $1.31 billion from $1.67 billion in the year-ago quarter. Underlying sales declined 15%, excluding 4% from unfavorable currency exchange rates and a 3% negative impact from the Embedded Computing acquisition. Segment margin contracted to 10.3% from the prior year's 12.7%.
Climate technologies sales totaled $859 million, down 21% from last year's $1.09 billion. Underlying sales declined 20%, excluding 3% from unfavorable currency exchange rates and a 2% positive impact from acquisitions. Segment margin edged down 30 basis points to 15.2% from last year.
Sales for appliance and tools dropped 23% to $771 million from $998 million a year ago, including 1% from unfavorable currency exchange rates impact. The segment margin improved marginally to 14.0%.
Other Metrics
Operating profit for the third quarter dropped to $749 million from last year's $1.09 billion, and operating profit margin slipped 190 basis points to 14.7% from a year ago's 16.6%, primarily due to deleverage on lower sales volume, unfavorable product mix, and significant inventory reductions, partially offset by cost containment actions. Sequentially, the operating profit margin increased 60 basis points from second quarter.
Selling, general and administrative expenses decreased to $1.09 billion from $1.32 billion in the prior-year quarter.
The company ended the third quarter with cash and cash equivalents of $1.38 billion, compared to $2.06 billion at end of the prior-year quarter.
Nine-Month Highlights
For the nine-month period, Emerson reported net earnings of $1.22 billion or $1.60 per share, lower than $1.72 billion or $2.18 per share in the prior-year period. Earnings from continuing operations dropped to $1.22 billion or $1.60 per share from $1.76 billion or $2.23 per share in the year-ago period.
Net sales for the year-to-date period declined 14% to $15.59 billion from $18.11 billion in the same period last year.
Looking Ahead........
"Our sequential operating profit improvement demonstrates that our actions are working and will have a positive impact as we move forward. Importantly, the changes we are making will allow us to operate more efficiently and faster over the long-term. This includes moving production to best-cost regions and closer to our growing customers and suppliers. This generates a stronger long-term competitive advantage," Farr added.
For fiscal 2009, based on results for the first three quarters and current order trends, Emerson lowered its earnings forecast for the full year to a range of $2.20 to $2.30 per share from the prior guidance in the range of $2.40 to $2.60 per share. Analysts currently expect the company to report earnings of $2.28 per share for the full year 2009. Sales for the year are now expected to be between $20.8 billion and $21.1 billion, down from the prior forecast between $21.0 billion and $21.7 billion. The Street is looking for fiscal 2009 revenues of $21.43 billion. Underlying sales are expected to decline 12% to 13%, excluding 4% from unfavorable currency exchange rates and a 1% positive impact from acquisitions.
Emerson is also targeting to reduce inventory, excluding acquisitions, by another $150 to $200 million in the fourth quarter, driving its inventory towards $1.8 billion by September 30, 2009. Further, the company expects to incur about $280 to $300 million of restructuring expense in fiscal 2009.
Stock Quote
EMR closed Monday's regular trading session at $36.42, down $0.12 on a volume of 9.0 million shares, higher than the three-month average volume of 5.28 million shares.
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