EMERSON ELECTRIC CO - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 2, 2017

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EMERSON REPORTS SECOND QUARTER 2017 RESULTS

•
Favorable order trends drive second quarter sales and profits leading to increase in full-year guidance
•
Sales of $3.6 billion were flat versus the prior year on both a net and underlying basis
•
Earnings per share from continuing operations increased 2 percent to $0.58
•
Completed the sale of the Leroy-Somer and Control Techniques businesses on January 31st
•
Closed the acquisition of the Valves & Controls business on April 28th

ST. LOUIS, May 2, 2017 – Emerson (NYSE: EMR) today announced net sales in the second quarter ended March 31, 2017 were flat on both a net and underlying basis. The second quarter results reflected a continued improvement in served markets across both platforms. Within the regions, growth in the United States, Europe and Asia, particularly in China, was offset by declines in Middle/East Africa and Latin America. Five percent growth in the Commercial & Residential Solutions platform was driven by favorable HVAC, refrigeration and construction related markets. The Automation Solutions platform was down low-single digits. However, MRO activity in energy related markets continues to strengthen, particularly in North America, and power and life sciences markets remained favorable.
All profitability measures increased in the second quarter. Gross profit margin of 43.6 percent improved 50 basis points versus the prior year primarily due to savings from restructuring activities in 2016. Pretax margin of 15.8 percent and EBIT margin of 17.0 percent increased 40 and 30 basis points respectively. Earnings per share from continuing operations of $0.58 increased 2 percent. Earnings per share were $0.45, down 21 percent, including a ($0.13) impact from discontinued operations related to the completed sales of the Network Power, Leroy-Somer and Control Techniques businesses.
"Following our solid first quarter, the second quarter results again exceeded our expectations delivering continued profitability improvement over the prior year,” said Chairman and Chief Executive Officer David N. Farr. “During the quarter we saw improving demand across both of our platform businesses, positioning us for a stronger second half of the year. Considering our solid performance in the first half of the fiscal year and current order trends, we are raising our full year sales and EPS guidance. We now expect earnings per share from continuing operations to be $2.55 to $2.65, versus our prior guidance of $2.47 to $2.62. This EPS guidance assumes full year sales are approximately flat with underlying sales up approximately 1 percent excluding unfavorable currency translation."

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Business Platform Results
Automation Solutions net and underlying sales decreased 3 percent. Demand conditions continued to improve within many of our key served markets. Power and life sciences markets continued to demonstrate positive momentum during the quarter and are expected to support growth in the second half of 2017. MRO activity in energy related markets remained favorable, particularly in North America, and should hold up globally as we move further into 2017. Underlying sales in North America were down 2 percent. MRO order rates continued to strengthen driven by shale and downstream customers. Project activity in combined cycle and natural gas power facilities was favorable in the quarter. Asia was down 2 percent, with China up 10 percent reflecting broad strength within our served markets and favorable turnaround activity. In other regions, Europe was flat, Middle East/Africa was down 9 percent and Latin America was down 16 percent. Margin decreased 10 basis points to 15.5 percent, primarily due to deleverage on lower volume. Based on current and expected order trends, the business expects the second half of the fiscal year to continue to improve with underlying sales trends turning positive driven by MRO and small project activity.
Commercial & Residential Solutions net and underlying sales increased 5 percent reflecting a continuation of strong demand in global HVAC and refrigeration markets and favorable conditions in construction related markets. Underlying sales in North America increased 4 percent, led by solid growth in air conditioning as well as favorable demand for tools from oil and gas customers and do-it yourself products from big box retailers. Asia increased 13 percent as broad strength in air conditioning and refrigeration markets continued across most of the region, particularly China which was up 20 percent. In other regions, Latin America was up 7 percent, Europe was up 6 percent and Middle East/Africa was down 3 percent. Margin increased 80 basis points to 23.7 percent, primarily due to leverage on higher volume and savings from restructuring actions. This platform has expanded profitability 170 basis points since the end of fiscal 2014 and with consistent global growth expected in HVAC end-markets, we are increasing strategic investments to better position the business for stronger growth through new technologies and markets. A favorable outlook for global demand within our served markets supports the expectation for mid-single digit growth in fiscal 2017.

2017 Outlook
Full-year net sales are now expected to be approximately flat, with underlying sales up approximately 1 percent excluding unfavorable currency translation of approximately 1 percent. Earnings per share from continuing operations guidance is being raised to $2.55 to $2.65. Automation Solutions net sales are expected to be down 3 to 4 percent, with underlying sales down 2 to 3 percent excluding unfavorable currency translation of approximately 1 percent. Commercial & Residential Solutions net and underlying sales are expected to be up 5 to 6 percent. This outlook excludes any impact related to the acquisition of the Pentair Valves & Controls business, which was completed on April 28th.  The timing of the closure has not afforded the Company sufficient time to fully incorporate the impact of this

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business into our guidance.  On today’s conference call we will provide initial estimates of the expected impact to the remainder of the fiscal 2017.  More detailed information on the Valves & Controls business and its impact to guidance will be provided in the coming months.
“Thanks to the success of our multi-year restructuring actions and with the momentum established by our two platform businesses, we’re well positioned for what we expect to be a stronger second half of the year,” said Farr. “We are encouraged by improving economic conditions and positive trends in capital spending. Our current order trends support positive sales growth in the second half of fiscal 2017 and leading into fiscal 2018. As we begin the third quarter, we remain focused on improving profitability and cash flow while continuing our portfolio repositioning to expand our leadership position in key served markets as evidenced by our recent completion of the Valves & Controls acquisition from Pentair. The final control management team will now focus on an aggressive integration over the remaining five months of the fiscal year."

Upcoming Investor Events
Today at 2:00 p.m. ET, Emerson management will discuss the second quarter 2017 results during a conference call. Access to a live webcast of the discussion will be available at www.emerson.com/financial at the time of the call. A replay of the conference call will remain available for 90 days.
On Wednesday, May 24, 2017, Emerson Chairman and Chief Executive Officer David Farr will present at the Electrical Products Group Conference in Longboat Key, Florida, at 10:45 a.m. ET. The presentation will be posted on Emerson's website at www.emerson.com/financial at the time of the event and remain available for approximately 90 days.

Forward-Looking and Cautionary Statements
Statements in this press release that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include economic and currency conditions, market demand, pricing, protection of intellectual property, and competitive and technological factors, among others, as set forth in the Company's most recent Annual Report on Form 10-K and subsequent reports filed with the SEC.
The outlook contained herein represents the Company's expectations for its consolidated results from continuing operations, and excludes the results of discontinued operations, as well as results attributable to the recent acquisition of the Pentair Valves & Controls business.


(tables attached)

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Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Quarter Ended March 31
 
Percent
 
2016
 
2017
 
Change
 
 
 
 
 
 
Net sales

$3,579

 

$3,574

 
—%
Costs and expenses:
 
 
 
 
 
     Cost of sales
2,037

 
2,017

 
 
     SG&A expenses
878

 
868

 
 
     Other deductions, net
66

 
83

 
 
     Interest expense, net
46

 
41

 
 
Earnings from continuing operations before income taxes
552

 
565

 
2%
Income taxes
177

 
181

 
 
Earnings from continuing operations
375

 
384

 
3%
Discontinued operations, net of tax
2

 
(84
)
 
 
Net earnings
377

 
300

 
 
Less: Noncontrolling interests in earnings of subsidiaries
8

 
8

 
 
Net earnings common stockholders

$369

 

$292

 
(21)%
 
 
 
 
 
 
Diluted avg. shares outstanding
644.7

 
644.8

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
 
 
 
 

Earnings from continuing operations

$0.57

 

$0.58

 
2%
Discontinued operations
—

 

($0.13
)
 
 
Diluted earnings per common share

$0.57

 

$0.45

 
(21)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended March 31
 
 
 
2016
 
2017
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles

$22

 

$21

 
 
     Restructuring costs
11

 
13

 
 
     Other
33

 
49

 
 
          Total

$66

 

$83

 
 

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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Six Months Ended March 31
 
Percent
 
2016
 
2017
 
Change
 
 
 
 
 
 
Net sales

$6,916

 

$6,790

 
(2)%
Costs and expenses:
 
 
 
 
 
     Cost of sales
3,960

 
3,868

 
 
     SG&A expenses
1,757

 
1,690

 
 
     Other deductions, net
120

 
116

 
 
     Interest expense, net
93

 
87

 
 
Earnings from continuing operations before income taxes
986

 
1,029

 
4%
Income taxes
304

 
275

 
 
Earnings from continuing operations
682

 
754

 
11%
Discontinued operations, net of tax
48

 
(139
)
 
 
Net earnings
730

 
615

 
 
Less: Noncontrolling interests in earnings of subsidiaries
12

 
14

 
 
Net earnings common stockholders

$718

 

$601

 
(16)%
 
 
 
 
 
 
Diluted avg. shares outstanding
648.6

 
644.5

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
 
 
 
 
 
Earnings from continuing operations

$1.03

 

$1.14

 
11%
Discontinued operations

$0.07

 

($0.21
)
 
 
Diluted earnings per common share

$1.10

 

$0.93

 
(15)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended March 31
 
 
 
2016
 
2017
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles

$44

 

$43

 
 
     Restructuring costs
18

 
24

 
 
     Other
58

 
49

 
 
          Total

$120

 

$116

 
 


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31
 
2016
 
2017
Assets
 
 
 
     Cash and equivalents

$3,322

 

$5,039

     Receivables, net
2,545

 
2,479

     Inventories
1,345

 
1,331

     Other current assets
618

 
597

     Current assets held-for-sale
2,083

 
—

          Total current assets
9,913

 
9,446

     Property, plant & equipment, net
2,889

 
2,880

     Goodwill
3,848

 
3,891

     Other intangible assets
905

 
869

     Other
202

 
191

     Noncurrent assets held-for-sale
3,994

 
—

          Total assets

$21,751

 

$17,277

 
 
 
 
Liabilities and equity
 
 
 
     Short-term borrowings and current
 
 
 
        maturities of long-term debt

$3,232

 

$252

     Accounts payable
1,377

 
1,368

     Accrued expenses
2,022

 
1,952

     Income taxes
88

 
199

     Current liabilities held-for-sale
1,463

 
—

          Total current liabilities
8,182

 
3,771

     Long-term debt
4,049

 
3,816

     Other liabilities
1,446

 
1,633

     Noncurrent liabilities held-for-sale
331

 
—

     Total equity
7,743

 
8,057

          Total liabilities and equity

$21,751

 

$17,277


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Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
 
Six Months Ended March 31
 
 
2016
 
2017
Operating activities
 
 
 
 
Net earnings
 
$730
 
$615
(Earnings) Loss from discontinued operations, net of tax
 
(48
)
 
139

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
        Depreciation and amortization
 
286

 
283

        Changes in operating working capital
 
(100
)
 
(126
)
        Other, net
 
148

 
100

            Cash from continuing operations
 
1,016

 
1,011

            Cash from discontinued operations
 
190

 
(601
)
            Cash provided by operating activities
 
1,206

 
410

 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(210
)
 
(194
)
Purchases of businesses, net of cash and equivalents acquired
 
(11
)
 
(16
)
Other, net
 
71

 
(50
)
    Cash from continuing operations
 
(150
)
 
(260
)
    Cash from discontinued operations
 
(38
)
 
5,051

    Cash provided by (used in) investing activities
 
(188
)
 
4,791

 
 
 
 
 
Financing activities
 
 
 
 
Net increase (decrease) in short-term borrowings
 
704

 
(2,318
)
Payments of long-term debt
 
(253
)
 
(252
)
Dividends paid
 
(616
)
 
(621
)
Purchases of common stock
 
(555
)
 
(120
)
Other, net
 
(5
)
 
29

    Cash used in financing activities
 
(725
)
 
(3,282
)
 
 
 
 
 
Effect of exchange rate changes on cash and equivalents
 
(25
)
 
(62
)
Increase in cash and equivalents
 
268

 
1,857

Beginning cash and equivalents
 
3,054

 
3,182

Ending cash and equivalents
 
$3,322
 
$5,039
 
 
 
 
 



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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended March 31
 
2016
 
2017
Sales
 
 
 
     Automation Solutions

$2,194

 

$2,117

 
 
 
 
     Climate Technologies
993

 
1,058

     Tools & Home Products
394

 
402

     Commercial & Residential Solutions
1,387

 
1,460

 
 
 
 
     Eliminations
(2
)
 
(3
)
          Net sales

$3,579

 

$3,574

 
 
 
 
Earnings
 
 
 
     Automation Solutions

$342

 

$328

 
 
 
 
     Climate Technologies
226

 
249

     Tools & Home Products
92

 
96

     Commercial & Residential Solutions
318

 
345

 

 

     Differences in accounting methods
47

 
35

     Corporate and other
(109
)
 
(102
)
     Interest expense, net
(46
)
 
(41
)
          Earnings before income taxes

$552

 

$565

 
 
 
 
Restructuring costs
 
 
 
     Automation Solutions

$8

 

$9

 
 
 
 
     Climate Technologies
2

 
3

     Tools & Home Products
1

 
—

     Commercial & Residential Solutions
3

 
3

 
 
 
 
     Corporate
—

 
1

          Total

$11

 

$13


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Six Months Ended March 31
 
2016
 
2017
Sales
 
 
 
     Automation Solutions

$4,356

 

$4,084

 
 
 
 
     Climate Technologies
1,779

 
1,917

     Tools & Home Products
786

 
795

     Commercial & Residential Solutions
2,565

 
2,712

 
 
 
 
     Eliminations
(5
)
 
(6
)
          Net sales

$6,916

 

$6,790

 
 
 
 
Earnings
 
 
 
     Automation Solutions

$683

 

$654

 
 
 
 
     Climate Technologies
359

 
410

     Tools & Home Products
177

 
184

     Commercial & Residential Solutions
536

 
594

 
 
 
 
     Differences in accounting methods
91

 
68

     Corporate and other
(231
)
 
(200
)
     Interest expense, net
(93
)
 
(87
)
          Earnings before income taxes

$986

 

$1,029

 
 
 
 
Restructuring costs
 
 
 
     Automation Solutions

$13

 

$15

 
 
 
 
     Climate Technologies
3

 
7

     Tools & Home Products
2

 
1

     Commercial & Residential Solutions
5

 
8

 
 
 
 
     Corporate
—

 
1

          Total

$18

 

$24



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Reconciliations of Non-GAAP Financial Measures & Other
Table 7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliations of Non-GAAP measures (denoted by *) with the most directly comparable GAAP measure (dollars in millions, except per share amounts):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q2 2017 Underlying Sales Change
 Auto Solns
 
 Comm & Res Solns
 
 Emerson
 
 
 
 
Reported (GAAP)
 
(3
)%
 
5
 %
 
0 %
 
 
 
 
Unfavorable FX
- %

 
1
 %
 
- %
 
 
 
 
Acquisitions
- %

 
(1
)%
 
- %
 
 
 
 
Underlying*
 
(3
)%
 
5
 %
 
0 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT Margin
 
Q2 FY17
 
Q2 FY16
 
Change
 
 
 
 
Pretax margin (GAAP)
 
15.8
 %
 
15.4
 %
 
40 bps
 
 
 
 
Interest expense, net
 
1.2

 
1.3

 
(10) bps
 
 
 
 
EBIT margin*
 
17.0
 %
 
16.7
 %
 
30 bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.
 


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