EMERSON ELECTRIC CO - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - August 1, 2017

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Media Contact: Mark Polzin (314) 982-1758
 
EMERSON REPORTS THIRD QUARTER 2017 RESULTS

•
Net sales of $4.0 billion increased 10 percent, with underlying sales up 4 percent
•
Reported earnings per share from continuing operations decreased 7 percent to $0.63
•
Earnings per share from continuing operations were flat at $0.68 excluding a ($0.05) impact from the Valves & Controls business acquired during the quarter
•
Operating cash flow from continuing operations increased 23 percent to $774 million
•
Based on strong operational performance, the company is raising full-year earnings per share guidance

ST. LOUIS, August 1, 2017 – Emerson (NYSE: EMR) today announced net sales in the third quarter ended June 30, 2017 were up 10 percent, with underlying sales up 4 percent excluding unfavorable currency of 1 percent and an impact from acquisitions of 7 percent. The third quarter results reflected a return to growth for the company as both platforms delivered net and underlying sales growth and had high-single digit order rates in the quarter. Automation Solutions net and underlying sales turned positive in the quarter, driven by favorable trends in energy related, hybrid and general industrial markets. Growth in Commercial & Residential Solutions was driven by strong demand in HVAC and refrigeration markets and favorable construction markets in North America, Asia and Europe.
Pretax margin of 15.4 percent and EBIT margin of 16.3 percent decreased 240 and 280 basis points, respectively, driven by dilution from the Valves & Controls acquisition. Excluding Valves & Controls, total segment margin increased 80 basis points to 20.9 percent. Earnings per share from continuing operations decreased 7 percent to $0.63. Earnings per share were $0.68, flat compared with the prior year, excluding a ($0.04) impact from Valves & Controls first year acquisition accounting charges related to inventory and backlog amortization and a ($0.01) impact from Valves & Controls ongoing operations, including intangibles amortization and restructuring charges.
“The third quarter continued the momentum we established in the first half of the year as sales held above anticipated levels and we generated strong cash flow from continuing operations, reflecting our disciplined approach to operating the business,” said Chairman and Chief Executive Officer David N. Farr. “Demand in the quarter was broad-based, driven by a mix of increasingly favorable global market conditions, and drove order rates and underlying sales growth across both platforms. Our teams around the world have done outstanding work in terms of serving our customers, expanding market participation and positioning Emerson for long-term success.”

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Business Platform Results
Automation Solutions net sales increased 12 percent, with underlying sales up 2 percent excluding unfavorable currency of 1 percent and the impact from acquisitions of 11 percent. Favorable trends in key served markets supported strong order rates in the third quarter. Demand in power, life sciences and chemical markets was broad-based and driven by our customers' focus on optimization projects and MRO activity. North American underlying sales were up 6 percent led by energy related markets. In the U.S., the mix of business has started to shift to mid-sized projects and we anticipate larger projects booking in 2018. Growth in Canada reflected renewed activity in unconventional oil and gas, particularly in Western Canada. Asia underlying sales were up 6 percent, with China up 13 percent supported by momentum across the base business and robust demand in discrete markets. Europe was down 5 percent, Latin America was down 17 percent and Middle East/Africa was down 2 percent. Margin decreased 70 basis points to 15.5 percent. Excluding the dilutive impact of the Valves & Controls acquisition, margin increased 170 basis points to 17.9 percent. Based on continued improvement in order trends and a growing project pipeline, the business expects favorable underlying sales trends in the fourth quarter and solid momentum heading into fiscal 2018.
Commercial & Residential Solutions net and underlying sales increased 7 percent, reflecting strong demand, particularly in the Americas and Asia. Underlying sales in North America were up 6 percent, led by continued strength in air conditioning and refrigeration markets and solid demand for professional tools in oil and gas and construction related markets. Asia grew 17 percent, driven by robust growth in China's refrigeration, heating and air conditioning markets. Latin America was up 7 percent, Europe was up 1 percent and Middle East/Africa was down 6 percent. Margin decreased 50 basis points to 25.1 percent, remaining near peak levels in the cycle. Sequentially versus the second quarter, margin improved 140 basis points, reflecting strong leverage on higher sales. Market demand is expected to remain favorable moving forward and margin trends support full year expectations.

2017 Outlook
Full-year net sales are expected to be up approximately 5 percent, with underlying sales up 1 percent excluding an impact from acquisitions of 4 percent. Automation Solutions net sales are expected to be up 4 to 5 percent, with underlying sales down 1 to 2 percent excluding an impact from acquisitions of 6 percent. Commercial & Residential Solutions net and underlying sales are expected to be up 5 to 6 percent.     
We are increasing our earnings per share guidance based on strong operational performance and favorable order trends.  Reported (GAAP) earnings per share from continuing operations are expected to be $2.48 to $2.52, including an estimated ($0.15) impact from the Valves & Controls acquisition.  Adjusted earnings per share from continuing operations are expected to be $2.58 to $2.62 including an estimated ($0.05) impact from Valves & Controls operations, but excluding ($0.10) for first year acquisition accounting charges, an increase from our prior guidance on a comparable basis of $2.50 to

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$2.60.  Our earnings per share guidance provided last quarter was $2.55 to $2.65, which excluded the impact of the Valves & Controls acquisition due to the timing of the completion of the acquisition.
    “As we enter the fourth quarter, we expect to see demand and economic conditions improve, enabling our business platforms to continue growing their industry leadership positions. We are also delivering on our promise to aggressively integrate Valves & Controls into our Final Control business. We expect to realize the benefits of the acquisition as we execute these plans and anticipate the business to be earnings accretive in 2018 and to contribute meaningfully to operating cash flow,” said Farr. “Due to our success in the first nine months of fiscal 2017, a continued focus on improving our financial performance and the opportunities we see on the horizon, we are increasing our earnings per share guidance range to $2.58 to $2.62 including the impact of Valves & Controls operations.”

Upcoming Investor Events
Today at 2:00 p.m. ET, Emerson management will discuss the third 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.
    
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 and any impact from the divestiture of ClosetMaid, expected to close in the fourth quarter.


(tables attached)

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Table 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Quarter Ended June 30
 
Percent
 
2016
 
2017
 
Change
 
 
 
 
 
 
Net sales

$3,674

 

$4,039

 
10%
Costs and expenses:
 
 
 
 
 
     Cost of sales
2,081

 
2,361

 
 
     SG&A expenses
852

 
931

 
 
     Other deductions, net
39

 
87

 
 
     Interest expense, net
46

 
39

 
 
Earnings from continuing operations before income taxes
656

 
621

 
(5)%
Income taxes
205

 
202

 
 
Earnings from continuing operations
451

 
419

 
(7)%
Discontinued operations, net of tax
38

 
6

 
 
Net earnings
489

 
425

 
 
Less: Noncontrolling interests in earnings of subsidiaries
10

 
12

 
 
Net earnings common stockholders

$479

 

$413

 
(14)%
 
 
 
 
 
 
Diluted avg. shares outstanding
645.2

 
643.8

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
 
 
 
 

Earnings from continuing operations

$0.68

 

$0.63

 
(7)%
Discontinued operations

$0.06

 

$0.01

 
 
Diluted earnings per common share

$0.74

 

$0.64

 
(14)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended June 30
 
 
 
2016
 
2017
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles

$22

 

$34

 
 
     Restructuring costs
13

 
21

 
 
     Other
4

 
32

 
 
          Total

$39

 

$87

 
 

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Table 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)
 
 
 
 
 
 
 
Nine Months Ended June 30
 
Percent
 
2016
 
2017
 
Change
 
 
 
 
 
 
Net sales

$10,590

 

$10,829

 
2%
Costs and expenses:
 
 
 
 
 
     Cost of sales
6,041

 
6,229

 
 
     SG&A expenses
2,609

 
2,621

 
 
     Other deductions, net
159

 
203

 
 
     Interest expense, net
139

 
126

 
 
Earnings from continuing operations before income taxes
1,642

 
1,650

 
—%
Income taxes
509

 
477

 
 
Earnings from continuing operations
1,133

 
1,173

 
3%
Discontinued operations, net of tax
86

 
(133
)
 
 
Net earnings
1,219

 
1,040

 
 
Less: Noncontrolling interests in earnings of subsidiaries
22

 
26

 
 
Net earnings common stockholders

$1,197

 

$1,014

 
(15)%
 
 
 
 
 
 
Diluted avg. shares outstanding
647.4

 
644.3

 
 
 
 
 
 
 
 
Diluted earnings per share common stockholders
 
 
 
 
 
Earnings from continuing operations

$1.71

 

$1.77

 
4%
Discontinued operations

$0.13

 

($0.20
)
 
 
Diluted earnings per common share

$1.84

 

$1.57

 
(15)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30
 
 
 
2016
 
2017
 
 
Other deductions, net
 
 
 
 
 
     Amortization of intangibles

$66

 

$77

 
 
     Restructuring costs
31

 
45

 
 
     Other
62

 
81

 
 
          Total

$159

 

$203

 
 


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Table 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended June 30
 
2016
 
2017
Assets
 
 
 
     Cash and equivalents

$3,516

 

$3,140

     Receivables, net
2,601

 
2,926

     Inventories
1,352

 
1,891

     Other current assets
584

 
597

     Current assets held-for-sale
2,167

 
—

          Total current assets
10,220

 
8,554

     Property, plant & equipment, net
2,894

 
3,304

     Goodwill
3,877

 
5,296

     Other intangible assets
903

 
1,868

     Other
217

 
380

     Noncurrent assets held-for-sale
3,960

 
—

          Total assets

$22,071

 

$19,402

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

$3,219

 

$1,363

     Accounts payable
1,419

 
1,613

     Accrued expenses
2,047

 
2,175

     Income taxes
80

 
219

     Current liabilities held-for-sale
1,561

 
—

          Total current liabilities
8,326

 
5,370

     Long-term debt
4,050

 
3,797

     Other liabilities
1,417

 
2,213

     Noncurrent liabilities held-for-sale
323

 
—

     Total equity
7,955

 
8,022

          Total liabilities and equity

$22,071

 

$19,402


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Table 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
 
Nine Months Ended June 30
 
 
2016
 
2017
Operating activities
 
 
 
 
Net earnings
 
$1,219
 
$1,040
(Earnings) Loss from discontinued operations, net of tax
 
(86
)
 
133

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
        Depreciation and amortization
 
426

 
454

        Changes in operating working capital
 
(79
)
 
16

        Pension funding
 
(30
)
 
(14
)
        Other, net
 
194

 
156

            Cash from continuing operations
 
1,644

 
1,785

            Cash from discontinued operations
 
280

 
(727
)
            Cash provided by operating activities
 
1,924

 
1,058

 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(301
)
 
(300
)
Purchases of businesses, net of cash and equivalents acquired
 
(62
)
 
(2,991
)
Divestiture of business
 
—

 
40

Other, net
 
45

 
(80
)
    Cash from continuing operations
 
(318
)
 
(3,331
)
    Cash from discontinued operations
 
(55
)
 
5,022

    Cash provided by (used in) investing activities
 
(373
)
 
1,691

 
 
 
 
 
Financing activities
 
 
 
 
Net increase (decrease) in short-term borrowings
 
692

 
(1,226
)
Payments of long-term debt
 
(252
)
 
(253
)
Dividends paid
 
(922
)
 
(930
)
Purchases of common stock
 
(555
)
 
(400
)
Other, net
 
(13
)
 
32

    Cash used in financing activities
 
(1,050
)
 
(2,777
)
 
 
 
 
 
Effect of exchange rate changes on cash and equivalents
 
(39
)
 
(14
)
Increase (decrease) in cash and equivalents
 
462

 
(42
)
Beginning cash and equivalents
 
3,054

 
3,182

Ending cash and equivalents
 
$3,516
 
$3,140
 
 
 
 
 



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Table 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Quarter Ended June 30
 
2016
 
2017
Sales
 
 
 
     Automation Solutions

$2,176

 

$2,440

 
 
 
 
     Climate Technologies
1,101

 
1,187

     Tools & Home Products
400

 
415

     Commercial & Residential Solutions
1,501

 
1,602

 
 
 
 
     Eliminations
(3
)
 
(3
)
          Net sales

$3,674

 

$4,039

 
 
 
 
Earnings
 
 
 
     Automation Solutions

$354

 

$378

 
 
 
 
     Climate Technologies
287

 
305

     Tools & Home Products
97

 
97

     Commercial & Residential Solutions
384

 
402

 

 

     Differences in accounting methods
47

 
38

     Corporate and other
(83
)
 
(158
)
     Interest expense, net
(46
)
 
(39
)
          Earnings before income taxes

$656

 

$621

 
 
 
 
Restructuring costs
 
 
 
     Automation Solutions

$9

 

$20

 
 
 
 
     Climate Technologies
1

 
1

     Tools & Home Products
—

 
—

     Commercial & Residential Solutions
1

 
1

 
 
 
 
     Corporate
3

 
—

          Total

$13

 

$21


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Table 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS, UNAUDITED)
 
 
 
 
 
Nine Months Ended June 30
 
2016
 
2017
Sales
 
 
 
     Automation Solutions

$6,532

 

$6,524

 
 
 
 
     Climate Technologies
2,880

 
3,104

     Tools & Home Products
1,186

 
1,210

     Commercial & Residential Solutions
4,066

 
4,314

 
 
 
 
     Eliminations
(8
)
 
(9
)
          Net sales

$10,590

 

$10,829

 
 
 
 
Earnings
 
 
 
     Automation Solutions

$1,037

 

$1,032

 
 
 
 
     Climate Technologies
646

 
715

     Tools & Home Products
274

 
281

     Commercial & Residential Solutions
920

 
996

 
 
 
 
     Differences in accounting methods
138

 
106

     Corporate and other
(314
)
 
(358
)
     Interest expense, net
(139
)
 
(126
)
          Earnings before income taxes

$1,642

 

$1,650

 
 
 
 
Restructuring costs
 
 
 
     Automation Solutions

$22

 

$35

 
 
 
 
     Climate Technologies
4

 
8

     Tools & Home Products
2

 
1

     Commercial & Residential Solutions
6

 
9

 
 
 
 
     Corporate
3

 
1

          Total

$31

 

$45



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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):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2017 Underlying Sales Change
 Auto Solns
 
 Comm & Res Solns
 
 Emerson
 
 
 
Reported (GAAP)
 
12
 %
 
7
 %
 
10
 %
 
 
 
Unfavorable FX
1
 %
 
1
 %
 
1
 %
 
 
 
Acquisitions
(11
)%
 
(1
)%
 
(7
)%
 
 
 
Underlying*
 
2
 %
 
7
 %
 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT Margin
 
 
Q3 FY16
 
Q3 FY17
 
Change
 
 
 
Pretax margin (GAAP)
 
17.8
 %
 
15.4
 %
 
(240) bps

 
 
 
Interest expense, net
 
1.3
 %
 
0.9
 %
 
(40) bps

 
 
 
EBIT margin*
 
19.1
 %
 
16.3
 %
 
(280) bps

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Business Segment EBIT
Q3 FY16
 
Q3 FY17
 
Change
 
 
 
Pretax margin (GAAP)
17.8
 %
 
15.4
 %
 
(240) bps

 
 
 
Corp. & other, differences in accounting methods & interest expense, net % of sales
2.3
 %
 
3.9
 %
 
160 bps

 
 
 
Business segment EBIT margin*
20.1
 %
 
19.3
 %
 
(80) bps

 
 
 
Valves & Controls impact
—
 %
 
1.6
 %
 
160 bps

 
 
 
Business segment EBIT margin excl. Valves & Controls*
20.1
 %
 
20.9
 %
 
80 bps

 
 
 
 
 
 
 
 
 
 
 
 
Q3 Earnings Per Share
Q3 FY16
 
Q3 FY17
 
Change
 
 
 
Earnings per share from continuing operations (GAAP)
$0.68
 
$0.63
 
(7
)%
 
 
 
Valves & Controls impact
—

 
0.05

 
7
 %
 
 
 
Earnings per share from continuing operations excluding Valves & Controls*
$0.68
 
$0.68
 
—
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 Previous
Guidance
 
 Current
Guidance
 
 
 
 
 
Earnings Per Share
FY17E
 
FY17E
 
 
 
 
 
Earnings per share from continuing operations (GAAP)
  $2.40 - $2.50

 
  $2.48 - $2.52

 
 
 
 
 
Valves & Controls first year acquisition accounting charges
 ~ $0.10

 
 ~ $0.10

 
 
 
 
 
Earnings per share from continuing ops excluding Valves & Controls first year acquisition accounting charges*
  $2.50 - $2.60

 
  $2.58 - $2.62

 
 
 
 
 
Valves & Controls operations
 ~ $0.05

 
 ~ $0.05

 
 
 
 
 
Earnings per share from continuing ops excl. Valves & Controls
  $2.55 - $2.65

 
  $2.63 - $2.67

 
 
 
 
 
 
 
Automation Solutions Segment EBIT Margin
Q3 FY16
 
Q3 FY17
 
Change
 
 
 
Automation Solutions Segment EBIT margin (GAAP)
16.2
 %
 
15.5
 %
 
(70) bps

 
 
 
Valves & Controls impact
—
 %
 
2.4
 %
 
240 bps

 
 
 
Automation Solutions Segment EBIT margin excluding Valves & Controls*
16.2
 %
 
17.9
 %
 
170 bps

 
 
 
Note: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.
###

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