EX-99.1 2 exh99-1.htm PRESS RELEASE

 

Exhibit 99.1

 

 

Contact:   Mark Polzin
or John Hastings
(314) 982-1700

 

EMERSON REPORTS FOURTH-QUARTER EARNINGS PER SHARE OF

$1.01, DRIVEN BY SALES INCREASE OF 13 PERCENT

Strong Full-Year Results

 

•

Record Sales of $17.3 billion, up 11 percent

 

•

Record Reported Earnings per Share of $3.40, up 14 percent

 

•

Earnings per Share of $3.55, up 19 percent excluding tax provision for earnings repatriation

 

•

Return on Total Capital of 15.5 percent, up 130 basis points from fiscal 2004

 

ST. LOUIS, November 1, 2005 – Emerson (NYSE: EMR) announced net sales for the fourth quarter ended September 30, 2005 were $4.6 billion, an increase of 13 percent over the $4.1 billion reported in the same period last year. The Company achieved underlying sales growth in the quarter of 9 percent, which excludes 4 percent for acquisitions. The strong sales growth generated net earnings in the quarter of $419 million, an 18 percent increase versus the prior year period. Earnings per share increased 20 percent to $1.01 from $0.84 in the fourth quarter of 2004. Earnings per share for the current quarter includes an additional $0.01 impact related to repatriation of foreign earnings under the American Jobs Creation Act. The Company had previously recognized a tax expense of $0.14 per share for repatriation in the quarter ended June 30, 2005.

Net sales increased 11 percent to $17.3 billion for the fiscal year ended September 30, 2005. This represents a $1.7 billion increase from last year’s sales of $15.6 billion. Earnings per share rose 19 percent to $3.55 in fiscal

 

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2005, which excludes the $0.15 impact of earnings repatriation. Reported earnings per share were $3.40, a 14 percent increase from the $2.98 reported in fiscal 2004.

“Emerson delivered another strong year in fiscal 2005, as record sales and earnings per share both saw double-digit increases for the second consecutive year,” said Emerson Chairman and CEO David N. Farr. “Our focus on the eight key growth initiatives and operational excellence programs continues to generate excellent results for our shareholders.”

Balance Sheet / Cash Flow

Operating cash flow was $2.2 billion in fiscal 2005, a 1 percent decrease from fiscal 2004 results which included a $140 million capital gain tax refund. The strong cash flow performance was achieved while also supporting working capital investments required to sustain continued strong sales and order growth. Despite these investments in working capital, Emerson saw continued improvement in working capital efficiency as average days-in-the-cash-cycle improved from 73 days in fiscal 2004 to 71 days in fiscal 2005.

“Emerson’s ability to successfully manage working capital and cash flow is driven by our sharp focus on creating value for shareholders. This focus helped us achieve a return on total capital of 16.1 percent excluding the $63 million tax provision for earnings repatriation. This represents a 190 basis point improvement from fiscal 2004 and our fourth consecutive year of improvement on this very important measure,” Farr said. On a reported basis return on total capital was 15.5 percent.

Fiscal 2005 Operating Highlights

Process Management had an exceptional year in 2005. Robust end market conditions, market leading technologies, and superior operational execution led to a record year for this segment. Sales for fiscal 2005 were $4.2

 

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billion, an increase of 13 percent versus prior year. Underlying sales growth, which excludes the impact of acquisitions and currency, was 9 percent, driven by increases in all regions and included 22 percent growth in Asia, 29 percent growth in Canada, and 13 percent growth in Latin America. Reported sales included a 2 percent favorable impact from acquisitions and 2 additional points from currency translation. The margin for this segment was 16 percent, a 310 basis point improvement versus fiscal 2004. The margin improvement was primarily driven by leverage on the sales increase and savings from prior year restructuring.

Industrial Automation also saw terrific results across the segment. Total sales were $3.2 billion, an increase of over 10 percent versus the prior year. Underlying sales growth was nearly 8 percent, led by 11 percent growth in the United States and 4 percent growth in both Europe and Asia. Reported sales growth included a favorable currency impact of nearly 3 percent. The margin for this segment was 14.3 percent, an increase of 100 basis points from fiscal 2004. The margin improvement reflects leverage on higher sales but was impacted negatively by price-cost impacts during the year, primarily for steel and copper. In addition, the recent years’ restructuring has continued to improve profitability.

Network Power sales were $3.3 billion in fiscal 2005, an increase of 23 percent versus the prior year. End markets remain strong across this business with particular strength in the AC power systems, uninterruptible power supplies (UPS), and precision cooling businesses. Underlying sales growth was 8 percent with acquisitions adding approximately 14 percent and currency adding 1 percent. The margin for this segment was 11.2 percent, an increase of 20 basis points versus the prior year. Sales volume leverage and cost reduction efforts were substantially offset by pricing pressure and integration costs related to the acquisition of Marconi’s North American power systems business.

 

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Climate Technologies sales for the year increased 2 percent to $3.0 billion. This was a volatile year for this segment as many unique market dynamics were experienced. Underlying sales growth was 1 percent excluding currency translation of 1 percent. The fiscal year growth was achieved on the strength of the fourth quarter, with underlying sales up 11 percent. Hot weather in the late summer months, combined with low inventory in the distribution channel helped to offset the effects of cooler-than-normal weather patterns in the late spring and early summer. Additionally, the pending transition in the United States to higher efficiency standards has driven some anticipatory demand. The fiscal 2005 margin for this segment was 14.9 percent, a decrease of 80 basis points from fiscal 2004, primarily due to negative product mix and material cost inflation.

Appliance and Tools achieved sales of $4.0 billion, an increase of 7 percent which included underlying sales growth of 3 percent. The growth was led by strength in the storage businesses and modest growth from the industrial motor business offset by softness in the appliance motor and component businesses. Reported sales included a favorable impact of 3 percent from acquisitions and 1 percent from currency translation. The margin for this segment was 13.3 percent, a decrease of 80 basis points as the segment was heavily affected by negative price-cost impacts and the dilutive impact of acquisitions. The necessary cost reduction and restructuring activities are under way to reverse this lower profit margin going forward.

First Quarter 2006 Outlook  

The outlook for Emerson remains very favorable as we move into fiscal 2006. Many of Emerson’s end markets remain strong, a trend that is evidenced by orders increasing approximately 15 percent during the fourth quarter of 2005.

 

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Based on record backlog levels at the end of fiscal 2005 and near term market expectations, Emerson is expecting first quarter sales growth in the range of 8 percent to 10 percent and earnings per share growth in the range of 12 percent to 15 percent. Emerson will provide an update on the full fiscal year 2006 expectations at our annual investment community update in February 2006.

Upcoming Investor Events

On Tuesday, November 1, 2005, at 2:00 p.m. EST (1:00 p.m. CST), Emerson senior management will discuss the quarterly and fiscal year results during an investor conference call. All interested parties may listen to the live conference call via the Internet by going to the Investor Relations area of Emerson's web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the conference call will be available for the next three months at the same location on the Web site. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site.

On Friday morning, February 10, 2006, Emerson senior management will host Emerson's annual investment community update meeting in New York City. Additional details will be available in December.

Forward-Looking and Cautionary Statements

Statements in this release that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties. These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the Company's most recent Form 10-K filed with the SEC.

The Company expects to file the Form 10-K including audited financial statements within the next 30 days.

 

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TABLE 1

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

 

 

 

 

 

Quarter Ended September 30,

Percent

 

2004

2005

Change

 

 

 

 

Net sales

$4,120

$4,643

13%

Less: Costs and expenses

 

 

 

Cost of sales

2,631

2,974

 

SG&A expenses

860

923

 

Other deductions, net

49

76

 

Interest expense, net

        50

        51

 

Earnings before income taxes

530

619

17%

Income taxes

      176

      200

 

Net earnings

$   354

$   419

18%

 

 

 

 

Diluted avg. shares outstanding (millions)

421.5

414.9

 

 

 

 

 

Diluted earnings per common share

$  0.84

$  1.01

20%

 

 

 

 

 

 

 

 

 

Quarter Ended September 30,

 

 

2004

2005

 

Other deductions, net

 

 

 

Rationalization of operations

$     37

$     28

 

Amortization of intangibles

7

7

 

Other

          5

       41

 

Total

$     49

$    76

 

 

 

 


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TABLE 2

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

 

 

 

 

 

Year Ended September 30,

Percent

 

2004

2005

Change

 

 

 

 

Net sales

$15,615

$17,305

11%

Less: Costs and expenses

 

 

 

Cost of sales

10,049

11,122

 

SG&A expenses

3,281

3,595

 

Other deductions, net

223

230

 

Interest expense, net

       210

       209

 

Earnings before income taxes

1,852

2,149

16%

Income taxes

       595

       727

 

Net earnings

$  1,257

$  1,422

13%

 

 

 

 

Diluted avg. shares outstanding (millions)

422.2

418.9

 

 

 

 

 

Diluted earnings per common share

$ 2.98

$   3.40

14%

 

 

 

 

 

 

 

 

 

Year Ended September 30,

 

 

2004

2005

 

Other deductions, net

 

 

 

Rationalization of operations

$    129 

$    110 

 

Amortization of intangibles

21 

28 

 

Other

100 

118 

 

Gains

       (27)

      (26)

 

Total

$    223 

$   230 

 

 

 

 

 

 

 

 

 

 

 


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TABLE 3

EMERSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS)

 

 

 

 

 

September 30,

 

2004

 

2005

Assets

 

 

 

Cash and equivalents

$  1,346

 

$   1,233

Receivables, net

2,932

 

3,256

Inventories

1,705

 

1,813

Other current assets

       433

 

        535

Total current assets

6,416

 

6,837

Property, plant & equipment, net

2,937

 

3,003

Goodwill

5,259

 

5,479

Other

    1,749

 

     1,908

 

 

 

 

 

$16,361

 

$17,227

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

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


$    902

 


$    970

Accounts payable

1,629

 

1,841

Accrued expenses

1,695

 

1,839

Income taxes

      113

 

      281

Total current liabilities

4,339

 

4,931

Long-term debt

3,136

 

3,128

Other liabilities

1,648

 

1,768

Stockholders’ equity

    7,238

 

    7,400

 

 

 

 

 

$16,361

 

$17,227

 

 


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TABLE 4

EMERSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN MILLIONS)

 

 

 

 

 

Year Ended September 30,

 

2004

 

2005

Operating Activities

 

 

 

Net earnings

$   1,257 

 

$  1,422 

Depreciation and amortization

557 

 

562 

Changes in operating working capital

322 

 

110 

Pension funding

(167)

 

(124)

Other

       247 

 

       217 

Net cash provided by operating activities

    2,216 

 

    2,187 

 

 

 

 

Investing Activities

 

 

 

Capital expenditures

(400)

 

(518)

Purchases of businesses, net of cash and

 

 

 

equivalents acquired

(414)

 

(366)

Other

        97 

 

       (44)

Net cash used in investing activities

    (717)

 

     (928)

 

 

 

 

Financing Activities

 

 

 

Net increase (decrease) in short-term borrowings

(106)

 

320 

Proceeds from long-term debt

29 

 

251 

Principal payments on long-term debt

(16)

 

(625)

Dividends paid

(675)

 

(694)

Treasury stock, net

     (121)

 

      (621)

Net cash used in financing activities

    (889)

 

   (1,369)

 

 

 

 

Effect of exchange rate changes on cash and
equivalents


       40

 


        (3)

 

 

 

 

Increase (decrease) in cash and equivalents

650

 

(113)

 

 

 

 

Beginning cash and equivalents

      696

 

     1,346

 

 

 

 

Ending cash and equivalents

$1,346

 

$  1,233

 

 


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TABLE 5

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS)

 

 

 

Quarter Ended September 30,

 

2004

 

2005

Sales

 

Process Management

$   1,024 

 

$   1,168 

Industrial Automation

774 

 

821 

Network Power

737 

 

941 

Climate Technologies

744 

 

825 

Appliance and Tools

       943 

 

     1,020 

 

4,222 

 

4,775 

Eliminations

     (102)

 

     (132)

Net Sales

$  4,120 

 

$  4,643 

 

 

 

 

 

Quarter Ended September 30,

 

2004

 

2005

Earnings

 

 

 

Process Management

$    167 

 

$    203 

Industrial Automation

111 

 

120 

Network Power

91 

 

131 

Climate Technologies

113 

 

115 

Appliance and Tools

      131 

 

      137 

 

613 

 

706 

Differences in accounting methods

34 

 

38 

Corporate and other

(67)

 

(74)

Interest expense, net

       (50)

 

      (51)

Earnings before income taxes

$    530 

 

$   619 

 

 

 

 

 

Quarter Ended September 30,

 

2004

 

2005

Rationalization of operations

 

 

 

Process Management

$       7

 

$       6

Industrial Automation

3

 

3

Network Power

5

 

6

Climate Technologies

4

 

6

Appliance and Tools

16

 

7

Corporate

         2

 

           -

Total Emerson

$    37

 

$     28

 

 

 

 

 

 

 


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TABLE 6

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS)

 

 

 

Year Ended September 30,

 

2004

 

2005

Sales

 

Process Management

$   3,703 

 

$   4,200 

Industrial Automation

2,936 

 

3,242 

Network Power

2,692 

 

3,317 

Climate Technologies

2,983 

 

3,041 

Appliance and Tools

     3,749 

 

      4,008 

 

16,063 

 

17,808 

Eliminations

      (448)

 

      (503)

Net Sales

$ 15,615

 

$ 17,305 

 

 

 

 

 

Year Ended September 30,

 

2004

 

2005

Earnings

 

 

 

Process Management

$    476 

 

$     671 

Industrial Automation

391 

 

464 

Network Power

297 

 

373 

Climate Technologies

467 

 

453 

Appliance and Tools

       530 

 

       534 

 

2,161 

 

2,495 

Differences in accounting methods

126 

 

145 

Corporate and other

(225)

 

(282)

Interest expense, net

     (210)

 

      (209)

Earnings from continuing operations

before income taxes

 

$  1,852 

 

 

$   2,149

 

 

 

 

 

Year Ended September 30,

 

2004

 

2005

Rationalization of operations

 

 

 

Process Management

$      31 

 

$      20

Industrial Automation

14 

 

15

Network Power

26 

 

35

Climate Technologies

17 

 

15

Appliance and Tools

47 

 

24

Corporate

         (6)

 

          1

Total Emerson

$     129 

 

$     110

 

 

 

 

 

 

 


 

TABLE 7

 

 

Reconciliations of Non-GAAP Financial Measures

 

 

 

 

 

The following reconciles each non-GAAP measure with the most directly comparable GAAP measure (dollars in millions):

 

 

 

 

4Q 2005

Fiscal 2005

 

Net Sales

 

 

 

 

Underlying Sales (Non-GAAP)

 

9 %

6 %

 

Currency Translation

 

0 pts

2 pts

 

Acquisitions

 

     4 pts

    3 pts

 

Net Sales

 

13 %

11 %

 

 

 

 

 

 

 

2004

2005

Change

 

Fiscal Year Cash Flow

 

 

 

 

Operating Cash Flow

$   2,216

$   2,187

(1%)

 

Percent to Earnings

176%

154%

 

 

Capital Expenditures

        400

        518

 

 

Free Cash Flow (Non-GAAP)

$   1,816

$   1,669

(8%)

 

Percent to Earnings (Non-GAAP)

144%

117%

 

 

 

 

 

 

 

 

 


Tax

Excl. Tax
Charge

 

 

Reported

Charge(1)

(Non-GAAP)

 

Fiscal Year Excluding Tax Charge

 

 

 

 

Earnings before income taxes

$  2,149

 

$  2,149

 

Income taxes

727

(63)

664

 

Effective tax rate

33.8%

 

30.9%

 

Net earnings

$  1,422

63 

$ 1,485

 

Diluted earnings per common share

$    3.40

$  0.15 

$   3.55

 

 

 

 

 

 

 

 

 

ROTC excl.

 

Return on Total Capital

Reported

Tax Charge(1)

Tax Charge

 

Net Operating Profit After Tax

$  1,561

63 

$  1,624

 

Average Operating Capital

$10,074

32 

$10,106

 

Return on Total Capital

15.5%

 

16.1%

 

 

 

 

 

 

(1)Tax Charge relating to repatriation of foreign earnings under American Jobs Creation Act.

 

 

 

 

All amounts above are GAAP financial measures except as noted.

 

 

 

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