EX-99.1 3 exh99-1.htm PRESS RELEASE

Exhibit 99.1

 

 

 

 

 

Contact: Mark Polzin

 

or John Hastings

 

(314) 982-1700

 

EMERSON REPORTS STRONG SECOND-QUARTER 2006 RESULTS

 

•

Sales increased 15 percent to $4.9 billion

 

•

Earnings per share increased 27 percent to $1.05

 

•

Operating cash flow increased 24 percent to $549 million

 

•

Full year 2006 earnings per share target raised to $4.25 to $4.35

 

ST. LOUIS, May 2, 2006 – Emerson (NYSE: EMR) announced net sales for the second quarter ended March 31, 2006 were $4.9 billion, an increase of 15 percent over the $4.2 billion reported in the prior year. Net earnings for the second quarter increased 25 percent to $434 million, or $1.05 per share. This represents a 27 percent increase in earnings per share from the $0.83 earned in the same period last year. For the six months ended March 31, 2006 sales were $9.4 billion, a 15 percent increase from the same period last year. This helped to generate earnings per share of $2.01 for the first six months of 2006, a 31 percent increase from the prior year.

The Company achieved underlying sales growth of 14 percent in the quarter, excluding the impact of unfavorable exchange rates (2 percent) and growth from acquisitions (3 percent). This exceptional sales growth demonstrates the superior growth profile of Emerson’s businesses, with sales growth in all five business segments and double-digit increases from four of the five segments, as shown below:

 

 

Quarter Ended March 31,

 

 

(dollars in millions)

 

2005

 

2006

 

% Change

Sales:

 

 

 

 

 

 

Process Management

$

1,009 

$

1,143 

 

13%

Industrial Automation

 

799 

 

931 

 

17%

Network Power

 

765 

 

1,004 

 

31%

Climate Technologies

 

775 

 

852 

 

10%

Appliance and Tools

 

1,011 

 

1,072 

 

6%

 

 

4,359 

 

5,002 

 

 

Eliminations

 

(132)

 

(150)

 

 

Net Sales

$

4,227 

$

4,852 

 

15%

 

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“Emerson’s second quarter performance is a continuation of the very strong results achieved over the last year and is due to our continued focus on the eight strategic initiatives that are driving exceptional organic growth,” said David N. Farr, chairman, chief executive officer and president. “Global economic conditions continue to provide a favorable background for Emerson’s businesses. Our solid strategic position across the markets we serve and the dedication of thousands of employees all over the world helped make these great results possible,” Farr said.

“Our second quarter operating profit margin improved to 15.0 percent from 14.4 percent in the prior period. Margins improved in four of the five business segments, largely as a result of leverage on the volume increases and benefits from prior restructuring activities, which were partially offset by higher pension costs. Pretax margins improved to 12.9 percent from 11.8 percent in the prior period. Emerson’s procurement organization is sharply focused on containing the inflationary pressures on key commodities, namely steel, copper, and aluminum. This continues to be a challenge and requires that we initiate selective price increases in order to help offset material increases.”

Segment Highlights

 

•

The strength of the Process Management offering is shown by the continued strong order growth, which we have converted into strong sales performance over the last 18 months. During the second quarter, Process Management was awarded a contract in the United States to provide automated control systems for three BP refinery upgrades and also entered a seven-year agreement with Suncor to automate its North American facilities.

 

•

Industrial Automation experienced very strong growth in the quarter, with favorable dynamics in all major geographic regions, especially the United

 

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States and Europe. Robust activity in the oil, gas, mining, and metals markets drove growth in the alternator, electrical distribution, and mechanical power transmission businesses.

 

•

Network Power had another exceptional quarter as the leverage of a 31 percent increase in sales to the computing and telecommunications markets boosted operating profits. The segment is positioned for further growth, and recent acquisitions of Knürr AG and Artesyn Technologies strengthen its position.

 

•

The final conversion during the quarter to the new 13-SEER air-conditioning standard boosted U.S. sales for Climate Technologies. Sales in Europe also increased, but the benefits of higher sales volumes were more than offset by higher commodity costs and increased restructuring expenses.

 

•

Appliance and Tools had solid sales and margin performance in the quarter. The tools and storage business delivered strong growth driven largely by demand in the non-residential construction markets. The segment margin benefited from prior cost reduction efforts and leverage on the increased sales.

Balance Sheet / Cash Flow

Operating cash flow was $549 million in the second quarter of 2006, an increase of 24 percent from the second quarter of 2005. The increase was driven by the earnings growth in the quarter and continued execution on working capital improvement programs. Emerson continues to manage the demands for working capital during this period of strong sales growth. The success of these programs is evidenced by the ratio of trade working capital to sales, which dropped to 18.6 percent in the current quarter compared to 20.2 percent in the same period last year.

 

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2006 Outlook

The strong order growth and financial performance for the first half of the year has strengthened the outlook for the full year. Emerson now expects consolidated sales growth in the range of 12 percent to 15 percent, driven by strong underlying sales growth (excluding foreign currency translation and acquisitions), which is now expected to be in the range of 10 percent to 12 percent. Based on this higher level of sales we now expect earnings per share in the range of $4.25 to $4.35, an increase over our prior EPS guidance range of $4.10 to $4.30. This updated outlook includes the sales and earnings per share impact of acquiring Artesyn Technologies, which is expected to add sales of approximately $200 million and be dilutive to earnings per share by $0.02 to $0.03 as we integrate Artesyn with our existing embedded power business. Additionally, we expect operating cash flow for the full year of approximately $2.5 billion.

Upcoming Investor Events

On Tuesday, May 2, 2006, at 2:00 p.m. EDT (1:00 p.m. CDT), Emerson senior management will discuss the second-quarter fiscal 2006 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.

Forward-Looking and Cautionary Statements

Statements in this 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 statement to reflect later developments. 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.

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TABLE 1

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

 

 

 

Quarter Ended March 31,

Percent

 

 

2005

 

2006

Change

 

 

 

 

 

 

Net sales

$

4,227

$

4,852 

15%

Less: Costs and expenses

 

 

 

 

 

Cost of sales

 

2,725

 

3,118 

 

SG&A expenses

 

893

 

1,005 

 

Other deductions, net

 

59

 

54 

 

Interest expense, net

 

52

 

50 

 

Earnings before income taxes

 

498

 

625 

26%

Income taxes

 

150

 

191 

 

Net earnings

$

348

$

434 

25%

 

 

 

 

 

 

Diluted avg. shares outstanding (millions)

 

420.9

 

414.5 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.83

$

1.05 

27%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

 

 

2005

 

2006

 

Other deductions, net

 

 

 

 

 

Rationalization of operations

$

28

$

22 

 

Amortization of intangibles

 

7

 

10 

 

Other

 

24

 

28 

 

Gains

 

- 

 

(6)

 

Total

$

59

$

54 

 

 

 

 

 

 

 

 

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TABLE 2

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

 

 

 

Six Months Ended March 31,

Percent

 

 

2005

 

2006

Change

 

 

 

 

 

 

Net sales

$

8,197 

$

9,400 

15%

Less: Costs and expenses

 

 

 

 

 

Cost of sales

 

5,283 

 

6,073 

 

SG&A expenses

 

1,765 

 

1,955 

 

Other deductions, net

 

111 

 

77 

 

Interest expense, net

 

106 

 

100 

 

Earnings before income taxes

 

932 

 

1,195 

28%

Income taxes

 

287 

 

362 

 

Net earnings

$

645 

$

833 

29%

 

 

 

 

 

 

Diluted avg. shares outstanding (millions)

 

421.4 

 

414.0 

 

 

 

 

 

 

 

Diluted earnings per common share

$

1.53 

$

2.01 

31%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended March 31,

 

 

 

2005

 

2006

 

Other deductions, net

 

 

 

 

 

Rationalization of operations

$

57 

$

34 

 

Amortization of intangibles

 

13 

 

19 

 

Other

 

67 

 

54 

 

Gains

 

(26)

 

(30)

 

Total

$

111 

$

77 

 

 

 

 

 

 

 

 

 

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TABLE 3

EMERSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS)

 

 

 

March 31,

 

 

2005

 

2006

Assets

 

 

 

 

Cash and equivalents

$

1,606

$

604

Receivables, net

 

3,155

 

3,404

Inventories

 

1,907

 

2,063

Other current assets

 

478

 

560

Total current assets

 

7,146

 

6,631

Property, plant & equipment, net

 

2,976

 

2,990

Goodwill

 

5,406

 

5,636

Other

 

1,735

 

1,952

 

 

 

 

 

 

$

17,263

$

17,209

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

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


$


1,569


$


412

Accounts payable

 

1,653

 

1,867

Accrued expenses

 

1,736

 

1,705

Income taxes

 

149

 

279

Total current liabilities

 

5,107

 

4,263

Long-term debt

 

2,881

 

3,132

Other liabilities

 

1,664

 

1,867

Stockholders’ equity

 

7,611

 

7,947

 

 

 

 

 

 

$

17,263

$

17,209

 

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TABLE 4

EMERSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN MILLIONS)

 

 

 

Six Months Ended March 31,

 

 

2005

 

2006

Operating Activities

 

 

 

 

Net earnings

$

645 

$

833 

Depreciation and amortization

 

276 

 

294 

Changes in operating working capital

 

(284)

 

(376)

Other

 

65 

 

117 

Net cash provided by operating activities

 

702

 

868 

 

 

 

 

 

Investing Activities

 

 

 

 

Capital expenditures

 

(232)

 

(214)

Purchases of businesses, net of cash &
    equivalents acquired

 


(97)

 


(269)

Other

 

(16)

 

13 

Net cash used in investing activities

 

(345)

 

(470)

 

 

 

 

 

Financing Activities

 

 

 

 

Net increase (decrease) in short-term
borrowings

 


414 

 


(311)

Proceeds from long-term debt

 

1 

 

5 

Principal payments on long-term debt

 

(17)

 

(257)

Dividends paid

 

(349)

 

(367)

Purchases of treasury stock

 

(227)

 

(111)

Other

 

15 

 

15 

Net cash used in financing activities

 

(163)

 

(1,026)

 

 

 

 

 

Effect of exchange rate changes on cash and
     equivalents

 


66 

 


(1)

 

 

 

 

 

Increase (decrease) in cash and equivalents

 

260 

 

(629)

 

 

 

 

 

Beginning cash and equivalents

 

1,346 

 

1,233 

 

 

 

 

 

Ending cash and equivalents

$

1,606 

$

604 

 

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TABLE 5

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS)

 

 

 

Quarter Ended March 31,

 

 

2005

 

2006

Sales

 

 

 

 

Process Management

$

1,009 

$

1,143 

Industrial Automation

 

799 

 

931 

Network Power

 

765 

 

1,004 

Climate Technologies

 

775 

 

852 

Appliance and Tools

 

1,011 

 

1,072 

 

 

4,359 

 

5,002 

Eliminations

 

(132)

 

(150)

Total Emerson

$

4,227 

$

4,852 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

 

2005

 

2006

Earnings

 

 

 

 

Process Management

$

154 

$

190 

Industrial Automation

 

106 

 

131 

Network Power

 

77 

 

119 

Climate Technologies

 

121 

 

125 

Appliance and Tools

 

134 

 

151 

 

 

592 

 

716 

Differences in accounting methods

 

35 

 

42 

Corporate and other

 

(77)

 

(83)

Interest expense, net

 

(52)

 

(50)

Earnings before income taxes

$

498 

$

625 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

 

2005

 

2006

Rationalization of operations

 

 

 

 

Process Management

$

4 

$

1 

Industrial Automation

 

4 

 

3 

Network Power

 

10 

 

3 

Climate Technologies

 

3 

 

8 

Appliance and Tools

 

6 

 

7 

Corporate

 

1 

 

- 

Total Emerson

$

28 

$

22 

 

 

 

 

 

 

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TABLE 6

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS)

 

 

 

Six Months Ended March 31,

 

 

2005

 

2006

Sales

 

 

 

 

Process Management

$

1,971 

$

2,240 

Industrial Automation

 

1,595 

 

1,791 

Network Power

 

1,538 

 

1,943 

Climate Technologies

 

1,379 

 

1,600 

Appliance and Tools

 

1,949 

 

2,112 

 

 

8,432 

 

9,686 

Eliminations

 

(235)

 

(286)

Total Emerson

$

8,197 

$

9,400 

 

 

 

 

 

 

 

Six Months Ended March 31,

 

 

2005

 

2006

Earnings

 

 

 

 

Process Management

$

284 

$

366 

Industrial Automation

 

226 

 

274 

Network Power

 

144 

 

227 

Climate Technologies

 

207 

 

227 

Appliance and Tools

 

253 

 

271 

 

 

1,114 

 

1,365 

Differences in accounting methods

 

68 

 

82 

Corporate and other

 

(144)

 

(152)

Interest expense, net

 

(106)

 

(100)

Earnings before income taxes

$

932 

$

1,195 

 

 

 

 

 

 

 

Six Months Ended March 31,

 

 

2005

 

2006

Rationalization of operations

 

 

 

 

Process Management

$

9 

$

3 

Industrial Automation

 

8 

 

5 

Network Power

 

22 

 

6 

Climate Technologies

 

5 

 

9 

Appliance and Tools

 

12 

 

11 

Corporate

 

1 

 

- 

Total Emerson

$

57 

$

34 

 

 

 

 

 

 

 

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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):

 

 

 

 

 

 

Percent

 

 

2005

 

2006

Change

 

 

 

 

 

 

Second-Quarter Operating Profit

 

 

 

 

 

Net Sales

$

4,227

$

4,852

15%

Cost of Sales

 

2,725

 

3,118

 

SG&A Expenses

 

893

 

1,005

 

Operating Profit (Non-GAAP)

 

609

 

729

20%

OP % (Non-GAAP)

 

14.4

%

15.0

%

Other Deductions, Net

 

59

 

54

 

Interest Expense, Net

 

52

 

50

 

Pretax Earnings

$

498

$

625

26%

Pretax Earnings %

 

11.8

%

12.9

%

 

 

 

 

 

 

 

Expected  

 

 

 

 

Fiscal 2006

 

 

 

Net Sales

 

 

 

 

 

Underlying Sales (Non-GAAP)

 

10 – 12

%

 

 

Fgn. Currency Translation / Acquisitions

 

2 – 3

pts

 

 

Net Sales

 

12 – 15

%

 

 

 

 

 

 

 

 

 

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