- Full year net sales increased 5 percent, with underlying sales up 1 percent
- Earnings per share from continuing operations increased 4 percent to $2.54; adjusted earnings per share increased 8 percent to $2.64
- Operating cash flow from continuing operations increased 8 percent to $2.7 billion, or a record high of 17.6 percent of net sales
- Free cash flow from continuing operations was $2.2 billion, or a record high of 14.5 percent of net sales
- Dividends were 46 percent of operating cash flow from continuing operations and 56 percent of free cash flow from continuing operations
ST. LOUIS, November 7, 2017 – Emerson (NYSE: EMR) today reported results for the fourth quarter and fiscal year ended September 30, 2017.
Fiscal year net sales of $15.3 billion increased 5 percent, with underlying sales up 1 percent excluding slightly unfavorable currency and an impact from acquisitions of 4 percent. Underlying sales turned positive in the second half of the fiscal year reflecting strengthening global economic conditions, stabilizing oil prices and improving industrial and emerging market demand. The Company exited the fiscal year with September trailing three month underlying orders up 11 percent, which were in line with expectations communicated by management in May 2017.
Pretax margin of 15.3 percent and EBIT margin of 16.4 percent decreased 70 and 80 basis points, respectively, due to dilution from the Valves & Controls acquisition. Excluding Valves & Controls, EBIT margin of 17.9 percent increased 70 basis points. Earnings per share from continuing operations increased 4 percent to $2.54. Excluding a ($0.10) impact from Valves & Controls first year acquisition accounting charges, adjusted earnings per share from continuing operations were $2.64, up 8 percent compared with the prior year.
Operating cash flow from continuing operations was $2.7 billion and free cash flow from continuing operations exceeded $2.2 billion, reflecting 135 percent conversion of net earnings from continuing operations, or 130 percent excluding Valves & Controls first year acquisition accounting charges. As a percent of net sales, free cash flow from continuing operations was a record-high 14.5 percent.
“Fiscal 2017 was an important year for Emerson as we successfully completed the strategic portfolio repositioning announced over two years ago, and our global management teams executed extremely well to deliver strong earnings and cash flow against difficult market conditions,” said Chairman and Chief Executive Officer David N. Farr. “We are invigorated as we enter fiscal 2018. Emerson is now wholly aligned around our two business platforms, which gives our teams clear direction and an unwavering focus on serving our customers and profitably building these world class businesses through organic and inorganic opportunities.”
Fourth Quarter Results
Net sales in the fourth quarter were up 13 percent, with underlying sales up 3 percent excluding favorable currency of 1 percent and an impact from acquisitions of 9 percent. The hurricanes that hit Texas and Florida moderately reduced the fourth quarter sales of both business platforms, and the Company expects to recover these sales over the next twelve months as damaged areas rebuild. Automation Solutions underlying sales growth continued to trend positively in the quarter, driven by improving conditions in energy related, hybrid and general industrial markets. Growth in Commercial & Residential Solutions moderated somewhat due primarily to the impact of cooler weather and hurricanes in the U.S., however favorable trends continued in construction markets in North America and in refrigeration and air conditioning markets in Asia and Europe.
Pretax margin of 15.5 percent and EBIT margin of 16.3 percent decreased 170 and 210 basis points, respectively. Excluding Valves & Controls, EBIT margin of 19.7 percent increased 130 basis points driven primarily by flow through of restructuring savings and lower restructuring spend. Earnings per share from continuing operations were $0.77, up 4 percent compared with the prior year, and were $0.83, up 12 percent excluding a ($0.06) impact from Valves & Controls first year acquisition accounting charges related to inventory and backlog amortization.
Fourth Quarter Business Platform Results
Automation Solutions net sales increased 18 percent in the quarter, with underlying sales up 3 percent excluding favorable currency of 1 percent and an impact from acquisitions of 14 percent. September trailing three month underlying orders were up 15 percent, reflecting broad-based momentum across end markets and regions. The opportunity funnel of large projects has continued to grow, and the Company expects to have increasingly better visibility on project timing as our customers' capital budgets firm up in the first calendar quarter of 2018.
North American underlying sales were up 10 percent led by energy, life sciences and chemical markets. Demand in oil and gas markets was driven by strong maintenance and plant turnaround activity, continued upstream investment by shale customers and midstream upgrades and infrastructure build-out. In the U.S., short-cycle MRO business remained strong, and the mix of business continued to shift to mid-sized projects focused on upgrading, optimizing or expanding existing facilities. Asia underlying sales were up 2 percent as China was up 8 percent supported by strong demand in process automation markets and robust demand in discrete markets. Europe was up 2 percent and Latin America was down 18 percent. Middle East/Africa was down 11 percent, but order rates have turned positive. Margin decreased 30 basis points to 16.9 percent compared with the prior year. Excluding the dilutive impact of the Valves & Controls acquisition, margin increased 300 basis points to 20.2 percent, driven by restructuring benefits, lower restructuring spend, leverage on higher sales and favorable material costs. Going forward, continued strong demand for MRO and mid-sized projects together with increasing momentum in international markets provides support for solid underlying growth in fiscal 2018.
Commercial & Residential Solutions fourth quarter net sales increased 4 percent and underlying sales increased 3 percent excluding favorable currency of 1 percent. September trailing three month underlying orders were up 5 percent. Underlying sales in North America were down 1 percent as both HVAC and refrigeration markets were affected by cooler weather compared with the prior year and the disruption from hurricanes that hit Texas and Florida. Asia grew 14 percent, driven by both continued favorable demand in China as well as strong demand across the region in refrigeration and air conditioning markets. Europe was up 4 percent, Latin America was down 5 percent and Middle East/Africa was up over 20 percent. Margin decreased 110 basis points to 23.5 percent compared with the prior year, including the results of the declining ClosetMaid business which drove 50 basis points of margin dilution in the quarter. The ClosetMaid divestiture closed early in the first quarter of fiscal 2018. Consistent with management's expectations, material cost pressure moderated compared with the third quarter. Mix was unfavorable, as the North America compressor replacement business slowed compared to the prior year due to cooler weather and recent hurricanes. In fiscal 2018, global demand is expected to remain favorable in air conditioning, refrigeration and construction markets, supporting moderate underlying growth.
In fiscal 2018, the Company expects oil and gas prices to remain stable in a range favorable for energy related markets, while growth in air conditioning, refrigeration and global construction markets is expected to continue. Automation Solutions net sales are expected to be up 14 to 16 percent, with underlying sales up 5 to 7 percent excluding an impact from acquisitions and currency translation of 9 percent. Commercial & Residential Solutions net sales are expected to be down 1 percent to up 1 percent and underlying sales are expected to be up 3 to 5 percent excluding the impact of the ClosetMaid divestiture and currency translation of 4 percent.
Total Emerson net sales are expected to be up 8 to 10 percent, with underlying sales up 4 to 6 percent excluding a 4 percent impact from acquisitions, divestitures and currency translation. Reported (GAAP) net earnings per share are expected to be $2.66 to $2.86. Adjusted net earnings per share are expected to be $2.75 to $2.95, excluding a ($0.03) impact from Valves & Controls first year acquisition accounting charges related to inventory and backlog amortization, and a ($0.06) impact from a tax-related loss on the divestiture of the ClosetMaid business, which occurred early in the first quarter of fiscal 2018. As a result of the divestiture, the first quarter tax rate is expected to be approximately 40 percent.
“Market conditions began trending favorably for Emerson in the second half of 2017, and we expect 2018 to continue that trajectory,” said Farr. “With a strong foundation for growth and increasing momentum in global markets, I look forward to seeing our teams deliver results for our shareholders - strong cash flow and adjusted net earnings per share of $2.75 to $2.95.”
Upcoming Investor Events
Today, beginning at 3:00 p.m. Eastern Time, Emerson management will discuss the fourth quarter and fiscal year 2017 results during an investor 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.
View Q4 2017 Financial Tables