Emerson Reports First Quarter 2023 Results; Updates 2023 Outlook

2023 Q2

2023

Net Sales Growth

10.5% - 12.5%

8% - 10%

Underlying Sales Growth

8% - 10%

6.5% - 8.5%

Earnings Per Share6

$0.75 - $0.80

$3.55 - $3.70

Amortization of Intangibles

~$0.15

~$0.60

Restructuring / Related Costs

~$0.05

~$0.12

Russia Exit Costs

---

$0.08

AspenTech Micromine Purchase Price Hedge

---

($0.03)

Interest on Note Receivable From Climate Technologies

---

~($0.09)

Interest Income on Undeployed Proceeds

---

~($0.23)

Adjusted Earnings Per Share

$0.95 - $1.00

$4.00 - $4.15

Notes:

1 Underlying sales excludes the impact of currency translation, and acquisitions and divestitures including heritage AspenTech and Emerson's businesses contributed to AspenTech.

2 Adjusted EPS excludes restructuring, a gain on subordinated interest, acquisition/divestiture costs, write-offs associated with Emerson's announced Russia exit, an AspenTech Micromine purchase price hedge and intangibles amortization expense.

3 Underlying orders does not include heritage AspenTech or Emerson's contributed businesses to AspenTech.

4 Adjusted segment EBITA margin excludes corporate items and interest expense, restructuring, a gain on subordinated interest, acquisition/divestiture costs, write-offs associated with Emerson's announced Russia exit, an AspenTech Micromine purchase price hedge and intangibles amortization expense.

5 Following the announcement of its Climate Technologies divestiture, Emerson will report financial results for Climate Technologies, InSinkErator and Therm-O-Disc as discontinued operations for all periods presented, beginning in 2023. The earnings from discontinued operations for 2023 are expected to be $10.5 billion to $11.5 billion, or $18 to $20 per share, including the net gains on 2023 divestitures. The Company's 2023 continuing operations after the Climate Technologies divestiture (assumed to close March 31, 2023 for the purposes of guidance) will include interest income from the $2.25 billion note receivable from Climate Technologies and reflect the 45% common equity ownership in the income, or loss, of Climate Technologies. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the amount of its 45% share of Climate Technologies' post-close results. The Company will exclude the interest income from the note receivable from Climate Technologies and its share of Climate Technologies' operations in its calculation of 2023 adjusted earnings per share. Also excluded from adjusted earnings per share is the interest income on any undeployed net proceeds. The effect of Emerson's 45% share of Climate Technologies is expected to be immaterial to post-closing cash flows.

6 2023 earnings per share guidance from continuing operations excludes any potential impact from the 45% common equity ownership in Climate Technologies' income or loss post-close. Emerson will not control Climate Technologies post-closing and is therefore unable to estimate the probable significance or impact on our earnings per share results from the 45% share of Climate Technologies' post-close results. Emerson will exclude its 45% share of Climate Technologies' post-close operations from the calculation of its 2023 adjusted earnings per share.

Table 1

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

Quarter Ended Dec 31

Percent

2021

2022

Change

Net sales

$3,156

$3,373

7 %

     Cost of sales

1,741

1,753

     SG&A expenses

849

1,030

     Gain on subordinated interest

(453)

—

     Other deductions, net

38

120

     Interest expense, net

39

48

Earnings before income taxes

942

422

(55) %

Income taxes

196

98

Earnings from continuing operations

746

324

(57) %

Discontinued operations, net of tax

149

2,002

Net earnings

895

2,326

Less: Noncontrolling interests in subsidiaries

(1)

(5)

Net earnings common stockholders

$896

$2,331

160 %

Diluted avg. shares outstanding

598.1

586.7

Diluted earnings per share common stockholders   

Earnings from continuing operations

$1.25

$0.56

(55) %

Discontinued operations

0.25

3.41

Diluted earnings per common share

$1.50

$3.97

165 %

Quarter Ended Dec 31

2021

2022

Other deductions, net

     Amortization of intangibles

$57

$118

     Restructuring costs

6

10

     Other

(25)

(8)

          Total

$38

$120

Table 2

EMERSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS, UNAUDITED)

Quarter Ended Dec 31

2021

2022

Assets

     Cash and equivalents

$4,726

$2,271

     Receivables, net

2,005

2,231

     Inventories

1,752

1,999

     Other current assets

986

1,290

     Current assets held-for-sale

1,391

1,209

          Total current assets

10,860

9,000

     Property, plant & equipment, net

2,392

2,263

     Goodwill

6,941

14,087

     Other intangible assets

2,617

6,460

     Other

1,776

2,268

     Noncurrent assets held-for-sale

2,373

2,163

          Total assets

$26,959

$36,241

Liabilities and equity

     Short-term borrowings and current

        maturities of long-term debt

$37

$1,792

     Accounts payable

1,208

1,219

     Accrued expenses

2,751

3,949

     Current liabilities held-for-sale

1,335

1,200

          Total current liabilities

5,331

8,160

     Long-term debt

8,718

8,159

     Other liabilities

2,403

3,057

     Noncurrent liabilities held-for-sale

219

151

Equity

     Common stockholders' equity

10,249

10,727

     Noncontrolling interests in subsidiaries     

39

5,987

     Total equity

10,288

16,714

          Total liabilities and equity

$26,959

$36,241

Table 3

EMERSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN MILLIONS, UNAUDITED)

Three Months Ended Dec 31

2021

2022

Operating activities

Net earnings

$895

$2,326

Earnings from discontinued operations, net of tax

(149)

(2,002)

Adjustments to reconcile net earnings to net cash provided by operating activities:

        Depreciation and amortization

178

260

        Stock compensation

34

102

        Changes in operating working capital

(125)

(289)

        Gain on subordinated interest

(453)

—

        Other, net

(3)

(95)

            Cash from continuing operations

377

302

            Cash from discontinued operations

146

116

            Cash provided by operating activities

523

418

Investing activities

Capital expenditures

(73)

(59)

Purchases of businesses, net of cash and equivalents acquired

(39)

—

Proceeds from subordinated interest

438

15

Other, net

3

(23)

    Cash from continuing operations

329

(67)

    Cash from discontinued operations

(44)

2,953

    Cash provided by investing activities

285

2,886

Financing activities

Net increase in short-term borrowings

(335)

(539)

Proceeds from long-term debt

2,975

—

Payments of long-term debt

(501)

(9)

Dividends paid

(307)

(306)

Purchases of common stock

(253)

(2,000)

Other, net

22

(41)

    Cash provided by (used in) financing activities

1,601

(2,895)

Effect of exchange rate changes on cash and equivalents

(37)

58

Increase in cash and equivalents

2,372

467

Beginning cash and equivalents

2,354

1,804

Ending cash and equivalents

$4,726

$2,271

Table 4

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(DOLLARS IN MILLIONS, UNAUDITED)

Quarter Ended Dec 31

2021

2022

Sales

Final Control

$817

$862

Measurement & Analytical

737

749

Discrete Automation

617

618

Safety & Productivity

351

310

Intelligent Devices

2,522

2,539

Control Systems & Software

570

606

AspenTech

82

243

Software and Control

652

849

Eliminations

(18)

(15)

          Net sales

$3,156

$3,373

Earnings

Final Control

$             122

$             158

Measurement & Analytical

170

175

Discrete Automation

120

121

Safety & Productivity

65

63

Intelligent Devices

477

517

Control Systems & Software

116

107

AspenTech

(2)

(33)

Software and Control

114

74

Stock compensation

(34)

(102)

Unallocated pension and postretirement costs

26

45

Corporate and other

(55)

(64)

Gain on subordinated interest

453

—

Interest expense, net

(39)

(48)

          Earnings before income taxes

$942

$422

Restructuring costs

Final Control

$—

($1)

Measurement & Analytical

2

1

Discrete Automation

2

1

Safety & Productivity

—

—

Intelligent Devices

4

1

Control Systems & Software

1

1

AspenTech

—

—

Software and Control

1

1

     Corporate

1

8

          Total

$6

$10

The table above does not include $8 and $5 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the three months ended December 31, 2021 and2022, respectively.

Depreciation and Amortization

Final Control

$53

$45

Measurement & Analytical

31

30

Discrete Automation

23

21

Safety & Productivity

15

14

Intelligent Devices

122

110

Control Systems & Software

25

21

AspenTech

23

123

Software and Control

48

144

     Corporate

8

6

          Total

$178

$260

Table 5

EMERSON AND SUBSIDIARIES

ADJUSTED EBITA & EPS SUPPLEMENTAL

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

The following tables, which show results on an adjusted EBITA basis and diluted earnings per share on an adjusted basis, are intended to supplement the Company's discussion of its results of operations herein. The Company defines adjusted EBITA as earnings excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments. Adjusted earnings per share excludes intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, interest on note receivable and interest on undeployed assets, and certain gains, losses or impairments. Adjusted EBITA, adjusted EBITA margin, and adjusted earnings per share are measures used by management and may be useful for investors to evaluate the Company's operational performance.

Quarter Ended Dec 31

2021

2022

Pretax earnings

$942

$422

Percent of sales

29.8 %

12.5 %

Interest expense, net

39

48

Amortization of intangibles

71

167

Restructuring and related costs

14

15

Gain on subordinated interest

(453)

—

Acquisition/divestiture costs

23

—

Russia business exit

—

47

AspenTech Micromine purchase price hedge

—

(35)

Adjusted EBITA

$636

$664

Percent of sales

20.1 %

19.7 %

Quarter Ended Dec 31

2021

2022

GAAP earnings from continuing operations per share

$1.25

$0.56

Amortization of intangibles

0.09

0.15

Restructuring and related costs

0.02

0.02

Gain on subordinated interest

(0.60)

—

Acquisition/divestiture costs

0.03

—

Russia business exit

—

0.08

AspenTech Micromine purchase price hedge

—

(0.03)

Adjusted earnings from continuing operations per share

$0.79

$0.78

Table 6

EMERSON AND SUBSIDIARIES

SEGMENT EBITA

(DOLLARS IN MILLIONS, UNAUDITED)

Quarter Ended Dec 31

2021

2022

Intelligent Devices

Intelligent Devices EBIT

$477

$517

Percent of sales

18.9 %

20.4 %

Amortization of intangibles

44

40

Restructuring and related costs     

12

6

Intelligent Devices EBITA

$533

$563

Percent of sales

21.1 %

22.2 %

Software and Control

Software and Control EBIT

$114

$74

Percent of sales

17.6 %

8.7 %

Amortization of intangibles

27

127

Restructuring and related costs     

1

1

Software and Control EBITA

$142

$202

Percent of sales

21.8 %

23.8 %

Reconciliations of Non-GAAP Financial Measures & Other

Table 7

Reconciliations of Non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts). See tables 5, 6 and 8 for additional non-GAAP reconciliations.

Q1 2023 Underlying Sales Change

 Emerson

Reported (GAAP)

7 %

(Favorable) / Unfavorable FX

4 %

(Acquisitions) / Divestitures

(5) %

Underlying (Non-GAAP)

6 %

2023E February Guidance Underlying Sales Change

 Q2 FY23E

 FY23E

Reported (GAAP)

10.5% - 12.5%

8% - 10%

(Favorable) / Unfavorable FX

~ 3%

~ 2%

(Acquisitions) / Divestitures

~ (5.5)%

~ (3.5)%

Underlying (Non-GAAP)

8% - 10%

6.5% - 8.5%

Q1 Earnings Per Share

Q1 FY22

Q1 FY23

Change

Earnings per share (GAAP)

$          1.25

$          0.56

(55) %

Amortization of intangibles

0.09

0.15

5 %

Restructuring and related costs

0.02

0.02

— %

Gain on subordinated interest

(0.60)

—

47 %

Acquisition/divestiture costs

0.03

—

(2) %

Russia business exit

—

0.08

6 %

AspenTech Micromine purchase price hedge

—

(0.03)

(2) %

Adjusted earnings per share (Non-GAAP)

$          0.79

$          0.78

(1) %

2023E February Guidance Earnings Per Share

Q2 FY23E

FY23E

Earnings per share (GAAP)

 $0.75 - $0.80

 $3.55 - $3.70

Amortization of intangibles

~ 0.15

 ~ 0.60

Restructuring and related costs

~ 0.05

~ 0.12

Russia business exit

—

0.08

AspenTech Micromine purchase price hedge

—

(0.03)

Interest on note receivable from Climate Technologies

—

 ~ (0.09)

Interest income on undeployed proceeds

—

~ (0.23)

Adjusted earnings per share (Non-GAAP)

$0.95 - $1.00

 $4.00 - $4.15

Business Segment EBIT Margin

Q1 FY22

Q1 FY23

Change

Pretax margin (GAAP)

29.8 %

12.5 %

(1730) bps

Corp. items and interest expense, net % of sales

(11.1) %

5.0 %

1610 bps

Business Segment EBIT margin (GAAP)

18.7 %

17.5 %

(120) bps

Amortization of intangibles

2.3 %

5.0 %

270 bps

Restructuring and related costs

0.4 %

0.2 %

(20) bps

Adjusted Business Segment EBITA margin (Non-GAAP)

21.4 %

22.7 %

130 bps

Q1 Cash Flow

Q1 FY22

Q1 FY23

Change

Operating cash flow (GAAP)

$           377

$           302

(20) %

Capital expenditures

(73)

(59)

- %

Free cash flow (Non-GAAP)

$           304

$           243

(20) %

Note 1: Underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation.

Note 2: All fiscal year 2023E figures are approximate, except where range is given.

Table 8

The following tables provide supplemental unaudited fiscal 2022 quarterly historical results on a continuing operations basis which reflect the previously announced realignment of the Company's segments.  Such supplemental information does not represent a restatement of previously issued financial statements and should beread in conjunction with the Company's Annual Report on Form 10-K.

Consolidated Statements of Earnings

EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars in millions, except per share amounts; unaudited)

Q1

Q2

Q3

Q4

2022

Net sales

$    3,156

3,291

3,465

3,892

13,804

Cost of sales

1,741

1,815

1,879

2,063

7,498

Selling, general and administrative expenses

849

888

894

983

3,614

Gain on subordinated interest

(453)

—

—

—

(453)

Other deductions, net

38

28

264

189

519

Interest expense, net

39

51

50

54

194

Earnings from continuing operations before income taxes

942

509

378

603

2,432

Income taxes

196

80

123

150

549

Earnings from continuing operations

746

429

255

453

1,883

Discontinued operations, net of tax: $84, $56, $120, $46, and $306, respectively

149

246

697

255

1,347

Net earnings

895

675

952

708

3,230

Less: Noncontrolling interests in subsidiaries

(1)

1

31

(32)

(1)

Net earnings common stockholders

$       896

674

921

740

3,231

Earnings common stockholders:

     Earnings from continuing operations

$       746

428

226

486

1,886

     Discontinued operations

150

246

695

254

1,345

Net earnings common stockholders

$       896

674

921

740

3,231

Basic earnings per share common stockholders:

     Earnings from continuing operations

$      1.25

0.72

0.38

0.82

3.17

     Discontinued operations

0.26

0.41

1.17

0.43

2.27

Basic earnings per common share

$      1.51

1.13

1.55

1.25

5.44

Diluted earnings per share common stockholders:

Earnings from continuing operations

$      1.25

0.72

0.38

0.82

3.16

Discontinued operations

0.25

0.41

1.16

0.42

2.25

Diluted earnings per common share

$      1.50

1.13

1.54

1.24

5.41

Weighted average outstanding shares:

Basic

594.6

593.3

592.8

590.8

592.9

Diluted

598.1

596.5

596.2

594.5

596.3

Q1

Q2

Q3

Q4

2022

Diluted earnings from continuing operations per share

$    1.25

0.72

0.38

0.82

3.16

Amortization of intangibles

0.09

0.09

0.12

0.14

0.45

Restructuring and related costs

0.02

0.02

0.04

0.06

0.14

Gain on subordinated interest

(0.60)

—

—

—

(0.60)

Russia business exit

—

—

0.29

0.03

0.32

Acquisition/divestiture costs and pre-acquisition interest on AspenTech debt

0.03

0.04

0.09

—

0.15

AspenTech Micromine purchase price hedge

—

—

—

0.04

0.04

Investment-related gains

—

—

—

(0.02)

(0.02)

Adjusted diluted earnings from continuing operations per share

$    0.79

0.87

0.92

1.07

3.64

Earnings per share are computed independently each period; as a result, the quarterly amounts may not sum to the calculated annual figure.

Supplemental Business Segment Information

EMERSON ELECTRIC CO. & SUBSIDIARIES

(Dollars in millions; unaudited)

INTELLIGENT DEVICES

Q1

Q2

Q3

Q4

2022

Sales:

Final Control

$      817

884

905

1,001

3,607

Measurement & Analytical

737

769

788

921

3,215

Discrete Automation

617

644

633

718

2,612

Safety & Productivity

351

355

360

336

1,402

     Total

$   2,522

2,652

2,686

2,976

10,836

Earnings:

Final Control

$      122

152

150

168

592

Margin

14.9 %

17.2 %

16.6 %

16.7 %

16.4 %

Measurement & Analytical

170

176

189

250

785

Margin

23.0 %

23.0 %

23.9 %

27.2 %

24.4 %

Discrete Automation

120

130

115

177

542

Margin

19.4 %

20.3 %

18.2 %

24.6 %

20.7 %

Safety & Productivity

65

65

69

51

250

Margin

18.6 %

18.1 %

19.3 %

15.1 %

17.8 %

     Total

$      477

523

523

646

2,169

     Margin

18.9 %

19.7 %

19.5 %

21.7 %

20.0 %

Amortization of intangibles:

Final Control

$        24

24

23

23

94

Measurement & Analytical

6

5

4

6

21

Discrete Automation

8

7

8

7

30

Safety & Productivity

6

7

7

6

26

     Total

$        44

43

42

42

171

Restructuring and related costs:

Final Control

$          7

8

18

42

75

Measurement & Analytical

2

3

4

(6)

3

Discrete Automation

2

1

1

(4)

—

Safety & Productivity

1

—

(1)

10

10

     Total

$        12

12

22

42

88

Adjusted EBITA:

Final Control

$      153

184

191

233

761

Adjusted EBITA Margin

18.7 %

20.8 %

21.2 %

23.2 %

21.1 %

Measurement & Analytical

$      178

184

197

250

809

Adjusted EBITA Margin

24.1 %

24.0 %

25.1 %

27.1 %

25.2 %

Discrete Automation

$      130

138

124

180

572

Adjusted EBITA Margin

21.0 %

21.6 %

19.6 %

24.1 %

21.9 %

Safety & Productivity

$        72

72

75

67

286

Adjusted EBITA Margin

20.8 %

20.0 %

20.6 %

19.9 %

20.3 %

Intelligent Devices

$      533

578

587

730

2,428

Adjusted EBITA Margin

21.1 %

21.8 %

21.9 %

24.5 %

22.4 %

SOFTWARE AND CONTROL

Q1

Q2

Q3

Q4

2022

Sales:

Control Systems & Software

$    570

573

568

687

2,398

AspenTech

82

84

239

251

656

     Total

$    652

657

807

938

3,054

Earnings:

Control Systems & Software

$    116

101

77

143

437

Margin

20.4 %

17.7 %

13.5 %

20.8 %

18.2 %

AspenTech

$      (2)

(4)

57

(39)

12

Margin

(2.3) %

(5.0) %

23.7 %

(15.2) %

1.9 %

     Total

$    114

97

134

104

449

     Margin

17.6 %

14.7 %

16.5 %

11.2 %

14.7 %

Amortization of intangibles:

Control Systems & Software

$       5

5

6

6

22

AspenTech

22

23

71

121

237

Total

$     27

28

77

127

259

Restructuring and related costs:

Control Systems & Software

$       1

—

7

3

11

AspenTech

—

—

1

(1)

—

     Total

$       1

—

8

2

11

Adjusted EBITA:

Control Systems & Software

$    122

106

90

152

470

Adjusted EBITA Margin

21.4 %

18.7 %

15.7 %

22.0 %

19.6 %

AspenTech

$     20

19

129

81

249

Adjusted EBITA Margin

24.9 %

21.5 %

53.8 %

32.9 %

38.0 %

Software and Control

$    142

125

219

233

719

Adjusted EBITA Margin

21.8 %

19.1 %

27.0 %

24.9 %

23.5 %

Corporate & Other

Q1

Q2

Q3

Q4

2022

Stock compensation

$     (34)

(43)

(15)

(33)

(125)

Unallocated pension and postretirement costs

26

25

25

23

99

Corporate and other

(55)

(42)

(239)

(83)

(419)

Gain on subordinated interest

453

—

—

—

453

Interest

(39)

(51)

(50)

(54)

(194)

Total

$     351

(111)

(279)

(147)

(186)