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| EMR > SEC Filings for EMR > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
OVERVIEW
The third quarter and first nine months of fiscal 2009 were very challenging as significant declines in gross fixed investment, particularly capital goods and nonresidential construction, as well as housing and consumer spending, adversely impacted sales and earnings for most of the Company's businesses. These declines began in the third quarter of fiscal 2008 and have continued into 2009. The Company anticipates continued weakness stemming from these factors for at least the remainder of this year and into the next. The Company's diverse international presence helped mitigate the adverse economic conditions as underlying sales grew fiscal year to date in Asia and Canada while declining in the United States and Europe. Third quarter sales declined in all regions, although less severely in Asia. Unfavorable foreign currency translation also negatively impacted results for the quarter and nine months ended June 30, 2009 due to the strength of the U.S. dollar. Overall, sales and earnings for the third quarter and nine months decreased versus prior year for all segments on reductions in customer inventories and resulting lower spending levels as business and consumer confidence levels remained low. Despite the economic downturn, Emerson's financial position remains strong and the Company continues to generate substantial operating cash flow.
THREE MONTHS ENDED JUNE 30, 2009, COMPARED WITH THREE MONTHS ENDED JUNE 30, 2008 RESULTS OF OPERATIONS Three months ended June 30, 2008 2009 Change (dollars in millions, except per share amounts) Net sales $ 6,568 5,091 (22 )% Gross profit $ 2,413 1,838 (24 )% Percent of sales 36.7 % 36.1 % SG&A $ 1,321 1,089 Percent of sales 20.1 % 21.4 % Other deductions, net $ 100 141 Interest expense, net $ 46 64 Earnings from continuing operations before income taxes $ 946 544 (43 )% Percent of sales 14.4 % 10.7 % Earnings from continuing operations $ 647 387 (40 )% Net earnings $ 612 387 (37 )% Percent of sales 9.3 % 7.6 % EPS - Continuing operations $ 0.82 0.51 (38 )% EPS - Net earnings $ 0.78 0.51 (35 )% |
Net sales for the quarter ended June 30, 2009 were $5,091 million, a decrease of $1,477 million, or 22 percent, compared with net sales of $6,568 million for the quarter ended June 30, 2008. The consolidated results reflect a 19 percent ($1,179 million) decrease in underlying sales (which exclude acquisitions, divestitures and foreign currency translation), a 4 percent ($304 million) unfavorable impact from foreign currency translation and a 1 percent ($6 million) positive impact from acquisitions. Underlying sales reflect a 19 percent loss from volume. Underlying sales for the third quarter decreased 23 percent in the United States and 15 percent internationally. The international sales decrease included declines across all major geographic regions, including Europe (25 percent), Asia (5 percent), Latin America (15 percent), Middle East/Africa (13 percent) and Canada (13 percent). All segments incurred significant declines and continue to be impacted by the broad slowdown in the consumer and capital goods businesses.
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Costs of sales for the third quarters of fiscal 2009 and 2008 were $3,253 million and $4,155 million, respectively. Cost of sales as a percent of net sales was 63.9 percent in the third quarter of 2009, compared with 63.3 percent in the third quarter of 2008. Gross profit was $1,838 million and $2,413 million for the third quarters ended June 30, 2009 and 2008, respectively, resulting in gross profit margins of 36.1 percent and 36.7 percent. The decrease in gross profit margin during the third quarter of 2009 primarily reflects deleverage on the lower sales volume with inventory liquidation and unfavorable product mix, partially offset by material cost containment and savings from cost reduction actions. Foreign currency translation negatively impacted the gross profit amount.
Selling, general and administrative (SG&A) expenses for the third quarter of 2009 were $1,089 million, or 21.4 percent of net sales, compared with $1,321 million, or 20.1 percent of net sales, for the third quarter of 2008. The decrease of $232 million was largely due to lower sales volume, foreign currency translation and cost reduction actions. The increase in SG&A as a percent of sales was primarily the result of deleverage on lower sales volume, partially offset by cost reductions and lower incentive stock compensation expense.
Other deductions, net were $141 million for the third quarter of 2009, a $41 million increase from the same period in the prior year, primarily due to a $59 million increase in rationalization expense. See Notes 5 and 6 for further details regarding other deductions, net and rationalization costs.
Pretax earnings from continuing operations of $544 million for the third quarter of 2009 decreased $402 million, or 43 percent, compared with $946 million for the prior year. This decrease was primarily due to lower sales, lower gross profit and higher SG&A relative to sales, and an increase in other deductions, net. Earnings results predominantly reflect decreases of $145 million in Industrial Automation, $124 million in Process Management and $77 million in Network Power. Third quarter pretax margin decreased 3.7 percentage points versus the prior year to 10.7 percent of sales. Major drivers of the margin decline were deleverage from operations running below capacity due to lower sales volume (approximately 3 points), negative $55 million due to under absorption from inventory reduction (approximately 1 point), and unfavorable mix (approximately 1 point), which were partially offset by savings from cost reductions (approximately 2 points) and other favorable items (approximately 1 point). In addition, increased rationalization expense (approximately 1 point) and interest and other items (approximately 1 point) adversely impacted the pretax margin.
Income taxes were $157 million and $299 million for the three months ended June 30, 2009 and 2008, respectively, resulting in effective tax rates of 29 percent and 32 percent, respectively. The lower effective tax rate reflects a credit from the repatriation of certain non-U.S. earnings and a benefit from a prior net operating loss at a foreign subsidiary.
Earnings and earnings per share from continuing operations were $387 million and $0.51 for the three months ended June 30, 2009, decreases of 40 percent and 38 percent, respectively, compared with $647 million and $0.82 for the quarter ended June 30, 2008. Higher restructuring expenses in 2009 versus the prior year negatively impacted earnings per share comparisons by $0.05 per share.
As there were no discontinued operations in the third quarter of fiscal 2009, net earnings were also $387 million and earnings per share were also $0.51 for the three months ended June 30, 2009, decreases of 37 percent and 35 percent, respectively, compared with the $612 million and $0.78 for the three months ended June 30, 2008. Net earnings for the third quarter of fiscal 2008 included a loss from discontinued operations of $35 million, or $0.04 per share, related to the European appliance motor and pump business.
BUSINESS SEGMENTS
Following is a summary of operating results for the Company's business segments
for the third quarter ended June 30, 2009, compared with the third quarter ended
June 30, 2008. The Company defines segment earnings as earnings before interest
and taxes.
Process Management
Three months ended June 30, 2008 2009 Change
(dollars in millions)
Sales $ 1,731 1,505 (13 )%
Earnings $ 346 222 (36 )%
Margin 20.0 % 14.8 %
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EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Process Management reported third quarter sales of $1,505 million, a decrease of 13 percent from the prior year. Nearly all of the businesses reported lower sales and earnings, led by the measurement and flow business, primarily as a result of weakness in the chemical, refining and marine markets. The decline was slightly offset by growth in the power and water business. Underlying sales decreased 9 percent, reflecting a decline in volume, with a 7 percent ($121 million) unfavorable impact from foreign currency translation and a 3 percent ($42 million) positive contribution from the Roxar acquisition. The decrease in underlying sales reflects declines in the United States (18 percent) and Latin America (19 percent) and moderate decreases in Europe (3 percent) and Middle East/Africa (5 percent), which were partially offset by an increase in Asia (3 percent). Earnings decreased 36 percent for the period, to $222 million from $346 million in the prior year, while margins decreased 5.2 percentage points primarily reflecting unfavorable product mix (approximately 2 points of margin) with measurement and flow declines greater than in the systems business, deleverage on the lower sales volume and significant inventory reductions (approximately 1 point of margin each) and higher restructuring costs of $14 million, which were partially offset by savings from cost reductions.
Industrial Automation
Three months ended June 30, 2008 2009 Change
(dollars in millions)
Sales $ 1,271 813 (36 )%
Earnings $ 186 41 (78 )%
Margin 14.6 % 5.0 %
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Sales decreased 36 percent to $813 million in the Industrial Automation segment for the third quarter. Sales results reflect significant declines across the segment due to the severe slowdown in the capital goods markets. All businesses declined, particularly power generating alternators, as well as fluid automation, electronic drives and electrical distribution. Underlying sales decreased 34 percent, foreign currency translation had a 5 percent ($81 million) unfavorable impact while the System Plast and Trident Power acquisitions added a 3 percent ($28 million) positive contribution. Underlying sales decreased 32 percent internationally, with all regions down, including a 37 percent decline in Europe and a 36 percent decline in the United States. The underlying sales decrease reflects an approximate 35 percent decline from volume, as well as an estimated 1 percent positive impact from price. Earnings were $41 million compared with $186 million in the prior year period, and margins decreased 9.6 percentage points primarily reflecting deleverage on the lower sales volume (approximately 7 points of margin) with significant inventory reduction (approximately 1 point of margin) and higher restructuring costs of $8 million, partially offset by savings from cost reduction actions and higher sales prices.
Network Power
Three months ended June 30, 2008 2009 Change
(dollars in millions)
Sales $ 1,672 1,306 (22 )%
Earnings $ 212 135 (36 )%
Margin 12.7 % 10.3 %
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Sales in the Network Power segment decreased 22 percent to $1,306 million for the third quarter 2009 compared with the prior year, reflecting declines in the uninterruptible power supply, precision cooling and embedded power businesses due to the slowdown in customers' capital spending, and a slight decline in the China network power business. The sales decrease reflects an underlying sales decline of 15 percent, a 4 percent ($59 million) unfavorable impact from foreign currency translation, and a 3 percentage points ($80 million) unfavorable impact from the decline in sales for the Embedded Computing acquisition. The underlying sales decrease reflects a volume decline of 14 percent and a 1 percent negative impact from lower selling prices. Geographically, underlying sales reflect decreases of 23 percent in the United States, 30 percent in Europe, and 8 percent in Latin America, while sales in Asia were flat. Earnings of $135 million decreased 36 percent compared to the prior year primarily due to lower sales volume and higher restructuring costs of $24 million (including acquisition integration costs). The margin decrease reflects deleverage from the lower sales volume, with decreases in inventory, and a negative impact from acquisitions which was partially offset by savings from cost reduction actions.
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q Climate Technologies Three months ended June 30, 2008 2009 Change (dollars in millions) Sales $ 1,087 859 (21 )% Earnings $ 169 131 (22 )% Margin 15.5 % 15.2 % |
Climate Technologies sales decreased 21 percent in the third quarter to $859 million, reflecting broad declines across all of the businesses, with steep declines in the temperature sensors, compressor and heater controls businesses. The sales decrease reflects a 20 percent decline in underlying sales, a 3 percent ($31 million) unfavorable impact from foreign currency translation and a 2 percent ($16 million) favorable impact from acquisitions. The underlying sales decrease includes an estimated 21 percent decline from lower volume and a 1 percent positive impact from higher pricing. Sales declines in the compressor business reflect the slowdown in the worldwide air-conditioning and refrigeration markets. Sales in the United States decreased 16 percent and international sales decreased 25 percent, including declines in Asia (23 percent) and Europe (30 percent). Earnings decreased 22 percent to $131 million, primarily on lower sales volume. The decrease in margin reflects deleverage on the lower sales volume and higher restructuring costs of $9 million, partially offset by savings from cost reductions. Sales price increases were slightly offset by an increase in wage costs.
Appliance and Tools Three months ended June 30, 2008 2009 Change (dollars in millions) Sales $ 998 771 (23 )% Earnings $ 138 108 (21 )% Margin 13.8 % 14.0 % |
Appliance and Tools segment sales decreased 23 percent to $771 million in the third quarter of 2009, reflecting a 22 percent decline in underlying sales and a 1 percent ($12 million) unfavorable impact from foreign currency translation. Declines in the storage, tools and appliance businesses were due to the continued downturn in the U.S. residential and nonresidential markets, while declines in the motors and appliance solutions businesses reflect major customers reducing inventory and production levels due to the difficult economic conditions. The underlying sales decrease of 22 percent reflects an estimated 24 percent decline in volume and an approximate 2 percent positive impact from price. Underlying international sales declined approximately 24 percent during the quarter, while underlying sales in the United States decreased 21 percent. Earnings were $108 million, a decrease of 21 percent compared with the prior year period, primarily due to lower sales volume. The margin increase reflects the benefit from the $9 million impairment charge in the appliance control business in the prior year, savings from cost reductions, sales prices increases and material cost containment which were substantially offset by deleverage on the lower sales volume.
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q NINE MONTHS ENDED JUNE 30, 2009, COMPARED WITH NINE MONTHS ENDED JUNE 30, 2008 RESULTS OF OPERATIONS Nine months ended June 30, 2008 2009 Change (dollars in millions, except per share amounts) Net sales $ 18,111 15,593 (14 )% Gross profit $ 6,665 5,671 (15 )% Percent of sales 36.8 % 36.4 % SG&A $ 3,757 3,401 Percent of sales 20.7 % 21.8 % Other deductions, net $ 170 353 Interest expense, net $ 147 157 Earnings from continuing operations before income taxes $ 2,591 1,760 (32 )% Percent of sales 14.3 % 11.3 % Earnings from continuing operations $ 1,764 1,218 (31 )% Net earnings $ 1,724 1,218 (29 )% Percent of sales 9.5 % 7.8 % EPS - Continuing operations $ 2.23 1.60 (28 )% EPS - Net earnings $ 2.18 1.60 (27 )% |
Net sales for the nine months ended June 30, 2009 were $15,593 million, a decrease of $2,518 million, or 14 percent, compared with net sales of $18,111 million for the nine months ended June 30, 2008. The consolidated results reflect a 10 percent ($1,793 million) decline in underlying sales, a 5 percent ($793 million) unfavorable impact from foreign currency translation and a 1 percent ($68 million) positive contribution from acquisitions. The decline in underlying sales for the nine months of fiscal 2009 reflects a 17 percent decrease in the United States and a 4 percent decrease in international sales, including decreases in Europe (11 percent), Middle East/Africa (3 percent) and Latin America (1 percent), partially offset by increases in Asia (1 percent) and Canada (3 percent). Underlying sales reflect an approximate 11 percent loss from volume and a 1 percent positive impact from higher pricing. Sales declined across all segments as the Company's businesses continued to be impacted by the broad slowdown in consumer and capital goods businesses.
Costs of sales for the nine months of fiscal 2009 and 2008 were $9,922 million and $11,446 million, respectively. Cost of sales as a percent of net sales was 63.6 percent in the nine months of 2009, compared with 63.2 percent in the nine months of 2008. Gross profit was $5,671 million and $6,665 million for the nine months ended June 30, 2009 and 2008, respectively, resulting in gross profit margins of 36.4 percent and 36.8 percent. The decrease in gross profit margin during the nine months of 2009 primarily reflects deleverage on the lower sales volume and negative product mix, which were partially offset by savings from productivity improvements. The negative impact of foreign currency translation and lower sales volume reduced the gross profit amount. Higher sales prices were partially offset by higher wage costs.
Selling, general and administrative (SG&A) expenses for the nine months of 2009 were $3,401 million, or 21.8 percent of net sales, compared with $3,757 million, or 20.7 percent of net sales for the nine months of 2008. The decrease of $356 million was largely due to lower sales volume, foreign currency translation and cost reductions. The increase in SG&A as a percent of sales was primarily the result of deleverage on the lower sales volume, partially offset by cost reductions and lower incentive stock compensation expense.
Other deductions, net were $353 million for the nine months of 2009, a $183 million increase from the $170 million for the same period in the prior year, due to higher rationalization costs in 2009 and lower nonrecurring gains. For the nine months ended June 30, 2009, costs for the rationalization of operations were $190 million, compared with $49 million in the prior year period. Gains were $35 million in the nine months of fiscal 2009, including the $25 million asset sale benefit in the second quarter, compared with gains of $64 million in the prior year. In the nine months of fiscal 2008, the Company recognized pretax gains of $39 million on the sale of its equity investment in Industrial Motion Control Holdings and $18 million on the sale of a facility. See Notes 5 and 6 for further details regarding other deductions, net and rationalization costs.
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q
Pretax earnings from continuing operations decreased $831 million for the nine months of 2009, or 32 percent to $1,760 million, compared with $2,591 million for the prior year. This decrease was primarily due to lower sales, lower gross profit and higher SG&A relative to sales, and an increase in other deductions, net. The earnings decline predominantly reflects decreases of $237 million in Industrial Automation, $190 million in Network Power, $163 million in Climate Technologies and $161 million in Appliance and Tools. Year-to-date pretax margin declined 3.0 percentage points, to 11.3 percent, primarily due to the factors cited in the discussion of third quarter results.
Income taxes were $542 million and $827 million for the nine months ended June 30, 2009 and 2008, respectively, resulting in effective tax rates of 31 percent and 32 percent, respectively. The effective tax rate for fiscal year 2009 is currently estimated to be 30 percent.
Earnings and earnings per share from continuing operations were $1,218 million and $1.60, respectively, for the nine months ended June 30, 2009, decreases of 31 percent and 28 percent, compared with $1,764 million and $2.23 for the nine months ended June 30, 2008. Higher restructuring expenses in 2009 combined with lower gains versus the prior year negatively impacted earnings per share comparisons by $0.15 per share. The 28 percent decrease in earnings per share also reflects the benefit of treasury share purchases.
As there were no discontinued operations in the nine months of fiscal 2009, net earnings were also $1,218 million and earnings per share were also $1.60 for the nine months ended June 30, 2009, decreases of 29 percent and 27 percent, respectively, compared with $1,724 million and $2.18 for the nine months ended June 30, 2008. Net earnings for the nine months of fiscal 2008 included a loss from discontinued operations of $40 million, or $0.05 per share, consisting of a $42 million gain from the sale of the Brooks Instrument unit, an $88 million loss related to the European appliance motor and pump business and combined earnings of $6 million related to these businesses.
BUSINESS SEGMENTS Following is a summary of segment results for the nine months ended June 30, 2009 compared with the nine months ended June 30, 2008. The Company defines segment earnings as earnings before interest and taxes. Process Management Nine months ended June 30, 2008 2009 Change (dollars in millions) Sales $ 4,764 4,588 (4 )% Earnings $ 890 782 (12 )% Margin 18.7 % 17.1 % |
Process Management sales were $4,588 million, a decrease of 4 percent from the prior year. Results were mixed across the segment with sales down for the measurement and flow and the systems and solutions businesses, reflecting weakness in the chemical, refining and marine markets, and modest sales growth for the valves business. Underlying sales increased 2 percent, reflecting volume gains, while foreign currency translation had an unfavorable impact of 7 percent ($318 million) and the Roxar acquisition had a favorable impact of 1 percent ($42 million). The underlying sales increase reflects growth in Asia (15 percent), Europe (3 percent), Latin America (3 percent) and Canada (11 percent), partially offset by decreases in the United States (6 percent) and Middle East/Africa (2 percent). Earnings for the first nine months decreased 12 percent, to $782 million from $890 million. The margin decrease reflects negative product mix and higher restructuring costs of $18 million, which were partially offset by savings from productivity improvements. Price increases and material cost containment were more than offset by higher wage costs.
EMERSON ELECTRIC CO. AND SUBSIDIARIES FORM 10-Q Industrial Automation Nine months ended June 30, 2008 2009 Change (dollars in millions) Sales $ 3,572 2,876 (19 ) % Earnings $ 528 291 (45 ) % Margin 14.8 % 10.1 % |
Sales for the Industrial Automation segment decreased 19 percent to $2,876 million for the nine months of 2009. Sales results reflect a steep decline among all businesses due to the slowdown in the capital goods markets. Underlying sales declined 16 percent, foreign currency translation had a 5 percent ($194 million) unfavorable impact and the System Plast and Trident Power acquisitions had a 2 percent ($59 million) positive contribution. The underlying sales decrease reflects an approximate 18 percent decline from volume, partially offset by an estimated 2 percent positive impact from price. Underlying sales included a 15 percent decrease internationally, primarily due to declines of 17 percent in Europe and 11 percent in Asia, and an 18 percent decrease in the United States. Earnings were $291 million compared with $528 million in the prior year primarily reflecting lower sales volume. The margin decrease reflects deleverage on the lower sales volume and higher restructuring costs of $14 million, partially offset by savings from cost reductions. Additionally, higher selling prices were partially offset by higher materials and wage costs.
Network Power Nine months ended June 30, 2008 2009 Change (dollars in millions) Sales $ 4,598 4,021 (13 ) % Earnings $ 579 389 (33 ) % Margin 12.6 % 9.7 % |
Network Power sales decreased 13 percent, to $4,021 million for the nine months of 2009, reflecting declines in the inbound power, uninterruptible power supply, precision cooling and embedded power businesses due to the continued slowdown in . . .
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