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It has been about a month since the last earnings report for Emerson Electric (EMR). Shares have lost about 7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Emerson Electric due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Emerson Q4 Earnings Beat Estimates, Revenues Miss
Emerson fourth-quarter fiscal 2021 (ended Sep 30, 2021) adjusted earnings of $1.21 per share beat the Zacks Consensus Estimate of $1.19. On a year-over-year basis, the bottom line improved 10%.
In fiscal 2021, the company’s adjusted earnings were $4.10, up 18.5% on a year-over-year basis.
Inside the Headlines
Emerson’s net sales were $4,947 million in the quarter, reflecting an increase of 8.5% from the year-ago quarter. Underlying sales were up 7% while acquired assets and currency translation each had 1% of positive impacts on sales. However, the top line missed the Zacks Consensus Estimate of $5,107 million. As noted, supply chain, logistics, and labor constraints had an adverse impact of $175 million on net sales in the quarter.
In fiscal 2021, the company’s net sales were $18,236 million, up 8.6% on a year-over-year basis.
The company reports net sales under two segments — Automation Solutions and Commercial & Residential Solutions. Fiscal fourth-quarter segmental results are briefly discussed below:
Automation Solutions’ net sales were $3,178 million, increasing 5.8% year over year. Underlying sales of the segment increased 3%. Commercial & Residential Solutions generated net sales of $1,775 million in the fiscal fourth quarter, up 14.1% year over year. Underlying sales were up 13%. Under the segment, Climate Technologies’ sales increased 16% to $1,289 million and that from Tools & Home Products jumped 9.5% to $486 million.
In the quarter under review, Emerson's cost of sales increased 10.3% year over year to $2,951 million. It represented 59.7% of net sales compared with 58.7% in the year-ago quarter. Pretax margin in the quarter was 16.7%, down 10 basis points (bps). Adjusted EBIT margin came in at 19%, down 30 bps. Selling, general and administrative (SG&A) expenses increased 11.4% to $1,054 million. As a percentage of sales, SG&A expenses were 21.3% compared with 20.8% in the year-ago quarter.
Balance Sheet and Cash Flow
Exiting fiscal 2021, Emerson had cash and cash equivalents of $2,354 million, down from $2,860 million in the previous quarter. Long-term debt balance decreased 0.7% sequentially to $5,793 million. During fiscal 2021, the company repaid debts of $308 million.
In fiscal 2021, it generated net cash of $3,575 million from operating activities, reflecting an increase of 16% from the year-ago period. Capital expenditure was $581 million, up from $538 million.
During the fiscal 2021, the company paid out dividends amounting to $1,210 million and repurchased shares worth $500 million.
For fiscal 2022 (ending September 2022), it anticipates net sales growth of 5-7%. Underlying sales are expected to grow in the range of 6-8%.
Adjusted earnings per share are predicted to lie in the range of $4.82-$4.97 for fiscal 2022.
Emerson expects Automation Solutions’ net sales to grow in the range of 5-7% while Commercial & Residential Solutions’ net sales are projected to increase 6-9%.
The company anticipates generating operating cash flow of $3.8 billion, with free cash flow of $3.1 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
Currently, Emerson Electric has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Emerson Electric has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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