On Mar 13, 2014, we issued an updated research report on Emerson Electric Co. (EMR - Analyst Report). The company had earlier reported better-than-expected quarterly results. The company benefited from accelerated growth conditions in emerging markets. Emerson’s Process Management also performed well, driven by good performances in the energy and chemical end markets.
Emerson delivered a positive earnings surprise in one of the last four quarters, with an average beat of 1.00%. It reported decent earnings in the first quarter of fiscal 2014, up 8.1% year over year, but in line with the Zacks Consensus Estimate.
Additionally, management provided an encouraging outlook for fiscal 2014. The company continues to expect earnings per share in the range of $3.68–$3.80, reflecting an increase of 33% to 38% on a reported basis.
The underlying sales are likely to grow in the range of 3% – 5% while net sales can lie anywhere between a decline of 1% to an increase of 1% given the impact of acquisitions, divestitures and currency translation on the business.
The company expects operating margins to increase by 0.5%, driven by change in business mix and increasing volumes. However, increasing strategic investments might prove to be a drag for the company’s margins.
Emerson is well positioned to benefit from the long-term global trends of infrastructure spending and improved energy efficiency. As the emerging economies grow, these are increasingly investing in infrastructure necessary to support a modern economy. Emerson is expected to benefit from the steady adoption of central air conditioning in Asia, driven by the emerging middle class and broader energy efficiency initiatives.
Moreover, the company’s residential segment and especially its air conditioning, professional tools and food waste disposer businesses are likely to benefit from increasing investments in North America. The company’s cost cutting and restructuring initiatives are also expected to be beneficial going forward. For the last two years, the company is focusing on reducing costs, while boosting profits and margins significantly.
Emerson currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Stocks that are worth considering within this sector are Enersys Inc. (ENS - Snapshot Report), Franklin Electric (FELE - Snapshot Report) and Quanta Services Inc. (PWR - Analyst Report), all carrying a Zacks Rank #2 (Buy).