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Why Is Emerson Electric (EMR) Up 4.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Emerson Electric (EMR - Free Report) . Shares have added about 4.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Emerson Electric due for a pullback? 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 drivers.

Emerson Q3 Earnings & Revenues Top Estimates, Up Y/Y

Emerson third-quarter fiscal 2021 (ended Jun 30, 2021) adjusted earnings of $1.09 per share beat the Zacks Consensus Estimate of 98 cents. On a year-over-year basis, the bottom line improved 36.3%.

Emerson’s net sales were $4,697 million in the quarter, reflecting an increase of 20% from the year-ago quarter. Underlying sales were up 15%, while acquired assets and currency translation had 1% and 4% of positive impacts on sales, respectively. The top line beat the Zacks Consensus Estimate of $4,602 million.

The company reports net sales under two segments — Automation Solutions and Commercial & Residential Solutions. Fiscal third-quarter segmental results are briefly discussed below:

Automation Solutions’ net sales were $2,947 million, increasing 13.8% year over year. Underlying sales of the segment increased 8%.

Commercial & Residential Solutions generated net sales of $1,757 million in the fiscal third quarter, up 32.4% year over year. Underlying sales were up 29%. Under the segment, Climate Technologies’ sales increased 30.7% to $1,268 million, and that from Tools & Home Products jumped 37% to $489 million.

Gross Margin

In the quarter under review, Emerson's cost of sales increased 18.2% year over year to $2,715 million. It represented 57.8% of net sales compared with 58.7% in the year-ago quarter. Gross margin was 42.2%, up 90 basis points.

Selling, general and administrative (SG&A) expenses increased 14.9% to $1,073 million. As a percentage of sales, SG&A expenses were 22.8% compared with 23.9% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting third-quarter fiscal 2021, Emerson had cash and cash equivalents of $2,860 million, up from $2,342 million in the previous quarter. Long-term debt balance increased 0.2% sequentially to $5,835 million. During the first nine months of fiscal 2021, the company repaid debts of $305 million.

In the first nine months of fiscal 2021, it generated net cash of $2,720 million from operating activities, reflecting an increase of 46.7% from the year-ago period. Capital expenditure was $350 million, up from $329 million.

During the first nine months of fiscal 2021, the company paid out dividends amounting to $909 million and repurchased shares worth $268 million.

Outlook

For fiscal 2021 (ending September 2021), it anticipates net sales growth of 9-10%. Underlying sales are expected to grow in the range of 5-6%. Adjusted earnings per share are predicted to be $4.07 for fiscal 2021.

Emerson expects Automation Solutions’ net sales to grow in the range of 5-6%, while Commercial & Residential Solutions’ net sales are projected to increase 17-18%.

The company anticipates generating operating cash flow of $3.6 billion, with free cash flow of $3 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, Emerson Electric has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Emerson Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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