It has been about a month since the last earnings report for Emerson Electric (EMR Quick QuoteEMR - Free Report) . Shares have added about 0.7% 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 Q2 Earnings & Revenues Top Estimates, Up Y/Y

Emerson reported better-than-expected second-quarter fiscal 2022 (ended Mar 31, 2022) results, with earnings and sales surpassing estimates by 9.3% and 1.7%, respectively.

The company’s adjusted earnings came in at $1.29 per share, beating the Zacks Consensus Estimate of $1.18. On a year-over-year basis, the bottom line improved 21%.

Inside the Headlines

Emerson’s net sales were $4,791 million in the quarter, reflecting an increase of 8% from the year-ago quarter. Underlying sales were up 10%. The top line beat the Zacks Consensus Estimate of $4,711 million.

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

Automation Solutions’ net sales were $2,937 million, increasing 5.2% year over year. Underlying sales of the segment increased 7%. Commercial & Residential Solutions generated net sales of $1,857 million in the fiscal second quarter, up 12.9% year over year. Underlying sales were up 14%. Under the segment, Climate Technologies’ sales increased 15.6% to $1,341 million and that from Tools & Home Products jumped 6.4% to $516 million.

Margin Details

In the quarter under review, Emerson's cost of sales increased 10.5% year over year to $2,839 million. It represented 59.3% of net sales compared with 58% in the year-ago quarter. Pretax margin in the quarter was 16.9%, up 30 basis points (bps). Adjusted EBITA margin came in at 20.2%, up 20 bps. Selling, general and administrative (SG&A) expenses decreased 0.5% to $1,049 million. As a percentage of sales, SG&A expenses were 21.9% compared with 23.8% in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting second-quarter fiscal 2022, Emerson had cash and cash equivalents of $6,929 million, up from $4,726 million in the previous quarter. The long-term debt balance decreased 6% sequentially to $8,203 million. During the first six months of fiscal 2022, the company repaid debts of $504 million.

In the first six months of fiscal 2022, it generated net cash of $965 million from operating activities, reflecting a decrease of 40.2% from the year-ago period. Capital expenditure was $225 million, down from $222 million.

During the first six months of fiscal 2022, the company paid out dividends of $613 million and repurchased shares worth $285 million.

Outlook

For fiscal 2022 (ending September 2022), it anticipates net sales growth of 8-10%, higher than 6-8% increase predicted earlier. Underlying sales are expected to grow in the range of 9-11% compared with 7-9% growth projected earlier.

For fiscal 2022, adjusted earnings per share are predicted to lie in the range of $4.95-$5.10 compared with $4.90-$5.05 estimated previously.

For the fiscal year, Emerson expects Automation Solutions’ net sales to grow in the range of 6-8% while Commercial & Residential Solutions’ net sales are projected to increase 11-13%.

The company anticipates generating an operating cash flow of $3.6 billion, with a free cash flow of $3 billion. It expects to repurchase $250-$500 million worth of shares and pay dividends totaling $1.2 billion in fiscal 2022.

For the third quarter of fiscal 2022 (ending June 2022), it anticipates net sales growth of 7-9%. Underlying sales are expected to grow in the range of 9-11%.

For the fiscal third quarter, adjusted earnings per share are expected to lie in the range of $1.25-$1.30.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Emerson Electric has a subpar Growth Score of D, however its Momentum Score is doing a lot 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 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 downward for the stock, and the magnitude of these revisions has been net zero. Notably, Emerson Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Emerson Electric belongs to the Zacks Manufacturing - Electronics industry. Another stock from the same industry, A.O. Smith (AOS Quick QuoteAOS - Free Report) , has gained 3.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

A.O. Smith reported revenues of $977.7 million in the last reported quarter, representing a year-over-year change of +27.1%. EPS of $0.77 for the same period compares with $0.60 a year ago.

For the current quarter, A.O. Smith is expected to post earnings of $0.82 per share, indicating a change of +12.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for A.O. Smith. Also, the stock has a VGM Score of B.