It has been about a month since the last earnings report for Emerson Electric (
EMR Quick Quote EMR - Free Report) . Shares have lost about 4.1% 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 drivers.
Emerson's Q2 Earnings & Revenues Beat Estimates
Emerson reported second-quarter fiscal 2023 (ended Mar 31, 2023) adjusted earnings of $1.09 per share, which beat the Zacks Consensus Estimate of 97 cents. Our estimate for fiscal second-quarter adjusted earnings was 96 cents per share. The bottom line declined 15.5% in the reported quarter.
Emerson’s net sales of $3,756 million beat the Zacks Consensus Estimate of $3,650 million. This compared favorably with our estimate of $3,636.6 million. The top line increased 14% year over year. Underlying sales were up 14% as well. Segmental Details
Effective from the fiscal first quarter of 2023, the company started reporting under two segments, namely Intelligent Devices, and Software and Control Automation Solutions.
The Intelligent Devices segments’ net sales came in at $2,924 million, increasing 10% year over year. Our estimate for segmental revenues was $2,816.9 million. The segment consists of four subgroups, namely Final Control, Measurement & Analytical, Discrete Automation, and Safety & Productivity. Final Control’s revenues increased to $992 million from $884 million in the second quarter of fiscal 2023. Measurement & Analytical generated revenues of $888 million, up from $769 million in the second quarter of fiscal 2023. Discrete Automation’s revenues totaled $683 million compared with the $644 million reported in the year-ago quarter. Safety & Productivity’s revenues increased to $361 million from $355 million in the second quarter of fiscal 2023. The Software and Control Automation Solutions segment generated net sales of $853 million in the fiscal second quarter, up 30% year over year. Our estimate for segmental revenues was $841.2 million. The segment consists of two subgroups, namely Control Systems & Software, and AspenTech. Control Systems & Software reported revenues of $623 million compared with $573 million in the year-ago quarter. AspenTech generated net sales of $230 million, up 172% year over year. Margin Details
In the quarter under review, Emerson's cost of sales increased 7.7% year over year to $1,955 million. The pretax margin in the quarter was 17% compared with 15.5% in the year-ago period. The adjusted EBITA margin came in at 23.3% compared with 19.8% in the year-ago quarter. Selling, general and administrative expenses increased 12.6% to $1,000 million.
Balance Sheet and Cash Flow
Exiting second-quarter fiscal 2023, Emerson had cash and cash equivalents of $2,046 million compared with $6,929 million in the year-ago quarter. Long-term debt was $8,174 million compared with $8,203 million in the year-ago period. In the first six months of fiscal 2023, the company repaid debts of $742 million.
In the same time period, the company generated net cash of $486 million from operating activities, reflecting a decrease of 49.6% from the year-ago period. Capital expenditure was $121 million, down from $140 million in the year-ago period. The company paid out dividends of $603 million and repurchased common stocks worth $2000 million in the same period. FY23 & Q3 Outlook
Emerson anticipates year-over-year net sales growth of 9-10.5% in fiscal 2023 compared with 8-10% stated earlier. Underlying sales are expected to rise 8.5-10% in the year.
EMR anticipates earnings per share of $3.58-$3.68 for fiscal 2023 compared with $3.55-$3.70 mentioned earlier. Adjusted earnings per share are estimated to be $4.15-$4.25. For the third quarter of fiscal 2023, Emerson anticipates year-over-year net sales growth of 10.5-12.5% and underlying sales growth of 10-12%. Adjusted earnings per share is anticipated to be $1.07-$1.00. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Emerson Electric has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. 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.
Performance of an Industry Player
Emerson Electric is part of the Zacks Manufacturing - Electronics industry. Over the past month, Eaton (
ETN Quick Quote ETN - Free Report) , a stock from the same industry, has gained 6.3%. The company reported its results for the quarter ended March 2023 more than a month ago.
Eaton reported revenues of $5.48 billion in the last reported quarter, representing a year-over-year change of +13.2%. EPS of $1.88 for the same period compares with $1.62 a year ago.
Eaton is expected to post earnings of $2.08 per share for the current quarter, representing a year-over-year change of +11.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.1%.
Eaton has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.