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Why Is Emerson Electric (EMR) Up 4.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Emerson Electric (EMR - Free Report) . Shares have added about 4.4% 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 its most recent earnings report in order to get a better handle on the important drivers.

Third-Quarter Fiscal 2018 Results

Emerson reported mixed results for third-quarter fiscal 2018 (Ended June 2018).

Earnings/Revenues

Adjusted earnings came in at 88 cents per share, higher than the year-ago tally of 68 cents per share. The bottom-line figure also surpassed the Zacks Consensus Estimate of 86 cents.

Revenues in the reported quarter came in at $4,456 million, up from the year-ago tally of $4,039 million. This upside stemmed from elevated demand from mature and emerging markets, acquisition benefits and favorable foreign currency-translation impact. However, the top-line figure missed the Zacks Consensus Estimate of $4,479 million.

Segmental Break-Up

Quarterly sales of Automation Solutions segment were $2,870 million, up 17.6% year over year.

However, the fiscal third-quarter revenues of Commercial & Residential Solutions segment came in at $1,592 million, down 0.6% year over year.

Costs/Margins

Cost of sales in the reported quarter was $2,361 million, down 5.8% year over year. Gross profit margin expanded 220 basis points (bps) year over year to 43.7%. The upside stemmed from stronger revenues and benefits of the restructuring actions undertaken last year.

Selling, general and administrative expenses in the reported quarter were $931 million, down from $1,054 million reported in the year-ago quarter. Adjusted earnings before interest and taxes (EBIT) margin was 18.1%, up 180 bps year over year.

Balance Sheet/Cash Flow

Exiting the fiscal third quarter, Emerson had cash and cash equivalents of $3,411 million, up from $3,140 million recorded as of Jun 30, 2017. Long-term debt came in at $3,126 million, down from $3,797 million witnessed in the comparable period last year.

In nine-month period ended fiscal 2018, the company generated $1,868 million cash from operating activities, up from $1,058 million recorded in the year-earlier period. Capital expenditure totaled $314 million, up 4.7% year over year.

Outlook

Emerson expects that favorable end-market conditions will continue to drive its revenues and profitability in the quarters ahead. The company has raised its earnings view for fiscal 2018 from $3.10-$3.20 per share to $3.30-$3.40 per share.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Emerson Electric has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 indicates a downward shift. 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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