Emerson Electric Co. (EMR - Free Report) seems to have lost its sheen to a challenging global manufacturing market, high costs and expenses, and forex woes. Also, weak price performance and fall in earnings estimates are reflective of bearish sentiments toward the stock.
The company, with a market capitalization of $45.7 billion, currently carries a Zacks Rank #5 (Strong Sell). It engages in providing process control systems & solutions, actuators & regulators, industrial and commercial refrigeration technologies, air conditioning and heating products for residential and commercial markets, and others.
The company belongs to the Zacks Manufacturing - Electronics industry, which is currently at the bottom 15% (with the rank of 216) of more than 250 Zacks industries. The industry is suffering from global uncertainties, unfavorable movements in foreign currencies, cost escalation and other headwinds.
Emerson’s fourth-quarter fiscal 2019 (ended Sep 30, 2019) earnings were in line with estimates while sales lagged the same by 1.5%. It delivered an average trailing four-quarter positive earnings surprise 3.03%. Over the past three months, the company’s shares have gained 15.2% compared with the industry’s growth of 8.3%.
Despite healthy price performance, there are many factors that are hurting the company’s investment appeal.
Top-Line Weakness: In fourth-quarter fiscal 2019, Emerson’s revenues were adversely impacted by softness in automotive, semiconductor, packaging and textiles end markets.
Emerson believes that persistent weakness in the global discrete manufacturing market is a near-term concern. For fiscal 2020 (ending September 2020), the company predicts sales to be down 3% to up 1% year over year compared with 6% rise estimated earlier. Net sales of Automation Solutions segment are projected to be down 2% to up 2%, whereas Commercial & Residential Solutions segment’s net sales are likely to decline 1-5% in fiscal 2020.
High Costs & Expenses: Over the past few quarters, Emerson has been facing headwinds from high costs and expenses. The company’s costs of sales increased 6.7% and 0.5% in the third quarter (ended June 2019) and fourth quarter of fiscal 2019, respectively. Also, selling, general and administrative expenses jumped 4.4% year over year in fiscal 2019.
Forex Woes: Geographical diversification, with a presence in the United States, Europe, Asia and the Middle East & Africa region, has exposed Emerson to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. Notably, unfavorable movements in foreign currencies adversely impacted the company’s sales by 2% in fourth-quarter fiscal 2019.
Emerson expects forex woes to persist in fiscal 2020 and adversely impact its sales.
Bottom-Line Estimate Trend: The Zacks Consensus Estimate for Emerson’s earnings was lowered in the past 60 days. The consensus estimate for earnings per share is currently pegged at $3.62 for fiscal 2020 and $3.92 for fiscal 2021 (ending September 2021), reflecting a respective decline of 5% and 3.7% from the 60-day-ago figures.
Also, earnings estimates for first-quarter fiscal 2020 (ending December 2019) and second-quarter fiscal 2020 (ending March 2020) were lowered by 4.3% to 67 cents and 2.3% to 84 cents from the respective 60-day-ago figures.
Emerson Electric Co. Price and Consensus