Emerson has reported results for 1Q20, ended 31 December 2019 and has announced updated guidance for the fiscal year.
First quarter net sales were flat and underlying sales were flat excluding unfavourable currency of 1% and a positive impact from acquisitions net of divestitures of 1%. Growth was in-line with management’s expectations for Commercial & Residential Solutions but somewhat below expectations for Automation Solutions due mainly to slower North American upstream oil and gas markets and a global decline in discrete end market demand. First quarter trailing three-month underlying orders were up 1% including several key LNG project wins, an encouraging early indication for greenfield LNG investment.
First quarter gross profit margin of 42.4% was approximately flat compared with the prior year, reflecting favourable price-cost offset by unfavourable mix primarily within the Automation Solutions business, as sales of some of the company’s more profitable businesses declined in North America. Pre-tax margin of 10.2% and EBIT margin of 11.0% were down 4.0 and 4.3%, respectively. Adjusted EBIT margin, which excludes restructuring and related charges, was 13.7%, down 1.8%, reflecting an unfavourable impact of 2.2% from foreign currency transaction losses, higher pension expense due to lower discount rates, and higher stock compensation charges due to a higher stock price.
GAAP earnings per share were US$0.53 and adjusted earnings per share, which excludes US$0.14 of restructuring and related charges (US$110 million in total), were US$0.67, in-line with management’s expectations due to a favourable impact from prior period restructuring actions, despite lower sales.
Operating cash flow was US$424 million, up US$101 million, and free cash flow was US$310 million, up US$142 million, reflecting free cash flow conversion of 94% in the quarter.
“Our first quarter results provide a solid start to the year,” said Emerson Chairman and CEO David N. Farr. “Even with slightly lower-than-expected sales, we delivered in-line adjusted earnings per share as our teams executed well and we realised benefits from the 2019 restructuring actions. Throughout the year, we plan to prioritise driving higher margins in a no-growth environment.”
“Sales and underlying orders were slightly below our expectations in the first quarter as North American upstream operators further slowed investment spending and demand from distributors serving discrete manufacturing was weak in December,” Farr continued. “However, we booked the first phases of key LNG projects that had been delayed from the second half of fiscal 2019, an encouraging early indication. We will continue to closely monitor the health of the capital spending cycle.”
“As a foundational step in the previously announced Board of Directors’ operational review, our teams all over the world initiated US$97 million of restructuring actions in the quarter – well above the US$70 million target discussed on the fourth quarter earnings call. We look forward to laying out details of our long-term plan at our February Investor Conference.”
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