Exhibit 99.1
Contact: Mark Polzin or John Hastings (314) 982-1700 |
EMERSON REPORTS FOURTH-QUARTER EARNINGS PER SHARE OF
$1.01, DRIVEN BY SALES INCREASE OF 13 PERCENT
Strong Full-Year Results
| • | Record Sales of $17.3 billion, up 11 percent |
| • | Record Reported Earnings per Share of $3.40, up 14 percent |
| • | Earnings per Share of $3.55, up 19 percent excluding tax provision for earnings repatriation |
| • | Return on Total Capital of 15.5 percent, up 130 basis points from fiscal 2004 |
ST. LOUIS, November 1, 2005 – Emerson (NYSE: EMR) announced net sales for the fourth quarter ended September 30, 2005 were $4.6 billion, an increase of 13 percent over the $4.1 billion reported in the same period last year. The Company achieved underlying sales growth in the quarter of 9 percent, which excludes 4 percent for acquisitions. The strong sales growth generated net earnings in the quarter of $419 million, an 18 percent increase versus the prior year period. Earnings per share increased 20 percent to $1.01 from $0.84 in the fourth quarter of 2004. Earnings per share for the current quarter includes an additional $0.01 impact related to repatriation of foreign earnings under the American Jobs Creation Act. The Company had previously recognized a tax expense of $0.14 per share for repatriation in the quarter ended June 30, 2005.
Net sales increased 11 percent to $17.3 billion for the fiscal year ended September 30, 2005. This represents a $1.7 billion increase from last year’s sales of $15.6 billion. Earnings per share rose 19 percent to $3.55 in fiscal
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2005, which excludes the $0.15 impact of earnings repatriation. Reported earnings per share were $3.40, a 14 percent increase from the $2.98 reported in fiscal 2004.
“Emerson delivered another strong year in fiscal 2005, as record sales and earnings per share both saw double-digit increases for the second consecutive year,” said Emerson Chairman and CEO David N. Farr. “Our focus on the eight key growth initiatives and operational excellence programs continues to generate excellent results for our shareholders.”
Balance Sheet / Cash Flow
Operating cash flow was $2.2 billion in fiscal 2005, a 1 percent decrease from fiscal 2004 results which included a $140 million capital gain tax refund. The strong cash flow performance was achieved while also supporting working capital investments required to sustain continued strong sales and order growth. Despite these investments in working capital, Emerson saw continued improvement in working capital efficiency as average days-in-the-cash-cycle improved from 73 days in fiscal 2004 to 71 days in fiscal 2005.
“Emerson’s ability to successfully manage working capital and cash flow is driven by our sharp focus on creating value for shareholders. This focus helped us achieve a return on total capital of 16.1 percent excluding the $63 million tax provision for earnings repatriation. This represents a 190 basis point improvement from fiscal 2004 and our fourth consecutive year of improvement on this very important measure,” Farr said. On a reported basis return on total capital was 15.5 percent.
Fiscal 2005 Operating Highlights
Process Management had an exceptional year in 2005. Robust end market conditions, market leading technologies, and superior operational execution led to a record year for this segment. Sales for fiscal 2005 were $4.2
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billion, an increase of 13 percent versus prior year. Underlying sales growth, which excludes the impact of acquisitions and currency, was 9 percent, driven by increases in all regions and included 22 percent growth in Asia, 29 percent growth in Canada, and 13 percent growth in Latin America. Reported sales included a 2 percent favorable impact from acquisitions and 2 additional points from currency translation. The margin for this segment was 16 percent, a 310 basis point improvement versus fiscal 2004. The margin improvement was primarily driven by leverage on the sales increase and savings from prior year restructuring.
Industrial Automation also saw terrific results across the segment. Total sales were $3.2 billion, an increase of over 10 percent versus the prior year. Underlying sales growth was nearly 8 percent, led by 11 percent growth in the United States and 4 percent growth in both Europe and Asia. Reported sales growth included a favorable currency impact of nearly 3 percent. The margin for this segment was 14.3 percent, an increase of 100 basis points from fiscal 2004. The margin improvement reflects leverage on higher sales but was impacted negatively by price-cost impacts during the year, primarily for steel and copper. In addition, the recent years’ restructuring has continued to improve profitability.
Network Power sales were $3.3 billion in fiscal 2005, an increase of 23 percent versus the prior year. End markets remain strong across this business with particular strength in the AC power systems, uninterruptible power supplies (UPS), and precision cooling businesses. Underlying sales growth was 8 percent with acquisitions adding approximately 14 percent and currency adding 1 percent. The margin for this segment was 11.2 percent, an increase of 20 basis points versus the prior year. Sales volume leverage and cost reduction efforts were substantially offset by pricing pressure and integration costs related to the acquisition of Marconi’s North American power systems business.
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Climate Technologies sales for the year increased 2 percent to $3.0 billion. This was a volatile year for this segment as many unique market dynamics were experienced. Underlying sales growth was 1 percent excluding currency translation of 1 percent. The fiscal year growth was achieved on the strength of the fourth quarter, with underlying sales up 11 percent. Hot weather in the late summer months, combined with low inventory in the distribution channel helped to offset the effects of cooler-than-normal weather patterns in the late spring and early summer. Additionally, the pending transition in the United States to higher efficiency standards has driven some anticipatory demand. The fiscal 2005 margin for this segment was 14.9 percent, a decrease of 80 basis points from fiscal 2004, primarily due to negative product mix and material cost inflation.
Appliance and Tools achieved sales of $4.0 billion, an increase of 7 percent which included underlying sales growth of 3 percent. The growth was led by strength in the storage businesses and modest growth from the industrial motor business offset by softness in the appliance motor and component businesses. Reported sales included a favorable impact of 3 percent from acquisitions and 1 percent from currency translation. The margin for this segment was 13.3 percent, a decrease of 80 basis points as the segment was heavily affected by negative price-cost impacts and the dilutive impact of acquisitions. The necessary cost reduction and restructuring activities are under way to reverse this lower profit margin going forward.
First Quarter 2006 Outlook
The outlook for Emerson remains very favorable as we move into fiscal 2006. Many of Emerson’s end markets remain strong, a trend that is evidenced by orders increasing approximately 15 percent during the fourth quarter of 2005.
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Based on record backlog levels at the end of fiscal 2005 and near term market expectations, Emerson is expecting first quarter sales growth in the range of 8 percent to 10 percent and earnings per share growth in the range of 12 percent to 15 percent. Emerson will provide an update on the full fiscal year 2006 expectations at our annual investment community update in February 2006.
Upcoming Investor Events
On Tuesday, November 1, 2005, at 2:00 p.m. EST (1:00 p.m. CST), Emerson senior management will discuss the quarterly and fiscal year results during an investor conference call. All interested parties may listen to the live conference call via the Internet by going to the Investor Relations area of Emerson's web site at www.gotoemerson.com/financial and completing a brief registration form. A replay of the conference call will be available for the next three months at the same location on the Web site. Details of upcoming events will be posted as they occur in the Investor Relations Calendar of Events on the corporate Web site.
On Friday morning, February 10, 2006, Emerson senior management will host Emerson's annual investment community update meeting in New York City. Additional details will be available in December.
Forward-Looking and Cautionary Statements
Statements in this release that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties. These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the Company's most recent Form 10-K filed with the SEC.
The Company expects to file the Form 10-K including audited financial statements within the next 30 days.
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TABLE 1 | |||
EMERSON AND SUBSIDIARIES | |||
CONSOLIDATED OPERATING RESULTS | |||
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | |||
|
|
|
|
| Quarter Ended September 30, | Percent | |
| 2004 | 2005 | Change |
|
|
|
|
Net sales | $4,120 | $4,643 | 13% |
Less: Costs and expenses |
|
|
|
Cost of sales | 2,631 | 2,974 |
|
SG&A expenses | 860 | 923 |
|
Other deductions, net | 49 | 76 |
|
Interest expense, net | 50 | 51 |
|
Earnings before income taxes | 530 | 619 | 17% |
Income taxes | 176 | 200 |
|
Net earnings | $ 354 | $ 419 | 18% |
|
|
|
|
Diluted avg. shares outstanding (millions) | 421.5 | 414.9 |
|
|
|
|
|
Diluted earnings per common share | $ 0.84 | $ 1.01 | 20% |
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
| |
| 2004 | 2005 |
|
Other deductions, net |
|
|
|
Rationalization of operations | $ 37 | $ 28 |
|
Amortization of intangibles | 7 | 7 |
|
Other | 5 | 41 |
|
Total | $ 49 | $ 76 |
|
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TABLE 2 | |||
EMERSON AND SUBSIDIARIES | |||
CONSOLIDATED OPERATING RESULTS | |||
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | |||
|
|
|
|
| Year Ended September 30, | Percent | |
| 2004 | 2005 | Change |
|
|
|
|
Net sales | $15,615 | $17,305 | 11% |
Less: Costs and expenses |
|
|
|
Cost of sales | 10,049 | 11,122 |
|
SG&A expenses | 3,281 | 3,595 |
|
Other deductions, net | 223 | 230 |
|
Interest expense, net | 210 | 209 |
|
Earnings before income taxes | 1,852 | 2,149 | 16% |
Income taxes | 595 | 727 |
|
Net earnings | $ 1,257 | $ 1,422 | 13% |
|
|
|
|
Diluted avg. shares outstanding (millions) | 422.2 | 418.9 |
|
|
|
|
|
Diluted earnings per common share | $ 2.98 | $ 3.40 | 14% |
|
|
|
|
|
|
|
|
| Year Ended September 30, |
| |
| 2004 | 2005 |
|
Other deductions, net |
|
|
|
Rationalization of operations | $ 129 | $ 110 |
|
Amortization of intangibles | 21 | 28 |
|
Other | 100 | 118 |
|
Gains | (27) | (26) |
|
Total | $ 223 | $ 230 |
|
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TABLE 3 | |||
EMERSON AND SUBSIDIARIES | |||
CONSOLIDATED BALANCE SHEETS | |||
(DOLLARS IN MILLIONS) | |||
|
|
|
|
| September 30, | ||
| 2004 |
| 2005 |
Assets |
|
|
|
Cash and equivalents | $ 1,346 |
| $ 1,233 |
Receivables, net | 2,932 |
| 3,256 |
Inventories | 1,705 |
| 1,813 |
Other current assets | 433 |
| 535 |
Total current assets | 6,416 |
| 6,837 |
Property, plant & equipment, net | 2,937 |
| 3,003 |
Goodwill | 5,259 |
| 5,479 |
Other | 1,749 |
| 1,908 |
|
|
|
|
| $16,361 |
| $17,227 |
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
Short-term borrowings and current |
|
|
|
Accounts payable | 1,629 |
| 1,841 |
Accrued expenses | 1,695 |
| 1,839 |
Income taxes | 113 |
| 281 |
Total current liabilities | 4,339 |
| 4,931 |
Long-term debt | 3,136 |
| 3,128 |
Other liabilities | 1,648 |
| 1,768 |
Stockholders’ equity | 7,238 |
| 7,400 |
|
|
|
|
| $16,361 |
| $17,227 |
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TABLE 4 | |||
EMERSON AND SUBSIDIARIES | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
(DOLLARS IN MILLIONS) | |||
|
|
|
|
| Year Ended September 30, | ||
| 2004 |
| 2005 |
Operating Activities |
|
|
|
Net earnings | $ 1,257 |
| $ 1,422 |
Depreciation and amortization | 557 |
| 562 |
Changes in operating working capital | 322 |
| 110 |
Pension funding | (167) |
| (124) |
Other | 247 |
| 217 |
Net cash provided by operating activities | 2,216 |
| 2,187 |
|
|
|
|
Investing Activities |
|
|
|
Capital expenditures | (400) |
| (518) |
Purchases of businesses, net of cash and |
|
|
|
equivalents acquired | (414) |
| (366) |
Other | 97 |
| (44) |
Net cash used in investing activities | (717) |
| (928) |
|
|
|
|
Financing Activities |
|
|
|
Net increase (decrease) in short-term borrowings | (106) |
| 320 |
Proceeds from long-term debt | 29 |
| 251 |
Principal payments on long-term debt | (16) |
| (625) |
Dividends paid | (675) |
| (694) |
Treasury stock, net | (121) |
| (621) |
Net cash used in financing activities | (889) |
| (1,369) |
|
|
|
|
Effect of exchange rate changes on cash and |
|
|
|
|
|
|
|
Increase (decrease) in cash and equivalents | 650 |
| (113) |
|
|
|
|
Beginning cash and equivalents | 696 |
| 1,346 |
|
|
|
|
Ending cash and equivalents | $1,346 |
| $ 1,233 |
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TABLE 5 | |||
EMERSON AND SUBSIDIARIES | |||
SEGMENT SALES AND EARNINGS | |||
(DOLLARS IN MILLIONS) | |||
|
| ||
| Quarter Ended September 30, | ||
| 2004 |
| 2005 |
Sales |
| ||
Process Management | $ 1,024 |
| $ 1,168 |
Industrial Automation | 774 |
| 821 |
Network Power | 737 |
| 941 |
Climate Technologies | 744 |
| 825 |
Appliance and Tools | 943 |
| 1,020 |
| 4,222 |
| 4,775 |
Eliminations | (102) |
| (132) |
Net Sales | $ 4,120 |
| $ 4,643 |
|
|
|
|
| Quarter Ended September 30, | ||
| 2004 |
| 2005 |
Earnings |
|
|
|
Process Management | $ 167 |
| $ 203 |
Industrial Automation | 111 |
| 120 |
Network Power | 91 |
| 131 |
Climate Technologies | 113 |
| 115 |
Appliance and Tools | 131 |
| 137 |
| 613 |
| 706 |
Differences in accounting methods | 34 |
| 38 |
Corporate and other | (67) |
| (74) |
Interest expense, net | (50) |
| (51) |
Earnings before income taxes | $ 530 |
| $ 619 |
|
|
|
|
| Quarter Ended September 30, | ||
| 2004 |
| 2005 |
Rationalization of operations |
|
|
|
Process Management | $ 7 |
| $ 6 |
Industrial Automation | 3 |
| 3 |
Network Power | 5 |
| 6 |
Climate Technologies | 4 |
| 6 |
Appliance and Tools | 16 |
| 7 |
Corporate | 2 |
| - |
Total Emerson | $ 37 |
| $ 28 |
|
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TABLE 6 | |||
EMERSON AND SUBSIDIARIES | |||
SEGMENT SALES AND EARNINGS | |||
(DOLLARS IN MILLIONS) | |||
|
| ||
| Year Ended September 30, | ||
| 2004 |
| 2005 |
Sales |
| ||
Process Management | $ 3,703 |
| $ 4,200 |
Industrial Automation | 2,936 |
| 3,242 |
Network Power | 2,692 |
| 3,317 |
Climate Technologies | 2,983 |
| 3,041 |
Appliance and Tools | 3,749 |
| 4,008 |
| 16,063 |
| 17,808 |
Eliminations | (448) |
| (503) |
Net Sales | $ 15,615 |
| $ 17,305 |
|
|
|
|
| Year Ended September 30, | ||
| 2004 |
| 2005 |
Earnings |
|
|
|
Process Management | $ 476 |
| $ 671 |
Industrial Automation | 391 |
| 464 |
Network Power | 297 |
| 373 |
Climate Technologies | 467 |
| 453 |
Appliance and Tools | 530 |
| 534 |
| 2,161 |
| 2,495 |
Differences in accounting methods | 126 |
| 145 |
Corporate and other | (225) |
| (282) |
Interest expense, net | (210) |
| (209) |
Earnings from continuing operations before income taxes |
$ 1,852 |
|
$ 2,149 |
|
|
|
|
| Year Ended September 30, | ||
| 2004 |
| 2005 |
Rationalization of operations |
|
|
|
Process Management | $ 31 |
| $ 20 |
Industrial Automation | 14 |
| 15 |
Network Power | 26 |
| 35 |
Climate Technologies | 17 |
| 15 |
Appliance and Tools | 47 |
| 24 |
Corporate | (6) |
| 1 |
Total Emerson | $ 129 |
| $ 110 |
|
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TABLE 7 |
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| Reconciliations of Non-GAAP Financial Measures |
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| The following reconciles each non-GAAP measure with the most directly comparable GAAP measure (dollars in millions): |
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| 4Q 2005 | Fiscal 2005 | ||||||||
| Net Sales |
|
|
| ||||||||
| Underlying Sales (Non-GAAP) |
| 9 % | 6 % | ||||||||
| Currency Translation |
| 0 pts | 2 pts | ||||||||
| Acquisitions |
| 4 pts | 3 pts | ||||||||
| Net Sales |
| 13 % | 11 % | ||||||||
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| 2004 | 2005 | Change | ||||||||
| Fiscal Year Cash Flow |
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|
| ||||||||
| Operating Cash Flow | $ 2,216 | $ 2,187 | (1%) | ||||||||
| Percent to Earnings | 176% | 154% |
| ||||||||
| Capital Expenditures | 400 | 518 |
| ||||||||
| Free Cash Flow (Non-GAAP) | $ 1,816 | $ 1,669 | (8%) | ||||||||
| Percent to Earnings (Non-GAAP) | 144% | 117% |
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| Excl. Tax | ||||||||
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| Reported | Charge(1) | (Non-GAAP) | ||||||||
| Fiscal Year Excluding Tax Charge |
|
|
| ||||||||
| Earnings before income taxes | $ 2,149 |
| $ 2,149 | ||||||||
| Income taxes | 727 | (63) | 664 | ||||||||
| Effective tax rate | 33.8% |
| 30.9% | ||||||||
| Net earnings | $ 1,422 | 63 | $ 1,485 | ||||||||
| Diluted earnings per common share | $ 3.40 | $ 0.15 | $ 3.55 | ||||||||
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| ROTC excl. | ||||||||
| Return on Total Capital | Reported | Tax Charge(1) | Tax Charge | ||||||||
| Net Operating Profit After Tax | $ 1,561 | 63 | $ 1,624 | ||||||||
| Average Operating Capital | $10,074 | 32 | $10,106 | ||||||||
| Return on Total Capital | 15.5% |
| 16.1% | ||||||||
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| (1)Tax Charge relating to repatriation of foreign earnings under American Jobs Creation Act. | |||||||||||
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| All amounts above are GAAP financial measures except as noted. |
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