Exhibit 99.1
| Contact: Mark Polzin |
| or John Hastings |
| (314) 982-1700 |
EMERSON REPORTS STRONG SECOND-QUARTER 2006 RESULTS
| • | Sales increased 15 percent to $4.9 billion |
| • | Earnings per share increased 27 percent to $1.05 |
| • | Operating cash flow increased 24 percent to $549 million |
| • | Full year 2006 earnings per share target raised to $4.25 to $4.35 |
ST. LOUIS, May 2, 2006 – Emerson (NYSE: EMR) announced net sales for the second quarter ended March 31, 2006 were $4.9 billion, an increase of 15 percent over the $4.2 billion reported in the prior year. Net earnings for the second quarter increased 25 percent to $434 million, or $1.05 per share. This represents a 27 percent increase in earnings per share from the $0.83 earned in the same period last year. For the six months ended March 31, 2006 sales were $9.4 billion, a 15 percent increase from the same period last year. This helped to generate earnings per share of $2.01 for the first six months of 2006, a 31 percent increase from the prior year.
The Company achieved underlying sales growth of 14 percent in the quarter, excluding the impact of unfavorable exchange rates (2 percent) and growth from acquisitions (3 percent). This exceptional sales growth demonstrates the superior growth profile of Emerson’s businesses, with sales growth in all five business segments and double-digit increases from four of the five segments, as shown below:
|
| Quarter Ended March 31, |
|
| ||
(dollars in millions) |
| 2005 |
| 2006 |
| % Change |
Sales: |
|
|
|
|
|
|
Process Management | $ | 1,009 | $ | 1,143 |
| 13% |
Industrial Automation |
| 799 |
| 931 |
| 17% |
Network Power |
| 765 |
| 1,004 |
| 31% |
Climate Technologies |
| 775 |
| 852 |
| 10% |
Appliance and Tools |
| 1,011 |
| 1,072 |
| 6% |
|
| 4,359 |
| 5,002 |
|
|
Eliminations |
| (132) |
| (150) |
|
|
Net Sales | $ | 4,227 | $ | 4,852 |
| 15% |
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“Emerson’s second quarter performance is a continuation of the very strong results achieved over the last year and is due to our continued focus on the eight strategic initiatives that are driving exceptional organic growth,” said David N. Farr, chairman, chief executive officer and president. “Global economic conditions continue to provide a favorable background for Emerson’s businesses. Our solid strategic position across the markets we serve and the dedication of thousands of employees all over the world helped make these great results possible,” Farr said.
“Our second quarter operating profit margin improved to 15.0 percent from 14.4 percent in the prior period. Margins improved in four of the five business segments, largely as a result of leverage on the volume increases and benefits from prior restructuring activities, which were partially offset by higher pension costs. Pretax margins improved to 12.9 percent from 11.8 percent in the prior period. Emerson’s procurement organization is sharply focused on containing the inflationary pressures on key commodities, namely steel, copper, and aluminum. This continues to be a challenge and requires that we initiate selective price increases in order to help offset material increases.”
Segment Highlights
| • | The strength of the Process Management offering is shown by the continued strong order growth, which we have converted into strong sales performance over the last 18 months. During the second quarter, Process Management was awarded a contract in the United States to provide automated control systems for three BP refinery upgrades and also entered a seven-year agreement with Suncor to automate its North American facilities. |
| • | Industrial Automation experienced very strong growth in the quarter, with favorable dynamics in all major geographic regions, especially the United |
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States and Europe. Robust activity in the oil, gas, mining, and metals markets drove growth in the alternator, electrical distribution, and mechanical power transmission businesses.
| • | Network Power had another exceptional quarter as the leverage of a 31 percent increase in sales to the computing and telecommunications markets boosted operating profits. The segment is positioned for further growth, and recent acquisitions of Knürr AG and Artesyn Technologies strengthen its position. |
| • | The final conversion during the quarter to the new 13-SEER air-conditioning standard boosted U.S. sales for Climate Technologies. Sales in Europe also increased, but the benefits of higher sales volumes were more than offset by higher commodity costs and increased restructuring expenses. |
| • | Appliance and Tools had solid sales and margin performance in the quarter. The tools and storage business delivered strong growth driven largely by demand in the non-residential construction markets. The segment margin benefited from prior cost reduction efforts and leverage on the increased sales. |
Balance Sheet / Cash Flow
Operating cash flow was $549 million in the second quarter of 2006, an increase of 24 percent from the second quarter of 2005. The increase was driven by the earnings growth in the quarter and continued execution on working capital improvement programs. Emerson continues to manage the demands for working capital during this period of strong sales growth. The success of these programs is evidenced by the ratio of trade working capital to sales, which dropped to 18.6 percent in the current quarter compared to 20.2 percent in the same period last year.
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2006 Outlook
The strong order growth and financial performance for the first half of the year has strengthened the outlook for the full year. Emerson now expects consolidated sales growth in the range of 12 percent to 15 percent, driven by strong underlying sales growth (excluding foreign currency translation and acquisitions), which is now expected to be in the range of 10 percent to 12 percent. Based on this higher level of sales we now expect earnings per share in the range of $4.25 to $4.35, an increase over our prior EPS guidance range of $4.10 to $4.30. This updated outlook includes the sales and earnings per share impact of acquiring Artesyn Technologies, which is expected to add sales of approximately $200 million and be dilutive to earnings per share by $0.02 to $0.03 as we integrate Artesyn with our existing embedded power business. Additionally, we expect operating cash flow for the full year of approximately $2.5 billion.
Upcoming Investor Events
On Tuesday, May 2, 2006, at 2:00 p.m. EDT (1:00 p.m. CDT), Emerson senior management will discuss the second-quarter fiscal 2006 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.
Forward-Looking and Cautionary Statements
Statements in this release that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statement to reflect later developments. 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.
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TABLE 1
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
|
| Quarter Ended March 31, | Percent | ||
|
| 2005 |
| 2006 | Change |
|
|
|
|
|
|
Net sales | $ | 4,227 | $ | 4,852 | 15% |
Less: Costs and expenses |
|
|
|
|
|
Cost of sales |
| 2,725 |
| 3,118 |
|
SG&A expenses |
| 893 |
| 1,005 |
|
Other deductions, net |
| 59 |
| 54 |
|
Interest expense, net |
| 52 |
| 50 |
|
Earnings before income taxes |
| 498 |
| 625 | 26% |
Income taxes |
| 150 |
| 191 |
|
Net earnings | $ | 348 | $ | 434 | 25% |
|
|
|
|
|
|
Diluted avg. shares outstanding (millions) |
| 420.9 |
| 414.5 |
|
|
|
|
|
|
|
Diluted earnings per common share | $ | 0.83 | $ | 1.05 | 27% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended March 31, |
| ||
|
| 2005 |
| 2006 |
|
Other deductions, net |
|
|
|
|
|
Rationalization of operations | $ | 28 | $ | 22 |
|
Amortization of intangibles |
| 7 |
| 10 |
|
Other |
| 24 |
| 28 |
|
Gains |
| - |
| (6) |
|
Total | $ | 59 | $ | 54 |
|
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|
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TABLE 2
EMERSON AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
|
| Six Months Ended March 31, | Percent | ||
|
| 2005 |
| 2006 | Change |
|
|
|
|
|
|
Net sales | $ | 8,197 | $ | 9,400 | 15% |
Less: Costs and expenses |
|
|
|
|
|
Cost of sales |
| 5,283 |
| 6,073 |
|
SG&A expenses |
| 1,765 |
| 1,955 |
|
Other deductions, net |
| 111 |
| 77 |
|
Interest expense, net |
| 106 |
| 100 |
|
Earnings before income taxes |
| 932 |
| 1,195 | 28% |
Income taxes |
| 287 |
| 362 |
|
Net earnings | $ | 645 | $ | 833 | 29% |
|
|
|
|
|
|
Diluted avg. shares outstanding (millions) |
| 421.4 |
| 414.0 |
|
|
|
|
|
|
|
Diluted earnings per common share | $ | 1.53 | $ | 2.01 | 31% |
|
|
|
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|
|
|
|
|
|
|
|
|
| Six Months Ended March 31, |
| ||
|
| 2005 |
| 2006 |
|
Other deductions, net |
|
|
|
|
|
Rationalization of operations | $ | 57 | $ | 34 |
|
Amortization of intangibles |
| 13 |
| 19 |
|
Other |
| 67 |
| 54 |
|
Gains |
| (26) |
| (30) |
|
Total | $ | 111 | $ | 77 |
|
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TABLE 3
EMERSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
|
| March 31, | ||
|
| 2005 |
| 2006 |
Assets |
|
|
|
|
Cash and equivalents | $ | 1,606 | $ | 604 |
Receivables, net |
| 3,155 |
| 3,404 |
Inventories |
| 1,907 |
| 2,063 |
Other current assets |
| 478 |
| 560 |
Total current assets |
| 7,146 |
| 6,631 |
Property, plant & equipment, net |
| 2,976 |
| 2,990 |
Goodwill |
| 5,406 |
| 5,636 |
Other |
| 1,735 |
| 1,952 |
|
|
|
|
|
| $ | 17,263 | $ | 17,209 |
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Short-term borrowings and current |
|
|
|
|
Accounts payable |
| 1,653 |
| 1,867 |
Accrued expenses |
| 1,736 |
| 1,705 |
Income taxes |
| 149 |
| 279 |
Total current liabilities |
| 5,107 |
| 4,263 |
Long-term debt |
| 2,881 |
| 3,132 |
Other liabilities |
| 1,664 |
| 1,867 |
Stockholders’ equity |
| 7,611 |
| 7,947 |
|
|
|
|
|
| $ | 17,263 | $ | 17,209 |
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TABLE 4
EMERSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
|
| Six Months Ended March 31, | ||
|
| 2005 |
| 2006 |
Operating Activities |
|
|
|
|
Net earnings | $ | 645 | $ | 833 |
Depreciation and amortization |
| 276 |
| 294 |
Changes in operating working capital |
| (284) |
| (376) |
Other |
| 65 |
| 117 |
Net cash provided by operating activities |
| 702 |
| 868 |
|
|
|
|
|
Investing Activities |
|
|
|
|
Capital expenditures |
| (232) |
| (214) |
Purchases of businesses, net of cash & |
|
|
|
|
Other |
| (16) |
| 13 |
Net cash used in investing activities |
| (345) |
| (470) |
|
|
|
|
|
Financing Activities |
|
|
|
|
Net increase (decrease) in short-term |
|
|
|
|
Proceeds from long-term debt |
| 1 |
| 5 |
Principal payments on long-term debt |
| (17) |
| (257) |
Dividends paid |
| (349) |
| (367) |
Purchases of treasury stock |
| (227) |
| (111) |
Other |
| 15 |
| 15 |
Net cash used in financing activities |
| (163) |
| (1,026) |
|
|
|
|
|
Effect of exchange rate changes on cash and |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and equivalents |
| 260 |
| (629) |
|
|
|
|
|
Beginning cash and equivalents |
| 1,346 |
| 1,233 |
|
|
|
|
|
Ending cash and equivalents | $ | 1,606 | $ | 604 |
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TABLE 5
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
|
| Quarter Ended March 31, | ||
|
| 2005 |
| 2006 |
Sales |
|
|
|
|
Process Management | $ | 1,009 | $ | 1,143 |
Industrial Automation |
| 799 |
| 931 |
Network Power |
| 765 |
| 1,004 |
Climate Technologies |
| 775 |
| 852 |
Appliance and Tools |
| 1,011 |
| 1,072 |
|
| 4,359 |
| 5,002 |
Eliminations |
| (132) |
| (150) |
Total Emerson | $ | 4,227 | $ | 4,852 |
|
|
|
|
|
|
| Quarter Ended March 31, | ||
|
| 2005 |
| 2006 |
Earnings |
|
|
|
|
Process Management | $ | 154 | $ | 190 |
Industrial Automation |
| 106 |
| 131 |
Network Power |
| 77 |
| 119 |
Climate Technologies |
| 121 |
| 125 |
Appliance and Tools |
| 134 |
| 151 |
|
| 592 |
| 716 |
Differences in accounting methods |
| 35 |
| 42 |
Corporate and other |
| (77) |
| (83) |
Interest expense, net |
| (52) |
| (50) |
Earnings before income taxes | $ | 498 | $ | 625 |
|
|
|
|
|
|
| Quarter Ended March 31, | ||
|
| 2005 |
| 2006 |
Rationalization of operations |
|
|
|
|
Process Management | $ | 4 | $ | 1 |
Industrial Automation |
| 4 |
| 3 |
Network Power |
| 10 |
| 3 |
Climate Technologies |
| 3 |
| 8 |
Appliance and Tools |
| 6 |
| 7 |
Corporate |
| 1 |
| - |
Total Emerson | $ | 28 | $ | 22 |
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TABLE 6
EMERSON AND SUBSIDIARIES
SEGMENT SALES AND EARNINGS
(DOLLARS IN MILLIONS)
|
| Six Months Ended March 31, | ||
|
| 2005 |
| 2006 |
Sales |
|
|
|
|
Process Management | $ | 1,971 | $ | 2,240 |
Industrial Automation |
| 1,595 |
| 1,791 |
Network Power |
| 1,538 |
| 1,943 |
Climate Technologies |
| 1,379 |
| 1,600 |
Appliance and Tools |
| 1,949 |
| 2,112 |
|
| 8,432 |
| 9,686 |
Eliminations |
| (235) |
| (286) |
Total Emerson | $ | 8,197 | $ | 9,400 |
|
|
|
|
|
|
| Six Months Ended March 31, | ||
|
| 2005 |
| 2006 |
Earnings |
|
|
|
|
Process Management | $ | 284 | $ | 366 |
Industrial Automation |
| 226 |
| 274 |
Network Power |
| 144 |
| 227 |
Climate Technologies |
| 207 |
| 227 |
Appliance and Tools |
| 253 |
| 271 |
|
| 1,114 |
| 1,365 |
Differences in accounting methods |
| 68 |
| 82 |
Corporate and other |
| (144) |
| (152) |
Interest expense, net |
| (106) |
| (100) |
Earnings before income taxes | $ | 932 | $ | 1,195 |
|
|
|
|
|
|
| Six Months Ended March 31, | ||
|
| 2005 |
| 2006 |
Rationalization of operations |
|
|
|
|
Process Management | $ | 9 | $ | 3 |
Industrial Automation |
| 8 |
| 5 |
Network Power |
| 22 |
| 6 |
Climate Technologies |
| 5 |
| 9 |
Appliance and Tools |
| 12 |
| 11 |
Corporate |
| 1 |
| - |
Total Emerson | $ | 57 | $ | 34 |
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TABLE 7
Reconciliations of Non-GAAP Financial Measures
The following reconciles each non-GAAP measure with the most directly comparable GAAP measure (dollars in millions):
|
|
|
|
| Percent |
|
| 2005 |
| 2006 | Change |
|
|
|
|
|
|
Second-Quarter Operating Profit |
|
|
|
|
|
Net Sales | $ | 4,227 | $ | 4,852 | 15% |
Cost of Sales |
| 2,725 |
| 3,118 |
|
SG&A Expenses |
| 893 |
| 1,005 |
|
Operating Profit (Non-GAAP) |
| 609 |
| 729 | 20% |
OP % (Non-GAAP) |
| 14.4 | % | 15.0 | % |
Other Deductions, Net |
| 59 |
| 54 |
|
Interest Expense, Net |
| 52 |
| 50 |
|
Pretax Earnings | $ | 498 | $ | 625 | 26% |
Pretax Earnings % |
| 11.8 | % | 12.9 | % |
|
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| Expected |
|
|
| |
| Fiscal 2006 |
|
|
| |
Net Sales |
|
|
|
|
|
Underlying Sales (Non-GAAP) |
| 10 – 12 | % |
|
|
Fgn. Currency Translation / Acquisitions |
| 2 – 3 | pts |
|
|
Net Sales |
| 12 – 15 | % |
|
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