Emerson Electric Co. — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013. This is an annual filing; the supplied text does not provide standalone fourth-quarter operating results. Unless otherwise stated, amounts are U.S. dollars.
Business context
Emerson is a diversified global technology and engineering company operating through Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions. FY2013 sales mix was 34%, 19%, 24%, 15%, and 8%, respectively. International sales were $14.669 billion, including $1.604 billion of U.S. exports.
Key financial metrics
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Net sales | $24.669 billion | $24.412 billion | +1.1% |
| Earnings from continuing operations attributable to common stockholders | $2.004 billion | $1.968 billion | +1.8% |
| Diluted EPS from continuing operations | $2.76 | $2.67 | +3.4% |
| Cash dividends per share | $1.64 | $1.60 | +2.5% |
| Long-term debt | $4.055 billion | $3.787 billion | +7.1% |
| Total assets | $24.711 billion | $23.818 billion | +3.7% |
| Order backlog at year-end | $6.187 billion | $6.254 billion | -1.1% |
FY2013 reported earnings include $566 million after-tax of goodwill impairment and income tax charges; FY2012 includes a $528 million after-tax goodwill impairment charge. The filing excerpt does not provide clear values for operating cash flow, free cash flow, operating margins, cash balances, or short-term liquidity; the full financial statements are incorporated by reference.
Research and development expense was $576 million, versus $547 million in FY2012. The company repurchased 10.052 million shares during July–September 2013 at an average $62.01 per share.
Changes, outlook, and risks
- Sales increased modestly year over year; reported continuing-operations earnings and diluted EPS also rose, despite significant impairment and tax-related charges.
- Management expected FY2014 underlying sales growth of 3%–5%, excluding a 4% reduction from acquisitions and the announced embedded computing and power divestiture; reported sales were forecast to change by -1% to +1%.
- FY2014 EPS was forecast to increase 4%–7% excluding an approximately 30% impact from impairment and repatriation charges, or 33%–38% on a reported basis. Management expected only slight margin expansion as growth investment accelerated. The divestiture was expected to be approximately neutral to FY2014 EPS, with supplemental share repurchases offsetting the earnings decline.
- Management described global economic indicators as mixed but slightly improving. Process Management orders were expected to remain solid; other segment commentary pointed to modest or moderate growth and improving order trends in selected markets.
- Emerson had agreed to sell a controlling interest in its embedded computing and power business. The filing also identifies exposure to competition, economic downturns, foreign exchange and regulation, raw-material costs and availability, international operational disruptions, acquisition integration, capital-market access, intellectual-property protection, litigation, and environmental liabilities.
- The company stated that pending litigation was not expected to have a material adverse impact, while acknowledging uncertainty. It reported that environmental compliance had not materially affected capital expenditures, earnings, or competitive position.
Important facts to verify
- Review the incorporated annual-report financial statements and MD&A for cash flow, margins, cash and debt maturities, liquidity, and segment-level results; these are not clear in the supplied filing text.
- Confirm the composition and accounting treatment of the FY2013 $566 million after-tax impairment and tax charges, and the FY2012 comparison charge.
- Check the final terms, timing, and realized financial effect of the embedded computing and power divestiture and planned supplemental repurchases.
- Compare FY2014 guidance with subsequent reported results, particularly underlying versus reported sales, EPS, and margin expansion.