Emerson Electric Co. — FY2012 Form 10-K
Reporting period: Fiscal year ended September 30, 2012. This is an annual filing, not a standalone fourth-quarter report. Emerson is a diversified global technology and industrial company operating in Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions.
Key financial metrics
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Net sales | $24.412 billion | $24.222 billion | Up 0.8% |
| Earnings from continuing operations attributable to common stockholders | $1.968 billion | $2.454 billion | Down 19.8% |
| Diluted EPS from continuing operations | $2.67 | $3.24 | Down 17.6% |
| Long-term debt | $3.787 billion | $4.324 billion | Down 12.4% |
| Total assets | $23.818 billion | $23.861 billion | Down 0.2% |
| Cash dividends per share | $1.60 | $1.38 | Up 15.9% |
| Order backlog | $6.254 billion | $6.030 billion | Up 3.7% |
| Research and development expense | $547 million | $555 million | Down 1.4% |
FY2012 earnings included a $528 million after-tax goodwill impairment charge, or $0.72 per share. The filing text provided does not give a clear value for operating cash flow, free cash flow, cash balances, current liquidity, or actual operating and EBIT margins; the full financial statements are incorporated by reference.
Business and material changes
- FY2012 sales were distributed across Process Management (31%), Industrial Automation (21%), Network Power (25%), Climate Technologies (15%), and Commercial & Residential Solutions (8%).
- Sales by destination were 45% United States and Canada, 24% Asia, 20% Europe, 6% Latin America, and 5% Middle East/Africa. International sales were $14.376 billion versus $14.322 billion in FY2011.
- Backlog increased by $224 million year over year; the vast majority was expected to ship within one year.
- Despite modestly higher sales, reported continuing-operations earnings and diluted EPS fell substantially, with the goodwill impairment a significant unusual item. Long-term debt declined while dividends per share increased.
Outlook, commentary, and risks
Management expected FY2013 reported and underlying sales growth of 0% to 5%, citing slower orders, cautious business investment, and reduced visibility amid economic uncertainty in the United States, China, and Europe. It projected EBIT margin improvement of 10–20 basis points excluding the impairment-related effect, pretax earnings margin improvement of 250–260 basis points, and mid-to-high-single-digit EPS growth from a stated FY2012 base of $3.39. Management expected most sales and earnings growth in the first half, partly reflecting comparison effects from Thailand flooding in 2012.
Management described Process Management as supported by project activity in oil and gas, chemicals, and power, while Industrial Automation demand was expected to be sluggish, particularly in Europe. Climate Technologies markets were expected to remain uneven and generally sluggish; North American residential markets were expected to improve steadily.
Principal disclosed risks include competitive pressure on prices and demand; product-development and technology-transition risks; intellectual-property protection; acquisition integration; access to capital markets; raw-material shortages and price volatility; disruptions at global operations or suppliers; foreign-currency and regulatory exposure; economic downturns and potential asset impairments; and litigation and environmental liabilities. The company said environmental compliance had not materially affected capital expenditures, earnings, or competitive position and did not anticipate material environmental-control capital expenditures in the next fiscal year. Disclosure controls were reported effective as of September 30, 2012.
Important facts to verify
- Review the incorporated annual-report financial statements for cash flow, cash and short-term liquidity, actual margins, and segment-level results.
- Confirm the nature, reporting unit, and valuation assumptions behind the $528 million goodwill impairment and reconcile reported FY2012 EPS of $2.67 with the $3.39 base used in the FY2013 outlook.
- Check the full debt disclosures for maturities, interest rates, and available credit facilities; the figures here provide long-term debt only.
- Assess whether the stated FY2013 outlook was achieved, including the assumed Thailand-flood comparison effects and market conditions in the named regions and segments.
- Review the incorporated notes for acquisition and divestiture details, litigation and environmental contingencies, and any other commitments not quantified in the supplied filing text.