Business context and reporting period
Emerson Electric Co. filed this Form 10-K for the fiscal year ended September 30, 2010. Although the request identifies 2010 Q4, the supplied filing information is annual, not quarter-specific. Emerson is a diversified global technology and engineering company with five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Tools and Storage.
2010 sales mix was Process Management 28%, Industrial Automation 20%, Network Power 27%, Climate Technologies 17%, and Tools and Storage 8%. Sales by destination were United States 43%, Europe 21%, Asia 23%, and other regions 13%.
Key financial metrics
| Metric | FY2010 | FY2009 | Change |
|---|---|---|---|
| Net sales | $21.039 billion | $20.102 billion | +4.7% |
| Earnings from continuing operations attributable to common stockholders | $1.978 billion | $1.715 billion | +15.3% |
| Diluted continuing-operations EPS | $2.60 | $2.26 | +15.0% |
| Long-term debt | $4.586 billion | $3.998 billion | +14.7% |
| Total assets | $22.843 billion | $19.763 billion | +15.6% |
| Cash dividends per common share | $1.34 | $1.32 | +1.5% |
Reported figures are from the filing’s selected financial data. The supplied text does not provide clear FY2010 actual values for operating cash flow, free cash flow, operating or net margins, cash balances, current liquidity, or total debt including short-term borrowings. International sales were $11.938 billion in 2010, versus $11.416 billion in 2009 and $13.307 billion in 2008.
Material changes versus the prior comparable period
- Sales and continuing-operations earnings recovered from FY2009 levels; management characterized FY2010 as challenging but noted strong operating results in the second half.
- Estimated order backlog rose to $5.616 billion at September 30, 2010, from $4.615 billion a year earlier, an increase of about 21.7%. Nearly all the 2010 backlog was expected to ship within one year. Network Power backlog increased to $1.641 billion from $1.066 billion; Industrial Automation rose to $619 million from $385 million. Tools and Storage backlog declined to $93 million from $182 million.
- Long-term debt increased by $588 million, while total assets increased by $3.080 billion.
- The company sold its appliance motors and U.S. commercial and industrial motors businesses; the filing identifies these as discontinued operations. LANDesk is classified as discontinued operations for 2010.
- Research and development costs were $473 million, compared with $460 million in 2009.
Outlook, risks, contingencies, and unusual items
For FY2011, management forecast underlying sales growth of 7%–10%, excluding an estimated favorable 5% contribution from completed acquisitions and foreign currency translation. Total net sales were forecast to grow 12%–15% from approximately $21 billion. The company projected an operating profit margin of 17.2%–17.5%, a pretax margin of 14.2%–14.7%, and operating cash flow of $3.4–$3.5 billion. Management cautioned that future exchange-rate changes could affect results.
Key disclosed risks include intense competition and pricing pressure; the need to develop and successfully launch new products; acquisition integration and realization of expected benefits; access to capital markets and credit; raw-material shortages or price increases; disruption to global operations; currency and foreign-government risks; economic downturns in served markets; and litigation and environmental liabilities. The company reported multiple sources for major raw materials and said environmental compliance had not materially affected capital expenditures, earnings, or competitive position; no material environmental-control capital expenditures were anticipated for the next fiscal year. The supplied filing text refers readers to the incorporated annual report for detailed financial statements, legal proceedings, and management’s full discussion of results and liquidity.
Important facts for investors to verify
- Review the incorporated financial statements and MD&A for actual FY2010 operating cash flow, capital expenditures, free cash flow, margins, cash, and short-term debt; these values are not clear in the supplied text.
- Assess the quality and sustainability of the earnings recovery and the extent to which acquisition and currency effects contributed to forecast growth.
- Track conversion of the $5.616 billion backlog into revenue, particularly the sharp increase in Network Power backlog and decline in Tools and Storage.
- Review the debt increase, maturity profile, and available liquidity alongside the company’s stated reliance on capital-market access.
- Check the full disclosures on acquisitions, divestitures, litigation, environmental matters, and discontinued operations for related costs or contingencies.