Business context and reporting period
Emerson Electric Co. filed its Form 10-K for the fiscal year ended September 30, 2011. The filing is annual; it does not provide standalone fourth-quarter results. Emerson is a diversified global technology and industrial company with five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Tools and Storage. The filing incorporates detailed financial statements and parts of management’s discussion from the 2011 Annual Report, so some cash flow, margin, and liquidity details are not included in the supplied text.
Key financial metrics
| Metric | FY2011 | FY2010 | Change / context |
|---|---|---|---|
| Net sales | $24.222 billion | $21.039 billion | Up approximately 15.1% |
| Earnings from continuing operations attributable to common stockholders | $2.454 billion | $1.978 billion | Up approximately 24.1% |
| Diluted EPS from continuing operations | $3.24 | $2.60 | Up approximately 24.6% |
| Cash dividends per share | $1.38 | $1.34 | Up $0.04 |
| Long-term debt | $4.324 billion | $4.586 billion | Down $262 million |
| Total assets | $23.861 billion | $22.843 billion | Up $1.018 billion |
| Order backlog at year-end | $6.030 billion | $5.616 billion | Up $414 million; vast majority expected to ship within one year |
Continuing-operations earnings attributable to common stockholders were approximately 10.1% of sales in 2011 versus 9.4% in 2010, calculated from the reported figures. The supplied filing text does not provide clear FY2011 operating cash flow, capital expenditures, free cash flow, cash balance, current debt, or actual operating and pretax margins; it incorporates those details from the Annual Report.
FY2011 sales mix was Process Management 28%, Industrial Automation 21%, Network Power 27%, Climate Technologies 16%, and Tools and Storage 8%. International sales were $14.322 billion, compared with $11.938 billion in 2010. Research and development costs were $555 million, versus $473 million in 2010.
Material changes versus FY2010
- Sales, continuing-operations earnings, and diluted EPS increased substantially year over year.
- Long-term debt decreased, while total assets and year-end backlog increased.
- International sales increased by $2.384 billion. The company reported that emerging-market sales represented more than one-third of total sales.
- Year-end backlog growth was led by Process Management, whose backlog rose to $3.313 billion from $2.868 billion; Climate Technologies backlog declined to $343 million from $395 million.
Outlook, commentary, and risks
Management described FY2011 results as strong but noted a weakening trend in business conditions. For FY2012, Emerson forecast underlying sales growth of 5%–7%, excluding an estimated 1% unfavorable foreign-currency impact, and reported net sales growth of 4%–6%. It expected operating profit margin of approximately 18% (excluding approximately 2.5% for other deductions, net and interest), pretax margin of approximately 15.5%, and EPS growth of 8%–12%.
Flood damage in Thailand affected some electrical and electronic component suppliers to Process Management. Emerson said it was implementing contingency plans and working with suppliers and customers; it expected a near-term impact but stated the disruption did not change its FY2012 guidance.
Principal disclosed risks include competitive pressure on prices and demand; successful development and adoption of new products; acquisition integration; access to capital markets; raw-material shortages or price increases; disruption at global facilities and suppliers; foreign-exchange movements and overseas regulatory changes; economic downturns; and litigation and environmental liabilities. The filing text does not provide a clear quantified estimate of potential losses from litigation or environmental matters. It states that environmental compliance had not materially affected results and that material environmental-control capital expenditures were not anticipated for the next fiscal year.
Important facts for investors to verify
- Review the incorporated Annual Report for actual FY2011 cash flows, capital expenditures, free cash flow, segment results, margins, cash and liquidity, and debt maturity details.
- Compare reported growth with underlying growth, considering acquisitions, divestitures, and currency effects.
- Assess whether FY2012 guidance assumptions remain achievable given weakening business conditions and the Thailand supply disruption.
- Review the notes incorporated by reference for acquisition and divestiture effects, litigation and environmental contingencies, and any unusual or nonrecurring items.
- Evaluate the quality and expected conversion of the $6.030 billion backlog, including its concentration in Process Management and Network Power.