Emerson Electric Co. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing. Amounts are in U.S. dollars unless noted.
Business context
Emerson is a global industrial technology company organized into Automation Solutions, AspenTech, Climate Technologies, and Tools & Home Products. In May 2022, Emerson combined its industrial software businesses with Heritage AspenTech, contributing approximately $6.0 billion in cash and retaining 55% ownership of the resulting AspenTech. Management describes portfolio changes as a move toward a more focused automation, software, and industrial technology portfolio.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $19.629 billion | $18.236 billion | +8% |
| Underlying sales growth | 9% | 5% | — |
| Gross margin | 41.7% | 41.5% | +0.2 pts |
| Net earnings attributable to common stockholders | $3.231 billion | $2.303 billion | +40% |
| Diluted EPS | $5.41 | $3.82 | +42% |
| Adjusted diluted EPS | $5.25 | $4.51 | +16% |
| Operating cash flow | $2.922 billion | $3.575 billion | −18% |
| Free cash flow | $2.391 billion | $2.994 billion | −20% |
FY2022 sales growth reflected 4% higher volume and 5% higher price, partly offset by a 2% unfavorable foreign-currency effect and a 1% reduction from the Therm-O-Disc divestiture. Higher material, freight, and other inflation pressured margins, while mix, cost savings, and higher volume provided offsets. Adjusted EBITA was $4.236 billion, with a 21.6% margin, compared with $3.614 billion and 19.8% in FY2021.
Segment sales and earnings were: Automation Solutions $11.758 billion and $2.356 billion; AspenTech $656 million and $12 million; Climate Technologies $5.200 billion and $1.038 billion; and Tools & Home Products $2.033 billion and $402 million. AspenTech’s reported results include the combined business only from the May 2022 transaction close, while its comparison is affected by acquisitions and segment reclassification.
Fourth-quarter net sales were $5.360 billion, versus $4.947 billion a year earlier. Common-stockholder earnings were $740 million versus $670 million, and diluted EPS was $1.24 versus $1.11.
Liquidity, debt, and shareholder returns
- Cash and equivalents were $1.804 billion at year-end, including approximately $380 million held by AspenTech that Emerson said was not readily available for general Emerson purposes.
- Total debt was $10.374 billion, including $8.259 billion of long-term debt and $2.115 billion of short-term borrowings and current maturities. Total debt-to-total capitalization was 50.0%, up from 40.3% in FY2021, principally reflecting borrowing to fund the AspenTech transaction.
- Emerson reported $2.922 billion of operating cash flow and $531 million of capital expenditures. Working capital absorbed $515 million of cash; inventory increases and supply-chain constraints contributed to weaker cash conversion.
- A $3.5 billion revolving backup credit facility was undrawn. Management said available resources and expected cash generation should meet requirements for at least the next 12 months.
- Dividends paid were $1.223 billion, or $2.06 per share; the Board later raised the annualized rate to $2.08. The company repurchased $500 million of shares during FY2022.
Material changes, outlook, and unusual items
- FY2022 GAAP earnings included a $453 million pretax gain related to Emerson’s retained subordinated interest in Vertiv and a $486 million pretax gain on the Therm-O-Disc sale. Results also included a $181 million pretax loss related to exiting Russia and acquisition/divestiture costs. These items make GAAP earnings growth less representative of recurring performance.
- On October 31, 2022, Emerson completed the sale of InSinkErator to Whirlpool for $3.0 billion. The business had FY2022 sales of $630 million. Emerson expected a pretax gain of approximately $2.8 billion.
- Also on October 31, Emerson agreed to sell a majority stake in Climate Technologies to Blackstone in a transaction valued at $14.0 billion. Emerson expected approximately $9.5 billion in upfront pretax cash and a $2.25 billion note at closing, while retaining a 45% noncontrolling interest. Closing was expected in the first half of calendar 2023, subject to approvals and customary conditions; Emerson expected a pretax gain of approximately $10 billion.
- For FY2023, management forecast continuing-operations sales growth of 7%–9%, with underlying growth of 6.5%–8.5%. Continuing-operations EPS guidance was $3.51–$3.66; adjusted EPS guidance was $4.00–$4.15. The guidance assumes the Climate Technologies transaction closes March 31, 2023. Management expected FY2023 dividends of approximately $1.2 billion and approximately $2 billion of share repurchases.
- Management expected Climate Technologies, InSinkErator, and Therm-O-Disc to be reported as discontinued operations for all periods beginning in FY2023. Reported FY2023 earnings from discontinued operations were expected to be $10–$11 billion, or $17–$19 per share, including gains on 2023 divestitures.
- Key risks include competitive and economic pressures, supply-chain and input-cost volatility, foreign exchange, cybersecurity and product failures, litigation and environmental obligations, and execution and approval risks for acquisitions and divestitures. Emerson reported ongoing COVID-related uncertainty and disruption, including lockdown effects in China.
Investor verification priorities
- Separate recurring operating performance from the Vertiv and Therm-O-Disc gains, Russia exit charge, and acquisition-related expenses; compare GAAP and adjusted measures.
- Track working-capital recovery and cash conversion, particularly inventory, operating cash flow, and free cash flow.
- Verify the timing, approvals, final proceeds, gain recognition, and post-close economics of the Climate Technologies transaction, including Emerson’s retained 45% interest and note receivable.
- Assess FY2023 guidance against currency effects, demand, inflation, supply constraints, discontinued-operation treatment, and the timing of divestitures.
- Monitor increased leverage and the use of divestiture proceeds, alongside planned dividends and repurchases.