Emerson Electric Co. — FY2014 Form 10-K Summary
Business context and reporting period
Emerson is a diversified global manufacturer and technology provider serving industrial, commercial and consumer markets through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, and Commercial & Residential Solutions. This 10-K covers the fiscal year ended September 30, 2014; it does not provide standalone fourth-quarter results in the supplied text.
FY2014 sales were concentrated in Process Management (36% of total), Industrial Automation (20%), Network Power (20%), Climate Technologies (16%), and Commercial & Residential Solutions (8%). By destination, the United States and Canada represented 46% of sales, Asia 22%, Europe 20%, Latin America 6%, and Middle East/Africa 6%.
Key financial metrics
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Net sales | $24.537 billion | $24.669 billion | Down 0.5% |
| Earnings from continuing operations attributable to common stockholders | $2.147 billion | $2.004 billion | Up 7.1% |
| Diluted EPS from continuing operations | $3.03 | $2.76 | Up 9.8% |
| Cash dividends per share | $1.72 | $1.64 | Up 4.9% |
| Long-term debt | $3.559 billion | $4.055 billion | Down 12.2% |
| Total assets | $24.177 billion | $24.711 billion | Down 2.2% |
| Order backlog | $6.714 billion | $6.289 billion | Up 6.8% |
The filing’s selected-data table reports 2014 goodwill impairment and income tax charges of $508 million, with a $0.72-per-share impact; corresponding 2013 figures were $566 million and $0.78 per share. The supplied text does not separate the components of those charges. Research and development costs were $541 million in 2014 versus $576 million in 2013.
Operating and net margins, operating cash flow, free cash flow, cash balances, and detailed liquidity measures are not clearly provided in the supplied filing text. The 10-K incorporates the company’s Annual Report discussion and financial statements by reference.
Material changes and segment/backlog details
Sales edged lower while continuing-operations earnings and diluted EPS increased. Comparisons should be considered alongside the impairment and tax charges disclosed for both years. Long-term debt and total assets declined year over year; dividends per share rose.
Backlog increased to $6.714 billion. The largest reported segment backlog was Process Management at $4.141 billion, compared with $3.719 billion in 2013. Network Power backlog was $1.368 billion versus $1.526 billion; Industrial Automation was $646 million versus $597 million; Climate Technologies was $452 million versus $351 million; and Commercial & Residential Solutions was $107 million versus $96 million. The filing says the vast majority of year-end backlog was expected to ship within one year.
International sales were $14.227 billion in 2014, down from $14.669 billion in 2013. The filing reports U.S. exports of $1.396 billion and $1.604 billion, respectively.
Outlook, risks, contingencies, and unusual items
No specific forward revenue or earnings guidance is included in the supplied text. Management describes highly competitive markets and identifies risks from economic and end-market downturns, foreign currency and regulatory changes, supply shortages or cost increases, international operating disruptions, acquisition integration, product-development execution, cybersecurity, and access to capital markets. The company also faces litigation and environmental compliance risks; management states that a material adverse impact from pending litigation is unlikely, while acknowledging litigation uncertainty.
Management said raw materials and purchased components had generally been available in sufficient quantities despite price volatility and cost pressures. It did not anticipate material environmental-control capital expenditures in the next fiscal year. Disclosure controls were assessed as effective as of September 30, 2014, and no material change in internal control over financial reporting during the quarter was reported.
Important facts for investors to verify
- Review the incorporated Annual Report and audited statements for operating cash flow, free cash flow, cash and short-term investments, current liabilities, margins, and segment-level earnings.
- Confirm the nature and segment allocation of the 2014 and 2013 goodwill impairment and income tax charges, and assess adjusted versus GAAP performance.
- Check underlying sales trends and segment results, since the supplied text does not provide full comparable segment revenue and profit figures.
- Assess backlog conversion, cancellations, and end-market exposure, particularly in Process Management and Network Power.
- Review debt maturities, credit availability, acquisition commitments, and the status and potential exposure of material legal proceedings.