Emerson Reports Increased Fourth Quarter Earnings, Record Full-Year Free Cash Flow Performance
Tuesday November 5, 8:40 am ET
47th Straight Year Of Dividend Increase Expected
biz.yahoo.com
ST. LOUIS--(BUSINESS WIRE)--Nov. 5, 2002--Emerson (NYSE:EMR) announced today that for the fourth quarter of fiscal 2002, ended September 30, the company achieved sales of $3.5 billion, earnings of $249 million, and diluted earnings per share of $0.59. This represents the first year-over-year quarterly earnings increase since March 2001.
Fourth-quarter sales in fiscal 2001 were $3.6 billion with earnings of $245 million and diluted earnings per share of $0.58, excluding last year's $377 million incremental fourth quarter rationalization charge. Reported fourth-quarter 2001 earnings were a loss of $0.03 per share.
For fiscal year 2002, the company achieved sales of $13.8 billion, earnings of $1.1 billion, and diluted earnings per share of $2.52, excluding the non-cash accounting change related to the adoption of FAS 142 during the year. Reported net earnings including the accounting change were $122 million and $0.29 per share for 2002. Detailed comparisons of the fourth quarter and fiscal year 2001 and 2002 showing earnings before and after the accounting change, and the 2001 rationalization charge, are shown in tables 1 and 2 attached.
Fourth-quarter fiscal 2002 gains from divestitures were down significantly and ongoing restructuring stayed at elevated levels. The run-rate earnings per share is in-line with the third quarter of 2002 despite lower sales as shown below:
(SALES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
3rd Quarter 2002 4th Quarter 2002
Net Sales $3,570 $3,538
Net earnings Diluted EPS Net earnings Diluted EPS
As Reported $281 $0.67 $249 $0.59
Divestiture Gains $(25) $(0.06) $(4) $(0.01)
Restructuring and Other $40 $0.09 $49 $0.12
As Adjusted - run rate $296 $0.70 $294 $0.70
Operating cash flow for the year increased 6 percent to $1.8 billion and free cash flow increased 24 percent to a record $1.4 billion, over 135 percent of earnings, reflecting improved operating cash flow and lower capital spending.
"Everyone in the company has done a great job to drive the operating and free cash flow improvements," said David N. Farr, Emerson's chief executive officer. "This is the second year in a row that free cash flow has exceeded earnings, demonstrating the company's focus on improving working capital performance and the benefits we are experiencing from our lean manufacturing initiatives.
"Despite challenging industry conditions, we made significant progress in reshaping our business mix in 2002 to concentrate on markets with attractive growth characteristics and businesses that can create shareholder value. During the year we continued our investment in technology and global expansion, improving our competitive position. At the same time, we recognized early in fiscal 2002 that significant downturns in commercial, industrial, and telecommunications markets would require continuing the cost actions we initiated the year before. Those actions continued throughout fiscal 2002 and will remain in place until demand improves.
"Entering fiscal 2003, we are encouraged by recent stability and positive order trends and believe we have repositioned our portfolio of businesses for long-term growth and profit improvement."
Operating Highlights
Discussing segment results for fiscal 2002, Farr said, "Broad economic declines in the first half led to sales decreases across all business segments except process control, which achieved modest underlying sales gains, excluding the impact of currency, acquisitions and divestitures, in a down market. Despite this environment, we have strengthened our position relative to our competition and continued to gain market share in process control, electronics and telecommunications, and heating, ventilating, and air conditioning businesses.
"In addition we have expanded our presence in Asia, particularly in China, where sales and goods produced for fiscal year 2002 reached nearly $1 billion and we have approximately 14,000 employees. We have a long history of operating in China and we will continue to invest and expand in the region to capitalize on the enormous market opportunities and further improve our cost position.
"The process business achieved sales of $3.4 billion, in line with its strong performance in 2001, despite the divestitures of Xomox and Daniel Valve. Emerson Process Control has established a global organization and technology leadership position in systems and field devices to provide customers the support and product innovations they need anywhere in the world. Systems and Solutions businesses had a breakthrough year, reflected in $286 million of large project wins that include PlantWeb®, DeltaV®, and solutions and engineering services. These projects included Shell Deer Park ($30 million), IDEC Pharmaceutical ($14 million), Washington D.C. and Chicago water and wastewater facilities ($40 million), BASF China chemical ($25 million), and being chosen as 'top vendor' for process automation solutions at Sasol Chemical Industries Ltd. Recent project activity has been strong, with nearly a third of these wins occurring in the last three months.
"These unique long-cycle wins signal the growing market acceptance of PlantWeb (www.EmersonProcess.com/PlantWeb) and DeltaV as the process automation system of choice. Sales like these are driven by project returns, total system capabilities and supplier expertise rather than short-term economic factors. With Emerson's solutions and services offerings, we are uniquely positioned in the market to expand the value we provide to our customers.
"An overall reduction in short-cycle general maintenance and repair activity offset the double-digit growth in solutions. This temporary slowdown, affecting our measurement and control devices, was driven by the reduction in capital expenditures across the industrial base.
"In the electronics and telecommunications business, sales fell 31 percent during the year to $2.5 billion. Emerson responded by restructuring operations while continuing to invest in engineering and technology and expanding our international presence. As a result, unlike many of our competitors, we never lost money in any quarter and have improved profit margins by 300 basis points from the second to the fourth quarter. Our customers have recognized our financial stability and ability to invest in new product development even during this unprecedented downturn and are rewarding us with significant new business.
"In October 2001 we acquired Avansys, the power business of Huawei Technologies in China, which we renamed Emerson Network Power China. This key acquisition provides access to the China market, a base for low-cost manufacturing, and tremendous engineering resources. It will help drive top-line growth, reduce manufacturing and development costs, and expand new product development.
"Sales in the heating, ventilating, and air conditioning business were $2.4 billion, down 2 percent from the prior year, with decreases in the commercial and industrial markets mostly offset by increases in the unitary air conditioning market. Sales softened in the first quarter as customers reduced inventory levels, but gained momentum throughout the year as the late summer heat in the U.S. drove unitary sales.
"The growth of Copeland Scroll® compressor sales continued throughout the year, reflecting new product platforms that expand our served market. As an example, Lennox announced an agreement in August to incorporate Copeland Scroll compressors into 100 percent of its commercial air conditioning products.
"The demand for scroll compressors will benefit from legislation in the United States that will raise residential energy efficiency ratings by 20 percent in 2006. Additionally, the phase-out of refrigerants containing chlorine is under way in the United States, with a 2010 deadline for equipment manufacturers to adopt environmentally friendly refrigerants. These regulatory changes play into the strengths and benefits that Copeland Scroll compressors offer and will stimulate increased market penetration and accelerated growth rates.
"Another significant accomplishment by Emerson Climate Technologies was the performance of its Retail Services organization. In fiscal 2002 this group signed major contracts to improve energy efficiency and provide site-monitoring services to Tesco PLC, the largest food retailer in the United Kingdom, and to the Great Atlantic & Pacific Tea Company. Emerson is rapidly developing a strong position as a provider of service and solutions to the commercial refrigeration market.
"Sales for industrial automation fell to $2.5 billion in 2002 from $3.0 billion last year. This segment has felt the impact of reduced capital expenditures and excess capacity across the industrial sector in the United States and Europe, but saw demand stabilize at lower operating levels as the year progressed. Segment revenues have also been affected by the 2002 divestiture of Chromalox industrial heating solutions and the contribution of Camco into a joint venture in 2001.
"The appliance and tools segment sales decreased 2 percent to $3.4 billion, with strong sales growth in housing-related consumer businesses offset by broad declines in the commercial and industrial tools and motor businesses. Sales in the first half of the year decreased 6 percent compared to the prior year but gained momentum and turned positive in the second half. Residential storage grew at a strong pace throughout the year, reflecting expanded customer offerings, innovative Web-enabled design and support services, and favorable market conditions.
Financial Highlights
"Our strong operating cash flow and record free cash flow performance reflect Emerson's earnings quality and solid balance sheet. Inventory and accounts receivable decreased by $273 million and $38 million, respectively, from September 2001, lowering operating working capital and driving cash flow performance. Average trade working capital improved from 23.5 percent of sales in fiscal 2001 to 22.8 percent of sales in fiscal 2002. The reduction in capital expenditures from $554 million to $384 million in 2002 was also an important driver of free cash flow.
"Net debt to net capital was 42 percent at the end of the year, and operating cash flow to total debt improved from 36 percent in 2001 to 40 percent. The interest coverage ratio increased from 6.2 times in 2001 to 7.3 times in 2002. Additionally, we reduced total debt and further strengthened liquidity. Between October 2001 and 2002, we issued $1 billion of long-term debt, taking advantage of the low interest rate environment.
"Divestitures reduced Emerson's annual sales by approximately $300 million and contributed $231 million in gains during the fiscal year. Rationalization of operations for fiscal 2002 was $207 million. These costs are provided by business segment for the fourth quarter and fiscal year 2002 in tables 5 and 6 attached.
"Management has always understood the value of our dividend to shareholders and is recommending to the board today an increase in the annual dividend from $1.55 to $1.57 per share. This would represent the 47th consecutive year of increases - a record we are proud of.
Outlook for Fiscal 2003
"While there continues to be global economic uncertainty as we enter fiscal 2003, recent stability and positive order trends, along with benefits from our aggressive cost actions, should deliver improved profitability levels and increased earnings for the year.
"We anticipate returning to a lower level of cost actions during the year as market conditions allow, and are targeting capital spending of approximately 3 percent of sales for the year. In fiscal 2003 we expect lower gains from divestitures compared to fiscal 2002. Although the picture for fiscal 2003 is not clear, based on our view today we expect to continue to generate solid earnings and cash in this uncertain environment." |
