Earnings Analysis: Emerson Electric Co. (NYSE:EMR)

Earnings Analysis: Emerson Electric Co. (NYSE:EMR)Emerson Electric Co. (NYSE:EMR) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Emerson Electric Co.’s analysis versus peers uses the following peer-set: General Electric Company (NYSE:GE), Honeywell International Inc. (NYSE:HON)*, ABB Ltd (NYSE:ABB), Danaher Corporation (NYSE:DHR), Schneider Electric SA (EPA:SU), Roper Industries, Inc. (NYSE:ROP), AMETEK, Inc. (NYSE:AME) and REGAL-BELOIT CORPORATION (NYSE:RBC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

*For CapitalCube’s analysis of Honeywell’s recent earnings announcement click here.

Annual (USD million) 2012-09-30 2011-09-30 2010-09-30 2009-09-30 2008-09-30
Revenues 24,412.0 24,211.0 21,044.0 20,939.0 24,807.0
Revenue Growth % 0.8 15.0 0.5 (15.6) 9.9
Net Income 1,968.0 2,454.0 1,978.0 1,724.0 2,454.0
Net Income Growth % (19.8) 24.1 14.7 (29.7) 14.9
Net Margin % 8.1 10.1 9.4 8.2 9.9
ROE % 18.9 24.3 21.6 19.5 27.4
ROA % 8.3 10.5 9.3 8.5 12.1

Valuation Drivers

Emerson Electric Co. currently trades at a higher Price/Book ratio (3.5) than its peer median (1.8). EMR-US’s operating performance is higher than the median of its chosen peers (ROE of 18.9% compared to the peer median ROE of 13.9%) but the market does not seem to expect higher growth relative to peers (PE of 18.9 compared to peer median of 16.8) but simply to maintain its relatively high rates of return.

The company’s median net profit margins of 8.1% and relative asset efficiency (asset turns of 1.0x compared to peer median of 0.7x) give it some operating leverage. EMR-US’s net margin is its lowest relative to the last five years and compares to a high of 10.1% in 2011.

Economic Moat

Changes in the company’s annual top line and earnings (0.8% and -19.8% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

EMR-US’s return on assets is above its peer median both in the current period (8.3% vs. peer median 6.4%) and also over the past five years (9.7% vs. peer median 7.3%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s gross margin of 42.5% is around peer median suggesting that EMR-US’s operations do not benefit from any differentiating pricing advantage. In addition, EMR-US’s pre-tax margin of 12.8% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

EMR-US’s revenues have grown at about the same rate as its peers (5.2% vs. 5.7% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 18.9. The historical performance and long-term growth expectations for the company are largely in sync.

EMR-US’s annualized rate of change in capital of 6.2% over the past three years is less than its peer median of 11.4%. This investment has generated a better than peer median return on capital of 14.3% averaged over the same three years. This combination of a relatively low investment with good returns suggests that the company is likely milking its business.

Earnings Quality

EMR-US’s net income margin for the last twelve months is around the peer median (8.1% vs. peer median of 8.1%). This average margin combined with a level of accruals that is around peer median (4.4% vs. peer median of 4.4%) suggests there possibly isn’t too much accrual movement flowing into the company’s reported earnings.

EMR-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. However, this level of accruals is also around the peer median and suggests the company is recording a proper level of reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Emerson Electric Co. (NYSE: EMR)
Graph of Revenues Trend for Emerson Electric Co. (NYSE: EMR)
Graph of Net Margin Trend for Emerson Electric Co. (NYSE: EMR)
Graph of Net Margin Trend for Emerson Electric Co. (NYSE: EMR)
Graph of Accruals Trend (% revenues, Quarterly) for Emerson Electric Co. (NYSE: EMR)
Graph of Accruals Trend (% revenues, Annual or TTM) for Emerson Electric Co. (NYSE: EMR)

Company Profile

Emerson Electric Co. manufactures and develops process controls systems, valves and analytical instruments. It delivers products and services to the industrial, commercial and consumer markets. The company operates through five segments: Process Management, Industrial Automation, Network Power, Climate Technologies, Tools and Storage. The Process Management segment provides measurement, control, monitoring, engineering and diagnostic capabilities for automated industrial processes producing items such as oil, natural gas and petrochemicals; food and beverages; pulp and paper, pharmaceuticals; and municipal water supplies. The Industrial Automation segment provides integrated manufacturing solutions. Its products include motors, power generating alternators, power transmission solutions, fluid controls and materials joining equipment. The Network Power segment designs, manufactures, installs and maintains products providing “”grid to chip”” electric power conditioning, power reliability and environmental control for telecommunications networks, data centers and other critical applications, and also provides data center infrastructure management solutions. Its products include uninterruptible power systems, embedded power supplies, embedded computing systems, precision cooling, inbound power systems, integrated data center monitoring, and control devices and software. The Climate Technologies segment provides products and services for all areas of the climate control industry which include residential heating and cooling, commercial air conditioning, and commercial and industrial refrigeration. It also provides services that digitally control and remotely monitor refrigeration units in grocery stores and other food distribution outlets. The Tools and Storage segment provides products and services for professionals and homeowners, home and commercial storage systems and appliance solutions. Its products include water jetters, wet-dry vacuums, commercial vacuums, rolling storage boxes, truck work boxes, bolt cutters, and van and truck ladder racks. This segment also provides freestanding, fixed and mobile storage products for residential, commercial, health care and food service applications. It also provides storage and display shelving, stock-picking and kitting carts, cabinets, totes, bins, workstations, and merchandising and inventory storage racks for commercial customers. This segment also provides food service equipment which include polymer and wire storage systems, busing carts, pan and tray racks, transport carts and workstations. Emerson Electric was founded on September 24, 1890 and is headquartered in St. Louis, MO.


The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.

This article was originally written by abha.dawesar, and posted on CapitalCube.