Emerson reports third quarter 2022 results; updates 2022 outlook
St. louis--(business wire)--emerson (nyse: emr) today reported results for its third fiscal quarter ended june 30, 2022 and updated its full year outlook for fiscal 2022. june trailing three-month underlying orders were up 10 percent. third quarter net sales were up 7 percent and underlying sales were up 7 percent. by geography, the americas were up 14 percent, europe was flat and asia, middle east & africa was down 1 percent. china was down 6 percent, primarily due to covid-19 lockdowns. third quarter pretax margin of 23.9 percent was up 720 basis points. adjusted ebita margin4 was 22.8 percent, up 270 basis points. earnings per share were $1.54 for the quarter, up 48 percent. adjusted earnings per share were $1.38, up 16 percent, which includes an $0.08 net aspentech impact. operating cash flow was $740 million for the quarter, down 33 percent, and free cash flow was $630 million, down 36 percent. cash flow results reflected higher working capital due to increased sales and continued supply chain constraints. “emerson delivered another strong quarter as we continue to see double-digit growth in underlying orders and strong demand for our technology, software and solutions,” said emerson president and chief executive officer lal karsanbhai. “portfolio actions, including aspentech which increased our adjusted earnings per share for the quarter by 8 cents, are delivering immediate value to customers and shareholders. the strength in demand and continued growth in backlog provides confidence to execute our plan despite covid-19 lockdowns in china and continued global supply chain constraints, specifically with electronic components, which impacted our sales conversion this quarter.” “we have made significant progress on our portfolio journey this year,” karsanbhai continued. “these actions, including yesterday's announced agreement to sell insinkerator, represent emerson's continued commitment to creating a higher growth, more diversified and cohesive portfolio.” portfolio progress earlier this week, emerson announced it has reached an agreement to sell the insinkerator® business to whirlpool corporation for $3.0 billion. more details on the transaction can be found in our form 8-k filed aug. 8, 2022. on may 16, emerson closed its transaction with aspentech creating a global software leader positioned to advance customers’ sustainability and operational excellence goals, and a platform to deploy m&a capital. aspentech’s july agreement to acquire end-to-end mining software provider, micromine, is an example of this increased flexibility. in the third quarter, emerson also closed the divestiture of therm-o-disc and acquired fluxa, a life sciences process knowledge management leader. business platform results automation solutions5 june trailing three-month underlying orders were up 13 percent and backlog increased $100 million compared to the prior quarter to $6.2 billion despite $132 million of debooking in russia. net sales were flat in the quarter, with underlying sales up 4 percent. the americas were up 12 percent, europe was down 2 percent and asia, middle east & africa was down 3 percent. china was down 2 percent. segment ebit margin increased 40 basis points to 18.5 percent and adjusted segment ebita6 margin increased 70 basis points to 21.0 percent. commercial & residential solutions june trailing three-month underlying orders were up 5 percent and backlog decreased $100 million compared to the prior quarter to $1.3 billion and was flat excluding the impact of the therm-o-disc divestiture. net sales increased 8 percent in the quarter, with underlying sales up 13 percent. the americas were up 16 percent, europe was up 6 percent and asia, middle east & africa was up 5 percent. china was down 18 percent. segment ebit margin increased 10 basis points to 21.4 percent and adjusted segment ebita margin decreased 50 basis points to 22.0 percent. aspentech7 net sales were $239 million for the quarter. segment ebit margin was 23.7 percent and adjusted segment ebita margin was 53.8 percent. 2022 updated outlook emerson updated its 2022 full year outlook to reflect the impacts of the aspentech and therm-o-disc transactions, and write-offs associated with its announced russia exit while considering continued macroeconomic and geopolitical uncertainty, supply chain constraints, exchange rate fluctuations and challenges related to covid-19. net sales guidance is reduced to 7 to 8 percent and underlying sales guidance is narrowed to 9 to 10 percent. earnings per share guidance is increased to $5.25 to $5.35 and adjusted earnings per share guidance is increased to $5.05 to $5.15. operating cash flow is now expected to be $3.0 billion due to higher working capital from increased sales and continued supply chain constraints. capital spending was reduced to approximately $525 million and free cash flow is now expected to be $2.5 billion. share repurchase is expected to be approximately $500 million. the following tables summarize the updated fiscal year 2022 guidance framework. all figures are approximate. 2022 guidance net sales growth 7% - 8% operating cash flow $3.0b automation solutions 4% - 5% capital spend $525m commercial & residential solutions 9% - 10% free cash flow $2.5b dividend $1.2b underlying sales growth 9% - 10% share repurchase $500m automation solutions 6% - 7% commercial & residential solutions 13% - 14% tax rate 22% restructuring actions $150m gaap eps $5.25 - $5.35 adjusted eps $5.05 - $5.15 notes: 1 trailing three-month underlying orders does not include heritage aspentech, therm-o-disc (divested and previously reported in commercial & residential solutions) or emerson's contributed businesses to aspentech (previously reported in automation solutions). 2 underlying sales excludes the impact of acquisitions, divestitures, currency translation, heritage aspentech, therm-o-disc and emerson's contributed businesses to aspentech. 3 adjusted eps excludes restructuring, first year purchase accounting charges, transaction and aspentech pre-closing costs, a gain from the therm-o-disc divestiture, write-offs associated with emerson’s announced russia exit and intangibles amortization expense. 4 adjusted ebita margin excludes restructuring, first year purchase accounting charges, transaction costs, a gain from the therm-o-disc divestiture, write-offs associated with emerson’s announced russia exit and intangibles amortization expense. 5 automation solutions net sales, backlog, segment ebit margin and adjusted segment ebita margin does not include emerson's contributed businesses to aspentech, which have been reclassified to the aspentech segment. 6 adjusted segment ebita margin excludes restructuring and intangible amortization expense. 7 the aspentech segment includes the full quarter results for emerson's businesses contributed to aspentech and the heritage aspentech business as of may 16, 2022. upcoming investor events today, beginning at 8:00 a.m. central time / 9:00 a.m. eastern time, emerson management will discuss the third quarter results during an investor conference call. participants can access a live webcast available at www.emerson.com/financial at the time of the call. a replay of the call will be available for 90 days. conference call slides will be posted in advance of the call on the company website. forward-looking and cautionary statements statements in this press release that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties, and emerson undertakes no obligation to update any such statements to reflect later developments. these risks and uncertainties include the company's ability to successfully complete on the terms and conditions contemplated, and the financial impact of, the proposed sale of its insinkerator food waste disposal business, the financial impact of the aspentech acquisition, the scope, duration and ultimate impacts of the covid-19 pandemic and the russia-ukraine conflict, as well as economic and currency conditions, market demand, including related to the pandemic and oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, inflation, among others, as set forth in the company's most recent annual report on form 10-k and subsequent reports filed with the sec. the outlook contained herein represents the company's expectation for its consolidated results, other than as noted herein. table 1 emerson and subsidiaries consolidated operating results (amounts in millions except per share, unaudited) quarter ended june 30 percent 2021 2022 change net sales $4,697 $5,005 7% cost of sales 2,715 2,908 sg&a expenses 1,073 1,052 gain on sale of business — (483) other deductions, net 88 283 interest expense, net 37 50 earnings before income taxes 784 1,195 52% income taxes 151 243 net earnings 633 952 less: noncontrolling interests in subsidiaries 6 31 net earnings common stockholders $627 $921 47% diluted avg. shares outstanding 602.1 596.2 diluted earnings per share common share $1.04 $1.54 48% quarter ended june 30 2021 2022 other deductions, net amortization of intangibles $71 $98 restructuring costs 28 31 other (11) 154 total $88 $283 table 2 emerson and subsidiaries consolidated operating results (amounts in millions except per share, unaudited) nine months ended june 30 percent 2021 2022 change net sales $13,289 $14,269 7% cost of sales 7,722 8,398 sg&a expenses 3,125 3,112 gain on subordinated interest — (453) gain on sale of business — (483) other deductions, net 243 374 interest expense, net 115 140 earnings before income taxes 2,084 3,181 53% income taxes 431 659 net earnings 1,653 2,522 less: noncontrolling interests in subsidiaries 20 31 net earnings common stockholders $1,633 $2,491 53% diluted avg. shares outstanding 602.3 596.9 diluted earnings per share common share $2.71 $4.17 54% nine months ended june 30 2021 2022 other deductions, net amortization of intangibles $223 $223 restructuring costs 111 50 other (91) 101 total $243 $374 table 3 emerson and subsidiaries consolidated balance sheets (dollars in millions, unaudited) quarter ended june 30 2021 2022 assets cash and equivalents $2,860 $2,529 receivables, net 2,754 2,957 inventories 2,114 2,319 other current assets 1,038 1,570 total current assets 8,766 9,375 property, plant & equipment, net 3,664 3,359 goodwill 7,777 14,748 other intangible assets 2,993 6,930 other 1,284 2,630 total assets $24,484 $37,042 liabilities and equity short-term borrowings and current maturities of long-term debt $1,478 $3,227 accounts payable 1,966 2,040 accrued expenses 3,226 3,545 total current liabilities 6,670 8,812 long-term debt 5,835 8,367 other liabilities 2,640 3,576 equity common stockholders' equity 9,291 10,315 noncontrolling interests in subsidiaries 48 5,972 total equity 9,339 16,287 total liabilities and equity $24,484 $37,042 table 4 emerson and subsidiaries consolidated statements of cash flows (dollars in millions, unaudited) nine months ended june 30 2021 2022 operating activities net earnings $1,653 $2,522 adjustments to reconcile net earnings to net cash provided by operating activities: depreciation and amortization 720 722 stock compensation 191 107 pension expense 23 2 changes in operating working capital 246 (706) gain on subordinated interest — (453) gain on sale of business — (428) other, net (113) (61) cash provided by operating activities 2,720 1,705 investing activities capital expenditures (350) (335) purchases of businesses, net of cash and equivalents acquired (1,611) (5,615) divestitures of businesses — 578 proceeds from subordinated interest — 438 other, net 53 (41) cash provided by (used in) investing activities (1,908) (4,975) financing activities net increase in short-term borrowings 31 1,633 proceeds from short-term borrowings greater than three months 71 1,162 payments of short-term borrowings greater than three months — (445) proceeds from long-term debt — 2,975 payments of long-term debt (305) (512) dividends paid (909) (918) purchases of common stock (268) (418) other, net 89 80 cash provided by (used in) financing activities (1,291) 3,557 effect of exchange rate changes on cash and equivalents 24 (112) increase (decrease) in cash and equivalents (455) 175 beginning cash and equivalents 3,315 2,354 ending cash and equivalents $2,860 $2,529 table 5 emerson and subsidiaries segment sales and earnings (dollars in millions, unaudited) quarter ended june 30 2021 2022 sales measurement & analytical instrumentation $781 $785 valves, actuators & regulators 880 905 industrial solutions 593 575 systems & software 611 607 automation solutions 2,865 2,872 aspentech 82 239 climate technologies 1,268 1,380 tools & home products 489 522 commercial & residential solutions 1,757 1,902 eliminations (7) (8) net sales $4,697 $5,005 earnings automation solutions $519 $530 aspentech 2 57 climate technologies 274 300 tools & home products 101 107 commercial & residential solutions 375 407 stock compensation (66) (16) unallocated pension and postretirement costs 24 25 corporate and other (33) (241) gain on sale of business — 483 interest expense, net (37) (50) earnings before income taxes $784 $1,195 restructuring costs automation solutions $20 $20 aspentech (2) 1 climate technologies 4 2 tools & home products 2 (1) commercial & residential solutions 6 1 corporate 4 9 total $28 $31 the table above does not include $4 and $12 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the three months ended june 30, 2021 and 2022, respectively. depreciation and amortization automation solutions $128 $127 aspentech 24 73 climate technologies 48 43 tools & home products 20 19 commercial & residential solutions 68 62 corporate and other 17 8 total $237 $270 table 6 emerson and subsidiaries segment sales and earnings (dollars in millions, unaudited) nine months ended june 30 2021 2022 sales measurement & analytical instrumentation $2,211 $2,287 valves, actuators & regulators 2,522 2,604 industrial solutions 1,656 1,743 systems & software 1,804 1,817 automation solutions 8,193 8,451 aspentech 239 405 climate technologies 3,459 3,884 tools & home products 1,419 1,546 commercial & residential solutions 4,878 5,430 eliminations (21) (17) net sales $13,289 $14,269 earnings automation solutions $1,354 $1,618 aspentech (1) 51 climate technologies 731 754 tools & home products 311 317 commercial & residential solutions 1,042 1,071 stock compensation (191) (107) unallocated pension and postretirement costs 71 76 corporate and other (76) (324) gain on subordinated interest — 453 gain on sale of business — 483 interest expense, net (115) (140) earnings before income taxes $2,084 $3,181 restructuring costs automation solutions $92 $33 aspentech 2 1 climate technologies 8 5 tools & home products 4 1 commercial & residential solutions 12 6 corporate 5 10 total $111 $50 the table above does not include $11 and $26 of costs related to restructuring actions that were reported in cost of sales and selling, general and administrative expenses for the nine months ended june 30, 2021 and 2022, respectively. depreciation and amortization automation solutions $393 $383 aspentech 71 119 climate technologies 144 136 tools & home products 59 58 commercial & residential solutions 203 194 corporate and other 53 26 total $720 $722 table 7 emerson and subsidiaries adjusted ebita & eps supplemental (amounts in millions except per share, unaudited) the following tables, which show results on an adjusted ebita basis and diluted earnings per share on an adjusted basis, are intended to supplement the company's discussion of its results of operations herein. the company defines adjusted ebita as earnings excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments. adjusted earnings per share excludes intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments. adjusted ebita, adjusted ebita margin, and adjusted earnings per share are measures used by management and may be useful for investors to evaluate the company's operational performance. quarter ended june 30 2021 2022 pretax earnings $784 $1,195 percent of sales 16.7% 23.9% interest expense, net 37 50 restructuring and related costs 32 34 amortization of intangibles 79 124 gain on sale of business — (483) russia business exit — 162 acquisition/divestiture costs — 61 osi first year acquisition accounting charges 10 — adjusted ebita $942 $1,143 percent of sales 20.1% 22.8% quarter ended june 30 2021 2022 gaap earnings per share $1.04 $1.54 restructuring and related costs 0.04 0.05 amortization of intangibles 0.10 0.13 gain on sale of business — (0.72) russia business exit — 0.29 acquisition/divestiture costs and interest on aspentech debt — 0.09 osi first year acquisition accounting charges 0.01 — adjusted earnings per share $1.19 $1.38 table 8 emerson and subsidiaries adjusted ebita & eps supplemental (amounts in millions except per share, unaudited) nine months ended june 30 2021 2022 pretax earnings $2,084 $3,181 percent of sales 15.7% 22.3% interest expense, net 115 140 restructuring and related costs 122 67 amortization of intangibles 242 277 gain on subordinated interest — (453) gain on sale of business — (483) russia business exit — 162 acquisition/divestiture costs — 97 gain on acquisition of full ownership of equity investment (17) — osi first year acquisition accounting charges and fees 41 — adjusted ebita $2,587 $2,988 percent of sales 19.5% 20.9% nine months ended june 30 2021 2022 gaap earnings per share $2.71 $4.17 restructuring and related costs 0.16 0.09 amortization of intangibles 0.30 0.33 gain on subordinated interest — (0.60) gain on sale of business — (0.72) russia business exit — 0.29 acquisition/divestiture costs and interest on aspentech debt — 0.16 gain on acquisition of full ownership of equity investment (0.03) — osi first year acquisition accounting charges and fees 0.05 — adjusted earnings per share $3.19 $3.72 table 9 emerson and subsidiaries segment ebita (dollars in millions, unaudited) quarter ended june 30 2021 2022 automation solutions automation solutions ebit $519 $530 percent of sales 18.1% 18.5% restructuring and related costs 20 31 amortization of intangibles 44 41 automation solutions ebita $583 $602 percent of sales 20.3% 21.0% aspentech aspentech ebit $2 $57 percent of sales 2.2% 23.7% restructuring and related costs (2) 1 amortization of intangibles 22 71 aspentech ebita $22 $129 percent of sales 26.7% 53.8% commercial & residential solutions commercial & residential solutions ebit $375 $407 percent of sales 21.3% 21.4% restructuring and related costs 7 1 amortization of intangibles 13 12 commercial & residential solutions ebita $395 $420 percent of sales 22.5% 22.0% table 10 emerson and subsidiaries segment ebita (dollars in millions, unaudited) nine months ended june 30 2021 2022 automation solutions automation solutions ebit $1,354 $1,618 percent of sales 16.5% 19.1% restructuring and related costs 94 54 amortization of intangibles 136 125 automation solutions ebita $1,584 $1,797 percent of sales 19.3% 21.3% aspentech aspentech ebit $(1) $51 percent of sales (0.6)% 12.5% restructuring and related costs 2 1 amortization of intangibles 67 116 aspentech ebita $68 $168 percent of sales 28.0% 41.2% commercial & residential solutions commercial & residential solutions ebit $1,042 $1,071 percent of sales 21.4% 19.7% restructuring and related costs 15 8 amortization of intangibles 39 36 commercial & residential solutions ebita $1,096 $1,115 percent of sales 22.5% 20.5% reconciliations of non-gaap financial measures & other table 11 reconciliations of non-gaap measures (denoted by *) with the most directly comparable gaap measure (dollars in millions, except per share amounts). see tables 7 through 10 for additional non-gaap reconciliations. q3 2022 underlying sales change auto solns comm & res solns emerson reported (gaap) — % 8 % 7 % (favorable) / unfavorable fx 4 % 2 % 3 % acquisitions — % — % (4)% divestitures — % 3 % 1 % underlying* 4 % 13 % 7 % fy 2022e underlying sales change auto solns comm & res solns emerson reported (gaap) 4% - 5% 9% - 10% 7% - 8% (favorable) / unfavorable fx 2 % 1 % 2% - 3% acquisitions — % — % (1)% - (2)% divestitures — % 3 % ~ 1% underlying* 6% - 7% 13% - 14% 9% - 10% q3 earnings per share q3 fy21 q3 fy22 change earnings per share (gaap) $ 1.04 $ 1.54 48 % restructuring and related costs 0.04 0.05 1 % amortization of intangibles 0.10 0.13 3 % gain on sale of business — (0.72) (74) % russia business exit — 0.29 30 % acquisition/divestiture costs and pre-acquisition interest on aspentech debt — 0.09 9 % osi purchase accounting items 0.01 — (1) % adjusted earnings per share* $ 1.19 $ 1.38 16 % earnings per share fy22e earnings per share (gaap) $5.25 - $5.35 restructuring and related costs 0.20 amortization of intangibles 0.47 gain on subordinated interest (0.60) gain on sale of business (0.72) russia business exit 0.29 acquisition/divestiture costs and pre-acquisition interest on aspentech debt 0.16 adjusted earnings per share* $5.05 - $5.15 ebita margin q3 fy21 q3 fy22 change pretax margin (gaap) 16.7 % 23.9 % 720 bps interest expense, net 0.8 % 1.0 % 20 bps restructuring and related costs 0.7 % 0.7 % - bps amortization of intangibles 1.7 % 2.5 % 80 bps gain on sale of business — % (9.7) % (970) bps russia business exit — % 3.2 % 320 bps acquisition/divestiture costs — % 1.2 % 120 bps osi purchase accounting items 0.2 % — % (20) bps adjusted ebita margin* 20.1 % 22.8 % 270 bps automation solutions segment ebit margin q3 fy21 q3 fy22 change automation solutions segment ebit margin (gaap) 18.1 % 18.5 % 40 bps restructuring and related costs 0.7 % 1.1 % 40 bps amortization of intangibles impact 1.5 % 1.4 % (10) bps automation solutions adjusted segment ebita margin* 20.3 % 21.0 % 70 bps commercial & residential solutions ebit margin q3 fy21 q3 fy22 change commercial & residential ebit margin (gaap) 21.3 % 21.4 % 10 bps restructuring and related costs 0.4 % — % (40) bps amortization of intangibles impact 0.8 % 0.6 % (20) bps commercial & residential adjusted ebita margin* 22.5 % 22.0 % (50) bps aspentech ebit margin q3 fy22 aspentech ebit margin (gaap) 23.7 % restructuring and related costs 0.3 % amortization of intangibles impact 29.8 % aspentech adjusted ebita margin* 53.8 % q3 cash flow q3 fy21 q3 fy22 change operating cash flow (gaap) $ 1,105 $ 740 (33) % capital expenditures (128) (110) (3) % free cash flow* $ 977 $ 630 (36) % fy 2022e cash flow fy 2022e operating cash flow (gaap) ~ $3.0b capital expenditures $(525)m free cash flow* ~ $2.5b commercial & residential solutions backlog march 31, 2022 june 30, 2022 change gaap backlog ~ $1.4b ~ $1.3b $ (0.1)b therm-o-disc backlog (0.1) b $ — 0.1 b backlog excluding therm-o-disc* ~ $1.3b ~ $1.3b $ — note 1: underlying sales and orders exclude the impact of acquisitions, divestitures and currency translation. note 2: all fiscal year 2022e figures are approximate, except where range is given.
