Emerson Reports Second Quarter 2022 Results; Updates 2022 Outlook

• March Trailing Three-Month Underlying Orders up 13 percent
• Net Sales were $4.8 billion, up 8 percent from the year prior; Underlying Sales were up 10 percent
• GAAP EPS was $1.13, up 22 percent from the year prior; Adjusted EPS (as defined below) was $1.29, up 21 percent
• Increased 2022 Full Year Outlook to reflect continued strong demand and execution
• Announced decision to exit Russia business
• Declared quarterly cash dividend of $0.515 per share of common stock payable June 10, 2022 to stockholders of record May 13, 2022

Emerson (NYSE: EMR) today reported results for its second fiscal quarter ended March 31, 2022 and updated its full year outlook for fiscal 2022.

March Trailing Three-Month Underlying Orders were up 13 percent, as demand continued to be strong across both platforms. Second quarter Net Sales were up 8 percent and Underlying Sales were up 10 percent. By geography, the Americas grew 14 percent, Europe grew 2 percent and Asia, Middle East & Africa grew 7 percent. China grew 11 percent.

Second quarter Pretax Margin of 16.9 percent was up 30 basis points. Adjusted EBITA Margin, which excludes restructuring, first year purchase accounting charges, transaction costs and intangibles amortization expense, was 20.2 percent, up 20 basis points.

Earnings Per Share were $1.13 for the quarter, up 22 percent. Adjusted Earnings Per Share, which excludes restructuring, first year purchase accounting charges, transaction and AspenTech pre-closing costs and intangibles amortization expense, were $1.29, up 21 percent. Earnings in the quarter benefited from leverage, continued savings from effective cost management and favorable mix despite the ongoing supply chain headwinds and inflationary pressures. Earnings included a tax benefit of 8 cents.

Operating Cash Flow was $442 million for the quarter, down 45 percent, and Free Cash Flow was $333 million, down 53 percent. Cash flow results reflected mainly higher inventory due to supply chain constraints.

“Emerson continues to execute through a dynamic and challenging environment. In the second quarter, we delivered solid margins and drove 10 percent underlying sales growth and over 20 percent adjusted EPS growth. Our performance was indicative of strong end market demand and successful navigation through supply chain constraints and inflationary pressures,” said Emerson President and Chief Executive Officer Lal Karsanbhai. “Despite ongoing uncertainty, our strong performance gives us confidence to increase our 2022 full year outlook.

“Today, Emerson is also announcing our decision to exit our Russia business and, as part of this exit, we are exploring strategic options to divest Metran, our Russia-based manufacturing subsidiary,” Karsanbhai continued. “We are committed to an orderly transfer of these assets and will support our employees through this process.”

Business Platform Results

Automation Solutions March trailing three-month underlying orders were up 17 percent driven by strong demand in all business groups and world areas. Backlog increased $400 million compared to the prior quarter to $6.4 billion.

Net sales increased 5 percent in the quarter, with underlying sales up 7 percent. The Americas were up 13 percent, Europe was down 3 percent and Asia, Middle East & Africa was up 6 percent. China was up 17 percent.

Segment EBIT margin increased 210 basis points to 18.9 percent and Adjusted Segment EBITA margin, which excludes restructuring and intangibles amortization expense, increased 170 basis points to 21.5 percent. Favorable profitability was driven by increased volume, leverage, continued cost management and mix despite increased costs due to inflationary pressures.

Commercial & Residential Solutions March trailing three-month underlying orders were up 7 percent driven by continued strength in both the residential and commercial businesses. Backlog increased $100 million compared to the prior quarter to $1.4 billion.

Net sales increased 13 percent in the quarter, with underlying sales up 14 percent. The Americas were up 15 percent, Europe was up 14 percent and Asia, Middle East & Africa was up 11 percent. China was down 6 percent.

Segment EBIT margin decreased 200 basis points to 19.7 percent and Adjusted Segment EBITA margin (as defined above) decreased 230 basis points to 20.5 percent. Profitability continues to be challenged by inflationary costs but was up sequentially as price less net material inflation continues to improve.

2022 Updated Outlook

Emerson updated its 2022 full year outlook to reflect overall strong business performance while considering continued macroeconomic and geopolitical uncertainty, supply chain constraints and challenges related to COVID-19. Net and Underlying Sales guidance is increased by 2 percent to 8 to 10 percent and 9 to 11 percent, respectively. Earnings Per Share guidance of $4.77 to $4.92 is increased to reflect the operational impact of increased sales guidance. Adjusted Earnings Per Share are increased to $4.95 to $5.10. Operating Cash Flow is now expected to be $3.6 billion due to increased inventory resulting from supply chain constraints. Capital spending was reduced to approximately $600 million and Free Cash Flow is now expected to be $3.0 billion. Free cash flow conversion is expected to be approximately 100 percent for 2022.

The following tables summarize the updated fiscal year 2022 and third quarter 2022 guidance framework. Our guidance does not include the operational impact of the transaction with AspenTech, which is expected to close in the second calendar quarter of 2022, but has been updated to include estimated transaction fees and interest expense on $3.0 billion of debt already issued to fund the transaction. Our guidance also excludes the effect of the Therm-O-Disc sale, expected to close in the second calendar quarter of 2022. It includes the estimated operational impact of exiting our Russia business, but excludes any potential charges or other costs associated with the exit.

Note 1: All figures are approximate

Upcoming Investor Events

Today, beginning at 8:00 a.m. Central Time / 9:00 a.m. Eastern Time, Emerson management will discuss the second 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.

Emerson also announces it will host an in-person investor conference on Nov. 29, 2022 in New York City. Event details will be distributed closer to this date.

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 AspenTech transaction, 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, excluding the expected AspenTech and Therm-O-Disc transactions, and the impact related to exiting our Russia business, other than as noted herein.

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.

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