EMERSON Q2 Earnings Conference Call Datasheet

EMERSON Q2 Earnings Conference Call Datasheet

Safe Harbor Statement
Statements in this presentation and our commentary and responses to questions 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 scope, duration and ultimate impact of the COVID-19 pandemic, 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, among others, as set forth in the Company’s most recent Annual Report on Form 10-K and subsequent reports filed with the SEC.

Non-GAAP Measures
In this call we will discuss some non-GAAP measures (denoted with *) in talking about our company’s performance, and the reconciliation of those measures to the most comparable GAAP measures is contained within this presentation or available at our website www.Emerson.com
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Q2 Performance and Updated Guidance

Q2 2021 results – Strong operating performance as end markets recover and cost reset savings flow through

• Orders and sales continue to improve, reflecting recovery of end markets:
  Underlying sales* up 2% – ahead of expectations, orders up 4% – near top end of guidance range

  • Automation Solutions underlying sales* down 2%, orders down 5%
  • Commercial & Residential Solutions underlying sales* up 11%; orders up 21%

• Strong segment margin improvement, despite material cost inflation

  • Adjusted Segment EBIT* up 15% to $847M
  • Adjusted Segment EBIT margin* up 150 basis points to 19.1%

• Strong cash flow generation

  •  Operating cash flow $807 million, up 37% y/y
  •  Free cash flow $707 million, up 48% y/y, representing 125% conversion of net earnings

• Continued cost reset initiatives

  • Initiated $21 million of restructuring actions to drive long-term savings benefits

Note: All orders data is March trailing three month underlying

2020     EPS     2021

GAAP $0.84 11% **$0.93**

*ADJ $0.89 9% ****$0.97**

NET SALES
6%
$4.4B
$4.2B
*Underlying Sales: 2%
2020 2021 T3M Underlying Orders**
Jan| | (3%)
Feb| | (2%)
Mar| | 4%

Q2 2020 to Q2 2021 adjusted EPS bridge – Strong operational performance partially offset by other headwinds

Second Quarter P&L Dummary

Primarily driven by business mix

% of sales| 42.1%| 42.0%| (10) bps
SG&A expense| ($983)| ($1,054)| 7%| Ongoing cost reset actions largely offset by 230 bps unfavorable impact of mark-to-market compensation plan, resulting from prior year pandemic–related price decline.
% of sales| 23.7%| 23.8%|
EBIT| $725| $775| 7%
% of sales| 17.4%| 17.5%| 10 bps
Adj EBIT| $765| $806| 5%| Excludes restructuring of $40 and $21 in 2020 and 2021, respectively, and OSI purchase accounting in 2021
% of sales| 18.4%| 18.2%| (20) bps
Tax Rate| 24.0%| 23.0%| | 8
Shares| 611| 603|
---|---|---|---
Adjusted EPS*| $0.89| $0.97| 9%

Earnings & cash flow

($M)| 2020| 2021| Change|
---|---|---|---|---
Adjusted Segment EBIT| $736| $847| 15%| Volume leverage and cost reset benefits drove strong margin expansion, despite material cost headwinds in Commercial & Residential Solutions
% of sales| 17.6%| 19.1%| 150 bps
Stock compensation| $38| ($61)| ($99)| Negative impact of mark-to-market on stock comp: ($99), (230 bps).
Corporate pension and OPEB| $12| $23| $11
Adjusted corporate and other| ($21)| ($3)| $18
Interest expense, net| ($36)| ($38)| ($2)
Adjusted pretax earnings| $729| $768| 5%
% of sales| 17.5%| 17.3%| (20) bps
Operating cash flow| $588| $807| 37%| Earnings and balance sheet favorability: 125% FCF conversion of net earnings
Capital expenditures| ($111)| ($100)|
Free cash flow*| $477| $707| 48%
Trade working capital| $3,169| $2,973| | 9
% of sales| 19.0%| 16.8%|

Emerson Commercial & Residential Solutions

UNDERLYING SALES CHANGE VS. PY

Americas| (12%)
Europe| 6%
Asia, Middle East & Africa| 9%
|
Automation Solutions| (2%)
FX Impact| 3 Pts
Acq Impact| 2 Pts
Reported Net Sales| 3%

All regions and all businesses showed positive growth Asia, Middle East & Africa sales surged 24%, driven by China which grew 56% due to strong commercial HVAC and cold chain demand. The Americas grew 8% with ongoing strength in residential HVAC and home products, and accelerating growth in cold chain and professional tools. Europe grew by 9% with ongoing demand for heat pump and energy efficient appliance technologies
Adj EBIT* margin up 40 bps, as cost reduction activities took effect Restructuring and related actions totaled $5M across the platform.
Backlog increased sequentially by ~$200M to end the quarter at record of ~$1.0B, and is up 58% YTD

REPORTED NET SALES

3 %
$2,709M **$2,793M**

*Underlying Sales    (2%)**

15.5% *Adj EBIT%     17.3%**

20.6% **Adj EBITDA%* 22.9%**

2020 2021

T3M Underlying Orders
Jan| | (12%)
Feb| | (9%)
Mar| | (5%)

UNDERLYING SALES CHANGE VS. PY

Americas| 8%
Europe| 9%
Asia, Middle East & Africa| 24%
Commercial & Residential Solutions| 11%
FX Impact| 2 Pts
Acq Impact| –
Reported Net Sales| 13%

All regions and all businesses showed positive growth
Asia, Middle East & Africa sales surged 24%, driven by China which grew 56% due to strong commercial HVAC and cold chain demand. The Americas grew 8% with ongoing strength in residential HVAC and home products, and accelerating growth in cold chain and professional tools. Europe grew by 9% with ongoing demand for heat pump and energy efficient appliance technologies
Adj EBIT* margin up 40 bps, as cost reduction activities took effect Restructuring and related actions totaled $5M across the platform.
Backlog increased sequentially by ~$200M to end the quarter at record of ~$1.0B, and is up 58% YTD

REPORTED NET SALES

13%
$1,645M
$1,458M
Underlying Sales   11% 21.6%
Adj EBIT% 22.0% 26.1%
**Adj EBITDA%* 26.0% 2020 2021**
T3M Underlying Orders
Jan| | 16%
Feb| | 14%
Mar| | 21%

Updated 2021 guidance

| Feb 16th, 2021| May 5, 2021
---|---|---
Net Sales Growth
Acquisition FX| 4% – 8%
1 pt
3 pts| 6% – 9%
1 pt
2 pts
Underlying Sales Growth Automation Solutions Commercial & Residential Sols.| flat – 4%
(3%) – 1%
8% – 10%| 3% – 6%
(1%) – 1%
12% – 14%
Adj EBIT Adj EBITDA| ~17.0%
~22.5%| ~17.5% 22.5%+
Restructuring Actions
Tax Rate
Operating Cash Flow
Capital Spend
Free Cash Flow Dividend
Share Repurchase / M&A1| ~$200M
~22%
~$3.15B
~$600M
~$2.55B
~$1.2B
$500M – $1.0B| ~$200M
~22%
~$3.3B
~$600M
~$2.7B
~$1.2B
$500M – $1.0B
GAAP EPS
Adjusted EPS*| $3.39 +/- $0.10
$3.70 +/- $0.10| $3.60 +/- $0.05
$3.90 +/- $0.05

Updated Profit Items:

• Unfavorable Price-cost (~$25M) to (~$75M)
• Unfavorable Stock Compensation (~$80M) to (~$100M)
• Favorable COVID Related Costs (~$40M) to (~$30M)

Emerson trailing three month underlying orders vs. prior year
Expect continued demand improvement in H2

Underlying Sales Growth Outlook

Automation Solutions H2 expected to sequentially improve as world areas continue recovery from the COVID induced recession

Commercial & Residential Solutions H2 should have balanced strength across world areas as commercial and industrial markets gain momentum

Reconciliation of Non-GAAP Measures

Q2 2021 Underlying Sales Change| Auto Solns| | Comm & Res **Solns| | Emerson*
---|---|---|---|---|---
Reported (GAAP)| 3%| | 13%| | 6%
(Favorable) / Unfavorable FX| (3)%| | (2)%| | (3)%
Acquisitions / Divestitures| (2)%| | – %| | (1)%
Underlying| (2)%| | 11%| | 2%
Reported (GAAP)| 3% – 5%| | 14% – 16%| | 6% – 9%
(Favorable) / Unfavorable FX| ~ (3) %| | ~ (2) %| | ~ (2) %
Acquisitions / Divestitures| ~ (1) %| | ~ – %| | ~ (1) %
Underlying| (1)% – 1%| | 12% – 14%| | 3% – 6%
Reported (GAAP)| 2% – 6%| | 10% – 12%| | 4% – 8%
(Favorable) / Unfavorable FX| ~ (3) %| | ~ (2) %| | ~ (3)%
Acquisitions / Divestitures| ~ (2) %| | – %| | ~ (1)%
Underlying| (3)% – 1%| | 8% – 10%| | 0% – 4%

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

This information reconciles non-GAAP measures (denoted with a *) with the most directly comparable GAAP measure. (dollars in millions, except per share amounts)

EBIT| Q2 FY20| | Q2 FY21| | Change|
---|---|---|---|---|---|---
Pretax earnings (GAAP)| $                 689| | $               737| | 7%|
Interest expense, net| 36| | 38| | -%|
Earnings before interest and taxes| $725| | $775| | 7%|
Restructuring and related costs| 40| | 21| | (3)%|
OSI purchase accounting items| –| | 10| | 1%|
Adjusted earnings before interest and taxes| $765| | $806| | 5%|
EBIT Margin| Q2 FY20| | Q2 FY21| | Change| FY21E
Pretax margin (GAAP)| 16.6%| | 16.6%| | – bps| ~ 15.5%
Interest expense, net| 0.8%| | 0.9%| | 10 bps| 1.0%
EBIT margin| 17.4%| | 17.5%| | 10 bps| ~ 16.5%
Restructuring| 1.0%| | 0.5%| | (50) bps| 1.0%
OSI purchase accounting items| -%| | 0.2%| | 20 bps| 0.1%
Equity investment gain| -%| | -%| | – bps| (0.1)%
Adjusted EBIT margin| 18.4%| | 18.2%| | (20) bps| ~ 17.5%
Depreciation and amortization expense| | | | | | 5.0%
Adjusted EBITDA margin| | | | | | ~ 22.5%+
FY21E February 16th Guidance Adjusted EBITDA Margin| FY21E| | | | |
Pretax margin (GAAP)| ~15%| | | | |
Interest expense, net| 1%| | | | |
EBIT margin| ~16%| | | | |
Restructuring and related costs| 1%| | | | |
Adjusted EBIT margin| ~17%| | | | |
Depreciation and amortization| 5.5%| | | | |
Adjusted EBITDA margin| ~22.5%| | | | |

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures.
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures.
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

This information reconciles non-GAAP measures (denoted with a *) with the most directly comparable GAAP measure. (dollars in millions, except per share amounts)

Earnings Per Share

|

FY21E

Feb 16 th

Guidance

|

FY21E

May

Guidance

|
Earnings per share (GAAP)| $3.29 – $3.49| $3.55 – $3.65|
Restructuring and related costs| ~ 0.27| ~ 0.26|
OSI purchase accounting charges and fees| ~ 0.07| ~ 0.07|
Equity investment gain| ~ (0.03)| ~ (0.03)|
Adjusted earnings per share| $3.60 – $3.80| $3.85 – $3.95|
Business Segment EBIT| Q2 FY20| Q2 FY21 __| Change
Pretax earnings (GAAP)| $                 689| $               737| 7%
Corp. items and interest expense, net| 8| 91 __| 12%
Business segment EBIT| 697| 828| 19%
Restructuring and related costs| 39| 19 _| (4)%_
Adjusted business segment EBIT*| $                 736| $               847| 15%

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

This information reconciles non-GAAP measures (denoted with a *) with the most directly comparable GAAP measure. (dollars in millions, except per share amounts)

Business Segment EBIT Margin| Q2 FY20| | Q2 FY21| | Change
---|---|---|---|---|---
**| | | | | __
Pretax margin (GAAP)| 16.6%| | 16.6%| | – bps
Corp. items and interest expense, net % of sales| 0.1%| | 2.0%| | 190 bps
Business segment EBIT margin| 16.7%| | 18.6%| | 190 bps
Restructuring and related costs % of sales| 0.9%| | 0.5%| | (40) bps
Adjusted business segment EBIT margin| 17.6%| | 19.1%| | 150 bps
Pretax Earnings| Q2 FY20| | Q2 FY21| | Change
Pretax earnings (GAAP)| $                 689| | $               737| | 7%
Restructuring and related costs| 40| | 21| | (3)%
OSI purchase accounting charges| –| | 10| | 1%
Adjusted pretax earnings| $                 729| | $               768| | 5%
Corporate and Other| Q2 FY20| | Q2 FY21| | Change
Corporate and other (GAAP)| $                  (22)| | $               (15)| | $               7
Restructuring and related costs| 1| | 2| | 1
OSI purchase accounting charges| –| | 10| | 10
Adjusted Corporate and other| $                  (21)| | $ (3)| | $             18
Pretax Margin| Q2 FY20| | Q2 FY21| | Change*
Pretax margin (GAAP)| 16.6%| | 16.6%| | – bps
Restructuring and related costs| 0.9%| | 0.5%| | (40) bps
OSI purchase accounting charges| -%| | 0.2%| | 20 bps
Adjusted pretax margin| 17.5%| | 17.3%| | (20) bps

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

This information reconciles non-GAAP measures (denoted with a *) with the most directly comparable GAAP measure. (dollars in millions, except per share amounts)

Automation Solutions Segment EBIT Margin| Q2 FY20| | Q2 FY21| | Change| |
---|---|---|---|---|---|---|---
Automation Solutions Segment EBIT margin (GAAP)| 14.4%| | 16.8%| | 240 bps| |
Restructuring and related costs| 1.1%| | 0.5%| | (60) bps| |
Automation Solutions Adjusted Segment EBIT margin| 15.5%| | 17.3%| | 180 bps| |
Depreciation / amortization| 5.1%| | 5.6%| | 50 bps| |
Automation Solutions Adjusted Segment EBITDA margin| 20.6%| | 22.9%| | 230 bps| |
Commercial & Residential Solutions EBIT Margin| Q2 FY20| | Q2 FY21| | Change| |
Com & Res Sols EBIT margin (GAAP)| 21.0%| | 21.7%| | 70 bps| |
Restructuring and related costs| 0.6%| | 0.3%| | (30) bps| |
Com & Res Sols Adjusted EBIT margin| 21.6%| | 22.0%| | 40 bps| |
Depreciation / amortization| 4.5%| | 4.0%| | (50) bps| |
Com & Res Sols Adjusted Segment EBITDA margin| 26.1%| | 26.0%| | (10) bps| |
Cash Flow|

Q2 FY20

| |

Q2 FY21

| |

Change

|

FY21E

Feb 16 th

Guidance

|

FY2021E

May

Guidance

Operating cash flow (GAAP)| $                 588| | $               807| | 37%| ~ $3.15B| ~ $3.3B
Capital expenditures| (111)| | (100)| | 11%| ~ (600)| ~ (600)
Free cash flow*| $                 477| | $               707| | 48%| ~ $2.55B| ~ $2.7B

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

This information reconciles non-GAAP measures (denoted with a *) with the most directly comparable GAAP measure. (dollars in millions, except per share amounts)

Cash Flow to Net Earnings Conversion| Q2 FY21| | | |
---|---|---|---|---|---
Operating cash flow conversion (GAAP)| 142%| | | |
Capital expenditures| (17)%| | | |
Free cash flow conversion| 125%| | | |
Emerson FY 2018 Underlying Sales| Q1| Q2| Q3| Q4 __| FY18
Sales (GAAP)| 19%| 19%| 10%| 10%| 14%
FX / Acq / Div| (12)%| (11)%| (2)%| (2)% _| (6)%_
Underlying| 7%| 8%| 8%| 8%| 8%
Emerson FY 2019 Underlying Sales| Q1| Q2| Q3| Q4 __| FY19
Sales (GAAP)| 9%| 8%| 5%| 2%| 6%
FX / Acq / Div| (4.5)%| (4)%| (3)%| 1% | (3)%
Underlying*| 4.5%| 4%| 2%| 3%| 3%
Emerson FY 2020 Underlying Sales| Q1| Q2| Q3| ** Q4 | FY20*
Sales (GAAP)| -%| (9)%| (16)%| (8)%| (9)%
FX / Acq / Div| -%| 2%| 1%| (1)% __| 1%
Underlying| – %| (7)%| (15)%| (9)%| (8)%
Emerson FY 2021E Underlying Sales| Q1| Q2| H2 FY21E| FY21E|
Sales (GAAP)| – %| 6%| 10% – 14%| 6% – 9%|
FX / Acq / Div| (2)%| (4)%| ~ (3)%| ~ (3)%|
Underlying*| (2)%| 2%| 7% – 11%| 3% – 6%|

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

This information reconciles non-GAAP measures (denoted with a *) with the most directly comparable GAAP measure. (dollars in millions, except per share amounts)

Automation Solutions FY 2018 Underlying Sales| Q1 __| Q2 __| Q3 __| Q4 __| FY18
---|---|---|---|---|---
Sales (GAAP)| 31%| 31%| 18%| 11%| 21%
FX / Acq / Div| (22)% | (21)% | (6)% | (2)% | (11)%
Underlying| 9%| 10%| 12%| 9%| 10%
Automation Solutions FY 2019 Underlying Sales| Q1 __| Q2 __| Q3 __| Q4 __| FY19
Sales (GAAP)| 9%| 9%| 5%| 4%| 7%
FX / Acq / Div| (2)% | (2)% | (2)% | 1% | (2)%
Underlying| 7%| 7%| 3%| 5%| 5%
Automation Solutions FY 2020 Underlying Sales| Q1 __| Q2 __| Q3 __| Q4 __| FY20
Sales (GAAP)| 2%| (10)%| (14)%| (11)%| (9)%
FX / Acq / Div| (1)% | 2% | 1% | -% | 1%
Underlying| 1%| (8)%| (13)%| (11)%| (8)%
Automation Solutions FY 2021E Underlying Sales| Q1 __| Q2 __| H1 __| H2 FY21E __| FY21E
Sales (GAAP)| (6)%| 3%| (1)%| 9% – 13%| 3% – 5%
FX / Acq / Div| (3)% | (5)% | (4)% | ~ (5)% | ~ (4)%
Underlying| (9)%| (2)%| (5)%| 4% – 8%| (1)% – 1%

References to trailing 3-month or T3M orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding acquisitions and divestitures.
References to underlying orders in this presentation refer to the Company’s trailing three-month average orders growth versus the prior year, excluding currency, acquisitions and divestitures.
References to underlying sales in this presentation exclude the impact of acquisitions, divestitures and currency translation.

References

• Emerson Global | Emerson
• Emerson Global | Emerson

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