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Emerson Electric Co EMR
Q1 2013 Earnings Call Transcript

Transcript Call Date 02/05/2013

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Emerson's Investor Conference Call. During today's presentation by Emerson management, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, the 5th of February, 2013.

Emerson's commentary and responses to your questions may contain forward-looking statements, including the Company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson's most recent Annual Report on Form 10-K as filed with the SEC.

I would now like to turn the conference over to our host Mr. Patrick Fitzgerald, Director of Investor Relations at Emerson. Please go ahead.

Patrick Fitzgerald - Assistant Treasurer and Director of IR: Thank you, Leica. I am joined today by David Farr, Chairman and Chief Executive Officer of Emerson; and Frank Dellaquila, Executive Vice President and Chief Financial Officer.

Today's call will summarize Emerson's first quarter 2013 results. A conference call slide presentation will accompany my comments and is available on Emerson's website at emerson.com. A replay of this conference call and slide presentation will be available on the website after the call for the next three months.

I'll start with the highlights of the quarter as shown on Page 2 of the conference call slide presentation. First quarter sales increased 5% to $5.6 billion, with underlying sales growing 6%. Sales trends were mixed across end markets and geographies, with the strongest growth in Process Management driven by robust energy end markets and favorable comparisons from supply chain disruption in the prior year.

Gross margin of 39.7% improved 100 basis points and EBIT margin expanded 160 basis points to 13.1% as strong volume leverage and cost reduction benefits offset mix headwinds. Earnings per share of $0.62 increased 24% from the prior year. Cash generation was strong with free cash flow up 115% to $439 million.

The results reflected solid growth in margin amid a tenuous global economic environment and kept Emerson on pace for record financial performance in 2013.

Next slide, P&L summary. As we mentioned, total sales grew 5% and underlying sales grew 6%. Operating profit margin of 14.6% increased 140 basis points despite a stock compensation increase of $22 million and $12 million pension expense increase. Earnings per share of $0.62 increased 24%, benefiting from share repurchases of 2.1 million shares.

Next slide, underlying sales by geography; underlying sales in U.S. grew 6%, Europe declined 2%, Asia increased 6%, Latin America increased 19%, Canada grew 6%, and Middle East and Africa was up 22%. Total underlying sales increased 6%. Currency translation and divestitures deducted 1% for reported sales growth of 5%. We expect Asia to gain orders growth momentum in the second quarter, especially in China and India.

Moving to Slide 5, cash flow and balance sheet; operating cash flow grew 66% driven by strong earnings and lower working capital growth. Free cash flow was up 115%, reflecting 97% conversion from earnings. Working capital as a percent of sales increased 90 basis points, as strong payables performance and lower inventory was more than offset by higher receivables.

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