http://www.morningstar.com/earnings/51917460-emerson-electric-co-emr-q2-2013.aspx

Emerson Electric Co EMR
Q2 2013 Earnings Call Transcript

Transcript Call Date 05/07/2013

Operator: Good day, ladies and gentlemen. 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 May 7th, 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 Patrick Fitzgerald, Director of Investor Relations at Emerson. Please go ahead, sir.

Patrick Fitzgerald - Assistant Treasurer and Director, IR: Thank you, Angela. 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 second 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. Second quarter sales grew slightly to $6.0 billion, with underlying sales increasing 2%. Results were mixed across end markets and geographies, as slow global economic growth lowered confidence and suppressed business investment especially in mature markets.

Gross margin expanded 30 basis points to 39.8% and EBIT margin of 14.9% improved 20 basis points led by 50 basis points of business segment margin expansion. Earnings per share of $0.77 increased 4% and free cash flow grew 18% to $477 million. Second quarter results reflected solid execution in a business environment struggling for certainty and momentum.

Next slide, P&L summary; net sales of $5.960 billion grew 1% limited by macroeconomic sluggishness. Operating profit decreased 3% as an increase in gross profit was offset by higher pension and stock compensation expense. EBIT increased 2% with 20 basis points of margin expansion helped by lower restructuring and currency gains. Earnings per share grew 4% to $0.77 benefitting from $156 million of share repurchase in the quarter.

Next slide, sales by geography; underlying sales in the U.S. grew 1%, Europe decreased 3%, Asia grew 2%, Latin America grew 8%, Canada was flat and Middle East and Africa was up 19%. Total underlying sales increased 2%. Currency translation and divestitures each deducted about 0.5%, such that net sales increased 1%. Strong growth in emerging markets up 6% offset slow market conditions in mature markets.

Moving to Slide 5, cash flow and balance sheet; operating cash flow increased 6% and free cash flow grew 18%, reflecting strong year-to-date cash generation. Working capital as a percent of sales increased 50 basis points from prior year. It improved 140 basis points sequentially after a slow start to the year.

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