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Emerson Electric Co EMR
Q3 2013 Earnings Call Transcript

Transcript Call Date 08/06/2013

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the 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, today August 6, 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 of IR: Thank you, Camil. 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 third 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. Third quarter sales declined modestly to $6.3 billion, with underlying sales decreasing 1%. While these macroeconomic conditions continued through the quarter, with cautious levels of business investment globally.

Sales growth was also affected by difficult comparisons from the Thailand flooding recovery in the prior year.

Emerging markets grew 2%, which was more than offset by mature market weakness. We announced this morning that an agreement has been signed to sell 51% stake in the embedded computing and power business to Platinum Equity.

The transaction immediately monetizes the business and shifts focus to our core businesses. Transaction proceeds of approximately $300 million and repatriated cash will be deployed for incremental share repurchase of $600 million.

Charges related to the business were recognized in the quarter totaling $0.70 of EPS. Excluding these charges, earnings per share were $0.97. Strong cash generation continued with free cash flow up 20%.

Moving to Slide 3, P&L summary. Having mentioned the slow macroeconomic environment limited growth, gross profit margin was flat as cost containment offset unfavorable product mix and volume deleverage. Operating profit margin declined due to higher stock compensation and pension expense, as well as abnormally high leverage in the prior year from the flooding recovery.

Goodwill impairment was recognized in embedded computing and power business, and other deductions increased $37 million non-recurring dumping duty gain in the prior year. EBIT decreased sharply due to these items, leading to reported earnings per share of $0.27 and $0.97, excluding the goodwill impairment of $0.65 and income tax charges of $0.05 related to earnings repatriation.

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