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Emerson Electric Co EMR
Q2 2014 Earnings Call Transcript

Transcript Call Date 05/06/2014

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 opened for questions.

This conference is being recorded today, May 6, 2014. 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 - Director, IR: Thank you, Vince. 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 2014 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 will start with the highlights of the quarter as shown on Page 2 of the conference call slide presentation. Net sales in the quarter decreased 2% to $5.8 billion with underwriting sales up 2%. Sales were lower than expected, primarily due to harsh winter weather and weak GDP growth in the U.S., as well as a slowdown of the global project execution in the process industry.

At the same time, process customers proceeded with plans for future investments helping drive total Emerson orders of 9% in the quarter with strong acceleration in March.

Gross profit margin expanded 140 basis points to 41.2%, while EBIT margin was unchanged from the prior year as currency volatility affected comparisons by $35 million and the Artesyn Technologies equity investment reported a loss of $34 million. EBIT margin improved 60 basis points excluding the equity loss. GAAP earning per share of $0.77 equaled the prior year. Cash generation was strong overcoming lost cash flow from the Artesyn divestiture. Operationally, there is a strong execution in the quarter despite the economic weakness in non-operating items.

Moving to Slide 3, P&L summary. As I stated, sales declined 2% as the Artesyn divestiture deducted 5% and acquisitions added 1%, such that underlying sales grew 2%. 140 basis points of gross profit margin improvement was driven by portfolio changes and cost containment. SG&A expense declined in large part due to lower stock compensation expense. Significant restructuring costs in the Artesyn investment contributed to a equity loss and other deductions of $34 million. Additionally, currency volatility swung from gains in the prior year, but losses in the second quarter, a change of $35 million. Reported EBIT margin was flat or up 16 basis points due to an equity loss. 3.3 million shares were repurchased for $214 million, such that earnings per share of $0.77 was unchanged from prior year.

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