Fueled by strong international growth, automation vendor Emerson Electric landed double-digit increases in sales and net income for its fiscal 2008 first quarter, ended Dec. 31, 2007. The company's outlook for 2008 remains positive, despite softness in some markets.
Net sales were $5.64 billion, up 12% from $5.05 billion a year earlier. Net earnings climbed 27% to $565 million, from $445 million a year ago. On a per-share basis, earnings increased 20% to $0.66, from $0.55 last year.
The sales increase included 7% underlying growth, which excludes acquisitions, divestitures, and foreign currency translation. Underlying sales growth in the United States was 5% while international underlying sales increased 9%, including a 16% boost from Asia. The St. Louis-based company completed the sale of the Brooks Instrument unit on Dec. 31, bringing an after-tax gain of $42 million.
Also, Emerson closed its purchase of The Automation Group (TAG) in December 2007, adding project management, engineering solutions, and systems integration capabilities to the Process Management group's service capabilities. The company acquired Motorola's Embedded Communications Computing (ECC) business on Dec. 31, a deal that is expected to bring $400 million in sales to Emerson's top line but dilute earnings per share $.02 to $.03 in 2008. The company anticipates that the acquisition will be accretive to earnings per share in 2009. The Motorola business will be integrated into the Network Power group over the next 18 to 24 months, the company said.
Emerson Chairman, CEO, and President David N. Farr told analysts on a conference call yesterday, "We've had excellent underlying growth in the first quarter. Rolling orders are still strong in the capital side, although weaker in consumer businesses. Even in businesses where we are clearly in a recession," the company has managed to cut costs to help offset sagging sales.
The Process Management business contributed $1.43 billion in sales for the quarter, an 18% increase that included 12% underlying sales growth and a favorable 5% impact from currency translation. Demand for Emerson Process Management's systems, measurement, and valves was particularly strong in the energy sector worldwide, according to the company's prepared statement. Process Management earned $258 million, up 19% from $217 million in the 2007 first quarter. Regionally, U.S. sales were up 13% for this business unit, while Asia was up 20%, Europe inched up 5%, and the Middle East gained 28%. The company noted increased project activity in China and India. Also, the company signed a 10-year agreement in the quarter to automate wastewater treatment plants for King County, Wash.
Emerson's Industrial Automation sales grew 13% to $1.13 billion in the quarter, with 6% underlying sales growth. Among the company's other units, the Appliance and Tools line was the laggard, with sales falling 4% year over year.
"Clearly, the economic environment is very strong in some places and very weak in other places," Farr told analysts. Even so, he said he has not changed his forecast for fiscal 2008. The company's guidance is for 2008 earnings per share from continuing operations in the range of $2.95 to $3.05, or growth of 11% to 15%, which calls for underlying sales growth of 5% to 7%.
Acquisitions remain a key part of the company's strategy going forward, especially against a backdrop of economic uncertainty. In response to analysts' questions, Farr said, "Emerson and others in the industrial space will have an opportunity to pick up selective assets that haven't been available for five or six years. The financial crises may be bothersome for [Wall Street], but it's a unique opportunity to attack and buy some things."
Emerson's operating cash flow was $423 million in the first quarter, up 29% year over year. "Emerson's strong cash position allows us to invest in strategic areas of our business and also return substantial amounts of cash to shareholders through dividends and share repurchases," Farr said in the prepared statement.
When pressed on whether he has seen cause for worry on the macro-economic scene, Farr said he is "not seeing a bubble developing this time," like the one in telecom that burst in 2000-2001. "I'm watching this like a hawk," but investments are still going on around the world, he said.