Industrial automation powerhouse Emerson Electric today reported double-digit increases in both sales and net income for its fiscal 2007 first quarter. The company also predicted that full-year reported sales growth would range between 8% and 11%.
Net sales for the quarter ended Dec. 31, 2006, jumped 11% year over year to $5.1 billion. Net earnings likewise increased 12% to $445 million, with earnings per share of 55 cents, a 15% increase over the same period last year.
This quarter marked the first time in Emerson's history that international sales accounted for more than 50% of total sales. Total underlying growth in the U.S. was down 2% due to weakness experienced by Emerson's Climate Technologies segment, where sales were down 8% for the quarter. Company officials attributed the comparative weakness to North America's residential air conditioning market, where sales in the first quarter of fiscal 2006 were exceptionally strong due to an industry-wide conversion to new energy efficiency standards.
Emerson's Process Management business once again made a significant contribution to the company's quarterly results. Reported sales grew by 11%, including an underlying sales increase of 6% plus a favorable impact of currency translation that accounted for 3%, and 2% due to acquisitions.
Emerson Chairman, CEO, and President David N. Farr said on a call with financial analysts this afternoon that a direct comparison to the double-digit growth in the Process business at the beginning of fiscal 2006 is not appropriate due to atypical demand in the U.S. as companies rebuilt after Hurricane Katrina. However, Farr went on to predict stronger numbers across the Process business in the second quarter of 2007.
Key to Process Management's strong quarterly sales and earnings performance, Farr said, was the launch of a wireless version of the company's PlantWeb architecture, a network of digital predictive analysis and asset management tools for control systems, valves, and rotating machinery. Farr called wireless products a "game changer" for Emerson's markets, and reiterated his company's heavy investment in such products, which he said can increase accuracy and efficiency throughout plants.
While reporting a strong balance sheet for the quarter, Emerson officials noted "mixed" operational efficiency results. Those results meant cash flow in the quarter was approximately $25 million to $50 million lower than expected. The company expects to generate approximately $2.7 billion in operating cash flow and $2 billion of free cash flow in fiscal 2007, according to Farr, who listed the funding of internal growth and new products, as well as acquisitions, among Emerson's priorities for cash utilization.
Elsewhere in the company, sales in the Network Power business grew 28% to $1.2 billion in the quarter, 17% of that from acquisitions. Demand was particularly strong in China's power systems business, offseting weakness in the North American telecom power market, which has experienced lower sales volumes compared with the prior year. The Appliance and Tools business grew sales by 5% in the quarter to $1.09 billion, as strong growth in the tools and storage businesses offset a decline in the motors and appliance components segment.
For fiscal 2007, Emerson expects reported sales growth in the range of 8% to 11%, with underlying sales growth to account for between 5% and 7% of that number. Full year earnings are expected to be in the range of $2.50 to $2.60 per share. The company did not provide guidance for 2007 revenue numbers.