Industrial conglomerate Emerson Electric Co. soared through its 2007 second quarter with double-digit increases in sales, orders, and earnings, driven primarily by growth of international business within the company's Process Management, Industrial Automation, and Network Power groups.
The St. Louis-based company announced 14% increases in both net sales and earnings for its second quarter, ended March 31, 2007. Net earnings of $494 million, or $0.61 per share, on sales of $5.5 billion were up from the $434 million net earnings, or $0.52 per share, on sales of $4.9 billion reported in the prior-year period.
Emerson's Process Management group reported that sales grew by 18%, which included an underlying sales increase of 11%, the favorable impact of currency translation (3%), and acquisitions (4%). Process Management orders rose at a double-digit rate in the quarter as strong capital spending in global energy markets continued to drive growth. For example, a key Emerson win in the second quarter came from Qatargas Operating Co. Ltd., (Dahar, Qatar), which selected Emerson Process Management as its supplier for oil, gas, and liquefied natural gas facilities. The deal's actual value was not disclosed.
Emerson's Industrial Automation unit, meanwhile, reported its fifth consecutive quarter of double-digit growth. Sales rose to $1 billion, a 13% increase from sales reported in the year-earlier second quarter. Similarly, Network Power sales grew 19% in the quarter to $1.2 billion.
While the Process Management group topped the list of sales for the quarter, generating $1.3 billion in revenue, all of the Emerson businesses are holding strong, Emerson Chairman, CEO, and President David Farr said in an analyst briefing yesterday.
In his opening remarks, Farr thanked the company's corporate and operating executives, citing a scene from one of his favorite movies, A Few Good Men, as he prepared the financial analyst community for a truth that he said they just might not be able to handle: Emerson is once again on solid footing, Farr said, following an 11% increase in sales in the first quarter of 2007 and a solid 2006.
"We had a strong start to 2007, and we feel good about the second half," Farr said.
Emerson expects full-year earnings per share of $2.50 to $2.60, which would represent growth in the range of 12% to 16%. This earnings performance is predicated on expected underlying sales growth in the range of 5% to 7% and reported sales growth in the range of 8% to 11%, the company said.
U.S. sales were up a mere 3% this quarter, with the majority of growth coming from Europe (11%), Asia (14%), and the Middle East/Other (36%).
"Emerson's second-quarter performance, on top of the excellent results achieved in the prior-year quarter, demonstrates continued momentum for the company. The top-line growth achieved in the quarter illustrates the broad geographic capabilities we have established through many years of investing to globalize Emerson," said Farr in a prepared statement. "The global reach of Emerson, along with the diverse end-market exposures across the company, allows us to achieve high levels of growth in spite of softness that may be experienced in certain regions or customer segments."
Emerson continues to make capital investments to build out capacity in the Middle East and Eastern Europe, where growth is high. The company reported full-year operating cash flow of $2.7 billion, which will likely be invested in internal programs, rather than acquisitions this year, Farr said.
Industry analysts concurred that Emerson's growth opportunities are strong in process-based industries, as well as in geographies experiencing infrastructure build-out that impacts power and industrial automation sales. But that's true for just about every automation vendor. Emerson competitors Siemens, ABB, and Rockwell Automation recently reported similar sales surges.
"The long term trend is favorable for process automation. This is driven by increased spending in oil and gas and overall hydrocarbons," said Larry O'Brien, an analyst at ARC Advisory Group, in an e-mail interview with Managing Automation. "The growth in the overall market probably peaked in 2006, but will continue to grow, albeit at a slower rate, through the next five years."