Why Is Emerson Electric (EMR) Up 1% Since Last Earnings Report?

A month has gone by since the last earnings report for Emerson Electric (NYSE:EMR). Shares have added about 1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Emerson Electric due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Emerson Q1 Earnings Beat, Revenues Miss Estimates

Emerson reported mixed results for first-quarter fiscal 2019 (ended December 2018), wherein earnings beat estimates, while revenues missed the same.

Earnings/Revenues

Adjusted earnings came in at 74 cents per share, higher than the year-ago figure of 58 cents. This solid growth was primarily attributable to favorable global market conditions, partially offset by rise in cost of sales and interest expenses. Moreover, the bottom line surpassed the Zacks Consensus Estimate of 66 cents.

Revenues in the reported quarter were $4,147 million, up from the year-ago figure of $3,816 million. This upside stemmed from strong demand from global industrial markets as well as strength in global cold chain and professional tools markets. However, the top line missed the Zacks Consensus Estimate of $4,227 million.

Segmental Break-Up

Quarterly sales of the Automation Solutions segment were $2,799 million, up 8.8% year over year. Underlying sales also grew 7% as favorable trends in key served markets supported operations. Underlying sales in North America rose 8%, led by broad-based demand across most key markets and solid MRO and small- to mid-sized brownfield projects. Asia and Middle East/Africa underlying sales were up 8%, while Europe was up 3%.

The Commercial & Residential Solutions platform witnessed a 6.9% increase in net sales, but 1% decline in underlying sales, with net sales coming in at $1,338 million. The top line was supported by robust demand in residential air conditioning and professional tools markets. Europe was up an impressive 3% on account of robust demand across professional tools, and heating and air conditioning markets. However, Asia, Middle East & Africa witnessed decline of 23% year over year, while China was down 30% due to weakness in the air conditioning and heating markets.

Under this platform, the Climate Technologies business declined 4.6% year over year to $880 million, while the Tools & Home Products unit jumped 38.7% to $458 million.

Costs/Margins

Cost of sales in the reported quarter was $2,386 million, up 8.4% year over year. Gross profit margin expanded 20 basis points (bps) to 42.5%. This upside stemmed from positive impacts of cost-reduction initiatives and higher revenues.

Selling, general and administrative expenses in the fiscal first quarter were $1,077 million, up from $995 million reported a year ago. Adjusted earnings before interest and taxes margin was 15.3%, up 110 bps year over year.

Liquidity & Cash Flow

Exiting the fiscal first quarter, the company had cash and cash equivalents of $1,248 million, with long-term debt of $2,641 million. Net cash provided by operating activities in the first three months of fiscal 2019 declined 27.7% from the prior fiscal year to $323 million.

Outlook

For fiscal 2019, Emerson expects net sales to increase 7-10%, with underlying sales to be up 4-7%.

The company projects GAAP earnings per share for fiscal 2019 in the range of $3.60-$3.75.

Emerson estimates Automation Solutions net sales to be up 5-8%, while Commercial & Residential Solutions net sales will likely jump 3-5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Emerson Electric has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Emerson Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.