Emerson Electric Earnings Analysis

After a series of difficult earnings reports, Emerson Electric Co.'s (NYSE:EMR) first-quarter results and guidance finally suggested the company is getting over the worst. In common with its peer in industrial automation Rockwell Automation (NYSE:ROK), Emerson Electric is seeing improving conditions in the automation market. Meanwhile, Emerson's other segment -- commercial and residential solutions -- gave upbeat guidance for 2017, much like Ingersoll-Rand PLC's (NYSE:IR) outlook. In short, it was a good quarter for Emerson Electric, so let's look at the key details.

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Emerson Electric: A Dividend Stock to Buy?

Dividend Aristocrat Emerson Electric's payout of around 3.4% makes it a favorite of yield hunters, but for long-term income seekers, is the stock really worth buying ? The answer is likely to be shaped by events in the coming year, particularly as the company is undergoing significant restructuring.
Let's take a look at five things you need to know about Emerson Electric as an income investment, and why 2017 is such an important year for it.

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Emerson Electric Earnings Review

Most companies with heavy exposure to the oil and gas industry have had a difficult year in 2016, and Emerson Electric Co. is no different. The recent fourth-quarter results revealed yet more sales and order declines, but CEO David Farr has been busy restructuring in order to position Emerson Electric for future growth. It's time to analyze the results and outlook from the company's latest earnings report.

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Emerson Electric Earnings Review

The one consistent theme running through the current earnings season has been the weaker-than-expected spending from oil and gas and heavy industry businesses. Just a few days before Emerson Electric (NYSE:EMR) reported earnings, its fellow industrial company Rockwell Automation (NYSE:ROK) reduced its full-year sales outlook referencing delays in large projects in heavy industries. Therefore it was hardly surprising to see Emerson Electric lower its outlook. Let's take a look at what happened in the company's third quarter.

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Emerson Electric Earnings Analysis

Another quarter and another set of tough end-market conditions for Emerson Electric (NYSE: EMR). It almost feels like the company has spent the last two years firefighting deteriorating end markets. To be fair, though, its management hasn't stood still. Restructuring plans are afoot, even while the recent second-quarter results confirmed ongoing tough conditions. Let's take a look at the key themes and numbers from the earnings.

OIL AND GAS SPENDING REMAINS DIFFICULT FOR EMERSON ELECTRIC. IMAGE SOURCE: EMERSON ELECTRIC.

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Emerson Electric or Rockwell Automation Stock?

Emerson Electric and Rockwell Automation have both outperformed the S&P 500 year to date. As with Cognex Corp. , both companies have substantive exposure to industrial automation. It's somewhat surprising to see such share price outperformance during a period of weak economic growth, but clearly, the market is pricing in a second-half recovery. The question is, which stock is a better buy now?

EMR data by YCharts

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Emerson Electric or Dover Corporation?

Thematically, Emerson Electric and Dover Corporation have much in common. Both are industrials with heavy expsure to the oil & gas sector and dividend aristocrats with around 60 years of increasing dividends behind them. The bull case for both stocks lies within the idea that 2016 will prove to be a trough year in their underlying earnings, and that their current valuations provide compelling value for long-term investors in anticipation of a 2017 rebound. Let's take a closer look to see if this thesis has merit.

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Emerson Electric Earnings Analysis

Emerson Electric CEO David Farr has done a pretty good job of preparing investors for a tough year ahead for the company. You know you're in trouble when an earnings presentation begins with the words, "It is a global industrial recession." That said, investing isn't just about buying companies that are currently flying high, and Farr's guidance was enough to reassure investors, who took the stock higher in a down market. Let's take a look at Emerson Electric's first quarter and what management said about it.

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Today's Dividend Candidate: Emerson Electric

For those on the hunt of dividend yield, industrial stalwart Emerson Electric's  nearly 3.9% dividend yield is surely attracting some attention. Unfortunately, investing is rarely as simple as picking out a stock based on yield, so I thought I would discuss some of the pros and cons of buying dividend aristocrat Emerson Electric for its yield.

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Emerson Electric's Latest Earnings Call

Emerson Electric's fiscal-year 2015 proved challenging, to say the least. Reductions in energy capital expenditures, adverse currency movements, and emerging-market weakness combined to reduce full-year net sales by 9% and adjusted EPS by 15%. As the company enters its fiscal 2016, investors will be hoping to see some improvement. With this in mind, here are five things that management wants you to know about its future prospects.

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Emerson Electric to Recover in 2016?

There is something soothing and therapeutic about a company reaching the fourth-quarter of a difficult fiscal year and looking ahead to a better year. It's not quite that Emerson Electric's (NYSE: EMR) management is expecting a better fiscal 2016, but rather it expects the second half of its 2016 to mark an improvement on the first.Following the current rough patch, investors could be looking at an entirely different story by this time next year.Time to get excited? Let's dive in and see if there is any cause for optimism.


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Emerson Electric's fourth-quarter results capped off a very difficult year for the diversified industrial company. Emerson started its fiscal year struggling with weak energy capital spending and a strong U.S. dollar. Unfortunately, adding insult to injury, the year got worse. As the year progressed, issues like weakening emerging market growth and slowing industrial spending joined the party. Despite recent travails, the company continues to be well respected by dividend investors for being a Dividend Aristocrat -- 2015 marked the 59th consecutive year of increased dividends -- so let's take a look at the results and how management is dealing with difficult markets.


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Emerson Electric's Difficult 2015

Investors in Emerson Electric  already know the company had a difficult 2015, with a combination of negative trends forcing management to lower revenue and earnings estimates throughout its fiscal year. The last earnings report wasn't pretty, and as of this writing, the stock has declined around 20% year to date. However, no stock goes down forever, and the stock's forward annual yield of 3.8% is obviously going to attract dividend hunters. With that said, let's look at the five things management wants you to know about its current trading and future prospects.


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Emerson Electric Earnings Call

With its recent fourth-quarter results, dividend investor favorite Emerson Electric (NYSE: EMR  ) showed that it's been performing well in the face of mixed end markets. You may have already read the details of the earnings report, but now it's time to look at what management wants you to know about the company's future direction.

Global growth and dividends

There are two key things to understand about the company. First, it's largely a play on global macroeconomic conditions, with an added growth kicker from emerging-market spending on infrastructure projects. Second, it's a Dividend Aristocrat -- a company that has increased its dividend for 25 years or more. Moreover, the underlying evidence suggests that it has the potential, and management the will, to continue rewarding income-seeking investors well into the future. Let's look at five key takeaways from the earnings call in the context of these two points.


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Emerson Electric: A Dividend Stock

Emerson Electric's (NYSE: EMR  ) fourth-quarter results did two things that will interest investors. First, they gave a good reading on trends in the global economy -- something all investors should be watching. Second, they confirmed just why the company remains a dividend favorite. Putting these things together, is the stock worth buying?

Emerson Electric: Performing well amid some global challenges

Earlier in the year, Fools saw how buying stock in Emerson Electric was largely a play on economic trends in the global economy. With this in mind, it's a good idea to track how its geographic performance fared relative to management's expectations at the start of the year.

Here is a look at full-year underlying sales (excluding acquisitions and divestitures) versus what was planned in early 2014:

Segment	Plan	Actual
USA	3%-5%	4%
Europe	0%-2%	1%
China	6%-8%	7%
Other Asia	6%-8%	1%
Latin America	6%-8%	2%
Middle East & Africa	8%-10%	(1%)
Underlying	3%-5%	3%

Source: Emerson Electric presentations.

With underlying sales at the bottom end of its projected range for the full year, it's clear that its end markets didn't work out as planned. Of course, Emerson Electric isn't alone in seeing significant changes occur in the mix of global growth. Indeed, fellow industrial bellwether 3M also reported a similar story of the U.S. strengthening, with certain emerging markets (particularly Latin America) weakening notably.


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Time to Buy Emerson Electric Stock?

Emerson Electric's (NYSE: EMR  )  stock is down 7.6% year to date, as I write. With that said, there are signs the company could finish 2014 on a strong note. The global economy is set for a better second half, and management is actively restructuring the business in order to generate earnings growth. Does the dip in the share price create a buying opportunity for investors?



The story of 2014
Readers looking for some background material on this manufacturing and technology company can read a recap of its last conference call here, along with the bull and bear cases for the stock.

In a nutshell, management has been doing a pretty good job in raising its operating margin to a record level, and the company's cash flow conversion remains strong. However, a combination of geopolitical uncertainty and weaker than expected global growth has slowed customer spending. As such, Emerson's sales growth is trending toward the low end of its full-year target for 3%-5% growth.


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Why Emerson Electric Could Fall Further

Industrial equipment manufacturer Emerson Electric's (NYSE: EMR  ) stock price is down more than 8% year to date, and investors must be wondering when the company will join the broader market rally. By management's own admission, sales growth has been lower than hoped for this year. Moreover, there are a number of reasons the company could continue to disappoint investors in the near term. Let's look at three of them.

Emerson Electric needs more spending on energy infrastructure Source: Motley Fool Flickr.

An uncertain geopolitical situationIf there is one thing that has affected the company this year, it's geopolitical concerns. Essentially, sales have grown slower than orders as customers continue to display cautiousness on current spending due to global tensions. Unfortunately, there are no shortages of issues to worry about, including conflicts in the Middle East and Ukraine, the debt default situation in Argentina, and emerging market growth coming in lower than expected. Caution is not an uncommon situation in the industrial equipment sector right now.


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Why Emerson Electric Could Rise

Having endured a difficult 2014 so far, industrial equipment manufacturer Emerson Electric Co. (NYSE: EMR  ) is hoping to close out its year on a stronger note. By management's own admission, growth hasn't been as strong as it had expected it to be, and the company is trending toward the bottom end of its forecast for 3%-5% underlying sales growth for the full year. With that said, there are three key catalysts that could drive the stock higher from here. It's time to look at them in more detail.

Emerson Electric Co. is primed for growth

Firstly, this article is part of a series of articles on the company, and readers can learn about what management wants you to know in this article. One of the factors highlighted in the linked article leads into the first upside catalyst for Emerson Electric. Simply put, the company finds itself in the unusual position whereby orders are growing faster than sales, creating a significant backlog. For example, the three-month average for orders came in with a 7% increase at the end of July, whereas underlying sales growth was only 3% in the third quarter ended in June.


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How to Invest in the Industrial Equipment Sector

If you have wondered how to play the anticipated resurgence in manufacturing in the U.S., the industrial equipment industry could be the place to look for stocks to buy. The logic behind this view is simple: If the economy is flourishing, manufacturing companies will look to expand capacity and spending on capital machinery will increase. At this stage general industrial equipment companies such as Siemens, ABB (NYSE: ABB  ) , Parker-Hannifin (NYSE: PH  ) , Honeywell International (NYSE: HON  ) , and Emerson Electric (NYSE: EMR  )  start to look attractive. Investors should also consider more niche market players such as vision machine company Cognex (NASDAQ: CGNX  ) or Roper Industries (NYSE: ROP  ) . It's time to look closer at the industry.

Source: Motley Fool Flickr Account.

What is the industrial equipment industry?

In essence, the industry represents any item of capital machinery that is sold to an industrial company in order to enable its manufacturing or processing activity. While this traditionally means hardware, investors should recognize that software and information technology are becoming an increasing part of the industry.


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Why Emerson Electric is set for a Better Second Half

Whenever a major industrial player like Emerson Electric Co.  (NYSE: EMR  ) gives results the market should sit up and take notice. In this instance, the results and the narrative around them suggest an ongoing, but fragile, economic recovery. Emerson's underlying performance was better than the headline numbers suggested, and there was some good news within the report for companies like Rockwell Automation (NYSE: ROK  ) and Cognex Corporation (NASDAQ: CGNX  ) . With that said, what should Fools be looking for in the global economy that might benefit Emerson going forward?

Emerson Electric's second-quarter results
Emerson's headline numbers weren't great with sales falling 2% in the quarter, and earnings before interest and taxes also declining 2%. A quick look at a segmental breakdown of Emerson's revenue and earnings growth reveals the trend in the quarter.


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