Safe Harbor Statement
This Annual Report on Form 10-K contains various forward-looking statements and
includes assumptions concerning Emerson's operations, future results and
prospects. These forward-looking statements are based on current expectations
and are subject to risks and uncertainties. Emerson undertakes no obligation to
update any such statements to reflect later developments. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, Emerson provides the cautionary statements set forth under Item 1A - "Risk
Factors," which are hereby incorporated by reference and identify important
economic, political and
13
--------------------------------------------------------------------------------
technological factors, among others, changes in which could cause the actual
results or events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions.
Non-GAAP Financial Measures
To supplement the Company's financial information presented in accordance with
U.S. generally accepted accounting principles (U.S. GAAP), management
periodically uses certain "non-GAAP financial measures," as such term is defined
in Regulation G under SEC rules, to clarify and enhance understanding of past
performance and prospects for the future. Generally, a non-GAAP financial
measure is a numerical measure of a company's operating performance, financial
position or cash flows that excludes or includes amounts that are included in or
excluded from the most directly comparable measure calculated and presented in
accordance with U.S. GAAP. For example, non-GAAP measures may exclude the impact
of certain items such as our strategic repositioning actions, other acquisitions
or divestitures, U.S. tax reform, changes in reporting segments, gains, losses
and impairments, or items outside of management's control, such as foreign
currency exchange rate fluctuations. Management believes that the following
non-GAAP financial measures provide investors and analysts useful insight into
the Company's financial position and operating performance. Any non-GAAP measure
provided should be viewed in addition to, and not as an alternative to, the most
directly comparable measure determined in accordance with U.S. GAAP, as
identified in italics below. Further, the calculation of these non-GAAP
financial measures may differ from the calculation of similarly titled financial
measures presented by other companies and therefore may not be comparable among
companies.
Underlying sales, which exclude the impact of acquisitions, divestitures and
fluctuations in foreign currency exchange rates during the periods presented,
are provided to facilitate relevant period-to-period comparisons of sales growth
by excluding those items that impact overall comparability (U.S. GAAP measure:
net sales).
Operating profit (defined as net sales less cost of sales and selling, general
and administrative expenses) and operating profit margin (defined as operating
profit divided by net sales) are indicative of short-term operational
performance and ongoing profitability. Management closely monitors operating
profit and operating profit margin of each business to evaluate past performance
and actions required to improve profitability. EBIT (defined as earnings before
deductions for interest expense, net and income taxes) and total segment EBIT,
and EBIT margin (defined as EBIT divided by net sales) and total segment EBIT
margin, are financial measures that exclude the impact of financing on the
capital structure and income taxes. EBITDA (defined as EBIT excluding
depreciation and amortization) and EBITDA margin (defined as EBITDA divided by
net sales) are used as measures of the Company's current operating performance,
as they exclude the impact of capital and acquisition-related investments. All
of these are commonly used financial measures utilized by management to evaluate
performance (U.S. GAAP measures: pretax earnings or pretax profit margin).
Earnings, earnings per share, return on common stockholders' equity and return
on total capital excluding certain gains and losses, impairments, restructuring
costs, impacts of the strategic portfolio repositioning actions and other
acquisitions or divestitures, impacts of U.S. tax reform, or other items provide
additional insight into the underlying, ongoing operating performance of the
Company and facilitate period-to-period comparisons by excluding the earnings
impact of these items. Management believes that presenting earnings, earnings
per share, return on common stockholders' equity and return on total capital
excluding these items is more representative of the Company's operational
performance and may be more useful for investors (U.S. GAAP measures: earnings,
earnings per share, return on common stockholders' equity, return on total
capital).
Free cash flow (operating cash flow less capital expenditures) and free cash
flow as a percent of net sales are indicators of the Company's cash generating
capabilities, and dividends as a percent of free cash flow is an indicator of
the Company's ability to support its dividend, after considering investments in
capital assets which are necessary to maintain and enhance existing operations.
The determination of operating cash flow adds back noncash depreciation expense
to earnings and thereby does not reflect a charge for necessary capital
expenditures. Management believes that free cash flow, free cash flow as a
percent of net sales and dividends as a percent of free cash flow are useful to
both management and investors as measures of the Company's ability to generate
cash and support its dividend (U.S. GAAP measures: operating cash flow,
operating cash flow as a percent of net sales, dividends as a percent of
operating cash flow).
14
--------------------------------------------------------------------------------
FINANCIAL REVIEW
Report of Management
The Company's management is responsible for the integrity and accuracy of the
financial statements. Management believes that the financial statements for each
of the years in the three-year period ended September 30, 2019 have been
prepared in conformity with U.S. generally accepted accounting principles
appropriate in the circumstances. In preparing the financial statements,
management makes informed judgments and estimates where necessary to reflect the
expected effects of events and transactions that have not been completed. The
Company's disclosure controls and procedures ensure that material information
required to be disclosed is recorded, processed, summarized and communicated to
management and reported within the required time periods.
In meeting its responsibility for the reliability of the financial statements,
management relies on a system of internal accounting control. This system is
designed to provide reasonable assurance that assets are safeguarded and
transactions are executed in accordance with management's authorization and
recorded properly to permit the preparation of financial statements in
accordance with U.S. generally accepted accounting principles. The design of
this system recognizes that errors or irregularities may occur and that
estimates and judgments are required to assess the relative cost and expected
benefits of the controls. Management believes that the Company's internal
accounting controls provide reasonable assurance that errors or irregularities
that could be material to the financial statements are prevented or would be
detected within a timely period.
The Audit Committee of the Board of Directors, which is composed solely of
independent directors, is responsible for overseeing the Company's financial
reporting process. The Audit Committee meets with management and the Company's
internal auditors periodically to review the work of each and to monitor the
discharge by each of its responsibilities. The Audit Committee also meets
periodically with the independent auditors, who have free access to the Audit
Committee and the Board of Directors, to discuss the quality and acceptability
of the Company's financial reporting and internal controls, as well as
nonaudit-related services.
The independent auditors are engaged to express an opinion on the Company's
consolidated financial statements and on the Company's internal control over
financial reporting. Their opinions are based on procedures that they believe to
be sufficient to provide reasonable assurance that the financial statements
contain no material errors and that the Company's internal controls are
effective.
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. With the
participation of the Chief Executive Officer and the Chief Financial Officer,
management conducted an evaluation of the effectiveness of internal control over
financial reporting based on the framework and the criteria established in
Internal Control - Integrated Framework (2013), issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management has concluded that internal control over financial reporting was
effective as of September 30, 2019.
The Company's auditor, KPMG LLP, an independent registered public accounting
firm, has issued an audit report on the effectiveness of the Company's internal
control over financial reporting.
/s/ David N. Farr /s/ Frank J. Dellaquila
David N. Farr Frank J. Dellaquila
Chairman of the Board Senior Executive Vice President
and Chief Executive Officer and Chief Financial Officer
15
--------------------------------------------------------------------------------
Results of Operations
Years ended September 30
(Dollars in millions, except per share amounts)
2017 2018 2019 18 vs. 17 19 vs. 18
Net sales $ 15,264 17,408 18,372 14 % 6 %
Gross profit $ 6,431 7,432 7,815 16 % 5 %
Percent of sales 42.1 % 42.7 % 42.5 %
SG&A $ 3,607 4,269 4,457
Percent of sales 23.6 % 24.5 % 24.2 %
Other deductions, net $ 324 337 325
Interest expense, net $ 165 159 174
Earnings from continuing operations
before income taxes $ 2,335 2,667 2,859 14 % 7 %
Percent of sales 15.3 % 15.3 % 15.6 %
Earnings from continuing operations
common stockholders $ 1,643 2,203 2,306 34 % 5 %
Percent of sales 10.8 % 12.7 % 12.6 %
Diluted EPS - Earnings from continuing
operations $ 2.54 3.46 3.71 36 % 7 %
Return on common stockholders' equity 18.6 % 24.9 % 26.8 %
Return on total capital
15.3 % 20.6 % 19.5 %
OVERVIEW
Emerson's sales for 2019 were $18.4 billion, an increase of $1.0 billion, or 6
percent, supported by acquisitions, which added 5 percent. Underlying sales,
which exclude acquisitions and a negative impact from foreign currency
translation of 2 percent, were up 3 percent compared with the prior year.
Net earnings common stockholders were $2.3 billion in 2019, up 5 percent
compared with prior year earnings of $2.2 billion. Diluted earnings per share
were $3.71, up 7 percent versus $3.46 per share in 2018, due to modest sales
growth and lower corporate expenses.
The Company generated operating cash flow of $3.0 billion in 2019, an increase
of $114 million, or 4 percent.
NET SALES
Net sales for 2019 were $18.4 billion, an increase of $1.0 billion, or 6 percent
compared with 2018. Sales increased $761 million in Automation Solutions and
$187 million in Commercial & Residential Solutions. Underlying sales, which
exclude foreign currency translation, acquisitions and divestitures, increased 3
percent ($526 million) on higher volume and slightly higher price. Acquisitions
added 5 percent ($759 million) while foreign currency translation subtracted 2
percent ($321 million). Underlying sales increased 2 percent in the U.S. and 4
percent internationally.
Net sales for 2018 were $17.4 billion, an increase of $2.1 billion, or 14
percent compared with 2017. Sales increased $2.0 billion in Automation Solutions
and $125 million in Commercial & Residential Solutions. Underlying sales
increased 8 percent ($1.1 billion) on higher volume. Acquisitions, net of the
divestiture of the residential storage business, added 5 percent ($819 million)
and foreign currency translation added 1 percent ($181 million). Underlying
sales increased 9 percent in the U.S. and 7 percent internationally.
16
--------------------------------------------------------------------------------
INTERNATIONAL SALES
Emerson is a global business with international sales representing 54 percent of
total sales, including U.S. exports. The Company generally expects faster
economic growth in emerging markets in Asia, Latin America, Eastern Europe and
Middle East/Africa.
International destination sales, including U.S. exports, increased 5 percent, to
$10.0 billion in 2019, reflecting increases in both the Automation Solutions and
Commercial & Residential Solutions businesses. U.S. exports of $1.1 billion were
up 2 percent compared with 2018. Underlying international destination sales were
up 4 percent, as acquisitions had a 5 percent favorable impact, while foreign
currency translation had a 4 percent unfavorable impact on the comparison.
Underlying sales increased 3 percent in Europe, 2 percent in Asia, Middle East &
Africa (China up 3 percent), 17 percent in Latin America and 4 percent in
Canada. Origin sales by international subsidiaries, including shipments to the
U.S., totaled $9.0 billion in 2019, up 5 percent compared with 2018.
International destination sales, including U.S. exports, increased 18 percent,
to $9.5 billion in 2018, reflecting increases in both the Automation Solutions
and Commercial & Residential Solutions businesses. U.S. exports of $1.1 billion
were up 19 percent compared with 2017, reflecting increases in both Automation
Solutions and Commercial & Residential Solutions which benefited from
acquisitions. Underlying international destination sales were up 7 percent, as
foreign currency translation had a 2 percent favorable impact, while
acquisitions, net of the divestiture of the residential storage business, had a
9 percent favorable impact on the comparison. Underlying sales increased 2
percent in Europe, 9 percent in Asia, Middle East & Africa (China up 17
percent), 4 percent in Latin America and 12 percent in Canada. Origin sales by
international subsidiaries, including shipments to the U.S., totaled $8.5
billion in 2018, up 19 percent compared with 2017, primarily reflecting
acquisitions.
ACQUISITIONS AND DIVESTITURES
The Company acquired eight businesses in 2019, all in the Automation Solutions
segment, for $469 million, net of cash acquired. These eight businesses had
combined annual sales of approximately $300 million.
On July 17, 2018, the Company completed the acquisition of Aventics, a global
provider of smart pneumatics technologies that power machine and factory
automation applications, for $622 million, net of cash acquired. This business,
which has annual sales of approximately $425 million, is included in the
Industrial Solutions product offering within the Automation Solutions segment.
On July 2, 2018, the Company completed the acquisition of Textron's tools and
test equipment business for $810 million, net of cash acquired. This business,
with annual sales of approximately $470 million, is a manufacturer of electrical
and utility tools, diagnostics, and test and measurement instruments, and is
reported in the Tools & Home products segment.
On December 1, 2017, the Company acquired Paradigm, a provider of software
solutions for the oil and gas industry, for $505 million, net of cash acquired.
This business had annual sales of approximately $140 million and is included in
the Measurement & Analytical Instrumentation product offering within Automation
Solutions.
In fiscal 2018, the Company also acquired four smaller businesses, two in the
Automation Solutions segment and two in the Climate Technologies segment.
On October 2, 2017, the Company sold its residential storage business for $200
million in cash, and recognized a small pretax gain and an after-tax loss of $24
million ($0.04 per share) in 2018 due to income taxes resulting from
nondeductible goodwill. The Company realized approximately $150 million in
after-tax cash proceeds from the sale. This business had sales of $298 million
and pretax earnings of $15 million in 2017, and was previously reported within
the Tools & Home Products segment.
On April 28, 2017, the Company completed the acquisition of Pentair's valves &
controls business for $2.96 billion, net of cash acquired of $207 million,
subject to certain post-closing adjustments. This business, with annualized
sales of approximately $1.4 billion, is a manufacturer of control, isolation and
pressure relief valves and actuators, and complements the Valves, Actuators &
Regulators product offering within Automation Solutions. The Company also
acquired two smaller businesses in the Automation Solutions segment. Total cash
paid for all businesses in 2017 was $3.0 billion, net of cash acquired.
17
--------------------------------------------------------------------------------
See Note 4 for further information on acquisitions and divestitures, including
pro forma financial information. See information under "Discontinued Operations"
for a discussion of the Company's divestitures related to its portfolio
repositioning actions.
COST OF SALES
Cost of sales for 2019 were $10.6 billion, an increase of $581 million compared
with $10.0 billion in 2018. The increase is primarily due to acquisitions and
higher volume, partially offset by the impact of foreign currency translation.
Gross profit was $7.8 billion in 2019 compared to $7.4 billion in 2018. Gross
margin decreased 0.2 percentage points to 42.5 percent, reflecting unfavorable
mix and the impact of acquisitions, partially offset by savings from cost
reduction actions. Gross margin was 42.7 percent in 2018.
Cost of sales for 2018 were $10.0 billion, an increase of $1.1 billion compared
with $8.8 billion in 2017. The increase is primarily due to acquisitions, higher
volume and the impact of foreign currency translation. Gross profit was $7.4
billion in 2018 compared with $6.4 billion in 2017. Gross margin increased 0.6
percentage points to 42.7 percent reflecting leverage on higher volume and
savings from cost reduction actions, partially offset by the impact of
acquisitions. Gross margin was 42.1 percent in 2017.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses of $4.5 billion in 2019
increased $188 million compared with 2018 due to acquisitions and higher volume.
SG&A as a percent of sales of 24.2 percent decreased 0.3 percentage points due
to leverage on higher volume and lower incentive stock compensation of $96
million, reflecting a decreasing stock price in the current year compared to an
increasing stock price in the prior year, partially offset by a negative impact
from acquisitions of 0.4 percentage points and higher investment spending.
SG&A expenses of $4.3 billion in 2018 increased $662 million compared with 2017,
due to acquisitions and an increase in volume. SG&A as a percent of sales of
24.5 percent increased 0.9 percentage points due to higher incentive stock
compensation of $106 million, reflecting an increase in the Company's stock
price and progress toward achieving its performance objectives, the impact of
acquisitions, and higher investment spending in Automation Solutions, partially
offset by leverage on higher volume.
OTHER DEDUCTIONS, NET
Other deductions, net were $325 million in 2019, a decrease of $12 million
compared with 2018. The decrease primarily reflects lower
acquisition/divestiture costs of $29 million, pension expenses of $42 million
and foreign currency transactions of $13 million, partially offset by higher
intangibles amortization and restructuring expense of $27 million and $30
million, respectively. See Note 5.
Other deductions, net were $337 million in 2018, an increase of $13 million
compared with 2017. The increase primarily reflects higher intangibles
amortization of $75 million due to acquisitions and higher
acquisition/divestiture costs of $18 million, partially offset by lower pension
and restructuring expenses of $78 million and $13 million, respectively.
INTEREST EXPENSE, NET
Interest expense, net was $174 million, $159 million and $165 million in 2019,
2018 and 2017, respectively. The increase in 2019 was due to lower interest
income, while the decrease in 2018 reflects the maturity of long-term debt with
relatively higher interest rates and higher interest income.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Pretax earnings of $2.9 billion increased $192 million in 2019, up 7 percent
compared with 2018. Earnings increased $61 million in Automation Solutions and
decreased $81 million in Commercial & Residential Solutions, while costs
reported at corporate decreased $227 million. See the Business discussion that
follows and Note 18.
Pretax earnings of $2.7 billion increased $332 million in 2018, up 14 percent
compared with 2017. Earnings increased $364 million in Automation Solutions and
decreased $6 million in Commercial & Residential Solutions, while costs reported
at corporate increased $32 million.
18
--------------------------------------------------------------------------------
INCOME TAXES
On December 22, 2017, the U.S. government enacted tax reform, the Tax Cuts and
Jobs Act (the "Act"), which made comprehensive changes to U.S. federal income
tax laws by moving from a global to a modified territorial tax regime. The Act
includes a reduction of the U.S. corporate income tax rate from 35 percent to 21
percent in calendar year 2018 along with the elimination of certain deductions
and credits, and a one-time "deemed repatriation" of accumulated non-U.S.
earnings. During 2018, the Company recognized a net tax benefit of $189 million
($0.30 per share) due to impacts of the Act, consisting of a $94 million benefit
on revaluation of net deferred income tax liabilities to the lower tax rate, $35
million of expense for the tax on deemed repatriation of accumulated non-U.S.
earnings and withholding taxes, and the reversal of $130 million accrued in
previous periods for the planned repatriation of non-U.S. cash. The Company
completed its accounting for the Act in the first quarter of fiscal 2019.
Effective in fiscal 2019, the Act also subjects the Company to U.S. tax on
global intangible low-taxed income earned by certain of its non-U.S.
subsidiaries. The Company has elected to recognize this tax as a period expense
when it is incurred.
In the second quarter of fiscal 2019, the Company recorded a $13 million ($0.02
per share) tax benefit due to the issuance of final regulations related to the
one-time tax on deemed repatriation.
Income taxes were $531 million, $443 million and $660 million for 2019, 2018 and
2017, respectively, resulting in effective tax rates of 19 percent, 17 percent
and 28 percent in 2019, 2018 and 2017, respectively. The lower rates in 2019 and
2018 reflect the lower tax rate on earnings and discrete tax benefits due to the
impacts of the Act described above. The effective tax rates in 2019, 2018 and
2017 also include benefits from restructuring subsidiaries of $74 million ($0.12
per share), $53 million ($0.08 per share) and $47 million ($0.07 per share),
respectively.
NET EARNINGS AND EARNINGS PER SHARE; RETURNS ON EQUITY AND TOTAL CAPITAL
Net earnings attributable to common stockholders in 2019 were $2.3 billion, up 5
percent compared with 2018, and diluted earnings per share were $3.71, up 7
percent, due to modest sales growth and lower corporate expenses. Earnings per
share comparisons were also impacted by the prior year net tax benefit due to
impacts of the Act of $0.30 per share discussed above, which was partially
offset by 2018 first year acquisition accounting charges of $0.09 per share and
a $0.04 per share loss on the residential storage business.
Net earnings attributable to common stockholders in 2018 were $2.2 billion, up
45 percent compared with 2017, and diluted earnings per share were $3.46, up 47
percent. Earnings per share for 2018 included the net tax benefit due to impacts
of the Act of $0.30 per share. Results also included an $0.18 per share benefit
from the lower tax rate on 2018 earnings, partially offset by a $0.04 per share
loss on the residential storage business. The 2017 results included a net loss
from discontinued operations of $125 million which benefited net earnings and
earnings per share comparisons 11 percentage points. Discontinued operations
included the network power systems business, which was sold on November 30, 2016
for $4.0 billion in cash, and the power generation, motors and drives business,
which was sold on January 31, 2017 for approximately $1.2 billion. See Note 4.
Return on common stockholders' equity (net earnings attributable to common
stockholders divided by average common stockholders' equity) was 26.8 percent in
2019 compared with 24.9 percent in 2018 and 18.6 percent in 2017. Return on
total capital was 19.5 percent in 2019 compared with 20.6 percent in 2018 and
15.3 percent in 2017 (computed as net earnings attributable to common
stockholders excluding after-tax net interest expense, divided by average common
stockholders' equity plus short- and long-term debt less cash and short-term
investments). Higher net earnings benefited the 2019 returns, while an increase
in long-term debt negatively impacted the return on total capital. The impacts
of U.S. tax reform discussed above benefited the 2018 return on common
stockholders' equity and return on total capital, while the acquisition of the
valves & controls business and discontinued operations reduced the 2017 returns.
Business Segments
Following is an analysis of segment results for 2019 compared with 2018, and
2018 compared with 2017. The Company defines segment earnings as earnings before
interest and income taxes. In connection with the strategic portfolio
repositioning actions completed in fiscal 2017, the Company began reporting
three segments: Automation Solutions; and Climate Technologies and Tools & Home
Products, which together comprise the Commercial & Residential Solutions
business. See Note 18.
19
--------------------------------------------------------------------------------
AUTOMATION SOLUTIONS
(dollars in millions) 2017 2018 2019 18 vs. 17 19 vs. 18
Sales $ 9,418 11,441 12,202 21 % 7 %
Earnings $ 1,522 1,886 1,947 24 % 3 %
Margin 16.2 % 16.5 % 16.0 %
Sales by Major Product Offering
Measurement & Analytical Instrumentation $ 3,070 3,604 3,807 17 % 6 %
Valves, Actuators & Regulators
2,659 3,749 3,794 41 % 1 %
Industrial Solutions 1,689 1,967 2,232 16 % 14 %
Process Control Systems & Solutions 2,000 2,121 2,369 6 % 12 %
Total $ 9,418 11,441 12,202 21 % 7 %
2019 vs. 2018 - Automation Solutions sales were $12.2 billion in 2019, an
increase of $761 million, or 7 percent. Underlying sales increased 5 percent
($582 million) on higher volume and slightly higher price. Acquisitions added 4
percent ($426 million) and foreign currency translation had a 2 percent ($247
million) unfavorable impact. Sales for Measurement & Analytical Instrumentation
increased $203 million, or 6 percent, reflecting broad-based strength across
process and hybrid end markets. Valves, Actuators & Regulators increased $45
million, or 1 percent, on favorable global oil and gas demand. Industrial
Solutions sales increased $265 million, or 14 percent, due to the Aventics
acquisition ($292 million), while discrete manufacturing end markets were slow
in the U.S. and Europe. Process Control Systems & Solutions increased $248
million, or 12 percent, driven by greenfield investment and modernization
activity, while acquisitions added $134 million. Underlying sales increased 4
percent in the Americas (U.S. up 2 percent), 4 percent in Europe, and 8 percent
in Asia, Middle East & Africa (China up 13 percent), supported by infrastructure
investment across the region. Earnings of $1.9 billion increased $61 million
from the prior year driven by higher volume and price. Margin decreased 0.5
percentage points to 16.0 percent, reflecting a dilutive impact from
acquisitions of 0.7 percentage points and increased restructuring expense of $24
million. Excluding these items, margin increased due to leverage on the higher
volume.
2018 vs. 2017 - Automation Solutions reported sales of $11.4 billion in 2018, an
increase of $2.0 billion or 21 percent. Underlying sales increased 10 percent
($922 million) on higher volume. Acquisitions added 10 percent ($978 million)
and foreign currency translation added 1 percent ($123 million). Sales for
Measurement & Analytical Instrumentation increased $534 million, or 17 percent,
and Process Control Systems & Solutions increased $121 million, or 6 percent,
due to increased spending by global oil and gas customers, strong MRO demand and
growth of small and mid-sized projects focused on facility expansion and
optimization. The acquisition of Paradigm ($113 million) also supported
Measurement & Analytical Instrumentation sales. Valves, Actuators & Regulators
increased $1.1 billion, or 41 percent, led by the valves & controls acquisition
($771 million) and broad-based demand across end markets, including energy,
power and life sciences. Industrial Solutions sales increased $278 million, or
16 percent, driven by favorable global trends in general industrial end markets.
Underlying sales increased 13 percent in the Americas (U.S. up 14 percent), 1
percent in Europe and 11 percent in Asia, Middle East & Africa (China up 21
percent). Earnings of $1.9 billion increased $364 million from the prior year on
higher volume and leverage, cost reduction savings and lower restructuring
expense of $22 million, partially offset by higher investment spending. Margin
increased 0.3 percentage points to 16.5 percent. These results reflect a
dilutive impact on comparisons from the valves & controls acquisition of 1.2
percentage points, which included an impact from higher intangibles amortization
of 0.4 percentage points, or $45 million.
20
--------------------------------------------------------------------------------
COMMERCIAL & RESIDENTIAL SOLUTIONS
(dollars in millions) 2017 2018 2019 18 vs. 17 19 vs. 18
Sales:
Climate Technologies $ 4,212 4,454 4,313 6 % (3 )%
Tools & Home Products 1,645 1,528 1,856 (7 )% 22 %
Total $ 5,857 5,982 6,169 2 % 3 %
Earnings:
Climate Technologies $ 975 972 883 - % (9 )%
Tools & Home Products 383 380 388 (1 )% 2 %
Total $ 1,358 1,352 1,271 - % (6 )%
Margin 23.2 % 22.6 % 20.6 %
2019 vs. 2018 - Commercial & Residential Solutions sales were $6.2 billion in
2019, an increase of $187 million, or 3 percent. Underlying sales decreased 1
percent ($59 million) on lower volume partially offset by higher price.
Acquisitions added 5 percent ($320 million) while foreign currency translation
subtracted 1 percent ($74 million). Climate Technologies sales were $4.3 billion
in 2019, a decrease of $141 million, or 3 percent. HVAC sales were down sharply
in Asia, Middle East & Africa, particularly in China air conditioning and
heating markets, while growth in the U.S. was modest. Global cold chain sales
were down slightly, as modest growth in the U.S. was more than offset by slower
demand in Asia and Europe. Tools & Home Products sales were $1.9 billion in
2019, up $328 million or 22 percent compared to the prior year, reflecting the
tools and test acquisition and modest growth for professional tools. Sales for
wet/dry vacuums were up moderately due to higher price, while food waste
disposers were flat. Overall, underlying sales increased 3 percent in the
Americas (U.S. up 2 percent) and 1 percent in Europe, while Asia, Middle East &
Africa decreased 12 percent (China down 15 percent). Earnings were $1.3 billion,
a decrease of $81 million and margin was down 2.0 percentage points, primarily
due to a dilutive impact from the tools and test acquisition of 0.8 percentage
points, deleverage on lower volume in the Climate Technologies segment and
unfavorable mix.
2018 vs. 2017 - Commercial & Residential Solutions sales were $6.0 billion in
2018, an increase of $125 million, or 2 percent. Underlying sales increased 4
percent ($226 million) on higher volume and slightly higher price. Foreign
currency translation added 1 percent ($58 million) while the divestiture of the
residential storage business, net of acquisitions, subtracted 3 percent ($159
million). Climate Technologies sales were $4.5 billion in 2018, an increase of
$242 million, or 6 percent. Global HVAC sales were up moderately, reflecting
robust growth in China, while sales were up moderately in Europe and modestly in
the U.S. Cold chain sales were strong, led by robust growth in China and solid
growth in Europe, while sales in the U.S. were up slightly. Sensors had strong
growth, while temperature controls was flat. Tools & Home Products sales were
$1.5 billion in 2018, down $117 million or 7 percent compared to the prior year,
reflecting the impact of the residential storage divestiture ($298 million).
Sales for professional tools were strong on favorable demand in oil and gas and
construction-related markets, and the tools and test acquisition added $106
million. Wet/dry vacuums had solid growth and food waste disposers were up
slightly. Overall, underlying sales increased 3 percent in the Americas (U.S. up
3 percent), 4 percent in Europe and 6 percent in Asia, Middle East & Africa
(China up 11 percent). Earnings were $1.4 billion, a decrease of $6 million and
margin was down 0.6 percentage points. Higher materials costs, the impact of
acquisitions, unfavorable mix and increased restructuring expense of $11 million
were partially offset by leverage on higher volume, favorable price and savings
from cost reduction actions. In addition, the residential storage divestiture
reduced earnings by $16 million, but benefited margin comparisons 1.0 percentage
points, while higher warranty costs of $10 million associated with a specific
product issue in Climate Technologies partially offset this benefit.
21
--------------------------------------------------------------------------------
Financial Position, Capital Resources and Liquidity
The Company continues to generate substantial cash from operations and has the
resources available to reinvest for growth in existing businesses, pursue
strategic acquisitions and manage its capital structure on a short- and
long-term basis.
CASH FLOW FROM CONTINUING OPERATIONS
(dollars in millions) 2017 2018 2019
Operating Cash Flow $ 2,690 2,892 3,006
Percent of sales 17.6 % 16.6 % 16.4 %
Capital Expenditures $ 476 617 594
Percent of sales 3.1 % 3.5 % 3.2 %
Free Cash Flow (Operating Cash Flow less Capital
Expenditures) $ 2,214 2,275 2,412
Percent of sales 14.5 % 13.1 % 13.1 %
Operating Working Capital $ 1,007 985 1,113
Percent of sales 6.6 % 5.7 % 6.1 %
Operating cash flow for 2019 was $3.0 billion, a $114 million, or 4 percent
increase compared with 2018, due to higher earnings, partially offset by higher
operating working capital. Operating cash flow from continuing operations of
$2.9 billion in 2018 increased 8 percent compared to $2.7 billion in 2017,
primarily due to higher earnings, partially offset by an increase in working
capital investment to support higher levels of sales activity and income taxes
paid on the residential storage divestiture. At September 30, 2019, operating
working capital as a percent of sales was 6.1 percent compared with 5.7 percent
in 2018 and 6.6 percent in 2017. Contributions to pension plans were $60 million
in 2019, $61 million in 2018 and $45 million in 2017.
Capital expenditures were $594 million, $617 million and $476 million in 2019,
2018 and 2017, respectively. Free cash flow (operating cash flow less capital
expenditures) was $2.4 billion in 2019, up 6 percent. Free cash flow from
continuing operations was $2.3 billion in 2018, compared with $2.2 billion in
2017. The Company is targeting capital spending of approximately $600 million in
2020. Net cash paid in connection with acquisitions was $469 million, $2.2
billion and $3.0 billion in 2019, 2018 and 2017, respectively. Proceeds from
divestitures not classified as discontinued operations were $14 million, $201
million and $39 million in 2019, 2018 and 2017, respectively.
Dividends were $1.2 billion ($1.96 per share) in 2019, compared with $1.2
billion ($1.94 per share) in 2018 and $1.2 billion ($1.92 per share) in 2017. In
November 2019, the Board of Directors voted to increase the quarterly cash
dividend 2 percent, to an annualized rate of $2.00 per share.
Purchases of Emerson common stock totaled $1.25 billion, $1.0 billion and $400
million in 2019, 2018 and 2017, respectively, at average per share prices of
$62.83, $66.25 and $60.51.
The Board of Directors authorized the purchase of up to 70 million common shares
in November 2015, and 21.9 million shares remain available for purchase under
this authorization. The Company purchased 19.9 million shares in 2019, 15.1
million shares in 2018, and 6.6 million shares in 2017 under this authorization.
22
--------------------------------------------------------------------------------
LEVERAGE/CAPITALIZATION
(dollars in millions) 2017 2018 2019
Total Assets $ 19,589 20,390 20,497
Long-term Debt $ 3,794 3,137 4,277
Common Stockholders' Equity $ 8,718 8,947 8,233
Total Debt-to-Total Capital Ratio 34.8 % 34.7 % 41.0 %
Net Debt-to-Net Capital Ratio 15.4 % 29.1 % 33.9 %
Operating Cash Flow-to-Debt Ratio 57.8 % 60.7 % 52.5 %
Interest Coverage Ratio
12.6X 14.2X 15.2X
Total debt, which includes long-term debt, current maturities of long-term debt,
commercial paper and other short-term borrowings, was $5.7 billion, $4.8 billion
and $4.7 billion for 2019, 2018 and 2017, respectively. During the year, the
Company repaid $400 million of 5.25% notes that matured in October 2018 and $250
million of 5.0% notes that matured in April 2019. In January 2019, the Company
issued €500 million of 1.25% notes due October 2025 and €500 million of 2.0%
notes due October 2029. In May 2019, the Company issued €500 million of 0.375%
notes due May 2024. The net proceeds from the sale of the notes were used to
reduce commercial paper borrowings and for general corporate purposes. In 2018
and 2017, respectively, the Company repaid $250 million of 5.375% notes that
matured in October 2017 and $250 million of 5.125% notes that matured in
December 2016.
The total debt-to-capital ratio and the net debt-to-net capital ratio (less cash
and short-term investments) increased in 2019 due to increased borrowings. In
2018 the net debt-to-net capital ratio increased due to a decrease in cash which
was used for acquisitions during the year. The operating cash flow-to-debt ratio
decreased in 2019 primarily due to the increased borrowings in the current year,
partially offset by a modest increase in operating cash flows. The increase in
2018 was primarily due to higher operating cash flows. The interest coverage
ratio is computed as earnings from continuing operations before income taxes
plus interest expense, divided by interest expense. The increase in interest
coverage in 2018 and 2019 reflects higher earnings in the respective years.
In May 2018, the Company entered into a $3.5 billion five-year revolving backup
credit facility with various banks, which replaced the April 2014 $3.5 billion
facility. The credit facility is maintained to support general corporate
purposes, including commercial paper borrowings. The Company has not incurred
any borrowings under this or previous facilities. The credit facility contains
no financial covenants and is not subject to termination based on a change of
credit rating or material adverse changes. The facility is unsecured and may be
accessed under various interest rate and currency denomination alternatives at
the Company's option. Fees to maintain the facility are immaterial. The Company
also maintains a universal shelf registration statement on file with the SEC
under which it can issue debt securities, preferred stock, common stock,
warrants, share purchase contracts or share purchase units without a
predetermined limit. Securities can be sold in one or more separate offerings
with the size, price and terms to be determined at the time of sale.
Emerson's financial structure provides the flexibility necessary to achieve its
strategic objectives. The Company has been successful in efficiently deploying
cash where needed worldwide to fund operations, complete acquisitions and
sustain long-term growth. At September 30, 2019, substantially all of the
Company's cash was held outside the U.S. (primarily in Europe and Asia). The
Company routinely repatriates a portion of its non-U.S. cash from earnings each
year, or otherwise when it can be accomplished tax efficiently, and provides for
withholding taxes and any applicable U.S. income taxes as appropriate. The
Company has been able to readily meet all its funding requirements and currently
believes that sufficient funds will be available to meet the Company's needs in
the foreseeable future through operating cash flow, existing resources, short-
and long-term debt capacity or backup credit lines.
23
--------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS
At September 30, 2019, the Company's contractual obligations, including
estimated payments, are as follows:
Amounts Due By Period
Less
Than 1 1 - 3 3 - 5 More Than
(dollars in millions) Total Year Years Years 5 Years
Long-term Debt (including
Interest) $ 6,163 663 1,080 1,226 3,194
Operating Leases 511 159 194 95 63
Purchase Obligations 854 738 94 16 6
Total $ 7,528 1,560 1,368 1,337 3,263
Purchase obligations consist primarily of inventory purchases made in the normal
course of business to meet operational requirements. The table above does not
include $2.0 billion of other noncurrent liabilities recorded in the balance
sheet and summarized in Note 19, which consist primarily of pension and
postretirement plan liabilities, asbestos litigation, deferred income taxes and
unrecognized tax benefits, because it is not certain when these amounts will
become due. See Notes 11 and 12 for estimated future benefit payments and Note
14 for additional information on deferred income taxes.
FINANCIAL INSTRUMENTS
The Company is exposed to market risk related to changes in interest rates,
foreign currency exchange rates and commodity prices, and selectively uses
derivative financial instruments, including forwards, swaps and purchased
options to manage these risks. The Company does not hold derivatives for trading
or speculative purposes. The value of derivatives and other financial
instruments is subject to change as a result of market movements in rates and
prices. Sensitivity analysis is one technique used to forecast the impact of
these movements. Based on a hypothetical 10 percent increase in interest rates,
a 10 percent decrease in commodity prices or a 10 percent weakening in the U.S.
dollar across all currencies, the potential losses in future earnings, fair
value or cash flows are not material. Sensitivity analysis has limitations; for
example, a weaker U.S. dollar would benefit future earnings through favorable
translation of non-U.S. operating results, and lower commodity prices would
benefit future earnings through lower cost of sales. See Notes 1, and 8 through
10.
Critical Accounting Policies
Preparation of the Company's financial statements requires management to make
judgments, assumptions and estimates regarding uncertainties that could affect
reported revenue, expenses, assets, liabilities and equity. Note 1 describes the
significant accounting policies used in preparation of the consolidated
financial statements. The most significant areas where management judgments and
estimates impact the primary financial statements are described below. Actual
results in these areas could differ materially from management's estimates under
different assumptions or conditions.
REVENUE RECOGNITION
The Company evaluates its contracts with customers to identify the promised
goods or services and recognizes revenue for the identified performance
obligations at the amount the Company expects to be entitled to in exchange for
those goods or services. A performance obligation is a promise in a contract to
transfer a distinct good or service to a customer. Revenue is recognized when,
or as, performance obligations are satisfied and control has transferred to the
customer, typically when products are shipped or delivered, title and risk of
loss pass to the customer, and the Company has a present right to payment. The
vast majority of the Company's revenues relate to a broad offering of
manufactured products which are recognized at the point in time when control
transfers, generally in accordance with shipping terms. A portion of the
Company's revenues relate to the sale of software and post-contract customer
support, parts and labor for repairs, and engineering services.
In limited circumstances, contracts include multiple performance obligations,
where revenue is recognized separately for each good or service, as well as
contracts where revenue is recognized over time as control transfers to the
customer. Tangible products represent a large majority of the delivered items in
contracts with multiple performance obligations or where revenue is recognized
over time, while a smaller portion is attributable to installation, service and
maintenance. In sales arrangements that involve multiple performance
obligations, revenue is allocated based on the relative standalone selling price
for each performance obligation. Observable selling prices from actual
transactions are used whenever possible. In other instances, the Company
determines the
24
--------------------------------------------------------------------------------
standalone selling price based on third-party pricing or management's best
estimate. For revenues recognized over time, the Company typically uses an input
method to determine progress and recognize revenue, based on costs incurred. The
Company believes costs incurred closely correspond with its performance under
the contract and the transfer of control to the customer.
LONG-LIVED ASSETS
Long-lived assets, which include property, plant and equipment, goodwill and
identifiable intangible assets, are reviewed for impairment whenever events or
changes in business circumstances indicate impairment may exist. If the Company
determines that the carrying value of a long-lived asset may not be recoverable,
a permanent impairment charge is recorded for the amount by which the carrying
value of the long-lived asset exceeds its estimated fair value. Reporting units
are also reviewed for possible goodwill impairment at least annually, in the
fourth quarter. If an initial assessment indicates it is more likely than not an
impairment may exist, it is evaluated by comparing the unit's estimated fair
value to its carrying value. Fair value is generally estimated using an income
approach that discounts estimated future cash flows using discount rates judged
by management to be commensurate with the applicable risk. Estimates of future
sales, operating results, cash flows and discount rates are subject to changes
in the economic environment, including such factors as the general level of
market interest rates, expected equity market returns and the volatility of
markets served, particularly when recessionary economic circumstances continue
for an extended period of time. Management believes the estimates of future cash
flows and fair values are reasonable; however, changes in estimates due to
variance from assumptions could materially affect the evaluations.
RETIREMENT PLANS
The Company maintains a prudent long-term investment strategy consistent with
the duration of pension obligations. The determination of defined benefit plan
expense and liabilities is dependent on various assumptions, including the
expected annual rate of return on plan assets, the discount rate and the rate of
annual compensation increases. Management believes the assumptions used are
appropriate; however, actual experience may differ. In accordance with U.S.
generally accepted accounting principles, actual results that differ from the
Company's assumptions are accumulated as deferred actuarial gains or losses and
amortized to expense in future periods. The Company's principal U.S. defined
benefit plan is closed to employees hired after January 1, 2016 while
shorter-tenured employees ceased accruing benefits effective October 1, 2016.
As of September 30, 2019, the U.S. pension plans were underfunded by $202
million in total, including unfunded plans totaling $211 million. The non-U.S.
plans were underfunded by $300 million, including unfunded plans totaling $311
million. The Company contributed a total of $60 million to defined benefit plans
in 2019 and expects to contribute approximately $60 million in 2020. At year-end
2019, the discount rate for U.S. plans was 3.22 percent, and was 4.26 percent in
2018. The assumed investment return on plan assets was 7.00 percent in 2019,
7.00 percent in 2018 and 7.25 percent in 2017, and is expected to be 6.75
percent for 2020. Deferred actuarial losses to be amortized to expense in future
years were $1.3 billion ($1.0 billion after-tax) as of September 30, 2019. See
Notes 11 and 12.
CONTINGENT LIABILITIES
The Company is a party to a number of pending legal proceedings and claims,
including those involving general and product liability (including asbestos) and
other matters, several of which claim substantial amounts of damages. The
Company accrues for such liabilities when it is probable that future costs
(including legal fees and expenses) will be incurred and such costs can be
reasonably estimated. Accruals are based on developments to date; management's
estimates of the outcomes of these matters; and the Company's experience in
contesting, litigating and settling similar matters. The Company engages an
outside expert to develop an actuarial estimate of its expected costs to resolve
all pending and future asbestos claims, including defense costs, as well as its
related insurance receivables. The reserve for asbestos litigation, which is
recorded on an undiscounted basis, is based on projected claims through 2065.
Although it is not possible to predict the ultimate outcome of these matters,
the Company historically has been largely successful in defending itself against
claims and suits that have been brought against it, and will continue to defend
itself vigorously in all such matters. While the Company believes a material
adverse impact is unlikely, given the inherent uncertainty of litigation, a
remote possibility exists that a future development could have a material
adverse impact on the Company. See Note 13.
25
--------------------------------------------------------------------------------
INCOME TAXES
Income tax expense and tax assets and liabilities reflect management's
assessment of taxes paid or expected to be paid (received) on items included in
the financial statements. Deferred tax assets and liabilities arise from
temporary differences between the consolidated financial statement carrying
amounts of existing assets and liabilities and their respective tax bases, and
consideration of operating loss and tax credit carryforwards. Deferred income
taxes are measured using enacted tax rates in effect for the year in which the
temporary differences are expected to be recovered or settled. The impact on
deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date. Valuation allowances are provided
to reduce deferred tax assets to the amount that will more likely than not be
realized. This requires management to make judgments and estimates regarding the
amount and timing of the reversal of taxable temporary differences, expected
future taxable income, and the impact of tax planning strategies.
Uncertainty exists regarding tax positions taken in previously filed tax returns
which remain subject to examination, along with positions expected to be taken
in future returns. The Company provides for unrecognized tax benefits, based on
the technical merits, when it is more likely than not that an uncertain tax
position will not be sustained upon examination. Adjustments are made to the
uncertain tax positions when facts and circumstances change, such as the closing
of a tax audit; changes in applicable tax laws, including tax case rulings and
legislative guidance; or expiration of the applicable statute of limitations.
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act,
which made comprehensive changes to U.S. federal income tax laws by moving from
a global to a modified territorial tax regime. As a result, cash repatriated to
the U.S. is generally no longer subject to U.S. federal income taxes. No
provision is made for withholding taxes and any applicable U.S. income taxes on
the undistributed earnings of non-U.S. subsidiaries where these earnings are
considered indefinitely invested or otherwise retained for continuing
international operations. Determination of the amount of taxes that might be
paid on these undistributed earnings if eventually remitted is not practicable.
See Notes 1 and 14.
Other Items
LEGAL MATTERS
At September 30, 2019, there were no known contingent liabilities (including
guarantees, pending litigation, taxes and other claims) that management believes
will be material in relation to the Company's financial statements, nor were
there any material commitments outside the normal course of business.
NEW ACCOUNTING PRONOUNCEMENTS
On October 1, 2018, the Company adopted ASC 606, Revenue from Contracts with
Customers, which updated and consolidated revenue recognition guidance from
multiple sources into a single, comprehensive standard to be applied for all
contracts with customers. The fundamental principle of the revised standard is
to recognize revenue based on the transfer of goods and services to customers at
the amount the Company expects to be entitled to in exchange for those goods and
services. The Company adopted the new standard using the modified retrospective
approach and applied the guidance to open contracts which were not completed at
the date of adoption. The cumulative effect of adoption resulted in a $30
million increase to beginning retained earnings as of October 1, 2018. This
increase primarily related to contracts where a portion of revenue for delivered
goods or services was previously deferred due to contingent payment terms. The
adoption of ASC 606 did not materially impact the Company's consolidated
financial statements as of and for the year ended September 30, 2019.
In the first quarter of fiscal 2019, the Company adopted updates to ASC 715,
Compensation - Retirement Benefits, which permit only the service cost component
of net periodic pension and postretirement expense to be reported with
compensation costs, while all other components are required to be reported
separately in other deductions. These updates were adopted retrospectively and
resulted in the reclassification of $40 million of income and $38 million of
expense for 2018 and 2017, respectively, from cost of sales and SG&A to other
deductions, net. Segment earnings were not impacted by the updates to ASC 715.
In February 2016, the FASB issued ASC 842, Leases, which requires rights and
obligations related to lease arrangements to be recognized on the balance sheet.
Also required are additional disclosures regarding the amount, timing and
uncertainty of cash flows resulting from lease arrangements. Currently,
obligations classified as operating leases are not recorded on the balance sheet
but must be disclosed. The Company adopted the new standard on October 1, 2019
using the optional transition method under which prior periods were not
adjusted. The
26
--------------------------------------------------------------------------------
adoption of ASC 842 resulted in the recognition of operating lease right-of-use
assets and related lease liabilities of approximately $500 million, but is not
expected to materially impact the Company's earnings or cash flows. The Company
is in the process of finalizing changes to its business processes, systems,
internal controls and accounting policies to support recognition and disclosure
under the new guidance.
In August 2017, the FASB issued updates to ASC 815, Derivatives and Hedging,
which permit hedging certain contractually specified risk components.
Additionally, the updates eliminate the requirement to separately measure and
report hedge ineffectiveness and simplify hedge documentation and effectiveness
assessment requirements. These updates, which are effective in the first quarter
of fiscal 2020 and must be adopted using a modified retrospective approach, are
not expected to have a material impact at adoption or on the Company's results
of operations.
In January 2017, the FASB issued updates to ASC 350, Intangibles - Goodwill and
Other, eliminating the requirement to measure impairment based on the implied
fair value of goodwill compared to the carrying amount of a reporting unit's
goodwill. Instead, goodwill impairment will be measured as the excess of a
reporting unit's carrying amount over its estimated fair value. These updates
are effective prospectively for impairment tests beginning in fiscal 2021, with
early adoption permitted.
In August 2018, the FASB issued updates to ASC 350, Intangibles - Goodwill and
Other, which align the requirements for capitalizing implementation costs
incurred in a software hosting arrangement with the requirements for costs
incurred to develop or obtain internal-use software. These updates are effective
either prospectively or retrospectively in the first quarter of fiscal 2021,
with early adoption permitted, and are not expected to materially impact the
Company's results of operations.
In June 2016, the FASB issued ASC 326, Financial Instruments - Credit Losses,
which amends the impairment model by requiring entities to use a forward-looking
approach, based on expected losses, to estimate credit losses on certain types
of financial instruments, including trade receivables. The new standard is
effective in the first quarter of fiscal 2021. The Company is in the process of
evaluating the impact of the new standard on its financial statements.
In August 2018, the FASB issued updates to ASC 715, Compensation - Retirement
Benefits, which modify the disclosure requirements for employers that sponsor
defined benefit plans or other postretirement plans. These updates are effective
in fiscal 2021, with early adoption permitted, and must be adopted on a
retrospective basis. The updates change disclosures only and will not impact the
Company's results of operations.
FISCAL 2020 OUTLOOK
As previously announced, the Company is conducting a comprehensive review of its
operational, capital allocation and portfolio initiatives. The Company's Board
is leading the evaluation and an update will be provided when the Board has
concluded the review. The outlook discussed below excludes any potential impact
from the Board's ongoing review.
The guidance for fiscal 2020 assumes that end market growth is muted, or even
slightly negative, with consolidated net sales expected to be down 3 percent to
up 1 percent and underlying sales down 2 percent to up 2 percent, excluding
unfavorable currency translation of 1 percent. Automation Solutions net sales
are expected to be down 2 percent to up 2 percent, with underlying sales down 1
percent to up 3 percent excluding unfavorable foreign currency translation of 1
percent. Commercial & Residential Solutions net sales are expected to be down 5
percent to down 1 percent, with underlying sales down 3 percent to up 1 percent
excluding unfavorable foreign currency translation of 1 percent and an impact
from divestitures of 1 percent. Earnings per share are expected to be $3.48 to
$3.72. Operating cash flow is expected to be approximately $3.1 billion and free
cash flow, which excludes targeted capital spending of $600 million, is expected
to be approximately $2.5 billion. The Company's planned share repurchases are
$1.5 billion for fiscal 2020.
The United Kingdom (UK) continues to negotiate its withdrawal from the European
Union (EU), commonly known as "Brexit." The EU agreed to postpone the withdrawal
deadline to January 31, 2020. The Company's net sales in the UK are principally
in the Automation Solutions segment and represent less than two percent of
consolidated sales. Sales of products manufactured in the UK and sold within the
EU are immaterial. The Company is evaluating several potential Brexit scenarios
and believes the direct cost of incremental tariffs, logistics and other items
would be immaterial.
27
--------------------------------------------------------------------------------
© Edgar Online, source Glimpses
EMERSON ELECTRIC CO. 
