ST. LOUIS -- Emerson (NYSE: EMR) today reported results for its third fiscal quarter ended June 30, 2022 and updated its full year outlook for fiscal 2022.
June trailing three-month underlying orders were up 10 percent. Third quarter net sales were up 7 percent and underlying sales were up 7 percent. By geography, the Americas were up 14 percent, Europe was flat and Asia, Middle East & Africa was down 1 percent. China was down 6 percent, primarily due to COVID-19 lockdowns.
Third quarter pretax margin of 23.9 percent was up 720 basis points. Adjusted EBITA margin4 was 22.8 percent, up 270 basis points.
Earnings per share were $1.54 for the quarter, up 48 percent. Adjusted earnings per share were $1.38, up 16 percent, which includes an $0.08 net AspenTech impact.
Operating cash flow was $740 million for the quarter, down 33 percent, and free cash flow was $630 million, down 36 percent. Cash flow results reflected higher working capital due to increased sales and continued supply chain constraints.
"Emerson delivered another strong quarter as we continue to see double-digit growth in underlying orders and strong demand for our technology, software and solutions," said Emerson President and Chief Executive Officer Lal Karsanbhai. "Portfolio actions, including AspenTech which increased our adjusted earnings per share for the quarter by 8 cents, are delivering immediate value to customers and shareholders. The strength in demand and continued growth in backlog provides confidence to execute our plan despite COVID-19 lockdowns in China and continued global supply chain constraints, specifically with electronic components, which impacted our sales conversion this quarter."
"We have made significant progress on our portfolio journey this year," Karsanbhai continued. "These actions, including yesterday's announced agreement to sell InSinkErator, represent Emerson's continued commitment to creating a higher growth, more diversified and cohesive portfolio."Portfolio Progress
Earlier this week, Emerson announced it has reached an agreement to sell the InSinkErator® business to Whirlpool Corporation for $3.0 billion. More details on the transaction can be found in our Form 8-K filed Aug. 8, 2022.
On May 16, Emerson closed its transaction with AspenTech creating a global software leader positioned to advance customers' sustainability and operational excellence goals, and a platform to deploy M&A capital. AspenTech's July agreement to acquire end-to-end mining software provider, Micromine, is an example of this increased flexibility.
In the third quarter, Emerson also closed the divestiture of Therm-O-Disc and acquired Fluxa, a life sciences process knowledge management leader.Business Platform Results
Automation Solutions5 June trailing three-month underlying orders were up 13 percent and backlog increased $100 million compared to the prior quarter to $6.2 billion despite $132 million of debooking in Russia.
Net sales were flat in the quarter, with underlying sales up 4 percent. The Americas were up 12 percent, Europe was down 2 percent and Asia, Middle East & Africa was down 3 percent. China was down 2 percent.
Segment EBIT margin increased 40 basis points to 18.5 percent and adjusted segment EBITA6 margin increased 70 basis points to 21.0 percent.
Commercial & Residential Solutions June trailing three-month underlying orders were up 5 percent and backlog decreased $100 million compared to the prior quarter to $1.3 billion and was flat excluding the impact of the Therm-O-Disc divestiture.
Net sales increased 8 percent in the quarter, with underlying sales up 13 percent. The Americas were up 16 percent, Europe was up 6 percent and Asia, Middle East & Africa was up 5 percent. China was down 18 percent.
Segment EBIT margin increased 10 basis points to 21.4 percent and adjusted segment EBITA margin decreased 50 basis points to 22.0 percent.
Aspentech7 net sales were $239 million for the quarter. Segment EBIT margin was 23.7 percent and adjusted segment EBITA margin was 53.8 percent.2022 Updated Outlook
Emerson updated its 2022 full year outlook to reflect the impacts of the AspenTech and Therm-O-Disc transactions, and write-offs associated with its announced Russia exit while considering continued macroeconomic and geopolitical uncertainty, supply chain constraints, exchange rate fluctuations and challenges related to COVID-19. Net sales guidance is reduced to 7 to 8 percent and underlying sales guidance is narrowed to 9 to 10 percent. Earnings per share guidance is increased to $5.25 to $5.35 and adjusted earnings per share guidance is increased to $5.05 to $5.15. Operating cash flow is now expected to be $3.0 billion due to higher working capital from increased sales and continued supply chain constraints. Capital spending was reduced to approximately $525 million and free cash flow is now expected to be $2.5 billion. Share repurchase is expected to be approximately $500 million.
The following tables summarize the updated fiscal year 2022 guidance framework. All figures are approximate. 2022 Guidance
Net Sales Growth
Operating Cash Flow
Commercial & Residential Solutions
Free Cash Flow
Underlying Sales Growth
Commercial & Residential Solutions
1 Trailing three-month underlying orders does not include heritage AspenTech, Therm-O-Disc (divested and previously reported in Commercial & Residential Solutions) or Emerson's contributed businesses to AspenTech (previously reported in Automation Solutions).
2 Underlying sales excludes the impact of acquisitions, divestitures, currency translation, heritage AspenTech, Therm-O-Disc and Emerson's contributed businesses to AspenTech.
3 Adjusted EPS excludes restructuring, first year purchase accounting charges, transaction and AspenTech pre-closing costs, a gain from the Therm-O-Disc divestiture, write-offs associated with Emerson's announced Russia exit and intangibles amortization expense.
4 Adjusted EBITA margin excludes restructuring, first year purchase accounting charges, transaction costs, a gain from the Therm-O-Disc divestiture, write-offs associated with Emerson's announced Russia exit and intangibles amortization expense.
5 Automation Solutions net sales, backlog, segment EBIT margin and adjusted segment EBITA margin does not include Emerson's contributed businesses to AspenTech, which have been reclassified to the AspenTech segment.
6 Adjusted segment EBITA margin excludes restructuring and intangible amortization expense.
7 The AspenTech segment includes the full quarter results for Emerson's businesses contributed to AspenTech and the heritage AspenTech business as of May 16, 2022.Upcoming Investor Events
Today, beginning at 8:00 a.m. Central Time / 9:00 a.m. Eastern Time, Emerson management will discuss the third quarter results during an investor conference call. Participants can access a live webcast available at www.emerson.com/financial at the time of the call. A replay of the call will be available for 90 days. Conference call slides will be posted in advance of the call on the company website.
Forward-Looking and Cautionary Statements
Statements in this press release that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the Company's ability to successfully complete on the terms and conditions contemplated, and the financial impact of, the proposed sale of its InSinkErator food waste disposal business, the financial impact of the AspenTech acquisition, the scope, duration and ultimate impacts of the COVID-19 pandemic and the Russia-Ukraine conflict, as well as economic and currency conditions, market demand, including related to the pandemic and oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, inflation, among others, as set forth in the Company's most recent Annual Report on Form 10-K and subsequent reports filed with the SEC. The outlook contained herein represents the Company's expectation for its consolidated results, other than as noted herein.