Emerson Reports Third Quarter 2023 Results; Updates 2023 Outlook

(dollars in millions, except per share)

2022 Q3

2023 Q3

Change

Underlying Orders¹

3 %

Net Sales

$3,465

$3,946

14 %

Underlying Sales²

14 %

Pretax Earnings

$378

$761

Margin

10.9 %

19.3 %

840 bps

Adjusted Segment EBITA³

$806

$1,060

Margin

23.2 %

26.9 %

370 bps

GAAP Earnings Per Share

$0.38

$1.03

171 %

Adjusted Earnings Per Share⁴

$0.92

$1.29

40 %

Operating Cash Flow

$479

$842

76 %

Free Cash Flow

$420

$769

83 %

2023

Net Sales Growth

~10.5%

Underlying Sales Growth

~10%

Earnings Per Share

$3.54 - $3.59

Amortization of Intangibles

~$0.61

Restructuring / Related Costs

~$0.16

Russia Exit Costs

$0.08

AspenTech Micromine Purchase Price Hedge

($0.02)

Acquisition / Divestiture Fees

~$0.10

NI Investment Gain

~($0.07)

Interest Income on Undeployed Proceeds

~($0.19)

Copeland Equity Loss

~$0.19

Adjusted Earnings Per Share

$4.40 - $4.45

Operating Cash Flow

$2.5B - $2.6B

Free Cash Flow

$2.2B - $2.3B

¹ Underlying orders does not include AspenTech.

² Underlying sales excludes the impact of currency translation, and acquisitions and divestitures. Heritage AspenTech and Emerson's businesses contributed to AspenTech will be included in underlying sales beginning in 2023 Q4.

³ Adjusted segment EBITA represents segment earnings less restructuring and intangibles amortization expense.

⁴ Adjusted EPS excludes restructuring and related costs, NI investment gains, acquisition/divestiture costs, write-offs associated with Emerson's Russia exit, an AspenTech Micromine purchase price hedge, the income/loss of Emerson's 40% share of Copeland, interest income on undeployed proceeds and intangibles amortization expense. Post-Copeland transaction close, adjusted EPS now includes the interest on the Copeland note receivable valued at $0.02 and approximately $0.06 for the third quarter and fiscal year 2023, respectively.

Table 1

EMERSON AND SUBSIDIARIES

CONSOLIDATED OPERATING RESULTS

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

Quarter Ended

June 30

Nine Months Ended

June 30

2022

2023

2022

2023

Net sales

$3,465

$3,946

$9,912

$11,075

     Cost of sales

1,879

1,952

5,435

5,660

     SG&A expenses

894

1,042

2,631

3,072

     Gain on subordinated interest

—

—

(453)

—

     Other deductions, net

264

191

330

420

     Interest expense, net

50

10

140

111

     Interest income from related party¹

—

(10)

—

(10)

Earnings from continuing operations before income taxes

378

761

1,829

1,822

Income taxes

123

158

399

390

Earnings from continuing operations

255

603

1,430

1,432

Discontinued operations, net of tax

697

8,763

1,092

11,030

Net earnings

952

9,366

2,522

12,462

Less: Noncontrolling interests in subsidiaries

31

14

31

(13)

Net earnings common stockholders

$921

$9,352

$2,491

$12,475

Earnings common stockholders

Earnings from continuing operations

$226

$592

$1,400

$1,451

Discontinued operations

695

8,760

1,091

11,024

Net earnings common stockholders

$921

$9,352

$2,491

$12,475

Diluted avg. shares outstanding

596.2

574.0

596.9

578.1

Diluted earnings per share common stockholders

Earnings from continuing operations

$0.38

$1.03

$2.34

$2.51

Discontinued operations

1.16

15.25

1.83

19.05

Diluted earnings per common share

$1.54

$16.28

$4.17

$21.56

Quarter Ended

June 30

Nine Months Ended

June 30

2022

2023

2022

2023

Other deductions, net

     Amortization of intangibles

$93

$120

$207

$357

     Restructuring costs

29

12

44

41

     Other

142

59

79

22

          Total

$264

$191

$330

$420

¹ Represents interest on the Copeland note receivable.

Table 2

EMERSON AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS, UNAUDITED)

Quarter Ended June 30

2022

2023

Assets

     Cash and equivalents

$2,529

$9,957

     Receivables, net

2,135

2,491

     Inventories

1,830

2,085

     Other current assets

1,357

1,227

     Current assets held-for-sale

1,524

—

          Total current assets

9,375

15,760

     Property, plant & equipment, net

2,276

2,268

     Goodwill

14,028

14,131

     Other intangible assets

6,772

6,147

     Copeland note receivable and equity investment

—

3,359

     Other

2,353

2,508

     Noncurrent assets held-for-sale

2,238

—

          Total assets

$37,042

$44,173

Liabilities and equity

     Short-term borrowings and current

        maturities of long-term debt

$3,227

$667

     Accounts payable

1,228

1,218

     Accrued expenses

3,013

4,729

     Current liabilities held-for-sale

1,344

—

          Total current liabilities

8,812

6,614

     Long-term debt

8,367

7,642

     Other liabilities

3,385

3,504

     Noncurrent liabilities held-for-sale

191

—

Equity

     Common stockholders' equity

10,315

20,464

     Noncontrolling interests in subsidiaries

5,972

5,949

     Total equity

16,287

26,413

          Total liabilities and equity

$37,042

$44,173

Table 3

EMERSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN MILLIONS, UNAUDITED)

Nine Months Ended June 30

2022

2023

Operating activities

Net earnings

$2,522

$12,462

Earnings from discontinued operations, net of tax

(1,092)

(11,030)

Adjustments to reconcile net earnings to net cash provided by operating activities:

        Depreciation and amortization

571

780

        Stock compensation

91

198

        Changes in operating working capital

(361)

(369)

        Gain on subordinated interest

(453)

—

        Other, net

(43)

(322)

            Cash from continuing operations

1,235

1,719

            Cash from discontinued operations

470

(439)

            Cash provided by operating activities

1,705

1,280

Investing activities

Capital expenditures

(199)

(194)

Purchases of businesses, net of cash and equivalents acquired

(5,615)

—

Proceeds from subordinated interest

438

15

Proceeds from related party note receivable

—

918

Other, net

(38)

(124)

    Cash from continuing operations

(5,414)

615

    Cash from discontinued operations

439

12,485

    Cash provided by (used in) investing activities

(4,975)

13,100

Financing activities

Net increase (decrease) in short-term borrowings

1,633

(1,476)

Proceeds from short-term borrowings greater than three months

1,162

395

Payments of short-term borrowings greater than three months

(445)

(400)

Proceeds from long-term debt

2,975

—

Payments of long-term debt

(512)

(744)

Dividends paid

(918)

(900)

Purchases of common stock

(418)

(2,000)

AspenTech purchases of common stock

—

(100)

Payment of related party note payable

—

(918)

Other, net

80

(159)

    Cash provided by (used in) financing activities

Effect of exchange rate changes on cash and equivalents

(112)

75

Increase in cash and equivalents

175

8,153

Beginning cash and equivalents

2,354

1,804

Ending cash and equivalents

$2,529

$9,957

Table 4

EMERSON AND SUBSIDIARIES

SEGMENT SALES AND EARNINGS

(AMOUNTS IN MILLIONS, UNAUDITED)

The following tables show results for the Company's segments on an adjusted segment EBITA basis and are intended to supplement the Company's results of operations, including its segment earnings which are defined as earnings before interest and taxes. The Company defines adjusted segment and total segment EBITA as segment earnings excluding intangibles amortization expense, and restructuring and related expense. Adjusted segment and total segment EBITA, and adjusted segment and total segment EBITA margin are measures used by management and may be useful for investors to evaluate the Company's segments' operational performance.

Quarter Ended June 30

2022

2023

Reported

Underlying

Sales

Final Control

$905

$1,035

14 %

16 %

Measurement & Analytical

788

913

16 %

20 %

Discrete Automation

633

668

6 %

6 %

Safety & Productivity

360

363

1 %

— %

Intelligent Devices

$2,686

$2,979

11 %

13 %

Control Systems & Software

568

663

17 %

19 %

AspenTech

239

320

34 %

— %

Software and Control

$807

$983

22 %

19 %

Eliminations

(28)

(16)

Total

$3,465

$3,946

14 %

14 %

Sales Growth by Geography

Quarter Ended
June 30

Americas

11 %

Europe

13 %

Asia, Middle East & Africa

20 %

Table 4 cont.

Nine Months Ended June 30

2022

2023

Reported

Underlying

Sales

Final Control

$2,606

$2,889

11 %

15 %

Measurement & Analytical

2,294

2,550

11 %

16 %

Discrete Automation

1,894

1,969

4 %

7 %

Safety & Productivity

1,066

1,034

(3) %

(2) %

Intelligent Devices

$7,860

$8,442

7 %

11 %

Control Systems & Software

1,711

1,892

11 %

15 %

AspenTech

405

793

96 %

— %

Software and Control

$2,116

$2,685

27 %

15 %

Eliminations

(64)

(52)

Total

$9,912

$11,075

12 %

12 %

Sales Growth by Geography

Nine Months
Ended June 30

Americas

13 %

Europe

10 %

Asia, Middle East & Africa

11 %

Table 4 cont.

Quarter Ended June 30

Quarter Ended June 30

2022

2023

As
Reported
(GAAP)

Adjusted
EBITA
(Non-
GAAP)

As
Reported
(GAAP)

Adjusted
EBITA
(Non-
GAAP)

Earnings

Final Control

$150

$191

$245

$266

 Margins

16.6 %

21.2 %

23.7 %

25.7 %

Measurement & Analytical

189

197

257

263

 Margins

23.9 %

25.1 %

28.1 %

28.7 %

Discrete Automation

115

124

124

144

 Margins

18.2 %

19.6 %

18.5 %

21.4 %

Safety & Productivity

69

75

82

88

 Margins

19.3 %

20.6 %

22.7 %

24.3 %

Intelligent Devices

$523

$587

$708

$761

 Margins

19.5 %

21.9 %

23.7 %

25.5 %

Control Systems & Software

77

90

144

151

 Margins

13.5 %

15.7 %

21.8 %

22.8 %

AspenTech

57

129

27

148

 Margins

23.7 %

53.8 %

8.2 %

46.1 %

Software and Control

$134

$219

$171

$299

 Margins

16.5 %

27.0 %

17.4 %

30.4 %

Corporate items and interest expense, net:

Stock compensation

(15)

(15)

(56)

(56)

Unallocated pension and postretirement costs

25

25

42

42

Corporate and other

(239)

(15)

(43)

(19)

Copeland equity method investment loss

—

—

(61)

—

Interest expense, net

(50)

—

(10)

—

Interest income from related party¹

—

—

10

—

Pretax Earnings / Adjusted EBITA

$378

$801

$761

$1,027

 Margins

10.9 %

23.1 %

19.3 %

26.0 %

Supplemental Total Segment Earnings:

Adjusted Total Segment EBITA

$806

$1,060

 Margins

23.2 %

26.9 %

¹ Represents interest on the Copeland note receivable.

Table 4 cont.

Quarter Ended June 30

Quarter Ended June 30

2022

2023

Amortization of

Intangibles¹

Restructuring

and

Related Costs²

Amortization of

Intangibles¹

Restructuring

and

Related Costs²

Final Control

$23

$18

$22

$(1)

Measurement & Analytical

4

4

5

1

Discrete Automation

8

1

8

12

Safety & Productivity

7

(1)

7

(1)

Intelligent Devices

$42

$22

$42

$11

Control Systems & Software

6

7

6

1

AspenTech

71

1

121

—

Software and Control

$77

$8

$127

$1

Corporate

—

10

—

1

Total

$119

$40

$169

$13

¹ Amortization of intangibles includes $31 and $49 reported in cost of sales for the three months ended June 30, 2022 and 2023, respectively.

² Restructuring and related costs includes $11 and $1 reported in cost of sales and selling, general and administrative expenses for the three months ended June 30, 2022 and 2023, respectively.

Quarter Ended June 30

2022

2023

Depreciation and Amortization

Final Control

$53

$39

Measurement & Analytical

27

26

Discrete Automation

22

20

Safety & Productivity

15

15

Intelligent Devices

117

100

Control Systems & Software

24

22

AspenTech

72

123

Software and Control

96

145

     Corporate

9

12

          Total

$222

$257

Table 5

EMERSON AND SUBSIDIARIES

ADJUSTED CORPORATE AND OTHER SUPPLEMENTAL

(AMOUNTS IN MILLIONS, UNAUDITED)

The following table shows the Company's corporate and other expenses on an adjusted basis. The Company's definition of adjusted corporate and other excludes corporate restructuring and related costs, first year purchase accounting related items and transaction fees, and certain gains, losses or impairments. This metric is useful for reconciling from total adjusted segment EBITA to the Company's consolidated adjusted EBITA.

Quarter Ended June 30

Corporate and Other

2022

2023

 Corporate and other (GAAP)

$(239)

$(43)

 Corporate restructuring and related costs

1

1

 National Instruments investment gain

—

(12)

 Acquisition / divestiture costs

61

38

 Russia business exit

162

—

 AspenTech Micromine purchase price hedge

—

(3)

 Adjusted corporate and other (Non-GAAP)

$(15)

$(19)

¹ The Russia business exit charge includes $9 of restructuring costs.

Table 6

EMERSON AND SUBSIDIARIES

ADJUSTED EBITA & EPS SUPPLEMENTAL

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

The following tables, which show results on an adjusted EBITA basis and diluted earnings per share on an adjusted basis, are intended to supplement the Company's discussion of its results of operations herein. The Company defines adjusted EBITA as earnings excluding interest expense, net, income taxes, intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, gains or losses on the Copeland equity method investment, and certain gains, losses or impairments. Adjusted earnings per share excludes intangibles amortization expense, restructuring expense, first year purchase accounting related items and transaction fees, interest income on undeployed proceeds, gains or losses on the Copeland equity method investment, and certain gains, losses or impairments. Adjusted EBITA, adjusted EBITA margin, and adjusted earnings per share are measures used by management and may be useful for investors to evaluate the Company's operational performance.

Quarter Ended June 30

2022

2023

Pretax earnings

$378

$761

Percent of sales

10.9 %

19.3 %

Interest expense, net

50

10

Interest income from related party¹

—

(10)

Amortization of intangibles

119

169

Restructuring and related costs

31

13

Acquisition/divestiture costs

61

38

National Instruments investment gain

—

(12)

Copeland equity method investment loss

—

61

Russia business exit

162

—

AspenTech Micromine purchase price hedge

—

(3)

Adjusted EBITA

$801

$1,027

Percent of sales

23.1 %

26.0 %

Quarter Ended June 30

2022

2023

GAAP earnings from continuing operations per share

$0.38

$1.03

Amortization of intangibles

0.12

0.15

Restructuring and related costs

0.04

0.02

Acquisition/divestiture costs and pre-acquisition interest on AspenTech debt

0.09

0.07

National Instruments investment gain

—

(0.02)

Interest income on undeployed proceeds from Copeland transaction

—

(0.05)

Copeland equity method investment loss

—

0.09

Russia business exit

0.29

—

Adjusted earnings from continuing operations per share

$0.92

$1.29

Less: AspenTech contribution to adjusted earnings per share

(0.11)

Adjusted earnings per share excluding AspenTech contribution

$1.18

¹ Represents interest on the Copeland note receivable

Table 6 cont.

Quarter Ended June 30, 2023

Pretax
Earnings

Income
Taxes

Earnings from
Cont.
Ops.

Non-Controlling
Interests³

Net
Earnings
Common
Stockholders

Diluted
Earnings
Per
Share

As reported (GAAP)

$761

$158

$603

$11

$592

$1.03

Amortization of intangibles

169

¹

39

130

42

88

0.15

Restructuring and related costs

13

²

3

10

—

10

0.02

Acquisition/divestiture costs

38

2

36

—

36

0.07

National Instruments investment gain

(12)

(3)

(9)

—

(9)

(0.02)

Interest income on undeployed proceeds

(35)

(8)

(27)

—

(27)

(0.05)

Copeland equity method investment loss

61

10

51

—

51

0.09

AspenTech Micromine purchase price hedge

(3)

(1)

(2)

(1)

(1)

0.00

Adjusted (Non-GAAP)

$992

$200

$792

$52

$740

$1.29

Interest expense, net (excluding interest income on undeployed proceeds)

45

Interest income from related party⁴

(10)

Adjusted EBITA (Non-GAAP)

$1,027

¹ Amortization of intangibles includes $49 reported in cost of sales.

² Restructuring and related costs includes $1 reported in cost of sales.

³ Represents the non-controlling interest in AspenTech applied to AspenTech's share of each adjustment presented herein and eliminated from Emerson's consolidated results.

⁴ Represents interest on the Copeland note receivable.

Table 7

EMERSON AND SUBSIDIARIES

ASPENTECH CONTRIBUTION TO EMERSON RESULTS SUPPLEMENTAL

(AMOUNTS IN MILLIONS EXCEPT PER SHARE, UNAUDITED)

The following tables reconcile the financial results of AspenTech reported to its shareholders with the amounts included in Emerson's consolidated financial results. Emerson currently owns approximately 56 percent of the common shares outstanding of AspenTech, a separately traded public company (NASDAQ: AZPN), and consolidates AspenTech in its financial results. The 44 percent non-controlling interest in AspenTech is removed from Emerson's net earnings common stockholders through the non-controlling interest line item. AspenTech is also one of Emerson's segments and its GAAP segment earnings is reconciled below to its consolidated impact to clarify that certain items are reported outside of its segment earnings within Emerson corporate, including interest income, stock compensation and the Micromine purchase price hedge. 

Quarter Ended June 30, 2023

Pretax
Earnings

Income
Taxes
(Benefit)

Earnings from
Cont.
Ops.

Non-Controlling
Interests⁵

Net
Earnings
Common
Stockholders

Diluted
Earnings
Per
Share

Standalone reporting (GAAP)

$23

¹

$(4)

$27

 Interim tax reporting/Other

(1)

2

²

(3)

Reported in Emerson consolidation (GAAP)

22

(2)

24

10

14

$0.02

Adjustments:

Amortization of intangibles

121

³

26

95

42

53

0.09

AspenTech Micromine purchase price hedge

(3)

⁴

(1)

(2)

(1)

(1)

0.00

Adjusted

(Non-GAAP)

$140

$23

$117

$51

$66

$0.11

 Interest income

(13)

⁴

 Stock compensation

21

⁴

Adjusted Segment EBITA (Non-GAAP)

$148

^{Reconciliation to Segment EBIT}

Pre-tax earnings

$22

Interest income

(13)

⁴

Stock compensation

21

⁴

Micromine purchase price hedge

(3)

⁴

Segment EBIT (GAAP)

$27

Amortization of intangibles

121

³

Adjusted Segment EBITA (Non-GAAP)

$148

¹ Amount reflects AspenTech's pretax earnings for the three months ended June 30, 2023 as reported in its quarterly earnings release 8-K.

² GAAP income taxes reported by AspenTech differ from the amount reflected in Emerson's consolidated financial statements due to the application of the ASC 740 tax rules at the AspenTech entity level in their stand-alone publicly reported financial statements as compared to the amount computed at the Emerson consolidated level.

³ Amortization of intangibles includes $47 reported in cost of sales.

⁴ Reported in Emerson corporate line items.

⁵ Represents the non-controlling interest in AspenTech applied to each adjustment presented herein and eliminated from Emerson's consolidated results.

Reconciliations of Non-GAAP Financial Measures & Other

Table 8

Reconciliations of Non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts). See tables 4 through 7 for additional non-GAAP reconciliations.

Q3 FY23 Underlying Sales Change

Final

Control

Measurement
& Analytical

Discrete

Automation

Safety &

Productivity

Intelligent

Devices

Reported (GAAP)

14 %

16 %

6 %

1 %

11 %

(Favorable) / Unfavorable FX

1 %

1 %

— %

(1) %

1 %

(Acquisitions)

— %

— %

— %

— %

— %

Divestitures

1 %

3 %

— %

— %

1 %

Underlying (Non-GAAP)

16 %

20 %

6 %

— %

13 %

Q3 FY23 Underlying Sales Change

Control

Systems &

Software

AspenTech

Software
and
Control

Emerson

Reported (GAAP)

17 %

34 %

22 %

14 %

(Favorable) / Unfavorable FX

1 %

— %

— %

1 %

(Acquisitions)

— %

(34) %

(4) %

(2) %

Divestitures

1 %

1 %

1 %

Underlying (Non-GAAP)

19 %

— %

19 %

14 %

Nine Months Ended June 30, 2023 Underlying Sales Change

Final

Control

Measurement
& Analytical

Discrete

Automation

Safety &

Productivity

Intelligent

Devices

Reported (GAAP)

11 %

11 %

4 %

(3) %

7 %

(Favorable) / Unfavorable FX

3 %

3 %

3 %

1 %

3 %

(Acquisitions)

— %

— %

— %

— %

— %

Divestitures

1 %

2 %

— %

— %

1 %

Underlying (Non-GAAP)

15 %

16 %

7 %

(2) %

11 %

Nine Months Ended June 30, 2023 Underlying Sales Change

Control

Systems &

Software

AspenTech

Software
and
Control

Emerson

Reported (GAAP)

11 %

96 %

27 %

12 %

(Favorable) / Unfavorable FX

3 %

— %

3 %

3 %

(Acquisitions)

— %

(96) %

(16) %

(4) %

Divestitures

1 %

— %

1 %

1 %

Underlying (Non-GAAP)

15 %

— %

15 %

12 %

2023E August Guidance Underlying Sales

FY23E

Reported (GAAP)

~ 10.5%

(Favorable) / Unfavorable FX

~ 1.5%

(Acquisitions)

~ (2.5)%

Divestitures

~ 0.5%

Underlying (Non-GAAP)

~ 10%

Final Control Adjusted EBITA

Q3 2022

Q3 2023

Q3 2022

Q3 2023

Business Segment EBIT / EBIT margin (GAAP)

$150

$245

16.6 %

23.7 %

Amortization of intangibles and restructuring and related costs

41

21

4.6 %

2.0 %

Adjusted Business Segment EBITA / EBITA margin (Non-GAAP)

$191

$266

21.2 %

25.7 %

Measurement & Analytical Adjusted EBITA

Q3 2022

Q3 2023

Q3 2022

Q3 2023

Business Segment EBIT / EBIT margin (GAAP)

$189

$257

23.9 %

28.1 %

Amortization of intangibles and restructuring and related costs

8

6

1.2 %

0.6 %

Adjusted Business Segment EBITA / EBITA margin (Non-GAAP)

$197

$263

25.1 %

28.7 %

Discrete Automation Adjusted EBITA

Q3 2022

Q3 2023

Q3 2022

Q3 2023

Business Segment EBIT / EBIT margin (GAAP)

$115

$124

18.2 %

18.5 %

Amortization of intangibles and restructuring and related costs

9

20

1.4 %

2.9 %

Adjusted Business Segment EBITA / EBITA margin (Non-GAAP)