Emerson Reports Record Gross Margins for 2012

Emerson net sales for fiscal 2012 increased one percent from the prior year to $24.4 billion, led by two consecutive years of double-digit growth in Process Management. Underlying sales grew three percent, reflecting a substantial deceleration in global economic growth as the year progressed.  Currency translation deducted two percent and acquisitions, net of divestitures, had a negligible impact. Underlying sales in the U.S. grew two percent, Asia grew three percent, and Europe declined one percent from the prior year.

Gross profit margin reached a record of 40.0 percent, up 50 basis points from the prior year, reflecting the benefits of technology innovation, portfolio management, and cost repositioning.  Operating profit margin also reached an historic high of 17.7 percent, as cost containment programs drove 20 basis points of expansion from 2011. The protracted slowdown in global telecommunications and information technology end markets has resulted in slower growth expectations for the embedded computing and power and DC power businesses, requiring a noncash goodwill impairment charge of $592 million. Net earnings per share of $2.67 include this charge and compares to $3.27 in the prior year. Excluding impairments, normalized earnings per share was $3.39 versus $3.30 in the prior year.

“Emerson delivered another solid year of operational performance in 2012 despite a challenging global macroeconomic environment,” said Chairman and Chief Executive Officer David N. Farr.  “The global economic climate is unusually weak for this stage in a normal recovery cycle.  Our businesses remained focused on execution and managing through uncertain market conditions – hallmarks of Emerson’s culture. The record operating margin performance reflects our continuing efforts to drive innovation and operational excellence despite unique challenges, and provides a solid foundation as we move into 2013.”

Industrial Automation sales declined six percent during the fourth quarter, as currency translation deducted four percent and global capital goods demand slowed, particularly in Europe.  Underlying sales decreased two percent, as the U.S. and Asia were flat, and Europe declined five percent, with the most significant decrease in the power generating alternators and industrial motors business. The fluid automation, electrical distribution, and mechanical power transmission businesses had modest underlying sales growth that was more than offset by currency translation.  Segment margin of 17.5 percent expanded 280 basis points from the prior year, primarily benefiting from cost containment programs and lower restructuring expense. The near term outlook is for sluggish end market demand, especially in Europe, which represents approximately 40 percent of segment sales. The strong profitability underscores a well-positioned cost structure poised for further gains when demand recovers, but in the near term sales growth will be a challenge.