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Emerson Reports Q1 Financial Results
Feb 4, 2004
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Emerson (St. Louis, MO, U.S.) has announced that net sales for the first quarter of its 2004 fiscal year increased 12 percent to U.S. $3.6 million, from approx. $3.2 million in the first quarter of fiscal 2003. Reported earnings per share increased 12 percent to $0.58 for the quarter ended Dec. 31, 2003, up from $0.52 in the prior-year period.

"Momentum continued throughout the quarter with strong sales and earnings improvements across all business segments," CEO David N. Farr said in a written statement. "The strategy of repositioning assets to establish faster sales growth and global best cost position is bearing fruit with 10 percent international sales growth led by a 25-percent increase in Asia.

Mr. Farr said that Emerson has remained focused on improving capital efficiency as sales growth expands. The company's average trade working capital has improved to 21 percent of sales from 22.6 percent of sales in the first quarter of the 2003 fiscal year, he said.

"This continues to help drive strong cash flow generation," Mr. Farr noted.

Emerson's operating cash flow and free-cash flow (operating cash flow minus capital expenditures) for the first quarter of fiscal year 2004 was $284 million and $217 million, respectively. Operating cash flow is typically lowest in the first fiscal quarter, Mr. Farr explained, while adding that the company expects operating cash flow to reach approximately $1.9 billion for fiscal year 2004.

"While favorable currency exchange rates contributed to the top-line sales growth, all five business segments experienced growth in underlying sales (which exclude acquisitions, divestitures, and currency translation) during the quarter," he pointed out. "Sales in the United States turned positive for the first time after 10 quarters, also led by growth in the heating, ventilating, and air conditioning business (HVAC) and electronics and telecommunications businesses, as well as the residential end markets that Emerson serves.

"We’re off to a good start, and we are cautiously optimistic about 2004," Mr. Farr continued. "The pace of customer orders and overall business activity remain solid and should drive continued growth throughout the remainder of the year. As previously disclosed, we expect earnings per share for the 2004 fiscal year to increase over the prior year to the range of $2.65 to $2.75."

Sales in the appliance and tools business were $901 million for the first quarter of 2004, an increase of nearly 6 percent from $852 million in the first quarter of 2003. Sales reflect a more than 4-percent increase in underlying sales and an almost 4-percentage point favorable impact from currency, which were partially offset by a nearly 3-percentage point decline related to Emerson’s exit from the manufacture of bench top and stationary power tools.

According to the company, underlying sales results reflect very strong growth in residential storage and European appliance motors, as well as strong growth in the consumer tools businesses. The residential storage increase was due to a strong construction market and higher demand at major retailers, it said. The results of the consumer tools businesses were driven by promotions during the quarter, lower retail inventory, and higher consumer demand. These increases were partially offset by weakness in industrial motors and commercial storage.

Sales in the HVAC business increased more than 16 percent to $596 million for the first quarter of fiscal 2004 from $512 million in the prior year, driven by continued penetration gains, market growth and a 4 percentage point favorable impact from currency. The underlying sales increase of 12 percent compared to the prior year reflects strong growth in Asia and the U.S., according to the company. These sales results reflect increases in all of the businesses, including very strong growth in compressors due to the increased demand in the North American and Asian residential markets.

The electronics and telecommunications business reported sales of $657 million for the first quarter of 2004, up more than 15 percent from the prior year, reflecting a nearly 14 percent increase in underlying sales, with increases in all major geographic regions and strength in Asia. Reported sales also include a 5-percentage point favorable impact from currency and a 4-percentage point negative impact from the Dura-Line divestiture in the prior year. The underlying growth reflects significant gains in the OEM power and climate and power systems businesses, the company reported. In addition, Emerson continues to build upon the Emerson Network Power China (Avansys) acquisition by increasing the Company's penetration in China and Asia.

Process control business sales increased 10 percent in the first quarter of fiscal 2004 to $849 million from $772 million for the same period a year ago, as this segment continues to win large projects and displace the competition. Sales include a positive impact from currency of 6 percentage points, partially offset by a 1-percentage point negative impact from divestitures. Excluding acquisitions, divestitures, and currency, underlying sales increased almost 5 percent due to solid growth in Asia and Latin America and modest growth in Europe. Sales growth was strongest in measurement, systems, and solutions.

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