Emerson Reports Strong Second Quarter 2018 Results

Emerson announced net sales were up 19 percent in the second quarter ended March 31, 2018, with underlying sales up 8 percent excluding favorable currency of 3 percent and an impact from acquisitions and divestitures of 8 percent. The second quarter results reflect strong global economic conditions and continued favorable demand. Both mature and emerging markets delivered high-single digit underlying growth.

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<h3><strong><span class="underline">Business Platform Results</span></strong></h3>
<strong>Automation Solutions</strong> net sales increased 31 percent in the quarter, with underlying sales up 10 percent excluding favorable currency of 4 percent and an impact from acquisitions of 17 percent. Growth continued to reflect strong short cycle repair and maintenance (MRO) demand and small and mid-sized projects focused on expansion and optimization of existing facilities. Globally, the business saw growth across all key process automation market verticals, including upstream, midstream and downstream oil and gas, chemical and power generation.In addition, Emerson's global power business grew net sales and orders in the first half, despite difficult market dynamics, due to strong participation in plant retrofit opportunities and in greenfield projects for combined cycle and natural gas.

North American underlying sales were up 16 percent reflecting continued favorable trends in energy-related, chemical, life sciences and discrete markets. Asia underlying sales were up 7 percent, with China up 20 percent due to continued strong demand across process, hybrid and discrete markets. Project timing impacted Latin America negatively, down 10 percent, and Middle East/Africa positively, up 29 percent, while order trends in both regions were positive. Europe was down 1 percent, but order trends were favorable.Margin increased 20 basis points to 15.7 percent compared with the prior year. Excluding the dilutive impact of the Valves & Controls acquisition, margin increased 240 basis points to 17.9 percent, driven by leverage on higher sales and restructuring benefits. The Final Control management team continued to execute restructuring and integration plans around the Valves & Controls acquisition, which delivered strong performance in the quarter and meaningful sequential margin improvement.

<strong>Commercial & Residential Solutions</strong> second quarter net sales were up 2 percent and underlying sales increased 4 percent excluding favorable currency of 2 percent and an impact from divestitures net of acquisitions of 4 percent. Underlying sales in North America were up 1 percent as strong demand for professional tools was offset by slower than expected air conditioning demand. Underlying economics in air conditioning markets remain positive and we expect demand to accelerate in the second half. Asia grew 17 percent, driven by continued strong refrigeration and air conditioning demand in China and elsewhere in the region.Europe was up 5 percent, reflecting favorable demand in air conditioning and construction-related markets. Margin continues to run at a high level, but decreased 10 basis points to 23.6 percent compared with the prior year.
<h3><strong><span class="underline">2018 Outlook</span></strong></h3>
Based on favorable global demand trends and strong first half operational performance, the Company is raising full-year sales guidance to the high-end of the previously communicated range and increasing the expected earnings per share range. The updated guidance does not include the results of the recently announced $810 million Tools & Test acquisition, expected to close in the fiscal fourth quarter.

Management expects increasing capital investment in Automation Solutions' end markets, and continued steady demand in Commercial & Residential Solutions' end markets for the remainder of 2018. Total Emerson net sales growth is now expected to be approximately 13 percent, with Automation Solutions up 20 percent and Commercial & Residential Solutions up 2 percent.Excluding a 6 percent impact from acquisitions, divestitures and currency translation, total Emerson underlying sales growth is expected to be approximately 7 percent, with Automation Solutions up 8 percent and Commercial & Residential Solutions up 5 percent.