American industrial company Emerson Electric (EMR) delivered a strong quarter before the opening bell Wednesday. The results were complemented by an increase in management’s full-year financial forecast. The stock, which has been a laggard this year, was getting a really nice 4% boost. Revenue for Emerson’s fiscal third quarter (the three months ended June 30) increased 13.9% year-over-year to $3.95 billion, beating analysts’ forecasts of $3.88 billion, according to Refinitiv. Adjusted earnings-per-share surged 40% on an annual basis, to $1.29, exceeding EPS expectations of $1.10. EMR YTD mountain Emerson Electric YTD performance Bottom line Shares of Emerson Electric got off to a rocky start for the Club since we initiated the position back in December. However, beat-and-raise quarters like this are why we bought it in the first place. Fiscal Q3 sales and earnings outperformance came on the back of better-than-expected results in both primary operating divisions: Intelligent Devices and Software & Control. Emerson also saw better-than-expected profit margin performance and robust cash flow. Topping it all off, management raised their earnings outlook and sales growth forecast to ranges above what analysts had been expecting. On the call, the team highlighted end-market resiliency. They also talked about improving supply chain dynamics, which can improve the company’s ability to work through the backlog, which stands at about $6.9 billion — unchanged quarter over quarter. Wednesday’s results are yet another example of how management’s efforts to re-orient Emerson’s portfolio around automation have helped uniquely position the company for continued growth. The moves also set up Emerson to help its customers with their own energy transition initiatives in the areas such as liquified natural gas (LNG), nuclear, hydrogen, clean fuels, carbon capture, and renewables. Given the strong numbers and the view that business momentum can sustain, thanks to resilient demand and shorter lead times, we’re reiterating our 1 rating and $110-per-share price target. Despite the strong rally since the end of May to above $95, shares are only now about to break even in 2023, a year in which the S & P 500 has surged more than 17%. We think EMR stock still has some room to catch up to other industrials, like fellow Club name Caterpillar (CAT), that have outperformed this year. Caterpillar, which reported a great quarter on Tuesday, has gained more than 20% year to date. Companywide Q3 results In addition to the strong top and bottom line results at Emerson, we’re encouraged by the sustained momentum we see in underlying sales growth — up 14% as noted in the earnings table above, which strips out the impact of currency translation, acquisitions and divestitures. Notably, on the call, management commented that National Instruments (NI), which is in the process of being acquired by Emerson, is also seeing supply chain constraints ease. As a result, NI was able to report record sales — up 5% annually — last week, despite a negative order environment. Earlier this year , uncertainty around the friendly, then hostile, then friendly National Instruments deal took its toll on EMR shares. When the transaction was finally agreed to in April, we thought at the time that Emerson paid too much for NI but were willing to wait and see how the integration goes. The deal is expected to close in the first half of next year. At a high level, management took time to discuss how Emerson’s portfolio stands the benefit from several growth trends, including automation in the LNG industry. The company is also playing a crucial role in the electric vehicle battery supply chain, crediting its “end-to-end capabilities from the mining of lithium and copper to refining and processing and finally to EV battery manufacturing, assembly, and recycling.” Looking at the Product Segments section of the table, management noted the nearly 22% increase in fiscal Q3 Software & Control sales — to a better-than-expected $983 million — was aided by the increased availability of electronic components that allowed the team to more quickly convert its backlog into sales. In Intelligent Devices, strength in the Final Control and Measurement & Analytical subcategories (both beat estimates on sales) managed to more than offset softening demand in Discrete Automation and Safety & Productivity (both missed estimates on sales). Guidance For the full fiscal year, management is now targeting net sales growth of about 10.5%, an increase to the high end of the 9% to 10.5% range previously provided. Similarly, management’s underlying sales growth was raised to roughly 10%, the high end of the 8.5% to 10% range provided last quarter, and better than the 9.3% the Street had been modeling. Adjusted full-year EPS is now expected to land in the range of $4.40 to $4.45, up from the $4.15 to $4.25 per share range previously provided. This new forecast is well ahead of the $4.23 analysts were looking for, even on the low end. As for cash flow, management offered up a slight increase to their full-year forecast, at the midpoint. Operating cash flow is now expected to be in the range of $2.5 billion to $2.6 billion (versus $2.63 billion expected) while free cash flow is expected to come in between $2.2 billion and $2.3 billion (versus $2.21 billion expected). This compares to prior operating cash flow and free cash flow targets of about $2.5 billion and roughly $2.2 billion, respectively. (Jim Cramer’s Charitable Trust is long EMR, CAT. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A worker assembles an industrial valve at Emerson Electric’s factory in Marshalltown, Iowa, July 26, 2018.
Timothy Aeppel | Reuters
American industrial company Emerson Electric (EMR) delivered a strong quarter before the opening bell Wednesday. The results were complemented by an increase in management’s full-year financial forecast. The stock, which has been a laggard this year, was getting a really nice 4% boost.