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Emerson Electric Co. (NYSE:EMR) is a diversified global technology company which is engaged in designing and supplying products and technology, and delivering engineering services and solutions in the industrial and commercial worlds. The company reported earnings before the market opened on 04Feb14 and on the surface everything looked pedestrian with the company reporting earnings of $0.67 per share (in-line with estimates) on revenue of $5.61 billion (beating estimates by $60 million). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Sales (millions)

1FQ14

1FQ13

Y/Y

Process Management

$ 2,041

$ 1,896

8%

Industrial Automation

$ 1,149

$ 1,137

1%

Network Power

$ 1,303

$ 1,459

-11%

Climate Technologies

$ 786

$ 752

5%

Commercial & Residential Solutions

$ 466

$ 453

3%

Eliminations

$ (139)

$ (144)

-3%

Net Sales

$ 5,606

$ 5,553

1%

Compared to last year total revenue has increased by 1%. The only thing of note is the 11% reduction in the Network Power segment which accounts for 23% of total revenues. The embedded computing and power divestiture and currency translation deducted 13% for reported sales down 11%. The company however expects to see favorable conditions in the near term supported by a recovery in Europe and momentum in Asia.

Income Statement

Income Statement

1FQ14

1FQ13

Y/Y

Net Sales

$ 5,606

$ 5,553

1%

Cost of sales

$ 3,370

$ 3,346

1%

SG&A expenses

$ 1,444

$ 1,394

4%

Other deductions, net

$ 95

$ 86

10%

Interest expense, net

$ 54

$ 54

0%

Earnings before income taxes

$ 643

$ 673

-4%

Income taxes

$ 166

$ 207

-20%

Net Earnings

$ 477

$ 466

2%

Less: Noncontrolling interests in earnings of subsidiaries

$ 15

$ 12

25%

Net earnings common shareholders

$ 462

$ 454

2%

Avg. diluted shares outstanding

708.1

726.9

-3%

EPS due to acquisition costs

$ 0.02

$ -

N/A

Diluted earnings per share

$ 0.67

$ 0.62

8%

Looking at the income statement at first glance is appealing as you look at the bottom line and notice that earnings increased by 8% from last year. But because revenues only increased by 1% from the prior year I'd like to figure out why earnings increased so much. I see that other deductions have increased 10% which helped contribute to the 4% reduction in earnings before income taxes. The next line is where we might see the real contribution to the earnings increase, total income taxes decreased by 20% helping net earnings increase 2%. Then after subtracting the noncontrolling interests in earnings from subsidiaries which increased 25% we still get net earnings attributable to shareholders increase of 2%. The average shares from last year decreased 3% and once you add $0.02 due to acquisition costs you get the 8% increase to the earnings per share.

Balance Sheet

Balance Sheet

1FQ14

1FQ13

Y/Y

Cash and equivalents

$ 2,737

$ 2,527

8%

Receivables, net

$ 4,429

$ 4,556

-3%

Inventories

$ 2,162

$ 2,308

-6%

Other current assets

$ 671

$ 695

-3%

Total current assets

$ 9,999

$ 10,086

-1%

Property, plant & equipment, net

$ 3,639

$ 3,503

4%

Goodwill

$ 7,871

$ 8,068

-2%

Other intangible assets

$ 1,839

$ 1,798

2%

Other

$ 776

$ 316

146%

Total assets

$ 24,124

$ 23,771

1%

Short-term borrowings and current maturities of long-term debt

$ 1,958

$ 1,912

2%

Accounts payable

$ 2,425

$ 2,431

0%

Accrued expenses

$ 2,526

$ 2,648

-5%

Income taxes

$ 199

$ 212

-6%

Total current liabilities

$ 7,108

$ 7,203

-1%

Long-term debt

$ 3,834

$ 3,542

8%

Other liabilities

$ 2,299

$ 2,408

-5%

Total equity

$ 10,883

$ 10,618

2%

Total liabilities and equity

$ 24,124

$ 23,771

1%

On the current asset side of things there is nothing really dramatic to report other than total current assets decreased by 1% from the prior year. Other assets increased a dramatic 146% from last year helping bring total assets up by 1% for the year. Total current liabilities decreased by 1% and total liabilities including equity increased 1%.

Conclusion

The company reported earnings which were 4% higher (GAAP basis) than a year before on 1% more revenue while the share price was up 10.3% in the past year excluding dividends. The large increase in earnings was due primarily to the large decrease in taxes. The share count was reduced by 3% which also helped. I believe this to be an indication that management thinks the stock price may be inexpensive at these levels. I don't like the quality of the earnings really because the increase was primarily due to financial engineering. On a fundamental basis I believe this company is fairly valued with respect to 2014 earnings. The stock was down 0.3% the day of earnings in the face of an S&P500 (NYSEARCA:SPY) which gained 0.76%. Although the company was in-line with analyst estimates the earnings per share were more than last year. Though earnings increased this is a name that I'm not overly excited about because of the quality of the earnings.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Emerson Electric Earnings Increase 8%, But Is It A Buy?