Intelligent Devices Unit Aids Emerson (EMR) Amid Cost Woes

Zacks Equity Research
·4-min read

Emerson Electric Co. EMR is poised to gain from strength in the Intelligent Devices segment, driven by solid momentum in energy and power end markets within the Final Control business. Sales from this business increased 5% year over year in the fiscal second quarter. Robust growth in all geographies and strong backlog conversion levels are aiding the Measurement & Analytical business.

Within the Software and Control segment, strength in the process end market, driven by energy transition and traditional energy markets, is supporting the Control Systems & Software business. Strength in aerospace and defense end markets, driven by rising U.S. defense budget and increasing government research, is supporting the Test & Measurement business’s growth.

The company believes in expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions. Notably, acquisitions had a positive impact of 10% on net sales growth in the fiscal second quarter (ended March 2024). In the fourth quarter of fiscal 2023, the company completed the acquisitions of Afag and Flexim. The buyout of Afag expanded Emerson’s capabilities in factory automation and helped it expand into lucrative end markets, battery manufacturing, automotive, packaging, medical, life sciences and electronics. The acquisition of Flexim added to its existing flow measurement positions in coriolis, differential pressure, magmeter and vortex flow measurement and expanded its automation portfolio and measurement capabilities.

Further, in October 2023, Emerson completed the buyout of National Instruments for $8.2 billion. The acquisition was in sync with its focus on global automation to drive growth and profitability. The buyout strengthened EMR’s global automation foothold, helping the company expand into high-growth end markets, including semiconductor and electronics, transportation and electric vehicles and aerospace and defense. Apart from broadening automation capabilities, the buyout opened up industrial software opportunities. Emerson reports the results of National Instruments under the sub-business, Test & Measurement within the Software and Control group.

Emerson remains committed to rewarding its shareholders through dividend payments and share buybacks. In the first six months of 2024, it paid out dividends of $600 million and repurchased common stocks worth $175 million. In October 2023, the company hiked its dividend by 1%. Emerson plans to repurchase shares worth $500 million and pay out dividends of $1.2 billion in fiscal 2024 (ending June 2024).

However, Emerson has been dealing with the adverse impacts of the high cost of sales and operating expenses. Increasing material and freight costs are pushing up the cost of sales, which climbed 7% in the fiscal second quarter. Selling, general and administrative expenses rose 29.6% to $1.3 billion due to increased acquisition-related and stock compensation expenses. The impact of these expenditures is evident in the rise of the selling, general and administrative expenses as a percentage of total revenues, which climbed 300 basis points to reach 29.6%.

The company’s operations are spread across the world, the majority of which are outside the United States. Therefore, it is exposed to global economic and political risks as well as unfavorable movement in foreign currencies. In the fiscal second quarter, foreign currency translation had a negative impact of 1% on sales.

In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 28.5%.

 

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Stocks to Consider

Some better-ranked companies from the Industrial Products sector are discussed below.

Applied Industrial Technologies, Inc. AIT presently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter average earnings surprise of 8.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has improved 1.4% in the past 60 days. The stock has risen 40.3% in the past year.

Belden Inc. BDC currently has a Zacks Rank of 2 and a trailing four-quarter earnings surprise of 14.7%, on average.

The consensus estimate for BDC’s 2024 earnings has increased 8.3% in the past 60 days. Shares of Belden have gained 3.5% in the past year.

Crane Company CR presently carries a Zacks Rank of 2. CR delivered a trailing four-quarter earnings surprise of 15.2%, on average.

The Zacks Consensus Estimate for CR’s 2024 earnings has increased 4% in the past 60 days. Its shares have gained 83.4% in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Emerson Electric Co. (EMR) : Free Stock Analysis Report

Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report

Belden Inc (BDC) : Free Stock Analysis Report

Crane Company (CR) : Free Stock Analysis Report

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