Emerson(US:EMR)2023-11-12 16:00Financial Performance - Net sales increased from $12.932 billion in 2021 to $15.165 billion in 2023, representing a growth of 17.3% over the two years[171] - Basic earnings per share rose significantly from $3.85 in 2021 to $23.00 in 2023, driven by a substantial increase in discontinued operations earnings[171] - Net earnings for common stockholders surged from $2.303 billion in 2021 to $13.219 billion in 2023, primarily due to a sharp rise in discontinued operations earnings[171] - Cash and equivalents increased dramatically from $1.804 billion in 2022 to $8.051 billion in 2023, reflecting strong liquidity growth[174] - Total current assets grew from $8.506 billion in 2022 to $13.819 billion in 2023, indicating a 62.5% increase in liquid assets[174] - Long-term debt decreased from $8.259 billion in 2022 to $7.610 billion in 2023, showing a reduction in long-term liabilities[176] - Retained earnings expanded from $28.053 billion in 2022 to $40.070 billion in 2023, reflecting strong profitability and reinvestment[177] - Total equity increased from $16.316 billion in 2022 to $26.598 billion in 2023, demonstrating significant growth in shareholder value[177] - Comprehensive income for common stockholders grew from $2.618 billion in 2022 to $13.451 billion in 2023, driven by strong earnings and other comprehensive income[172] - Net earnings increased significantly from $2,327 million in 2021 to $13,200 million in 2023, driven by strong performance in continuing operations[183] - Total pretax earnings increased from $2,432 in 2022 to $2,726 in 2023[281] - Effective income tax rate decreased from 22.6% in 2022 to 22.0% in 2023[283] - Net deferred income tax liability decreased from $(1,859) in 2022 to $(1,629) in 2023[290] - Total income taxes paid in 2023 were approximately $3,310, including $2.3 billion related to gains on the Copeland transaction and InSinkErator divestiture[291] Backlog and Revenue Recognition - The company's consolidated order backlog was $7.8 billion at September 30, 2023, up from $7.0 billion in 2022, with $1.2 billion related to AspenTech[26] - Approximately 75% of the backlog is expected to be recognized as revenue over the next 12 months[26] - The Intelligent Devices segment backlog increased to $4.47 billion in 2023 from $3.93 billion in 2022[26] - The Software and Control segment backlog grew to $3.30 billion in 2023 from $3.06 billion in 2022[26] - Revenue recognition over time accounts for approximately 10% of total revenues, primarily in the Control Systems & Software segment[201] - The company uses an input method to determine progress and recognize revenue for projects where revenue is recognized over time, based on costs incurred[202] - As of September 30, 2023, the company's backlog relating to unsatisfied performance obligations was approximately $7.8 billion, with $1.2 billion related to AspenTech[213] - The company expects to recognize approximately 75% of its remaining performance obligations as revenue over the next 12 months[213] - Revenue recognized for 2023 included approximately $534 million from the beginning contract liability balance[212] Acquisitions and Divestitures - The company engages in acquisitions and divestitures, such as the acquisition of National Instruments and the divestiture of a majority stake in Copeland, with potential integration challenges[44] - The company retains a 40% non-controlling equity interest in Copeland, with future value dependent on Copeland's business performance[45] - On May 16, 2022, the company completed the acquisition of AspenTech, contributing $6.0 billion in cash and two industrial software businesses, resulting in a 55% ownership stake in the new entity[215] - The total purchase consideration for AspenTech was $11,188 million, with goodwill of $7,225 million and other intangible assets of $4,390 million[217][219] - In 2023, the company acquired Flexim and Afag for $705 million, recognizing goodwill of $429 million and other identifiable intangible assets of $314 million[224] - On August 1, 2023, AspenTech terminated the agreement to acquire Micromine due to unclear Russian regulatory approval timelines[225] - On March 31, 2023, the company divested its Russia-based subsidiary Metran, recognizing a pretax loss of $47 million[226] - In 2022, the company acquired three businesses for $130 million, with combined annual sales of approximately $40 million[226] - The Company completed the sale of its Climate Technologies business to Blackstone for $14.0 billion, receiving $9.7 billion in upfront cash proceeds and retaining a 40% non-controlling equity interest in the new joint venture named Copeland[228][229] - The Climate Technologies business had 2022 net sales of $5.0 billion and pretax earnings of $1.0 billion, with the Company recognizing a pretax gain of approximately $10.6 billion ($8.4 billion after-tax) from the transaction[229] - The Company divested its InSinkErator business to Whirlpool Corporation for $3.0 billion, recognizing a pretax gain of approximately $2.8 billion ($2.1 billion after-tax) in Q1 2023[231] - The Company divested its Therm-O-Disc business, recognizing a pretax gain of $486 million ($429 million after-tax) in Q3 2022[231] - Cash from investing activities for 2023 reflects proceeds of approximately $9.7 billion from the Copeland transaction and $3.0 billion from the InSinkErator divestiture[234] Research and Development - Total R&D spending in 2023 was 6.9% of sales, up from 6.3% in 2022[21] - The company's success depends on the acceptance of new and improved products and services, with challenges in research, development, and market introduction[40][41] Employee and Workforce Metrics - Employee engagement score in 2023 was 78%, with over 85% participation in the survey[31] - Total recordable rate of injuries in 2023 was 0.30 per 100 employees, and lost or restricted workday case rate was 0.22[32] - Women represent 33% of the global workforce and 23% of leadership positions[33] - In the U.S., minorities represent 35% of the workforce and 21% of leadership positions[33] - The company's success depends on attracting and retaining key personnel, with potential risks from failure to do so impacting business performance[49] Environmental and Sustainability Goals - The company aims to achieve net zero greenhouse gas emissions across its value chain by 2045, with a 25% reduction target by 2030[36] - The company is focusing on decarbonization and electrification efforts, including technologies like battery storage, hydrogen use, and carbon capture, which are not yet widely adopted[42] Competitive and Market Risks - The company faces competitive pressures that could affect prices or demand for its products, potentially impacting sales, profit margins, and market share[39] - The company's intellectual property is critical to its competitive position, and any failure to protect it could result in competitive harm[43] - The company relies on raw materials like steel, electronics, and rare earth metals, with potential risks from supply disruptions or price increases[46] - Over one-third of the company's sales come from emerging markets, with production facilities located globally, exposing it to risks like political unrest and natural disasters[47] - The company's access to capital markets is essential for business operations, and any disruption could adversely affect its financial results[48] Goodwill and Intangible Assets - Goodwill rose from $13.946 billion in 2022 to $14.480 billion in 2023, indicating continued investment in acquisitions and intangible assets[178] - Goodwill and intangible assets increased in 2022 due to the Heritage AspenTech acquisition, with goodwill balance reaching $14.48 billion as of September 30, 2023[252] - Intangible asset amortization expense for 2023 was $764 million, with expected amortization expenses of $768 million in 2024 and $696 million in 2025[252] Leases and Liabilities - The company's operating lease right-of-use assets increased to $550 million in 2023, with a weighted-average remaining lease term of 6.2 years and a weighted-average discount rate of 4.2%[248] - Total lease liabilities as of September 30, 2023, amount to $548 million, with future lease payments totaling $614 million, less $66 million in interest[250] - The company has an operating lease set to commence in 2024 with a 15-year term and undiscounted future minimum payments of approximately $80 million[250] Pension and Retirement Plans - U.S. pension plans were overfunded by $656 million as of September 30, 2023, while non-U.S. plans were underfunded by $62 million[268] - Total accumulated benefit obligation decreased from $3,910 in 2022 to $3,719 in 2023[269] - U.S. plans' future benefit payments estimated at $222 in 2024, $226 in 2025, $229 in 2026, $230 in 2027, $231 in 2028, and $1,142 total from 2029-2033[270] - Non-U.S. plans' future benefit payments estimated at $62 in 2024, $58 in 2025, $61 in 2026, $63 in 2027, $69 in 2028, and $358 total from 2029-2033[270] - Company expects to contribute approximately $45 to retirement plans in 2024[270] - U.S. retirement plans' discount rate increased to 6.03% in 2023 from 5.64% in 2022[271] - U.S. equities allocation remained at 39% in 2023, within target range of 35-45%[272] - Total fair value of defined benefit pension assets decreased from $4,533 in 2022 to $4,454 in 2023[273] - Postretirement benefit liability decreased from $83 in 2022 to $72 in 2023[277] Stock Compensation and Equity - Total stock compensation expense increased from $144 in 2022 to $271 in 2023, with $250 from continuing operations[294] - As of September 30, 2023, total unrecognized compensation expense related to unvested shares under Emerson plans was $119, expected to be recognized over 1.1 years[294] - Performance share payouts for 2022-2023 period resulted in 1,557 shares earned, with 684 shares distributed in cash for tax withholding[295] - Approximately 1,468,000 shares awarded in 2021 were outstanding as of September 30, 2023, with a 118% performance level achieved[295] - Total fair value of shares earned/vested in 2023 was $158, with $73 distributed in cash for tax withholding[298] - AspenTech granted performance stock units in 2023 with a potential vesting of up to 175% based on performance goals[311] - Common stock reserved for future issuance under AspenTech equity compensation plans was 3.7 million shares as of September 30, 2023[312] - At September 30, 2023, 8.8 million shares of common stock were reserved for issuance under the company's stock-based compensation plans[313] Foreign Currency and Hedging - The notional amount of foreign currency hedge positions as of September 30, 2023, was approximately $2.4 billion, with gains and losses expected to be recognized over the next 12 months[254] - The company issued €1.5 billion in euro-denominated debt in 2019 to hedge foreign currency risk, with gains or losses deferred in accumulated other comprehensive income[255] - Accumulated other comprehensive income (loss) for foreign currency translation ended at $(1,012) in 2023, compared to $(1,265) in 2022[315] - Reclassified gain on sale of business contributed $95 to foreign currency translation in 2023[315] - Amortization of deferred actuarial losses into earnings resulted in a net loss of $(51) in 2023, compared to $70 in 2022[315] Business Segments and Realignment - The company realigned its business segments into six segments and two business groups, including Final Control, Measurement & Analytical, and Discrete Automation[316] - The Final Control segment provides control valves, actuators, and regulators for process and hybrid industries[318] - The Measurement & Analytical segment supplies intelligent instrumentation for measuring physical properties of liquids or gases[318] - The Discrete Automation segment includes solenoid valves, pneumatic valves, and programmable automation control systems[319] - The AspenTech segment reflects the combined results of Heritage AspenTech and the Emerson Industrial Software Business[317] - Prior year amounts have been reclassified to conform to the current year presentation[317] - The company reclassified certain product sales from Control Systems & Software to Discrete Automation[316] Warranty and Contract Assets - Warranty expense is less than 0.5% of sales, with provisions estimated based on historical experience and adjusted quarterly for known issues[198] - The company's unbilled receivables (contract assets) increased from $1,390 million in 2022 to $1,453 million in 2023, while customer advances (contract liabilities) increased from $776 million to $897 million, resulting in a net contract assets decrease from $614 million to $556 million[211] Debt and Credit Facilities - Long-term debt maturities for 2025, 2026, 2027, and 2028 are $538 million, $746 million, $497 million, and $520 million, respectively[263] - The company maintains a $3.5 billion five-year revolving backup credit facility, with no borrowings incurred as of September 30, 2023[262] Other Financial Metrics - Cash provided by operating activities decreased from $3,575 million in 2021 to $637 million in 2023, primarily due to lower cash from discontinued operations[183] - Capital expenditures remained relatively stable, with $404 million in 2021, $299 million in 2022, and $363 million in 2023[183] - Purchases of businesses decreased from $1,592 million in 2021 to $705 million in 2023, indicating a slowdown in acquisitions[183] - Total inventories increased from $1,742 million in 2022 to $2,006 million in 2023, reflecting higher raw materials and work in process[189] - Property, plant and equipment, net increased from $2,239 million in 2022 to $2,363 million in 2023, driven by investments in buildings and machinery[189] - The company adopted ASU No. 2021-10 (Topic 832) in 2023, requiring annual disclosures about government assistance, though it had no material impact on financial statements[185] - The fair value of the company's note receivable as of September 30, 2023, was approximately $1.9 billion, lower than the carrying value by $200 million[258]