Emerson (EMR) To Report Q2 Earnings: What Lies In Store?
Zacks Investment Research | Apr 27, 2017 10:02PM ET
Emerson Electric Co. (NYSE:EMR) is slated to report second-quarter fiscal 2017 results before the opening bell on May 2.
Last quarter, the company posted a positive earnings surprise of 14.0%. Also, Emerson beat earnings estimates thrice in the trailing four quarters, resulting in an average positive surprise of 5.5%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Over the past few quarters, Emerson’s restructuring initiatives, which have transformed the company into a leaner and more focused one, proved to be a major growth catalyst. In the last reported quarter, the company’s total segment and EBIT margin increased 120 and 140 basis points (bps), respectively, on a year-over-year basis. This was largely driven by benefits from restructuring actions and solid operational execution. We believe that these actions will continue to benefit the second-quarter financial performance as well.
Two of the company’s three segments, namely, Commercial and Residential Solutions, are benefitting from positive industry trends. For instance, thriving Heating Ventilation and Air-Conditioning (“HVAC”), and refrigeration markets as well as strong U.S. and Asian construction markets are expected to boost sales of Commercial and Residential Solutions for the soon-to-be-reported quarter.
This apart, we believe that the company’s inorganic growth will also supplement the fiscal second-quarter top line substantially. Previously completed buyouts like Locus Traxx, PakSense and Blending & Transfer Systems business of FMC Technologies (NYSE:FTI) are expected to drive second-quarter fiscal sales.
Despite these positives, we believe overall sluggishness in the energy-related markets is likely to restrict the company’s growth to some extent. The issue of oversupply is continuing to impact prices and spending levels in the oil and gas sector, thereby adding to the company’s challenges. In addition, currency fluctuations are expected to undermine the second-quarter fiscal 2016 sales as well. Especially, the company’s Automation Solutions platform sales are expected to be down 2% on account of currency translation.
Moreover, weaker spending in general industrial markets throughout the fiscal year, which has affected the company’s order rates over the past few quarters, is likely to play a spoilsport for the upcoming results. Also, Automation businesses are likely to remain under pressure through the first half of fiscal 2017, as the global industrial downturn is lingering longer than expected.
Earnings Whisper
Our proven model does not conclusively show that Emerson will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Zacks Investment Research
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