Emerson Electric earnings have given something for investors to think about apart from worrying if Emerson is overpaying for a large acquisition: The numbers are showing that businesses tied to the electrification of everything are growing faster.
Wednesday morning, Emerson (ticker: EMR) reported fiscal-second-quarter earnings per share of $1.09 on sales of $3.8 billion. The period ended March 31.
Sales and earnings topped the company’s own guidance. Emerson believed earnings per share would range from 95 cents to $1. Wall Street had expected 97 cents. The upper end of Emerson’s sales guidance for the quarter was $3.6 billion, even with what analysts had expected.
Emerson stock is up 5.2% in midday trading Wednesday. The
S&P 500
and
Dow Jones Industrial Average
are up about 0.2% and 0.1%, respectively.
The move is a relief for shareholders. Coming into Wednesday trading, Emerson stock was off about 16% since announcing a hostile bid to acquire
National Instruments
(NATI) in January. Eventually, in mid-April, the pair agreed to a deal for Emerson to buy National for $60 a share. Shares of the latter started out 2023 at about $37.
Wall Street has been worried that Emerson is overpaying. “We had $55 or $56 in mind. Maybe $57. Not $60,” wrote Gordon Haskett special situations analyst Don Bilson in a report on April 12, the day the deal was sealed. The extra money “won’t matter much in a couple of years if this deal works out…in the meantime [Emerson] is paying about 20 times Ebitda for a business that in 2023 will already be deep into a multiyear transformation.”
Ebitda is short for earnings before interest, taxes, depreciation, and amortization. Shares of many industrial businesses trade for about 12 times Ebitda.
The results should reassure investors. Looking ahead, Emerson expects to generate earnings per share of $1.09 in its fiscal third quarter. That’s higher than the $1.07 analysts are currently projecting.
Emerson’s earnings “beat” follows strong results from other industrial electrification and automation players including
Eaton
(ETN) and
Rockwell Automation
(ROK). Both of those companies beat earnings estimates, and shares of both reacted positively.
RBC analyst Deane Dray called the Eaton quarter solid, adding in his Tuesday report that businesses tied to electrification expect to grow at about two times their historical growth rate due to more sales of electric vehicles, reshoring of U.S. manufacturing and even the trend to replace residential air conditioners and boilers with heat pumps.
The electrification of everything is starting to show up in results and outlooks.
Eaton makes a lot of products for electrification, including transformers. Emerson and Rockwell have some related businesses, too. Both, for instance, will provide products and services to plants building electric vehicles and batteries for them.
Write to Al Root at [email protected]
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