Emerson Electric (NYSE:EMR) Misses Q2 Revenue Estimates, Stock Drops
Is now the time to buy Emerson Electric? Find out in our full research report.
Emerson Electric (EMR) Q2 CY2025 Highlights:
Revenue: $4.55 billion vs analyst estimates of $4.61 billion (3.9% year-on-year growth, 1.2% miss)
Adjusted EPS: $1.52 vs analyst estimates of $1.51 (in line)
Adjusted EBITDA: $1.23 billion vs analyst estimates of $1.30 billion (27.1% margin, 4.9% miss)
Revenue Guidance for Q3 CY2025 is $4.90 billion at the midpoint, roughly in line with what analysts were expecting
Management slightly raised its full-year Adjusted EPS guidance to $6 at the midpoint
Operating Margin: 24.8%, up from 19.2% in the same quarter last year
Free Cash Flow Margin: 21.5%, down from 22.8% in the same quarter last year
Market Capitalization: $79.07 billion
"Emerson's solid third quarter results reflect our sustained momentum, delivering strong underlying growth, profitability and cash flow, which we expect to continue as we finish the fiscal year," said Emerson President and Chief Executive Officer Lal Karsanbhai.
Company Overview
Founded in 1890, Emerson Electric (NYSE:EMR) is a multinational technology and engineering company providing solutions in the industrial, commercial, and residential markets.
Revenue Growth
A company's long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Emerson Electric struggled to consistently increase demand as its $17.78 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn't a great result and is a sign of lacking business quality.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Emerson Electric's annualized revenue growth of 9% over the last two years is above its five-year trend, suggesting some bright spots. We also think Emerson Electric's recent performance stands out as many other Internet of Things businesses have faced declining sales because of cyclical headwinds.
This quarter, Emerson Electric's revenue grew by 3.9% year on year to $4.55 billion, falling short of Wall Street's estimates. Company management is currently guiding for a 6% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.
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Operating Margin
Emerson Electric has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Emerson Electric's operating margin rose by 2.7 percentage points over the last five years, showing its efficiency has improved.
In Q2, Emerson Electric generated an operating margin profit margin of 24.8%, up 5.6 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth is profitable.
Emerson Electric's EPS grew at a solid 11.3% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Diving into Emerson Electric's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Emerson Electric's operating margin expanded by 2.7 percentage points over the last five years. On top of that, its share count shrank by 5.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Emerson Electric, its two-year annual EPS growth of 11.8% is similar to its five-year trend, implying strong and stable earnings power.
In Q2, Emerson Electric reported adjusted EPS at $1.52, up from $1.43 in the same quarter last year. This print was close to analysts' estimates. Over the next 12 months, Wall Street expects Emerson Electric's full-year EPS of $5.86 to grow 8.5%.
Key Takeaways from Emerson Electric's Q2 Results
We struggled to find many positives in these results. Its EBITDA missed and its revenue fell slightly short of Wall Street's estimates. Overall, this quarter could have been better. The stock traded down 6.8% to $130.84 immediately after reporting.
Emerson Electric may have had a tough quarter, but does that actually create an opportunity to invest right now? If you're making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it's free.
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