Emerson Electric Co. (NYSE:EMR)

The period between September 30, 2014, and September 30, 2019, demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited volatility, while the cost of capital remained relatively stable, and invested capital generally decreased over the observed timeframe.

Net Operating Profit After Taxes (NOPAT)

NOPAT began at US$2,212 million in 2014, increased to US$2,871 million in 2015, then declined significantly to US$1,731 million in 2016. A modest recovery to US$1,776 million occurred in 2017, followed by increases to US$2,124 million in 2018 and US$2,461 million in 2019. This indicates a period of initial growth, a substantial downturn, and a subsequent, though uneven, recovery in operational profitability.

Cost of Capital

The cost of capital experienced minor fluctuations throughout the period. It started at 18.72% in 2014, decreased to 17.60% in 2015, and then increased to 19.31% in 2018 before decreasing slightly to 18.94% in 2019. The changes were relatively small, suggesting a consistent, though not static, required rate of return for investors.

Invested Capital

Invested capital generally trended downward from US$17,628 million in 2014 to US$15,181 million in 2017. A slight increase to US$15,617 million was observed in 2018, followed by a further increase to US$16,266 million in 2019. This suggests a period of capital reduction followed by stabilization and modest reinvestment.

Economic Profit

Economic profit remained negative throughout the entire period, indicating that the company’s returns did not exceed its cost of capital. The largest negative economic profit was recorded in 2014 at US$-1,087 million. It improved to US$-178 million in 2015, but then worsened to US$-1,233 million in 2016. Subsequent years showed a gradual, though incomplete, improvement, with economic profit reaching US$-620 million in 2019. The consistent negative economic profit suggests a persistent underperformance relative to the cost of capital, despite improvements in NOPAT and stabilization of invested capital towards the end of the period.

Overall, the financial performance demonstrates a challenging period with fluctuating profitability and a consistent failure to generate returns exceeding the cost of capital. While NOPAT showed some recovery and invested capital stabilized, the negative economic profit persisted, indicating a need for strategies to improve capital efficiency and overall profitability.

The analysis of the financial data for the period from September 30, 2014, to September 30, 2019, reveals notable fluctuations in key profitability metrics.

Net Earnings Common Stockholders

The net earnings attributable to common stockholders demonstrate variability over the periods considered. Initially, there was an increase from 2,147 million USD in 2014 to a peak of 2,710 million USD in 2015. This was followed by a significant decrease to 1,635 million USD in 2016 and a slight further reduction to 1,518 million USD in 2017. Subsequently, the earnings recovered, rising to 2,203 million USD in 2018 and marginally improving to 2,306 million USD by 2019. This pattern suggests volatility in profitability, with a notable dip in the middle years before recovery in the latter two years.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a similar trend to net earnings, with an increase from 2,212 million USD in 2014 to 2,871 million USD in 2015, followed by a substantial decrease to 1,731 million USD in 2016. Unlike net earnings, NOPAT stabilizes somewhat in 2017 with a slight increase to 1,776 million USD. In the subsequent years, NOPAT rises consistently, reaching 2,124 million USD in 2018 and 2,461 million USD in 2019. This trend indicates a recovery in operating profitability after a period of decline, with steady improvements in the final two years.

Overall, both net earnings and NOPAT experienced a peak in 2015, followed by a decline over the next one to two years, and then a recovery phase from 2017 onward. The recovery in NOPAT appears somewhat stronger and more consistent than that in net earnings. These trends highlight periods of operational challenges and subsequent improvement in financial performance.

Income Tax Expense

The income tax expense demonstrated a fluctuating downward trend over the six-year period. Starting at $1,164 million in 2014, it increased to a peak of $1,428 million in 2015. However, from 2015 onwards, the figure declined significantly to $697 million in 2016 and further decreased to $660 million in 2017. The downward trend continued, reaching a low of $443 million in 2018, before showing a modest increase to $531 million in 2019. This pattern suggests variability in taxable income or changes in tax rates, with a notable reduction after 2015 and slight recovery toward 2019.

Cash Operating Taxes

Cash operating taxes followed a similar overall declining trajectory with some variation. Beginning at $1,394 million in 2014, the amount rose to $1,525 million in 2015, indicating higher cash tax payments that year. Subsequently, there was a sharp decline to $782 million in 2016 and a marginal decrease to $766 million in 2017. The downward movement persisted, with taxes dropping to $737 million in 2018 and then declining further to $619 million in 2019. This trend mirrors the reduction observed in income tax expense, possibly reflecting lower taxable income or effective tax management strategies resulting in decreased cash tax obligations over time.

Total Reported Debt & Leases

The total reported debt and leases exhibited a non-linear trend over the analyzed periods. It increased from 6,834 million USD in 2014 to peak at 7,624 million USD in 2015, followed by a reduction to 5,137 million USD in 2017. Subsequently, the amount rose again, reaching 6,191 million USD by 2019. This pattern suggests fluctuations in debt management, with a notable decrease in the middle period before a moderate rebound.

Common Stockholders’ Equity

Common stockholders’ equity showed a general decline from 10,119 million USD in 2014 to 7,568 million USD in 2016. Thereafter, it increased to 8,947 million USD in 2018, before descending again to 8,233 million USD in 2019. This series of movements indicates some volatility but overall a downward pressure on equity levels during the period.

Invested Capital

Invested capital steadily decreased from 17,628 million USD in 2014 to a low of 15,181 million USD in 2017. After 2017, it gradually increased to 16,266 million USD by 2019. The downward trend in the initial years followed by a recovery suggests adjustments in the company's capital investment strategy or asset base.

Overall Observations

The data reflects a period of financial adjustment, with both liabilities and equity experiencing declines and recoveries at different times. The decrease in invested capital up until 2017, coupled with reduced debt levels in the same period, could indicate an active effort to deleverage or optimize capital structure. Subsequently, the increases in debt and invested capital alongside fluctuating equity values imply dynamic financial management responsive to changing conditions or strategic priorities.

The period between September 30, 2014, and September 30, 2019, demonstrates a fluctuating, yet generally improving, financial performance as measured by economic value added metrics. While economic profit remained negative throughout the observed timeframe, its magnitude decreased over the years. Invested capital experienced a decline initially, followed by a period of relative stabilization and a slight increase towards the end of the period. The economic spread ratio, reflecting the efficiency of capital deployment, exhibited a similar pattern of improvement, though remaining negative overall.

Economic Profit

Economic profit consistently registered as a negative value across all reported years. However, the absolute value of the loss decreased from US$1,087 million in 2014 to US$620 million in 2019. This suggests a reduction in the amount by which returns fall short of the cost of capital. The largest single-year improvement occurred between 2018 and 2019, with a decrease of US$272 million in the economic loss.

Invested Capital

Invested capital decreased from US$17,628 million in 2014 to US$15,181 million in 2017, representing a reduction in the total capital employed by the entity. A modest increase was then observed in 2018 to US$15,617 million, followed by a further increase to US$16,266 million in 2019. This indicates a potential reinvestment phase or a change in capital allocation strategy towards the end of the period.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, began at -6.17% in 2014. It improved to -1.03% in 2015, before worsening again to -7.46% in 2016. Subsequent years showed a gradual, though uneven, improvement, reaching -3.81% in 2019. This upward trend suggests increasing efficiency in generating returns on invested capital, even though returns still remain below the cost of capital. The most significant improvement in this ratio occurred between 2018 and 2019.

In summary, while the entity did not generate positive economic profit during this period, the trends in both economic profit and the economic spread ratio suggest a positive trajectory in terms of value creation. The stabilization and subsequent increase in invested capital towards the end of the period may indicate strategic shifts aimed at future growth and profitability.

The period between September 30, 2014, and September 30, 2019, demonstrates a fluctuating, but generally improving, economic profit margin. While economic profit remained negative throughout the observed timeframe, the magnitude of the loss decreased over the years. Net sales also exhibited volatility, impacting the economic profit margin calculations.

Economic Profit

Economic profit consistently registered as a negative value across all reported years. The largest loss occurred in 2014, at -US$1,087 million. Losses decreased to -US$178 million in 2015, before increasing again to -US$1,233 million in 2016. Subsequent years showed a gradual reduction in the size of the loss, reaching -US$620 million by 2019. This suggests improving operational efficiency or capital allocation over time, despite not yet achieving positive economic profit.

Net Sales

Net sales experienced significant variation. A decrease from US$24,537 million in 2014 to US$22,304 million in 2015 was followed by a substantial decline to US$14,522 million in 2016. Sales then recovered, reaching US$15,264 million in 2017, US$17,408 million in 2018, and further increasing to US$18,372 million in 2019. This sales volatility likely influenced the fluctuations observed in economic profit.

Economic Profit Margin

The economic profit margin mirrored the trends in economic profit, consistently remaining negative. The most substantial negative margin was recorded in 2016 at -8.49%. The margin improved significantly in 2015 to -0.80%, but then worsened again. A consistent upward trend in the margin is evident from 2016 onwards, culminating in -3.38% in 2019. This indicates that while the company continued to destroy economic value, the rate of destruction lessened as a percentage of sales over the period. The improvement in the margin correlates with the reduction in the absolute value of economic profit and the increase in net sales in the later years.

In summary, the company demonstrated a gradual improvement in its economic profit margin, driven by decreasing economic losses and increasing net sales. However, it is important to note that economic profit remained negative throughout the analyzed period.