Emerson Electric Co. (NYSE:EMR)

The analysis of the financial data reveals several key trends over the six-year period ending in 2019. The net operating profit after taxes (NOPAT) exhibits significant fluctuations, with a notable peak in 2015 followed by a decline in 2016 and 2017. After 2017, NOPAT shows a recovery and growth, reaching its highest value in 2019 at 2461 million US dollars. This indicates a volatile yet improving operating profitability in the latter years.

The cost of capital remains relatively stable, fluctuating in a narrow range between approximately 15.9% and 16.4%. Despite minor variations, there is no clear upward or downward trend, suggesting that the company’s weighted average cost of capital experienced minimal changes and maintained a consistent requirement for return on invested capital.

Invested capital shows a gradual decline from 2014 through 2017, decreasing from 17,628 million to 15,181 million US dollars. After 2017, the invested capital increases slightly, reaching 16,266 million by 2019. This trend indicates a contraction phase in invested capital followed by a modest reinvestment or expansion phase toward the end of the period.

Economic profit, a key indicator of value creation after considering the cost of capital, remains negative in most years except 2015. The company achieved positive economic profit only in 2015, demonstrating value creation in that year. However, in other years, notably 2014, 2016, and 2017, economic profit is significantly negative, indicating value destruction despite the profit generated. There is a trend of improving economic profit from 2017 onwards, where the losses narrow progressively to -161 million in 2019, suggesting that the company moved closer to generating economic profit or reducing value destruction over time.

Summary of Key Trends:

- NOPAT shows volatility with a trough in 2016-2017 and a recovery in 2018-2019.

- Cost of capital is largely stable, with no evident trend.

- Invested capital declines until 2017, then slightly reverses upward.

- Economic profit is mostly negative, with a single positive year in 2015, but shows improvement towards 2019.

Overall, the financial data suggests a period of operational challenges impacting profitability and economic value in the middle years, followed by a gradual recovery phase improving both NOPAT and economic profit metrics despite stable capital costs. The modest increase in invested capital post-2017 may indicate renewed investment confidence aligned with improving profitability outcomes.

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 annual financial data reveals several notable trends in key performance indicators over the six-year period. The economic profit exhibited significant volatility, indicating fluctuating profitability that remained predominantly negative, except for a singular positive value in the year ending September 30, 2015. Despite this brief positive outcome, the economic profit figures demonstrate a general pattern of financial challenges, with losses persisting through most years.

Invested capital shows a decreasing trend initially, dropping from a peak value in 2014 through 2017, followed by a gradual recovery in the subsequent years of 2018 and 2019. This fluctuation suggests adjustments in asset deployment or divestment activities, with a partial return to higher invested capital levels toward the latter part of the analyzed timeframe.

The economic spread ratio mirrors the economic profit trend closely. It remained negative in all years except 2015, where it turned positive. However, the degree of negativity lessened over time following the nadir in 2016 and 2017, improving consistently through 2019. This progression points toward reducing inefficiencies or improved returns relative to the cost of capital, though the ratio remains below zero, indicating ongoing challenges in value creation.

Economic Profit

Highly variable with mostly negative values; only in 2015 does it become positive, suggesting inconsistent profitability and persistent economic losses in most periods.

Invested Capital

Declined steadily from 2014 to 2017, indicating possible divestments or asset reductions, then increased slightly in the following two years, reflecting a partial reinvestment or asset growth strategy.

Economic Spread Ratio

Negative in all years except 2015, following a U-shaped curve where the ratio worsened until 2016-2017 and then improved toward 2019 but did not reach positive territory again, pointing to ongoing struggles in generating returns above the cost of capital.

Overall, the data suggests a company facing challenges in achieving sustained economic profitability over this period, with efforts or market conditions leading to partial improvements in the latter years. The invested capital movement further underscores strategic adjustments in asset utilization, which may influence future performance trajectories.

Net Sales

Net sales exhibited a downward trend from 2014 to 2016, decreasing significantly from 24,537 million USD in 2014 to 14,522 million USD in 2016. After this decline, a gradual recovery is observed, with sales increasing to 18,372 million USD by 2019. This pattern indicates a period of contraction followed by stabilization and growth.

Economic Profit

The economic profit fluctuated considerably over the period. In 2014, it was deeply negative at -595 million USD, then notably improved to a positive 274 million USD in 2015. However, it deteriorated sharply again in the following years, reaching -793 million USD in 2016 and staying negative through 2019, though the losses decreased in magnitude to -161 million USD by 2019. This suggests challenges in generating value above the cost of capital throughout most of the period, with some improvement in later years.

Economic Profit Margin

The economic profit margin mirrored the fluctuations seen in economic profit. From a negative margin of -2.43% in 2014, it increased to a positive margin of 1.23% in 2015. Following this peak, the margin worsened again, falling to its lowest point at -5.46% in 2016, and remained negative through 2019. However, a trend toward margin improvement is evident by 2019, moving to -0.88%. This reflects ongoing struggles with profitability relative to invested capital, though with some recovery towards the end of the period.