Emerson Electric Co. (NYSE:EMR)

Net operating profit after taxes (NOPAT)

The net operating profit after taxes experienced fluctuations over the analyzed periods. Initially, it rose substantially from 2212 million USD in 2014 to a peak of 2871 million USD in 2015. After this peak, there was a notable decline in 2016 to 1731 million USD, followed by a slight increase and stabilization around the 1700 to 2100 million USD range in subsequent years. By 2019, NOPAT rose again to 2461 million USD, approaching the previous high levels observed in 2015.

Cost of capital

The cost of capital showed moderate variability with values ranging between approximately 14.86% and 16.3%. It decreased from 15.79% in 2014 to a low of 14.86% in 2015, then increased steadily reaching 16.3% in 2018. A slight decrease to 15.99% was observed in 2019. Overall, the cost of capital remained in a relatively narrow band throughout the period.

Invested capital

Invested capital displayed a downward trend from 2014 through 2017, falling from 17628 million USD to 15181 million USD. This reduction signifies a contraction of around 14%. However, from 2017 onwards, invested capital saw a moderate recovery, climbing back to 16266 million USD by 2019, though it did not fully return to the initial 2014 levels.

Economic profit

Economic profit, which considers the cost of capital, showed significant volatility and consistently negative values except for 2015. In 2014, economic profit was negative at -571 million USD, then sharply improved to a positive 296 million USD in 2015, coinciding with the peak in NOPAT and a lower cost of capital. However, from 2016 onwards, economic profit returned to negative territory and progressively improved from -772 million USD in 2016 to -139 million USD in 2019. Despite this improvement, economic profit remained below zero, indicating the company was not generating returns in excess of its cost of capital during most years analyzed.

Overall trends and insights

The data reflects a period marked by fluctuating operational profitability and cost of capital, impacting economic profit outcomes. Net operating profit showed recovery signs following a drop after 2015, while invested capital contracted initially but then partially recovered. The company's ability to generate economic profit was limited, with only one year showing positive excess returns. The persistent negative economic profits, despite improvements towards the end of the period, suggest challenges in achieving value creation above capital costs. Close monitoring of operational efficiencies, capital allocation, and cost of capital management would be prudent to enhance sustainable profitability and economic value.

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.

Economic Profit

The economic profit exhibited significant volatility over the analyzed period. Initially, it started with a considerable loss of US$ -571 million in 2014, followed by a positive jump to US$ 296 million in 2015. However, subsequent years showed a return to negative figures, with losses peaking again at US$ -772 million in 2016 and remaining negative through 2019. The magnitude of losses appears to decline towards the end of the period, decreasing from -$668 million in 2017 to -$139 million in 2019, indicating some improvement in economic profitability despite continued negative results.

Invested Capital

The invested capital demonstrated a generally decreasing trend from 2014 through 2017, falling from US$ 17,628 million to US$ 15,181 million. Thereafter, a slight recovery in invested capital is observed with incremental increases, reaching US$ 16,266 million by 2019. This pattern suggests initial asset reduction or divestment followed by modest reinvestment in later years.

Economic Spread Ratio

The economic spread ratio mirrored the fluctuations in economic profit, reflecting variable returns relative to the cost of capital. It was negative at -3.24% in 2014, improved to a positive 1.71% in 2015, but then declined sharply to -4.67% in 2016. From 2017 onward, the ratio remained negative but displayed a consistent trend of improvement year-on-year, rising from -4.4% in 2017 to -0.86% in 2019. This indicates a gradual reduction in the shortfall between returns and cost of capital over the latter part of the period.

Economic Profit

Economic profit exhibits significant volatility throughout the analyzed periods. It starts with a loss of US$ 571 million in 2014, turns positive to US$ 296 million in 2015, and then returns to negative values in subsequent years, reaching the largest deficit of US$ 772 million in 2016. From 2017 to 2019, the losses gradually decrease, indicating a trend of improving economic performance but remaining in negative territory as of the last reported date.

Net Sales

Net sales follow a downward trend from 2014 to 2016, dropping from US$ 24,537 million to US$ 14,522 million, which represents a considerable reduction in sales volume or value. From 2016 onward, net sales show a gradual recovery, increasing each year to reach US$ 18,372 million by 2019, though they do not return to the initial levels seen in 2014.

Economic Profit Margin

The economic profit margin closely mirrors the trend seen in economic profit, beginning with a negative margin of -2.33% in 2014. It improves to a positive margin of 1.33% in 2015, then declines substantially to its lowest point of -5.31% in 2016. Subsequent years show a steady improvement in margin, moving toward zero but still negative at -0.76% in 2019, suggesting ongoing challenges in achieving profitable returns relative to sales.

Overall Insights

The analysis identifies a period of financial difficulty, especially pronounced in 2016 as seen in all economic profit indicators. While net sales declined significantly between 2014 and 2016, the company managed to partially recover sales thereafter. Despite this recovery, economic profit remains negative, indicating that although sales are improving, profitability in absolute economic terms continues to face pressure. The improving economic profit margin trend from 2017 to 2019 suggests some efficiency or cost optimization, but the company has yet to achieve a consistently positive economic profit margin over the period. The data reflect ongoing financial challenges with signs of gradual improvement in recent years.