Frank Dellaquila
Senior Executive Vice President and Chief Financial Officer at Emerson Electric
Thank you, Lal, and good morning, everyone. Please turn to slide six, if you would. So we're really pleased with the financial results for fiscal 2021. As Lal said, we ended the year with a great deal of uncertainty and far exceeded the expectations we had at the beginning of the year. The underlying demand environment developed much as we thought it would. There was continued strength in global discrete and hybrid automation markets, and the North America process markets began to gain momentum later in the year. The global demand in our commercial/residential markets was strong and broad based, particularly in the U.S. residential air conditioning market, and it far exceeded the expectations that we had going into the year. Our operations team successfully worked through labor and supply chain issues, particularly toward the end of the year, and delivered strong results that we're able to report to you today.
Toward the end of the year, the intensifying combination of rising material costs, supply chain challenges and labor constraints in the U.S. did begin to weigh on sales volume and profitability. We've worked through that in the fourth quarter. We will continue to work through that in the first half of fiscal 2022. Despite these fourth quarter challenges, we're pleased to report that we achieved the key financial targets that we committed to you in August regarding underlying growth, adjusted EBIT margin, adjusted earnings per share and cash flow, and you can see all of that in the table. This was achieved in the face of an unexpected increase in key raw materials, mainly steel and copper, that resulted in an unfavorable price/cost swing of $140 million during the year versus the expectation and the guidance that we gave you a year ago.
We're very grateful for the extraordinary effort of our operations teams at every level and the manufacturing employees who made this happen under some of the most challenging conditions that we have seen. Please turn to slide seven. This slide highlights our strong 2021 results. The continued recovery in our end markets drove strong full year underlying growth of more than 5%. Net sales were up 9% year-over-year, including a one point impact from acquisitions, mainly OSI, which closed at the beginning of the fiscal year. Adjusted segment EBIT benefited from strong leverage in operations, 38%, as Lal just mentioned, and adjusted EBIT from underlying volume and the benefit of cost reset actions that were begun two years ago. These cost reductions more than offset price/cost headwinds, which, as I said, were $140 million versus our expectation at the beginning of the year, and the supplies chain challenges that raised costs and reduced availability.
Cash flow was robust, up 18% year-over-year attributable to the strong earnings growth and working capital efficiency. Free cash flow conversion of net earnings was 129%. Adjusted earnings per share was $4.10, exceeding our guide by $0.03 at the midpoint and up 19% for the year. Automation Solutions grew -- underlying growth was flat year-over-year. Growth turned positive in the second half driven by strong discrete and hybrid markets, while the later-cycle process automation markets delivered sequential improvement as we moved through the year. Adjusted EBIT increased 230 basis points due to the strong leverage driven by cost reset benefits. Commercial & Residential saw exceptional growth, up 6% underlying year-over-year due to broad strength across the residential and commercial markets with mid-teens growth in all world areas.
Adjusted EBIT increased 20 basis points versus prior year. Price/cost headwinds worsened in the second half, particularly in the fourth quarter, as we anticipated on the call in August, but were offset for the full year by strong underlying leverage and spending restraints. Please turn to slide eight. Operational performance was strong throughout the year, adding $0.59 to adjusted EPS, overcoming a $0.19 headwind from supply chain and $90 million of unfavorable price/cost. Operations leveraged at more than 35% on volume and cost actions. Nonoperating items contributed $0.02 in that, overcoming a significant headwind from the stock comp mark-to-market accounting. Share repurchase totaled $500 million, as we guided, and added about $0.03. In total, adjusted EPS was $4.10, as I said, an increase of 19%.
Please turn to slide nine. Regarding the fourth quarter, strong end market demand drove underlying growth of 7% with net sales up 9%. This growth was achieved despite a $175 million impact from supply chain, logistics and labor constraints that affected both platforms in somewhat different ways. Adjusted segment EBIT dropped 10 basis points, reflecting a 200 basis point impact from supply chain volume constraints across the company and from the increasingly negative price/cost headwind in commercial/residential. Free cash flow declined 39% mainly due to higher working capital to support the growth versus the prior year. Adjusted earnings per share was $1.21, exceeding the guidance midpoint by $0.03 and up 10% and versus the prior year. Automation Solutions underlying sales were up 3% with strong recovery in the Americas, particularly in the power generation and chemical markets, partially offset by declines in other world areas. Sales were reduced by about $125 million or four points due to supply chain constraints.
Our backlog was up 16% year-to-date and now sits at $5.4 billion, $100 million less than at the end of the third quarter. Typically, our backlog would reduce more in Q4. However, due to strong orders and supply chain constraints, backlog remains elevated above the levels we would otherwise have expected. Strong leverage and cost reductions drove a 170 basis point improvement in adjusted EBIT. Commercial & Residential underlying sales increased 13% and driven by continued strength in North America residential HVAC and home products as well as heat pump demand in Europe. Sales were reduced by about $50 million or three points due to supply chain constraints, which, together with sharply increasing material cost headwinds, which were expected, perhaps a little worse than we expected in August but are expected, drove a 340 basis points decline in adjusted EBIT.
With that, I'm going to turn it over to Ram to provide color around the price/cost and some of the other operational issues that we're dealing with.
