Emerson Electric (NYSE:EMR) Moves Up After Raising Guidance

Emerson Electric Is A Blue-Chip Dividend Grower

We became interested in Emerson Electric Co. (NYSE:EMR) early in the pandemic because of its status as a dividend grower. The company is a blue-chip business manufacturing electrical components for virtually all industries and was well-positioned to rebound strongly and maintain its payments in the interim. We became more interested in Emerson Electric Co. later in the pandemic because the signs of economic rebound were stronger than expected. Now, with the rebound firmly established and beginning to gain momentum this stock is more attractive than ever.

Emerson Electric Smashes The Consensus

Emerson Electric Co had a great quarter despite the lingering COVID-19 headwind. The company not only saw a sequential improvement in sales in both operating segments but it also returned to YOY growth. That is important to note because it is a comparison with pre-pandemic business levels, the following quarters will likely show accelerated growth as the comparisons get a little easier. Regardless, the $4.2 billion in reported revenue is up 1.2% from last year and beat the consensus by 580 basis points. The revenue strength was driven by sequential gains in Automation, up 6%, and Commercial & Residential which is up 13%.

Moving down the report, the company’s gross margin shrank by 100 basis points as COVID-related costs eat into results. The better news is that both GAAP and adjusted profit margins both increased enough to more than offset the decline. The EBIT margin is up 330 basis points while the EBITDA margin widened by 260 basis points. On the bottom line, the GAAP $0.74 and adjusted $0.83 in earnings both beat the consensus by $0.15. The takeaway is that operating margins are widening due to the company’s “aggressive” restructuring efforts and that has led to earnings leverage.

“Orders and sales continued their upward trajectory in the quarter, and operating results exceeded expectations. These factors enabled us to deliver strong profitability, earnings and cash flow, driven by our ongoing robust cost containment and restructuring actions, as well as improvement in some of our end markets. As the broader macroeconomic outlook continues to stabilize, we are well-positioned with a more agile, lean, and technology-centric organization going forward,” said Emerson Chairman and CEO David N. Farr in the press release.

Emerson execs decided to raise the guidance because of the first quarter strength. The company is now expecting full-year 2021 revenue growth in the range of 4% to 8% with earnings in the range of $3.75. Those figures compare with the 1-4% revenue growth and $3.45 in EPS previously forecast and the $3.51 consensus.

Emerson Electric Is A Safe And Growing Dividend

When we say that Emerson is a safe and growing dividend read emphasis on safe. While the company has a 30+ year history of distribution increases the CAGR is a paltry 1.25% and the last a mere 1.0%. That said, investors should be able to sleep well at night knowing the 2.5% yield is reliable. To start, the company’s balance sheet is very healthy and raises no red flags. Moving on, the company generates ample free cash and more, free cash flow is growing and up 121% from last year. Based on the guidance, the payout ratio will run about 53% which is very manageable.

The Technical Outlook: An Uptrend Confirmed In Emerson Electric

Emerson Electric Co. has been in a steady uptrend since the March 2020 lows and appears to be confirming that trend right now. The stock is up more than 3.0% in premarket trading not only confirming the trend line as support but the short-term moving average as well. The indicators are not yet in full alignment with this move but there are consistent with support and rolling into a bullish signal. Investors might expect some near-term volatility and possibly a retest of the EMA but the longer-term outlook is bullish.