ESCO Technologies Inc. (NYSE:ESE) Q1 2018 Earnings Conference Call Transcript

Feb 06, 2018 • 05:00 pm ET


ESCO Technologies Inc. (NYSE:ESE) Q1 2018 Earnings Conference Call Transcript


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Good day, ladies and gentlemen. Thank you for standing by. Welcome to Emerson's Conference Call. During today's presentation by Emerson management, all parties will be in a listen only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, February 6, 2018.

Emerson's commentary and responses to your questions may contain forward-looking statements, including the Company's outlook for the remainder of the year. Information on factors that could cause actual results to vary materially from those discussed today is available at Emerson's most recent Annual Report on Form 10-K as filed with the SEC.

I would now like to turn the conference over to your host, Tim Reeves, Director of Investor Relations of Emerson. Please go ahead, sir.

Tim Reeves

Thank you, Denise. I am joined today by David Farr, Chairman and Chief Executive Officer; and Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer. Today's call will summarize Emerson's first quarter 2018 results. The accompanying slide presentation is available on our website.

So I'll start with the first quarter summary on Slide 3. Sales in the quarter of $3.8 billion increased 19% with underlying sales up 7%, reflecting continued favorable trends in our end markets and a strengthening macroeconomic environment. We closed out the quarter with December trailing three-month underlying orders up 7% and we expect to stay in a 5% to 10% range as we go forward. Profitability was strong.

In the base business, excluding Valves & Controls, gross margin was up 170 basis points and EBIT margin was up 70 basis points. GAAP EPS increased 9% and was up 18% excluding current and prior year tax items. We accelerated share buybacks, as discussed on our November 28 conference call. And in total, we repurchased over 7.8 million shares in the quarter. And together with dividend payouts, we returned over $800 million to shareholders in Q1. Overall, the first quarter performance was stronger operationally than we had anticipated a few months ago.

Turning to Slide 4, first quarter gross margin was up 170 basis points excluding Valves & Controls. Margin improvement was driven by operating leverage and the benefits from prior year restructuring actions. Price/cost in the quarter was approximately flat. Other deductions increased $55 million due to Valves & Controls first year acquisition accounting charges, foreign exchange losses and higher amortization expense.

Turning to Slide 5. From a geographic perspective, demand was broad based with both mature and emerging markets accelerating in the quarter. Mature markets grew mid single digits, led by the US and robust growth in Canada. Europe was flat, however orders are trending favorably and we expect positive results in Europe in the second quarter. Emerging markets were up high single digits, led by China, which was up 23%. Excluding China, the rest of Asia was up mid single digits. Latin America was up 4%, Middle East and Africa was down 5%, but orders here are trending favorably and we expect growth in the second quarter.

Turning to Slide