Key Points
Emerson Electric beat on earnings but missed on sales this morning.
Sales growth is accelerating, but still single digits, although profit margins are improving nicely.
At nearly 30x FCF, Emerson stock still looks expensive.
Shares of Emerson Electric (NYSE: EMR), the diversified industrial conglomerate, plunged 7.5% after reporting mixed financial results for its fiscal Q3 2025 this morning.
Analysts expected Emerson to earn $1.51 per share, and Emerson beat that guess with a $1.52 profit. Revenue came up short of the $4.6 billion prediction at just over $4.55 billion.
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Emerson Electric Q3 earnings
Emerson grew its sales 4% year over year in Q3, and expanded its pre-tax operating profit margin significantly -- up 570 basis points to 16.1%. That was a good start; however, it turns out that the company's "$1.52" profit was only a non-GAAP number. Earnings as calculated according to generally accepted accounting principles (GAAP) were far lower: only $1.03 per share.
Still, that was a 72% improvement over the $0.60 per share Emerson earned a year ago.
Is Emerson Electric stock a sell?
CEO Lal Karsanbhai noted that his company has "sustained momentum, [is] delivering strong underlying growth, profitability, and cash flow," and that he expects all of this to continue through the end of Emerson's fiscal year (which has just one more quarter to go).
Turning to guidance, Emerson forecasts sales accelerating to about 6% growth in Q4, bringing total sales growth for the year to about 3.5%. Management didn't say what GAAP earnings might be, but predicted it will earn about $6 "adjusted," and generate $3.2 billion in positive free cash flow through the end of the year.
For a $79 billion company with about $13 billion in net debt, that works out to an enterprise value-to-free cash flow ratio of nearly 29x. Call me a skeptic, but that seems a lot to pay for 3.5% annual sales growth.
I cannot recommend buying Emerson Electric stock at this price.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Emerson Electric. The Motley Fool has a disclosure policy.