EMR Q4 2026 earnings call transcript, November 4, 2026

Good morning, everyone. I'd like to begin by thanking Emerson's 70,000 employees for their dedication, passion and perseverance. Together, we delivered a strong fourth quarter and finish to 2026. Emerson has the most talented team in the automation industry, and our efforts are reflected in the results we will discuss today. More importantly, this team has positioned us to keep winning. One year ago, at our investor conference in New York City, we outlined a value creation framework. One year into this three-year plan, we met our strategic objectives and remain on track to deliver our 2028 commitments. Our momentum carries into 2027, driven by our growth verticals and supported by secular macro trends. Customers are investing in automation at a rapid pace, and our orders reflect it. The diversity of our customer base and the range of industries we serve give us confidence in the resilience of the company we have built. As I complete my sixth year as CEO, I reflect on the strength of the Emerson management system. Designed in the 1970s under Chuck Knight's leadership. It has evolved over time, but most meaningfully over the past six years, we have deliberately changed our culture to push trust and empowerment deeper into the organization while maintaining a high standard of accountability. This environment enables us to attract and retain top talent energized to deliver outstanding results and create differentiated value.

I am excited about the opportunities ahead and more confident than ever in Emerson's future. Lastly, I would like to thank our customers, the Emerson Board of Directors, and our investors for your continued trust in us. Please turn to slide three.

Underlying orders grew 14% with broad-based demand across all business groups. Demand was most pronounced in software and systems, up 18%, and intelligent devices, up 13%. All regions experienced growth. Led by North America, up 15%, and the Middle East, up 42%. I will discuss more details on demand later in the presentation. Emerson exceeded expectations for sales and profitability. In the fourth quarter. Underlying sales were up 7%, with software and systems accelerating to 14% growth, with strength in test and measurement, up 15%, and control systems and software, up 14%. Adjusted segment EBITDA margin expanded 160 basis points to 29.1%. And adjusted earnings per share increased 15% to $1.86. For the full year, we delivered underlying sales growth of 4%, and adjusted earnings per share rose 10% to $6.59, both above expectations. Free cash flow was up 9% to $3.5 billion, and we completed $1 billion of share repurchase, retiring. 7.2 million shares. As expected, annual contract value of our software grew 10.1% to $1.7 billion. For fiscal 2027, we are guiding underlying sales growth of 5%. We expect to deliver adjusted segment EBITDA margin of 29%, and adjusted earnings per share of $7.25, reflecting meaningful

progress on the pathway to our 2028 targets. We plan to continue returning substantial capital to shareholders, and we expect to return $3.8 billion in 2027, $2.5 billion in share repurchases, and $1.3 billion in dividends, a 7% dividend per share increase of 16 cents. Please turn to slide four. Emerson navigated the conflict in the Middle East and inflationary headwinds to deliver another year within our value creation framework, demonstrating the resilience and profitability of our automation portfolio. Underlying sales growth was led by the United States and the Middle East, both of which were up high single digits, offset by persistent softness in Europe and China. Our growth verticals were up 21% year over year, as secular tailwinds are supporting investment across greenfield projects, modernizations, and MRO. Adjusted segmented with a margin of 28.2% expanded 60 basis points, driven by price cost and the benefit of cost reductions and synergy realization. We also realized a hundred million dollars of synergies at Aspen Tech, completing the integration two years ahead of our initial target. Adjusted earnings per share of $6.59 marked our sixth consecutive year of double-digit adjusted EPS growth. Emerson demonstrated strong free cash flow generation at a margin of 18.6%. Emerson said. Please turn to slide five.

Underlying orders grew 14% in the fourth quarter with broad-based demand across the portfolio and strengthened long-cycle project activity, led by power, LNG, and aerospace and defense. Test and measurement orders growth of 14% exceeded expectations with semiconductor up 59%. Control systems and software orders were up 20%. With orders in our... our ovation business up 26%. North America, Southeast Asia, and the Middle East saw significant demand from our growth verticals and energy security projects. China orders remain negative as both chemical and refining continue to weigh on demand. Electrification is benefiting Emerson across the technology stack as power generation projects, modernizations, including... grid investments are advancing in all regions. The need for energy security is also increasing, the capital being deployed in LNG and traditional energy projects. Last November, we outlined an opportunity pipeline of 315 million tons per annum of LNG yet to be awarded, and approximately 100 million tons per annum were awarded in 2026. However... The demand for gas continues to grow, and we now see an opportunity of 275 million tons per annum remaining. Near-shoring and self-sufficiency investments continue to unlock activity in semiconductor, life sciences, and aerospace and defense. These opportunities are manifesting in our project funnel, which increased $600 million to $13 billion up...

17% year-over-year. New capital formation is being driven by our growth verticals, which were up $500 million sequentially. In our fourth quarter, Emerson won approximately $575 million from the funnel. 75% came from our growth verticals, and I want to highlight a few large wins. First, we were selected for a major petrochemical project in Qatar. We're our customers expanding downstream capacity with a world scale ethylene cracker complex. Emerson will provide integrated control and safety systems as well as measurement instrumentation. We were chosen for our proven reliability and demonstrated performance on the first phase of this facility. Next, Emerson was chosen by LNG Canada for their phase two expansion. At the. LNG export facility in Kitimat, British Columbia, which will double the capacity from 14 to 28 million tons per annum. Emerson will provide our leading valve and sensor technology, building on the success of our phase one solutions. And finally, Emerson signed a 10 year Delta V MES subscription agreement with the leading global life sciences contract manufacturer. Spanning multiple systems across across three sites, Emerson software will help improve operational efficiency through automated data collection, more accurate electronic batch records and more consistent manufacturing workflows. Please turn to slide six. We expect the United States, India, Southeast Asia and the Middle East, as well as our growth verticals.

Good news. To be strong contributors to growth again in 2027. The Americas account for around half of Emerson's sales and grew 7% in 2026. We expect sales to be up mid single digits in 2027, underpinned by broad based growth in the United States with healthy MRO. We are planning for significant activity and growth verticals in the United States, where about a third of our. Businesses serving power, LNG, life sciences, semiconductor and aerospace and defense in Latin America, electrification and energy security needs are expected to unlock project activity. Europe was down 1% in 2026, and we project a modest improvement to low single digit growth with sustained project activity in LNG power and life sciences offset by linking. ...weakness in industrial markets. We do not expect an inflection in the region as demand in Germany, France, and Italy remains soft. Approximately 30% of Emerson's sales are in Asia, the Middle East, and Africa, which collectively grew 3% in 2026, including an approximately $85 million headwind related to the conflict in the Middle East. ...in 2027. We model mid-single-digit growth with continued momentum in the Middle East, which we expect to be up high single digits again, assuming the conflict does not escalate. Rehabilitation work is progressing, and resiliency investments provide long-term opportunities in this region. We are not planning for a recovery in China due to the persistent headwinds in bulk chemical and refining.

We have a mid-single-digit outlook for the rest of Asia, as energy security, grid modernization, and FPSOs support greenfield investment and stable MRO. Growth verticals grew 21% in 2026 and now comprise 27% of Emerson's sales. We expect low double-digit growth in 2027, driven by secular trends of electrification, energy security. and near-shoring, which are supporting investments in automation globally and most prominently in the United States. Our other automation markets were collectively flat in 2026, with prolonged weakness in Europe and China. We model a moderate increase to low single-digit growth in 2027, with improving MRO activity from pent-up demand in energy and favorable trends in North American industrial activity. and electrical equipment. We are entering 2027 from a position of strength, and I am confident in our plans to deliver the year. With that, I will now turn the call over to Mike Bachman to discuss our financial results and guidance in more detail.

Please turn to slide seven for a more in-depth look at our Q4 financial results. As a reminder, the impact of tariff refunds are excluded from our adjusted earnings results. Q4 underlying sales grew seven percent with volume contributing four points. Each of our business groups exceeded expectations led by software and systems up 14 percent. I will provide more details on geographic and group performance on the next two slides. Backlog ended the quarter at eight point two billion dollars up 11 percent year over year and our book to bill was one point zero one. above typical seasonality. Adjusted segment EBITDA margin was twenty nine point one percent of one hundred and sixty basis points. Margin expansion exceeded expectations due to better volume and software and systems and intelligent devices as well as favorable segment mix. Price cost and cost reductions more than offset inflation. Adjusted earnings per share was one dollar and eighty six cents of fifteen percent year over year. Operations contributed an incremental twenty five cents with nineteen cents from software and systems. FX was a one cent headwind. Fourth quarter free cash flow was nine hundred and sixteen million dollars of nine percent with a margin of seventeen point six percent. Full year free cash flow of three point five billion dollars was also up nine percent and margin expanded sixty basis points to eighteen point six percent.

Please turn to. Slide eight for details on Q4 underlying sales by region. The Americas grew nine percent with the U.S. up eleven percent. The pace of business remains strong in the U.S. with software and systems and intelligent devices both of low double digits. Growth was broad based across end markets with the majority of our business units up mid single digits or better in the U.S. Asia, Middle East and Africa grew seven percent led by the Middle East. East and Africa up 19 percent, while Asia was up 2 percent. Another outstanding performance by our teams in the Middle East led to a smaller adverse revenue impact than expected in the quarter. As the duration of the conflict extends, our customers and our teams have consistently found ways to drive business continuity. Europe continued to experience weak markets and grew one percent. Globally, our growth verticals contributed meaningfully to sales and were up 25 percent in the quarter. Growth was strongest in LNG, which was up 68 percent, benefiting from the delivery of projects. Growth was also robust in semiconductor, up 43 percent, and power, up 24 percent. MRO was 63 percent in the quarter, and projects ticked up slightly in the quarter to 37 percent of sales. We saw sustained strength in North America MRO and robust projects. Activity in the Americas, Middle East, and Southeast Asia. Please turn to slide nine for details on fourth quarter underlying sales and margin performance for our three business groups.

Software and systems was up 14 percent underlying as test and measurement grew 15 percent, and control systems and software grew 14 percent. We saw significant growth in power, LNG, and semiconductor. As expected, ACV grew 10.5 percent, 1 percent year over year. Software and systems margin of 32.3 percent increased 490 basis points due to leverage on volume, price cost, and mix. Intelligent devices underlying sales were up 4 percent, better than expected, largely due to final control delivering more project shipments in the Middle East. Growth was led by LNG, power, upstream gas, and midstream gas. Intelligent devices margin of 28.4 percent was down 10 basis points year-over-year, driven by mix, offset by strong price costs and leverage on volume. Safety and productivity was up 2 percent underlying. Strength in electrical products and U.S. industrial activity was offset by persistent weakness in Europe. Safety and productivity's margin of 22.9 percent was up 30 basis points year-over-year due to price costs and cost reductions, offset by inflation. Please turn to slide 10 for our 2027 underlying sales guidance by business group. We expect software and systems to grow 8 to 9 percent in the first quarter and 7 to 8 percent for the full year. We are planning for high single-digit growth in both test and measurement and control systems and software from broad-based demand in the U.S. and growth verticals.

ACV is expected to grow approximately 10 percent in 2027. Intelligent devices is projected to grow 3 to 4 percent in the first quarter and 4 percent for the full year, supported by stable MRO, project activity and growth verticals, and strength in the United States. Safety and productivity is modeled to grow 3 to 4 percent in both Q1 and the full year. While we are seeing continued growth in electric utilities and North America industrial activity is encouraging, European markets are soft. Overall, Emerson expects to grow approximately 5 percent in both Q1 and the full year. Please turn to slide 11 for details on our full year and Q1 2027 guidance. For the full year, we are guiding gap and underlying sales growth of approximately 5 percent. We expect a more normalized pricing environment in 2027 and have built 2 percent price realization into the plan. We expect adjusted segment EBITDA margin of 29 percent, up 80 basis points year over year. We are guiding 2027 adjusted earnings per share of $7.25, up 10 percent, and free cash flow of $3.8 billion to $3.9 billion. As Lal discussed, we plan to return approximately $3.8 billion to shareholders through $2.5 billion of share repurchase, and $1.3 billion in dividends, including raising dividend per share by 7%. We are entering our 71st consecutive year of increased dividend, and the $0.16 dividend per share increase we have modeled demonstrates our commitment to the dividend.

Moving to the first quarter, we expect gap in underlying sales growth of approximately 5%, adjusted segment EBITDA margin of 28%, and adjusted earnings per share of 1%. $1.58 to $1.62. We are also planning to complete approximately $1.5 billion of share repurchase in Q1. Please turn to slide 12. At our investor conference last November, we introduced our value creation framework, which rests on three pillars, organic growth, operational excellence, and capital allocation. We also laid out clear targets for 2028. Our automation portfolio is aligned to multi-year secular tailwinds that support 4% to 7% underlying sales growth. Our operational excellence has been a hallmark of Emerson for generations, and our capital allocation is focused on returning cash to shareholders through meaningful share repurchases and dividend increases. We delivered 2026 and exited the year with strength in orders and a back

Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Scott Davis with Milius Research. Your line is open, Scott. Please go ahead.

Lal and Mike and Ram. And welcome, Carl.

Good morning, Andy.

Well, maybe you could characterize a little more of the surge in orders that you saw in Q4 and especially in the Middle East. I know you mentioned the large pet chem project in the region, but I assume much of that growth in the region is associated with energy security type projects. So when you step back for the overall company, do you think this recent order surge is somewhat durable into 27 when you look at energy security under the ongoing cycles you have? You know, you mentioned power, LNG, test measurement. Yeah, Andy, really good question. So maybe answering the first part, the Middle East continues to invest in two facets. One, gas production, liquid production, but of course the downstream investments as well. And then secondly, on resiliency projects, whether that's pipeline storage, transportation, which we're starting to see as well. The particular project that we want in Qatar that I referenced is a downstream petrochemical project. The largest expansion of a downstream facility we've seen in the region in many decades, which was encouraging to see in the midst of all the disruption, of course, resulted in the war. So that customer had enough confidence to move down. forward and finance it. And we were excited to be awarded the project. To the second part of your question, we absolutely believe that there is continued momentum in the Middle East and Africa as we go into 2027 in both facets of that type of work. So we're excited about what the what the team's accomplishing there and for the outlook. Now, that assumes, Andy, of course, that we're kind of status quo on on the war.

Good morning, Steve.

Just on the first quarter, it looks like I think the implied incremental is a little bit lower than what you've guided for the year. I think you've got a bit of an easy software comp. Is there something else in the bridge for the first quarter on margins that we should be aware of?

Maybe I just wanted to... Start off with the capital deployment and sort of cash flow, as that hasn't really come up. So you've been very disciplined or constrained on M&A activity for a couple of years now. I'd wondered if you might become a bit more expansive given that, but I suppose, should we read the large buyback as a sign that M&A probably remains very limited for some time?

Good morning.

You gave some helpful color on some of the growth within growth verticals in Q4. And I was wondering if you could do the same in terms of what rolls up to low double-digit expectations in 27 and any color on the growth hierarchy across power, LNG, life sciences, I mean, Zandy. Yeah. I mean, I think, well, power and LNG certainly would be in the higher end of that forecast. We see that activity continuing to be very, very strong. Life sciences will be more high single digits. The semi-business is where we've modeled. As basically mid-single digits, a strong first half and some slowdown modeled in for the second half, which is the wild card, which if it doesn't happen, we'll have an opportunity to outperform. So that's kind of how we're thinking about it. And strengthening that continues in the high single digits to low double digits type performance. Understood. And then, well, you made a comment about completing the. Aspen integration a couple of years ahead of target and just interested in the setup for growth as you move forward and the go to market approach and how you're now poised to leverage the full scope of them or some capabilities with that addition of Aspen and the full integration. Joe, thanks for the question. We are very excited about the momentum that's building at Aspen as we came through the second half of this year. The team delivering. We're all in software systems, 10% ACV growth and gives us confidence as we go into 2028. But the focus inside of Aspen has been twofold. Number one, accelerate new product development in suites and new products into the marketplace, both within its traditional Aspen products, but as well into the DGM space. And then number two, integration of technology within

Hey, I wanted to just follow up on the Middle East disruption. So earlier in the year, you had described as roughly 100 million of rebuild and restart opportunities. I guess how much of that is converted, if any? And when you think about the 27 guide framework, how much are you assuming is rebuild or of that 100 million? How much is assumed within the framework for the year? So we got... Some of that this year, I would say from a modeling perspective, $50 to $75 million is still available in terms of rebuild opportunity or rehab opportunity going into next year. That's kind of how we're thinking about it.

Good morning.

I just wanted to touch on intelligent devices. So it's been another year of kind of low growth in that segment. It's picking up a little bit in the second half and order suggests that could be changing a bit. So what is it that, you know, what sort of underlying sub verticals or regions need to improve meaningfully to get you back to like a high single digit number that you've done in years past? Like what's really kind of the biggest drag that you've done? You know, for us, Europe and China. So I think the impact of Europe and China in intelligent devices is significant. And that really has to turn in a meaningful way. And we've not, we don't see that. We don't see that where you're talking a high single digit. I think our model, long term model for intelligent devices is a three to six type framework. Now, there'll be years where we'll go past the six. But I think. I think at this point, I think it's a par plan and it's got a reasonable expectation for Europe and China built into it going into next year. Yeah. And specifically on China, you kind of call it out early. It's like one of the reasons recruiting you from putting out a bigger guide relative to your orders on the top line. What is it that's most concerning to you that could go one way or the other in that region? I guess what do you have your eye on that could change? Where the other half of the year progresses? You know, again, I think, as Lal said earlier, we see pockets of, I mean, our test and measurement business, for example, had 31% growth in China.

This concludes today's call.