Core Insights - Emerson is enhancing industrial automation through advanced AI solutions, aiming to optimize autonomous operations for manufacturers across various industries [1][9] - The company addresses the limitations of public generative AI technologies by offering local, industry-specific models that ensure reliability and safety in mission-critical environments [2][3][4] AI Portfolio and Solutions - Emerson's AI portfolio includes local models that are based on first principles, providing trustworthy results without exposing sensitive data to public cloud systems [3][4] - The AspenTech Optiplant® AI Equipment Layout tool utilizes generative AI to generate multiple design options for industrial plants, facilitating efficient decision-making for engineers [4][5] - DeltaV™ Revamp employs AI to streamline the transition from legacy control systems to modern DeltaV systems, enhancing speed and accuracy through data analysis from past projects [5] Sustainability and Strategic Planning - AspenTech Strategic Planning for Sustainability Pathways™ uses generative AI to assist companies in developing long-term decarbonization strategies [6] - The Aspen Virtual Advisor (AVA) provides operational guidance to users, leveraging deep knowledge of planning and process control software to identify bottlenecks and achieve specific goals [7] Digital Transformation Initiatives - Emerson announced Project Beyond, a software-defined digital platform designed to manage its suite of AI applications, combining industrial AI with contextualized data across various automation environments [10] - This initiative aims to enhance flexibility, safety, sustainability, and performance in industrial automation, marking a significant advancement in the technology stack [10] Company Overview - Emerson is a global leader in industrial technology, providing advanced automation solutions that optimize business performance through intelligent devices and control systems [11]

Core Insights - Emerson Electric Co. is positioned for a strong upswing in the coming quarters due to management's effective strategies in reducing tariff risk through surcharges and price increases, along with mitigation efforts across its manufacturing and supply chain footprint [1] Group 1 - The company has implemented surcharges and price increases to manage tariff risks [1] - Mitigation efforts have been made across the manufacturing and supply chain to further reduce risks [1]

Core Viewpoint - Emerson Electric Co. reported strong second-quarter fiscal 2025 results, with adjusted earnings per share of $1.48, exceeding estimates and reflecting a 9% year-over-year increase [1] Financial Performance - Net sales reached $4.43 billion, surpassing the consensus estimate of $4.38 billion, and increased by 1% year over year, driven by the Software and Control segment [2] - The Intelligent Devices segment reported net sales of $3.03 billion, a decline of 1% year over year, while the Software and Control Automation Solutions segment generated net sales of $1.42 billion, up 7% year over year [3][5] - The cost of sales decreased by 1.5% year over year to $2.06 billion, with a pretax earnings margin of 14.2%, down from 16.3% a year ago [6] Segment Performance - In the Intelligent Devices segment, Final Control sales increased by 2% to $1.07 billion, while Measurement & Analytical sales were $1 billion, down 1% [4] - The Software and Control segment's Control Systems & Software reported sales of $1.06 billion, reflecting a 10% increase year over year [5] Balance Sheet and Cash Flow - At the end of the fiscal second quarter, cash and cash equivalents were $1.89 billion, down from $3.6 billion at the end of fiscal 2024, with long-term debt increasing to $8.18 billion [7] - The company generated net cash of $1.02 billion from operating activities, a 12.1% increase year over year, and paid dividends of $598 million while repurchasing shares worth $1.12 billion [8] Future Outlook - For the third quarter of fiscal 2025, Emerson anticipates net sales growth of 4.5–5.5% and adjusted earnings per share in the range of $1.48–$1.52 [9] - The full fiscal year 2025 outlook includes an expected net sales growth of approximately 4% and adjusted earnings per share projected between $5.90 and $6.05 [10][11]

Core Insights - Emerson Electric reported revenue of $4.43 billion for the quarter ended March 2025, a year-over-year increase of 1.3% and an EPS of $1.48, up from $1.36 a year ago, exceeding Zacks Consensus Estimates for both revenue and EPS [1] - The company’s stock has returned +13.9% over the past month, outperforming the Zacks S&P 500 composite's +10.6% change, and currently holds a Zacks Rank 3 (Hold) [3] Financial Performance Metrics - Net Sales- Eliminations: -$18 million, better than the -$19.67 million average estimate, representing a +5.9% year-over-year change [4] - Net Sales- Software And Control- Total: $1.42 billion, exceeding the average estimate of $1.35 billion, with a year-over-year change of +6.7% [4] - Net Sales- Intelligent Devices- Total: $3.03 billion, slightly below the average estimate of $3.06 billion, showing a -1.1% year-over-year change [4] - Net Sales- Software and Control- Test & Measurement: $359 million, above the average estimate of $355.83 million, with a -2.2% year-over-year change [4] - Net Sales- Intelligent Devices- Safety & Productivity: $339 million, below the average estimate of $355.61 million, reflecting a -7.1% year-over-year change [4] - Net Sales- Intelligent Devices- Measurement & Analytical: $1 billion, below the average estimate of $1.02 billion, with a -1.1% year-over-year change [4] - Net Sales- Intelligent Devices- Final Control: $1.07 billion, matching the average estimate, with a +2.1% year-over-year change [4] - Net Sales- Intelligent Devices- Discrete Automation: $615 million, slightly above the average estimate of $610.20 million, showing a -2.7% year-over-year change [4] - EBIT- Intelligent Devices- Total: $725 million, below the average estimate of $746.93 million [4] - EBIT- Intelligent Devices- Measurement & Analytical: $266 million, below the average estimate of $275.70 million [4] - EBIT- Intelligent Devices- Discrete Automation: $117 million, slightly below the average estimate of $120.07 million [4] - EBIT- Software and Control- Test & Measurement: -$24 million, significantly below the average estimate of $133.64 million [4]

Group 1 - Emerson Electric reported quarterly earnings of $1.48 per share, exceeding the Zacks Consensus Estimate of $1.42 per share, and up from $1.36 per share a year ago [1] - The earnings surprise for the quarter was 4.23%, and the company has surpassed consensus EPS estimates in all four of the last quarters [2] - The company posted revenues of $4.43 billion for the quarter, surpassing the Zacks Consensus Estimate by 1.18%, and up from $4.38 billion year-over-year [3] Group 2 - Emerson Electric shares have declined approximately 13.4% since the beginning of the year, compared to a decline of 4.7% for the S&P 500 [4] - The current consensus EPS estimate for the upcoming quarter is $1.55 on revenues of $4.52 billion, and for the current fiscal year, it is $5.94 on revenues of $17.8 billion [8] - The Manufacturing - Electronics industry, to which Emerson Electric belongs, is currently ranked in the top 36% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [9]

Financial Data and Key Metrics Changes - Emerson reported underlying orders growth of 4%, exceeding expectations, with all regions showing positive results, including China [6][12] - Underlying sales were up 2%, with Process and Hybrid businesses growing mid-single digits, while adjusted earnings per share increased by 9% year over year to $1.48 [12][24] - Free cash flow was $738 million, reflecting a 14% increase year over year, with a free cash flow margin of 17% [24][25] Business Line Data and Key Metrics Changes - Process and Hybrid markets grew by 6%, while Discrete businesses turned positive with Test and Measurement orders up 8% [6][14] - Software and Control segment grew by 7%, driven by higher software sales, while Intelligent Devices remained flat due to safety and productivity issues [22] - The Industrial Software business saw an 11% year-over-year increase in annual contract value (ACV), supported by strong demand for AspenTech's offerings [21] Market Data and Key Metrics Changes - Demand for Process and Hybrid businesses remained strong, particularly in energy and LNG projects, with significant capital investment noted in regions like the Middle East, Africa, and India [14][18] - The Americas experienced mid-single-digit growth, while Europe saw low single-digit growth, with continued momentum in Energy Transition and Life Sciences [18][19] - The company expects mid-single-digit growth in Process and Hybrid sales in the second half, with a more muted recovery anticipated in factory automation and automotive sectors [20][36] Company Strategy and Development Direction - Emerson is focused on integrating AspenTech as a key priority for 2025, targeting $100 million in cost synergies by 2028 [10] - The company has completed its portfolio transformation, retaining the Safety and Productivity business due to its strong profitability and cash generation potential [11] - Emerson aims to maintain disciplined capital allocation, prioritizing reinvestment in the business, dividends, and share repurchases while targeting bolt-on acquisitions under $1 billion [39][96] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's plans for the year, guiding for underlying sales growth of approximately 4% and raising the midpoint of adjusted EPS guidance to between $5.90 and $6.05 [9][34] - The management noted that while there are signs of tariff-induced impacts, they have not seen widespread indications affecting demand [16][32] - The company anticipates a favorable spending environment in LNG and power sectors, driven by energy security and self-reliance commitments [16][36] Other Important Information - Emerson's gross exposure to tariffs is estimated at $245 million for 2025, which the company expects to fully mitigate through pricing actions and operational adjustments [7][31] - The company reported a backlog of $7.5 billion, with a book-to-bill ratio of 1.04, indicating a healthy order flow [22] Q&A Session Summary Question: What is improving in discrete automation? - Management highlighted recovery in Test and Measurement driven by Aerospace and Defense, while noting continued weakness in automotive sectors, particularly in China and Germany [42][44] Question: How real is the pharmaceutical spending? - Management confirmed that the commitments from pharmaceutical companies are genuine, with early projects emerging in the life sciences sector [46][48] Question: What can be done with AspenTech now that the deal is closed? - Management expressed excitement about the growth opportunities with AspenTech, emphasizing the potential for double-digit ACV growth and enhanced collaboration with existing Emerson platforms [53][55] Question: Will tariff impacts be offset by the end of the fiscal year? - Management confirmed that they expect to completely cover the tariff impacts by the end of fiscal 2025 [57][59] Question: Why retain the Safety and Productivity business? - Management concluded that retaining the business would provide the best value for shareholders, given its strong profitability and alignment with U.S. manufacturing trends [66][68] Question: What data points indicate softness in China? - Management noted that softness is primarily in the chemical sector, with some positive signs in power generation and marine business [70][72] Question: What is the outlook for Test and Measurement? - Management indicated strong growth in Aerospace and Defense and a recovery in semiconductors, while automotive remains a concern [92][94]

2025 Q2 Earnings May 7, 2025 EMERSON | 1 Safe Harbor Statement Statements in this presentation and our commentary and responses to questions that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the scope, duration and ultimate impacts of the Russia-Ukraine and other global conflicts, as well as economic and currency co ...

Financial Performance - For Q2 fiscal 2025, net sales were $4.4 billion, up 1% year-over-year, with underlying sales increasing by 2%[63]. - Earnings from continuing operations attributable to common stockholders were $485 million, down 11%, with diluted earnings per share at $0.86, down 9% from $0.95 in the prior year[64][75]. - Adjusted diluted earnings per share from continuing operations increased to $1.48, up 9% from $1.36 in the prior year, reflecting strong operating results[64][75]. - Gross profit for Q2 fiscal 2025 was $2.37 billion, a 4% increase from the prior year, with a gross margin of 53.5%, up 1.3 percentage points[69][70]. - Net sales for the first six months of 2025 were $8,608 million, a 1% increase compared to 2024, with Software and Control sales up 5%[84]. - Gross profit for the first six months of 2025 was $4,606 million, reflecting a 10% increase and a gross margin of 53.5%, up 4.0 percentage points[84]. - Earnings from continuing operations before income taxes increased by 58% to $1,404 million, with a margin of 16.3%[88]. - Diluted EPS from continuing operations rose to $1.88, a 52% increase compared to $1.24 in 2024[90]. - Adjusted EBITA from continuing operations was $2,239 million, a 10% increase, with a margin of 26.0%[95]. Segment Performance - Intelligent Devices sales decreased by 1% to $3.03 billion, with underlying sales flat due to slightly lower volume offset by higher prices[80]. - Software and Control sales reached $1,421 million in Q2 2025, a 7% increase year-over-year, driven by a 10% growth in Control Systems & Software[81]. - Earnings for Software and Control increased by $151 million, up 240%, with a margin improvement of 10.4 percentage points[81]. - Intelligent Devices sales were $5.9 billion in the first six months of 2025, flat compared to the prior year, with underlying sales increasing 1 percent[97]. - Software and Control sales increased to $2,773 million in the first six months of 2025, reflecting a 5 percent increase compared to the prior year[98]. - Earnings for Intelligent Devices rose to $1,412 million, an increase of $86 million or 6 percent, with a margin increase of 1.5 percentage points to 24.0 percent[97]. - Adjusted EBITA for Software and Control increased by 27 percent to $886 million, with an adjusted EBITA margin of 32.0 percent, up 5.6 percentage points[98]. Expenses and Margins - Selling, general and administrative (SG&A) expenses decreased to $1.28 billion, down 1% year-over-year, with SG&A as a percentage of sales at 28.9%, a decrease of 0.7 percentage points[69][70]. - SG&A expenses decreased by $67 million to $2,506 million, with SG&A as a percentage of sales down to 29.1%[86]. Tax and Currency Impact - The effective tax rate for Q2 fiscal 2025 was 32%, impacted by $49 million of discrete tax items related to the AspenTech transaction[74]. - The effective tax rate for the first six months of 2025 was 27%, impacted by discrete tax items related to the AspenTech transaction[89]. - Foreign currency translation had a 1% unfavorable impact on sales, with underlying sales up 2% in both the U.S. and internationally[69]. Future Outlook - The company expects consolidated net sales from continuing operations to increase approximately 4 percent for fiscal year 2025[107]. - Earnings per share for fiscal year 2025 are projected to be between $4.05 and $4.20, with adjusted earnings per share expected to be between $5.90 and $6.05[107]. - The company plans to return approximately $2.3 billion to shareholders through share repurchases and dividend payments in fiscal 2025[108]. - The company anticipates a targeted reduction in net debt of approximately $1 billion over the next 6-12 months[102]. Debt and Capital Structure - Total debt-to-total capital ratio increased to 42.7 percent as of March 31, 2025, reflecting increased borrowings for the AspenTech transaction[100].

Financial Performance - Net sales for Q2 2025 were $4,432 million, a 1% increase from $4,376 million in Q2 2024[1] - Adjusted earnings per share (EPS) rose by 9% to $1.48 in Q2 2025, compared to $1.36 in Q2 2024[1] - Operating cash flow increased by 13% to $825 million in Q2 2025, up from $733 million in Q2 2024[1] - Free cash flow for Q2 2025 was $738 million, reflecting a 14% increase from $651 million in Q2 2024[1] - Adjusted segment EBITA margin improved to 28.0% in Q2 2025, up from 26.0% in Q2 2024[1] - Net earnings for the six months ended March 31, 2025, increased to $1,022 million from $635 million in 2024, representing a growth of 60.7%[17] - Total sales for the quarter ended March 31, 2025, were reported at $4,432 million, a 1% increase compared to $4,376 million in 2024[21] - Adjusted total segment EBITA for the quarter ended March 31, 2025, was $1,240 million, up from $1,139 million in 2024, reflecting a margin increase from 26.0% to 28.0%[28] - Adjusted EBITA for Q2 2025 was $1,143 million, representing a 25.8% margin compared to $1,072 million and a 24.5% margin in Q2 2024[36] - GAAP pretax earnings for Q2 2025 were $629 million, with a margin of 14.2%, down from $711 million and 16.3% in Q2 2024[36] Cash Flow and Investments - Operating cash flow expectations for fiscal 2025 are updated to between $3.5 billion and $3.6 billion[3] - Free cash flow expectations for fiscal 2025 are projected to be between $3.1 billion and $3.2 billion[3] - Cash provided by operating activities for the six months ended March 31, 2025, was $1,018 million, a decrease from $1,158 million in 2024[17] - Cash used in investing activities for the six months ended March 31, 2025, was $264 million, significantly lower than $8,489 million in 2024, indicating reduced investment activity[17] - The company’s ending cash and equivalents decreased to $1,887 million as of March 31, 2025, down from $2,318 million in 2024[17] Acquisitions and Integration - The completion of the AspenTech acquisition was noted, with significant progress on integration[2] - The company acquired AspenTech on March 12, 2025, integrating it as an independent business unit within the Control Systems & Software segment[23] Shareholder Returns - The company plans to return approximately $2.3 billion to shareholders through $1.1 billion in share repurchases and $1.2 billion in dividends[3] Sales Growth and Market Performance - Sales growth in the Americas for the six months ended March 31, 2025, was 3%, while Europe experienced a decline of 2%[26] - The Control Systems & Software segment reported sales of $2,055 million for the six months ended March 31, 2025, an increase of 8% from $1,897 million in 2024[25] - The company experienced a 2% underlying sales growth in Q2 2025, with a favorable foreign exchange impact of 1%[40] - The underlying sales growth guidance for 2025 is projected at 3.5% - 4.5%[40] Costs and Expenses - Acquisition/divestiture fees and related costs for Q2 2025 amounted to $168 million, compared to $20 million in Q2 2024[36] - Amortization of intangibles for Q2 2025 was $278 million, down from $322 million in Q2 2024[36] - Restructuring and related costs for Q2 2025 were $22 million, slightly up from $21 million in Q2 2024[41]

Industry Overview - The Zacks Manufacturing - Electronics industry is poised for growth due to steady demand in electronic services, increased adoption of advanced manufacturing technologies, and product innovation efforts [1] - A surge in e-commerce activities is expected to further support the industry's growth [1] Current Challenges - A slowdown in manufacturing activities and a contraction in new orders may negatively impact industry performance [2] - The Manufacturing Purchasing Manager's Index fell to 48.7% in April, indicating contraction, while the New Orders Index registered 47.2% for the third consecutive month [4] Market Trends - Despite manufacturing slowdowns, demand remains stable in key end markets, particularly in medical and life sciences, driven by the integration of advanced electronic components [5] - The industry is benefiting from technological advancements and digitization, enhancing operational productivity and product quality [6] Industry Performance - The Zacks Manufacturing - Electronics industry currently holds a Zacks Industry Rank of 66, placing it in the top 27% of 246 Zacks industries, indicating bullish near-term prospects [7][8] - Over the past year, the industry has underperformed compared to the broader sector and the S&P 500, losing 17.7% against the sector's decline of 7% and the S&P 500's growth of 9.7% [10] - However, the industry rebounded in the past month with a 15.1% increase, outperforming both the sector's and S&P 500's growth [10] Valuation Metrics - The industry is currently trading at a forward 12-month Price-to-Earnings (P/E) ratio of 21.19X, slightly above the S&P 500's 20.97X and the sector's 17.94X [13] Notable Companies - **Eaton Corporation plc (ETN)**: Benefits from improving end market conditions and strong demand in AI data centers, with shares rebounding 18.3% in the past month [19][20] - **Emerson Electric Co. (EMR)**: Witnessing solid momentum in its Intelligent Devices and Software segments, with shares gaining 0.9% in the past year [23][25] - **EnerSys (ENS)**: Positioned to benefit from product innovation and trends like 5G expansion, with shares rebounding 11.9% in the past month [28][29] - **Powell Industries, Inc. (POWL)**: Experiencing favorable trends in oil, gas, and petrochemical markets, with shares gaining 21.1% in the past year [32][34]