Financial Data and Key Metrics Changes - Adjusted earnings per share (EPS) for the quarter was $1.52, which met the top end of guidance and represented a 6% year-over-year growth [11][22] - Underlying sales growth was 3%, with a strong performance in Process and Hybrid businesses, which grew 3.5%, while discrete businesses turned positive, up 2% year over year [20][22] - Free cash flow generation was better than expected at $970 million, resulting in a margin of 21.3% [22][26] Business Line Data and Key Metrics Changes - Industrial Software annual contract value (ACV) grew double digits year-over-year, ending the quarter at $1.5 billion [10] - Test and Measurement orders were up 16%, contributing to a 6% growth in underlying orders for discrete businesses [15][20] - Software and Control grew 2%, while Intelligent Devices was up 3% [20] Market Data and Key Metrics Changes - Underlying orders in the Americas grew 7%, while Asia and the Middle East and Africa saw a 2% increase, and Europe experienced a decline of 7% [21] - The demand for LNG, power, and life sciences is driving significant activity, with underlying orders in the Ovation business up 40% in the quarter [14][15] - The tariff environment improved, with the annualized gross incremental tariff impact reduced to approximately $210 million from a prior estimate of $455 million [18][19] Company Strategy and Development Direction - Emerson is focused on innovation in automation, highlighted by collaborations such as the one with Total Energies to enhance operational performance through advanced data solutions [6][10] - The company aims to leverage its differentiated technology to serve diverse industries and create value for investors [5][6] - Future growth is expected to be supported by strong demand in LNG, power generation, and life sciences, with a healthy outlook for underlying orders [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of discrete markets, expecting underlying sales growth of 5% to 6% in the fourth quarter [12][16] - The company anticipates strong exit rates for underlying orders to support sales growth within its growth framework [12][16] - Management noted that the dynamic tariff environment has improved, allowing for eased surcharges and better pricing actions [19][22] Other Important Information - Emerson's backlog increased to $7.6 billion, with a book-to-bill ratio of one for the quarter [21] - The company plans to host an investor conference on November 20 in New York City to discuss its transport portfolio and value creation framework [12] Q&A Session Summary Question: Can you clarify the margins in Intelligent Devices? - Management noted that tariffs and unexpected foreign exchange impacts affected margins, but excluding these, margins were up 20 basis points [32] Question: How did orders trend in May and June? - Management indicated that MRO bookings remained consistent, while capital bookings fluctuated based on timing [43] Question: What is the outlook for the discrete side of the business? - Management highlighted that the recovery in Test and Measurement is strong, while legacy discrete markets are facing challenges, particularly in automotive and packaging [74][76] Question: What is the expected growth rate for the power vertical? - Management believes the growth rate can remain elevated in the high teens over the next couple of years due to strong visibility in generation and transmission distribution markets [83][84] Question: How has the dialogue with customers changed regarding large projects? - Management reported no slowdown in decision-making or approvals for projects in LNG, power, and life sciences, maintaining a consistent project win rate [90][91] Question: Can you provide an update on the Ovation AI rollout? - Management confirmed that the Ovation Virtual Advisor has been launched and is already seeing good customer adoption [109]

Core Insights - Illinois Tool Works (ITW) reported strong second-quarter results for fiscal 2025, with GAAP earnings per share of $2.58, surpassing analyst expectations of $2.56, and revenue of $4.1 billion, exceeding the consensus of $4.02 billion [1][2] - The company achieved record operating margin of 26.3%, the highest for any second quarter in its history, driven by enterprise cost initiatives [1][5] - Despite the strong profitability, organic growth was flat, and free cash flow declined compared to Q2 2024, indicating areas for attention [1][9] Financial Performance - GAAP EPS for Q2 2025 was $2.58, a 1.6% increase from Q2 2024's $2.54 [2] - Revenue for Q2 2025 was $4.1 billion, a 1.7% increase from $4.03 billion in Q2 2024 [2] - Operating margin reached 26.3%, up 0.1 percentage points from 26.2% in Q2 2024 [2] - Free cash flow fell to $449 million, down 21.4% from $571 million in Q2 2024 [2][9] - Net income was $755 million, a slight decrease of 0.5% from $759 million in Q2 2024 [2] Segment Performance - Automotive OEM parts grew organically by 2.4%, driven by demand in China's electric vehicle market [5][6] - Food Equipment reported slight positive organic growth, particularly in institutional channels [5] - Welding equipment sales rose 2.8% organically, while the Test & Measurement and Electronics segment declined 0.7% [6] - The Polymers & Fluids segment shrank 3.7% organically, and the Construction Products group saw a 6.9% drop in organic revenue [6] Strategic Focus - The company emphasizes operational excellence, customer-centric innovation, and active portfolio management, divesting non-core businesses to sharpen strategic focus [4] - ITW's "80/20 Front-to-Back" approach targets the most profitable customers and products while continuously improving operations [3] - Management reported progress on the Customer-Back Innovation program, streamlining operations and exiting less differentiated offerings [8] Future Guidance - For fiscal 2025, management raised full-year GAAP EPS guidance to $10.35–$10.55, up from $10.15–$10.55 [10] - Total revenue growth is expected to be 1–3%, with organic growth projected to be flat to 2% [10] - Operating margin is projected between 26–27%, supported by ongoing cost initiatives [10] - Free cash flow conversion is targeted to exceed 100% of net income, with a focus on disciplined capital returns [11]