Emerson(EMR) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Underlying sales grew 6% in 2024, with operating leverage at 47%, both in line with guidance [45] - Adjusted EPS was $5.49, at the high end of guidance, and free cash flow reached$2.9 billion, exceeding expectations [46] - Quarterly underlying orders growth was 2% for the year, led by process and hybrid businesses, while discrete automation orders were down mid-single digits but turned positive in Q4 [46][47] - Adjusted segment EBITDA margin was 26%, up 100 basis points from the prior year, driven by favorable price cost and cost reductions [52] - Free cash flow margin improved to 16.6%, a 110-basis point increase from the prior year [54] Business Line Performance - Process and hybrid businesses grew high single digits, while intelligent devices grew 5% and software and control grew 8% [49] - Test & Measurement contributed $1.46 billion to net sales, down 12$1.4 billion in revenue with leading gross margins and strong free cash flow [37] Market Performance - Asia, Middle East, and Africa led growth at 8%, driven by strong project activity in LNG and chemicals, while China was down 3% due to weak demand [50] - Europe grew 7%, supported by LNG, sustainability, decarbonization, and life sciences, while the Americas grew 4%, led by power, LNG, metals, and mining [50] - Middle East and Africa, India, Southeast Asia, and Mexico are expected to lead growth in 2025, with China anticipated to return to growth in the second half [71] Strategic Direction and Industry Competition - The company announced a proposal to acquire the remaining shares of AspenTech for 240 per share, aiming to fully integrate AspenTech's industrial software capabilities with Emerson's automation solutions [9][12] - The combination of Emerson and AspenTech is expected to accelerate the company's software-defined automation strategy, unlock cost synergies, and simplify the company's structure for investors [13][36] - The company is exploring strategic alternatives for its Safety & Productivity business, including a potential cash sale, as it does not align with the automation thematic [14][37] - Emerson plans to repurchase 2 billion of common stock in fiscal 2025, returning approximately 100% of guided free cash flow to shareholders [15][16] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong project activity, with a large project funnel of $11.2 billion, driven by LNG, life sciences, and sustainability investments [59][60] - The company expects process and hybrid markets to remain resilient in 2025, with discrete markets turning positive and growth across all regions [66][69] - Management expressed confidence in the recovery of discrete markets, particularly in semiconductor, industrial, and factory automation, while automotive markets, especially EV, remain weak [69][70] - The company anticipates mid-single-digit growth in process and hybrid businesses, with discrete markets expected to recover in the second half of 2025 [68][69] Other Important Information - The company's backlog increased to$7.2 billion, driven by process and hybrid investments, while Test & Measurement backlog stood at $400 million [51][101] - Emerson's gross margin reached a record high of 50.8$5.85 and $6.05, with free cash flow projected at$3.2 billion to 3.3 billion [75] Q&A Session Summary Question: Backlog and Book-to-Bill for 2025 - The backlog of 7.2 billion is considered healthy and supportive of 2025 guidance, with no significant changes expected in the book-to-bill ratio [86] - Process and hybrid markets showed strong activity, with new wins in LNG, sustainability, and life sciences, supporting mid-single-digit growth expectations [87] Question: Customer Delays and China Recovery - No significant customer delays were observed, with strong project activity in energy, energy transition, and power sectors [90] - China is expected to return to growth in the second half of 2025, driven by self-reliance programs and sustainability investments, with discrete markets anticipated to recover [92] Question: Discrete Automation Trends and AspenTech Synergies - Discrete automation orders turned positive in Q4, with early signs of recovery in semiconductor and industrial markets, supporting a mid-single-digit growth forecast for 2025 [94] - AspenTech synergies are expected to be neutral to adjusted EPS in 2025, with seasonality and cost synergies factored into the outlook [96][97] Question: Power and Nuclear Exposure - Power generation represents 9% of revenue, with strong growth driven by data center investments, life extension of facilities, and grid modernization [105] - Nuclear accounts for 20% of the power business, with a broad portfolio of capabilities in instrumentation, valves, and control systems [108] Question: Software-Defined Automation Timeline - The transition to software-defined automation is expected to be a phased journey, starting with foundational integration at the site level, followed by site-level and eventually enterprise-wide control and optimization [116][117] Question: Test & Measurement and Synergies - Test & Measurement sales are expected to grow mid-single digits in 2025, with high single-digit order growth and a focus on backlog consumption [123] - Synergies for Test & Measurement are expected to be around $60 million in 2025, with AspenTech synergy details to be provided after a definitive agreement is reached [125]