Emerson(EMR) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported underlying sales growth of 2% year-over-year, with adjusted segment EBITDA margin at 27.7% and adjusted earnings per share (EPS) of $1.46, reflecting a 6% increase year-over-year [18][20][46] - The backlog ended the quarter at $7.9 billion, up 9% year-over-year, with a book-to-bill ratio of 1.13 [37][91] - Free cash flow for Q1 was $602 million, with a margin of 14%, positioning the company well for expected full-year growth of approximately 10% at greater than 18% margin [38][20] Business Line Data and Key Metrics Changes - The Software and Systems segment grew underlying sales by 3%, driven by strong performance in Test and Measurement, which was up 11% [42] - Intelligent Devices reported a 2% growth, while Safety and Productivity was up 1% [43] - The Ovation business saw a significant increase of 74% in orders, driven by large project wins in power generation [26][67] Market Data and Key Metrics Changes - North America orders were up 18%, with strong demand in Power and LNG sectors, while Europe and China experienced softness [65][66] - The Middle East and Africa saw a 9% growth driven by Greenfield project activity, while India orders increased by 22% [65][66] - The company noted ongoing challenges in the Chemical sector, particularly in Europe and China, impacting overall performance [102][104] Company Strategy and Development Direction - The company aims to return $10 billion, or 70% of cumulative cash, to shareholders through share repurchase and dividend payouts [10] - Emerson's automation portfolio is aligned with secular tailwinds such as electrification, energy security, and nearshoring, expected to drive growth over the next three years [8] - The company is focused on operational excellence and plans to expand adjusted segment EBITDA margins by 240 basis points by 2028 [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2028 targets, including $21 billion in revenue and 30% adjusted segment EBITDA margins [10] - The company anticipates continued strong demand in North America, India, and the Middle East, while acknowledging challenges in Europe and China [24][39] - Management highlighted the importance of AI and digital transformation in driving customer investments in automation [70][71] Other Important Information - Emerson was named the 2026 Industrial IoT Company of the Year, marking the fourth time in five years it received this recognition [21] - The company released DeltaV Version 16, enhancing its software-defined automation vision [22] - A strategic collaboration with Roche was announced to improve technology transfer processes in Life Sciences [23] Q&A Session Summary Question: Can you break down the 9% order growth in Q1 between process and hybrid? - Management noted that Power orders were driven by modernization and behind-the-meter power generation, with significant growth in Test and Measurement [60][62] Question: What is the expected impact of AI on software growth? - Management believes AI capabilities will accelerate growth in software offerings, with minimal disruption expected [69][71] Question: Are the orders in Power pushing beyond this year into multi-year phases? - Management confirmed confidence in backlog timing supporting growth into 2027, particularly in Power and LNG [75] Question: What is the outlook for weak verticals like Chemicals? - Management acknowledged continued flat activity in Chemicals, particularly in Europe, and a bearish outlook for China [102][104] Question: What is the company's strategy regarding Venezuela? - Management indicated a long-established relationship in Venezuela and plans to mobilize for potential growth opportunities as conditions improve [135][138] Question: Any updates on tariffs and mitigation activities? - Management reported some positive developments regarding tariffs, particularly with China, while noting challenges with Mexico [146]