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01/10 16:26
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed outlook. Basic financial performance shows modest growth, with a 3% sales increase and stable margins despite tariffs. Product development is positive, with AspenTech synergies and new launches like Ovation AI. However, uncertainties in chemical markets and FX impacts on margins raise concerns. Market strategy indicates growth in Test & Measurement and power verticals, yet muted recovery in discrete automation. Shareholder returns are strong with $2.3 billion planned. Overall, the sentiment is balanced, with positive elements countered by market and margin challenges.
Adjusted Earnings Per Share (EPS) $1.52, a 6% increase year-over-year. The increase was driven by strong operational performance, including contributions from Software and Control and Intelligent Devices, as well as synergy realization at AspenTech.
Free Cash Flow $970 million, resulting in a margin of 21.3%. This represents a 20% increase year-over-year, driven by higher earnings and improvements in working capital.
Underlying Sales Growth 3%, led by process and hybrid businesses (up 3.5%) and discrete businesses (up 2%). Price contributed 2.5 points to growth, though this was less than expected due to easing surcharges.
Adjusted Segment EBITDA Margin 27.1%, meeting expectations but negatively impacted by 40 basis points due to tariffs. Strong profit contributions came from Software and Control, including AspenTech synergies, and Test & Measurement.
Backlog $7.6 billion, up 2% sequentially in both process and hybrid and discrete businesses.
Intelligent Devices Growth 3% year-over-year, with profitability impacted by tariffs.
Software and Control Growth 2% year-over-year, with strong profit contributions including synergy realization at AspenTech.
Enterprise Operations Platform: Emerson announced a strategic collaboration with TotalEnergies to deploy an industrial data fabric for real-time data collection and AI implementation, enhancing operational performance.
Ovation AI-enabled Virtual Adviser: Released as part of Ovation 4.0, this AI adviser integrates into power generation control systems, enabling advanced diagnostics and operational awareness. It has been adopted in modernization projects, including Entergy's new power plants.
Nigel AI Adviser: Introduced in Emerson's test software, this AI tool aids engineers in test and measurement tasks, enhancing productivity and innovation.
Regional Growth: Strong growth in North America, India, and the Middle East driven by investments in LNG, power, and life sciences. Europe is recovering with energy security projects, while China shows slight improvement.
Test & Measurement Market: Recovery in this market is accelerating, with orders up 16% in Q3 and expected to grow by 20% in Q4.
Financial Performance: Adjusted EPS of $1.52 met the top end of guidance, with free cash flow of $970 million and a 21.3% margin. Full-year free cash flow is expected to reach $3.2 billion.
Tariff Impact: Tariff exposure reduced to $130 million for the fiscal year, leading to eased surcharges and improved profitability.
Investor Conference: An investor conference is planned for November 2025 to discuss Emerson's portfolio and value creation framework.
Tariff Environment: The dynamic tariff environment has impacted Emerson's financial performance. Although the gross incremental tariff impact has decreased, it still poses a challenge, with an annualized impact of $210 million. The easing of surcharges has also led to lower-than-expected sales growth.
Geographic Market Performance: Sales in Europe declined by 7%, which negatively impacted overall growth. This underperformance in a key region could hinder the company's global expansion and revenue targets.
Supply Chain and Pricing Actions: The company has implemented price actions and supply chain mitigations to offset tariff impacts. However, easing surcharges have reduced price contributions, affecting revenue growth.
Economic and Market Conditions: While demand trends are favorable, the company faces challenges in maintaining growth in certain markets, such as Europe, and navigating economic uncertainties in other regions.
Profitability Impact from Tariffs: Tariffs negatively impacted profitability, particularly in the Intelligent Devices segment, reducing adjusted segment EBITDA margin by 40 basis points.
Fourth Quarter 2025 Sales Growth: Underlying sales growth is expected to be 5% to 6%, driven by improvements in Test & Measurement and sustained growth in process and hybrid businesses.
Fourth Quarter 2025 Adjusted Segment EBITDA Margin: Projected to be 27%, higher than previously planned due to lower tariff exposure.
Fourth Quarter 2025 Adjusted EPS: Expected to range between $1.58 and $1.62.
Full Year 2025 Underlying Sales Growth: Expected to be approximately 3.5%, with price contributing 2.5 points of growth.
Full Year 2025 Adjusted Segment EBITDA Margin: Increased to approximately 27.5%, with operating leverage of approximately 70%.
Full Year 2025 Adjusted EPS: Increased at the midpoint to approximately $6 per share.
Full Year 2025 Free Cash Flow: Increased to approximately $3.2 billion, resulting in a margin of approximately 18%.
Fiscal 2026 Sales Growth Framework: Strong exit rates for underlying orders are expected to support sales growth within the company's framework.
Regional Growth Expectations: North America, India, and the Middle East and Africa are expected to remain growth drivers, with Europe accelerating due to energy security and modernization projects. China is expected to see slight growth supported by power and marine sectors.
Test & Measurement Growth: Underlying orders growth in Test & Measurement is expected to approach 20% in the fourth quarter, supporting double-digit order rates in discrete businesses.
Process and Hybrid Businesses Growth: Expected to maintain mid-single-digit growth in the fourth quarter, driven by global investment in LNG, power, and life sciences.
Discrete Businesses Growth: Expected to be up double digits in the fourth quarter, supported by recovery in Test & Measurement.
Software and Subscription Growth: Continued double-digit ACV growth is expected for the full year, with AspenTech's digital grid management ACV growing 26% in Q3.
The selected topic was not discussed during the call.
The earnings call indicates strong financial performance with improved margins, optimistic guidance, and double-digit growth in key areas like Test & Measurement and software ACV. Despite some uncertainties in discrete automation and sustainability projects, the company's strategic initiatives, regional growth expectations, and significant share repurchase plans suggest a positive outlook. The Q&A section highlights management's confidence in overcoming challenges, further supporting a positive sentiment.
The earnings call presents a mixed outlook. Basic financial performance shows modest growth, with a 3% sales increase and stable margins despite tariffs. Product development is positive, with AspenTech synergies and new launches like Ovation AI. However, uncertainties in chemical markets and FX impacts on margins raise concerns. Market strategy indicates growth in Test & Measurement and power verticals, yet muted recovery in discrete automation. Shareholder returns are strong with $2.3 billion planned. Overall, the sentiment is balanced, with positive elements countered by market and margin challenges.
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