EMERSON ELECTRIC CO Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• Announced a proposal to acquire the remaining shares of AspenTech at $240 per share in cash, aligning with the original transaction's EBITDA multiple.
• Initiated a process to explore strategic alternatives, including a cash sale, for the Safety & Productivity business, which is ~8% of 2024 revenue.
• Plan to repurchase approximately $2 billion of common stock in fiscal 2025, with $1 billion expected by the end of the fiscal first quarter.
• 2024 financial results: Underlying sales grew 6%, operating leverage was 47%, adjusted EPS was $5.49, and free cash flow was $2.9 billion.
• Large project funnel ended 2024 at $11.2 billion, an increase of ~$200 million from Q3, driven by LNG, life sciences, and sustainability/decarbonization.

Segment Performance: AspenTech delivered $1.1 billion in revenue and $941 million in ACV in 2024. The Safety & Productivity business constitutes approximately 8% of 2024 revenue. Emerson's Automation Solutions and other segments showed varied performances: underlying sales grew 6%, with process and hybrid businesses up mid-single digits; discrete Automation orders were down mid-single digits in 2024 but turned positive in Q4; Test & Measurement contributed $1.46 billion to net sales, a 12% decline for the year.

Guidance:

• Anticipate process and hybrid markets to be resilient with moderating growth, discrete markets to turn positive, and mid-single-digit sales growth in 2025.
• Expect growth in all world areas, with Middle East and Africa, India, Southeast Asia, and Mexico leading due to energy and energy transition projects.
• Plan to repurchase approximately $2 billion of common stock in fiscal 2025, with $1 billion expected by the end of the fiscal first quarter.
• Project adjusted earnings per share for 2025 to be between $5.85 and $6.05, and full-year free cash flow to range from $3.2 billion to $3.3 billion.

Risks:

• Uncertainty regarding the completion of the AspenTech acquisition, including potential challenges in reaching a definitive agreement with AspenTech's special committee.
• Risks associated with the strategic review of the Safety & Productivity business, such as no assurance of completing a transaction or the timing of any potential sale.
• Market risks affecting discrete automation and Test & Measurement, including continued weakness in automotive markets, particularly EV, and potential delays in customer project approvals.

Q: Andy Kaplowitz from Citigroup asked about Emerson's overall book-to-bill for '25 and reacceleration in process and hybrid markets.

A: Lal Karsanbhai responded that backlog is healthy and well-positioned, with strong activity in sustainability, decarbonization, life sciences, and power generation.

Q: Deane Dray from RBC Capital Markets inquired about customer delays and China's second half recovery.

A: Ram Krishnan stated there were no customer delays and mentioned green shoots in China's chemical space and discrete recovery in the second half of 2025.

Q: Nigel Coe from Wolfe Research asked about discrete trends and EPS neutrality from Aspen.

A: Lal Karsanbhai and Ram Krishnan discussed discrete recovery, and Mike Baughman spoke about seasonality and modeling for Aspen's neutral impact.

Q: Steve Tusa from JPMorgan asked about backlog details and T&M backlog.

A: Mike Baughman responded that backlog was year-over-year and T&M backlog was $400 million.

Q: Andrew Obin from Bank of America asked about power growth and nuclear exposure.

A: Lal Karsanbhai and Ram Krishnan talked about power generation growth, nuclear exposure, and presence in nuclear facilities.

Q: Jeff Sprague from Vertical Research asked about Aspen timing and Safety & Productivity.

A: Mike Baughman and Lal Karsanbhai discussed Aspen timing neutrality and Safety & Productivity exploration.

Q: Joe O’Dea from Wells Fargo asked about software-defined automation timeline.

A: Lal Karsanbhai and Ram Krishnan explained the three-phase approach of software-defined automation from foundational to enterprise level.

Q: Julian Mitchell from Barclays asked about Test & Measurement synergies and Aspen synergy details.

A: Lal Karsanbhai discussed Test & Measurement synergies and mentioned no specific Aspen synergy details until a definitive agreement.