EMERSON ELECTRIC CO Q1 FY2025 earnings call

• Lal Karsanbhai discussed the grand opening of Emerson's new global headquarters in St. Louis. • Q1 performance was strong with healthy market fundamentals, sequential orders improvement in discrete businesses (though softer than expected), 10% growth in ACV for software solutions, and record gross profit and adjusted segment EBITDA margins. • Announced acquisition of AspenTech, with the strategic alternatives process for safety and productivity ongoing. • Addressed tariffs, stating minimal impact from China and Canada, with preparedness for Mexico. • Highlighted recent awards for DeltaV business, LNG project opportunities, and power business growth. • Project funnel at $11.2 billion excluding semiconductors, with strong growth in verticals like Life Sciences, LNG, etc.

Underlying sales growth was 2% led by process and hybrid businesses up ~5%, while discrete businesses were down ~4%. MRO represented 64% of sales. Gross profit margin was a record 53.5%. Adjusted segment EBITDA margin improved 340 basis points to 28%. Growth platforms were collectively up mid-single digits, led by industrial software, energy transition (including LNG and Life Sciences).

• Reiterated 2025 guidance for underlying sales, adjusted EPS, and free cash flow. • Lowered discrete businesses outlook to low single digits, but expect recovery in second half. • Increased operating leverage expectation to the 70s from mid-40s. • Reiterated free cash flow guidance of $3.2 billion to $3.3 billion. • FX headwind of ~$350 million led to lowering GAAP net sales guidance, but held adjusted EPS guidance of $5.85 to $6.05. • Expect underlying sales to be up 1%-2% in Q2 with unfavorable FX impact.

• Tariffs in Mexico: Exposure exists with preparedness to implement price and surcharges. • Geopolitical and macroeconomic uncertainties impacting business operations and project timelines.

Q: Jeff Sprague asked about Mexico's exposure and distinction between discrete businesses.

A: Lal Karsanbhai stated comfort with Mexico exposure and preparedness, and Jeff Sprague's question on discrete businesses was addressed with reference to end markets.

Q: Steve Tusa asked about forex impact on EPS and raw material deflation.

A: Mike Baughman explained forex benefit from non-functional balance sheet pieces, and Ram Krishnan said price, favorable net material inflation, mix, and Aspen contribution drove margin strength.

Q: Andy Kaplowitz asked about project funnel growth and China.

A: Lal Karsanbhai discussed continued investment in energy security, affordability, and decarbonization, and Ram Krishnan mentioned China's muted demand but potential second half growth.

Q: Joe O'Dea asked about margins and portfolio transformation.

A: Mike Baughman talked about cost reduction and mix driving margins, and Lal Karsanbhai discussed disciplined M&A for bolt-ons post-portfolio transformation.

Q: Nigel Coe asked about discrete orders inflection and LNG win rates.

A: Ram Krishnan noted sequential orders growth in discrete and green shoots in semiconductors and North America, and Lal Karsanbhai discussed LNG win rates and global positioning.

Q: Brett Linzey asked about orders and book-to-bill.

A: Lal Karsanbhai didn't comment on orders, but said book-to-bill was >1 in Q1.

Q: Deane Dray asked about January and mega projects.

A: Lal Karsanbhai didn't comment on January, and Ram Krishnan discussed project conversion timelines.

Q: Saree Boroditsky asked about margin drivers and factory automation.

A: Mike Baughman and Lal Karsanbhai talked about cost reduction continuation and factory automation market trends.

Q: Christopher Glynn asked about control system competitive conversions and segment profitability.

A: Lal Karsanbhai and Mike Baughman discussed control system win rates and profitability of segments like Measurement & Analytical and Control Systems & Software.