Emerson Electric Co. Q3 FY2025 earnings call

• Emerson hosted approximately 3,000 attendees from 51 countries at Emerson Exchange in May, showcasing innovation. - A strategic collaboration with TotalEnergies was announced, involving the deployment of an industrial data fabric. - The Ovation AI-enabled Virtual Adviser was released, driving strong traction with over 80% of upcoming modernization projects involving Ovation 4.0. - Nigel AI adviser was unveiled in LabVIEW test software to aid engineers in test and measurement. - Investments in automation drive resilient demand in process and hybrid markets; discrete recovery in test and measurement is underway with strong regional performance. - The tariff environment improved, reducing the annualized gross incremental tariff impact to approximately $210 million.

Emerson's Industrial Software ACV grew double digits over the prior year, ending the quarter at $1.5 billion. Underlying orders in Industrial Software were led by Test & Measurement, which saw a 16% increase, while process and hybrid businesses experienced mid-single-digit growth. MRO remained strong, accounting for 62% of sales. The discrete market showed recovery, particularly in test and measurement, with strong regions including North America, India, and the Middle East and Africa.

• Fourth quarter underlying sales growth is expected to be 5% to 6%, supported by acceleration in Test & Measurement and sustained business in process and hybrid markets. - Adjusted segment EBITDA is expected to be approximately 27%, up 80 basis points year-over-year. - For full year 2025, underlying sales are expected to be up approximately 3.5%, adjusted segment EBITDA margin is increased to approximately 27.5%, adjusted EPS is midpointed to approximately $6 per share, and free cash flow is expected to be approximately $3.2 billion.

• The tariff environment remains dynamic, which could impact margins. - FX fluctuations may affect segment EBITDA margins. - There could be potential project pushouts or cancellations in certain markets, such as chemicals in Europe and China.

Q: Jeff Sprague asked about margins and Intelligent Devices, specifically tariff and FX impact.

A: Surendralal Lanca Karsanbhai explained that tariffs impacted Intelligent Devices and there was an unexpected FX headwind, while Ram Krishnan added on broad-based recovery in Test & Measurement across segments and regions.

Q: Steve Tusa asked about order trends in May and June.

A: Surendralal Lanca Karsanbhai discussed order timing fluctuations and consistent MRO bookings throughout the quarter.

Q: Andy Kaplowitz asked about core process and hybrid markets and Test & Measurement commercialization.

A: Surendralal Lanca Karsanbhai and Ram Krishnan talked about drivers in process/hybrid markets and broad-based recovery in Test & Measurement with new products being introduced.

Q: Scott Davis asked about Ovation orders, profitability, etc.

A: Surendralal Lanca Karsanbhai and Ram Krishnan explained Ovation order components (greenfield, modernization, MRO) and profitability in install and aftermarket revenue streams.

Q: Joe O'Dea asked about Control Systems and Software growth and discrete business.

A: Michael J. Baughman and Ram Krishnan discussed Aspen growth, lumpiness in systems/software revenue, and contrasts between discrete business segments.

Q: Andrew Obin asked about power vertical growth sustainability.

A: Surendralal Lanca Karsanbhai and Ram Krishnan expressed optimism about high teens growth over the next 24 months due to strong customer investment and market visibility.

Q: Nigel Coe asked about order pushouts and FX impact.

A: Michael J. Baughman stated FX would not impact Q4 margins, and Ram Krishnan discussed discrete market inflections and recovery dynamics.

Q: Deane Dray asked about Ovation AI status and rollout.

A: Surendralal Lanca Karsanbhai confirmed Ovation Virtual Adviser is launched and in use with positive customer adoption.

Q: Nicole DeBlase asked about 4Q margin outlook and order guidance.

A: Ram Krishnan explained tariff-related pricing favorability in Q4 contributing to margin stability and order mix supporting 5%-7% growth.