Emerson Electric Co. Q4 FY2025 earnings call

• Emerson saw resilient demand with underlying orders growing 6% in Q4, driven by growth verticals and Test & Measurement up 27%.
• Fourth quarter underlying sales up 4%, adjusted segment EBITDA margin 27.5% (up 1.3 points), adjusted EPS $1.62 (top end of guide).
• Full year 2025: underlying sales grew 3%, adjusted EPS $6 (up 9%), free cash flow $3.24 billion (up 12%), software ACV $1.56 billion (up 10%).
• Key wins in Q4: Ovation 4.0 for Entergy and Belgium nuclear plant, automation for Woodside Louisiana LNG project, and life science manufacturing facilities.
• Launched AI-powered applications: Guardian Virtual Adviser and AspenTech's subsurface intelligence.
• Achieved annual records for gross profit margin (52.8%) and adjusted segment EBITDA margin (27.6%), realized $50 million in AspenTech synergies in 2025, plan to reach $100 million run rate synergies by end of 2026.

Emerson's segment performance in Q4 2025: Underlying sales in Q4 were up 4%, with adjusted segment EBITDA margin at 27.5% (up 1.3 points). For the full year 2025, underlying sales grew 3%, adjusted earnings per share was $6 (up 9%), and free cash flow was $3.24 billion (up 12% year-over-year). Software ACV ended the year at $1.56 billion, up 10% year-over-year. By segment: Software and Control grew 5%, Intelligent Devices grew 2%, Process and Hybrid were up 4%, Discrete businesses were up 1% (with automotive and factory automation weakness). MRO represented 65% of sales. Backlog ended at $7.4 billion, up 3% year-over-year.

• Fiscal 2026 guidance: sales growth ~5.5%, underlying sales growth ~4%, adjusted segment EBITDA margin ~28%, adjusted EPS $6.35 to $6.55.
• ACV projected to grow 10%+, plan to return $2.2 billion to shareholders ($1B share repurchase, $1.2B dividends with 5% increase).
• 2026 sales outlook by region: Americas, India, MEA strong; Europe and China muted. Q1 2026 guidance: adjusted EPS ~$1.40, adjusted segment EBITDA margin ~27%.
• Software contract renewals: $120 million headwind in 2026, reversing in 2027-2028. Excluding this, growth rates higher.

• Soft demand in Europe and China impacted full-year 2025 sales.
• Software contract renewal dynamics affecting short-term earnings and margin.
• Macroeconomic uncertainties and potential delays in large projects like hydrogen, clean fuels, carbon capture.

Q: Clarification on software renewal, impact on free cash flow?

A: Michael Baughman explains it's an accounting dynamic, no impact on free cash flow, reverses in 2027-2028.

Q: Orders growth by segment, first quarter outlook?

A: Ram Krishnan talks about process fibrin orders resilient, discrete recovered by Test & Measurement, first quarter expected to sustain momentum.

Q: Trends in Test & Measurement, discrete automation?

A: Surendralal Karsanbhai and Ram Krishnan discuss Test & Measurement growth in aerospace, semiconductor, portfolio; discrete weakness in automotive, factory automation.

Q: Power gen funnel, impact of subsidy changes?

A: Surendralal Karsanbhai says no impact on backlog, adjusted funnel for reduced S&D projects.

Q: Capital allocation, repo vs M&A?

A: Michael Baughman says $1B repo planned, M&A opportunistic with nothing in sight.