Emerson Electric Co. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• 5th Anniversary: Surendralal Karsanbhai noted 5 years as CEO, highlighting the company's transformation into the world's leading automation company aligned with secular drivers like electrification, energy security, etc.
• National Instruments: Celebrated 50th anniversary, with Nigel AI advisor awarded 2025 Product of the Year and next-gen Nigel.ai launched for enhanced AI-enabled test capabilities.
• Q1 Results: Underlying sales were up 2% year over year, adjusted segment EBITDA margin was 27.7%, and adjusted EPS was $1.46. Robust demand was seen in growth verticals such as power, life sciences, and semiconductor.
• Orders and Backlog: Underlying orders were up 9% for Q1, with significant wins in growth verticals like power and LNG. Backlog ended at $7.9 billion, up 9% year over year, and the funnel remained at $11.1 billion.

Segment Performance

• Software and Systems: Underlying sales growth of 3% in Q1, led by Test and Measurement which was up 11%. Margin was 31.3%, an increase of 20 basis points year over year.
• Intelligent Devices: Underlying sales growth of 2%, led by Power, LNG, and North America MRO. Margin was 26.9%, a decrease of 70 basis points year over year.
• Safety and Productivity: Underlying sales up 1%, driven by electrical products. Margin was 20.9%, a decrease of 40 basis points year over year.
• Orders: Q1 underlying orders were up 9%, with Software and Systems up 23% year over year, Test and Measurement up 20%, Ovation business up 74%, and ACB and AspenTech's digital grid management suite up 25% year over year. Backlog ended the quarter at $7.9 billion, up 9% year over year.

Guidance

• Full-Year 2026: Reiterated 5.5% sales growth, 4% underlying sales growth, and adjusted segment EBITDA margin of approximately 28%. Raised adjusted EPS guide to $6.4 to $6.55.
• Q2 Guidance: Expected sales growth of 3%-4% with underlying sales growth of 1%-2%, adjusted segment EBITDA margin of approximately 27%, and adjusted EPS of $1.5 to $1.55. Excluding software contract renewals, growth is expected to be 3%-4% in Q2 and 5% for the full year.

Risks

• Software Contract Renewal Dynamic: Adversely affects GAAP revenues and margins in the first half.
• Geographic Softness: Europe and China have ongoing softness in orders and business activity.
• FX Impact: Affects margins, particularly in segments like Intelligent Devices.
• Memory Chip Inflation: Minimal impact on profitability but watched for availability issues.

Question and Answer

• Q: Break down 9% order growth in Q1 between process and hybrid, and power order trends A: Power orders were driven by modernization of existing facilities and behind-the-meter data centers. Test and measurement orders were up 20%, with broad-based growth in portfolio business, semiconductor, and aerospace/defense.
• Q: Sensor margins down, impact of memory chip inflation A: FX benefits from the prior year were not present, contributing to margin decline, along with mix and geographic factors. Memory chip inflation has minimal impact on profitability but is being watched for availability.
• Q: Order cadence translating to sales and second half support A: Backlog supports second half sales, with balanced backlog across businesses. Trailing twelve-month orders at 6% and backlog at $7.9 billion phase into the second half.
• Q: Margin leverage and risks A: Expect high 30s operating leverage year on year, affected by the software renewal dynamic but confident in back half margins.
• Q: North America order strength and sustainability A: Driven by industrial policy benefiting sectors like electrification, data centers, and near-shoring. High single-digit growth is expected in North America going forward.
• Q: Venezuela opportunity A: Long-established history in Venezuela with a $1 billion installed base. Waiting on national oil law amendments for foreign investment, focusing on power generation first.
• Q: Tariffs mitigation and China green shoots A: Tariffs provide net positive relief vs. plan. China has green shoots in test and measurement, semiconductor, and power generation.