Emerson Electric Co. Q2 FY2026 earnings call

Highlights include thanking Middle East teams, announcing new board member Jennifer Neustadt, noting end market demand remains strong with underlying orders up 5%, discussing second quarter results including adjusted segment EBITDA margin and earnings per share, detailing project wins in various sectors like power, life sciences, LNG, aerospace, etc., and talking about the impact of the Middle East conflict on sales and operations

Test and measurement continued to exceed expectations, up 12% year-over-year. Our ovation business was up mid-teens. Emerson has a $1.2 billion business in the Middle East representing 7% of sales. Underlying orders grew 5% in the second quarter. Adjusted segment EBITDA margin of 27.6% exceeded expectations. Annual contract value of our software grew 9% year over year and ended the quarter at $1.64 billion

Update full-year guidance to reflect Middle East conflict, now expecting sales growth of 4.5% with underlying growth of 3%, adjusted segment EBITDA margin still expected to be approximately 28%, raising the bottom and midpoint of adjusted EPS guide to $6.45 to $6.55 per share, expecting full-year FX to be a tailwind to sales of approximately 1.5% and gap sales to increase approximately 4.5%, still expect adjusted segment EBITDA margin of approximately 28% and free cash flow of $3.5 to $3.6 billion, expect third quarter sales growth of approximately 5.5% with underlying sales growth of approximately 5%, adjusted segment EBITDA margin of approximately 28% and adjusted EPS of $1.65 to $1.70

Middle East conflict caused one-point impact to underlying sales, disrupted manufacturing and logistics, restricted import of components, affected customer sites and project activity, Strait of Hormuz closure caused significant logistics disruptions

Q: Scott Davis from Mellius Research asked about Middle East revenue impact and China weakness.

A: Scott was informed about Middle East disruption with expected rebuild opportunity, China weak due to chemical industry overcapacity; Q: Andrew Obin from Bank of America asked about rebuild value and downstream CapEx.

A: Rebuild value assessed at $100 million, downstream CapEx and chemical capacity location may change with pipeline activity in Middle East; Q: Andy Kaplowitz from Citigroup asked about near-term demand and order growth.

A: Near-term demand strong outside Middle East with growth verticals driving orders, mid-single-digit order growth sustainable; Q: Julian Mitchell from Barclays asked about guidance and mix.

A: Margin not fundamentally changed, mix will improve with back half growth; Q: Jeff Spray from Vertical Research asked about second-order impacts and test and measurement.

A: Second-order impacts accounted for, test and measurement momentum led by semis and aerospace; Q: Dean Dre from RBC Capital Markets asked about power and MRO.

A: Power visibility good with greenfield and behind-the-meter activity, MRO not seen delayed; Q: Andrew Biscaglia from BNP Paribas asked about AI and software.

A: AI and software have customer interest but early for revenue impact; Q: Joe O'Day from Wells Fargo asked about projects and intelligent devices margin.

A: Projects consistent in growth verticals, intelligent devices margin impacted by price cost and cost reductions; Q: Alexander Virgo from Evercore asked about free cash flow and intelligent devices growth.

A: Free cash flow affected by prior year items, intelligent devices weakness in China and Europe