EMR

Leadership and Strategic Change

• Long-serving CTO Peter Zornio will retire on December 31 after 20 years at Emerson, where he led development of the company's industry-leading control systems and software portfolio during its portfolio transformation.
• Huri (Rudy) Sengupta will join as Senior Vice President and Chief Technology and AI Officer effective August 15, coming to Emerson via the NI acquisition. This appointment reinforces Emerson's strategy to lead AI-enabled automation, develop the full technology stack, and help customers achieve large-scale autonomous operations.

Q3 2026 Core Operational Results

• Underlying orders grew 7% year over year, with broad-based growth across all segments, led by software and systems (10% growth). Growth was driven by North America and Asia, with soft demand in Europe and China that showed sequential improvement in the quarter.
• Growth verticals overall delivered 27% underlying sales growth, led by semiconductor (53% growth) and power (37% growth). Underlying sales grew 6% overall, with adjusted segment EBITDA margin expanding 140 basis points to 28.5%, and adjusted EPS growing 13% to $1.71, exceeding the top end of prior guidance.
• Q3 free cash flow was $1.3 billion, up 36% year over year with a 27.1% margin, beating expectations partially due to $82 million in received tariff refunds and a timing shift of tax payments from Q3 to Q4.
• Total project funnel grew $1.2 billion sequentially to $12.4 billion, up 8% year over year, with 80% of Q3 order wins coming from growth verticals. Power accounted for $3 billion of the funnel (up $450 million sequentially), and LNG accounted for $2.2 billion (up $350 million sequentially).

Geographic Performance Notes

• The Americas delivered 8% underlying sales growth, with the U.S. up 10%, driven by strength in software and systems and intelligent devices.
• Asia, Middle East and Africa delivered 8% underlying sales growth, with Middle East and Africa up 11%. The Middle East conflict created a $25 million revenue headwind in Q3, better than prior expectations, with field service operations back to pre-conflict levels but customer operational capacity remaining at ~75%. Large energy security and resiliency projects are moving forward, and the long-term capital outlook remains robust.
• China improved to a 3% year-over-year sales decline, in line with expectations, and Europe declined 1% year over year, as expected.

Emerson raised full-year 2026 guidance reflecting strong Q3 results and healthy demand trends:

• Full-year 2026 overall sales growth guidance is raised to 5%, with underlying sales growth guidance raised to 3.5%. Strong U.S. growth has offset slightly weaker-than-expected China performance, and the Middle East conflict is expected to create a total full-year revenue headwind of approximately 0.5 percentage points, or $100 million.
• Adjusted segment EBITDA margin guidance is maintained at ~28%. Adjusted full-year 2026 EPS guidance is raised to $6.55, and full-year free cash flow guidance is set at ~$3.6 billion.
• By segment: Full-year Software and Systems underlying growth guidance is raised to 6%, with test and measurement guidance raised to 14% and control systems and software guidance raised to 3.5% (including a 3 percentage point headwind from software renewals). 10%+ ACV growth guidance is maintained. Intelligent Devices full-year underlying growth guidance is set at 2%, and Safety and Productivity full-year underlying growth guidance is set at 2%.
• Q4 2026 guidance calls for 5% overall sales growth, an adjusted segment EBITDA margin of 28.5%, and adjusted EPS of ~$1.85. Software and Systems is expected to grow 10% in Q4, with both sub-segments delivering 10% growth.
• Capital return guidance is maintained: Emerson expects to return ~$2.2 billion to shareholders in fiscal 2026, split between $1.2 billion in dividends and $1 billion in share repurchases. As of Q3, $898 million in share repurchases have been completed.

Emerson operates three core business segments, with the following Q3 2026 underlying performance:

1. Software and Systems: Underlying sales grew 11% year over year. Within the segment, test and measurement grew 23% and control systems and software grew 7%. Segment EBITDA margin was 31.8%, a 30 basis point year-over-year decline, driven by a 150 basis point drag from software contract renewal dynamics and a higher mix of lower-margin projects. This segment contributed 36% of total Q3 sales.
2. Intelligent Devices: Underlying sales grew 5% year over year, exceeding expectations, supported by strength in power, LNG, midstream gas, and chemicals, partially offset by ongoing Middle East conflict headwinds. Segment EBITDA margin expanded 240 basis points year over year to 27.9%, driven by volume leverage, favorable price/cost dynamics, and cost reduction initiatives. This segment contributed 41% of total Q3 sales.
3. Safety and Productivity: Underlying sales grew 2% year over year, driven by electrical products and industrial activity in North America, with continued softness in European and automotive markets. Segment EBITDA margin expanded 80 basis points year over year to 21.2%, as disciplined price/cost management and cost reductions offset lower volume and inflationary pressures. This segment contributed 23% of total Q3 sales.

• The ongoing Middle East conflict continues to disrupt operations and supply chains, with customer operational capacity remaining at ~75% and the Strait of Hormuz remaining effectively closed for many shipments. The conflict is expected to create a $25 million revenue headwind in Q4 2026, similar to Q3, and the timing of a return to pre-conflict activity levels remains uncertain. Customers are delaying final investment decisions on large LNG and petrochemical projects until there is greater geopolitical certainty, with no clear timeline for resolution.
• Demand in Europe and China remains soft, creating ongoing headwinds that have only partially offset strong U.S. growth.
• European and automotive markets remain weak for the Safety and Productivity segment, limiting near-term growth for the business.
• Cybersecurity threats to critical infrastructure are increasing, driving customer demand for upgrades but requiring ongoing investment to maintain Emerson's product security standards.

Q: What is driving the standout 53% semiconductor and 37% power growth, and is this from market strength, share gains, or new products?

A: The underlying market for both semiconductors and power is very strong. In power, Emerson is achieving participation gains in generation fleet modernizations, behind-the-meter data center capacity, and digital grid management software. In test and measurement for semiconductors, strong demand for RF and mixed signal testing is paired with share gains from new Emerson products, leading to the strong growth results.

Q: Is the growing $12.4 billion project funnel increasingly made up of long-dated projects, and is the conversion rate from funnel to orders changing?

A: The funnel size has grown mostly from an increase in the number and value of projects, particularly in LNG and power, rather than longer project timelines. The conversion pace remains consistent with historical trends: Emerson won ~$400 million from the funnel in Q3, matching the Q2 pace. The entire funnel represents projects expected to convert to orders within a 3-4 year window, not long-dated 10-year projects.

Q: Ovation power orders are up 31% with extended lead times, reaching into 2027 and 2028. Is the chemical market improving for Emerson?

A: Ovation lead times have indeed extended into the second half of 2027 and early 2028, giving Emerson high forward visibility for the business. The recent positive performance in chemicals was limited to intelligent devices (specifically final control products) in the U.S. and Middle East; chemical markets in China and Europe remain slow, so the overall improvement is narrow rather than a broad sector turning point.

Q: What is the outlook for the Middle East drag, and will it flip to a tailwind in Q1 2027? What is the update on software contract renewal dynamics?

A: The Middle East drag is expected to remain at similar levels in Q4 and may persist into Q1 2027, as Strait of Hormuz shipping challenges remain unresolved. For software, the negative drag from contract renewal dynamics that hit Q3 will reverse in Q4, and full-year ACV growth remains on track to hit 10%+. All software segments (Aspen core, digital grid management, and test and measurement software) are performing to plan, with 28% ACV growth in digital grid management, giving confidence for strong 2027 performance.

Q: For the strong power market, is growth still mostly brownfield, and what is the visibility for test and measurement semiconductor demand into 2027?

A: To date, power growth has been mostly driven by brownfield fleet modernization, but new greenfield capacity (gas-fired generation, behind-the-meter data center projects, and nuclear infrastructure) is starting to contribute to growth, and this will become more visible in results over the next quarters. Emerson does not guide 2027, but order momentum in semiconductor T&M is very strong. Emerson is focused on the validation and production side of semiconductor testing, while most peers focused on the lab side, creating different cycle dynamics, and demand looks robust through 2027 at this point.