Emerson Electric Co. (EMR) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a generally positive outlook, with strong financial performance, optimistic guidance, and strategic growth plans. The company reported a 9% increase in order growth, a robust backlog, and plans for significant shareholder returns. Although there are some concerns, such as margin declines and uncertainties in certain regions, the overall sentiment is positive. The Q&A section further supports this with insights into growth drivers and strategic initiatives. Despite some challenges, the company's strategic initiatives and financial health point towards a positive stock price movement.
Key Financial Performance
Underlying Orders Growth 9% year-over-year growth, driven by robust demand in North America, India, and the Middle East and Africa. Growth was most pronounced in the Software & Systems Group, which was up 23% year-over-year.
Underlying Sales 2% year-over-year growth. Test & Measurement was up 11% year-over-year, and the Ovation business accelerated sharply, up 20%, driven by secular demand for power.
Adjusted Segment EBITA Margin 27.7%, exceeding expectations. Favorable price cost and cost reductions, including synergies, outpaced inflation to benefit margin. Excluding a 70 basis point impact from a software dynamic, adjusted segment EBITA margin was up 40 basis points year-over-year.
Adjusted Earnings Per Share (EPS) $1.46, a 6% increase year-over-year. Excluding a $0.06 impact from software renewals, operations delivered $0.10 of incremental EPS.
Annual Contract Value of Software $1.6 billion, a 9% year-over-year increase, reflecting robust adoption of software.
Free Cash Flow $602 million with a margin of 14%, slightly better than expected, positioning for full-year growth of approximately 10% at greater than 18% margin.
Backlog $7.9 billion, up 9% year-over-year, with a book-to-bill ratio of 1.13.
Software & Systems Margin 31.3%, a 20 basis point increase year-over-year, driven by strong profitability from Test & Measurement and synergies.
Intelligent Devices Margin 26.9%, a 70 basis point decrease year-over-year, driven primarily by mix and FX headwinds.
Safety & Productivity Margin 20.9%, a 40 basis point decrease year-over-year, due to lower volume, offset by benefits from price and cost reductions.
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Operating Highlights
Nigel AI: Recognized as a 2025 Product of the Year by Electronic Product Design & Test. Upgraded to move from an AI Assistant to an AI Author, accelerating co-development and making engineering workflows more efficient.
DeltaV v16: Advances software-defined automation vision, enabling smarter decisions through improved access and context to operational data for advanced analytics and AI optimization.
Geographic Expansion: Robust demand in North America, India, and the Middle East and Africa. Ongoing softness in Europe and China.
Growth Verticals: Orders growth driven by power, LNG, and life sciences. Significant wins in automation content for power and LNG projects.
Financial Performance: Q1 adjusted segment EBITA margin of 27.7%, adjusted EPS of $1.46, and free cash flow of $602 million. Reiterated full-year guidance with expected adjusted EPS of $6.40 to $6.55.
Operational Excellence: Plans to expand adjusted segment EBITA margins by 240 basis points by 2028. Focus on cost reductions and synergies.
Value Creation Framework: Guides operations with a focus on organic growth, innovation, and shareholder returns. Plans to return $10 billion to shareholders through share repurchases and dividends by 2028.
Strategic Collaborations: Collaboration with Roche to improve technology transfer in life sciences and with Prevalon Energy to enhance energy storage solutions for data centers.
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Risk or Challenges
Market Conditions: Ongoing softness in Europe and China, which could impact sales and growth in these regions.
Regulatory Hurdles: No explicit mention of regulatory hurdles in the transcript.
Supply Chain Disruptions: No explicit mention of supply chain disruptions in the transcript.
Economic Uncertainties: Weakness in European and Chinese markets, which may be tied to broader economic challenges.
Strategic Execution Risks: Adverse impact of software contract renewal dynamics on financial results, including a 1 percentage point drag on Q1 year-over-year sales growth and a 70 basis point impact on adjusted segment EBITA margin.
Competitive Pressures: No explicit mention of competitive pressures in the transcript.
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Guidance & Outlook
Revenue Growth: Emerson expects 2026 sales growth of approximately 4%, with underlying sales growth of 5% excluding the software contract renewal dynamic. Second-half growth is projected to accelerate to approximately 6%, supported by strong orders momentum and backlog phasing.
Adjusted EPS: The company has raised its 2026 adjusted EPS guidance to $6.40 to $6.55, reflecting strong Q1 performance and operational execution.
Adjusted Segment EBITA Margin: Emerson anticipates an adjusted segment EBITA margin of approximately 28% for 2026, with a 240 basis point expansion targeted by 2028.
Capital Return: The company plans to return approximately $2.2 billion to shareholders in 2026, including $1.2 billion in dividends and $1 billion in share repurchases.
Software Growth: Annual contract value (ACV) of software is expected to grow by 10% or more in 2026, with robust adoption of software solutions.
Regional Performance: Growth is expected to be driven by North America, India, and the Middle East and Africa, while Europe and China are anticipated to remain soft.
Business Segment Performance: Test & Measurement is projected to achieve high single-digit growth in 2026, while Intelligent Devices and Safety & Productivity are expected to grow by 4% and 2%-3%, respectively.
Market Trends: Secular tailwinds such as electrification, energy security, and near-shoring are expected to drive growth over the next three years and beyond.
Long-Cycle Projects: Substantial activity in long-cycle projects is anticipated, with a backlog of $7.9 billion supporting sales into 2027.
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Shareholder Return Plan
Dividend Payout: Emerson plans to return $4 billion to shareholders through dividend payouts as part of their shareholder return plan.
Dividend Guidance for 2026: Emerson expects to distribute $1.2 billion in dividends in 2026.
Share Repurchase Program: Emerson plans to repurchase $6 billion worth of shares as part of their shareholder return plan.
Share Repurchase in Q1 2026: Emerson completed $250 million of share repurchases in the first quarter of 2026.
Total Capital Return Plan for 2026: Emerson aims to return approximately $2.2 billion to shareholders in 2026, including $1 billion in share repurchases.
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Key Q&A
Q:Can you break down the 9% order growth in Q1 between process and hybrid, and discuss the potential for extended runway in power?
A:The 9% order growth in Q1 was driven by modernization upgrades of existing facilities and behind-the-meter power generated capacity at data centers. Test & Measurement orders were up 20%, with semiconductor and ADG up 20-30%. North America saw 18% growth, driven by power, LNG, and T&M markets. India was up 22%, while Europe and China were down. $432 million in wins came from 70 projects, with 1/3 in power and others in LNG, semiconductor, life science, and ADG.
Q:Why could AI be complementary to growth in ACV and margin in your software businesses?
A:AI is seen as complementary because the company's software offerings are built on first principle models with domain knowledge. AI capabilities, such as Nigel AI, are expected to accelerate growth in software offerings like Ovation, DeltaV, and NI suite.
Q:Are some of the orders in LNG and power pushing beyond this year into a multiyear basis?
A:Yes, orders in LNG and power are extending into the back half of 2026 and into 2027. Test & Measurement business has more short-cycle activity, particularly in semiconductor and portfolio business.
Q:What caused the 200 basis points year-over-year margin decline in the Sensors business?
A:The margin decline was due to FX benefits in the prior year, geographic mix, and project-based activity in Europe. DRAM inflation had minimal impact, with less than $1 million exposure in Sensors.
Q:How should we think about the cadence of orders translating into sales and supporting full-year guidance?
A:The backlog of $7.9 billion, up 9%, supports mid-single-digit growth in the second half. Growth is balanced across control systems, software, Final Control, and sensors businesses.
Q:What caused the sequential margin drop from Q1 to Q2 despite higher revenues?
A:The drop was due to software renewal dynamics and unfavorable mix. The Total deal in Q1 also contributed to the sequential margin difference.
Q:Do you see stabilization in weak verticals like chemicals and automotive?
A:No, activity in chemicals remains flat in Europe and China, with no recovery seen. Automotive remains soft in both regions.
Q:Was the 9% order growth in Q1 a surprise, and why was the organic sales guide not changed?
A:The 9% growth was slightly higher than expected due to some Q2 projects moving to Q1. The mid-single-digit growth aligns with expectations for the first half, providing momentum for the second half.
Q:What is the expected pricing impact for the second half of the year?
A:Pricing is expected to be approximately 2% in the second half, contributing to about 2.5% for the full year.
Q:What drove the 18% North America order growth, and is it sustainable?
A:Growth was driven by LNG, power, semiconductors, aerospace, and life sciences, with strong MRO activity. High single-digit growth is expected for the full year.
Q:What is the opportunity in Venezuela, and how is the company preparing?
A:The company has a $1 billion installed base in Venezuela and plans to re-enter when conditions allow. Challenges include lack of talent, security, and investment capability.
Q:What is the latest update on tariffs and their impact?
A:Tariff relief is expected, with a net positive impact for the year. Approximately $130 million in tariffs were built into the plan, but relief is being seen.
Q:What are the green shoots in China, and what is the overall outlook?
A:Green shoots include Test & Measurement and power generation, particularly in data centers and AI infrastructure. However, overall activity is expected to be down low single digits for the year.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the sustainability of the 18% North America order growth rate, only stating that high single-digit growth is expected for the full year. Additionally, while they acknowledged challenges in Venezuela, they did not provide specific timelines or detailed plans for re-entry.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI test
America India
DeltaV
Director Investor
EBITA margin
Emerson Conference
Emerson automation
India Middle
Industrial
IoT
LabVIEW
NI
Orders
Product
Slide
Test
Texas
Today Emerson
afternoon
anniversary
center
class
collaboration
creation framework
cycle project
design
development
engineering workflow
excellence
future
lab
meter
production
reliability
segment EBITA
task
technology stack
test automation
validation
vertical
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Frequently Asked Questions
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