EMR
Earnings call · Jun 2025 (Q3 FY25)

EMERSON ELECTRIC Q3 FY25 earnings call EMR

Aug 6, 2025 Source

Executive summary

Emerson Electric Co. Q3 FY25 — Strong Order Growth and AI Innovation Drive Performance

Emerson delivered strong Q3 FY25 results, driven by robust order growth across Test & Measurement and process/hybrid markets, alongside significant AI-driven software innovations. Despite underlying sales falling short due to tariff-related pricing adjustments, the company achieved excellent profitability and better-than-expected free cash flow, setting a positive trajectory for the remainder of the fiscal year.

Highlights

5

  • Adjusted EPS of $1.52 met the top end of guidance.

  • Free cash flow generation of $970 million, resulting in a 21.3% margin, exceeded expectations.

  • Underlying orders grew 4%, led by Test & Measurement up 16% and process/hybrid businesses up mid-single digits.

  • Industrial software ACV grew double digits over the prior year, ending the quarter at $1.5 billion.

  • Backlog increased to $7.6 billion, with a book-to-bill ratio of 1.0.

Concerns

4

  • Underlying sales growth of 3% fell short of guidance, driven primarily by easing surcharges due to an improved tariff environment.

  • Adjusted segment EBITDA margin was negatively impacted by 40 basis points due to tariffs, primarily affecting Intelligent Devices.

  • Europe's underlying sales were down 7% year-over-year.

  • FX and pension headwinds collectively reduced adjusted EPS by $0.04.

Guidance & targets

CategoryTargetConfidence
Q4 FY25 Underlying sales growth
5% to 6%
high materiality
High
Q4 FY25 Adjusted segment EBITDA margin
approximately 27%
high materiality
High
Q4 FY25 Adjusted EPS
$1.58 to $1.62
high materiality
High
Full-year FY25 Underlying sales
approximately 3.5%
high materiality
High
Full-year FY25 Price contribution to growth
approximately 2.5 points
medium materiality
High
Full-year FY25 Adjusted segment EBITDA margin
approximately 27.5%
high materiality
High
Full-year FY25 Adjusted EPS
approximately $6 per share
high materiality
High
Full-year FY25 Free cash flow
approximately $3.2 billion
high materiality
High
Full-year FY25 Free cash flow margin
approximately 18%
high materiality
High
Full-year FY25 Industrial software ACV growth
double-digit
medium materiality
High
Q4 FY25 Test & Measurement underlying orders growth
approach 20%
medium materiality
High
Exit FY25 underlying orders growth
between 5% and 7%
high materiality
High
Power vertical growth rate
high teens
high materiality
High
FY26 Process segment ACV growth
high single-digit growth into double digits
medium materiality
High
FY26 Process segment underlying growth
mid-single digits
medium materiality
High
Q4 FY25 Process and hybrid businesses underlying sales growth
mid-single digits
medium materiality
High
Q4 FY25 Discrete businesses underlying sales growth
double digits
medium materiality
High
Q4 FY25 Test & Measurement underlying sales growth
high teens
medium materiality
High
Q4 FY25 Europe underlying sales growth
accelerate
low materiality
Medium
Q4 FY25 China underlying sales growth
up slightly
low materiality
Medium
Ovation business underlying orders growth
up over 20%
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Software and Control
Strong profit contributions, including synergy realization at AspenTech.
AspenTech synergy realization: positive contribution
—2%——
Intelligent Devices
Adjusted segment EBITDA margin met expectations but was negatively impacted by tariffs and unexpected FX on balance sheet exposures. Excluding these, margin would be up 20 bps.
Adjusted EBITDA margin: 24.4%Adjusted EBITDA margin YoY change: -1.1 ptsTariff impact on EBITDA margin: -40 bpsFX impact on EBITDA margin: negative (unquantified)
—3%—24.4%
Process and Hybrid businesses
Resilient underlying sales growth. Expected to maintain similar order growth in Q4.
Underlying orders growth: mid-single digits
—3.5%——
Discrete businesses
Collectively turned positive year-over-year, led by Test & Measurement. Expected to be up double digits in Q4.
Underlying orders growth: 6%
—2%——
Americas
Broad-based strength in MRO and greenfield projects. Expected to continue.
—7%——
Asia and Middle East and Africa
Robust investment expected to continue.
—2%——
Europe
Expected to see growth accelerate in Q4, led by energy security and modernization projects, coupled with recovery in discrete markets.
—-7%——

Operational metrics

Underlying sales growth
3%
Q3 FY25

Fell short of guidance due to easing surcharges.

Price contribution to sales growth
2.5 points
Q3 FY25

Less than previously expected due to easing some surcharges.

Adjusted segment EBITDA margin
27.1%
Q3 FY25

Met expectations, negatively impacted by 40 basis points due to tariffs.

Operating leverage
25%
Q3 FY25

Excluding the impact of tariffs, operating leverage was 38%.

Adjusted EPS
$1.52 up 6% YoY
Q3 FY25

Met the top end of guidance.

Adjusted EPS
$4.38 up 9% YoY
YTD FY25

Strong operational performance contributed an incremental $0.45.

Free cash flow margin
21.3%
Q3 FY25

Better-than-expected.

Free cash flow margin
18%
YTD FY25

Year-to-date.

Operations contribution to Adjusted EPS
$0.09 vs prior year
Q3 FY25

Added to adjusted EPS.

Software and Control contribution to Adjusted EPS
$0.06
Q3 FY25

Added to adjusted EPS.

Intelligent Devices contribution to Adjusted EPS
$0.03
Q3 FY25

Added to adjusted EPS.

AspenTech buy-in impact on Adjusted EPS
slightly accretive
Q3 FY25

Driven by synergy realization.

FX headwind on Adjusted EPS
$0.02
Q3 FY25

Headwind from FX.

Pension headwind on Adjusted EPS
$0.02
Q3 FY25

Headwind from pension.

Industrial software ACV
$1.5 billion double digits YoY growth
Q3 FY25 end

Ended the quarter at this value, grew double digits over the prior year.

Underlying orders growth
4%
Q3 FY25

Led by Test & Measurement, up 16%.

Test & Measurement underlying orders growth
16%
Q3 FY25

Led overall underlying orders growth.

Process and hybrid underlying orders growth
mid-single digits
Q3 FY25

Maintained similar growth in Q4.

MRO as % of sales
62%
Q3 FY25

Remained strong, with software and cybersecurity upgrades driving increased activity in long-term service agreements.

Gross incremental tariff impact (annualized)
approximately $210 million down from $455 million
Annualized

Current estimate, reflecting recent announcements and improved tariff environment.

Gross tariff impact
$130 million versus prior estimate of $245 million
FY25

Current estimate for the fiscal year.

Price actions
approximately $115 million 0.5 point reduction vs prior guide
FY25

Implemented to offset tariff exposure, equates to 50 basis points of incremental price.

Ovation business underlying orders growth
40%
Q3 FY25

Driven by robust activity in power, expected to end the year up over 20%.

Discrete businesses underlying orders growth
6%
Q3 FY25

Led by Test & Measurement.

Trailing 3-month underlying orders growth
6%
July (start of Q4 FY25)

Strong start to the fourth quarter.

AspenTech Digital Grid Management ACV growth
26%
Q3 FY25

Strong momentum across North America and Europe.

Project funnel
$11.2 billion
Current

New investments continue to replenish projects booked from this funnel.

Project wins from funnel
$350 million to $400 million
per quarter

Consistent with prior quarters.

Industry KPIs

MetricValueDetails
Book to bill ratio1.0
Orders bookings growth4% %
M a acquisition contributionslightly accretive
Backlog by segment end market$7.6 billion USD
Data center exposure pipeline26% %
Incremental flow through margin25% %

Orderbook & backlog

Total backlog $7.6 billion Q3 FY25 end
Book-to-bill ratio 1.0 Q3 FY25
Backlog sequential change (Process and Hybrid) up 2% Q3 FY25

sequential

Backlog sequential change (Discrete) up 2% Q3 FY25

sequential

Product announcements

ProductTypeDetails
Enterprise Operations Platform (with industrial data fabric)launch
Ovation AI-enabled Virtual Adviserlaunch
Nigel AI adviserlaunch

Deals & partnerships

TotalEnergies Strategic collaboration for enterprise operations platform deployment building on nearly 30-year relationship

Strategic collaboration to deploy Emerson's industrial data fabric to continuously collect, store, and contextualize real-time data from TotalEnergies facilities, providing secure and unified access. Includes Emerson's advanced process control solutions.

Entergy Automation of power generation at greenfield combined cycle power plants

Ovation AI-enabled Virtual Adviser selected by Entergy to automate power generation at two greenfield combined cycle power plants (2x 754-megawatt facilities) in Texas and Mississippi. Emerson was chosen for its leading technology, local presence, and enterprise scalability.

Risks & headwinds

Dynamic tariff environment FY25

Annualized gross incremental tariff impact now approximately $210 million (down from $455 million). FY25 gross tariff impact $130 million (versus prior estimate of $245 million).

Mitigation:Eased surcharges, implemented price actions and supply chain mitigations to completely offset the impact of this exposure.

FX impact on Intelligent Devices segment margin Q3 FY25

Negatively impacted Q3 EBITDA margin by 40 basis points (part of 1.1 pt decline).

Mitigation:Not planning for this FX pinch on margins in the fourth quarter.

Weakness in bulk chemical markets Ongoing

Negatively impacted (unquantified).

Mitigation:Offset by strong performance in specialty chemicals and other growth verticals like LNG, power, and life sciences.

Europe sales decline Q3 FY25

Underlying sales down 7% YoY.

Mitigation:Expect growth to accelerate in Q4 led by energy security and modernization projects, coupled with recovery in discrete markets.

What to watch in Q4 FY25

Test & Measurement underlying orders growth

Q4 FY25
Current 16% (Q3 FY25)
Target Approach 20%

Why it matters

This metric is a key driver of the discrete recovery and overall order momentum, indicating the health of diversified industrial end markets.

we expect underlying orders growth in test and measurement to approach 20% in the fourth quarter, supporting double-digit order rates in our discrete businesses as we exit the year.

Q&A highlights

Clarification on sequential dollar profit decline in Intelligent Devices despite sales increase, given tariff math, and if Q3 was technically behind on price/cost relative to tariffs.

Intelligent Devices' adjusted EBITDA margin decline was due to a meaningful impact from tariffs and an unexpected impact from FX on balance sheet exposures. Excluding these, the margin would have been up 20 basis points. Tariffs primarily affected this segment.

“The Intelligent Devices, you're right, 24.4% and 25% with the adjusted EBITDA margin down about 1.1 points. And there was a meaningful impact of tariffs, which we expected, but there was also a meaningful impact with FX included in there that really wasn't expected that drove that down. When you take those 2 out, it's up 20 basis points.”

asked by Jeff Sprague · answered by Surendralal Karsanbhai

2 min read 5 chapters

Detailed narrative

Innovation in Industrial Software and AI

Emerson is accelerating innovation to lead the future of automation, showcasing three key product developments. A strategic collaboration with TotalEnergies will deploy Emerson's industrial data fabric to collect, store, and contextualize real-time data, enabling AI implementation. The Ovation AI-enabled Virtual Adviser, integrated into Ovation 4.0, has been launched for power generation, driving strong traction with over 80% of upcoming modernization projects. Additionally, the Nigel AI adviser has been unveiled for the LabVIEW portfolio, integrating AI technology into test software to aid engineers.

Market Dynamics and Regional Performance

Investments in automation continue to drive resilient demand in Emerson's process and hybrid markets, while discrete recovery progressed, particularly in test and measurement. North America, India, and the Middle East and Africa remain strong growth drivers, with sustained investment across LNG, power, and life sciences. Europe experienced a 7% decline in underlying sales but is expected to accelerate with energy security projects and discrete market recovery. China is anticipated to be up slightly, supported by power, marine, and improving Test & Measurement fundamentals.

Tariff Environment and Pricing Strategy

The tariff environment remained dynamic, with Emerson's annualized gross incremental tariff impact now estimated at approximately $210 million, down from a prior estimate of $455 million. For fiscal year 2025, the gross tariff impact is expected to be $130 million, reduced from $245 million. Due to improved conditions, Emerson eased surcharges, resulting in a 0.5 point reduction in price contribution versus prior guidance, now expected at 2.5 points for the full year. All price actions and supply chain mitigations are in place to offset this exposure.

Power Vertical Growth and Project Funnel

The power vertical is experiencing significant momentum, with underlying orders in the Ovation business up 40% in Q3 and expected to end the year up over 20%. This growth is driven by the secular need for energy security, increasing electricity demand, and greenfield projects like Entergy's new combined cycle power plants. The capital cycle remains constructive, with a project funnel of $11.2 billion consistently yielding $350 million to $400 million in project wins per quarter, indicating sustained investment across generation and transmission/distribution.

Test & Measurement Recovery and Self-Help Initiatives

Test & Measurement saw a broad-based recovery across all segments and world areas, with underlying orders up 16% in Q3 and expected to approach 20% in Q4. This recovery is fueled by market improvements in aerospace defense, semiconductor, and automotive, but also by Emerson's self-help initiatives. These include a reset of commercial focus, new product introductions like the LabVIEW AI adviser, and country-specific growth plans, enabling the business to outperform the market.

AI-generated summary of the company's earnings call. Not investment advice.