Emerson (EMR) Q3 FY26 earnings call: guidance and Q&A

What drove the exceptional growth in semiconductor (53%) and power (37%)? Was it market strength, share gains, or new products?

Management confirmed strong underlying markets in both sectors. In power, they are seeing significant participation gains through fleet modernizations, behind-the-meter opportunities (data centers), and AspenTech's digital grid management. In test and measurement, new products contributed to participation gains in a strong RF and mixed signal market.

“Certainly, the underlying market in both semis and power, as you know, is very, very strong. But I will contend that certainly in power, both on the generation side with Ovation with fleet modernizations but also behind-the-meter opportunities driven by data centers and new capacity adds in North America there is significant penetration gains or participation gains we're driving.”

asked by Deane Dray · answered by Ram Krishnan

Given recent cyberattacks in the water sector, how does Emerson view cybersecurity as a future investment opportunity, and what is its role in critical infrastructure?

Lal Karsanbhai clarified that none of the impacted water facilities had Emerson control systems. He emphasized that cybersecurity spend is a significant driver for upgrades in control systems for power generation and water systems, and the company feels good about its offerings and standards in this important business area.

“Secondly, cybersecurity spend has been a significant driver of upgrades in control systems, both in power generation and in water systems. And we continue to see that Deane as a significant driver on a forward basis, particularly with these attacks and other vulnerabilities that are in light.”

asked by Deane Dray · answered by Surendralal Karsanbhai

Is the project funnel becoming increasingly long-dated, or is the conversion of funnel to order changing?

Lal Karsanbhai stated that the timing of financing and awards remains relatively consistent. The significant change is a very large increase in the number and value of projects, particularly in LNG and power, with the funnel representing a 3- to 4-year view, actively worked in the quarter.

“What we're seeing is just a very significant increase in the number of projects and the value of projects, particularly well, I'd suggest across all the growth verticals, but certainly in liquefied natural gas, which was up 19% and in power.”

asked by Jeffrey Sprague · answered by Surendralal Karsanbhai

What is the current status of price-cost, and were there any tariff refunds in the quarter or expected in Q4?

Mike Baughman confirmed price-cost remains 'green' with 3% price contribution in Q3, expecting 2.5-3% for the full year. He reported $82 million in tariff refunds received in Q3, accounted for on a cash basis in cost of sales, which improved GAAP margins. Ram Krishnan added that the net benefit from tariffs was largely offset by other inflation.

“Price cost certainly remains green for us. And if we look to the full year, we were tracking to about 2.5% price for the year. That's still the case, might catch around and be a 3%, but we continue to see good price and managing the inflation, which we certainly have seen, I think as we head into the fourth quarter here, we will be lapsing all of the tariff pricing.”

asked by Jeffrey Sprague · answered by Michael Baughman

Given the 31% growth in Ovation orders, what are the current lead times for these orders?

Lal Karsanbhai stated that lead times for Ovation orders extend into the fourth quarter of 2027 and are reaching into 2028, indicating high visibility.

“That's exactly right, Scott. We're sitting in the fourth quarter of '27 reaching into '28 at this point.”

asked by Scott Davis · answered by Surendralal Karsanbhai

Is the strong power demand still primarily from brownfield projects, or are greenfield projects starting to contribute?

Ram Krishnan explained that while the strong momentum to date has been mostly from brownfield fleet modernization, they are starting to see newer capacity come online, including gas-fired plants in North America, data center opportunities (behind-the-meter greenfield), and nuclear power, which are more greenfield in nature.

“Power to date, which has been extremely strong, has been mostly fleet modernization. But we are starting to see, particularly in the quarter we concluded, but going into Q4, and into the early part of next year, some of the newer capacity coming online, certainly gas-fired in North America will be a big part about the tailwind.”

asked by Alexander Virgo · answered by Ram Krishnan

Given strong T&M numbers and concerns about a slowing market next year, what is the visibility for this business into 2027?

Lal Karsanbhai noted the tremendous order momentum in the semiconductor business within T&M. He highlighted a differentiation in growth applications, with Emerson primarily playing in validation and production, which has a different dynamic than the laboratory segment. He expressed a relatively robust outlook for semiconductors through 2027.

“But I will highlight that there is a differentiation in growth in the applications from the laboratory, where I think the period that you're referencing largely plays to the validation and production side where we largely play. And that has a different dynamic on growth and in the cycle as well. And so at this point in time, I continue to be relatively robust on semiconductors through 2027.”

asked by Alexander Virgo · answered by Surendralal Karsanbhai

Can Intelligent Devices return to historical peak growth rates without a significant pickup in China, or is there enough growth elsewhere to offset it?

Ram Krishnan affirmed that Intelligent Devices can absolutely return to higher growth rates, citing strong orders as a leading indicator. He noted that the Middle East sales impact has suppressed current growth, but this will unlock in Q4 and next year. He reiterated the long-range framework for Intelligent Devices at 3-6% growth.

“So on intelligent devices, the answer is absolutely. I think as if you looked at orders performance as a leading indicator, I think you'll start seeing that. Now a majority of the sales impact in the Middle East is in our Intelligent Device business. So you'll see that obviously suppress the growth rate so far, but that will unlock in Q4 and into next year.”

asked by Andrew Buscaglia · answered by Ram Krishnan