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    EMR
    Earnings call· Sep 2025(Q4 FY25)

    EMERSON ELECTRIC CO EMR

    Nov 5, 2025 Source

    Executive summary

    Emerson Electric Co. Q4 FY25 — Strong Operational Execution and Robust Orders

    Emerson concluded FY25 with strong operational execution, delivering record margins and robust free cash flow, driven by resilient demand in North America, India, and the Middle East. While facing persistent softness in Europe and China, the company is strategically positioned for continued growth in FY26, supported by strong orders in key verticals and a focus on digital transformation. A software contract renewal dynamic will impact reported revenue and EPS in FY26, but is not expected to affect cash flow and is anticipated to reverse in subsequent years.

    Highlights

    5

    • Underlying orders grew 6% in Q4 FY25, marking the third consecutive quarter of mid-single-digit growth.

    • Adjusted segment EBITDA margin reached 27.5% in Q4 FY25, up 1.3 points year-over-year, and an annual record of 27.6% for FY25.

    • Adjusted EPS for Q4 FY25 was $1.62, at the top end of guidance, and $6 for the full year, up 9% year-over-year.

    • Free cash flow for FY25 was $3.24 billion, up 12% year-over-year, exceeding August guidance of $3.2 billion.

    • Test & Measurement orders surged 27% in Q4 FY25, with robust growth across all regions.

    Concerns

    5

    • Underlying sales for FY25 grew 3%, slightly below expectations due to softer demand in Europe and China.

    • Europe and China demand continues to be soft, with Europe expected to be flat and China flat year-over-year in FY26.

    • A software contract renewal dynamic is projected to create a $120 million headwind to GAAP revenues in FY26, impacting adjusted EPS by approximately $0.15 and adjusted segment EBITDA margin by 40 basis points for the full year.

    • The automotive business continues to be very weak, and the packaging machine making business is also experiencing weakness.

    • A significant reduction of approximately $1.5 billion in sustainability and decarbonization projects was made to the project funnel due to changes in the subsidy environment.

    Guidance & targets

    25
    CategoryTargetConfidence
    Full-year FY26 Sales Growth
    approximately 5.5%
    high materiality
    High
    Full-year FY26 Underlying Sales Growth
    approximately 4%
    high materiality
    High
    Full-year FY26 Adjusted Segment EBITDA Margin
    approximately 28%
    high materiality
    High
    Full-year FY26 Adjusted EPS
    $6.35 to $6.55
    high materiality
    High
    Full-year FY26 ACV Growth
    10% plus
    medium materiality
    High
    Full-year FY26 Capital Return to Shareholders
    approximately $2.2 billion
    high materiality
    High
    Full-year FY26 Share Repurchases
    approximately $1 billion
    high materiality
    High
    Full-year FY26 Dividends
    approximately $1.2 billion
    high materiality
    High
    Full-year FY26 Free Cash Flow
    $3.5 billion to $3.6 billion
    high materiality
    High
    Full-year FY26 Tax Rate
    21.5%
    medium materiality
    High
    Q1 FY26 Sales Growth
    4%
    medium materiality
    High
    Q1 FY26 Underlying Sales Growth
    2%
    medium materiality
    High
    Q1 FY26 Adjusted Segment EBITDA Margin
    approximately 27%
    medium materiality
    High
    Q1 FY26 Adjusted EPS
    approximately $1.40
    medium materiality
    High
    FY26 Debt Paydown
    approximately $1 billion
    medium materiality
    High
    FY26 Net Debt to Adjusted EBITDA Ratio
    approximately 2x
    medium materiality
    High
    AspenTech Run Rate Synergies
    $100 million
    medium materiality
    High
    Test & Measurement Segment Growth
    high single-digit growth
    medium materiality
    High
    Control Systems & Software Segment Growth
    down low single digits
    medium materiality
    High
    Intelligent Devices Business Group Growth
    3% in H1, 4% for full year
    medium materiality
    High
    FY26 Americas Growth
    mid-single digits
    medium materiality
    High
    FY26 Middle East and Africa Growth
    high single digits
    medium materiality
    High
    FY26 Asia Growth
    low single digits
    medium materiality
    High
    FY26 Europe Growth
    flat
    medium materiality
    High
    Power Market Growth
    high single digits to low double-digit growth
    medium materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Software and Control
    Led growth for the company in FY25.
    		—5%——
    Intelligent Devices
    Grew 2% in FY25.
    		—2%——
    Process and Hybrid Businesses
    Resilient throughout FY25.
    		—4%——
    Discrete Businesses
    Finished the year up slightly, with lingering weakness in automotive and factory automation. Year-over-year volume was down, representing about a 1 point headwind to Emerson sales growth.
    		—1%——
    Americas
    Led underlying growth in FY25.
    		—5%——
    Asia and Middle East and Africa
    Grew 3% in FY25.
    		—3%——
    Europe
    Sales were down 2% in FY25.
    		—-2%——

    Operational metrics

    37
    Underlying Sales Growth
    4%
    Q4 FY25

    Reported for the fourth quarter.

    Adjusted Segment EBITDA Margin
    27.5%up 1.3 points
    Q4 FY25

    Up 1.3 points year-over-year.

    Adjusted Segment EBITDA Margin
    27.6%up 160 basis points
    FY25

    Annual record for FY25.

    Adjusted EPS
    $1.62
    Q4 FY25

    At the top end of guidance.

    Adjusted EPS
    $6up 9%
    FY25

    Up 9% year-over-year.

    Software Annual Contract Value (ACV)
    $1.56 billiongrew 10% year-over-year
    End of FY25

    Ended the year at $1.56 billion.

    MRO Sales Share
    65%
    FY25

    MRO represented 65% of total sales for the company.

    Gross Profit Margin
    52.8%
    FY25

    Annual record for FY25. Impacted by 20 basis point tariff headwind.

    AspenTech Synergies Realized
    $50 million
    FY25

    Meaningful progress integrating AspenTech.

    Test & Measurement Synergies Realized
    $200 million
    FY25

    All actions completed to achieve run rate synergies.

    Free Cash Flow Margin
    18%up 140 basis points
    FY25

    Up 140 basis points from the prior year.

    Adjusted EPS Contribution from Operations
    $0.62
    FY25

    Operations delivered $0.62 of incremental EPS in FY25.

    Adjusted EPS Headwind from Nonoperating Items
    $0.11
    FY25

    Nonoperating items were a headwind.

    Underlying Sales Growth Contribution from Price
    2.5 points
    FY25

    As expected.

    Software Contract Renewal Headwind
    $120 million
    FY26

    Headwind to GAAP revenues due to lower value of software contracts up for renewal. Does not affect cash flows.

    Software Contract Renewal Headwind to Adjusted EPS
    $0.15
    FY26

    For the full year FY26.

    Software Contract Renewal Headwind to Adjusted Segment EBITDA Margin
    40 basis points
    FY26

    For the full year FY26.

    Software Contract Renewal Headwind to Adjusted Segment EBITDA Margin
    80 basis points
    Q1 FY26

    Impacts Q1 FY26 adjusted segment EBITDA margin.

    Adjusted EPS Contribution from Operations
    $0.50
    FY26

    Expected to generate incremental EPS in FY26.

    Margin Expansion from Operations
    80 basis points
    FY26

    Expected from operations.

    Dividend Per Share Increase
    $0.11approximately 5%
    FY26

    Planned for full year FY26, marking the 70th consecutive year of increases.

    Net Debt to Adjusted EBITDA Ratio
    2.3x
    End of FY25

    Ended FY25 at this level.

    Ovation Business Orders Growth
    18%
    Q4 FY25

    Driven by greenfield projects and modernization.

    Ovation Business Orders Growth
    30%
    FY25

    Driven by greenfield projects and modernization.

    Test & Measurement Orders Growth
    27%
    Q4 FY25

    Robust growth in all regions led by semiconductor, aerospace and defense, and broad-based portfolio business.

    Test & Measurement Sales Growth
    12%
    Q4 FY25

    Accelerated sharply as the year exited, with broad-based strength.

    Investment in Technology
    8%
    FY25

    Investing to advance technology.

    Power, LNG, Life Sciences Sales Growth
    11%year-over-year
    FY25

    Collectively, these segments were up 11% year-over-year.

    Software Contract Renewal Headwind to Q1 EPS
    $0.07
    Q1 FY26

    Impact from the software contract renewal dynamic.

    Q1 FY25 Adjusted EPS
    $1.38
    Q1 FY25

    Included benefit of several dynamics.

    Incremental EPS from Operations
    $0.05
    Q1 FY26

    Expected contribution from operations.

    Incremental EPS from Nonoperating Items
    $0.04
    Q1 FY26

    Expected contribution from nonoperating items.

    Power Generation Capacity from Ovation 4.0 Projects
    3.1 gigawatts
    Future

    From five Entergy facilities using Ovation 4.0.

    Doel Nuclear Power Station Contribution to Belgium Electricity
    15%
    Current

    Doel provides around 15% of the country's electricity.

    Woodside Louisiana LNG Project Production Capacity
    16.5 million tons per annum
    Future

    Initial production capacity, with permitted expansion.

    Power Generation Controlled by Ovation
    30%
    Current

    Ovation controls approximately 30% of all power generated globally.

    Content per Greenfield Nuclear Reactor
    $40 million
    Per reactor

    For a complete greenfield nuclear reactor, with additional aftermarket opportunity.

    Industry KPIs

    4
    MetricValueDetails
    Orders bookings growth6%%
    Gigawatts under contract3.1 gigawattsGW
    Backlog by segment end market$7.4 billionUSD
    Data center exposure pipeline—

    Orderbook & backlog

    3
    Total Backlog$7.4 billionEnd of FY25

    up 3% year-over-year

    Due to second half orders growth of 5%, which positions the company well for FY26.

    LNG Backlog$350 millionEnd of FY25

    Portion of the $7.4 billion total backlog.

    Large Project Funnel$11.1 billionQ4 FY25

    Approximately $6 billion of this funnel is expected to come from power, LNG, life sciences, semiconductor, and aerospace and defense markets.

    Product announcements

    2
    ProductTypeDetails
    Guardian Virtual Advisorlaunch
    AspenTech's Subsurface Intelligencelaunch

    Deals & partnerships

    4
    EntergySelection of Ovation 4.0 Distributed Control System for power generation facilities.

    Ovation 4.0 selected to automate 3 more power generation facilities, in addition to 2 greenfield combined cycle plants previously announced. The 5 facilities will provide approximately 3.1 gigawatts of generation capacity.

    Doel Nuclear Power StationReplacement of existing excitation system with Ovation 4.0.

    Ovation 4.0 chosen to unify control systems across the site. Doel provides around 15% of Belgium's electricity.

    Bechtel Energy and Woodside EnergyAutomation partner for the Woodside Louisiana LNG project.

    Emerson selected as a key automation partner for the liquefaction and export terminal in Calcasieu Parish, designed to produce 16.5 million tons per annum with permitted expansion capacity up to 27.6 million tons per annum.

    Large U.S.-based life science customerAutomation provider for three manufacturing facilities.

    Emerson will provide DeltaV Control Systems & Software portfolio to enable reliable, scalable, and data-driven automation for facilities being built in Indianapolis, accelerating time to market for next-generation weight management drugs.

    Risks & headwinds

    5
    Soft demand in Europe and ChinaFY25, continuing into FY26

    Europe sales down 2% in FY25; both expected flat in FY26. Discrete businesses finished FY25 up 1% with lingering weakness.

    Mitigation: Focus on resilient regions (North America, India, Middle East, Africa) and growth verticals (power, LNG, life sciences, semiconductor, aerospace & defense).

    Software contract renewal dynamicFY26, primarily H1 FY26

    $120 million headwind to GAAP revenues in FY26; $0.15 impact to FY26 adjusted EPS; 40 bps impact to FY26 adjusted segment EBITDA margin.

    Mitigation: Does not affect cash flows; expected to reverse as a tailwind in FY27 and FY28. Management is working to smooth out renewal dates in the future.

    Weakness in automotive and packaging machine making businessesOngoing

    Automotive continues to be very weak; packaging machine making business is in the flat to low single-digit range.

    Mitigation: Offset by strong performance in other discrete markets like Test & Measurement (semiconductor, aerospace & defense).

    Reduction in sustainability and decarbonization (S&D) projectsForward basis

    Approximately $1.5 billion reduction in S&D projects from the $11.1 billion project funnel.

    Mitigation: Offset by significant upticks in power generation, LNG, aerospace & defense, and life sciences projects, keeping the overall funnel flat.

    Tariff impact on gross profitFY25

    20 basis point impact on gross profit from tariffs in FY25.

    Mitigation: Offset by strong price-cost management, higher software mix, and cost reductions.

    What to watch in Q1 FY26

    5

    Underlying Orders Growth

    Q1 FY26
    Current6% in Q4 FY25
    TargetSustain mid-single-digit growth (5-6%)

    Why it matters

    Orders momentum is a key leading indicator for future revenue growth, especially given the strong Q4 performance.

    Just wanted to clarify. So is the first quarter -- the first quarter orders should kind of sustain this, I don't know, like the 5% to 6% type of momentum that you saw in the 4Q? Is that the messaging? Yes.

    Q&A highlights

    5

    Clarification on whether the software renewal impact is an accounting change or timing, and if it affects free cash flow, noting the $0.15 benefit in FY25 and expected recoupment in FY27/28.

    Management confirmed it's a timing dynamic of multi-year term license contracts, not an accounting change, and it does not affect free cash flow. The $0.15 benefit in FY25 was related to more renewals that year, and the FY26 headwind will reverse in FY27/28.

    “It's an accounting dynamic that exists in revenue recognition for these multiyear term license contracts. ... That is absolutely correct. And you made another point that I would like to reiterate, which is that this is a dynamic that will reverse in '27 and '28 relatively ratably over those 2 years.”

    asked by Deane Dray · answered by Michael Baughman

    2 min read5 chapters

    Detailed Narrative

    01

    Resilient Demand and Strategic Wins

    Emerson reported 6% underlying orders growth in Q4 FY25, driven by sustained demand in growth verticals and a significant 27% increase in Test & Measurement orders. The company highlighted key project wins, including the selection of Ovation 4.0 Distributed Control System for five Entergy power generation facilities, totaling 3.1 gigawatts, and for the Doel nuclear power station in Belgium. Emerson was also chosen as a key automation partner for the Woodside Louisiana LNG project, capable of producing 16.5 million tons per annum, and for three life science manufacturing facilities in Indianapolis, utilizing DeltaV Control Systems & Software.

    02

    Operational Excellence and Margin Expansion

    The company achieved an annual record gross profit margin of 52.8% and adjusted segment EBITDA margin of 27.6% for FY25. This expansion was primarily due to strong price-cost management, a higher mix of software revenue, and cost reductions, including synergy realization. Emerson realized $50 million in AspenTech synergies in FY25 and now targets $100 million in run-rate synergies by the end of FY26, two years ahead of schedule. All actions to achieve $200 million in run-rate synergies for Test & Measurement were completed earlier in the year.

    03

    Software Renewal Dynamic and Financial Impact

    A software contract renewal dynamic is expected to create a $120 million headwind to GAAP revenues in FY26, primarily impacting the Control Systems & Software segment. This accounting dynamic, which does not affect cash flows, is projected to reduce full-year adjusted EPS by approximately $0.15 and adjusted segment EBITDA margin by 40 basis points. Management emphasized that this is a timing issue with multi-year term licenses and is expected to reverse as a tailwind in FY27 and FY28. The annual contract value (ACV) of software grew 10% year-over-year to $1.56 billion in FY25 and is projected to grow 10% plus in FY26, reflecting robust underlying health.

    04

    Market Trends and Project Funnel Adjustments

    Emerson's $11.1 billion project funnel saw a significant reduction of approximately $1.5 billion in sustainability and decarbonization projects due to changes in the subsidy environment, particularly in North America and Europe. However, this was offset by a $1 billion increase in power generation projects, alongside continued growth in LNG, life sciences, semiconductor, and aerospace and defense. The company expects robust growth in power markets for the next 3-5 years, driven by data centers and grid modernization, with Ovation controlling a significant portion of global power generation.

    05

    Capital Allocation Priorities

    With the portfolio transformation complete, Emerson is shifting its capital allocation focus. For FY26, the company plans to return approximately $2.2 billion to shareholders, comprising $1 billion in share repurchases and $1.2 billion in dividends, including a 5% dividend per share increase. This marks the 70th consecutive year of increasing dividends. Emerson also intends to pay down approximately $1 billion of debt in FY26 to maintain its A2A credit ratings, targeting a net debt to adjusted EBITDA ratio of approximately 2x by year-end.

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