Emerson (EMR) Q1 FY26 earnings call: guidance and Q&A

Can you break down the 9% order growth between process and hybrid, discuss the extended runway for power opportunities, and comment on whether process and hybrid markets are settling into mid-single-digit order growth?

Lal Karsanbhai detailed strong power orders driven by modernization and data center behind-the-meter capacity, with new generating capacity expected longer-term. Test & Measurement orders were up 20% and broad-based. Ram Krishnan added geographic color, noting North America orders up 18% and India up 22%, while Europe and China remained soft. He confirmed $450 million in project wins, with 80% from growth verticals.

“North America was up 18%, reflecting many of the end markets that Lal described, certainly power, LNG and many of the T&M markets in North America were very strong.”

asked by Andrew Kaplowitz · answered by Surendralal Karsanbhai

Given ACV growth of 9% versus the 10%+ full-year target, how does AI impact your software businesses, and is it complementary to growth for ACV and margin?

Ram Krishnan explained that Emerson's software offerings are built on first-principle models, making them resilient to AI disruption. He stated that AI capabilities, such as Nigel AI and innovations in DeltaV, are net accelerators for their software offerings, and they expect continued ACV growth as a result.

“the AI capability we're building into our software frankly, accelerate the growth. So we see AI and all the AI capabilities we've launched, not just with Nigel, but also the capabilities, innovation and DeltaV should be a net accelerator for our software offerings, and that's really what we expect to see with continued ACV growth.”

asked by Andrew Kaplowitz · answered by Ram Krishnan

Are the long-cycle orders, especially in power, pushing beyond this year and into a multi-year basis?

Lal Karsanbhai confirmed that the strong orders provide confidence not just for the second half of 2026 but also into 2027, due to the timing of the backlog. He also noted that the Test & Measurement business includes both project-based and short-cycle activities.

“Certainly, it's given us the confidence not just in the back half of '26 as we see the backlog timing. But we start to gain confidence into our 2027 as we see those orders and the timing of the shipments.”

asked by Nigel Coe · answered by Surendralal Karsanbhai

Intelligent Devices margins were down 120 basis points; was this due to prior-year FX benefits, and is there any impact from memory chip (DRAM) inflation?

Mike Baughman confirmed that prior-year FX benefits accounted for about 1 point of the margin decline, with the remainder due to geographic and project mix. Ram Krishnan clarified that Emerson's total DRAM exposure is about $8 million, with less than $1 million in the Sensors segment, primarily in older generations (DDR3/4). He stated that price inflation is manageable, but they are closely monitoring availability.

“So Nigel, we're obviously watching that carefully. We buy about $8 million of DRAMs that impact many product lines, but mostly in Control Systems & Software and T&M, the sensors to your specific question, less than $1 million of DRAM exposure.”

asked by Nigel Coe · answered by Ram Krishnan

How should we think about the cadence of these orders translating into sales, and which businesses will drive the second-half acceleration to support full-year guidance?

Ram Krishnan stated that the phasing of the backlog is very supportive of hitting second-half sales targets, including the 6% growth guided for the second half. He noted that the $7.9 billion backlog, up 9%, supports sales into the second half of 2026 and the first half of 2027, with broad-based backlog build across Control Systems & Software, Final Control, and Sensors.

“So the backlog translate into the mid-single-digit growth, tell the 6% growth that we've guided for the second half. Our trailing 12-month orders at 6% also substantiate that, our backlog at $7.9 billion, which is up 9% also phase into the second half and into the first half of 2027.”

asked by Unknown Analyst · answered by Ram Krishnan

Can you explain the drop in sequential margins from Q1 to Q2 despite higher revenues, and do you see stabilization in weak verticals like chemicals in Europe and China?

Ram Krishnan attributed the sequential margin drop primarily to the software renewal dynamic ($65 million headwind) and unfavorable mix, compounded by the absence of the TotalEnergies deal benefit from the prior year. Lal Karsanbhai confirmed continued flat activity in Europe (chemicals, automotive, packaging) and a more bearish outlook for China, expecting low single-digit negative growth for the year, particularly in the chemical sector, despite some green shoots in Test & Measurement and power generation.

“We're seeing continued flat activity in Europe for year. Certainly, there are industries such as automotive, packaging, but certainly chemicals in places like the Benelux and Germany that are still very challenged.”

asked by Jeff Sprague · answered by Surendralal Karsanbhai

Can you elaborate on the drivers behind the impressive 18% North America order growth and whether this rate is sustainable?

Lal Karsanbhai attributed the strength to U.S. industrial policy benefiting electrification, power generation, data centers, AI, near-shoring (life sciences, semiconductor), energy policy (LNG), and defense. Ram Krishnan added that a large portion of the $450 million project wins were in North America, with Ovation orders up 74% and T&M up nearly 30%. While not expecting 18% to continue, they are confident in high single-digit growth for North America for the full year.

“So that industrial policy has holistically called incredibly well in the United States and aligns to our technology stack serves incredibly well.”

asked by Andrew Obin · answered by Surendralal Karsanbhai

What is the opportunity in Venezuela, given the aging equipment and potential for rebuild, and are you preparing for re-engagement?

Lal Karsanbhai stated Emerson has an estimated $1 billion installed base in Venezuela and long-established relationships, with channel partners still intact. They are preparing a plan for re-engagement, contingent on national oil laws being amended to enable foreign investment. Mike Baughman added that power infrastructure would also be a significant opportunity.

“We estimate to have approximately $1 billion of installed base in the country. And largely, many of our channel partners, believe it or not, are still intact in the country...”

asked by Scott Davis · answered by Surendralal Karsanbhai

Can you provide an update on tariffs and mitigation activities?

Ram Krishnan noted positive news regarding China IEEPA tariffs (fentanyl tariffs reduced from 20% to 10%), but also new tariffs from Mexico for non-trade agreement countries. He stated that while they built in $130 million for tariffs into the plan, they are seeing relief to that number and expect a net positive impact for the year, though it's too early to quantify the exact amount.

“I mean we built in -- I don't know if we've shared the number, Doug, on the amount of tariffs, we've built in about $130 million of tariffs into the plan. We are seeing relief to that number, but it's early to quantify how much.”

asked by Deane Dray · answered by Ram Krishnan