EMERSON ELECTRIC Q1 FY26 earnings call EMR

Emerson is executing its vision to transform into a global automation leader, aligning with powerful secular tailwinds such as electrification, energy security, and near-shoring. The company introduced a value creation framework targeting significant growth and profitability by 2028, including a $21 billion top line, 30% adjusted segment EBITDA margins, $8 adjusted EPS, and a 20% free cash flow margin. Management plans to return $10 billion, or 70% of cumulative cash, to shareholders through $6 billion in share repurchases and $4 billion in dividends.

Emerson continues to drive innovation in software and AI, highlighted by the recognition of its Nigel AI adviser as a 2025 Product of the Year. The company released the next generation of Nigel AI, evolving it from an AI assistant to an 'AI after' to accelerate co-development and enhance engineering workflows. Additionally, the release of DeltaV v16 advances software-defined automation, and a strategic collaboration with Roche strengthens Emerson's leadership in life sciences by improving technology transfer processes.

The first quarter saw robust demand with underlying orders growing 9%, marking four consecutive quarters of strong order growth. Trailing 12-month orders are up 6%, providing a solid backlog to support sales into 2027. Emerson's project funnel remains strong at $11.1 billion, replenished by new opportunities, with approximately $450 million of automation content won in Q1. 80% of these wins came from growth verticals, primarily power and LNG.

North America exhibited exceptional strength, with orders up 18% in Q1. This growth is attributed to the U.S. industrial policy benefiting key sectors such as electrification, power generation, data centers, AI infrastructure, near-shoring in life sciences and semiconductor, and a robust energy policy supporting LNG exports. This alignment with national priorities is driving significant capital deployment in longer-cycle projects across Emerson's growth verticals.

Emerson noted a software contract renewal dynamic that negatively impacted Q1 results, causing a ~1% drag on sales growth, 70 basis points on adjusted segment EBITDA margin, and $0.06 on EPS. This dynamic is expected to continue affecting Q2 and full-year GAAP revenues by $110 million and $120 million, respectively, and Q2 adjusted segment EBITDA margin by approximately 150 basis points.

Emerson is closely monitoring the evolving situation in Venezuela, where it has an estimated $1 billion installed base and long-established relationships. The company is preparing a plan to re-engage and provide technology once national oil laws are amended to enable foreign investment and the country's infrastructure, particularly power generation, undergoes necessary modernization and rebuilding.

Management provided an update on tariffs, noting some positive developments such as the reduction of IEEPA tariffs on fentanyl from 20% to 10% for China. While new tariffs from Mexico for countries without trade agreements importing into Mexico present a minor headwind, the overall outlook for tariffs is more favorable than the $130 million impact initially built into the full-year plan, though quantification is still early.