Lal Karsanbhai
President and Chief Executive Officer at Emerson Electric
Thank you, Colleen, and good morning. I'd like to begin by thanking the Emerson team for delivering a strong start to 2024. I'd also like to extend my appreciation to the Emerson Board of Directors and to our customers for your continued confidence in us. Our first quarter results demonstrate the underlying strength of the markets we serve, the meaningfulness of our differentiated technology, and the relentless execution of our global teams.
Please turn to Slide 3. Q1 was a strong start for Emerson, as we continued our focus on executing and driving value creation for our shareholders. The demand environment remains healthy for process and hybrid markets. We continue to see projects moving forward at a healthy pace in markets like chemical, LNG, life sciences, metals & mining, and sustainability and decarbonization even in the face of higher interest rates, ongoing geopolitical challenges, and upcoming elections in key global markets, including the U.S.
Our customer's 2024 capex budgets are shaping up constructively and are largely supportive of the demand environment we are experiencing. This robust environment, along with continued execution by our teams is a key contributor to the Q1 performance. Q1 orders, sales, operating leverage, and adjusted earnings, all exceeded expectations, providing confidence to increase our full year guidance.
This performance reflects our ability to win with a focused approach to our growth platforms and through continued investments in innovation. It is also a testament to our new differentiated portfolio with leading technology, strong profit margins, and exposure to the important global secular growth markets. This is exhibited by our gross margin and adjusted EBITA expansion since 2021.
Our business is well-positioned to capture investments in areas like energy security and affordability, sustainability and decarbonization, digital transformation, and nearshoring.
Regarding our portfolio, we continue to reiterate that the large parts of our portfolio transformation are complete and we do not expect any sizable transactions in 2024. This is the portfolio we designed from the beginning and we are excited to be executing with this set of businesses. On that note, Test & Measurement is executing well and had a strong first quarter, ahead of our expectations. The quarter performance and an acceleration of synergies, provide more confidence for our full year expectations from the business.
Please turn to Slide 4. Emerson's Q1 exceeded all expectations. Underlying orders continue to grow in the mid-single-digit range with 4% growth in Q1. Process and hybrid markets were strong and discrete orders remain down as expected. Multiple LNG projects booked in the quarter, specifically in Europe and the Middle East. Life Sciences activity was also strong across the globe, with large project wins in the U.S., Canada, Europe, and Asia.
The Q1 growth was also supported by some project activity shifting from Q2 to Q1. As you all know, orders can move around quarter-to-quarter, but we still expect low-single-digit order growth in the first half of 2024 and mid-single-digit order growth for the full year as discrete demand improves in the second half. Underlying sales for the quarter grew 10%, again, led by process and hybrid markets, exceeding our expectations.
Energy transition markets and metals & mining were both bright spots in the quarter as we executed numerous projects across Europe, Latin America, and Australia. This volume combined with favorable price-cost and a strong operational execution resulted in 41% operating leverage in Q1 ahead of our mid-30s expectations.
Adjusted EPS was $1.22, up 56% versus 2023 and free cash flow was $367 million, up 51%. Mike Baughman will go through the specifics shortly, but we are excited about our first quarter performance.
On Slide 5, our current strategic project funnel grew by approximately $200 million to $10.4 billion, and our growth programs continue to represent nearly two-thirds of this funnel. The continued expansion of the funnel is promising with existing customers and new entrants continuing to plan and budget for capital projects in the coming years.
In the first quarter, Emerson was awarded approximately $400 million of project content with a little more than half from our growth programs, including three noteworthy deals in energy transition.
First, Emerson was selected by DG Fuels in Louisiana to provide our comprehensive automation portfolio, including advanced sensing, control systems, and optimization software for the production of sustainable aviation fuels. These fuels can be used in existing aviation in vehicle engines and DG Fuels has previously announced agreements with aviation leaders including Air France, KLM, Delta, and Airbus.
Next, Emerson was chosen to automate a lithium-ion recycling process based on our metals and mining expertise and experience throughout the lithium value chain. Emerson will provide SungEel HiTech, a specialist in lithium battery recycling in Korea with advanced automation solutions for safe and reliable operations at its newest facility that is capable of supplying materials for approximately 400,000 electric vehicles each year.
Lastly, Emerson and AspenTech were jointly selected for a large-scale LNG liquefaction facility in the Middle East. The project win represents Emerson's strong presence in the region, including an already sizable LNG installed base. The win is also a recognition of the collaboration and synergies between Emerson and AspenTech, as Emerson's DeltaV was selected along with AspenTech's HYSYS simulation, showing the power and differentiation of our combined portfolio.
As we look at the continued needs of Europe and its reliance on gas imports. The Middle East and Africa will play a pivotal role in gas exports. Emerson is uniquely positioned with our local expertise, manufacturing, and installed base to serve the region in its LNG growth.
These are just three examples of Emerson's continued leadership position in energy transition markets, spanning from established markets like LNG to newer markets like sustainable aviation fuels.
Turning to Slide 6. We remain focused on accelerating innovation for profitable growth. Our recent innovations and our continued technology leadership were recognized by IoT Breakthrough who named Emerson its 2024 Industrial IoT Company of the Year. IoT Breakthrough received over 4,300 nominations for the 2024 competition and Emerson was selected, based on our unique ability to effectively leverage decades of expertise in digitalization and automation to help the industry transform operations.
Among the innovations recognized were Emerson's Ovation Green portfolio for managing renewable power assets, Floor to Cloud solutions to continuously monitor critical production and energy efficiency data in factories. One-Click Transfer software capable of accelerating the life sciences' drug development process, and numerous releases focused on enabling the boundless automation vision, including the DeltaV Edge Environment.
As you recall, boundless automation is Emerson's vision for a cohesive automation ecosystem from device to enterprise. Integrating operations with a flexible automation architecture allows users to have access to all their data, enabling analytics and performance improvements across numerous domains like production, safety, reliability and sustainability. All these innovations will be on display at Emerson's upcoming Users Exchange at the end of February.
Emerson Exchange in Dusseldorf, Germany will feature customer case studies, industry sessions, and a technology exhibit, demonstrating Emerson's leading automation portfolio for process in hybrid industries. New this year, our industry-focused exhibits showcasing Emerson's complete solutions for emerging industries like hydrogen, biofuels, and carbon capture, in addition to growth markets like life sciences and metals & mining.
Please turn to Slide 7 for an update on our synergy progress in Test & Measurement. We effectively use the time between signing and closing to plan all the integration and synergy activities, utilizing our world-class M&A methodology as part of our Emerson management system. Given the strong team collaboration and current market environment, we have accelerated those synergy activities. In the first quarter, we worked closely with the new Test & Measurement leadership team to aggressively address public company and corporate costs, while rapidly implementing Phase I of our sales and marketing, and research and development transformations.
We are also leveraging our Emerson management system and best practices to progress operational execution and commercial excellence at Test & Measurement. This includes trade working capital, price realization, and procurement efficiencies in logistics and direct materials.
These efforts put Test & Measurement, ahead of schedule and give us the confidence to increase the cost synergy target to a $185 million, which we now expect to achieve by the end of 2026, two years faster than originally expected. This includes approximately $80 million expected to be realized in 2024.
Our planned cost to achieve these synergies increases slightly to $165 million with the majority of the spend expected in the first two years. We still expect adjusted segment EBITA to reach approximately 31% by year five as sales grow on the reset cost base.
I'll now turn the call over to Mike Baughman to go through more detail on the quarter performance, including Test & Measurement and our updated 2024 guide.
