Surendralal Karsanbhai
Chief Executive Officer and Director at Emerson Electric
Thank you, Ram. Let's turn now to slide 15. We are improving our sales outlook for the year based on the continued strength in our orders, the pace of business and the year-to-date profit performance. We now expect underlying sales growth to be near the top of our May guidance of approximately 5% to 6%, Commercial Residential above their range in May at 15% to 16% and Automation Solutions closer to the top of that range at 0% to 1%. The strong volume and improved cost base will flow through to margins. Our estimates are now 50 basis points above the previous guidance, increasing adjusted EBIT margin and adjusted EBITDA by 0.5% to approximately 18% and 23%, respectively. There's no change to the restructuring, tax rate, capital spend or dividend.
Strong profitability and working capital performance enabled an increase in our operating cash flow and free cash flow estimates, both of which increased by $300 million. We are also raising our adjusted EPS guidance to $4.07, plus or minus $0.01. Our price/cost headwind for 2021 currently remains as estimated in Q2 and Ram covered at $75 million despite the current challenges that were highlighted. We continue to manage this through containment, selective price actions, but the recent market developments that Ram described will be challenged through the next two quarters as we navigate them. Stock compensation impact increases to $125 million.
So now we'll go over to Chart 16, and I'll just frame the order environment that we've experienced through the last three months. Emerson's trailing 3-month orders continue to be very strong and have momentum from the last update we gave you in the second quarter, with Commercial & Residential Solutions continuing to climb higher in their order run rates and Automation Solutions turned sharply positive to the high teens in June. Commercial & Residential Solutions continues to see strength in Residential, Cold Chain and the Professional Tools business, and all three very near to that average band of 43%.
Discrete and hybrid end markets in Automation Solutions continue to be very strong, while we see recovery in later cycle process automation markets, especially in North America. KOB three and KOB two are driving most of the recovery, but we are beginning to see some KOB one activity materialize, particularly in chemicals, power and biofuels. The Americas really strengthened, up 29% as deferred maintenance demand and site access drove momentum. Finally, as we have commented in the past quarters, life sciences momentum continues to be extremely strong. Let's now turn to Chart 17, and I'll review the underlying sales growth outlook. Q3 underlying sales were up 15% versus prior year, exceeding our management expectations, driven by the strength in Commercial & Residential Solutions as well as the North America recovery just discussed.
Full year expectations on underlying sales are between 5% and 6%, at the top end of our prior guidance of 3% to 6% and sales of approximately $18.4 billion. The fourth quarter is expected to land in the high single digits to low double-digit range. For the remainder of the year, we expect to see the North America business continue to recover in Automation Solutions as well as continued broad strength in commercial residential solutions. However, the impact of supply chain and labor issues will be a challenge. Let's now turn to slide 18, and I'll review our outlook by geography.
As Frank mentioned, for the full year, we are expecting Automation Solutions sales to be flat to 1% and Commercial & Residential Solutions to be between 15% and 16%, driving us to our overall 5% to 6% underlying sales expectations. So starting off in the Americas. Quarter four is expected to be strong in Automation Solutions at approximately 20% growth, broad-based recovery across all industries, led by continued strength in discrete and increasing strength in hybrid. Process is showing some recovery, although uneven with some strength from returning domestic oil demand, offset by reduced midstream investment and continued fiscal restraint in upstream.
For KOB 3, we expect to see continued spend for deferred maintenance and increasing spend for site access that has been pent-up from the pandemic with an expectation that we will see a strong fall shutdown turnaround season. In Latin America, strength in mining industries particularly are expected to continue. On the Commercial & Residential side of the business, ongoing momentum in the residential markets, driven by do-it-yourself trends, home starts and HVAC seasonality as well as strength in Professional Tools and Cold Chain are expected to continue. Europe will continue to see demand in life sciences and biofuels on the automation side. Project wins in power, midstream, downstream and sustainability will drive low to mid-single-digit growth in Q4.
Commercial & Residential will see robust demand for heat pumps and professional tools as well as the continuation of the refrigeration market recovery in Q4. Turning to Asia, Middle East and Africa. Our Asia automation business is seeing healthy project activity in marine, nuclear, life sciences and semiconductors and a positive trend for site-level spending in the Middle East. On the Commercial & Residential side, we are seeing the commercial recovery across the region, specifically with commercial AC and cold chain solutions. Ongoing COVID restrictions continue to be a challenge across the organization, particularly in this part of the world. Let's now turn to Chart 19, and we'll review the business funnel for Automation Solutions.
So back in February, we commented that our traditional large project funnel was $6.4 billion, and this should be something that is very familiar to those of you who watch this carefully. Since February, we have booked approximately $80 million of projects, some LNG and one most notably in Mexico. New projects added include clean fuels, hydrogen, renewable diesels, lithium mining and LNG projects, while projects removed from the funnel since February were mostly oil and gas and downstream refining projects. The August 2021 funnel is now valued at $6.3 billion in approximately 180 projects. And below in the donut pies, you can see the industry mix of our traditional funnel.
We have identified new decarbonization opportunities. And though generally smaller than our traditional definition of projects for our funnel classifications, these projects are increasingly relevant to our business. They're being added into this view because they have the potential to grow in nature over time. Today, as depicted on the chart, these opportunities are worth $400 million in approximately 120 projects. The combination of our traditional project funnel and the new sustainability funnel is now valued at $6.7 billion. And below is the combined industry mix where we are working to diversify our funnel.
On the right side of the chart, we are introducing the business opportunities with our recent OSI acquisition, which gave us an important foothold into the transmission and distribution automation space. These opportunities have slightly different characteristics from our traditional project funnel definition, and therefore, we are keeping it separate for our discussion purposes today. Generally, these opportunities are smaller and more numerous compared to our large traditional project funnel, but they are clearly strategically important. The value of these opportunities is $1.5 billion and are made up of 530 projects. To give you some perspective on the scale and how differentiated it is, approximately 15% of that $1.5 billion has a value of greater than $5 million, and 50% of it is between $1 million and $5 million.
The funnel is global, although approximately $1 billion of it is in North America and Europe. Overall, we have strong opportunities ahead, and I'm bullish on overall project outlook as we diversify and expand into new spaces. Now let's turn to Chart 20. This is a very important chart. And as Frank mentioned in our financial results showcase, our robust cost reset plan is being incredibly well executed across the enterprise. As a reminder, this comprehensive plan began in late 2019 and will be fully realized by 2023. It involves over $600 million in spend and approximately $650 million in savings.
In February, we also introduced our midrange targets of 24% adjusted EBITDA margins and $4.75 to $5 in adjusted EPS. We are very much on track to reach those targets by 2023. Importantly, however, the recent outperformance and momentum through the end of 2021 is creating some headroom for critical investments. And I'm particularly excited about this, particularly as I think about key technologies that will enable our business to outperform over the long term. As you can see, revenues, margins and cash flow are all better than February expectations and are enabling this acceleration in technology investments.
I've outlined four examples below and will come out over the next months and in depth in February as to how we're managing and thinking about these very significant investments. Examples outlined are the Copeland K7 scroll, which is the largest new product investment in the history of our air conditioning business. This thing drives obviously increased performance and meets the 2023 efficiency regulations and is optimized for 2025 refrigerants. The Greenlee remote cutters, an award-winning tool on the right-hand side of the chart, which enhances safety for cutting underground cables.
The Gemini, which is our next-generation pressure and temperature device being developed in our Measurement Solutions business, which will have next-generation electronics, unmatched safety and process insight. And lastly, our Plantweb Optics, our integrated operational performance platform, which unifies data, people and systems to drive operational performance. And with that, I will turn the call over to the operator, and we'll begin the Q&A. Thank you.
