Emerson Electric NYSE: EMR reported first-quarter fiscal 2026 results that management said reflected “disciplined execution” amid robust demand in several growth verticals, including power, LNG, semiconductors, life sciences, and aerospace and defense. Underlying orders rose 9% year over year, marking the fourth consecutive quarter of strong order growth, while underlying sales increased 2%.
Quarterly performance and key metrics
CEO Lal Karsanbhai said underlying sales met expectations and profitability exceeded internal forecasts. Adjusted segment EBITDA margin was 27.7%, and adjusted earnings per share were $1.46, up 6% from the prior year. Annual Contract Value (ACV) for software grew 9% year over year to $1.6 billion.
CFO Mike Baughman noted that first-half results are being affected by a software contract renewal timing dynamic previously discussed in November. In Q1, the renewal dynamic reduced year-over-year sales growth by about 1 percentage point, adjusted segment EBITDA margin expansion by about 70 basis points, and EPS growth by $0.06.
Other Q1 highlights shared on the call included:
- Backlog of $7.9 billion, up 9% year over year, with a book-to-bill of 1.13.
- Price contributed 3 points to growth; MRO represented 65% of sales.
- Free cash flow of $602 million, a 14% margin, which management said positioned the company for expected full-year free cash flow growth of about 10% at greater than an 18% margin.
Orders strength driven by power, software and systems, and Test & Measurement
Management attributed the 9% underlying orders increase to broad-based momentum in Software and Systems (orders up 23%) and particularly Test and Measurement (orders up 20%). Karsanbhai said Test and Measurement strength was led by semiconductor, aerospace and defense, and the portfolio business, partially offset by continued softness in transportation.
Power-related demand was a central theme. Karsanbhai said orders in the Ovation business rose 74% on large project wins tied to power generation, including behind-the-meter data centers and utility fleet modernization. Emerson expects Ovation to grow in the mid-teens for the year, according to his remarks.
The company also highlighted grid digitization investment, with ACV and AspenTech’s Digital Grid Management suite up 25% year over year. Emerson said it won approximately $450 million of automation content from its project funnel in the quarter, with 80% coming from growth verticals led by Power and LNG. The company’s project funnel stood at $11.1 billion.
Management cited examples of project activity, including being selected to automate on-site power generation for a 1.7-gigawatt AI data center in the U.S., an award tied to Sempra Infrastructure’s Port Arthur LNG Phase II, and wins tied to space customers using NI test software and PXI platforms.
Regional demand: strength in North America, India, and Middle East; softness in Europe and China
Baughman said underlying sales were strongest in the U.S. and the Middle East and Africa, while China remained soft. In the quarter, the Americas were up 3%, with the U.S. up 6%. Europe rose 3% due to project timing in Eastern Europe, though he described the “overall pace of business” as subdued. The Middle East and Africa grew 9% on greenfield project activity.
In Q&A, executives provided more detail on orders by geography. COO Ram Krishnan said North America orders rose 18%, India was up 22%, the Middle East was up 6%, and Latin America was up 9%. Europe was down low single digits and China was down high single digits on an orders basis.
Management also pointed to continued weakness in certain end markets. Karsanbhai said chemicals remain challenged in Europe—especially in the Benelux and Germany—and that the company’s outlook for China turned “a little more bearish,” with expectations now for China to be down low single digits for the year due in part to lackluster activity in chemicals. He added that automotive remains soft in both Europe and China.
Segment results: margins mixed, with renewal timing weighing on software comparisons
Software and Systems underlying sales grew 3% (6% excluding the renewal timing effect), led by Test and Measurement, which was up 11% year over year. The group’s margin was 31.3%, up 20 basis points, with benefits from Test and Measurement profitability and synergies partly offset by a 2-point headwind from the renewal dynamic.
Intelligent Devices underlying sales rose 2%, led by power, LNG, and North America MRO, while China was a headwind. Segment margin was 26.9%, down 70 basis points due to mix and foreign exchange comparisons.
Safety and Productivity grew 1% underlying, driven by electrical products and stable North American project activity, while European markets remained soft. Segment margin was 20.9%, down 40 basis points due to lower volume, partly offset by price and cost reductions.
In response to a question about sensors margins, Baughman said the year-over-year decline was driven by the absence of prior-year FX benefits and mix effects, including regional and project-based mix. On DRAM exposure, Krishnan said Emerson buys about $8 million of DRAMs impacting several product lines, but sensors have less than $1 million of exposure. He said the company has limited exposure to DDR5 and that margin impact from inflation is “manageable,” though availability is being monitored.
Guidance reiterated; EPS outlook raised; capital return plans unchanged
Management reiterated full-year fiscal 2026 guidance for 5.5% sales growth, 4% underlying sales growth, and an adjusted segment EBITDA margin of about 28%. Emerson raised the bottom and midpoint of its adjusted EPS outlook and now expects $6.40 to $6.55 per share.
For the second quarter, Emerson guided to sales growth of 3% to 4% and underlying sales growth of 1% to 2%, adjusted segment EBITDA margin of approximately 27%, and adjusted EPS of $1.50 to $1.55.
Management said it expects overall company growth to accelerate in the second half to about 6%, supported by orders momentum and lapping the software renewal timing impact. The company expects ACV to grow 10% or more in 2026, despite the renewal timing affecting GAAP revenue recognition.
On capital allocation, Karsanbhai said Emerson completed $250 million of share repurchases in Q1 and remains committed to returning about $2.2 billion to shareholders in 2026, consisting of $1.2 billion in dividends and $1 billion in repurchases.
Separately, executives discussed tariff developments late in the call. Krishnan said the company had built roughly $130 million of tariffs into its plan and was seeing potential relief versus that assumption, though he said it was early to quantify.
About Emerson Electric NYSE: EMR
Emerson Electric Co is a global technology and engineering company that designs and manufactures products and provides services for industrial, commercial and consumer markets. Founded in 1890, the company is headquartered in St. Louis, Missouri, and has built a long-standing presence in automation, control and climate-related technologies. Emerson's offerings are aimed at improving productivity, energy efficiency and reliability for a wide range of end markets.
Emerson operates through two principal platforms—Automation Solutions and Commercial & Residential Solutions—providing process automation systems, measurement and analytical instrumentation, valves and actuators, control software, and related aftermarket services, alongside products for heating, ventilation and refrigeration, residential and commercial climate controls, tools and storage solutions.
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