Emerson Electric Q3 Earnings Call Highlights

Key Points

• Emerson exceeded expectations in Q3 fiscal 2026, with underlying orders up 7%, sales up 6%, adjusted EPS rising 13% to $1.71, and free cash flow increasing 36% to $1.3 billion.
• The company raised its full-year outlook, now expecting 5% GAAP sales growth, 3.5% underlying sales growth, adjusted EPS of approximately $6.55, and free cash flow of about $3.6 billion.
• Growth was led by semiconductors, power generation, and test and measurement, while Emerson’s project funnel reached $12.4 billion. The company maintained its plan to return roughly $2.2 billion to shareholders in fiscal 2026 despite an estimated $100 million annual revenue impact from Middle East disruptions.

Emerson Electric NYSE: EMR reported third-quarter fiscal 2026 results that exceeded its expectations, citing broad-based order growth, stronger demand in North America and Asia, and continued momentum in power generation, semiconductors and test and measurement.

President and Chief Executive Officer Lal Karsanbhai said underlying orders rose 7% in the quarter, while underlying sales increased 6%. The company’s growth verticals increased 27%, led by semiconductor growth of 53% and power growth of 37%.

“End market demand is robust, supported by secular trends in our growth verticals and meaningful investment in automation,” Karsanbhai said.

Emerson raised its full-year outlook for sales, earnings and cash flow following the quarterly performance. The company now expects fiscal 2026 GAAP sales growth of 5%, underlying sales growth of 3.5%, adjusted earnings per share of about $6.55, and free cash flow of approximately $3.6 billion. It maintained its expectation for adjusted segment EBITA margin of about 28%.

Quarterly Results and Segment Performance

Chief Financial Officer Mike Baughman said adjusted earnings per share rose 13% year over year to $1.71, above the high end of Emerson’s prior guidance. Adjusted segment EBITA margin expanded 140 basis points to 28.5%, aided by better-than-expected volume and favorable segment mix. Price, cost reductions and price-cost performance more than offset inflation, he said.

Third-quarter free cash flow increased 36% to $1.3 billion, representing a 27.1% margin. Baughman said cash generation benefited from operating performance, tariff refunds and the timing of tax payments that shifted from the third quarter into the fourth quarter.

Emerson’s backlog ended the quarter at $8.2 billion, up 7% from a year earlier, while book-to-bill was 1.0. Maintenance, repair and operations activity represented 65% of sales.

• Software & Systems: Underlying sales rose 11%, including 23% growth in Test & Measurement and 7% growth in Control Systems & Software. Segment margin was 31.8%, down 30 basis points from a strong prior-year comparison. The margin included a 1.5-point drag tied primarily to software contract renewals and a higher mix of lower-margin projects.
• Intelligent Devices: Underlying sales increased 5%, supported by the Middle East, project shipment timing and sensors. Segment margin rose 240 basis points to 27.9%, driven by volume leverage, price-cost and cost reductions.
• Safety & Productivity: Underlying sales grew 2%, led by electrical products and industrial activity in North America. Segment margin increased 80 basis points to 21.2% as price-cost discipline and cost reductions offset lower volume and inflation.

Annual contract value for Emerson’s software portfolio increased 9% year over year to $1.68 billion. Management continues to expect annual contract value growth of more than 10% for the full fiscal year.

Regional Demand and Growth Verticals

Sales in the Americas rose 8%, including 10% growth in the United States. Software & Systems sales in the U.S. increased 14%, while Intelligent Devices increased 9%.

Asia, the Middle East and Africa also grew 8%, led by 11% growth in the Middle East and Africa. China sales declined 3%, an improvement from the first half of the year, while Europe declined 1%. Karsanbhai said orders in Europe were positive during the quarter, while China improved sequentially.

Test & Measurement orders increased 19%, including a 70% increase in semiconductor orders and double-digit gains in aerospace and defense. Orders in Emerson’s Ovation power-generation business increased 31%, reflecting investment in generation capacity, fleet modernization and grid infrastructure.

Chief Operating Officer Ram Krishnan said power demand has largely been driven by fleet modernizations to date, though the company is beginning to see more new capacity projects. He cited gas-fired generation in North America, behind-the-meter data center opportunities, digital grid management and nuclear power as areas contributing to growth.

Emerson’s project funnel expanded by $1.2 billion sequentially to $12.4 billion, up 8% from a year earlier. Power accounted for $3 billion of the funnel after growing by $450 million from the prior quarter. The LNG funnel increased $350 million to $2.2 billion. Management said the company won about $400 million from its project funnel during the quarter, with 80% coming from growth verticals.

Middle East Conditions and Capital Returns

The company said its operations in the Middle East performed better than its reduced expectations despite continued supply-chain complexity and the regional conflict. Emerson’s field service engineers are operating at pre-conflict levels, though customer operating capacity remains at roughly 75%, according to Karsanbhai.

Baughman said the Middle East created an approximately $25 million revenue headwind in the third quarter compared with the company’s February outlook, and Emerson expects a similar effect in the fourth quarter. The company continues to model an approximately $100 million fiscal-year impact from the conflict as the Strait of Hormuz remains effectively closed.

Management said repair work is underway and large projects are progressing, while new opportunities are emerging in pipelines, storage and alternative export routes intended to improve energy security and reduce dependence on the Strait of Hormuz. Karsanbhai said customer activity in petrochemical and LNG expansions could move relatively quickly if conditions stabilize.

Emerson repurchased $898 million of shares through the third quarter and maintained its plan to return approximately $2.2 billion to shareholders during fiscal 2026, including $1.2 billion in dividends and $1 billion in share repurchases.

Leadership Changes

Karsanbhai also announced that Chief Technology Officer Peter Zornio will retire Dec. 31. Zornio joined Emerson in 2006 and has held leadership roles in the company’s automation business and technology organization.

Rudy Sengupta will become senior vice president and chief technology and AI officer effective Aug. 15. Sengupta joined Emerson through its acquisition of NI and currently serves as vice president and general manager of Test and Analytics Software. Karsanbhai said the appointment supports Emerson’s strategy to advance AI-enabled automation and autonomous operations.

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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