Emerson Electric Company

Good morning and welcome to the Emerson third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Colleen Mettler. Please go ahead.

Thank you, and good morning. Thank you for joining Emerson's third quarter fiscal 2022 earnings conference call. Today I am joined by President and Chief Executive Officer Lal Karzanbhai, Chief Financial Officer Frank Dellaquilla, and Chief Operating Officer Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on slide two. This presentation may include forward-looking statements which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor Statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karzanbai, for opening remarks.

Lal Karzanbai Thank you, Colleen, and good morning, everyone. I'd like to begin by thanking the nearly 90,000 Emerson employees around the world for their tremendous effort, passion, and commitment to deliver the solid results we will speak about today. Over the past four months, I've had the opportunity to travel to several US sites, including Houston, Chicago, Elyria, Ohio, and Pittsburgh, as well as visiting investors, customers, and our teams in Germany, Denmark, Brazil, and Mexico. I have to be honest. there is no substitute for being with our teams in person. I'm looking forward to this month's trips to India and Singapore, and I'd also like to thank our board of directors for their support and our shareholders for your trust in us. As an organization, we continue to make significant progress on all of our strategic imperatives aimed to accelerate value creation, culture, portfolio, and execution. Our culture evolution continues in earnest. We are launching our efforts with new listening tools, a modernized employee value proposition, and a new revigorated talent engine. To this end, on August 1st, we hired our first vice president of culture, Kelly Clark, who joins our company at a crucial point in time and brings unparalleled experience in culture transformation. Turning to slide three. Emerson's portfolio transformation is well underway, and in the quarter, we made significant progress to create a higher growth, more diversified, cohesive portfolio. We took five important steps. Number one, on May 16th, we closed the Aspen Tech transaction. We are very excited about the synergy opportunities, which are sized at $160 million in the funnel and the projects won to date. Number two, Aspen Tech announced an agreement to acquire Micromine, the first transaction under the new structure. Micromine is an Australian-based exploration to optimization software offering, well-positioned to benefit from the minerals required to fuel the renewable revolution. Number three, we announced and closed the acquisition of Fluxa. a critical life science process knowledge business, highly synergistic with our industry-leading Delta V system. Number four, on May 31, we closed the TOD sale. And last, five, yesterday, we announced the sale of Insincorator to Whirlpool Corporation for $3 billion for an 18.1 multiple of adjusted EBITDA. Prior to turning to slide four, allow me to say a few words about our execution. This was a solid quarter, and I feel incredibly positive as we go into the fourth and into 2023. June trailing three months underlying orders were plus 10%, driven by automation solutions at plus 13%. Third quarter underlying sales grew 7%, driven by the Americas, which grew 14%. This performance occurred despite lockdowns in Shanghai, which impacted six plants for two months and continued challenges with electronics availability. Together, the two factors resulted in $180 million sales impact in the quarter, or five points to the automation solution segment sales. Adjusted EBITDA improved 20 basis points with improvement in both platforms. Operating leverage in the quarter was 27%, and we are well on track to exceed our 30% target for 2022. Adjusted EPS was $1.38, including $0.08 contribution from Aspen Tech. Although free cash flow conversion in the quarter was 100%, adjusted for non-operating and one-time items, operating cash flow was down, driven by working capital investments in inventory and receivables. Let's now turn to slide four, please. In addition to the portfolio, Emerson has also made tangible steps in our ESG journey. Recently, we have established a target to reach net zero greenhouse gas emissions across our value chain by 2045. In the near term, Our objective is to reach net zero in our operations and reduce our scope three emissions 25% by 2030. Our 2021 ESG report, which can be found on emerson.com, includes more detail on our target, which is aligned with the net zero standard set by the science-based target initiative. Our goals are bold, and we have incredible, credible roadmaps that include many of the solutions, technologies, and expertise we offer our customers and the critical industries we serve. Please turn to slide five. I am particularly excited about the opportunities in the renewable space. As I said, our portfolio is broadly relevant as an enabling technology across a broad segment of the world's economy. This includes electrification efforts such as heat pumps, as well as a strong sustainability funnel in automation solutions that has grown to $1.5 billion, inclusive of decarbonization, energy efficiency, emissions management, and new energy investments in wind, hydro, solar, and hydrogen. I'll share a few examples on this slide. First, starting on the left. Emerson was recently selected by Mitsubishi Power to automate the world's largest green hydrogen production and storage facility. The advanced clean energy system hub will convert renewable energy into storable hydrogen, which can subsequently be dispatched and converted to electricity when required. Emerson automation and software solutions were selected based on industry expertise in our leading digital portfolio. This is a first-in-kind facility, and it will be capable of producing 100 tons of green hydrogen per day with storage capacity for 300 gigawatt hours of energy. That's equivalent to 150 times the current lithium battery storage in the United States. Next, in the middle, along with Neste Engineering Solutions, we were chosen to provide automation technologies and software to FinOil. for the world's third largest tall oil biorefinery. The advanced biofuel and biochemical facility will refine a byproduct of the wood pulping process to produce sustainable feedstock for biofuels, chemicals, and pharmaceuticals. The expected annual capacity of 200,000 tons will create a 400,000 ton reduction in carbon emissions. That represents roughly 1% of Finland's total emissions. Lastly, Emerson was selected by Albioma, a French energy provider, to enable the transition of its flagship coal-fired Bois Rouge plant to 100% renewable energy. Emerson's automation system and software will help convert the existing coal-fired power plant controls to utilize biomass feedstock. In doing so, this project will result in a 640,000-ton reduction in carbon emissions, part of Albioma's plan to reach almost 100 percent renewable energies by 2030. These projects and our net zero targets represent our continued progress in our greening of and greening by framework that Mike Trane has introduced. And lastly, before I turn it over to Frank, on slide six, I'd like to highlight a few exciting investments we've made in operations around the world. Our regionalization strategy and operational excellence served us well through the pandemic and in the current challenging supply chain environment. We continue to drive operational excellence with investments like the three shown here. Starting on the left, earlier this month, Emerson officially opened our new professional tools facility in Ash Flat, Arkansas. This is a 277,000 square foot facility which will be used mainly for our Greenleaf tools for electrical applications across North America. It currently employs 150 employees and we will double the employment over the next four years. I'm very excited about this investment and we're honored to have Governor Asa Hutchinson join us for the ribbon cutting. In the middle, Emerson recently opened its Mahindra City, Chennai, India facility for fluid control pneumatics. This is a 145,000 square foot facility, which will help serve process, hybrid, and discrete customers in India and surrounding Asian countries. And then lastly, we introduced a new Saltillo, Mexico manufacturing facility for our specialty valve technologies, assemblies, and actuators, using life sciences, metals and mining, and other key industries. As with all these facilities, Saltillo will use state-of-the-art factory automation capabilities, environmental designs, and include our own Emerson technology. As we close out 2022, I feel extremely positive about where we are as a business and where we are going. Our goal is accelerated value creation, and we are executing on all the critical dimensions. With that, I will now pass the call over to Frank Dellaquilla, who will go through our detailed financial results in the third quarter. Thank you, Al, and good morning, everyone.