Emerson Electric Company

If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. After today's presentation, there'll be an opportunity to ask questions. If you'd like to ask a question at that time, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please note that this event is being recorded. I would now like to turn the conference over to your host, Colleen Mettler, Vice President of Investor Relations at Emerson. Please go ahead.

Good morning, and thank you for joining Emerson's third quarter 2025 earnings conference call. This morning, I am joined by President and Chief Executive Officer, Lal Karzandai, Chief Financial Officer, Mike Bachman, 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 turn to 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 non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karzanbhai, for his opening remarks.

Thank you, Colleen. Good morning, everyone. I would like to begin by thanking the global Emerson teams for delivering yet another strong quarter. With the support of Emerson's Board of Directors, we are energized by the company we have created with highly differentiated technology serving a diverse set of industries and customers, and a compelling value creation proposition for investors. Please turn to slide three. In May, we hosted approximately 3,000 attendees from 51 countries at Emerson Exchange, where we showcased how Emerson's accelerating innovation to lead the future of automation. Innovation is integral to Emerson. And three key product developments demonstrate the notable progress we are making to advance a world-class industrial software portfolio. First, we announced a strategic collaboration with TotalEnergies, a significant milestone in realizing Emerson's boundless automation vision with our new enterprise operations platform. Building on a nearly 30-year relationship, Emerson will deploy our industrial data fabric to continuously collect, store, and contextualize millions of real-time data points from Total Energy's facilities, providing secure and unified access to data across the organization. The digital infrastructure, which also includes Emerson's advanced process control solutions, will enable Total Energy to optimize operational performance and accelerate AI implementation. This data fabric technology is foundational for Emerson's enterprise operations platform, the industry's first software-defined, OT-ready digital platform that seamlessly integrates and optimizes industrial operations. Next. we released the Ovation AI-enabled Virtual Advisor, which is the first Gen AI Advisor integrated into a control system for power generation. The Ovation Virtual Advisor, as part of Ovation 4.0, enables advanced power plant diagnostics using Microsoft Azure OpenAI to increase productivity and operational awareness. This highly differentiated solution is driving strong traction with over 80% of upcoming modernization projects involving an upgrade to Ovation 4.0. For example, Ovation was selected by Entergy to automate power generation at two Greenfield combined cycle power plants. Entergy today provides electricity to 3 million customers and is expanding in Texas and Mississippi with two 754 megawatt generation facilities. Emerson was chosen for our leading technology, local presence, and enterprise scalability across multiple sites. Third, Emerson unveiled Nigel AI Advisor in its market-leading test software. This innovation The company's first step in integrating test-optimized AI technology into its trusted LabVIEW portfolio will aid engineers in unlocking the full potential of our world-class software tools to address the increasing complexity of test and measurement across industries like semiconductor, transportation, and electronics. Nigel can analyze code and provide recommendations for improvements when developing and executing tests through plain language prompts, enabling engineers to focus on their own innovation and business goals. Please turn to slide four. Investments in automation continue to drive resilient demand in Emerson's process and hybrid markets as customers seek to modernize and improve their operations. The discrete recovery progressed further, particularly in test and measurement markets. North America, India, and the Middle East and Africa have been strong, and we expect these regions to remain growth drivers with sustained investment across LNG, power and life sciences. Our industrial software, ACV, again, grew double digits over the prior year and ended the quarter at $1.5 billion. Underlying orders grew 4%, led by test and measurement, up 16%, and with our process and hybrid businesses, again, up mid-single digits. MRO remained strong at 62% of sales, with software and cybersecurity upgrades driving increased activity in long-term service agreements. The dynamic tariff environment persisted, and our exposure was less than expected in the quarter. As the quarter progressed, we decided to ease the scope of surcharges, which meaningfully impacted our third quarter sales growth. Underlying sales growth was 3% and we delivered excellent profitability. Emerson's adjusted earnings per share of $1.52 met the top end of our guide and better than expected free cash flow generation led to a 21.3% margin. Mike Bachman will provide additional color on the results in a few slides. Our teams are committed to completing a strong 2025, and we are pleased to see the turn in our discrete end markets. In the fourth quarter, we expect underlying sales growth of 5% to 6%, driven by further improvements in test and measurement and sustained growth in our process and hybrid businesses. We project adjusted segment EBITDA margin of 27%, higher than previously planned due to the impact of lower tariff exposure with adjusted EPS of $1.58 to $1.62. As we look forward to fiscal 2026, we expect strong exit rates for underlying orders to support underlying sales within our growth framework. Additionally, we will be hosting an investor conference on November 20th in New York City. We look forward to talking about our transform portfolio and a differentiated value creation framework. More details will be communicated as we approach the conference. Please turn to slide five. Emerson's demand outlook remains healthy. As expected, Underlying orders in our process and hybrid businesses grew mid-single digits in the quarter and are expected to maintain similar growth in the fourth quarter. The secular need for energy security and affordability is leading to significant activity in LNG across the globe, and increasing electricity demand in the Americas and Asia is driving robust activity in power. Underlying orders in our ovation business were up 40% in the quarter, and we expect to end the year up over 20%. We are also seeing strong demand in life sciences, with customers investing in biomedicines and GLP-1 drugs. The capital cycle remains constructive, and we continue to see new investments replenish projects booked from our $11.2 billion funnel. Underlying orders in our discrete businesses were up 6% in the third quarter, led by test and measurement, which was up 16% with robust growth across all world areas. The recovery in these markets is building momentum. And we expect underlying orders growth in test and measurement to approach 20% in the fourth quarter, supporting double-digit order rates in our discrete businesses as we exit the year. Emerson has now posted two consecutive quarters of mid-single-digit underlying orders growth. And July was a strong start to the fourth quarter, with trailing three-month underlying orders growth of 6%. As we exit the year, we expect underlying orders growth between 5% and 7%. Please turn to slide six. Our view for full year 2025 underlying sales remains similar to what we communicated in the May earnings call. Demand trends are favorable and support our fourth quarter outlook for underlying sales growth to accelerate to 5% to 6%. We expect fourth quarter underlying sales for our process and hybrid businesses in the mid-single digits, driven by global investment in LNG, power, and life sciences. Our discrete businesses are expected to be up double digits in the quarter, reinforced by the recovery in test and measurement, which is expected to be up sharply with growth in the high teens. In the Americas, We expect broad-based strength in North America MRO and green fuel projects. We plan to see growth accelerate in Europe, led by energy security and modernization projects, coupled with recovery in discrete markets. Robust investment is expected to continue in the Middle East, India, and Southeast Asia, and we expect China to be up slightly. supported by Power and Marine with improving business fundamentals in test and measurement markets. We continue to see strength in customer adoption of our subscription software and expect double-digit ACV growth for the full year. Notably, ACV in Aspen Tech's digital grid management grew 26% in the third quarter. momentum across North America and Europe. Please turn to slide seven. The tariff environment continues to be dynamic. Emerson's annualized gross incremental tariff impact is now approximately $210 million, which is down from our prior estimate of $455 million given the recent announcements. In the fiscal year, we are now expecting our gross tariff impact to be $130 million versus our prior estimate of $245 million. After our Bay earnings call, the tariff environment improved as announced tariffs were paused and deals were reached with a number of trade partners. Subsequently, Due to the improved tariff environment and in consideration of our customers, we decided to ease a number of the surcharges we had in place. We now expect approximately $115 million of price actions for the fiscal year, which equates to 50 basis points of incremental price. This is a half-point reduction versus our prior guide. We have implemented all the price actions and supply chain mitigations to completely offset the impact of this exposure. Now, I'll turn the call over to Mike Baugh.