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.

Thanks, Law. Please turn to slide eight, where I will discuss our third quarter financial results. Underlying sales growth was 3%. Growth was led by our resilient process and hybrid businesses, which were up 3.5%, and our discrete businesses collectively turned positive, up 2% year over year. Price contributed 2.5 points in the quarter, less than previously expected, due to easing some surcharges. Our sales fell short of guidance, driven primarily by this dynamic. Underlying growth was 7% in the Americas and 2% in Asia and the Middle East and Africa, while Europe was down 7%. Software and control grew 2% and intelligent devices was up 3%. Backlog increased to 7.6 billion and our book to bill for the quarter was one. Sequentially, Backlog was up 2% in both our process and hybrid and discrete businesses. Adjusted segment EBITDA margin of 27.1% met expectations and was negatively impacted by 40 basis points due to tariffs, which primarily affected profitability in intelligent devices. We had strong profit contributions from software and control, including synergy realization at Aspen Tech, and test and measurement. Operating leverage was 25%, and excluding the impact of tariffs, operating leverage was 38%. Adjusted earnings per share in the quarter of $1.52 grew 6% year over year, and I will discuss this in more depth on the next chart. On a year-to-date basis, adjusted earnings per share of $4.38 is up 9%, with strong operational performance, contributing an incremental 45 cents. Finally, Emerson generated better than expected free cash flow of $970 million, resulting in a margin of 21.3%. The cash flow performance was led by higher earnings and improvements in working capital. Year to date, free cash flow is up 20% versus the prior year and at a margin of 18%. Please turn to slide nine. Emerson executed well again in Q3. Operations added 9 cents versus the prior year adjusted earnings per share of $1.43. Software and control added 6 cents and intelligent devices added 3 cents. The Aspen Tech buy-in was slightly accretive in the quarter, driven by synergy realization. Non-operating items netted to zero, as share count and other favorability offset a two-penny headwind from FX and a two-penny headwind from pension. Overall, adjusted EPS grew 6% year-on-year to $1.52. Please turn to slide 10 for additional details on our fourth quarter and full year 2025 guidance. We expect fourth quarter underlying sales growth of 5% to 6%, supported by meaningful acceleration in test and measurement, sustained healthy pace of business in our process and hybrid businesses, a strong backlog position as we enter the quarter, and expected incremental tariff-related revenue. Adjusted segment EBITDA is expected to be approximately 27% of 80 basis points over the prior year with operating leverage of approximately 40%. With this, we expect to land adjusted earnings per share between $1.58 and $1.62, a strong year-over-year growth of 7% to 10%. For the full year, we expect underlying sales to be up approximately 3.5%. Price is now expected to contribute approximately 2.5 points of growth versus 3 points in the prior guide due to decreased tariff exposure resulting in lower surcharges. We are increasing adjusted segment EBITDA margin guidance to approximately 27.5% with operating leverage of approximately 70%. Adjusted EPS is increased at the midpoint to approximately $6 per share. Free cash flow was also increased to approximately $3.2 billion, resulting in a margin of approximately 18%, which includes $200 million of transaction-related headwinds. With that, we will now turn the call over to the operator for Q&A.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, you may press star 1 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 that are using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, for our first question. Thank you. And the first question is from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your question.

Hey, thank you. Good morning, everyone. Good morning, Jeff. Good morning. Hey, I thought you were going with Jeffrey for the AI advisor. Just kidding. Hey, could we just maybe just sort of touch on the margins again and sort of intelligent devices in particular? So, you know, I kind of get the tariff math, but dollar sales were actually up in the quarter sequentially and dollar profits were down sequentially. So can we just unpack that a little bit? Were you technically behind on price costs relative to tariffs in the quarter and expecting to catch that up in Q4? Or maybe there's something going on in mix or else otherwise?

Yeah, Jeff, thanks for the question. The intelligent devices, you're right, 24.4 and 25 with the adjusted EBITDA margin down about 1.1 points. And there was a meaningful impact of tariffs, which we expected, but there was also a meaningful impact with FX included in there that really wasn't expected that drove that down. When you take those two out, it's up 20 basis points. The other thing to bear in mind is that the tariffs largely hit that group. There isn't nearly as much tariffs in control systems and software. So that's where you see all of that tariff math reading through, for the most part. There's some in the other, but it's primarily there. So the unexpected piece was the FX, which is FX, to be clear, of balance sheet exposures that then get marked to market, and that is in the segment EBITDA emergence.

Yeah, great. Thanks for clarifying that. Yeah, I was surprised FX was a headwind on that bridge, given you got a translation positive, but the hedge is working through. Understood. And then maybe just on test and measurement, the inflection that you're seeing there, how would you kind of characterize vertical markets that might be driving that? Is it broad-based? Is it concentrated in a few areas? If there's any geographic color to add, I'd be interested in that also.

Yeah, I know I'll comment, Jeff, and I'll let Ram add as well. No, we saw a very broad-based recovery across all segments and all world areas in test and measurement. I'll suggest that the most encouraging segment recovery has been in the portfolio business, which is the vast array of thousands of customers with a diversified end market basis and gives us the best indication of the recovery in the market. But in addition to that, aerospace defense remains strong, as it has been for a number of quarters now. But the recovering semiconductor and, of course, easy comparisons in automotive made it possible to have a positive order number across all four of the segments.

Ron? Yeah, and just to add to that from Ron, world area, region of the world perspective, Asia being the strongest. They went down first, so they're recovering, rebounding very strong. China has been actually very good in terms of recovery as well, followed by North America and Europe. So I think, as Walt said, every segment and every world area is strongly positive.

That's great to hear. Thanks. I'll leave it there. Thank you, Jeff.

Next question is from the line of Steve Tusa with J.P. Morgan. Please proceed with your question.

Hi, good morning. Good morning, Steve. Can you just maybe talk about how you saw the quarter play out? I think you guys said the orders in April were up seven, and I think you may have exited at a bit of a lower rate. Maybe May was weak and June came back. Just maybe some color on how these orders trended in May and June.

Yeah, you know, we felt strongly about that mid-single-digit exit rate that we talked about at the beginning of the quarter. And there were some flips and takes as we went through in terms of timing speed, which we always have on some of the orders. You can see some of it slipped into July. Some of it might have been pulled forward on some just large capital bookings. What remained very consistent throughout the quarter was our MRO bookings. There was really no fluctuation there. and that gave us a really good basis, and then we had the capital fluctuations come in and out just based on timing.

Okay, and then just as we move into next year from a kind of software perspective, always tough for us to model that, is anything next year with regards to the comps at Aspen or anything like that from a growth perspective that we should keep in mind?

No, I think from an Aspen perspective, certainly ACV continues in terms of high single-digit growth into double digits as some of the synergies come through. So, you know, nothing in terms of ACV from an Aspen perspective that is concerning. And then certainly as it relates to our other businesses, the process segment will remain pretty consistent at mid-single digits with recovering discrete.

Okay, great.

Thanks.

Our next question is from the line of Andy Kaplowitz with Citi. Please receive your question.

Hey, good morning, everyone. Good morning, Andy. Well, just a little bit more on your core process in hybrid markets. I know you expected mid-single-digit order growth. That's what you got. If you look at the business or the end markets, you expect stability or maybe slight improvement moving forward. How do you get that? Is it all from power and LNG? And maybe you could talk about You know, some of the weaker markets, what you're seeing, like in chemical stabilization there, still getting weaker. How do you look at it?

Yeah, no, certainly LNG, power generation, and life sciences will continue to fuel process hybrid on a forward basis here, given the visibility we currently have. And we feel very positive about the underlying drivers across all three of those. Chemical is a mixed story. We actually are doing quite well in specialty chemicals. The bulk chemical story is negatively impacted in Europe and in China, and we just have a demand condition and an overcapacity condition that impacts those end markets, and so those are negative for us. But just about as I look forward into 2026, certainly I expect the momentum to continue as capacity is invested, not just to meet the energy security needs, but also but also to nationalize, localize manufacturing of drugs, and, of course, the enormous expansion we have in generation and transmission distribution capacity.

Gotcha. And then just back to test and measurement, I know, Lal, you've been working on sort of the commercialization of growth there. So maybe you can talk about how much of the improvement is the markets, you know, as you answered Jeff's question, but maybe just your own self-help and where you are in that process of improving the business. Obviously, you mentioned LabVIEW and the presentation is outperforming, so maybe you could talk about that as well.

Yeah, I will, and I'll let Ram jump in here as well. Look, so much work has been done, Andy, as you know, by this team led by Ram and Ritu Fabre, and they've done an exceptional job resetting this company to address and to be a quick, more nimble, responding to market opportunities. So certainly we have seen market recovery, underlying market recovery, which fuels, but we believe that we're outperforming the market. And that is based on not just the reset of the commercial focus in the company, but also the new products that we're bringing to market. And the example I highlighted with LabVIEW is a new generation, new incremental product in the marketplace. And I think that's going to make a big difference across the segments.

Rob? Yeah, you said it, Lal. I think the focus on new products, I think, as Lal said, LabVIEW, the software suite, they're launching anew. a DAC or a data acquisition product, which I think is a core capability that NI and NI customers were expecting. So I think that's going to be a net positive. But also on the commercial side, going back to the basics as it relates to country-specific growth plans, they have great exposure in many, many parts of the world. And going back to the basics in developing go-to-market plans and growth initiatives, Simple things, but hugely important as the market recovers, where our management system deployed is helping NI grow faster than the market, and that's clearly evident in the pace of business we're seeing. Appreciate it, Gus.

The next question is from the line of Scott Davis with Milius Research. Please proceed with your question.

Hey. Hey, good morning, Gus. Good morning, Scott. Hi. Let me talk a little bit about Ovation, if you don't mind, and just maybe some of this is just going to be reeducating us on kind of how this, how you guys make money there. But when you talk about like, you know, orders up 40%, you know, is this all new projects? Is it a mix of retrofit and new projects? How do you kind of guys think about what goes into a new, does a retrofit go into a new order example? Then I've got to follow up on that, too.

Yeah, no, certainly there are a couple categories there. There is new construction. I highlighted the energy combined cycle plants as an example. Those typically have long lead times. You book. You do the engineering work. Construction begins. You start driving the automation in. There are extension of life in plants. We're seeing that in combined cycle and coal plants. and in nuclear in the United States and Asia. And then lastly, there are modernizations, whether it's for cybersecurity purposes, AI purposes, or other plants put in new control systems and upgrade their elevation. All three of those, Scott, as you know, are bookings. They all have different implications to the ship ratio, given the time it takes to implement and build. Ram, any thoughts?

Yeah, you said it. I think traditionally the power industry for us has been one of competitive displacement. As you know, greenfield opportunities have really picked up in the recent past, but over the years we've owned this, it was a competitive displacement story. But what is certainly a net positive for us is the greenfield capacity investment and combined cycle happening in the U.S. to fuel the power needs for the data centers, but certainly markets like China as well, there's significant level of greenfield activity, and we're capitalizing on that with the technology position we have in Ovation. So all three aspects of the business, greenfield, modernizations, as well as continued MRO and competitive displacement is fueling the order growth, which will convert to sales over the next couple of years.

Okay, and are those installs profitable? I mean, is it more of a loss leader and then you make money over time on the subscription, or do you make money on the install as well?

We make money on the install. We make more money on the aftermarket. It's the standard formula we've described in the past. I mean, obviously, there's a margin delta between when we win the project, greenfield, and modernization, and then ongoing MRO is a very profitable revenue stream.

Okay. Thank you, guys. I'll pass it on.

Thank you.

The next questions are from the line of Joe O'Day with Wells Fargo. Let's just see if there are questions.

Hi, good morning. Good morning. Can you talk through control systems and software a little bit? We saw, you know, really good organic growth there last quarter, you know, this quarter, more in that kind of little mid-single-digit range. Just talk about kind of what you saw within Aspen and then controls and how you're thinking about that growth into the fourth quarter.

Hey, Joe. I'll start this one. Yeah, remember last quarter we talked about the total deal pulling into Q2, which would have been in Q3, and Aspen's Emerson Q3, their Q4, was traditionally their biggest. So we had that. uh, uh, movement, but, you know, underlying Aspen ACB growth and continued revenue growth, very strong this year. And then the systems business continues, uh, to, to do very well in the mid single digits and, um, uh, continues to see all the dynamics that, uh, that Lal and Ron have talked about.

Yeah. Yeah. I think, uh, you said it, I think, uh, Overall, from a full-year perspective, mid-single-digit growth plus in the systems and software business, but as Mike described, the lumpiness associated with how Aspen recognizes ASC606 with the total, for example, as well as project lumpiness and how we execute within systems and software will have variations from one quarter to the next. But overall, we feel very, very good about the high end of the four to seven range for underlying growth in our systems and software business.

Great. That's helpful. And then just a little bit more color on the discrete side of the business and kind of contrasting test and measurement with legacy discrete. You did see, you know, order acceleration there in test and measurement. It looks like discrete orders may be pacing more flattish. And so, you know, what you're seeing in the different demand trends there and your expectation for kind of legacy discrete recovery.

I'll start off, and, Ram, you can add some color. So, you know, there are two very important dimensions of the legacy discrete, Joe, that differ from test and measurement. The first is exposure. to automotive and packaging businesses, particularly in Western Europe and China. And both of those markets continue to be relatively depressed and challenging. And that certainly dampened the recovery there. Offset, of course, by some of the more traditional broad-based industrials, which have impacted positively, but generally speaking are much more muted, and you're right, slightly positive, as they came out of the quarter, significantly more muted than the broad-based applications and market exposures that the test and measurement business has.

Yeah, and I think the outsized market exposure for us in Europe, which has been the slowest market to recover for our traditional discrete business, our factor automation piece, versus test and measurement business, points to the disparity in the pace and amplitude of recovery, but as Law described, I think the automotive segment and then factory automation, as it relates to Europe and China, have more muted recovery than many of the markets in test and measurement.

Got it. Thank you.

Our next question is from the line of Andrew Obin with Bank of America. Please receive your question.

Yes, good morning. Good morning, Andrew.

Well, just a broader question, and good morning to everyone. Just a broader question on your power vertical. You know, you sort of enter the power cycle with sort of very material endowment in terms of market share. The ovation order's up nicely. You know, clearly the Aspen grid business is doing very well. What do you think is sustainable growth rate Going forward, can it stay elevated for the next, I don't know, 12 to 24 months, given what's happening in the power gen industry broadly?

Yeah, thanks, Andrew. I'll comment in if Ram or Mike have something to add. I certainly believe it can based on the visibility we have of opportunity across both markets, generation and transmission distribution. And I think it's sustainable in the high-teens, kind of range over the next couple of years. As a matter of fact, we'll probably highlight this market, and when we all get together in New York City in November, as a growth factor for the company, because the dollar spend that we're seeing, and it's not just a U.S. story, obviously, is very meaningful and impactful. And as Ron described, it's been a significant shift for this team, which had been a, as you noted, it's a high participation rate company. to begin with, but essentially grew over the last 20 years by driving competitive displacement. Now we've refocused the team really around project pursuit and expansion of market. We see that momentum. We're very close to our customers because of that very large participation in the business. We are very optimistic about the next 24 months at high rates of growth.

Yeah, and to add to that, our customer intimacy in this business is very high. And based on, I mean, Bob Yeager, who runs this business, has great relationships with a lot of the major power companies here in the U.S. And certainly, I think their plans for continued investment and capacity expansion in combined cycle, and then certainly the digital grid management space on the T&D side supports an investment cycle that goes well beyond two years. Now, obviously, you can't call well beyond two years, but certainly for the next two years, we feel that the funnel is very, very strong on both sides, both generation as well as transmission and distribution. And so we expect these type of growth rates to continue.

Excellent. Thanks so much. And then just looking at where we are in the cycle, I think the narrative from a lot of companies back in the spring, early summer was that you know, tariffs are really impacting the ability of companies to sign off on large projects. I think with 65% of U.S. trading partners, you know, sort of having some form of agreement with the U.S., how has the dialogue with your customers changed? Are you getting more visibility? What does the funnel look like? What's the likelihood of large projects actually being released into the calendar year and in early 26? Thank you.

Yeah, so Andrew Aram here. We haven't, from our perspective, you know, certainly in LNG power of life sciences, which is the majority of our project funnel that we continue to drive, we have seen no slowdown in decision making or approvals to move projects forward. So I think that's the most important data point. Now, certainly in terms of some of the sustainability projects in our funnel, and that's not necessarily tariff-related. We have seen some project cancellations that have impacted the overall size of our funnel, but not in a meaningful fashion. But the most important thing is where we see the growth in LNG power, life sciences, and certainly even in the U.S., chemical, petrochemical projects and all of the activity in the Middle East, No slowdown, and we continue to yield $350 to $400 million of projects a quarter from our $11.2 billion funnel that has been consistent with what we've experienced in the last several quarters.

Thank you.

The next question comes from the line of Nigel Coe with Wolf Research. Please proceed with your questions.

Oh, thanks. Good morning. And, you know, for the avoidance of doubt, this is not the chatbot. This is the real person.

Yeah, Nigel, you know, we honored you with that.

There you go. It's great. I hope it's got a British accent. Okay. So, look, I think that, you know, when we, you know, you've talked about the order push out. So I just thought maybe we could just double click into sort of the second half order rates. It looks to be Mid-singles, I think you were pointing to high single-digit order rates in the second half of the year. So just wondering if you could maybe just double-click into where you've seen some of the push-outs. I'm guessing some of the energy transition projects have either canceled or pushed out. And then maybe talk about the North American greenfields. Clearly power and some of the other verticals you talked about. But I'm wondering, are we starting to see some of these reshoring announcements bearing fruit in terms of orders?

First of all, I did not talk about order push-outs, Nigel. That was not one of the elements that we experienced in the quarter. There were dynamics around timing of bookings. Some came earlier in the quarter. Some came in July, but we didn't see any dimension of push-outs on bookings on capital. As I mentioned in a prior comment, the MRO activity and booking based on MRO, which is As you know, 62% of the business was very steady throughout the quarter. Ram, any comments? Why don't you comment on the greenfields?

Yeah, I think the greenfields, which is LNG greenfields, power greenfields, life sciences greenfields, and even activity in chemical and ethylene and methanol continue to be positive for us in North America. So no push-outs, no slowdowns there. I think you may have picked up on the point. In terms of our funnel, we've seen some moves in sustainability and decarbonization projects in the funnel, but these are not in-the-quarter or near-term type projects. So that was maybe the commentary you picked up. But in terms of greenfield activity, we stay very, very positive on the movement of these projects in North America.

Yeah, sorry about that. The chatbot gave me the wrong information there. Moving on to the discrete automation, the discrete and test measurement outlook. Clearly, we're hitting some really deeply favorable comps here. So we've got a mathematical uplift on comps. But are we seeing a genuine increase in investment from your customers? That's the first part of my second question. And just maybe just touch on this FX pinch to margins. Do you think that's going to be a factor in 4K as well?

I'll take the second part of that, Nigel. We are not planning for the FX pinch on margins in the fourth quarter.

Yeah, and in terms of the discrete markets, I mean, for us, obviously, the custom measurement growth rates certainly drove a majority of the discrete recovery in terms of momentum. And certainly... Many markets within test and measurement is an inflection. For example, our largest single market is aerospace and defense, and that will see, as per the recent announcement, continued momentum in spending across the globe, certainly in Europe and North America where we have the best presence. So certainly that's an inflection. Semiconductors, both RF and mixed signal, which is where we play, there'll be validation investment, R&D investment, as well as capacity investment. And then The broad-based T&M recovery is more a sign of markets getting more confident about the pace of investments and our distributors and integrators restocking on NI. So, yeah, I would say many parts of our discrete market have inflection points and sustained recovery, but certainly the ones we're watching are factory automation investments out of Germany and China where we haven't seen sustained inflection yet. That's great. Thank you.

The next question is from the line of Dean Dre with RBC Capital Markets. Please proceed with your questions.

Thank you. Good morning, everyone. Good morning, Dean. Hey, when we were at the Emerson Exchange in San Antonio, we saw that demo of Ovation AI. And just to remind us, is this still in beta test? Has it been launched? And it was interesting, the first application, I guess it's not surprising it's PowerGen. What's the plan for the rollout for other applications?

Yeah, no, I noted that on slide three, Dean, that Ovation Virtual Advisor has been launched, and it's integrated in Ovation 4.0. So that's out in the marketplace, and it's off to a very good looking start already. I give an example also of Entergy. which is building two combined cycle 754 megawatt power plants in Mississippi and Texas, and they're using the technology. So there's a really good customer adoption there already on that product that you saw as a demo.

Good to hear. And then in your queue this morning, there's a reference to the one big beautiful bill talking about the accelerated depreciation that you're saying it would not be a meaningful impact for Emerson. Can you just clarify, is that a reference to your own CapEx? And what about customer CapEx? You know, with all this reshoring, there could be some benefit there. Can you just clarify?

You are correct. That is a reference to ours. And you're also correct that it certainly could be a benefit to our customers as they think about CapEx. And just to expand on that a little bit, the provisions of the One Big Beautiful Bill are generally favorable for Emerson, avoiding some downsides that were in the outlook as part of TCJA and changing some rates there that will be helpful, modestly helpful as we move forward.

Thank you.

Thank you. Our final question is from the line of Nicole de Blasio with Deutsche Bank. Please just hear through your questions.

Yeah, thanks. Good morning, guys.

Good morning.

I just wanted to ask about the order outlook for 4Q. I think previously it was up high singles. Now we're looking at 5% to 7% growth. Was that driven by a revision in the factory automation outlook? Can you guys just elaborate a bit there?

No, look, the process hybrid has remained very consistent for us in terms of outlook. We are still expecting that to exit in the mid-single digits as we were prior. Discrete recovery has been very, very encouraging as we went through the quarter, and you saw Nicole. So double-digit exit right there still expected. And then safety productivity, there's some comps in there, but lower single digits on that one. And so it's a mix of the different things, five to seven, but I guess it's mid to mid single high. I don't know how you define it, Nicole, but it still falls in that band of expectation that we had.

Okay, understood. Yeah, that's fair. And then just follow up on the margin outlook for 4Q. I think you guys said about 27% EBITDA margins. usually margins step down a little bit sequentially in the fourth quarter. Is the divergence versus normal seasonality just driven by the moving pieces around tariffs?

Yeah, I think for us in the fourth quarter, if you're talking versus Q3, the fact that we're holding at that 27% clearly is an indication of tariff-related pricing getting more favorable in the fourth quarter versus the third quarter. We always planned it that way, that we would implement the pricing actions in Q3, we'd have a little bit of a headwind as it relates to them fully offsetting tariffs, but then we'll get totally green, as we call it, into Q4, and hence Q4 margins very solid, up 80 basis points year over year, and sequentially flat to Q3.

Thank you, I'll pass it on.

Thank you. At this time, this will conclude our question and answer session. I also conclude today's teleconference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.