Emerson Electric Company

Greetings and welcome to the Emerson fourth quarter and full year 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your hosts, Colleen Mettler, Vice President Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Emerson's fourth quarter and full year 2025 earnings conference call. This morning, I am joined by President and Chief Executive Officer Lal Karthambai, Chief Financial Officer Mike Bachman, and Chief Operating Officer Ram Krishna. 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 the non-GAAP measures. Before we begin the presentation, I would like to highlight our upcoming 2025 investor conference on November 20th. We are looking forward to presenting on our transformed company, a global automation leader set to deliver a differentiated value creation framework. We will discuss the drivers of our 4% to 7% organic growth framework, detail our plans for additional margin expansion, and outline our capital allocation priorities. Additional information about this event is now available on our website. I will now pass the call over to Emerson's President and CEO, Lal Karzanbai, for his opening remarks.

Lal Karzanbai Thank you, Colleen. Good morning. 2025 marked the 135th anniversary of our company. The Emerson Electric Manufacturing Company was established in St. Louis, Missouri in 1890. The development of a reliable electric motor was the vision of two Scotland-born brothers, Charles and Alexander Meskin, made possible by the financial backing of John Wesley Emerson, a former Union Army officer judge, and lawyer. Throughout nearly a century and a half of economic cycles, the Great Depression, two world wars, significant technology innovations, and a handful of iconic industrial leaders who navigated uncertain waters, our company completed 2025 stronger than ever. We have transformed. We have momentum in our markets. We have great people, and we are optimistic about our future. Thank you to the 70,000 Emerson employees around the world, to our management team, our board of directors, and our investors for your trust. I am honored to work alongside each and every one of you in our value creation journey. Please turn to slide three. Emerson continues to see resilient demand as customers invest in automation technologies to drive digital transformation and enhance efficiency, reliability, and safety in their operations. Underlying orders grew 6% in the fourth quarter, driven by sustained demand in our growth verticals and accelerating orders growth in test and measurement, up 27% and exceeding our expectations. We had a robust finish to the quarter, and I will discuss more details on demand on the next slide. 2025 was another solid year for Emerson. Underlying sales in the fourth quarter were up 4%. Execution was strong in the quarter, with adjusted segment EBITDA margin of 27.5%, up 1.3 points. We delivered $1.62 adjusted earnings per share in the quarter at the top end of our guide. For the full year, underlying sales grew 3%, slightly below expectations as Europe and China built to ship were softer than initially expected. Emerson delivered strong profitability with adjusted earnings per share of $6, up 9% in free cash flow of $3.24 billion, up 12% year-over-year. Annual contract value of our software grew 10% year-over-year and ended the year at $1.56 billion. For fiscal 2026, we are guiding sales growth of 5.5%, with underlying sales growth of approximately 4%. supported by sustained investment in our growth verticals and robust performance in test and measurement. We expect to deliver adjusted segment EBITDA margin of approximately 28% and adjusted earnings per share of $6.35 to $6.55, reflecting strong operational execution. ACV is projected to grow 10% plus as customers further invest to advance their digital transformation ambitions. We plan to return approximately $2.2 billion of capital to shareholders, $1 billion in share repurchases, and $1.2 billion in dividends, including a 5% dividend per share increase. Please turn to slide four. Emerson delivered 6% underlying orders growth in the fourth quarter, marking a third consecutive quarter of mid-single-digit growth. This reflects sustained momentum across key geographies, and we are seeing broad-based strength in North America, India, and the Middle East and Africa. However, demand in Europe and China continues to be soft. MRO's spend across our $155 billion installed base remains resilient, supporting a healthy pace of business led by strength in North America. The capital cycle remains constructive, and large project bookings in power, LNG, life sciences, and aerospace and defense contributed to a better than expected finish to September. Momentum in power continues to build. and orders in our ovation business were up 18% in the quarter and 30% in the year, driven by greenfield projects and modernizations. Custom measurement orders were up 27% in the fourth quarter, with robust growth in all regions, led by semiconductor, aerospace and defense, and the broad-based portfolio business. Please turn to slide five. Emerson continues to see success in our growth platforms. Our technology leadership and ability to deliver differentiated solutions are enabling us to capture large-scale opportunities and drive sustainable growth. And I'd like to highlight a few key wins from the quarter that supported our 6% orders growth. First, I will highlight two projects in power demonstrating strong adoption of our Ovation 4.0 distributed control system. In August, we talked about Ovation winning two Greenfield combined cycle plants with Entergy. Ovation 4.0 has now been selected by Entergy to automate three more power generation facilities. Entergy today provides electricity to 3 million customers, and the five facilities will provide approximately 3.1 gigawatts of generation capacity. In another win, Ovation 4.0 was chosen to replace the existing excitation system at the Dual Nuclear Power Station in Belgium, unifying the control systems across the site. Dual provides around 15% of the country's electricity, and Emerson will help ensure the delivery of safe and clean baseload power. Next, Emerson is excited to announce its support to Bechtel Energy and Woodside Energy in the automation of the Woodside, Louisiana LNG project. The liquefaction and export terminal in Calcasieu Parish is a premier LNG project designed for safe, reliable, and efficient operations delivering LNG to global markets. This development can produce 16.5 million tons per annum with a permitted expansion capacity of up to 27.6 million tons per annum. Emerson is proud to be chosen as a key automation partner for Bechtel Energy. Last, Emerson was selected as the automation provider for three manufacturing facilities being built in Indianapolis by a large US-based life science customer, a major step forward in their near-sharing initiatives and in advancing innovation and efficiency. Emerson will provide our leading Delta-V control systems and software portfolio to enable reliable, scalable, and data-driven automation. Through this collaboration, Emerson will deploy state-of-the-art Delta-V technologies designed to accelerate the time to market, of next-generation weight management drugs, enhance production performance, and ensure regulatory compliance. These wins reinforce our position as a global automation leader and demonstrate the strength of our portfolio in addressing the challenges our customers face today. Our continued success is driven in part by our industry-leading innovation. and we are consistently investing to advance our technology, including investing 8% of sales in 2025. In the fourth quarter, we launched two AI-powered applications to unlock productivity and workflow automation. First, we launched Guardian Virtual Advisor to enhance our Velta-V lifecycle management software. This solution combines Emerson's deep domain expertise and decades of data with conversational AI to help customers quickly resolve issues, optimize system performance, and reduce downtime. Currently available for Delta V, we are innovating it to expand across Emerson's automation platforms to support smarter decisions and operational excellence across the plant lifecycle. We also introduced Aspen Tech's subsurface intelligence, a cloud-native, AI-powered platform that accelerates decision-making for seismic interpretation. This AI platform automates workflows and improves collaboration across disciplines to help customers optimize production and reduce operational silos. Please turn to slide six. Emerson executed well in a fluid macroeconomic environment and continues to deliver excellent operational performance. Growth reflected sustained momentum in North America, India, and the Middle East and Africa, offset by persistent softness in Europe and China. LNG, power and life sciences, continued to attract significant investment globally and collectively were up 11% year over year. Sales in Tesla Measurement accelerated sharply as we exited the year, up 12% in the fourth quarter with broad-based strength. Our Tesla Measurement business continues to gain market share, driven by innovation and channel optimization. MRO for the company represented 65% of sales. Emerson achieved annual records for both gross profit margin of 52.8% and adjusted segment EBITDA margin of 27.6%. Margin expansion was driven by strong price cost, higher mix of software, and the benefit of cost reductions in synergy realization, offsetting a 20 basis point impact on gross profit from tariffs. We made meaningful progress integrating Aspen Tech realizing $50 million of synergies in 2025, and now plan to achieve $100 million in run rate synergies by the end of 2026, two years ahead of plan. Earlier this year, we completed all the actions to achieve our commitment of $200 million of run rate synergies for test and measurement. Adjusted earnings per share of $6 was consistent with our guidance Finally, we generated $3.24 billion in free cash flow, exceeding our August guidance of $3.2 billion, and in line with our initial guidance as we offset approximately $200 million of acquisition-related headwinds. Our 2025 performance underscores our commitment to operating results and positions us well to continue investing in growth, and returning capital to shareholders. Emerson's alignment with secular trends, leading technology, and improving orders momentum reinforce our confidence in our 2026 plans. I will now turn the call over to Mike Bachman to discuss our 2025 results in more detail and expectations for 2026.