Emerson Electric Company

Greetings and welcome to the Emerson First Quarter 2026 Earnings Conference 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 operating assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Ashby, Director of Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining Emerson's first quarter 2026 earnings conference call. For those who don't know me, my name is Doug Ashby, and I'm the Director of Investor Relations for Emerson. Today, I'm joined by Emerson's President and Chief Executive Officer, Wal Carson-Bai, 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 the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Kharsanbhai, for his opening remarks.

Thank you, Doug, and good afternoon, everyone. Thursday, February 5th, marks my fifth anniversary as Chief Executive of Emerson. Over the five years, I have found the work challenging, motivating, and rewarding. The execution of our vision to transform Emerson into the world's leading automation company has been incredibly gratifying. We aligned the company to important secular drivers, which will experience outsized growth well into the future. Our customer engagement teams now deliver an unequaled software-enabled technology stack to solve industry's biggest challenges. I am surrounded by the best management team in industrial tech and by 70,000 talented, engaged colleagues all around the world. The Emerson Management System will enable best-in-class execution led by growth, earnings, cash, and resulting in differentiated value creation. I remain ever grateful to Emerson's board of directors, employees, and investors for their trust and support. Please turn to slide three. In November, we hosted our first investor conference since completing our transformation, and it was energizing to present Emerson as the global automation leader, executing on our vision to engineer the autonomous future. In addition to highlighting our technology advancements and innovation, we introduced our value creation framework, which guides how we operate the company, beginning with organic growth. Emerson's automation portfolio is aligned to powerful secular tailwinds, electrification, energy security, and nearshoring and sovereign self-sufficiency. And we expect these to drive growth over the next three years and beyond. We are also delivering innovation that enables customers to unlock significant value from automation. Operational excellence is a hallmark of Emerson, and we have plans to further expand adjusted segment EBITDA margins by 240 basis points by 2028. And importantly, We plan to return $10 billion or 70% of cumulative cash to shareholders through $6 billion of share repurchase and $4 billion of dividend payout. We remain confident in achieving our 2028 targets. The $21 billion top line, 40% incrementals that deliver the 30% adjusted segment EBITDA margins, $8 of adjusted EPS, and 20% free cash flow margin. We believe this is a highly differentiated value creation framework, and we are excited for the future of Emerson. Please turn to slide four. 2026 marks the 50th anniversary of National Instruments, which was founded in Austin, Texas in 1976 by James Truchard, Jeff Kadowski, and Bill Nolan. The trio was frustrated by the inefficient tools they encountered while working in a test lab at the University of Texas and believed connecting instruments to a computer could revolutionize electronic tests and measurement. They developed LabVIEW while working out of Truchard's garage And since its release in 1986, LabVIEW has redefined productivity and engineering workflows through software-defined tests. Today, Emerson's NI is the leader in test automation systems. And two recent developments demonstrate how Emerson is still driving tests forward through software. In January, our Nigel AI Advisor was one of 13 products recognized as the 2025 Product of the Year by Electronic Product Design and Test. This UK-based trade publication focused on electronic test, validation, and manufacturing, and their annual list highlights products that use innovation to achieve even greater levels of performance. Nigel provides intelligent workflows with AI-driven test design and orchestration to accelerate troubleshooting, optimize lab performance, and enhance decision-making. This award demonstrates Emerson's leadership in AI-enabled test automation and reflects continued momentum as we move the industry towards autonomous test operations. Nigel AI is purpose-built to support the specific tasks engineers face throughout the different stages of the product lifecycle. And today, Emerson released the next generation of Nigel AI, strengthening our capabilities in AI-enabled tests. These upgrades deliver step-changing performance by moving Nigel AI from an AI assistant to an AI author, accelerating code development to make engineering workflows more efficient from design and validation through production. Processes that previously took hours can now be completed in minutes. For our customers, this means engineers spend less time navigating tasks and more time focused on improving test outcomes. This evolution marks a clear step along our roadmap towards agentic AI. where software increasingly enhances productivity, and we are seeing accelerated user adoption of LabVIEW since the first launch of Nigel in 2025. Please turn to slide five. Robust demand continued in the first quarter, with underlying orders growth of 9%. Customers are deploying capital in longer cycle projects in our growth verticals, with momentum building in North America, India, and the Middle East and Africa. I will discuss more details on demand on the next slide. Emerson's first quarter results reflect disciplined execution. Underlying sales met expectations and were up 2% year over year. Momentum continued in test and measurement, up 11% year over year. and our ovation business accelerated sharply, up 20%, driven by the secular demand for power. Profitability exceeded expectations with adjusted segment EBITDA margin of 27.7% and adjusted earnings per share of $1.46. Annual contract value of our software grew 9% year over year and ended the quarter at $1.6 billion. We remain confident in our plans for 2026, supported by a good start to the year and our proven track record of operational excellence. We are reiterating our guidance of 5.5% sales growth, 4% underlying sales growth, and an adjusted segment EBITDA margin of approximately 28%. We are also raising the bottom and midpoint of our adjusted EPS guide and now expect $6.40 to $6.55 per share. Emerson completed $250 million of share we purchased in the first quarter, and we are committed to our plans to return approximately $2.2 billion of capital to shareholders. Finally, I want to highlight multiple key developments in technology and innovation at Emerson. In January, Emerson was named the 2026 Industrial IoT Company of the Year by IoT Breakthrough, marking the fourth time in the past five years that we have received this recognition. Over 4,000 companies were nominated globally for the 2026 competition, and Emerson was selected for having the most complete industrial IoT technology stack. Additionally, we released Delta V version 16, which advances our software-defined automation vision and is an integral piece of our enterprise operations platform. With flexible architecture and enterprise integration, Delta V version 16 empowers customers to make smarter decisions by improving access and providing context to operational data to facilitate advanced analytics and AI optimization. Lastly, we strengthen our leadership position in life sciences through a strategic collaboration with Roach, underscoring how Emerson software dramatically improves and shortens the technology transfer process. The new Delta V modality library enables LifeScience customers to efficiently design, scale, and deploy new production processes with pre-built and proven solutions that save months of development. Please turn to slide six. Underlying orders were up 9%, marking four consecutive quarters of strong order growth. Rating 12-month orders are up 6%, providing the backlog to support sales in the second half of 2026 and into 2027. North America, India, and the Middle East and Africa continue to show robust demand while we are seeing ongoing softness in Europe and China. Orders growth was most pronounced in our software and systems group. which was up 23% year-over-year. Broad-based strength in test and measurement drove orders growth of 20%, led by semiconductor, aerospace and defense, and the portfolio business. AI and digital transformation of manufacturing are leading customers to deploy significant capital towards greenfield and modernization projects for power generation, especially in the U.S. Orders in our ovation business were up 74%, driven by large project wins, including behind-the-meter data centers and fleet modernizations for major utility customers. And we expect growth in the mid-teens for the year. We are also seeing healthy investments in grid digitization with ACB and Aspen Tech's Digital Grid Management Suite up 25% year over year. Secular tailwinds are driving substantial long cycle project activity. And Emerson won approximately $450 million of automation content from our project funnel in the quarter. 80% of these wins came from our growth verticals led by Power and LNG. Our funnel remains at $11.1 billion replenished by new opportunities in our growth verticals, and I want to highlight a few projects that support our confidence in continuing to win at high rates. First, Emerson was chosen to automate on-site power generation for a new 1.7 gigawatt AI data center in the United States, hoping to meet accelerated deployment timelines and mission-critical reliability. The project will leverage proven behind-the-meter power generation management software as part of the Ovation platform, enabling faster time-to-market for the customer. Emerson's recently announced strategic collaboration with Prevalon Energy played an instrumental role in our selection for this project, as the collaboration brings together Emerson's automation and control expertise with advanced energy storage to help data center operators improve reliance resilience, reliability, and efficiency in increasingly power-constrained environments. Next, Emerson was selected for Semper Infrastructure's Port Arthur LNG Phase II project, which will add 13 million tons per annum in capacity to the U.S. Gulf Coast facility. Emerson's Delta V control system and severe service control valves were chosen based upon our reputation for strong operational performance in LNG applications and our local presence and support. Lastly, Emerson One projects have multiple large new space customers and will help develop, test, and validate complex communication links for their satellite-based programs to provide reliable high-speed internet around the world. The customers will use NI's leading test software and PXI platform, which were selected due to their superior performance in reducing test times while providing best-in-class measurement accuracy. I will now turn the call over to Mike Bachman to discuss our results and 2026 guidance in more detail.