Emerson Electric Company

Greetings and welcome to the Emerson second 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 operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Doug Ashby, Director of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining Emerson's second quarter 2026 earnings conference call. Today, I'm joined by Emerson's President and Chief Executive Officer, Lal Khursanbhai, 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 Karsanbhai, for his opening remarks.

Thank you, Doug. Good afternoon. I'd like to begin by thanking our colleagues around the world. At this moment, it is important to highlight our teams in the Middle East who persevered in a challenging, at times, dangerous environment. All of our employees and families remain safe and we continue to serve our customer needs throughout the region. What defines our company is a high performance culture based on deep respect for each other and an unwavering commitment to our customers. Led by Liam Hurley, our team in the Middle East brought this to life. Thank you. Please turn to slide three. We are committed to ongoing board refreshment. And today, we announce the newest member elected to our board of directors. Jennifer Neustadt is the Senior Vice President and General Counsel of Apple. Prior to joining Apple in January 2026, Jennifer served as Chief Legal Officer at Meta. She previously held multiple senior roles at the US Department of State, White House Office of Management and Budget, and the Department of Justice. Jennifer also spent 12 years in private practice, advising technology, media and financial services firms on litigation and regulatory matters. Her unique expertise in corporate governance, global business and technology and innovation will be a tremendous addition to the Emerson Board. Jennifer will officially join our board on August 3rd, 2026. This will expand Emerson's board to 11 members, and we are excited to have Jennifer join us. Please turn to slide four. End market demand remains strong. Underlying orders grew 5% in the second quarter, led by software and systems, which saw robust investment in our growth verticals and sustained momentum in North America and India. I will discuss more details on demand on the next slide. Emerson's second quarter results reflect our ability to deliver in a dynamic environment. Underlying sales growth of a half percent was below expectations due to a one-point impact from the Middle East conflict. Test and measurement continued to exceed expectations, up 12% year-over-year, and our ovation business was up mid-teens driven by the secular demand for power. Adjusted segment EBITDA margin of 27.6% exceeded expectations, and we delivered adjusted earnings per share of $1.54 near the top end of our guidance. As expected, annual contract value of our software grew 9% year over year and ended the quarter at $1.64 billion. We are updating our full-year guidance to reflect the impact of the conflict in the Middle East, and we now expect sales growth of 4.5% with underlying growth of 3%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising the bottom and midpoint of our adjusted EPS guide, now expecting $6.45 to $6.55 per share. We remain confident in our second half plans for 2026 based on the orders momentum we are seeing and the visibility we have from our backlog, which is up 9% year over year. Throughout the first half, Emerson completed $542 million of share repurchases and will remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Finally, I want to highlight the strength of our differentiated industrial software portfolio to address concerns in the broader software market regarding AI. We are seeing healthy growth in ACV and expect to finish the year up 10% plus. Our software is based on decades of deep domain expertise and serves mission critical applications in highly regulated industries. These applications require real time compute and traceability of data, where being right 99.9% of the time is not good enough. Further, we are well positioned to benefit from embedding AI in our solutions. This represents a great opportunity for Emerson as we advance the journey to autonomous operations. Emerson recently deployed an AI-driven optimization solution for Aramco, one of the world's leading integrated energy and chemicals companies. Emerson's Aspen hybrid models were integrated into Aramco's existing refinery planning network to create one of the world's largest multi-site optimization models and give Aramco a scalable, robust tool for global refinery planning. Next week, Aspen Tech and NI will both host user conferences, where Emerson will showcase our latest innovations, which will help customers unlock greater levels of optimization and productivity across their operations. Aspen Tech will hold their Optimize event with over 1,100 customers from 49 countries. including keynotes from ExxonMobil, TotalEnergies, and Exelon. NI Connect will feature keynote addresses from prominent customers, including NVIDIA and Austin, with over 1,600 attendees from 38 countries. Please turn to slide five. Underlying orders grew 5% in the second quarter, consistent with our expectations and supporting our second half sales plan. North America and India continue to drive orders performance. Demand in Europe remains stable but soft, while China has started the year slower than expected. Software and systems orders grew 18% year over year, with tests and measurement and control systems and software both up 18%. We saw sustained robust investment in power with orders in our ovation business up 41%, and ACV in Aspen Tech's digital grid management suite up 31%. We expect our growth verticals to be multi-year drivers of growth supported by secular tailwinds, and we are seeing significant capital being deployed in projects. Emerson won approximately $450 million from our project funnel in the quarter, with 85% from our growth verticals led by Power, Life Sciences, and LNG. The funnel grew to $11.2 billion, driven by new opportunities in Power. Now, I want to highlight a few key recent project wins. First, Emerson was selected by Encore, the largest electric delivery company in Texas. to enable the delivery of reliable power to more than 13 million residents. Encore will use Aspen Tech's DGM to modernize and scale its distribution grid, preparing for increased demand driven by the growing population in Texas. Encore will gain operational efficiencies and enhance grid management capabilities by leveraging a purpose-built OT platform for both transmission and distribution systems. Next, Emerson was chosen by next decade for the train four and five expansion to the Rio Grande LNG facility, which will add 12 million tons per annum in capacity. Emerson will supply instruments, valves, and analytical systems, and was selected based upon our strong operational performance in LNG applications and our local presence and support. Third, a major pharmaceutical manufacturer based in Indiana chose Emerson to support their three-site production program for oral GLP-1s. Ramping production quickly to meet substantial demand is critical for this project, and Emerson will provide our leading DeltaV control systems and software, as well as our ability to execute complex projects. Lastly, Emerson will provide anti-software and modular hardware to a leading aerospace company headquartered in South Texas for the production of the next generation communication satellite. Emerson was chosen for its ability to provide improved test speed and measurement accuracy within a small footprint. Please turn to slide six. We have a $1.2 billion business in the Middle East representing 7% of sales. Emerson has an $8.5 billion installed base in the region and over 1,400 employees across manufacturing, field service, and sales administration. The conflict presented a significant disruption in the quarter, causing a one-point impact to underlying sales. First and foremost, The safety of our employees and customers is our ultimate priority, and we took actions such as shutting down manufacturing for a period to protect our people. In March, our field service engineers also operated at less than 50% of pre-conflict levels. Emerson maintains a strong regionalized manufacturing strategy in the Middle East, but components for instruments and valves are imported into the region. Additionally, the closure of the Strait of Hormuz caused significant disruptions to ocean, air, and ground logistics, which restricted our ability to import necessary components for instruments and valves. Our customers experienced a varying degree of impact, with 47 customer sites identified as having been damaged in some capacity. We saw a slowdown of MRO, and project activity in the quarter as some facilities restricted personnel, but we saw an improvement in activity in April. We are encouraged by the efforts of our employees and customers to drive business continuity. The situation remains challenging, and we expect it to impact the full year 2026 underlying sales by one point. Customer sites were largely operational by mid-April, although running at around 75% capacity due to their inability to move product out of the Strait of Hormuz. Emerson's manufacturing facilities are both operational, and our field service engineers are now operating at 80% of pre-conflict levels. The dedication and service levels of our employees is deepening customer relationships. When we are working proactively with our customers, to ensure we can meet their needs as they begin to work to repair damaged infrastructure. We have already seen rehabilitation activity, and we expect to have additional opportunities as customers continue to assess their facilities. Overall, we estimate a future rebuild and restart opportunity of approximately $100 million, which will play out over several quarters. Although the Strait of Hormuz remains effectively closed, our teams are implementing alternative routes and expect to see logistics continue to improve. While we are seeing increased freight expenses in the region, the cost impact to Emerson is manageable. Importantly, on-site project execution work is now progressing well at several key sites, and the outlook for projects remains strong. I want to reiterate how proud I am of our employees for their resiliency, and we continue to stand with our customers during this challenging situation. With that, I will now turn the call over to Mike Bachman to discuss our financial results and guide us in more detail.