Emerson Electric Company

Good afternoon and welcome to the Emerson third quarter and full year 2026 earnings conference call. All participants will be in a listen-only mode. After today's prepared presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to your host, Doug Ashby, Director of Investor Relations at Emerson. Please go ahead.

Good afternoon, and thank you for joining Emerson's third quarter 2026 earnings conference call. Today, I'm joined by Emerson's president and chief executive officer, Lal Karsanbhai, chief financial officer, Mike Baughman, 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, everyone. I'd like to begin by thanking my Emerson colleagues around the world for delivering an outstanding quarter. We have created momentum in our business built on customer intimacy, investment in innovation and operational execution. All a testament of the strength of the Emerson management system. Please turn to slide three. I would like to recognize our chief technology officer, Peter Zornio, who will retire on December 31st following an exceptional career at Emerson. Peter joined Emerson in 2006 and played an instrumental role in the development of our industry leading control systems and software portfolio. He has been a key member of the executive leadership team in our automation business since 2017 and played a pivotal role driving innovation as CTO during our portfolio transformation. Thank you, Peter, for your contributions and friendship over the past 20 years. and please know it has been an honor working with you. I'm also excited to announce Huri Sengupta as our Senior Vice President and Chief Technology and AI Officer, effective August 15th. This appointment reinforces Emerson's strategy to lead an AI enabled automation, advancing the full technology stack and helping customers achieve autonomous operations at scale. Rudy joined Emerson through the acquisition of NI and brings decades of experience in software-defined automation, spanning engineering, product, and corporate strategy and operations. Currently serving as Vice President and General Manager of Test and Analytics Software, Rudy has advanced NI software differentiation, including the development of award-winning Nigel AI. He brings a deep understanding of technology and AI and his leadership of our enterprise AI vision and long-term technology roadmap will be key in accelerating innovation across Emerson and positioning the company for continued growth. Please turn to slide four. End market demand is robust, supported by secular trends in our growth verticals and meaningful investment in automation. Underlying orders grew 7% in the third quarter with broad-based growth across all business groups, led by software and systems, which was up 10%. Demand was strongest in North America and Asia, and I'll discuss demand trends in more detail on the next slide. Emerson delivered an outstanding third quarter with sales, margin expansion, earnings, and cash all exceeding expectations. Underlying sales grew 6%, led by sustained momentum in test and measurement, and in our ovation business, both up 23%. Overall, our growth verticals were up 27%. led by Semiconductor and Power, which both saw significant growth. Adjusted segment EBITDA margin expanded 140 basis points to 28.5%, and adjusted earnings per share grew 13% to $1.71, above the top of our guidance. Thank you for joining us. The demand environment in the Middle East is constructive with repair work underway. Our field service engineers are now operating at pre-conflict levels, but customer operational capacity remains approximately 75%. Large projects are moving forward, and we are seeing new opportunities emerge across the energy chain to support energy security and resiliency in the region. Emerson's customer relationships and strong local presence position us well to capture the near-term investment priorities, pipelines, and alternative export routes to reduce dependence on the Strait of Hormuz. The long-term capital outlook is robust, and we remain confident in the growth potential of the Middle East. Lastly, the year is shaping up largely as expected. with a meaningful second half step up in organic growth in a slightly better Middle East than what we forecast in May. We are raising our four-year guidance, reflecting strong third quarter results and healthy demand trends. We are raising sales growth expectations to 5% with underlying growth of 3.5%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising our adjusted EPS guide to $6.55. Through the third quarter, Emerson completed $898 million of share repurchases, and we remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Please turn to slide five. Underlying orders grew 7% in the third quarter, with broad-based demand across the portfolio as customers are investing in automation to enhance productivity, reliability, and resilience in their operations. North America and Asia drove the growth, led by the continued strength in the US, India, Japan, and Southeast Asia. Demand in Europe and China remained soft, but showed signs of improvement in the quarter. Test and measurement orders growth of 19% exceeded expectations with semiconductor up 70% and double digit growth in aerospace and defense and the portfolio business. We are seeing a continuation of the unprecedented investment in power generation. with orders in our ovation business up 31%. Electrification is also driving exceptional activity in grid modernization and ACV in Aspen Tech's digital grid management suite was up 28%. Our project funnel grew $1.2 billion to $12.4 billion, up 8% year over year. Secular Tailwinds are supportive of sustained capital activity in our growth verticals, which were up $1 billion sequentially. Power was up $450 million from the second quarter and now accounts for $3 billion of the funnel. The power generation build-out is accelerating with substantial demand for both utility and behind-the-meter power. The need for more stringent cybersecurity and critical infrastructure is also leading customers to accelerate retrofit and upgrade programs. The LNG funnel grew $350 million to $2.2 billion, and we see resilient momentum across the Americas and the Middle East, reinforcing the demand trajectory we outlined at our investor day last November. In the third quarter, Emerson won approximately $400 million from the funnel. 80% came from our growth verticals. And I want to highlight a few key wins. First, Emerson was selected to retrofit control systems for a 2.1 gigawatt power plant for CFE, Mexico's largest power producer and national utility. Emerson will deploy its industry-leading ovation control system which was selected for our proven ability to execute complex retrofits within accelerated timelines. This modernization will enhance plant reliability and support CFE in meeting Mexico's growing power generation demand. Next, Emerson was chosen by China Nuclear Power Engineering Company. The design firm for the new Hualong-1 pressurized water reactor in Guangdong province, which will add 2.4 gigawatts to China's nuclear installed base. Emerson will supply pressurizer pilot operated safety valves, one of the most critical valve applications to ensure overpressure protection of the primary circuit. We were selected based upon our strong application expertise, nuclear qualifications, and our local presence and support. Lastly, Emerson will provide NI semiconductor test systems for a leading semiconductor manufacturer based in Taiwan. Emerson's solution improves test accuracy and consistency for critical components, ensuring a faster product roadmap to help the customer capture opportunities in the AI market. With that, I will now turn the call over to Mike Baughman to discuss our financial results and guidance in more detail.