Q3 2026 Emerson Electric Co Earnings Call Transcript
Key Points
- Emerson Electric Co (EMR) delivered an outstanding third quarter with underlying sales growth of 6%, exceeding expectations, and adjusted EPS of $1.71, up 13% year-over-year.
- Underlying orders grew 7% in Q3, with broad-based growth across all business groups, led by software and systems up 10%, indicating strong demand momentum.
- Growth verticals surged 27% in the quarter, with semiconductor up 53% and power up 37%, driven by secular tailwinds and participation gains.
- Adjusted segment EBITDA margin expanded 140 basis points to 28.5%, reflecting strong volume leverage, favorable mix, and disciplined price cost management.
- The project funnel grew to $12.4 billion, up 8% year-over-year, with significant increases in power and LNG, providing strong visibility into future growth.
- Free cash flow was robust at $1.3 billion in Q3, up 36% year-over-year, with a margin of 27.1%, exceeding expectations.
- The company raised its full-year guidance for sales growth to 5% and adjusted EPS to $6.55, reflecting confidence in continued strong performance.
- Software ACV grew 9% to $1.68 billion, with expectations to exit the year at 10%+ growth, supported by strong performance in AspenTech and digital grid management.
- The Middle East performance was better than expected, with field service engineers back to pre-conflict levels and new opportunities emerging for energy security and resiliency.
- Test and Measurement orders grew 19%, with semiconductor up 70%, and the company sees robust demand through 2027, particularly in production and validation applications.
- The Middle East conflict continues to impact results, with an approximately $25 million revenue headwind in Q3 and a similar expected impact in Q4, as the Strait of Hormuz remains effectively closed.
- China remains soft, with sales down 3% year-over-year, though improving sequentially, and the company expects only low-single-digit growth in 2027.
- Europe is weak, with sales down 1% in the quarter, and while orders turned positive, the recovery is expected to be gradual.
- Software and Systems margins decreased 30 basis points year-over-year, with a 1.5-point drag from software contract renewal dynamics and a higher mix of lower-margin projects.
- The company faces ongoing supply chain complexities in the Middle East, limiting customer operational capacity to approximately 75% and constraining revenue recovery.
- Safety and Productivity growth remains muted at 2%, with softness in European and automotive markets, and the company expects only 1% growth in Q4.
- The full-year impact from the Middle East conflict is modeled at approximately $100 million, representing a 0.5-point headwind to revenue growth.
- Intelligent Devices growth is suppressed by the Middle East impact, with full-year growth expected at only 2%, though orders suggest a recovery ahead.
- The company faces uncertainty in the Middle East, with customers needing a stable agreement between the U.S. and Iran before normalizing orders, which could delay recovery.
- Price cost is green, but the company received $82 million in tariff refunds in Q3, which were largely offset by other inflation, indicating ongoing cost pressures.
Good afternoon and welcome to the Emerson third quarter and full year 2026 earnings conference call. (Operator Instructions) 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 2. 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
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