Q1 2022 Emerson Electric Co Earnings Call

Speaker 1: Good morning and welcome to the Emerson First Quarter 2022 earnings conference call. All participants will be in listen only mode. Should you need assistance policing all conference specialists by pressing the star key followed by Zura. After today's presentation, there will be an opportunity to ask questions.

Good morning, and welcome to the Emerson's first quarter 2022 earnings conference call all participants will be in listen only mode.

You need assistance, placing all conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad withdraw. Your question. Please press Star then two please.

Speaker 1: Fast Requestion. You may press star then one on your telephone keypad. So if you're on your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Colleen Metler. Please go ahead.

Please note. This event is being recorded I.

I would now like to turn the conference over to Colleen Mettler. Please go ahead.

Good morning, and thank you for joining Emerson's first quarter fiscal 2022 earnings conference call today, I am joined by President and Chief Executive Officer, La Carte Tonight, Chief Financial Officer, Frank Dellaquila, and Chief operating Officer Ram Krishnan.

Speaker 2: Good morning and thank you for joining Emerson's first quarter fiscal 2022 earnings conference.

Speaker 2: Today, I am joined by President and Chief Executive Officer, Lawal Carson Byte, Chief Financial Officer, Frank Delacula, and Chief Operating Officer, Ram.

Speaker 2: As always, I encourage everyone to follow along with a slide presentation which is available on our website. Please join-

Always I encourage everyone to follow along with the slide presentation, which is available on our website. Please join me on slide two.

This presentation may include forward looking statements, which contain a degree of business risks and uncertainties.

Speaker 2: This presentation may include forward-looking statement, which contain a degree of business risk and uncertainty.

Speaker 2: Please take time to read the safe harbor statement and note on the non-GAP mission.

These take time to read the Safe Harbor statement and note on the non-GAAP measures.

Speaker 2: Turning to slide three, I would like to highlight a few exciting accomplishments for Emerson's Discordr. First, in December , Emerson announced the acquisition of META Technique, a leader in wind power control automation. META Technique brings specific control design, expertise, complementing our existing Emerson ovation and power portfolio. We are very excited to welcome the META Technique team to Emerson and its ability to expand our renewable power generation capability.

Turning to slide three I would like to highlight a few exciting accomplishment for Emerson this quarter.

First in December Emerson announced the acquisition of Meda technique, a leader in wind power control automation needed technique bring specific control design expertise complementing our existing Emerson ovation and powered portfolio we.

We're very excited to welcome to meet a technique team to Emerson and its ability to expand our renewable power generation capabilities.

Speaker 2: Secondly, Emerson was recently named the 2022 Industrial IOT Company of the Year Award by IOT Break.

Secondly, Emerson was recently named the 2022 industrial Iot company of the year Award by Iot Breakthrough Emerson was acknowledged for advanced digital technologies software and analytics that help customers across a range of critical industries optimize their operations and deliver on environmental.

Speaker 2: Emerson was acknowledged for advanced digital technologies, software and analytics that help customers across the range of critical industries optimize their operations and deliver on environmental sustainability goals.

Staying ability goal.

Speaker 2: Finally, last week, Emerson was recognized as a 2022 Best Place to Work for the LG BTQ Plus Equality, and earned a score of 100% on the Human Rights Campaign Foundation's 2022 Corporate Equality Index.

Finally last week Emerson was recognized as a 2022 best place to work for the LGBTQ plus equality and earned a score of 100% on the human rights campaign Foundation's 2022, corporate equality index.

Speaker 2: Before I turn it over to Law, I wanted to provide a brief update regarding one of our previously communicated investor events. We are now planning to host a half day in-person investor conference in the second half of this calendar year, where we will provide an overview of our business strategy, portfolio direction, and long-term financial outlook. We look forward to sharing additional information as we finalize details for this event.

Before I turn it over to Paul I wanted to provide a brief update regarding one of our previously communicated investor events.

We are now planning to host a half day in person Investor Conference in the second half of this calendar year, where we will provide an overview of our business strategy portfolio direction and long term financial outlook, we look forward to sharing additional information as we finalize details for this event.

Speaker 2: I'll turn the presentation over to Emerson's president and CEO , Lawal Carson Byte, for his opening remarks.

I will turn the presentation over to Emerson, President and CEO La <unk> for his opening remarks.

Thank you Colleen.

Speaker 3: Thank you, Colleen. I'd like to begin by recognizing the exceptional work that nearly 90,000 Emerson employees did to deliver our first quarter result.

To begin by recognizing the exceptional work that nearly 90000 Emerson employees did to deliver our first quarter results.

Speaker 3: I'd also like to express my gratitude to the OCE and the board of directors for their continued support. And last but certainly not least to our shareholders for your trust and investment in our company.

I'd also like to express my gratitude to the Oce and the board of directors for their continued support.

And last but certainly not least to our shareholders for your trust and investment in our company.

Saturday February 5th marks my first year anniversary as CEO of Emerson.

Speaker 3: Saturday, February 5th marks my first year anniversary at CEO of Everston.

Speaker 3: And although I do not intend this to be a holistic reflection of my first year, I would like to share five important learnings.

And although I did not intend this to be a.

Our holistic reflection of my first year I would like to share five important loadings.

One.

Speaker 3: One, build good kings and empower them to lead. We have a very strong new-

Build good teams and empower them to lead.

Very strong new oce.

We hired our first Chief people Officer, I'll first Chief Sustainability officer named a new Chief operating officer.

Speaker 3: We hired our first chief people officer, our first chief sustainability officer, named a new chief operating officer, and named our chief compliance officer to the OCE.

And named our Chief compliance officer to the Oce.

Speaker 3: And we have an independent chair of the board in Jim Turley, a great partner for the shareholders and the management of this company. Number two.

And we have an independent chair of the board and Jim totally a great partner for this for the shareholders and the management of this company.

Number two.

Diversity makes us better.

It is my goal to continue to create a workplace where people feel like they belong.

Speaker 3: It is my goal to continue to create a workplace where people feel like they belong, have a place, and can be themselves.

And can be themselves.

I am very proud of the diversity targets, we established to double representation of women in U S minorities and leadership by 2030.

Speaker 3: and very proud of the diversity targets we established to double representation of women and U.S. minorities in leadership by 20th Century.

Number three.

Speaker 3: Number three, strengthening any business starts with strengthening its culture.

Strengthening any business starts with strengthening its culture.

Speaker 3: Culture transformation is well underway at Emerson, and it includes the redesign of the Emerson Management process into a new modern cohesive system.37

Cultural transformation is well underway at Emerson and it includes a redesign of the Emerson management process into a new modern cohesive system.

Number four think boldly.

Emerson is a storage company going back to 18 90.

Speaker 3: Emerson is a storage company going back to 1890. But we can up.

But we cannot be afraid of change.

Speaker 3: and must always be keenly aware of the value creation levels that are disposal. Number five. Number five.

And must always be keenly aware of value of the value creation levers at our disposal.

Number five.

Tomorrow starts with us.

We will live our purpose.

Speaker 3: We will drive innovation that makes the world healthier, safer, smarter, and more sustainable.

We will drive innovation that makes the world healthier safer smarter and more sustainable.

Speaker 3: We will create accelerated value through culture, portfolio, and execution.

We will create accelerated value through culture portfolio and execution.

Allow me now to turn to the quarter.

Speaker 3: is a very positive quarter, significant from a number of dimensions as we delivered $1.05 of adjusted EPS, an increase of 13% over 2021 Q1.

Very positive quarter significant from a number of dimensions as we delivered a $1 five of adjusted EPS.

An increase of 13% over 2021 Q1.

Demand is accelerating and automation solutions and continues to be very strong in commercial residential solutions.

Speaker 3: Demand is accelerating in automation solutions and continues to be very strong in commercial and residential solutions. The trailing three-month underlying orders were up 17% for the enterprise as a whole.

Trailing three month underlying orders were up 17% for the enterprise as a whole.

Our relevance with our customers.

Speaker 3: Our relevance with our customers continues to be a differentiator across all of our businesses.

Team use to be a differentiator across all of our businesses.

Speaker 3: Whether it is the energy customer undergoing a critical transformation to a carbon-free or lower carbon future.

Whether it is the energy customer undergoing a critical transformation to carbon free a lower carbon future.

Speaker 3: or a new energy economy startup customer in hydrogen or biogas.

Or new energy economy startup customer in hydrogen biogas.

Our okeechobee funnel continues to be very robust valued at approximately $6 $5 billion at the end of the quarter and Kobe three hit 60% of total automation revenues in the quarter.

Interestingly as well the sustainability and de Carbonization element of the funnel is now valued at over $800 million up over $100 million.

Over this time last quarter very positive.

Speaker 3: Our HVAC OEM customers who rely on our compression and electronics know-how to make their systems more efficient, to meet new regulatory standards.

Our HVAC OEM customers, who rely on our compression and electronics knowhow to make their systems more efficient to meet new regulatory standards.

Speaker 3: and also the tradesmen, the utility workers, the plumbers, many of whom, as I continue to learn, have rich tattoos and who trust our gear to get the job done. Over the past 100 days or so, I had the opportunity, along with many members of management, to meet these customers, representing a broad cross-section of our markets and feel great about the role that we continue to play in making them successful. Our execu-

And also the tradesmen the utility workers the plumbers, many of whom as I've continued to learn have reached tattoos who.

Who trust our gear to get the job done.

Over the past 100 days or so I had the opportunity along with many members of management to meet these customers representing a broad cross section of our markets and feel great about the role that we continue to play in making them successful.

Our execution in the quarter was excellent.

Speaker 3: We improved adjusted EBIT margins, 140 EBITDA margins, 140 basis points to 19.6%, delivering incrementals of 32% across the enterprise.

We improved adjusted EBIT margins of 140, EBITA margins of 140 basis points to 19, 6% delivering incrementals of 32% across the enterprise.

The automation business is operating at historical levels of profitability with adjusted EBITDA margins, increasing 320 basis points to 21, 5%.

Speaker 3: The automation business is operating at historical levels of profitability with adjusted EBITDA margins increasing 320 basis points to 21.5%.

Speaker 3: Our commercial and residential business was faced with planned but unprecedented price-cost challenges, and the team performed exceptionally well.

Our commercial residential business was faced with planned but unprecedented price cost challenges and the team performed exceptionally well we.

Speaker 3: We have confidence in the price and cost management actions that are in place as we go through 2022.

We have confidence in the price and cost management actions that are in place as we go through 2022.

We will speak about the operating challenges that continue to be prevalent and most importantly, what we are doing to address them.

Speaker 3: We will speak about the operating challenges that continue to be prevalent and most importantly, what we are doing to address.

Speaker 3: These include electronics, both lead time, extensions, and purchase price variances, and shortages particularly that impacted automation solution sales in the quarter. Logistics and freight costs.

These include electronics, both lead time extensions and purchase price variances and shortages, particularly that impacted automation solution sales in the quarter.

Logistics and freight cost escalations.

Speaker 3: and labor wage inflation and availability that are concerns particularly in North America.

And labor wage inflation and availability.

Particularly in North America.

Yeah.

Speaker 3: In most of these cases, we feel better today than we did three months ago, but they do remain challenging. And we have been aggressive and implemented further price plans to offset these additional costs.

In most of these cases, we feel better today than we did three months ago, but they do remain challenging.

And we have been aggressive and implemented further price plans to offset these additional costs.

Speaker 3: Lastly, overall, I have and we as management have increased confidence in our 2022 financial plan.

Lastly overall.

I have and we as management have increased confidence in our 2022 financial plan.

Speaker 3: We have increased our underlying sales growth estimates for the year to seven to nine percent up by a point and the adjusted EPS target to four dollars and ninety cents to five dollars and five cents about ten percent increase over last year at the midpoint.

We have increased our underlying sales growth estimates for the year to 7% to 9% up by a point and the adjusted EPS target to $4 90.

To $5 and $5.

About 10% increase over last year at the midpoint.

I've, often said to the management team that sometimes growth isn't a lot of fun.

Speaker 3: I've often said to the management team that sometimes growth isn't a lot of fun because we are working so hard.

Because we are working so hard but.

Speaker 3: But I'll tell you that there's no other team I'd rather do it with than this team here at Emerson.

I'll tell you that there is no other team I would rather do it with this thing here at Emerson.

Let's now turn to chart five.

We continue to see increasingly strong levels of demand across both.

Speaker 3: We continue to see increasingly strong levels of demand across both platforms and all world areas.

Reforms in all world areas.

In commercial and residential solutions trailing three month orders were up 13% continue an extraordinary level of demand.

Speaker 3: In commercial and residential solutions, trailing three month orders or up 13% continue an extraordinary level of demand.

The European heat pump market continues to benefit from ongoing electrification trends in Europe .

Speaker 3: The European heat pump market continues to benefit from ongoing electrification trends in Europe .

Speaker 3: For our tools business, we see long-term cycle demand related to the housing market to remain strong with favorable macro trends and fundamentals, including DIY trends.

For our tools business, we see long term cycle demand related to the housing market to remain strong with favorable macro trends and fundamentals, including DIY trends.

Speaker 3: At the same time, I believe commercial and industrial segments are seeing considerable strength with project starts in the US and Europe .

At the same time, I believe commercial and industrial segments are seeing considerable strength with project starts in the U S and Europe .

The trailing three month orders for automation solutions were up 19% versus prior year, and there was broad strength across discrete hybrid and process markets across all world areas.

Speaker 3: The trailing three-month orders for automation solutions were up 19% versus prior year, and there is broad strength across discrete, hybrid, and process markets across all world areas.

Speaker 3: China orders were up 34% on a definition basis and continues to be an important growth region.

China orders were up 34% on a destination basis and continues to be an important growth region.

Speaker 3: Sustainability related investments as I referenced earlier continue to be a key driver for our business including renewable and grid investments which benefit our power and OSI business

Sustainability related investments as I referenced earlier continued to be a key driver for our business, including renewable and grid investments, which benefit our power and OSI businesses.

Speaker 3: We are also seeing continued recovery in our energy markets with capital spending budgets up significantly year over year in part due to LNG and Middle East conduct.

We are also seeing continued recovery in our energy markets with capital spending budgets up significantly year over year in part due to LNG and middle East investments.

Speaker 3: Portions of these budgets are being dedicated to decarbonization, emissions, and energy efficiency projects, which are accelerating as our customers take tangible steps in pursuit of their ESG targets.

Portions of these budgets are being dedicated to the carbonization emissions and energy efficiency projects, which accelerating as our customers take tangible steps in pursuit of their ESG ESG targets.

Speaker 3: To provide a little color on this, I'll highlight a few of our recent project swings related to this growth factor plus slide six.

To provide a little color on this I'll highlight a.

A few of our recent project wins.

Related to this growth sector.

On slide six.

Excuse me.

Speaker 3: First, let's start on the left of the chart. Emerson was recently awarded two sizable projects in the Middle East with our measurement solutions business to help customers reduce emissions.

First let's start on the left with the chart Emerson was recently awarded two sizable projects in the Middle East with our measurement solutions business to help customers reduce emissions.

Speaker 3: these solutions provide continuous monitoring systems, allowing customers to take preventive actions against emissions and release.

<unk> solutions provide continuous monitoring systems, allowing customers to take preventive actions against emissions and releases.

Speaker 3: The main driver behind these projects was the customer's commitment to emissions reductions as part of net zero target.

The main driver behind these projects with the customers commitment to emissions reductions.

<unk> of net zero targets.

Both projects were supported by environmental regulations, and the middle east to minimize emissions protecting the environment and community.

Speaker 3: Both projects were supported by environmental regulations in the Middle East to minimize emissions, protecting the environment, and communities.

Speaker 3: Next, in the middle, a refining customer in Europe has chosen Emerson to implement a full-scale automation and control modernization of one of their compressor units. The upgraded system, utilizing Delta V, PK controller, and control software solutions will provide greater control and load sharing of their system.

Next in the middle a refining customer in Europe has chosen Emerson to implement a full scale automation and control modernization of one of their compressor units you upgraded system utilizing Delta V PK controller and control software solutions will provide greater control.

And load sharing of their system.

Speaker 3: This graded degree of automation, control, and advanced compressor application is uniquely provided by Amerson and will allow the customer to optimize their operations, thereby increasing their efficiency and reducing energy and load requirements.

This greater degree of automation control and advanced compressor application is uniquely provided by Emerson.

And will allow the customer to optimize their operations, thereby increasing our efficiency and reducing energy and load requirements.

Speaker 3: Solutions like this can help customers use up to 30% less energy in their operations. That's a very critical number. And that's a critical piece of what many customers' net zero journey.

Solutions like this can help customers use up to 30% less energy and their operations. That's very critical number and that's a critical piece of what many customers net zero of that many customers net to journeys.

Speaker 3: And then finally on the right. Last month, Emerson announced participation in the Poseidon Project in the Netherlands.

And then finally on the on the right.

Last month, the Emerson announced participation in the Poseidon project in the Netherlands.

Speaker 3: The Fiden would be the world's first offshore hydrogen generation project basing an electrolyzer on an offshore platform coupled with nearby offshore wind power generation.

<unk> will be the world's first offshore hydrogen generation project, basing an electrolyzed or on an offshore platform coupled with nearby offshore wind power generation.

Speaker 3: offshore wind will power the electrolysis of the mineralized seawater to produce hydrogen, which would then be transported to shore for integration with natural gas in the National Gas Grid.

Offshore wind, we're powered electrolysis of deep mineralized seawater to produce hydrogen, which will then be transported to shore for integration.

Natural gas in the in the national gas grid.

Speaker 3: Working as one of the key consortium partners with Neptune Energy, Emerson would deploy Delta B software and systems to manage the salination, electrolysis, gas transportation, and the associated impact.

Working as one of the key consortium partners with Neptune Energy Emerson will deploy delta be software and systems to manage the salination electrolysis gas transportation and the associated infrastructure.

Speaker 3: Learning from this project should help provide a broader pathway to large scale offshore green hydrogen production. We're very excited with this part.

The earnings from this project should help provide a broader pathway to large scale offshore green hydrogen production and we're very excited with this partnership.

Speaker 3: These are just three examples of how Emerson is assisting our current and new customers on their net zero and sustainability journey.

These are just three examples of how Emerson is assisting our current and new customers on their net zero and sustainability journey.

And with that I'll pass the call over to Frank Dellaquila, who will go through our financial results for the first quarter.

Speaker 3: And with that, I'll pass the call over to Frank Dellaquilla, who will go through our financial results for the first quarter.

Thank you al and good morning, everyone. I appreciate you joining us if you would please join me on slide seven I will go through the quarter as Robin mentioned the quarter was very strong our businesses delivered excellent financial results in the face of some significant operational challenges and we're very grateful to the people who are working very hard to get through.

Speaker 4: Thank you, Lyle, and good morning, everyone. Appreciate you joining us. If you would please join me on slide seven, I'll go through the quarter. As Lyle mentioned, the quarter was very strong. Our businesses delivered excellent financial results in the face of some significant operational challenges, and we're very grateful to the people who are working very hard to get through this time of unique challenge in operations.

This time of unique challenge in operations.

Speaker 4: Our end market demand continues to be robust across most key end markets, and it drove first quarter underlying growth of 8%, which is in line with our November guidance.

End market demand continues to be robust across most key end markets and it drove first quarter underlying growth of 8%, which is in line with our November guidance.

Speaker 4: This growth will achieve despite the significant supply chain issues that affected the availability of certain production inputs from time to time as we went through the quarter.

This growth was achieved despite the significant supply chain issues that affected the availability of certain production inputs from time to time as we went through the quarter.

Speaker 4: In particular, electronic component availability in certain automation solutions product lines constrain sales in the.

In particular electronic component availability in certain automation solutions product lines constrained sales in the quarter.

Speaker 4: Despite these challenges, adjustment segment EBITDA, EBITDA increased 80 basis points driven by volume leverage, price realization, and continued effective cost management.

Despite these challenges adjusted segment EBITDA.

EBITDA increased 80 basis points, driven by volume leverage price realization and continued effective cost management.

Yeah.

Speaker 4: Please recall that as we explained in November , adjusted segment margins now additionally exclude intangible zhammerization.

Please recall that as we explained in November adjusted segment margins now Additionally, excludes intangibles amortization expense.

Speaker 4: Adjusted EPS was $1.5, up 13% versus the prior year, and exceeding the November guide of $98 to $1.2.

Adjusted EPS was $1 five up 13% versus the prior year and exceeding the November guide of 98 to $1 two.

Speaker 4: Free cash flow was down 41% versus the prior year. Mainly due to higher inventory as a result of defensive stocking due to supply chain bottlenecks.

Free cash flow was down 41% versus the prior year, mainly due to higher inventory as a result of defense and stocking due to supply chain bottlenecks finished goods awaiting shipment, but most importantly higher expected sales in the second half of the year.

Speaker 4: finished goods awaiting shipment, but most importantly, higher expected sales in the second half of the year.

Speaker 4: We believe this impact on cash flow is mainly timing related and we maintain our outlook for the year. And I should point out that our first quarter cash flow last year was at a very high level versus history, just given the dynamics and the ramp up in our commercial and residential business in the last year's first quarter.

We believe this impact on cash flow was mainly timing related and we maintain our outlook for the year and I should point out that our first quarter cash flow last year was at a very high level versus <unk>.

History, just given the dynamics in the ramp up in our commercial and residential business in last year's first quarter.

Speaker 4: Turning to the platform results, both businesses executed extremely well in the face of the operational challenges. Automation solutions underlying sales, we're up 5%, continued recovery in the Americas, and strong growth in Asia, particularly in China.

Turning to the platform results both businesses executed extremely well in the face of the operational challenges automation solutions underlying sales were up 5%.

<unk> recovery in the Americas, and strong growth in Asia, particularly in China.

Speaker 4: All Keyend Markets Showed Strength in particular life sciences, discrete automation, chemicals, and power.

All key end market showed strength in particular life sciences discrete automation chemicals and power.

Kobe three activity continues to be strong rising to 60% of sales in the quarter.

Speaker 4: KOB 3 activity continues to be strong rising to 60% of sales in the court.

Sales of one point below our guide mainly because of the availability of electronics components.

Speaker 4: Sales 1. Below our guide, namely because of the availability of electronics components that affected our systems and instrumentation business.

<unk>, our systems and instrumentation businesses.

Speaker 4: backlog increased by 500 million dollars to 6 billion due to the strong pace of work.

Backlog increased by $500 million to 6 billion due to the strong pace of orders.

Speaker 4: We expected our ability to convert orders and backlog to sales will improve throughout the balance of

We expect that our ability to convert orders and backlog to sales will improve throughout the balance of the year.

Automation solutions, adjusted EBITDA improved 320 basis points versus the prior year on the strength of leverage price realization and cost control.

Speaker 4: Automation solutions adjusted EBITR improved 320 basis points versus the prior year on the strength of leverage, price realization and cost control.

Operational performance in commercial and residential solutions was also very strong.

Underlying sales increased 13%, including five points of price realization.

In climate technologies residential demand continues to be strong in the U S as well as commercial and service business is growing well.

Speaker 4: Strength in residential construction, DIY and retail demand underpin strong demand in whole tools and home products.

Strength in residential construction, DIY and retail demand underpinned strong demand in hole tools and home products.

Backlog in the platform increased $150 million in the quarter to $1 3 billion, mainly in climate technologies.

Speaker 4: Backlog in the platform increased $150 million in the quarter to $1.3 billion, mainly in climate technology.

Speaker 4: Adjusted EBITDA was down 320 basis points, consistent with our expectations for the quarter, due mainly to unfavorable price cost, logistics, and wage inflation, which we will talk more about.

Adjusted EBITDA was down 320 basis points consistent with our expectations for the quarter due mainly to unfavorable price cost logistics and wage inflation, which we will talk more about <unk>.

Speaker 4: underlying leverage and operational performance in the business was.

Underlying leverage and operational performance of the business was excellent.

Price cost as we have traditionally defined it is price less net material inflation and that was modestly better than expected in the quarter. However, we are seeing increasing acceleration in terms of freight and wage costs due to logistics constraints and the tight labor market conditions.

Speaker 4: Price cost as we have traditionally defined it is price less net material inflation and that was modestly better than expected in the quarter. However, we are seeing increasing acceleration in terms of freight and wage costs through the logistics constraints and the tight labor market conditions.

Speaker 4: We are taking price actions incrementally to offset these incremental

We are taking price actions incrementally to offset these incremental costs.

We continue to expect to see tailwind for price cost again, as we define it in the second half.

Speaker 4: We continue to expect to see tailwinds for price cost again as we define it in the second half.

Please turn to page eight and I will take you through the EPS bridge.

Speaker 4: Please turn to page 8, and I'll take you through the EPS bridge.

EPS bridge is pretty straightforward adjusted EPS was $1 five up 13% and as I said exceeding the guidance midpoint by <unk> <unk>. Despite a <unk> <unk> headwind from tax attributable attributable to some internal reorganization. So as you can see the nonoperating items wash out.

Speaker 4: EPS bridge is pretty straightforward. Adjusted EPS was $1.5 up 13%. And as I said, exceeding the guidance midpoint by $0.5 despite a 6 cent headwind from tax attributable to attributable to some internal reorganization. So as you can see, the non-operating items wash out and the increase in adjusted EPS is on the strength of operating performance. Again, as a reminder, adjusted EPS excludes and tangible zamberization, restructuring.

The increase in adjusted EPS is on the strength of operating performance again as a reminder, adjusted EPS excludes intangibles amortization restructuring.

Speaker 4: Aspen Tech transaction fees, first-year purchase accounting and the gain from our avertive subordinated interest that we recorded in the first quarter.

Aspen Tech transaction fees first year purchase accounting and the gain from our verdict subordinated interest that we recorded in the first quarter.

Speaker 4: Operations leveraged that over 30% and contributed 10 cents to EPS.

Operations leveraged at over 30% and contributed <unk> <unk> to EPS share repurchase was about $260 million in added too.

Speaker 4: Sherry purchase was about $260 million and added two cents.

Speaker 4: We do continue to deal, as I said, with the various operational challenges and supply chain logistics and labor. Our teams are doing a great job mitigating the impact of these. I'm going to hand the call off to Ram to provide more detail on what challenges we're facing and what we're doing about it.

We do continue to deal as I said with the various operational challenges and supply chain logistics and labor. Our teams are doing a great job mitigating the impact of these I'm going to hand, the call off to Robb to provide more detail on what challenges, we're facing and what we're doing about it.

Speaker 3: Thank you, Frank. Please turn to slide nine. Clearly, the operating environment remained a challenge in the quarter as electronic supply, labor availability, and logistics constraints continue to impact our global operations. Electronic component availability drove the Miss versus our automation solutions sales guide in the quarter, and shown on the slide is what were currently faced.

Thank you Frank please turn to slide nine.

Clearly the operating environment remained a challenge in the quarter as electronic supply labor availability and logistics constraints continue to impact our global operations.

Electronic component availability drove the miss versus our automation solutions sales guide in the quarter and shown on this slide is what we're currently facing.

Speaker 5: Availability challenges continue to persist, but we are seeing fines of stabilization at longer lead times, which our operation teams have now calibrated to. While we still see some spot shortages on certain electronic components, the number of decommence and pushouts from our suppliers of certain we reduced.

Availability challenges continue to persist, but we are seeing signs of stabilization at longer lead times, which our operations teams have now calibrated too while we still see some spot shortages on certain electronic components, the number of <unk> and push outs from our suppliers are certainly reduced.

Speaker 5: We expect these challenges to continue into the second quarter and the rest of the year, and hence, we continue to qualify and ramp up secondary supply and proactively redesign our products to utilize available components. Our global teams have done an outstanding job actively communicating with both suppliers and customers for improved visibility and forecasting.

We expect these challenges to continue into the second quarter and the rest of the year and hence we continue to qualify and ramp up secondary supply and proactively redesign our products to utilize available components. Our global teams have done an outstanding job actively communicating with both suppliers and customers.

For improved visibility and forecasting.

Speaker 5: On the labor front, U.S. turnover remains high but has been manageable. We did, however, see absenteeism rise in November and December due to Omicron. We saw numbers as high as 20 percent absenteeism in some of our plants in the Midwest.

On the labor front U S turnover remains high but it's been manageable. We did however, see absenteeism rise in November and December due to omicron, we saw numbers as high as 20% absenteeism in some of our plants in the Midwest.

Speaker 5: Overall though, our plant operations have improved their ability to manage through the labor dynamics by adjusting hiring practices and entry-level wages to ensure labor availability and are certainly gearing up for a pickup and output levels as we enter the second half of the fiscal year. Finally, as Frank mentioned, we have seen incremental wage inflation manifest, but these are being offset with our pricing programs.

Overall, though our plant operations have improved their ability to manage through the labor dynamics by adjusting hiring practices and entry level wages to ensure labor availability and are certainly gearing up for a pickup in output levels as we enter the second half of the fiscal year. Finally, as Frank mentioned, we are seeing incremental wage inflation manifest.

But these are being offset with our pricing programs.

Speaker 5: Logistics continues to be constrained by the ongoing supply and demand and balances and rolling COVID unplanned disrupts.

Thanks, Tim.

Used to be constrained by the ongoing supply and demand imbalances enrollment COVID-19 unplanned disruptions. Our teams are mitigating the impact by leveraging alternate ports and our regionalization strategy certainly continues to position us well versus our peers freight costs have risen to record levels across the businesses in the quarter.

Speaker 5: Our teams are mitigating the impact by leveraging alternate ports and our regionalization strategy certainly continues to position us well versus our-

Speaker 5: Freight costs have risen to record levels across the businesses in the quarter. We are mitigating these impacts through search art.

<unk>, we are mitigating these impacts through surcharges.

Speaker 5: Finally, our global operations team continue to work diligently on these challenges, ensuring that our continued operational excellence remains a strong differentiator. I will now turn the call back over to...

Finally, our global operations teams continue to work diligently on these challenges ensuring that our continued operational excellence remains a strong differentiator I will now turn the call back over to Frank.

Speaker 4: Thank you, Rob. If you would, please join me on slide 11, and I'll go through the outlook for the rest of the year. As Val mentioned at the top of the call, we continue to see strong demand across nearly all businesses in rural areas, and this underpins our improved outlook for the year. Within automation solutions, we see relevant CapEx spend rising in 2022, supported by recent LNG projects reaching final investment decision, as well as strengthening the lease.

Thank you Rob.

We're pleased to have joined me on slide 11, and I'll go through the outlook for the rest of the year as.

As Rob mentioned at the top of the call. We continue to see strong demand across nearly all businesses in the world areas and this underpins our improved outlook for the year within automation solutions, we see relevant capex spending rising in 2022.

Supported by recent LNG projects, reaching final investment decision as well as strength in the middle East.

Our MRO and recurring revenue business also will benefit as budgets continue to increase some.

Speaker 4: Our MRO and Recurring Revenue Business also will benefit as budgets continue to exist.

Speaker 4: sustainability related investments like the projects Laudestride continue to be a key driver for our business.

Sustainability related investments like the projects level described continue to be a key driver for our business.

Speaker 4: And although electronic component availability challenges will continue to limit topside growth potential in the near term, we are seeing stabilization of supplier lead times at longer than usual levels, but our operations are calibrating to maximize output as Ron described under those

And although electronic component availability challenges will continue to limit top side growth potential in the near term.

We're seeing stabilization of supplier lead times and longer than usual levels, but our operations are calibrating to maximize output as Ron described under those circumstances.

Speaker 4: Discrete investments remain strong, and we expect a supportive automotive demand environment in the second half, along with continued factory automation.

Discrete investments remains strong and we expect to supportive automotive demand environment in the second half along with continued factory automation projects.

Speaker 4: We expect hybrid demand to remain strong at mid to high single digits, including continued life sciences and

We expect hybrid demand to remain strong at mid to high single digits, including continued life Sciences investments.

Speaker 4: and we continue to be encouraged by process, automation, market demand, and spend.

And we continue to be encouraged by process automation market demand and spend as we've discussed.

Speaker 4: This continued strengthen our core markets, the wave of sustainability investments, and our backlog and continued order momentum provide the underpinning for strong second half sales growth and gives us confidence in our ability to deliver the fiscal year sales.

This continued strengthen our core markets the wave of sustainability investments and our backlog and continued order momentum provide the underpinning for strong second half sales growth and gives us confidence in our ability to deliver the fiscal year sales growth.

In commercial and residential solutions, we expect continued solid growth and expect the impact of moderation in the residential markets throughout the balance of 2022 to be mitigated by continued strength in commercial and industrial markets are pro tools business to see considerable strength with project starts that drive our U S.

Speaker 4: In commercial and residential solutions, we expect continued solid growth and expected impact of moderation in the residential markets throughout the balance of 2022 to be mitigated by continued strength in commercial and industrial.

Speaker 4: Our Pro Tools business is seeing considerable strength with project starts that drive our U.S. in Europe , come on.

Europe momentum.

Speaker 4: Overall commercial residential solutions, we expect high single digit to load double digit growth in Q2 and for the full year. Peace, joining out slide 12.

Overall commercial residential solutions, we expect high single digit to low double digit growth in Q2 and for the full year.

Please join me on slide 12.

So in view of the strong demand backdrop and the backlog.

Speaker 4: Tempered by uncertainty and limited visibility around some of the operational challenges, we are raising our underlying sales guide expectations to set into 9% for the year, with net sales growth of 68 currency having an impact of one-

<unk> by uncertainty and limited visibility around some of the operational challenges we are raising our underlying sales guide expectations to 7% to 9% for the year with net sales growth of 68 currency, having an impact of one point.

Speaker 4: The automation solutions died, increases to 7 to 9% and commercial and residential solutions increases to 9 to 11% all on an underlying.

Automation solutions guide increases to 7% to 9% and commercial and residential solutions increases to 9% to 11% on an underlying basis.

Speaker 4: We did increase our price cost guide to favorable $175 million as our businesses implement incremental discretionary price actions to mitigate modestly higher NMI, but in response also to the higher freight costs and wage inflation, and as a reminder, both of which are not included in our typical price cost calculation. Simply said, the increase in the price cost guidance has minimal impact to our profitability.

We did increase our price cost guide to favorable $175 million.

As our businesses implement incremental discretionary price actions to mitigate modestly higher NII, but in response also to the higher freight costs and wage inflation and as a reminder, both of which are not included in our typical price cost calculation simply said the increase in the price.

Cost guidance has minimal impact to our profitability at the margin.

Restructuring actions tax cash flow the dividend and share repurchase are all consistent with our November guidance.

Speaker 4: Restructuring actions, tax, cash flow, the dividend, and share repurchase are all consistent with our November guys.

GAAP EPS guide is updated for our improved sales outlook now includes two items related to the Aspen Tech transaction.

Speaker 4: The GAP EPS guide is updated for our improved sales outlook and now includes two items related to the AstonTech transaction.

Speaker 4: estimated transaction fees and interest expense on 3 billion of term debt that we issued in December in anticipation of the closing.

Estimated transaction fees and interest interest expense on $3 billion of term debt.

We issued in December in anticipation of the closing.

Speaker 4: Those items reduce our GAPBPS guide versus the November guide, the net of our operations improvement, and the guide is now 471-486, the adjusted EPS guide, which excludes those items, increases to $4.90 to $5.00 in price.

Those items reduce our GAAP EPS guide versus the November guide.

Net of our operations improvement and the guide is now $4, 71% to 486, the adjusted EPS Guide, which excludes those items increasing to $4 92.

$5 in science.

To be clear no estimate of the operational impact of Aspen Tech is included in these guidance numbers, we will address that in may after we close the transaction.

Speaker 4: to be clear, no estimate of the operational impact of asymptotech is included in these guidance numbers. We will address that in May after we close the transaction.

Speaker 4: With that, thank you for your time and attention, and I will turn the call back over to Lowe for some closing.

With that thank you for your time and attention.

And I will turn the call back over to <unk> for some closing comments, yes. Thank you and thank you, Frank and Rob and before opening up to Q&A.

Speaker 3: Yeah, thank you and thank you, Frank and Ram. And before opening up to Q&A, I'd like to acknowledge that you requested a couple times, Frank, the Aspen Tech team, for their strong performance in the quarter, they did report last week. The team and the business is benefiting from increased demand for their software solutions in the sustainability and electrification efforts of its traditional customer base.

I'd like to acknowledge it and you referenced it a couple of times frankly, Aspen Tech team.

For their strong performance in the quarter. They did report last week.

Team and the business is benefiting from increased demand for their software solutions in the sustainability and electrification efforts of its traditional customer base.

Speaker 3: We are on track to close the transaction as previously communicated in the second calendar quarter of 2020.

We are on track to close the transaction as previously communicated in the second calendar quarter of 2022.

With that took the Q&A.

Speaker 1: We will now begin the question and answer session. Fast your question, you may press star then one on your touch tone. If you're using a speaker phone, please pick up your handset before pressing the keys. Will it start your question, please press star then two. At this time, we will pause momentarily to assemble our Russ.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Using a speakerphone please pick up your handset before pressing the keys. So let's start of your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question comes from Deane Dray with RBC capital markets. Please go ahead.

Speaker 5: Our first question comes from Dean Dre with RBC Capital Markets. Please share our heads. Thank you. Good morning, everyone.

Yes.

Thank you good morning, everyone.

Hi, Deane good morning, good morning.

Hey, a couple of questions. The first one would love to hear just more broadly are holistically, what kind of management processes had to change in your first year and what the impact is and then on the business side. The question on the <unk>.

Speaker 5: A couple of questions. The first, I would love to hear just more broadly or holistically, what kind of management processes had to change in your first year and what the impact is.

Speaker 5: And then on the business side, the question on the

K O b three being as high as 67% when we're in a period of spiking oil prices and I get that you're less dependent on oil per se, but when you get a spike in oil prices doesn't that.

Speaker 5: K-O-B3 being as high as 67% when we're in a period of spiking oil prices and I get that you're less dependent on oil per se, but when you get a spike in oil prices,

Speaker 5: Doesn't that, don't the refiners tend to hold back on maintenance? They just want to run as fast as they can as much as they can at these higher prices and does that end up crimping some of that MRO span? So two questions.

Ulta refiners tend to hold back on maintenance, they just want to run it as fast as they can as much as they can at these higher prices does that end up cramping.

Crimping some of that MRO spend so two questions. Thanks.

Speaker 3: Yeah, thanks, Dean. Great. So, very quickly on the management process, we are

<unk> seen a great.

So very quick around the management process. We are we are essentially in the redesign phase as we speak we will speak about it holistically when we get together.

Speaker 3: We are essentially in the redesign phase as we speak. We'll speak about it holistically when we get together later in the year on our investor conference.

Later in the year on our Investor Conference.

Speaker 3: But especially what we're doing, Dean, is a redesign of a process that was...

Essentially what we're doing is.

The redesign of our process that was for the most part put in place in the mid 70, then we've been operating the company around that a lot of goodness and what thats brought to us, but we believe that we have an opportunity.

Speaker 3: for the most part putting in place in the mid-70s and we've been operating a company around that. A lot of goodness, you know what, that's brought to us, but we believe that we have an opportunity to really...

Two really.

Speaker 3: challenge and create a system that can drive more innovation, collaboration, and perhaps a little more risk taking within the business itself. So we're working that. We'll talk to you about how that translates ultimately into our continued ability to execute and to meet our commitments. So we look forward to that later in the year.

<unk>.

And create a system that can do.

Drive more innovation and collaboration.

And perhaps a little more risk taking within the business itself. So we're working that we'll talk to you about how that translates ultimately into our continued ability to execute and meet our commitments.

And look forward to that late in the year.

Speaker 3: Related to your key will be three, the number is 60, 60%. I'll just if I'm adding income across clearly in the earlier. It's driven predominantly by modernizations, digital.

Related to <unk> will be three that number is six zero, 60% I apologize if I.

I didn't come across clearly.

Earlier, it's driven predominantly by modernization digital.

Speaker 3: a number of the smaller sustainability type programs like flare reduction eliminations and and emission reductions fall into the category. Keep in mind also Dean that we had a significant amount of delayed maintenance that occurred in most of these plants through COVID where staffs left and a lot of what needed to be done just wasn't done over periods of as much as a year and a half. So all of that is a bit of a catch-up that's occurring in the plant.

Number of the smaller sustainability type programs like flare reduction eliminations.

And emission reductions fall into the category.

Keep in mind also that we had a significant amount of delayed maintenance that occurred in most of these plants.

Through Covid, where staffs left and a lot of what needed to be done just wasn't done over periods of as much as a year and a half. So all of that is a bit of a catch up that's occurring in the plants.

Speaker 3: Is there's a KOB one? Again, the funnel is at 6.5 billion today. It's pretty much been stable over the last 12, 18 months. We're watching that carefully. As we execute the LNG wave, we've completed. There's a few things I was saying Qatar. They will come our way. So we're watching that carefully. But that deferred maintenance and the modernization sustainability in digital is what's driving the bulk of the KOB three to a large extent for us as well.

In terms of <unk>, one again, the funnel is at $6 5 billion today, it's pretty much been stable over the last 12 to 18 months.

We're watching that carefully as we execute the LNG wave, we've complete and there is a few things obviously in Qatar that will come our way. So we're watching that carefully but there that deferred maintenance and the modernization of sustainability and digital is what's driving the bulk of the <unk> to a large extent for us as well.

Thank you.

Thanks.

Yes.

Speaker 1: My next question comes from Andy Kaplowicz with City Group. Please go ahead.

Our next question comes from Andy Kaplowitz with Citigroup. Please go ahead.

Hey, good morning, guys.

Hi, good morning, Eddie.

Speaker 6: Last quarter, you mentioned good confidence in 30% incremental margins for the company for FY22. Can you update us on your thoughts about incrementals in the current environment? Obviously, the incremental margin in Automation Solutions has been particularly strong. We know the savings benefits of your restructuring program have been flowing through, but incrementals were so strong in Q1, so is there anything else going on there, and how are you thinking about Automation Solutions incrementals for the rest of the year?

Last quarter, you mentioned good confidence in 30% incremental margins for the company for FY 'twenty. Two can you update us on your thoughts about incrementals in the current environment, obviously, the incremental margin in automation solutions has been particularly strong when we know the savings benefits of your restructuring program had been falling flowing through but incrementals.

We're so strong in Q1, so is there anything else going on there and how youre thinking about automation solution incrementals for the rest of the year.

Speaker 3: No, I appreciate the question. I think we reiterate that kind of 30% for the business, for the year they have a...

No I appreciate the question Deane I think.

We reiterate that guide of 30% for the business for the year they had a.

Speaker 3: Phenomenal execution in the quarter, and it was almost all for dollar on the incremental, on automation. But I expect us to normalize this with just the year that I think that really guide is, it's taken a ground that we put in for our businesses, our expectation that we drive a clear amount of investment back into the business and enable return back to the shareholders. So that's what we still expect. That's what we have in the financial plan and expect to deliver these.

Phenomenal execution in the quarter. It was almost dollar for dollar on the Incrementals on automation.

I expect that to normalize as we go through the year that keeps activity guidance.

It's taken the ground that we put in for our businesses our expectation.

That would drive that.

A clear amount of investment back into the business and enable a return back to the shareholders. So that's what we still expect that's what we have in the financial plan and expect to deliver in the year.

But nothing one time in the quarter per se.

Speaker 6: But nothing one time in the quarter, per se, in that sense, right? Oh, no, no. No, sir.

Right.

Got it and then I think your comments were exactly in line with Aspen Tech management's comments that Dave mentioned, they're seeing some acceleration of final investment decisions for LNG and middle East oil and gas projects, but they also suggested that they were seeing their refining customers improve their spending maybe you could elaborate a bit on what youre seeing in your major energy markets are you seeing.

And acceleration in core North American refining in the upstream markets and I think your orders at 19% would imply that but maybe you can give us a little more color.

Absolutely in North America is very strong for us across automation solutions right now and it's broad based.

It's process I think overall, the oil and gas segment. The outlook is very high single digits as we think about the year.

Speaker 3: as we think about the year. And the CapEx, a lot of that CapEx that we're seeing is driven around those sustainability efforts and production and I expect that to be strong. So it's consistent with what Aspen Tech has seen.

And the Capex a lot of that Capex that we're seeing is driven around our sustainability efforts in production.

And I expect that to be strong so it's consistent with what Aspen Tech has seen.

Across the process industries, which has been a bit of a laggard to discrete obviously in hybrid that we experienced through 2021.

Thanks, a lot I appreciate it.

Thank you.

Our next question comes from Steve Tusa of Jpmorgan. Please go ahead.

Hi, guys good morning.

Good morning, Steve.

Hey, can we just get a little more specific color on up you said this earlier on the call but.

What you expect price cost to be in <unk>, and then I guess first you are guiding to an expanded spread there.

How much of that spread is from I would assume all of that spread is from increased increase price and ultimately what's your price capture this year in revenue.

Yes, Hi, Steve This is Frank so.

As we've said before it's going to improve through the year. We did raise the guide, but again that guide also.

It does not include the impact of.

Wage and freight wage and freight is a significant increase versus the visibility that we had back in November so much of that increase price. So that we went out and got is in response to those two items. So in terms of how this thing models out I mean, we will.

We will turn green on a traditional basis in the second quarter and then we will continue to ramp the price actions are about 90% in place in terms of the material pass through that we'd expected right from the beginning as well as all discretionary actions that have been implemented across commercial and residential solutions to offset the NMB and material inflation.

Excuse me so.

We see it pretty much as we saw it back in November and frankly, it's kind of gross it up because we got to go out and take incremental actions in response to what we're seeing.

So what's the total price capture for the year now for in revenues.

And it was.

Yes, I don't think.

Yes, we're not going to we're not going to go exactly there I will just tell you that our R.

Our price capture is.

At least as good and a little bit more robust than what we talked about back in November in terms of how we model out the year.

Got it and then just one quick one on <unk> on your resi HVAC business is there a quarter this year that you're planning to be down.

That business is kind of.

Inventory and channel fill I mean, everything kind of what's around on a volume basis.

Down relative to where we are today certainly in the fourth quarter year over year.

Year over to make year over year yeah.

Hi down quarters, it could be tight in the fourth quarter, Steve It would be my take comedy down volume in the fourth quarter, but we'll be obviously, we're getting price. So I think it will be.

Right around flat in the fourth quarter from a pricing perspective, but down volume.

Got it great. Thanks, guys.

Thank you Steve.

Our next question comes from Andrew <unk> with Bank of America. Please go ahead.

Yes, good morning.

Good morning.

A question about on first what have you learned.

Since you've announced the merger was asking about opportunities.

Not only that Aspen offers but cross selling opportunities.

And a follow up question also.

<unk>.

Systems and software sales could you just give some color as to CMS.

It seems from your disclosure revenue growth was only 1%, but can you just give us more color what happened to the assets that are going into Aspen. Thank you.

Yes look.

We continue to be very excited about the commercial opportunities with Aspen Tech as you heard from Antonio on the call as well.

The commercial agreement is underway.

Work in finalizing that last little elements there the global teams have begun to collaborate.

And it's very interesting Andrew even I is as that may customer calls in Houston.

Three weeks ago.

Engaged at both the Emerson and the Astra Tech level in terms of defining opportunities across both businesses. So I think those will come into more clarity as we get closer to close in terms of the software assets, Rob If you want to comment on the performance of the assets, Yes, I think.

I think the two software businesses GSS and OSI had a very very good first quarter from an orders remained very strong oil side remains on plan I think the other point is from a sales growth perspective, which is the number you touted Andrew I think we were up 2% on systems and solutions and primarily that was.

Driven by electronic shortages in our systems business, our Delta E business orders frankly were strong double digits. So we are seeing good momentum from.

From an order activity as it relates to our systems business is both the businesses that we're contributing as well as the ones that we'll remain within Emerson.

Thank you and just a follow up on commercial and residential.

How do you think what are you seeing from your customers about we've heard of the HR Expo a lot about sort of a product transition.

The year end.

How disruptive do you think.

Sort of to the optics of shipment.

People may not want to have inventory in the channel there are different regulations.

What are you hearing from your customers on what's the state of the write downs of the industry to manage this transition given how stressed the supply chains are thank you.

Yes, I think Andrew as you've probably heard at the AHRI I mean at this point all of our customers are telling us do not slow down fundamentally they have immediate demand that we are continuing to satisfy their building in safety stock for what would traditionally be.

A big third quarter in the industry and more importantly, they want to build up into fourth quarter in advance of the.

The transition Thats going to happen Jan first so at this point I think the messaging is do not slow down.

And we will continue to see good order activity from our customers over the course of the next few quarters here in preparation for that.

Think theres going to be a significant inventory build before the transition, but I think demand will not slow down in the fourth quarter like it traditionally does.

Thanks, so much.

Thanks, Andrew.

Okay.

Our next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Thanks, Good morning, everyone.

So.

Just wanted to go back to the price cost.

Steve's question.

Is that 175 still being captured.

Woody within.

Congress.

Or was it spread more across the two segments I think the 100 was primarily within Congress yes.

Yeah, no it's actually it's actually spread across the business. So we're seeing more of the wage.

And particularly the freight inflation in commercial residential just given the nature of the business, but we're also going out and capturing significant incremental price in automation solutions in response to the mainly to the electronic component shortage, where we are working very hard to get where we need to to make product and in some cases paying.

Significantly more than you normally would take so.

It's pretty balanced in the actions have been significant in automation solutions as well.

Okay. Thanks, Brian .

Then.

Obviously, the margins that have been touched on already.

<unk> is normally the weakest.

The lowest quarter for margin so I'm just curious.

This is not a normal year or anything, but what do you still expect <unk> to be the low margins in sequential improvement to me then just on the guidance for seven to nine to get to the mid to high end of that range would require a pretty significant ramp up in the second half of the year I'm. Just curious what is the backlog tell us about the second half and how much comfort that you have in the.

High end of that range.

Nigel I think we feel pretty good again every everything we say is kind of tempered by the unknowns around logistics and supply chain, but having said that and seeing our operations people basically figure it out as we go through time here we.

We have good confidence in the upper end of the range for the year.

Certainly the pace of orders in the backlog more than supports that and it's all about conversion and we feel very confident in our ability to convert there.

Theres, a big ramp in the second half of the year no doubt, but we've known that from the beginning of the year.

Both in terms of.

Volume and sales as well as in profitability because of the way the price cost comes through in the prices realized heavily in the second half of the year. So we feel pretty good about it.

Okay.

Great. Thanks very much.

Youre welcome.

Our next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Thanks, Good morning, everyone.

Morning, joining Joe.

So my apologies if I missed this earlier, but.

I know you spoke a little bit about <unk> roughly.

Roughly six 5 billion I'm curious.

More broadly how are your conversations.

With customers today, just given given the move that we've seen in commodity prices.

I just wonder if if that that funnel is starting to get bigger in the near term opportunity.

As more imminent.

No great question, Joe and I had the opportunity to spend a few days in Houston with customers face to face, which was which is great and the energy in the energy segment chemical and energy and the mood is obviously positive but what's most interesting is how budgets are shifting into the the sustainability elements.

A very significant way, which is what we've seen in our own funnel. We're almost a $1 billion now is essentially around those types of electrification could be carbonization emissions all the sustainability buckets. So.

That is a significant shift in capital and I think we will see that increase over time as we go forward.

We see positive move.

On the large K will be ones that do remain whether they are in North America based LNG or Qatar. Those are moving forward. We've received a number of awards already around our instrumentation and our valve businesses and actuation businesses.

In Qatar over the last few months and so we will continue to see encouraging encouragement there, but I'd suggest Joe that the makeup of <unk> one.

We will start to shift more and more into that sustainability area Rama any comments no I think well said I mean at this point the numbers holding flat at six and a half, but we can tell you that the pace of <unk>.

Our final investment decisions continue to improve just given the.

The nature of the spend we're seeing with our customers. So we'll see that.

Unravel over the next several quarters.

Got it that's helpful. And then my follow on is just on M&A I think the clearly obviously you announced a large acquisition at the end of last year on the software side I'm. Just curious like how are you thinking about your pipeline today there are some there.

There is some assets that seemingly might be might be coming up.

On the market and I'm, just curious like where is your focus today is there still an emphasis to diversify away from oil and gas just any color that you can give us today would be great.

Joe we're very active both on the pluses and minuses, obviously, our strategic imperatives around diversification is important.

To create a world class automation business. So we're very active looking at those and Youre right. The market is active and they're interesting assets out there and we'll participate accordingly.

So we'll stay active our balance sheet is in very good shape.

I think we have firepower, if we choose to do other things and we have that flexibility. So we'll keep we'll be smart and very attentive to the opportunities that are out there, but we will also be very intentional that's through the pathways that we defined and will speak more about in our investor day around the portfolio journey.

The targeted verticals that will drive.

Increased value creation is to underlying sales growth.

Okay, great. Thank you nice start to the year.

Thank you.

Our next question comes from Mark <unk> with UBS. Please go ahead.

Hi, good morning, everyone.

Good morning.

Good morning, if I could come back to the budgets. Please.

Understand that shifts the increasing needs of sustainability as you said.

Correct right out of the absolute level of these budgets versus say the last cycle peak in 18 19.

May.

That's one question I'm trying to get to the total profit pool and then how easy is it not to get these budgets released when you when you speak to your customers.

Okay sure sure markets I would be happy to give you some insights.

Year over year from last year budgets overall of that or the size of budgets thereof.

On the <unk> side. However, if you look back through time give particularly given the significant LNG wave of investments is down yes.

Because those are very significant capital that was put out outlaid.

To increase capacity of LNG, so theyre down on that basis overall, so for us it's been stabilized from an Emerson automation value over the last few months and that will see us.

As things may potentially expand particularly around sustainability as I said earlier.

Okay, Great and then more final question on the comments around redesign of product Mou up because you have to do that given the shortage of.

Of parts, but instead, the ultimate opportunity from a defined value perspective wasted no time to kind of focus on taking costs out of all these products that you have to redesign low anyway.

Is it really focused on okay I don't have.

Certain chip and a touch of redesign that part or can you go beyond that to maybe change structurally the bill of materials in a number of your products.

Great question. Marcus This is Ron here. So I think the short answer is we're doing bolt I think the immediate need as we wrestle through component shortages is redesigning to ensure that we have component availability to meet current shipments. However in the automation solutions business, particularly.

Where we have the biggest exposure to electronics.

<unk> and his team are fundamentally redesigning all of the major platforms across automation solutions into next generation platforms that are fundamentally enhanced performance use more modernized electronic components upgrading the chips, obviously, putting more diagnostics and additional functionality.

Into those platforms and we're using this opportunity to invest in next generation platforms that will address what you referenced better cost better performance and frankly give us more robustness in our supply network design in order to support these products as you know that will take a little longer.

But I think it's important to understand that we're remaining focused on bolt manage the short term with the <unk>.

Immediate redesigns, but then invest in next generation platforms going forward for the longer term.

Got it. Thank you good luck.

Thank you.

Our next question comes from John Walsh with Credit Suisse. Please go ahead.

Hi, good morning, everyone.

Good morning, John Good morning, Mike.

Hum.

First question just around China.

Asleep, you called out very strong growth there around sustainability D carb.

A lot of stuff happening on the ground there as it relates to potential stimulus just are you seeing anything change in China, and how are you thinking about it.

Look.

Just give your perspective, we have we haven't traditionally very strong business in China as you know.

10000 employees in China.

And in a business that continues to be incredibly robust.

On a destination basis automation business in China in the quarter was up 17%.

The orders as I think I mentioned were up 34% in the quarter.

So we feel really good.

Obviously, we continue to be active in conversations.

Both governmental and quasi governmental as you could say it to try to influence no.

Almost <unk> of relations with China.

But we continue to feel really good about our position in the marketplace, our ability to win and differentiate.

And really have loyalty from the customers that are based in China and continued acceleration in project participation and growth of our underlying businesses I think testament to that.

And just to add I think so as law described I think overall, our automation solutions businesses remained very robust in China and I think we expect that to continue if theres any semblance of a slowdown in China, we've seen it in our appliance businesses related businesses, where we supply of sensors.

And then our air conditioning business did see a soft first quarter flat flat demand. If you will however, that's where the stimulus and the China stimulus stimulating their economy will help in the second half because we expect that to have an impact on our consumer related.

Businesses. So just to summarize China strong automation solutions expect that to continue and then we will wait to see how the stimulus drives fundamental demand in our climate technologies business fair to say that we continue to plan very high single digits, if not low double digits for the year in China from a destination.

Sales performance.

Great and then maybe a similar follow up to that if you listen to what some of the kind of integrated energy companies are saying and where theyre going to put their capex I mean emissions reduction has been mentioned several times.

You have product that help that are you actually seeing sales today that can attach that is the reason for why you're getting the sales order.

Just thinking about how they have to upgrade their installed base for these their own sustainability goals, absolutely absolutely and it's broad based across the energy segment from the producers.

In traditional upstream like pioneer.

To the integrated oils flare elimination emission reduction de carbonization carbon capture programs and the example, one of the examples that I shared with you at the offset around emissions was exactly that so we can attribute bookings and sales we have significant pursuits underway across.

Also world areas with our selling organizations around those technologies that are part of our core portfolio that aid our customers in that transition. So we feel really good Rob if you've got something that yes, and I think to your point in terms of the broadest scope of technology, whether it's continuous emission monitoring analytical systems that law children as an example or the.

Relief valves or other isolation valves associated with emissions monitoring we've got a very very good scope of <unk>.

Products that can help our customers and we're certainly seeing a nice uptake on all of those product lines as it relates to these type of investments by our customers.

Great I appreciate the color and I'll pass it along thank you. Thank you Sir Thank you Jeff.

Yes.

Our next question comes from Tommy Moll with Stephens. Please go ahead.

Morning, and thanks for taking my questions.

Okay.

I wanted to circle back on the <unk>.

Strong implied exit rate for your auto Sol business I think I heard you say earlier that a lot of the visibility. There is on backlog conversion could you give any insight as to an end market or part of the world, That's particularly strong and you see that backlog start to unlock through the rest of the fiscal year.

So look I'll give you a perspective from an industry perspective, Tommy and with some of them will be a perspective for the quarter.

The quarter performance.

Globally was relatively strong.

But the opportunity really lies in from a geographic perspective in North America, and Western Europe from a conversion of backlog perspective in terms of markets.

Expect the process space to be in the high single digits to low double ultimately high singles on hybrid as.

As we go through the year and low doubles on.

On discrete as we go through the year, so that the suites.

<unk> continues and then we'll see an acceleration as we go through the process of potential because that's the potential that we see out there.

Geographically if you will.

Really good about where we are and obviously as we convert backlog in the in the developed economies of Europe and U S will see that benefit.

Thank you all and as a follow up I wanted to ask about the.

Funding on the Aspen deal for the 6 billion cash portion.

<unk> got nearly $5 billion on the balance sheet today. After the recent notes financing and it looks like you monetize part of the <unk> stake.

Or the plans to fund the remainder of the next billion and any chance for a sizable divestiture between now and then that would fill part of that gap.

Tommy Hi, this is Frank so the plan right now, leaving aside divestitures for the moment. The plan right. Now is we did $3 billion of term debt in December .

We will probably take more cash off the balance sheet than we normally do in a given year.

To also partially fund and then the balance we intend to do in the commercial paper market, we've had our debt ratings.

<unk> reaffirmed by by Moody's S&P had done it right from the get go so it'll be a combination of the 3 billion term debt.

Cash on the balance sheet.

Beyond what some of the balance sheet as a function of having done the term debt and then and then commercial paper.

There is a divestiture and theres no.

Major divestiture in flight right now, but obviously if theres any divestiture.

Those proceeds will go towards the.

Towards the cash portion of the purchase.

Thank you Frank I appreciate it I'll turn it back.

Our last question today will come from Jeff Sprague with <unk>.

Vertical research partners. Please go ahead.

Thank you good morning, everyone.

Yes, Jeff.

I'll make it one question comes my second one is about divestitures, which Frank just addressed.

I will I am just wondering if you could give us a little color on actually labor cost and the inflation that youre dealing with I would assume most of the inflation is in the U S. But I am curious if it's spreading to other parts of the world.

And can you give us any color on.

Labor as a percent of your Cogs or some other framework to think about it.

Okay. Thanks, Yeah. This is Ron Jeff.

First off from an inflation perspective, Youre right U S inflation is probably the.

The biggest portion of the inflation, but we are seeing inflation in Mexico as well in Mexico.

Frankly, Jan first day increased minimum wage entry level wage by 22% and frankly. This is one of four minimum wage increases we've seen in Mexico. Since 2019, so theres issues outside of the U S as well, but majority of the inflation is in the U S and in our larger.

<unk> for example, we've seen now wage inflation, particularly entry level wages go up by 20% to 25% over a couple of steps we had to do that to remain competitive and have the labor availability to work down our backlog. So thats the extent normal inflation in some of the other.

All markets, we operate China inflation, India inflation, Europe inflation, nothing abnormal normal levels of inflation in those markets. So the abnormal levels. We're seeing are particularly in the U S and some Mexico.

And then can you size the labor as a percent of Cogs, maybe Frank.

Yes.

Thats about it.

Single digit high single digit obviously, a little higher in the climate Tech in commercial residential a little lower in automation solutions, but high single digits.

On the profit waterfall as a percent of sales.

Alright, thanks for that color I'll leave it there thanks.

Thanks, Jeff.

Ladies and gentlemen, this will conclude our question and answer session and this will also conclude the conference.

Thank you for attending today's presentation you may now disconnect.