Q4 2023 Emerson Electric Co Earnings Call

Good day and welcome to the Emerson fourth quarter 2023 earnings conference call.

Speaker 1: Good day and welcome to the Emerson fourth quarter twenty twenty three earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one.

On a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.

Speaker 1: I would now like to turn the conference over to Colleen Metler, Vice President of Investor Relations. Please go ahead.

I would now like to turn the conference over to Colleen Mettler, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Emerson's fourth quarter and full year 2023 earnings conference call today, I am joined by President and Chief Executive Officer Al Carson by Chief Financial Officer, Mike Bachman, Chief Operating Officer, Ron Chris Schott.

Speaker 2: Good morning, and thank you for joining us for Emerson's fourth quarter and full year 2023 earnings conference call. Today I am joined by President and Chief Executive Officer, Lowell Karzenbei, Chief Financial Officer, Mike Faukman, and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with slide presentation which is available on our website. Please join me on slide two.

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

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

This presentation may include forward looking statements, which contain a degree of business risks and uncertainties. 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, Paul Carson buy for his opening remarks, Thank you Colin and good morning.

Speaker 3: 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 , Wal Karzenbei, for his opening remarks. Thank you, Colleen. Good morning. 2023 was an exception.

2023 was an exceptional year for Emerson.

Speaker 3: The management team, alongside the board of directors, both be delivered across the three dimensions of our value creation strategy. First.

The management team alongside the board of directors boldly delivered across the three dimensions of our value creation strategy.

Firstly culture.

Speaker 3: Our management team just completed a trip around the world where we have the opportunity to engage with our customers and our team.

Our management team just completed a trip around the world, where we have the opportunity to engage with our customers and our teams.

Speaker 3: It was an energizing trip and it was evident to me that the changes we are driving in the culture of Emerson are embraced, as evidenced by our engagement survey.

He was an energizing trip and he was evident to me that the changes we are driving in the culture of Emerson.

Our embraced.

As evidenced by our engagement survey.

2023 was an important year.

Speaker 3: We've made significant progress across multiple dimensions of culture.

We made significant progress across multiple dimensions of culture.

Speaker 3: We rolled out an employee value proposition. Advanced sub diversity and inclusion met.

We rolled out an employee value proposition advanced our diversity and inclusion metrics and made significant strides in our sustainability targets as well as launching a differentiated talent engine program.

Speaker 3: and made significant strides in our sustainability targets, as well as launching a differentiated talent engine program.

Second.

Speaker 3: on portfolio transformation is largely complete.

Our portfolio transformation is largely complete.

The Copeland divestiture and more importantly, the acquisition of Ni have enabled us to create an emerson focused on automation with.

Speaker 3: The Copeland divestiture, and more importantly, the acquisition of N.I. have enabled us to create an Emerson focused on automation with a cohesive, higher growth, higher profit margin, diversified portfolio, aligned to the critical macro-secular drivers, energy security and affordability, near-shoring, sustainability and decarbonization, and digital transformation.

With a cohesive higher growth higher profit margin diversified portfolio.

Aligned to the critical macro secular drivers energy security and affordability.

Near shoring sustainability and de Carbonization and digital transformation.

Speaker 3: I would like to welcome Ritu Favre and the Enoch family to Emerson. This is an exciting time.

I would like to welcome Ritu Fabry and Eni family to Emerson. This is an exciting time.

With Ni our technology stack is an equal and we are in position to continue to push the boundaries of automation to meet our customers' needs.

Speaker 3: With NI, our technology stack is unequaled, and we are in position to continue to push the boundaries of automation to meet our customers' needs.

Firstly.

Execution.

Speaker 3: The Emerson Management System is delivering differentiated results.

The Emerson management system is delivering differentiated results.

Underlying sales for 2023 grew 10%.

Speaker 3: Underlying sales for 2023 grew 10%.

Speaker 3: GP expanded 330 basis points to 49%.

G P expanded 330 basis points to 49%.

Speaker 3: In a justice segment, EBITDA expanded 220 basis points to 25% after delivering yet another year of over 50% leverage.

And adjusted segment, EBITA expanded 220 basis points to 25% after delivering yet another year of over 50% leverage.

Adjusted earnings per share in 2023 grew 22% to $4.44 and free cash flow was $424 billion.

Speaker 3: Adjusted earnings per share in 2023 grew 22% to $4.44, and free cash flow is $4.2.4 billion.

Speaker 3: orders growth agitated the art 5% and we grew across all world areas

Orders growth exited the Europe, 5% and we grew across all world areas.

We had strong price realization in the business at 4% for the year and MRO represents 65% of our revenue with now a 150 billion dollar installed base around the world and we exited the year with $6 $6 billion of backlog.

Speaker 3: We have strong price realization in the business at 4% for the year. And MRO represents 65% of our revenue with now a $150 billion installed base around the world. And we exited the year with $6.6 billion of backlog, up 12% year over year. We delivered on innovation and innovation in the last year. We have a strong price realization in the business at 4% over year over year. And we exited the year with $6.6 billion in backlog. We exited the year with $6.6 billion in backlog. We delivered on innovation and innovation in the last year.

Up 12% year over year.

We delivered on innovation in 2023.

It was a year of significant releases Delta V platform, Aspen models, and intelligent devices, our R&D spend as a percent of sales rose to 7% in 2023.

Speaker 3: It was a year of significant releases in our Delta V platform, Aspen models, and intelligent devices.

Speaker 3: Our R&D spend of the percent of sales rose to 7% in 2023. Cost management.

Cost management is a way of life at Emerson.

Speaker 3: The differentiated leverage of 53% is reflective of aggressive cross factions across our business.

The differentiated leverage of 53% is reflective of aggressive cost actions across our business.

Speaker 3: We also delivered on commitments of no-stranded costs related to the Copeland transaction, and we'll be delivering on the $100 million corporate cost takeout by the end of 2024 through significant transformational activities.

We also delivered on commitments of no stranded costs related to the Copeland transaction.

And we will be delivering on that $100 million corporate cost take out by the end of 2024.

Through significant transformational activities.

Speaker 3: driving certain functional activities to centralization and best cost location.

Driving certain functional activities to centralization and best cost locations.

I am humbled by the exact nests of outperformance and I'm certainly optimistic about the future of our company.

Speaker 3: I am humbled by the exactness of our performance. And I'm certainly optimistic about the future of our company.

I would like to express my appreciation to our customers, who increasingly placed their trust and Emerson to solve the world's most challenging problems.

Speaker 3: I'd like to express my appreciation to our customers who increasingly place their trust in Emerson to solve the world's most challenging problems.

Speaker 3: And lastly, in my opening remarks, I'd like to say I am but one of over 70,000 Emerson team members around the world.

And lastly in my opening remarks.

I'd like to say I am but one of over 70000 Emerson team members around the world.

Speaker 3: I'd like to thank our global employees for your passion, hard work, and energy that you bring to Emerson every single day.

Like to thank our global employees for their passion hard work and energy that you bring to Emerson every single day.

Yeah.

Please turn to slide three.

As I said earlier any bears repeating.

Speaker 3: As I said earlier, any bears repeating, 2023 was an exceptional year.

2023 was an exceptional year.

We are excited to run this cohesive high growth and diversified portfolio.

Speaker 3: We are excited to run this cohesive high growth and diversify portfolio.

The financial performance was differentiated with double digit underlying sales growth, 53% operating leverage and 22% adjusted EPS growth.

Speaker 3: The financial performance was differentiated with double digit underlying sales growth, 53% operating leverage and 22% adjusted EPS growth.

As we look ahead 2024 is expected to be another strong year.

Speaker 3: As we look ahead, 2024 is expected to be another stronger. Operating leverage, excluding NII, is expected to be in the mid to high 40s. An adjusted EPS is expected to be $5.15 to $5.35. Including roughly 35 to 40 cents contribution from NII.

Operating leverage excluding NII is expected to be in the mid to high Forty's and adjusted EPS is expected to be $5 15 to $5 35.

Including roughly 35 to 40 <unk> contribution from Eni.

We hit the ground running on October 11, as soon as we closed the transaction to begin executing the synergy plan and we expect it to provide early benefits in 2024.

Speaker 3: We hit the ground running on October 11th. As soon as we close the transaction, to begin executing the fittergy plan, and we expect it to provide early benefits in 2024.

We are expecting 46% underlying sales growth driven by our focus and commitment to winning in our growth platforms and leveraging our innovation.

Speaker 3: We are expecting 46% underlying sales growth driven by our focus and commitment to winning in our growth platforms and leveraging our innovation.

Speaker 3: energy transition, industrial software, life sciences and metals and mining, are expected to remain resilient parts of our portfolio and we are utilizing our leading technology, customer relationships, installed base and expertise to capture investments in these markets.

Energy transition industrial software life Sciences in metals and mining are expected to remain resilient parts of our portfolio and we are utilizing our leading technology customer relationships installed base and expertise to capture investments in these markets.

Speaker 3: While the screen market turned down in both our factory automation business and test and measurement, we are expecting recovery in the second half of the year.

While discrete markets are down in both our factory automation business and test and measurement, we are expecting recovery in the second half of the year.

Turning to slide four for some additional details on how we finished the year 'twenty.

Speaker 3: Turning to slide four for some additional details on how we finish the year.

Speaker 3: 2023 was a remarkable operational year for Emma.

2023 was a remarkable operational year for Emerson.

Starting with the orders performance our teams executed exceptionally throughout the year.

Speaker 3: Starting with the orders performance, our teams executed exceptionally throughout the year. We won in the marketplace.

We won in the marketplace, we want a markets like LNG hydrogen renewables life sciences, and metals and mining, resulting in 5% orders growth for the year.

Speaker 3: We won in markets like LNG, hydrogen, renewables, life sciences, and metals and mining, resulting in 5% orders growth for the year.

Speaker 3: This shows up for folio relevance and leadership position for outcome.

This shows our portfolio relevance and leadership position for our customers.

Speaker 3: Orders were also up 5% in Q4, led by double-digit order growth in China and the rest of Asia.

Orders were also up 5% in Q4 led by double digit order growth in China, and the rest of Asia.

Underlying sales were up double digits for the year exceeding our initial expectation of $6 five to eight and a half last November and in line with our August guidance.

Speaker 3: Underlying sales were up double digits for the year, exceeding our initial expectation of 6.5 to 8.5 last November and in line with our August guidance.

Speaker 3: The strength was widespread across the organization, with all world areas growing 9 to 10% and both business groups growing 10%.

The strength was widespread across the organization with all world areas growing 9% to 10% in both business groups growing 10%.

I am most proud of our performance around operating leverage this year, 53% is differentiated it.

Speaker 3: I am most proud of our performance around operating leverage this year. 53% is differentiated. It is a testament to our Emerson Management System and our operational talent, which drove strong performance.

It is a testament to our Emerson management system, and our operational talent, which drove strong performance.

Speaker 3: Adjust at EPS ended the year at $4.44, being the midpoint of our original November guidance by 37 cents, and near the top of our August guide.

Adjusted EPS ended the year at $4.44.

Beating the midpoint of our original November guidance by 37.

And near the top of our August guidance.

Lastly, free cash flow of $2 4 billion was up 35% year over year and above our August guidance.

Speaker 3: Lastly, free cash flow of 2.4 billion was a 35% year over year and above our August guidance.

Turning to slide five.

Our 2023 performance caps three strong years of execution, demonstrating the power of our Emerson management system and its ability to create value for our shareholders.

Speaker 3: Our 2023 performance caps three strong years of execution, demonstrating the power of our Emerson Management System and its ability to create value for our shareholders.

We embarked on a transformational journey of Emerson in 2021 and remain focused on execution.

Speaker 3: We embarked on a transformational journey of Amherst in 2021 and remained focused on execution.

Speaker 3: Underlying sales growth of 7% and 10% in 2022 and 2023, respectively, shows the leadership position of our automation technology and our world-class sales organizations.

Underlying sales growth of 7% and 10% in 2022 and 2023, respectively.

So the leadership position of our automation technology in our World class sales organization.

Speaker 3: It is also indicative of our market share expansion within the $160 billion served automation market.

It is also indicative of our market share expansion within the $160 billion served automation market.

Speaker 3: Our ability to both leverage our $150 billion installed base, as evidenced by our MRO sales in 2023 of 65%, and win new projects are strengths of this company and critical to the long-term success of this business.

Our ability to both leverage our $150 billion installed base as evidenced by our MRO sales in 2023 of 65% and win new projects. Our strengths of this company and critical to the long term success of this business.

As we invest more in digital technology and software. We are also seeing the benefits to gross margins, which have expanded 470 basis points to 49% since 2021.

Speaker 3: As we invest more in digital technology and software, we're also seeing the benefits to gross margins, which have expanded 470 basis points to 49% since 2021.

Strong price discipline and differentiated technology I've also provided positive contributions and the addition of Eni will further expand our gross margins.

Speaker 3: strong price discipline and differentiated technology that also provided positive contributions. And the addition of N.I. will further expand our growth smart.

Speaker 3: This enabled strong operational leverage across the business. Over 50% leverage for 2022 and 2023 is distinguished amongst industrial.

This enabled strong operational leverage across the business over 50% leverage for 2022, and 2023 is distinguished amongst industrials.

Cost discipline remains part of the DNA at Emerson, driving further cost productivity and margin expansion.

Speaker 3: Cost discipline remains part of the DNA at Emerson, driving further cost productivity and margin expansion.

Put all this together and Emerson has delivered back to back years of 20 plus percent EPS growth.

Speaker 3: Put all this together. And Emerson has delivered back to back years of 20 plus percent EPS growth.

Please turn to slide six I will.

Speaker 3: I want to provide a couple strategic updates on our business.

To provide a couple strategic updates on our business.

In October we hosted Emerson exchange immerse in Anaheim, California.

Speaker 3: The event showcased our control systems and software technology and highlighted our integration with Aspen Tech throughout different solutions and conditions.

The event showcased our control systems and software technology and highlighted our integration with Aspen tech throughout different solutions and industries.

Speaker 3: Featuring over 1400 attendees and over 100 customer presentations, the week was spent discussing the exciting roadmap of our Delta V, Ovation, and AspenTech products and working with customers to solve their toughest challenges.

Featuring over 1400 attendees and over 100 customer presentations. The week was spent discussing the exciting roadmap of our Delta V ovation and Aspen Tech products and working with customers to solve their toughest challenges.

Speaker 3: This was all reflected in our keynote presentations from three important customers.

This was all reflected in our keynote presentations from three important customers <unk> a provider of electric catalysts reactor technology buy.

Speaker 3: Systhege, a provider of electric catalyst reactor technology, BioGen and Tesla, who discuss their automation challenges and partnership with Emerson.

<unk>, Chen and Tesla, who discuss their automation challenges in partnership with Emerson.

Speaker 3: These types of engagements not only help our users understanding of our current products, but also providing important inputs into our next generation products and innovation.

These types of engagements not only help our users understanding of our current products, but also provide important inputs into our next generation products and innovation.

Throughout this event, we'd highlighted are boundless automation vision. The next generation automation architecture that Emerson is uniquely positioned to deliver based on our leadership position in intelligent devices control systems.

Speaker 3: Throughout this event, we've highlighted our boundless automation vision. The next generation automation architecture that Emerson is uniquely positioned to deliver based on our leadership position in intelligent devices, control systems, and software.

Software.

Speaker 3: This vision empowers our customers to unlock and access all their operational data, enabling better decisions through analytics and optimization.

This vision empowers our customers to unlock and access all their operational data, enabling better decisions through analytics and optimization.

Speaker 3: It also enables customers to balance their production and sustainability goals through enterprise management and a unified software platform.

It also enables customers to balance their production and sustainability goals through enterprise management and a unified software platform.

Speaker 3: On slide 7, as part of this vision, we continue to accelerate innovation across four priority domains.

On slide seven.

As part of this vision, we continue to accelerate innovation across four priority domains.

Speaker 3: disruptive measurement technologies, software-defined automation systems, self-optimizing asset software, and our sustainability portfolio.

We're up to a measurement technologies software defined automation systems self optimizing asset software and our sustainability portfolio.

Each of these areas provide stepping stones to enable the boundless automation fishing.

Speaker 3: Each of these areas provide stepping stones to enable the boundless automation vision.

Speaker 3: At Immers, we introduced many significant new products to our leading Delta V portfolio.

At <unk>, we introduced many significant new products to our leading Delta V portfolio.

Speaker 3: First, Delta V, version 15 feature pack one, is one of our biggest roll outs in recent history.

First Delta the version 15 feature pack one is one of our biggest rollouts in recent history the.

Speaker 3: The package includes enhancements to software like Delta V Live, the most advanced Delta V HMI ever developed, and the introduction of a subscription controller PK Flex.

The package includes enhancements to software like Delta V live the most advanced Delta V. H M. I never developed and the introduction of our subscription controller TK flex.

Speaker 3: It also includes the Delta V edge environment, a first of its kind edge solution, allowing users to securely move data into their enterprise environment.

It also includes the delta the edge environment.

First of its kind edge solution, allowing users to securely move data into their enterprise environments.

Speaker 3: As we look at the next generation of software solutions and automation platforms, this is a key in neighbor to unlocking data that users previously discarded.

As we look at the next generation of software solutions and automation platforms. This is a key enabler to unlocking data about users previously discarded.

Throughout the rest of the organization. We are also making focused investments in strategic areas.

Speaker 3: Throughout the rest of the organization, we are also making focused investments in strategic areas.

Speaker 3: This includes next generation intelligent devices to further cement our leadership position in our measurement and analytical portfolio and relevant additions to our sustainability portfolio.

This includes next generation of intelligent devices to further cement our leadership position in our measurement and analytical portfolio and relevant additions to our sustainability portfolio.

Speaker 3: At Aspen Tech, many of the new releases are focused on enabling sustainability and energy transition segments.

At Aspen Tech many of the new releases are focused on enabling sustainability and energy transition segments. In addition to further building out capabilities like AI and data works to enable self optimizing asset Nathan.

Speaker 3: in addition to further building our capabilities like AI and data works to enable self-optimizing asset maintenance.

Please turn to slide eight.

Speaker 3: On October 11, we closed the acquisition of N.I. And announced we will report to business as a new test and measurement segment in 2024.

On October 11, we closed the acquisition of Ni and announced we will report the business as a new test and measurement segment in 2024.

We are very pleased with the progress already in the first month with Ni and are excited about the opportunities in this business.

Speaker 3: We are very pleased with the progress already in the first month with N.I. and are excited about the opportunities in this business.

Speaker 3: We remain committed to the $165 million of synergies by the end of year 5, resulting in approximately 31% adjusted segment EBITDA when moving stock comp to corporate.

We remain committed to the $165 million of synergies by the end of year five resulting in approximately 31% adjusted segment EBITA when moving stock comp to corporate.

Speaker 3: as we have openly stated, and I complete the significant portion of our portfolio transformation. And we are excited to execute as a new come.

As we have openly stated ni completes the significant portion of our portfolio transformation and we are excited to execute as a new company.

Speaker 3: We will, however, continue to be active with both on acquisitions that fill technology gaps in our business.

We will however continue to be active with bolt on acquisitions that fill technology gaps in our business and we have the balance sheet flexibility to do so.

Speaker 3: And we have the balance, she flexibility to do so.

Speaker 3: These will be prioritizing four segments we introduced a year ago. Industrial software, test and measurement, factory automation, and smart grid suits.

These will be prioritizing four segments, we introduced a year ago industrial software test and measurement factory automation and smart grid solutions.

In the fourth quarter, we completed two of these bolt on acquisitions <unk> is a global leader for Crampon, ultrasonic technology measuring liquids gases and steam.

Speaker 3: In the fourth quarter, we completed two of these bolt-on acquisition.

Speaker 3: Flexum is a global leader for clamp on ultrasonic technology, measuring liquids, gases and steam.

Speaker 3: The business is highly complementary to our existing leading flow portfolio, consisting of Coriolis, DP Flow, Magin Vortex, and we also serve attractive growth markets in the energy transition.

The business is highly complementary to our existing leading flow portfolio, consisting of Coriolis VP flow Magen vortex and will also serve attractive growth markets in the energy transition.

We also completed the acquisition of our fog in the fourth quarter.

Speaker 3: We also completed the acquisition of a fog in the fourth quarter. A highly strategic asset in the factory automation mark.

Highly strategic asset in the factory automation market.

Speaker 3: Afford, electrical linear motion solutions combined with our existing nomadic motion, offering.

<unk> electric linear motion solutions combined with our existing pneumatic motion.

Offering CRU.

Create a leading motion portfolio for discrete industries in a $9 billion Tam.

Speaker 3: creates a leading motion portfolio for discrete industries in a $9 billion TAM.

Please turn to slide nine.

As I mentioned, the large pieces of our portfolio transformation are behind us and this slide shows that we were able to accomplish what we were able to accomplish over the last few years.

Speaker 3: As I mentioned, the large pieces of upper folio transformation are behind this. And this slide shows that we were able to accomplish, what we were able to accomplish over the last few years.

We had three main objectives that I communicated when I when we started this journey.

Speaker 3: We have three main objectives that I communicated when we started this journey. First, cohesiveness, which we now have with an unmatched technology staff.

First cohesiveness, which we now have with an unmatched technology stack.

Speaker 3: Second, diversification. Discrete is now our second largest end market with further opportunities to expand into attractive diversified industries.

That diversification discrete is now our second largest end market with further opportunities to expand into attractive diversified industries and third our growth is aligned to secular growth drivers this alignment to energy security and affordability.

Speaker 3: And third, our growth is aligned to secular growth drivers. This alignment to energy security and affordability, sustainability, carbonization, near-shoring, and digital transformation. We'll allow Emerson to move to a more secular and less cyclical business profile.

Inability to de Carbonization near shoring and digital transformation will allow emerson to move to a more secular and less cyclical business profile.

Speaker 3: $36 billion worth of transactions. Disposing of assets with low single digit growth profiles and adding businesses, we expect to grow cumulatively in the high single digits to low double digits.

$36 billion worth of transactions disposing of assets with low single digit growth profiles, and adding businesses, we expect to grow cumulatively in the high single digits to low double digits.

Speaker 3: The profitability improvement is also remarkable. Trading 30% GP businesses for those that operate 70% plus gross profits, which are already seeing the benefits of today.

The profitability improvement is also remarkable.

Trading, 30% GP businesses for those that operate 70% plus gross profits, which are already seeing that we are seeing the benefits of today.

Speaker 3: We are all energized by the opportunity we have with this new Emerson.

We are all energized by the opportunity we have with this new album.

So.

Please turn to slide 10.

Speaker 3: Our current strategic funnel is now over $10 billion in opportunity, with nearly two thirds residing in our growth class.

Our current strategic funnel is now over $10 billion in opportunity with nearly two thirds residing in our growth platforms.

Speaker 3: We are also encouraged by the activity of projects already in the funnel, considering the interest rate environment and global concerns.

We're also encouraged by the activity of projects already in the funnel.

Considering the interest rate environment and global uncertainty.

In the fourth quarter Emerson was awarded over $500 million of project content with over 60% of those in our growth platforms.

Speaker 3: In the fourth quarter, Emerson was awarded over $500 million of project content with over 60% of those in our growth class.

Speaker 3: This includes strategic winds and LNG, carbon capture, hydrogen, life sciences, and metals in mind.

This includes strategic wins in LNG carbon capture hydrogen life sciences, and metals and mining.

Speaker 3: These successes are indicative of our team's focus and our technology's relevance within these marks.

These successes are indicative of our team's focus and our technologies relevance within these markets.

As we look at further diversifying our portfolio into hybrid in energy transition markets 2023 was a fund the fundamental foundational year.

Speaker 3: As we look at further diversifying our portfolio into hybrid and energy transition markets, 2023 was a fundamental, foundational year.

Speaker 3: Specifically, there were three highly strategic projects to highlight.

Specifically there were three highly strategic projects to highlight.

Speaker 3: First, Emerson was selected to automate five different plans for Samsung Biologics as it standardizes on our Delta V automation platform.

First Emerson was selected to automate five different plants for Samsung biologics as it standardizes on our Delta the automation platform.

The Emerson solution provides control for both production skids and for a plant wide operations.

Speaker 3: The MRFN solution provides control for both production skids and for plant-wide operations.

We are also currently engaged with the customer on the potential to leverage Aspen Tech software for future expansion.

Speaker 3: We are also currently engaging with the customer on the potential to leverage Aspen Tech software for future expansion.

Speaker 3: Secondly, in the third quarter, we highlighted Emerson's selection for the Port Arthur LNG with back tail energy and simp.

Secondly in the third quarter, we highlighted Emerson selection for the Port Arthur LNG project with Bechtel energy and Sempra.

Speaker 3: This quarter, we are pleased to announce, we were also selected for another large scale world-class LNG facility in the United States. The real grand LNG project from Bechtel Energy and next decade, located in Texas, will be capable of producing 17.6 million metric tons per annum of LNG across three local faction trains.

This quarter. We are pleased to announce we were also selected for another large scale world class LNG facility in the United States. The Rio Grande LNG project from Bechtel Energy and next decade, located in Texas will be capable of producing $17 6 million metric tons.

As per annum of LNG across three liquefaction trains.

Speaker 3: Emerson is providing much of our leading technology, including analytical and measurement technology, and control, pressure relief, and isolation valves.

Emerson is providing much of our leading technology, including analytical and measurement technology and control pressure.

Pressure relief in isolation valves.

Speaker 3: And finally, Ask Pentech was awarded a synergy win in the most recent quarter with a world-leading pulp and paper produced.

And finally, Aspen Tech was awarded a synergy win in the most recent quarter with a world leading pulp and paper producer.

Emerson's Delta V system has already installed at the site and through this relationship with the customer Emerson was able to bring Aspen tech to the table.

Speaker 3: Emerson's Delta V system is already installed at the site and through this relationship with the customer Emerson was able to bring Aspen Tech to the table.

Speaker 3: Through this engagement, the customer chose to displace the current incumbent provider of adaptive process control software and instead move to S.

Through this engagement the customer chose to displace the current incumbent provider of adaptive process control software and instead move to Aspen Tech.

This example demonstrates the power of our Emerson Aspen Tech integrated solutions and the opportunity to expand Aspen Tech utilizing our global sales channel.

Speaker 3: This example demonstrates the power of our Pemerson Aspen Tech integrated solutions and the opportunity to expand Aspen Tech utilizing our global sales chance.

These wins and the continued evolution of the funnel provide a strong foundation as we head into 2024.

Speaker 3: These wells and the continued evolution of the funnel provide a strong foundation as we had into 2024.

With that I will now turn the call over to bike Bachman.

Speaker 3: With that, I will now turn the call over to my talk.

Speaker 3: Thanks, Wall, and good morning, everyone. Please turn to slide 11 that summarizes our fourth quarter financial results, which we're in line with our expectation.

Thanks, Paul and good morning, everyone. Please turn to slide 11 that summarizes our fourth quarter financial results, which were in line with our expectations.

Speaker 4: Underline sales growth was 5% growing off a tough comp in 2022 when sales shifted from the third quarter into the fourth quarter due to China shutdowns and electronic component shortages. Price contributed approximately

Underlying sales growth was 5% growing off a tough comp in 2022, when sales shifted from the third quarter into the fourth quarter due to China shutdowns and electronic component shortages.

Price contributed approximately four points of growth.

Speaker 4: As expected, our typical seasonality, backlog declined sequentially about 300 million to 6.6 billion, up 12% versus where we entered 2023.

As expected our typical as expected with our typical seasonality backlog declined sequentially about 300 million to $6 6 billion up 12% versus where we entered 2023 <unk>.

Speaker 4: Software and control sales grew 2% on an underlying basis, which now includes AspenTech as we left a year of ownership.

Software and controls sales grew 2% on an underlying basis, which now includes Aspen attack as we lapped a year of ownership.

The control systems and software business came in largely as expected and it was comparing against a very strong prior year Q4.

Speaker 4: The control systems in software business came in largely as expected, and it was comparing against the very strong prior year Q4.

Aspen Tech tends to see lower sales volume in our fiscal Q4 due to the timing of renewals and its sales can be more variable due to ASC 606 accounting.

Speaker 4: Aspen tech tends to see lower sales volume in our fiscal Q4 due to the timing of renewals and its sales can be more variable due to AFC 606 account.

Speaker 4: sales were on forecast and importantly ACV showed strong growth at 10.9% year over year.

Our sales were on forecast and importantly, ACB showed strong growth at 10, 9% year over year.

Speaker 4: Intelligent devices grew 6% led by process and hybrid exposed businesses, mainly measurement and analytical and final control.

Intelligent devices grew 6% led by process and hybrid exposed businesses, mainly measurement and analytical and final control.

Our discrete automation business was down in the quarter with softer than expected demand in Europe, and China weakness impacting this business.

Speaker 4: Our discrete automation business was down in the quarter with softer than expected demand and Europe and China weakness impacting this.

Speaker 4: Emerson adjusted segment EBITDA margin improved 80 basis points to 25.5%. Operating leverage excluding Aspen tech was 45%.

Emerson adjusted segment EBITA margin improved 80 basis points to 25, 5%.

Operating leverage excluding Aspen Tech was 45%.

Speaker 4: Volume, margin-accretive price cost, which included net material deflation, and ongoing productivity programs contributed to the margin improvement.

Volume margin accretive price cost, which included not material deflation and ongoing productivity programs contributed to the margin improvement.

Speaker 4: Adjust the DPS grew 21% to $1.29.

Adjusted EPS grew 21% to $1 29.

Speaker 4: Lastly, free cash flow for the quarter of 838 million was up 17% versus the party area.

Lastly, free cash flow for the quarter of $838 million was up 17% versus the prior year.

Please turn to slide 12.

<unk> summarized 2023 was an exceptional year for Emerson.

Speaker 4: As well summarized, 2023 was an exceptional year for Emerson.

Speaker 4: Underlying sales growth was 10% with four points of price contribution.

Underlying sales growth was 10% with four points of price contribution.

Speaker 4: Software and control and intelligent devices both finished with underlying sales growth of 10%.

Software and control and intelligent devices, both finished with underlying sales growth of 10%.

All geographies reported strong sales growth with Americas up, 10%, Europe up, 10% and Asia Middle East and Africa up 9%.

Speaker 4: All geographies reported strong sales growth with America's up 10%, Europe up 10%, and Asia, Middle East, and Africa up 9%.

Emerson adjusted segment, EBITA margin improved 220 basis points to 25%.

Speaker 4: Emerson adjusted segment EVA Tom Argin improved 220 basis points to 25%.

Operating leverage excluding Aspen Tech was 53%.

Speaker 4: Operating leverage excluding Aspen Tech was 53%.

Speaker 4: As we've talked about throughout the year, this was driven by leverage on double digit sales growth, strong execution by our operations.

As we've talked about throughout the year. This was driven by leverage on double digit sales growth strong execution by our operations teams margin accretive price cost and favorable product and project mix.

Speaker 4: margin accretive price cost, and favorable product and project net.

Adjusted EPS grew 22% to $4 44.

Speaker 4: adjusted EPS grew 22% to $4.44 with 27 cents of contribution from Aspentuck.

With 27 <unk> of contribution from Aspen Tech.

Lastly, free cash flow of $2 4 billion was up 35% versus the prior year.

Speaker 4: Lastly, free cash flow of $2.4 billion was up 35% versus the prior year. This includes approximately $100 million from the interest on undeployed proceeds from the Copeland transaction.

This includes approximately $100 million from the interest on on deployed proceeds from the Copeland transaction.

Speaker 4: For the year, free cash flow conversion of adjustment earnings was 88%, slightly ahead of our expectation.

For the year free cash flow conversion of adjusted earnings was 88% slightly ahead of our expectations.

This also represents a 15, 6% free cash flow margin, a metric, which we plan to utilize moving forward.

Speaker 4: This also represents a 15.6% free cash flow margin. A metric we plan to utilize moving forward.

Slide 13 details the drivers of adjusted EPS growth from the prior year operational performance was exceptional 10% underlying sales growth of 53% segment level operating leverage contributed 77 of year over year EPS growth.

Speaker 4: Slide 13 details the drivers of adjusted EPS growth from the prior year. Operational performance was exceptional. Ten percent underlying sales growth and 53 percent segment level operating leverage contributed 77 cents of year-over-year EPS growth.... 1989 CDN

FX was a <unk> <unk> headwind.

Stock comp was a 16 headwind versus the prior year due primarily to the mark to market accounting for the company's old stock stock compensation plan, which was mostly offset by pension and other corporate items.

Speaker 4: Stock Comp was a 16 cent headwind versus the prior year, due primarily to the mark-to-market accounting for the company's old stock compensation plan, which was mostly offset by pension and other corporate items.

Speaker 4: The reduced share count resulting from the $2 billion share repurchase contributed 14 cents, and the Copeland Note receivable interest contributed 5 cents to adjusted EPS for the year.

The reduced share count, resulting from the $2 billion share repurchase contributed <unk> 14.

Copeland note receivable interest contributed <unk> <unk> to adjusted EPS for the year.

Overall, adjusted EPS grew 22% year over year to $4 44 sites.

Speaker 4: Overall, adjusted EPS grew 22% year over year to $4.44.

Please turn to slide 14.

Speaker 4: We believe 2024 is shaping up to be another good year of financial performance.

We believe 2024 is shaping up to be another good year of financial performance. Our end markets remain generally resilient evidenced by 5% underlying orders growth in Q4 and for all of 2023.

Speaker 4: Our end markets remain generally resilient, evidence by 5% underlying orders growth in Q4, and for all of 2020-3.

Speaker 4: This is resulted in healthy backlog levels, which were up 12% versus where we entered 2023, giving us good visibility into 2024 sales.

This has resulted in healthy backlog levels, which were up 12% versus where we entered 2023, giving us good visibility into 2024 sales were.

Speaker 4: We also have good visibility to our MRO business, which was 65% of 2023 sales. This day-to-day replacement business gives us good perspective on pace of business and remains constructive.

We also have good visibility to our MRO business, which was which was 65% of 2023 sales. This day to day replacement business gives us good perspective on pace of business and remains constructive.

Lastly, we are entering 2024 with a $10 billion plus funnel.

Speaker 4: Lastly, we are entering 2024 with a $10 billion plus funnel, plus 3 billion from where we entered 2023.

<unk> 3 billion from where we entered 2023.

Speaker 4: This all feeds our 2024 outlook. Process and hybrid end markets remain strong, driven by secular trends like energy security, sustainability and decarbonization, near-shoring and digital transformation.

It's all feeds our 2024 outlook <unk>.

US and hybrid markets remained strong driven by secular trends like energy security sustainability and de carbonization near shoring and digital transformation.

We expect process and hybrid sales growth of mid to high single digits in 2024.

Speaker 4: We expect process and hybrid sales growth of mid to high single digits in 2024.

Speaker 4: We continue to see investments moving forward in energy transition markets like LNG, nuclear, hydrogen, carbon capture.

We continue to we continue to see investments moving forward in energy transition markets like LNG nuclear.

Hydrogen carbon capture and renewables.

Speaker 4: We continue to see near-shoring investments here in the US and around the world, in life sciences and metals and mining, especially midstream metals processing and refining, which is being expanded to the United States and Europe .

We continue to see near shoring investments here in the U S and around the world in life Sciences in metals, and mining, especially midstream metals processing and refining which is being expanded to the United States and Europe.

Speaker 4: These secular trends in process and hypernet markets and our ability to help customers be successful, give us confidence in our 2024 outlook.

These secular trends in process and hybrid end markets and our ability to help customers be successful gives us confidence in our 2020 for outlook.

Discrete markets are obviously in a different part of the cycle, which impacts both our discrete automation and test and measurement businesses.

Speaker 4: The street markets are obviously in a different part of the cycle, which impacts both our discrete automation and testing measurement business.

Speaker 4: Orders have been negative for two to three quarters, but we expect this to begin to turn positive in the second half of 2024.

Orders have been negative for two to three quarters, but we expect this to begin to turn positive in the second half of 2024.

Speaker 4: We expect underlying sales to be flat to upload single digits in 2024 for our speeches.

We expect underlying sales to be flat to up low single digits in 2024 for our discrete businesses.

Speaker 4: from a world areas perspective, it should continue to be a balance and we expect each world area to grow in the mid-singled areas.

For our discrete business from a world areas perspective, it should continue to be a balance and we expect each world area to grow in the mid single digit range.

Okay.

Please turn to slide 15, where we have outlined our 2020 for guidance.

Speaker 4: Please turn to slide 15 where we have outlined our 2024 guidance.

Speaker 4: Our later cycle exposure, robust backlog, and continued orders resiliency support our 2024 guidance for underlying sales growth of 4 to 6%.

Later cycle exposure robust backlog and continued orders resiliency support our 2024 guidance for underlying sales growth of 4% to 6%.

Speaker 4: We expect both intelligent devices and software and control to be within this guidance range for underlying sales.

We expect both intelligent devices and software and control to be within this guidance range for underlying sales.

Speaker 4: Testing measurement is excluded from 2024 underlying sales and is expected to add another 10 to 10.5 points to reported growth or approximately 1.6 billion of sales. How fax is expected to be a one.

Test and measurement is excluded from 2024 underlying sales and is expected to add another 10 to 10 five points to reported growth or approximately $1 6 billion of sales.

FX is expected to be a one point tailwind.

We remain committed to driving differentiated incremental margins through our operational execution.

Speaker 4: We remain committed to driving differentiated incremental margins through our operational execution.

Speaker 4: Operating leverage, which now includes Aspen Tech but excludes test and measurement, is expected to be in the mid to high 40s in 2024, which includes cost savings from our corporate and platform right sizing.

Operating leverage which now includes Aspen tech, but excludes test and measurement is expected to be in the mid to high <unk> in 2024, which includes cost savings from our corporate and platform right sizing.

Price cost will continue to be margin accretive in 2024, and ongoing productivity and cost savings will drive further benefits.

Speaker 4: Price costs will continue to be margin accretive in 2024, and ongoing productivity and cost savings will drive further benefits.

We expect adjusted EPS to increase from $4 44 in 2023 to between $5.15 and $5 35 in 2024, and 18% increase at the midpoint. This.

Speaker 4: We expect adjusted EPS to increase from $4.44 in 2023 to between $5.15 and $5.35 in 2024, an 18% increase at the mid-20s.

Speaker 4: This includes approximately 35 to 40 cents from NI, inclusive of stock compensation, and approximately 32 to 34 cents from Aspen Tech.

This includes approximately 35% to 40 from NII inclusive of stock compensation and approximately 32 to 34 signs from Aspen Tech.

Speaker 4: There is some movement below the line and stock compensation, pension, and other corporate items, which roughly offset year over year. This detail can be found in the appendix.

There are some movements below the line in stock compensation pension and other corporate items, which roughly offset year over year.

This detail can be found in the appendix.

Speaker 4: As a reminder, stock compensation from NI is now reported in our corporate stock compensation line item.

As a reminder, stock conference compensation for Ni is now reported in our corporate stock compensation line item.

Speaker 4: That interest expense is expected to be approximately 105 million.

Net interest expense is expected to be approximately $105 million.

Lastly, free cash flow is expected to be two six to $2 7 billion, which we will which we will discuss in more detail on the next slide.

Speaker 4: Lastly, free cash loads expected to be 2.6 to 2.7 billion, which we will discuss in more detail on the next slide.

For the first quarter, we expect underlying sales to increase six 5% to eight 5% with leverage in the mid thirties.

Speaker 4: For the first quarter, we expect underlying sales to increase 6.5% to 8.5% with leverage in the mid-30s.

Speaker 4: Adjusted EPS is expected to be between $1 and $1.5, a 31% increase of the mid.

Adjusted EPS is expected to be between $1 and $1 five or.

31% increase at the midpoint.

NII is expected to contribute approximately a nickel.

Speaker 4: And I is expected to contribute approximately a nipple.

Speaker 4: As I mentioned, we will discuss some additional details on slide 16 regarding our free cash flow.

As I mentioned, we will discuss some additional details on slide 16 regarding our free cash flow.

We ended 2023 with free cash flow of $2 4 billion or 15, 6% of sales. This included just over $100 million of after tax cash from interest on the unemployed proceeds from the Copeland transaction, which will not repeat in 2024.

Speaker 4: We ended 2023 with free cash flow of 2.4 billion or 15.6% of sales. This included just over a hundred million of after-tax cash from interest on the undeploid proceeds from the Copeland Transaction, which will not repeat in 2024.

Speaker 4: Taking this into consideration and starting from a foundation of approximately 2.3 billion of free cash flow, we expect approximately 300 million of contribution from NI operations and another 350 million increase from base operations.

Taking this into consideration and starting from a foundation of approximately $2 $3 billion of free cash flow, we expect approximately $300 million of contribution from NII operations and another $350 million increase from our base operations.

This would have resulted in free cash flow margin of approximately 16, 8% or $2 9 billion of free cash flow.

Speaker 4: This would have resulted in a free cash flow margin of approximately 16.8% or 2.9 billion of free cash flow. However, we have two headwinds in 2024.

However, we have two headwinds in 2024.

Speaker 4: First, we expect approximately $200 million of acquisition-related cash payments associated with the NI and Bolt-on acquisition.

First we expect approximately $200 million of acquisition related cash payments.

Associated with the NII and bolt on acquisitions.

Speaker 4: Second, we are expecting an elevated capex then related to facility expansions, which will increase our capex to approximately two and a half percent of sales up from our historical and future expected rate of approximately two percent of sales.

Second we are expecting an elevated capex spend related to facility expansions, which will increase our capex to approximately two 5% of sales up from our historical and future expected rate of approximately 2% of sales.

Including these two headwinds bring bring us to our guidance of two six to $2 7 billion of free cash flow.

Speaker 4: Including these two head ones bring us to our guidance of 2.6 to 2.7 billion of free cashflow or 15.2 to 15.4% free cashflow margin.

Were $15 two to 15, 4% free cash flow margin.

Before we turn the call over to Q&A I will quickly discuss capital allocation on slide 17.

Speaker 4: Before we turn the call over to Q&A, I will quickly discuss capital allocation on slide 17. We remain committed to this.

We remain committed to disciplined capital allocation into.

Internal development and organic growth investments remain a high priority. This.

Speaker 4: Internal development and organic growth investments remain a high priority.

Speaker 4: This accelerated in 2023 with R&D spend now representing 7% of revenue and NI will further mix this up in 2024. This increase was driven by increased innovation in our four priority breakthrough domains, disruptive technologies and measurement, sustainability, software defined automation systems, and self-optimizing asset software.

This accelerated in 2023 with R&D spend now representing 7% of revenue and NII will further mix this up in 2024.

This increase was driven by increased innovation in our four priority breakthrough domains disruptive technologies and measurement sustainability software defined automation systems and self optimizing asset software.

Speaker 4: We also remain committed to the dividend. And announced today, we are beginning our 68th year of consecutive increased dividends with our 52.5 cent per share declared dividend this quarter. The right side of this chart is where we have flexibility. We will continue to be active in pursuit of strategic bolt-on acquisitions to strengthen our portfolio and targeted areas. And we will remain committed to strong returns on these investments.

We also remain committed to the dividend and announced today. We are beginning our 68 year of consecutive increased dividends with our 52 five cents per share declared dividend in this quarter.

The right side of this chart is where we have flexibility.

We will continue to be active in pursuit of strategic bolt on acquisitions to strengthen our portfolio in targeted areas and we will we will remain committed to strong returns on these investments.

Speaker 4: Finally, we plan to have approximately 500 million of share repurchases in 2024.

Finally, we plan to have approximately $500 million of share repurchases in 2024.

We are energized as we entered the new fiscal year.

Speaker 4: We are energized as we enter the new fiscal year and we are focused on the execution of our plan.

We are focused on the execution of our plans. Thanks.

Speaker 4: Thanks for your attention. I will turn it back to the operator to open the call for questions.

Thanks for your attention I will turn it back to the operator to open the call for questions.

Yes.

Speaker 1: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2.

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

Youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker 1: Our first question comes from Jeff Sprague with Vertical Research. Please go ahead.

Next question comes from Jeff Sprague with vertical research. Please go ahead.

Thank you and good morning, everyone.

Speaker 5: Thank you. Good morning, everyone. Hey, just a couple specific questions if I could some noise with the bolt on. So could you just be clear?

Hey, just a couple specific natty questions if I could.

There's some noise with the bolt ons so could you just.

Be clear.

Speaker 5: for Natty revenues in 2024. And also if you could provide any color on how their orders progressed in the fourth quarter. And finally, maybe a little bit of color on how much of that synergy target happens in the first year.

For Natty revenues in 2024.

Also if you could provide any color on how their orders progressed in.

In the fourth quarter.

And finally, maybe a little bit of color on how much of that synergy target happens in the first year.

Speaker 3: Yeah, hi, Jeff wall here. Good morning. So, on the revenue as Mike stated 1.6Billion dollars is the assumption. It's not in the underlying sales.

Yeah, Hi, Geoff law here good morning.

So on the revenue as Mike stated $1 $6 billion is the assumption, it's not in the underlying sales.

Speaker 3: as he reported. Orders in the environment, as I expressed in my presentation, are still challenging in the business. Exiting the quarter at down 16%.

As the <unk>.

Reported.

Orders in the environment as I expressed in my presentation are still challenging in the business exiting the quarter at down 16%.

Speaker 3: which is very much aligned to the plan that we had in place. And we do expect, much like in our core discrete market,

And which is very much aligned to the plan that.

We had in place and we do expect much like in our core discrete markets.

Speaker 3: orders to the flat matters we're getting to the second half of the year. So feel very much that they're on their in-plan from an order's perspective although still in a challenging environment. And then lastly on synergies, look, we got off to a really good start. Day one, the team's executing very, very well. We haven't given guidance on year one, what I did, I will say, that about half of synergies will be delivered in the first two years.

Orders too.

To flatten out as we get into the second half of the year, So feel very much out there under in plan.

From an orders perspective, although still in a challenging environment and then lastly on synergies look.

We got off to a really good start.

Day one.

<unk> is executing very very well, we haven't given guidance on year, one what I would I did I will say that about half the synergies will be delivered in the first two years.

Speaker 4: Right, and it just is an unrelated question, maybe it's for Mike, but just thinking about the organic guide for 2024, you're exiting here at 4% price with 5% order growth, right? Feels like there's a little bit of room in those organic numbers. I'd be just to share how much price is embedded in that four to six or 2024? Yeah, Jeff, the 2024 price assumption is 2%. Yeah.

Great and just as an unrelated question, maybe it's for Mike but.

Just thinking about the organic guide for 2024, you're exiting here at 4% price was up.

5% order growth feels like there's a little bit of room in there.

Those organic numbers, maybe just share how much price is embedded in that four to six for 2024.

Jeff.

2024 price assumption is 2%.

Alright.

Okay.

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

Speaker 1: Our next question comes from Steve Tusa with JP Morgan. Please go ahead.

Hi, good morning.

Good morning, Steve.

Speaker 6: Let's talk about within the the cast guidance what you're assuming on working capital and then that 250 million. It's kind of running through this year. How does how does all that trend kind of into 25?

Can you just talk about within the cash guidance, what you're assuming on working capital and then that $250 million, that's kind of running through this year.

How does how does all of that trend kind of into 'twenty five.

Yes, I'll start with the second half or the second part of the question first the $250 million is really one time in the year related to the acquisitions and some of the higher.

Speaker 4: Yeah, I'll start with the second half or the second part of the question first, the 250 million is really one time and in the year related to the acquisitions and some of the higher. Uh, higher capex that we've got.

The higher Capex that we've got.

Okay.

Great and then just working capital.

Speaker 6: Great, and then just working capital. Oh, working capital for the year. Yeah, we exited working capital, trade working capital with about 20 and a half percent. And we're expecting about 50 basis points coming off. 20 and a half percent of revenue. So we would expect to have a little bit of balance sheet goodness in 2024. Great, and then this one last one just on orders. How do you guys kind of see the funnel stepped up a bit, the backlog, you get into backlog seasonally, but how do you guys kind of see orders and backlog trending over the course of the year here?

Working capital for the year, Yes, we exited working capital trade working capital of about 25% and we're expecting about 50 basis points coming off 25% of revenue.

So we do expect to have a little bit of balance sheet goodness in 2024.

Great and then just one last one just on orders how do you guys kind of see that you know the funnel stepped up a bit the backlog yet into backlog seasonally but how do you guys kind of see orders and backlog trending over the course of a year ago.

Yeah, I'll comment Steve obviously, we exited at 5%. So we have optimism and we have momentum out there. Obviously, we have some challenges in discrete as we've talked about in the business.

I think as you think about the start of the year my expectations are flat to low single digits, but as we get into the second half of the year My expectation is exiting.

In the mid single digit range and for the full year somewhere in the low single to mid single digit orders.

Great and thanks, a lot and then Steve just on backlog.

Speaker 4: Great, and thanks a lot. And then Steve, just on backlog, if that pattern holds, there shouldn't be a meaningful change in backlog as we exit 2024. So the backlog should remain healthy.

If that pattern holds there shouldn't be a meaningful change in backlog as we exit 2024, so the backlog should remain healthy.

Great. Thank you.

Speaker 1: The next question comes from Julian Mitchell with Barclays. Please go ahead. Hi, good morning.

The next question comes from Julian Mitchell with Barclays. Please go ahead.

Hi, good morning.

Speaker 7: Maybe first off just looking at slide 15. So I wanted to understand why the operating leverage steps up after Q1 when the organic sales growth steps down.

Maybe first off just looking at slide 15.

So I wanted to understand why.

Why the operating leverage.

<unk>.

After Q1, when the organic sales growth.

Steps down.

Speaker 7: Is there any one segment or sub-segment or something happening with mix that's driving that? Should we assume that that organic sales growth just steadily decelerates through the...

Is there any one segment or sub segment or something happening with mix.

It's driving that and should we assume that that organic sales growth just steadily decelerates through the year.

Speaker 4: Hey Julian, yeah, there is a little bit of mix and I would say the discrete automation softness that we are expecting in the first half of the year plays in on that. We've been ramping up our spend around growth platforms and innovation and so as you come into the first quarter, there's a little bit of a year over year comparable that plays into that first quarter leverage as well.

Hey, Julien, yes, there is a little bit of mix and I would say the discrete automation.

Softness that we are expecting in the first half of the year plays out on that there is we've been ramping up our.

<unk> spend around growth platforms, and innovation and so as you come into the first quarter Theres, a little bit of a year over year comparable that plays into that first quarter leverage as well.

[noise] IC since it's really discrete sort of getting better and that pushes up the op leverage that's yes, that's correct. Thank.

Speaker 5: I see, so it's really discreet sort of getting better and that pushes up the up leverage balance of the year. That's correct. I think and obviously we're driving restructuring in the discrete business given the trend in the orders and you will see that margin expansion come through in the second half which would drive up the leverage rates.

Thank you and obviously were driving restructuring discreet business given the trend in the orders and you will see that margin expansion come through in the second half, which would drive up the leverage rates.

Speaker 7: That's helpful, thank you. And then just a quick follow up would be around, I suppose, you know, historically process cycles in automation followed discrete by around 12 months and we see discrete is soft now. Are there any sort of specific reasons why process should, you know, hold up differently this time versus history instead of following discrete lower later this year?

That's helpful. Thank you and then just a quick follow up would be around.

I suppose.

<unk>.

Process cycles, and automation followed discrete.

By around 12 months and we see discrete is soft now.

Are there any sort of specific reasons why.

Process should holdup differently this time versus history instead of following discrete.

Later this year.

Speaker 3: It's a good question Julian, one that we've thought a lot about and been watching very carefully. The fact of the matter is that we have some very unusual secular trends going on in the world right now. I think a lot of our process activity is driven by three critical areas.

It's a good question Julian one that we've thought a lot about <unk> been watching very carefully.

The fact that the matters that we have some very unusual.

Secular trends.

On in the World right now I think a lot of our process activities driven by two by three critical areas, the near shoring activity, which impacts life sciences in the metals and mining value chain.

Speaker 3: The near-shoring activity which impacts life sciences and the metals and mining value chain.

Speaker 3: the energy affordability and security, which is impacting significant continued investment in liquefied natural gas and nuclear.

The energy affordability, and sustain and and security, which is impacting significant continued investment in liquefied natural gas and nuclear and thirdly equally important sustainability I think we're past the <unk>.

Speaker 3: And thirdly, equally important, sustainability. I think we're past the tipping point.

The tipping point in terms of the our customers' commitments around sustainability and we're seeing continued investments there so whether we believe those would transcend.

Speaker 3: in terms of the our customers' commitment to our sustainability, and we're seeing continued investments there. So whether we believe those will transcend.

Speaker 5: certain economic cycles and that will impact how we should think about the strength of process as we go through 2024. You have something to add. Yeah and the other point I'd make Julian is that the capital spend in the process hybrid industries has been pretty disciplined. There hasn't been a boom in capital to cause a correction as we move forward as opposed to the prior cycles we saw. So I think that discipline capital spend plus

Certain economic cycles.

And that will impact how we should think about the strength of process. As we go through 2020 for ROM you have something to add yeah. The other point I'd make Julian is.

The capital spend in the process hybrid industries has been pretty disciplined there hasnt been a boom in capital to cause a correction as we move forward as opposed to the prior cycles. We saw so I think that disciplined capital spending plus obviously the trends that are all identified where the sustainability investments for.

Speaker 4: Obviously the trends that are all identified where the sustainability investments provide that tailwind, we expect process to continue to run for a lot longer.

<unk> that tailwind, we expect process to continue to run for a lot longer.

I think so.

Speaker 6: I saw you in hybrid. Yeah, in hybrid. Yeah. God, so the protests in hybrid orders growth should stay fairly steady through 2024. That is our expectation. Yes.

And hybrid and hybrid yeah got it and so the process on hybrid orders growth should stay fairly steady through 2024.

That is our expectation yes.

Fantastic Thanks for the help.

Thanks Julien.

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

Speaker 1: The next question comes from Nigel Coe with Wolf Research. Please go ahead.

Nigel Your line is now live.

Speaker 8: Okay, the line's live, but I'm not so sorry about that. So, National Instruments, I think that the 4Q fiscal fails are down, I think, high-school digit organic. Is that the right number? Is my math correct? And it looks like the guide implies, Fladdish, to maybe set you down organic. Just wondering what the profile is on that and anything on orders there would be helped.

Okay.

The lines life, but I'm not so certain of that.

So national instruments, I think that.

The <unk> bulky physical sales were down I think high school digit organic is that the right number if my math correct.

It looks like the.

The guide implies flattish to maybe slightly down organic I'm just wondering what the profile is on that and anything on orders that would be helpful.

Yes, so rob here Nigel how from an orders perspective as long as indicated in the last quarter, which is there are fourth quarter sit down 16% and orders, we expect orders to remain down for the first half and turned positive in the second half and you are right. The one <unk>.

Speaker 4: Yeah, so, Ron here, I gel out from an order perspective as well indicated in the last quarter, which is there are four quarter, took down 16% in orders. We expect orders to remain down for the first half and turn positive in the second half. And you are right, the $1.6 billion that we're guiding will translate to down five to six percent for the year from a sales perspective.

$6 billion that we're guiding will translate to down 5% to 6% for the year.

From a sales perspective and sales should turn positive in the fourth quarter. So we will have down sales for the first three quarters and positive in the fourth quarter.

Speaker 5: and sales should turn positive in the fourth quarter. So we'll have down sales for the first three quarters and positive in the fourth quarter.

Okay, Great I'm, sorry, I missed the order number thanks for the thanks for clarifying that and then on.

Speaker 8: Okay, great. I'm sorry I missed the order number. Thanks for clarifying that. And then on the backlog, backlog down from 6.9 to 6.6 cubic here. Maybe just clarify, I don't think that's unusual from a signal perspective. I think it's normal to see 4Q backlog consumption. Was there any FX revaluation impacts there? I just want to make sure that I understand the organic movement there.

The backlog backlog down from $6 90 to $6 six cubic here maybe.

Maybe just clarify it I don't think that's unusual from a seasonal perspective, I think it's normal to see full kiosks backlog consumption.

Was there any FX revaluation impacts that I just wanted to make sure I understand the organic movement that.

Speaker 4: I know that's not consistent gap basis.

No that's a consistent GAAP basis.

Okay, great. Thank you.

The next question comes from Scott Davis with Melius Research. Please go ahead.

Speaker 1: Next question comes from Scott Davis with Melius Research. Please go ahead.

Hey, good morning, everybody Congrats Scott stepped down.

Speaker 4: Hey, good morning, everybody. Congrats. Good morning, Scott. The stuff done.

Speaker 5: Laos, sounds like you were just in China, if you were around the world, and seems pretty topical to get an update from what maybe you saw there. I love.

It sounds like you were just in China people around the world.

It seems pretty topical to get an update from what maybe you saw there.

I'll just leave it there.

Speaker 3: Yeah, actually on this particular trip did not hit China. We'll do that later in the year. I was there in May. But having said that look, we had a very good year in China. We exited orders at 11%.

Yeah actually on this particular trip did not hit China, we'll do that later in the year I was there in may.

But having said that look we had a very good year in China, we exited orders at 11% and in China.

Speaker 3: in China, so feel good about the momentum there again. The investments there really around energy security and nearshoring are very significant. Sales were in the mid single digits for the year, but we continue to see robustness in our core process in hybrid spaces.

So feel good about the momentum there again there is the investments they are really around the energy security and near shoring or are very are very significant.

Sales were in the mid single digits for the year.

And.

We continue to see robustness in our core process and hybrid spaces.

Speaker 3: and not unlike what Europe and the United States struggling on the discrete side.

And not unlike Europe, and the United States struggling on the discrete side, but certainly the the process hybrid shrink will continue as we expect into 2024.

Speaker 6: But certainly the process hybrid strength will continue as we expect in 2020.

And then the discrete and China is negative I'd assume this quarter.

Speaker 6: And then the discrete in China is negative I'd assume this quarter Yes, it is negative in the quarter. Yes, sir

Yes, it is negative in the quarter, yes, Sir.

Okay.

Pass it on thank you guys.

Thanks Scott.

The next question comes from Joe O'dea with Wells Fargo. Please go ahead.

Speaker 1: The next question comes from Joe O'Day with Wells Fargo. Please go ahead.

Speaker 9: Hi, good morning. Thanks for taking my questions. One, just on the NI earnings contribution for the year, five cents in the first quarter would be kind of running, I guess, 10 cents a quarter or a little better for the rest of the year. But any more detail on that cadence, anything that's sort of cost heavy up front, and then the progression through the course of the year as you're thinking about that earnings contribution.

Hi, good morning, Thanks for taking my questions.

One just on the Eni earnings contribution for the year.

<unk> in the first quarter would be kind of running I guess 10 cents a quarter or a little better for the rest of the year, but any more detail on that cadence anything that's sort of cost heavy upfront and then the progression through the course of the year as youre thinking about that earnings contribution.

No I don't have anything else to add Joe I mean, obviously there is a as I was wrong Express a volume expansion as we get to the second half of the year that will drive leverage and an incremental profit, but that's that's really what the tail of the tape there is.

Speaker 6: No, I don't have anything else to add, Joe. I mean, obviously there's a as Rom Express a volume expansion as we get to the second half of the year that will drive leverage and incremental profits, but that's that's really what the tail of the tape there is.

Speaker 9: Okay. And then on the R&D side and the step up to 7%, it sounds like it goes even higher in 24, any context on that, and then sort of an additional insight on the products and verticals that are getting outsized investments, as well as what your returns focus is on R&D, the prioritization around share gain or sort of the revenue dollars that you want returns on R&D investment, any sort of context around.

Okay, and then on the R&D side, and the step up to 7% it sounds like it goes even higher in 'twenty for any context on that and then sort of additional insight on sort of the products and verticals that are getting outsized investments.

As well as what your returns focuses on R&D prioritization around share gain or sort of the revenue dollars that you won returns on R&D investment and any sort of context around that.

Speaker 4: From a dollar's perspective, yeah, we get the benefit of asking coming in, that mixes us up. And then, and I comes in, and that also mixes us up. So you'll continue to see that commitment to growth, innovation, accelerate and increase as we move on.

From a $1.

Perspective, yes, we get the benefit of Aspen coming and that mixes us up and then ni comes in and that also mixes us up so youll continue to see that.

Commitment to growth innovation accelerating.

<unk> accelerate and increase as we move on.

Speaker 5: And in terms of where the investment is going, a lot of the investment really is across the...

In terms of where the investment is going a lot of the investment really is across the four technology areas. We've consistently showed you guys. Its a disruptive measurement, which is the sensing technology in our measurement technologies business. Our automation system. The next generation automation system that law referenced in.

Speaker 5: for technology areas, we've consistently showed you guys. It's disruptive measurement, which is the sensing technology and our measurement technologies business are automation system, the next generation automation system that law referenced in the presentation and also collaborative technology development with Aspen around asset performance management. So those are the areas where we see lots of opportunity in terms of new to the world type innovation that we can drive as an automation company and that's where the investments go.

In the presentation and also collaborative technology development with Aspen around asset performance management. So those are the areas, where we see lots of opportunity in terms of new to the world type innovation that we can drive as an automation company and that's where the investments dawn.

Thank you.

Speaker 10: Thank you.

Speaker 1: Next question comes from Christopher Glyn with Oppenheimer. Please go ahead.

Next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Speaker 5: But thank you. Good morning. I'm very curious about the funnel conversion comments. I think last quarter you indicated that the conversion rates of those are picking up as the size of the project's ramps and some of the newer technologies and applications. So just curious trend line, if you see in further acceleration and how much of that notion is baked into the fiscal 24 guidance or could that be an opportunity?

Thank you good morning.

Just curious about the funnel conversion comment I think last quarter you.

Indicated that the conversion rates of those are picking up as the size of the projects ramps.

And some of the newer technologies and applications. So just curious.

Trend line, if you see further acceleration and how much of that notion is baked into the fiscal 'twenty for guidance or could that be an opportunity.

No Crystal ball here.

Speaker 3: No, hey, Chris, we're all here. No, look, we continue to see the funnel expand organically.

No look we continue to see the funnel expand organically.

Speaker 6: to begin with. So it did grow in from quarter to over quarter, which is why we thought it was important to show you.

To begin with so we it did grow.

From quarter over quarter, which is why we thought it was important to show you, but what's most interesting it's growing in the right spots for us its growing along the growth platforms that we're where we have the focus of the organization. So that comprises about $6 6 billion.

Speaker 6: But what's most interesting, it's growing in the right spots for us. It's growing along the growth platforms that where we have the focus of the organization. So that comprises about $6.6 billion of the funnel to-

So the funnel today.

Speaker 3: of which energy security and transition is a big part of that, and sustainability and decarbonization is a large part of it. If you look at the...

Of which energy security of transmission is a big part of that is sustainability and de carbonization in large part of it if you look at the wins.

Speaker 3: They are very much aligned in the same way as the funnel. They're winning at about 60% aligned on the growth platforms. Ish.

They are very much aligned in the same way as the funnel and winning at about 60% aligned on the growth platforms ish.

Speaker 6: with energy transition a big part of.

With energy transition a big part of.

Speaker 3: of what we are converting here. So, feel really good about it. I, we're watching it carefully, of course, in terms of movement through FID and other elements, but at this point in time, continue to have optimism, particularly products that are...

<unk>.

What we are converting here so feel really good about it.

We're watching it carefully of course in terms of of movement through RFID and other elements, but at this point in time continue to have optimism, particularly products that are purely connected to.

Speaker 6: purely connected to national security, near-shoring, or energy affordability elements. So feel pretty good about what we see in front of us.

National Security near shoring or energy affordability elements, so feel pretty good about what we see in front of us.

Thanks, and if I could ask another undiscriminating, what kind of impacts are you seeing in terms of channel versus end demand.

Speaker 9: Thanks. And if I could ask another on discrete, what kind of impacts are you seeing in terms of channel verse and demand?

From a channel perspective, I mean, if youre referencing destocking, we're not seeing that strength.

Speaker 5: from a channel perspective, I mean if you're referencing destocking, we're not seeing that. I think that's right.

The discrete slowness is purely market driven certainly European machine builders, China as an end market and an overall slowdown in the factory automation segment in North America, and you'll see that with obviously a lot of our peers that have lot more exposure in discrete frankly versus.

Speaker 5: The discrete slowness is purely market driven, certainly European machine builders, China as an end market, and an overall slowdown in the factory automation segment in North America. And you see that with obviously a lot of our peers that have a lot more exposure and discrete, frankly versus our peers who are holding our own in terms of the order rate decline in discrete and we do expect.

Our peers were holding our own in terms of the order rate decline in discrete and we do expect to see a second half 'twenty four positive orders for the business.

Speaker 11: to see a second half 24 positive orders for the business. Great, thank you.

Great. Thank you.

The next question comes from Andy.

<unk> with Citigroup. Please go ahead.

Well I think last quarter. When you began to talk about FY 'twenty four you mentioned more normalized incrementals in the mid 30% range that you're guiding to mid to high 40% X test and measurement. So could you give us a little more color into the assumptions I know you get price.

Speaker 12: Well, I think glass quarter when you began to talk about FY 24, you mentioned more normalizing fermentals in the mid 30% range, but you're going to mid-dye 40% X-Test and measurement. So could you give us a little more color into the assumptions? I know you get price for 24 and you're starting off a little lower, but it seems like you're still getting supply chain, tailwind benefits. And how would you assess your performance versus your longer-term algorithm of 35% is it possible that that algorithm could be a bit conservative?

For 24, and you're starting off a little lower but it seems like youre still getting supply chain tailwind benefits and or how would you assess your performance versus your longer term algorithm of 35% is it possible that that algorithm could be a bit conservative.

Speaker 6: It's possible, yes, Sandy. We've been operating in the mid-50s over the last couple of years. There's a significant amount of momentum along costs.

It's possible, yes A&D.

We've been operating in the in the mid fifties over the last couple of years.

There is a significant amount of momentum.

<unk> cost in the business.

Speaker 6: As I mentioned, we have a till wins that will be delivered through the actions we're taking not just within the segments, but also a corporate as we go through 2024. Now having said that on the supply chain side, we're on the positive side of most of the measures. Obviously logistics, environment is as flip.

As I mentioned, we have a tailwind that will be <unk>.

Delivered through the actions, we're taking not just within the segments, but also our corporate as we go through 2024, now having said that on the supply chain side. We're.

We're on the positive side of most of the measures obviously logistics environment is flipped.

Speaker 6: And on material flow, generally significantly better. Of course, we fight spot shortages as you to expect in any business, but generally, we are in a very different world on the supply chain.

And then on material flow generally significantly better of course, we fight spot shortages as you would expect in any business, but generally we are in a very different world on the supply chain. So that's all very positive. So it's really around execution look we have a.

Speaker 3: So that's, that's all very positive. So it's really around execution. Look, we have a, uh, the gross margins of the business are 49%.

Gross margins of the business are 49% in 2023, you will expand further as Mike described in 2024 and with that becomes an expectation of a higher leverage and a higher incremental for the business. So at this point.

Speaker 9: in 2023. They'll expand further as Mike described in 2024. And with that comes an expectation of a higher leverage and a higher incremental for the business. So at this point, I feel very comfortable with the guide we put out there for the year in that mid to high 40s, which is, I think, differentiated. And we'll really think through what we talk about and guide on a longer term basis from a financial plan perspective as we go.

Feel very comfortable with the guide we put out there for the year in that mid to high Forty's, which is I think differentiated end.

We really think through what we.

Talk about and guide on a longer term basis from a financial planning perspective, as we go through the year.

Just to amplify that a little bit Andy we've also been talking about this $100 million of corporate platform cost takeout, which has been reading through in the businesses and we will read through in the business and 24 as well.

Speaker 4: Just to amplify that a little bit, Andy, we've also been talking about this $100 million of corporate platform cost payout, which has been reading through in the businesses, and we'll read through in the business in 24 as well, which is an uplift for the year.

<unk>, which is an uplift for the year.

That's great to hear and then I know you want to retire that can be 123.

Speaker 12: It's great to hear. And then I know you want to retire the KOB 1, 2, 3 names, but when we think about 24, I think you've been averaging something like 65% KOB 3. Would you expect that to hold up at around that level? And what are you seeing on the KOB 3 side? Is there just a lot more activity that could also help with margins, given that tends to be higher?

Names, but.

When we think about 'twenty four I think you've been averaging something like 65% <unk> three.

Would you expect that to hold up at around that level and you know.

What are you seeing on the <unk> side is there just a lot more activity that could also help with margins given that tends to be higher margin work.

Speaker 3: Yeah, no, we certainly expect MRO in the 60 range for 2024, Andy. You're absolutely right. It's the most pricing elastic portion of our business. It's typically replaced like for like and then processes.

Yeah, No we certainly expect MRO.

In the in the 60 range for 2020 for Andy.

You're absolutely right. It's the most pricing elastic portion of our business.

It's typically replace like for like then processes.

Speaker 3: And so we feel we have a great understanding of where the install the 150 billion dollars of install base is located. And we have specific programs across our service organizations and selling organizations to ensure that we mind that and they will keep that product evergreen. So if you could about that, but in that 60 range, I think would be the right expectation.

And so we feel we have a great understanding of worthy installed the $150 billion of installed base is located and we have specific programs.

Cross our service organizations and selling organizations to ensure that we mined at and if we keep that product evergreen. So feel good about that but in that 60 range I think would be the right expectation.

I appreciate it guys.

Thanks, Andy.

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

Speaker 1: The next question comes from Tommy Malfe, where Steven's please go ahead. Good morning and thank you for that.

Good morning, and thank you for taking my questions Hi, Tommy.

Speaker 13: All I wanted to start with a follow up on the screen, you've called out the weakness there previously.

All I wanted to start with a follow up on discrete you've called out the weakness there previously obviously, it's been front and center today. So I'm, just curious where they're incremental pockets of weakness you picked up through the last quarter and then as you look through to the second half of the coming fiscal year, where you expect a written.

Speaker 13: Obviously, it's been front and center today. So I'm just curious, were there incremental pockets of weakness? You picked up through the last quarter and then as you look through to the second half of the coming fiscal year, where you expect a return to growth, is the visibility there more just a comp issue or are there some green shoots in terms of the real underlying demand that you can call out at this point?

Turn to growth is the visibility there more just a comps issue or are there are some green shoots in terms of the real underlying demand that you can call out at this point no.

Speaker 3: Now, so a couple of things. What we're experiencing through the quarter, we have experienced through the quarter, is demand driven weakness. It's as Rom accurately portrayed, it's not as the stalking element. As a matter of fact, a very small percentage of our business runs through stalking distributors.

So a couple of things.

We're experiencing through the quarter, we have experienced through the quarter is demand driven weakness.

ROM accurately portrayed it's not it's not as Destocking element as a matter of fact, a very small percentage of our business runs through stocking distributors.

Speaker 6: in the discrete side. Nevertheless, it's demand that we really focus on. And it's global weakness across the key.

In the discrete side, but nevertheless, it's demand.

We're really focused on and its global global weakness across.

Across the key markets now having said that the comparable is do get easier as we get into the second half we're not counting on underlying demand conditions in the discrete market significantly improving in the second half, but we're benefiting from is obviously the comparator for us.

Speaker 6: Now having said that the comparables do get easier as we get into the second half, we're not counting on underlying demand conditions in the discrete market, significantly improving in the second half. What we're benefiting from is obviously the comparators.

Makes sense and then if I look at the consolidated outlook you've provided for the the first quarter and then the full year, you're starting the year in the high single digit range our full.

Speaker 13: Makes sense. And then if I look at the consolidated outlook you've provided for the first quarter and then the full year, you're starting the year and the high single digit range, full year and the mid single digit range. So there's some deceleration implied there. Is there some conservatism around there? Just given the issues you've called out on the discrete side or their comp items that you would point out for us.

Full year in the mid single digit range. So there is some deceleration implied there.

Is there some conservatism around there just given the the issues you've called out on the discrete side or their comps.

Items that you would point out for us.

Speaker 3: There's nothing extraordinary other than we've got to be cautious on the discrete side.

Nothing extraordinary other than we got to be cautious on under discrete cycle.

Great. We appreciate the insight and I'll turn it back thanks.

Speaker 13: Great. We appreciate the insight and I'll turn it back. Thanks, Tommy.

Thanks Tommy.

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation.

Speaker 1: This concludes our question and the intercession. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

May now disconnect.