Q3 2024 Emerson Electric Co Earnings Call
Good day and welcome to the Emerson 3rd Quarter 2024 Earnings Conference Call.
Operator: quarter, 2024 earnings conference call. Our participants will be in a listen-only mode.
Operator: for 2024 EARNINGS CONFERENCE CALLS. 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 on a touch-tone phone. Please note, this event is being recorded. Ms. Mettler, the floor is yours, ma'am.
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Operator: After today's presentation, there will be an opportunity to ask questions.
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Colleen Mettler: I would now like to turn the conference cover to Ms. Colleen Mettler, Vice President of Investor Relations. Ms. Mettler, the floor is yours, ma'am.
Colleen Mettler: Good morning. And thank you for joining us for Emerson's third quarter 2024 earnings conference call. This morning, I am joined by President and Chief Executive Officer, Law Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentations, which are available on our website. Please join me on slide two. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the State Harbor Statement and note on non-GAAP measures. All financial metrics in this presentation are on a continuing operations basis.
Good morning, and thank you for joining us for Emerson's third quarter 2024 earnings conference call.
Colleen Mettler: This morning, I am joined by President and Chief Executive Officer Lal Karsanbhai. On June 6th, we announced a definitive agreement to sell our remaining interest in the Copeland Joint Venture. We have included additional information and the accounting treatment of these transactions in the appendix of the presentation. I will now pass the call over to Emerson's President and CEO, Wal Karsanbhai, for his opening remarks. Thank you.
Speaker Change: This morning, I am joined by President and Chief Executive Officer, La Carson by Chi.
Speaker Change: <unk> Financial Officer, Mike Bachmann, and Chief operating Officer Raj Krishnan.
Speaker Change: As always I encourage everyone to follow along with the slide presentation, which is available on our website.
Speaker Change: Please join me on slide two.
Speaker Change: This presentation may include forward looking statements, which contain a degree of business risks and uncertainties. Please.
Speaker Change: Please take time to read the Safe Harbor statements and note on non-GAAP measures.
Speaker Change: All financial metrics in this presentation are on a continuing operations basis.
Colleen Mettler: On June 6, we announce the definitive agreement to sell our remaining interests in the Coflin joint venture. We have included additional information and the accounting treatment of these transactions in the appendix of the presentation.
Speaker Change: On June six we announced a definitive agreement to sell our remaining interest in the <unk> joint venture.
Speaker Change: We have included additional information and the accounting treatment of these transactions in the appendix of the presentation.
Law Karsanbhai: I will now pass the call over to Emerson's President and CEO, Law Karsanbhai, for his opening remarks. Thank you, Colleen. Good morning. Please turn to slide three. I'd like to thank the 65,000 Emerson employees around the world for delivering another solid set of results. Your commitment to our vision and passion for our purpose comes to life every day. I am moved by our customer focus and the deep care you have for each other, and I am proud and honored to work alongside each of you. Thank you to the Board of Directors for your support of the management team and to our shareholders for your trust in us.
Speaker Change: I will now pass the call over to Emerson's, President and CEO lull person buys for his opening remarks.
Wal Karsanbhai: Thank you, Colleen. Good morning.
Wal Karsanbhai: Please turn to slide three. I'd like to thank the 65,000 Emerson employees around the world for delivering another solid set of results. I am moved by our customer focus and the deep care you have for each other, and I am proud and honored to work alongside each of you. Thank you to the board of directors for your support of the management team and to our shareholders for your trust in us. Our latest company-wide engagement survey, inclusive of test and measurement, had a participation rate of 89%, up 1.4 points from our 2023 survey. We had an engagement score of 79%, a one-point improvement, and only one point from world-class levels of 80%.
Speaker Change: Thank you Colin good morning, Please turn to slide three.
Speaker Change: Like to thank the 65000 Emerson employees around the world for delivering another solid set of results.
Law Karsanbhai: Since I became CEO in 2021, we have talked openly about the transformation of Emerson driven around the three pillars of culture, portfolio, and execution. We have moved rapidly to improve across all three, and before we discuss the quarterly financial results, I want to highlight the results of our latest employee survey to show our employees are with us on this journey as our culture continues to evolve. Our latest company-wide engagement survey, inclusive of test and measurement, had a participation rate of 89%, up 1.4 points from our 2023 survey. We had an engagement score of 79% of one point improvement and only one point from world class levels of 80%.
Law Karsanbhai: Well, this is an evergreen journey, and we still have work to do. I am excited about the tangible steps we have taken to create a more inclusive and engaged organization.
Wal Karsanbhai: While this is an evergreen journey, and we still have work to do, I am excited about the tangible steps we have taken to create a more inclusive and engaged organization. Now, let's jump into the operating results. Q3 was another solid quarter for Emerson. Orders in the quarter returned to growth and are up 3% year over year, driven by strong project activity in our process and hybrid businesses, especially across life sciences, energy, and power.
Law Karsanbhai: Now let's jump into the operating results. Q3 was another solid quarter for Emerson. Orders in the quarter returned to growth in around 3% year over year, driven by strong project activity in our process and hybrid businesses, especially across life sciences, energy, and power. Notably, we won several large life science projects in North America and Europe focused on expanding production capabilities for advanced medicines. The Middle East and Latin America saw exceptional demand, and we were awarded several large projects in each. As we expected, process and hybrid markets remained steady, amid single-digit growth as we continue to see investment, particularly in LNG, life sciences, energy, and sustainability.
Wal Karsanbhai: Notably, we want several large life science projects in North America and Europe focused on expanding production capabilities for advanced medicine. While capital project investments continue to progress, MRO orders were slightly softer than expected in the quarter. The green shoots we were beginning to see through April and May took a step back in June, and we are now expecting a slower recovery.
Law Karsanbhai: While capital project investments continue to progress, MRO orders were slightly softer than expected in the quarter. Discrete automation orders were softer than expected, down low single digit, both year over year and sequentially, as factory automation and markets remained weak. The green shoots were beginning to see through April, and May took a step back in June, and we are now expecting a slower recovery. Do we expect discrete automation orders to be flat to slightly positive in Q4 on a low base of comparison? Excluded from underlying, test and measurement orders remain soft, down 11 percent. Additionally, for total Emerson, we saw a weaker demand environment in China across most of our business segments.
Wal Karsanbhai: Do we expect discrete automation orders to be flat to slightly positive in Q4 on a low base of comparison? We now expect low single-digit underlying order growth for the second half and for the full year. Emerson delivered strong operating results with margin leverage, adjusted earnings per share, and free cash flow all exceeding expectations. However, sales came in at the low end of our guide, and I'll provide additional color on the next slide.
Law Karsanbhai: We now expect low single-digit underlying order growth for the second half and for the four year. Emerson delivered strong offering results with margin leverage, adjusted earnings per share, and free cash flow, all exceeding expectations. Sales came in at the low end of our guide, and I'll provide additional color on the next slide. Due to weaker orders, test and measurement sales also came in slightly below expectations. However, profitability met expectations as we are seeing the impact of our synergy realization. Transportation and semiconductor markets remained weak, while aerospace and defense performed well, and we saw continued government spending and research.
Wal Karsanbhai: However, profitability met expectations as we are seeing the impact of our synergy realization. Due to this, we are looking into the second half of 2025 for recovery in this business. We look forward to a strong finish to 2024 and are energized to deliver continued value creation for our shareholders. Please turn to slide 16.
Law Karsanbhai: The European market was softer than expected amid lingering EV demand concerns, and China remains sluggish across most test and measurement segments. Due to this, we are looking into the second half of 2025 for recovery in this business. With softer orders, we are adjusting our four-year sales to be 1.45 to 1.5 billion dollars. But the accelerated synergy actions we have taken will help protect profitability and position the business well for return to growth. We continue to be excited by the value creation potential of our differentiated portfolio. Emerson's strong performance through the first nine months and resolute focus driven by our Emerson Management System gives us the confidence to execute on our 2024 plan.
Law Karsanbhai: We expect underlying sales of approximately 6%, and are increasing the midpoint of our Adjusted EPS guide to $5.45 to $5.50. And we are raising our free cash flow guidance to approximately $2.8 billion.
Law Karsanbhai: We look forward to a strong finish to 2024 and are energized to deliver continued value creation for our shareholders. We start to fight for. Underline sales growth was 3%. Life sciences and power markets continue to perform well, both up double digit, as we executed key projects across North America and Europe. Europe is seeing continued strength and energy, power and sustainability markets, as well as their MRO business, particularly in Western Europe. In the Americas, broad-based healthy growth across Latin America was slightly offset by slower MRO in North America. Robust performance in the Middle East, driven by strong project activity, was offset by broad-based weakness in Asia.
Law Karsanbhai: Continuing the exceptional gross margin performance from last quarter, gross margins were 52.8% in Q3, a 230 basis point improvement from the prior year. A gross profit percentage year-to-date is 50.6%, even with the acquisition and integration costs incurred in Q1. This gives us confidence in our expectation that this portfolio would deliver greater than 50% gross margins as we look forward. Operating leverage was 67%. Significantly stronger than expected due to better performance from Aspen Tech, project mix, and realization of more cost reductions than expected from action taken throughout the year. Adjusted earnings per share exceeded expectations at $1.43, above the top end of our guide, and up 11% from 2023.
Wal Karsanbhai: Our gross profit percentage year-to-date is 50.6%, even with the acquisition and integration costs incurred in Q1. This gives us confidence in our expectation that this portfolio will deliver greater than 50% gross margins as we look forward. Operating leverage was 67%, significantly stronger than expected due to better performance from Aspen Tech, project mix, and realization of more cost reductions than expected from actions taken throughout the year. Mike will walk through additional details on our results in a few slides. We are pleased to deliver another strong quarter and are excited to continue demonstrating the value creation potential of our transformed portfolio. Please turn to slide 5.
Speaker Change: Greater than 50% gross margins as we look forward.
Speaker Change: Operating leverage was 67% significantly stronger than expected due to better performance from Aspen Tech.
Speaker Change: <unk> mix and realization of more cost reductions than expected from actions taken throughout the year.
Speaker Change: Adjusted earnings per share exceeded expectations at $1 43.
Speaker Change: Above the top end of our guide and up 11% from 2023.
Law Karsanbhai: Emerson generated robust free cash flow of $975 million, up 27% year-over-year, and with a free cash flow margin of 22.3% for the quarter. Michael walked through additional details on our results in a few slides. We are pleased to deliver another strong quarter, and are excited to continue demonstrating the value creation potential of our transformed portfolio.
Speaker Change: Emerson generated robust free cash flow of $975 million up 27% year over year and with a free cash flow margin of 22, 3% for the quarter.
Speaker Change: Mike will walk through additional details on our results in a few slides we are pleased to deliver another strong quarter and are excited to continue demonstrating the value creation potential of our transformed portfolio.
Law Karsanbhai: Please turn to slide five. We continue to see strong capital project investments, with our strategic project funnel now at $11 billion, up approximately 200 million from Q2. The funnel growth demonstrates the strong, sustained capital cycle, aligned to our growth programs. As the increase predominantly came from projects supporting energy transition, life sciences, sustainability, and decarbonization. In the third quarter, Emerson was awarded approximately $350 million a project content, consistent with prior quarters. We had wins in large traditional energy projects, as well as additional awards from offshore vessels in Brazil, as mentioned last quarter. Our growth programs also performed well in the quarter, accounting for a little under half of the awards, and Emerson was selected to automate Damascus Lithium's Wobuchi mine at the Beckincord Lithium Conversion Facility projects in Quebec, Canada, based on our proven ability to provide a differentiated solution, including a common control platform across sites.
Mike Bachmann: Please turn to slide five.
Mike Bachmann: We continue to see strong capital project investments with our strategic project funnel now at $11 billion up approximately $200 million from Q2.
Wal Karsanbhai: We continue to see strong capital project investment. The funnel growth demonstrates a strong, sustained capital cycle aligned to our growth programs. The increase predominantly came from projects supporting energy transition, life sciences, sustainability, and decarbonization. In the third quarter, Emerson was awarded approximately $350 million in project content, consistent with prior quarters. Our growth programs also performed well in the quarter, accounting for a little under half of the awards, and I want to highlight a few key wins.
Mike Bachmann: The funnel growth demonstrates the strong sustained capital cycle aligned to our growth programs as the increase predominantly came from projects supporting energy transition life Sciences sustainability and de carbonization.
Wal Karsanbhai: Emerson was selected to automate Namaska Lithium's Wabuchi mine at the Beckencourt Lithium Conversion Facility project in Quebec, Canada. This mine is one of the largest high-purity lithium deposits in North America. Fueled by hydroelectric power, the Beckencourt facility will convert the spodumene concentrate to lithium hydroxide.
Law Karsanbhai: This mine is one of the largest high purity lithium deposits in North America. Few by hydroelectric power, the Beckincord Facility will convert the Spadjami concentrate to lithium hydroxide. This is the first search conversion in Canada, and the masculine lithium projects will play an important role in the North America battery value chain. Emerson will provide much of our leading technology to automate both facilities, including DeltaV control systems and software, reliability solutions, valves, and instruments. This example highlights the breadth of the Emerson portfolio and demonstrates how we are well suited to serve this emerging market.
Wal Karsanbhai: This is the first such conversion in Canada, and the Mascot lithium projects will play an important role in the North American battery value chain. Emerson will provide its Ovation Green SCADA solution, including pitch control and power management for the wind turbine. Our industry-leading Ovation Automation Platform just launched a software-defined, AI-ready platform for the power and water industry. Ovation 4.0 brings customer-focused innovation, such as secure generative AI models, to offer prescriptive operations and maintenance guidance together in a robust solutions portfolio.
Law Karsanbhai: Next, I would like to highlight Emerson was selected to support one of the largest renewable energy park projects in India, spearheaded by one of India's largest and most prominent renewable energy companies. Emerson will provide our Ovation Green Skater solution, including pitch control and park power management for the wind turbines. Emerson was chosen for our scalable automation software and technologies that enhanced wind turbine performance, as well as our comprehensive local support capabilities, including engineering, fuel support, and production.
Law Karsanbhai: Finally, Emerson was chosen to automate a key green hydrogen project in Uzbekistan, which will use a 52 megawatt onshore wind farm to produce 3,000 tons of green hydrogen annually, which will be used to manufacture 500,000 tons of ammonia fertilizer. ACWA Power, a first mover on green hydrogen, and part of the Neon Green Hydrogen Project, will operate the plant, and HDEC will design and construct the facility. Emerson was selected for our advanced technologies in the main expertise, and will provide several technologies from our hydrogen portfolio, including instruments, control valves, and our Ovation Green control system.
Law Karsanbhai: Turning to Fight 6, we remain focused on driving our strategic priorities, including accelerating innovation for profitable growth and enhancing our position as a global leader in automation. One of our breakthrough innovation priorities is Software-defined automation. Our industry-leading automation platform just launched a software-defined AI-ready platform for the power and water industry. The Ovation Automation Platform 4.0 builds upon our boundless automation vision to bring a unifying data fabric across the organizations to optimize operations from device to enterprise. Ovation 4.0 brings customer-focused innovation such as secure, generative AI models to offer descriptive operations and maintenance guidance together in a robust solutions portfolio.
Law Karsanbhai: It also offers integration with our Ovation Green software to improve holistic awareness across traditional and renewable power generation and storage to eight customers who have an increasingly complex mix of generating assets.
Law Karsanbhai: Customer-focused innovation is a hallmark of Emerson, and I wanted to highlight one of the many methods we have for formal engagements. Our Ovation Business recently held their 37th User's Conference in Pittsburgh, Pennsylvania, with 70% of US power utilities participating in a multi-day event focused on the power and water industries. This conference featured interactive technology exhibits, customer case studies, and collaborative industry sessions focused on emerging technical and business topics. Ovation Users Group creates a world-class engagement as users provide direct input for potential product enhancements, which helps inform our strategic product development plans.
Mike Bachmann: Berk, Pennsylvania, with 70% of U.S. power utilities participating in a multi-day event focused on the power and water industries.
Mike Bachmann: This conference featured interactive technology exhibits, customer case studies, and collaborative industry sessions focused on emerging technical and business topics.
Law Karsanbhai: We also took a key step forward in our transformation and simplification journey in Q3, as we announce a definitive agreement to sell our remaining interest in the Copeland joint venture. Private equity funds, managed by Blackstone, will purchase the equity stake while Copeland repurchased the seller's note. The transaction involving the Copeland note receivable closed on August 2nd will pre-tax cash proceeds of $1.9 billion, which would be used to pay down debt. We expect the equity portion to close by the end of August.
Wal Karsanbhai: We also took a key step forward on our transformation and simplification journey in Q3 as we announced a definitive agreement to sell our remaining interest in the Copland Joint Venture. The transaction involving the Copeland Note receivable closed on August 2nd with pre-tax cash proceeds of $1.9 billion, which would be used to pay down debt. We expect the equity portion to close by the end of August. With that, I'll now turn the call over to Mike Baughman to walk through our financial results in more detail. Thanks, all, and good morning, everyone.
Mike Bachmann: We also took a key step forward in our transformation and simplification journey in Q3, as we announced a definitive agreement to sell our remaining interest in the Copland Joint Venture.
Mike Bachmann: The transaction involving the Copeland Note receivable closed on August 2nd with pre-tax cash proceeds of $1.9 billion, which would be used to pay down debt.
Mike Bachmann: We expect the equity portion to close by the end of August .
Michael Baughman: With that, I'll now turn the call over to Mike Bachman to walk through our financial results in more detail. Thanks, all, and good morning, everyone. Please turn to slide 7 to discuss our third-quarter financial results. Underlying sales growth was 3%, led by our process in hybrid businesses and partially offset by continued softness and discreet. Price contributed two points of growth. Underlying growth was similar across regions, with Europe up 4%, the Americas up 3%, and Asia in the Middle East up 2%. Intelligent devices grew 2%, while software and control grew 7%. Aspen text sales were stronger than expected, growing at 7%.
Mike Bachmann: With that, I'll now turn the call over to Mike Baughman to walk through our financial results in more detail.
Mike Baughman: Please turn to slide 7 to discuss our third-quarter financial results. Underlying sales growth was 3%, led by our process and hybrid businesses and partially offset by continued softness and discrete. Underlying growth was similar across regions, with Europe up 4%, the Americas up 3%, and Asia and the Middle East up 2%.
Mike Baughman: Thanks all and good morning everyone. Please turn to slide 7 to discuss our third quarter financial results.
Mike Baughman: Price contributed two points of growth.
Mike Baughman: Underlying growth was similar across regions with Europe up 4%, the Americas up 3%, and Asia and the Middle East up 2%.
Mike Baughman: Intelligent devices grew 2% while software and control grew 7%. Aspen Tech sales were stronger than expected, growing at 7%. Discretant automation was down mid-single digits, lower than expected, due to a slower pace of recovery amidst continued market weakness.
Mike Baughman: Aspen Tech sales were stronger than expected, growing at seven percent.
Michael Baughman: Discreted automation was down mid-single digits lower than expected due to a slower pace of recovery amidst continued market weakness. Tested measurement, which is not included in the underlying metric, contributed $355 million to our net sales, slightly below expectations for the quarter. As expected, backlog decreased slightly from Q2 and exited Q3 at $7.4 billion. Adjusted segment EBITDA margin improved 20 basis points to 27.1% due to strong gross margin performance, favorable price cost, and the benefit of cost reductions. This quarter's adjusted segment EBITDA margin of 27.1% is a record high compared to 26.9% last year in Q3, which was the previous record high.
Mike Baughman: The screen and automation was down mid-single digits, lower than expected, due to a slower pace of recovery amidst continued market weakness.
Mike Baughman: Test and measurement, which is not included in the underlying metric, contributed $355 million to our net sales. As expected, backlog decreased slightly from Q2 and exited Q3 at $7.4 billion. Adjusted segment EBITDA margin improved 20 basis points to 27.1% due to strong gross margin performance, favorable price costs, and the benefit of cost reduction. This quarter's adjusted segment EBITDA margin of 27.1% is a record high compared to 26.9% last year in Q3, which was the previous record high. Test and measurement adjusted segment EBITDA margin was 21.4%, sequentially flat on slightly lower volume as we continue to see the benefit of our Synergy Action. Operating leverage excluding test and measurement was 67%, exceeding expectations.
Mike Baughman: Test and measurement, which is not included in the underlying metric, contributed $355 million to our net sales.
Mike Baughman: Slightly below expectations for the quarter.
Mike Baughman: As expected, Backlog decreased slightly from Q2 and exited Q3 at $7.4 billion.
Mike Baughman: Adjusted segment EBITDA margin improved 20 basis points to 27.1% due to strong gross margin performance, favorable price cost, and the benefit of cost reductions.
Michael Baughman: Tested measurement adjusted segment EBITDA margin was 21.4%, sequentially flat on slightly lower volume as we continue to see the benefit of our synergy actions. Operating leverage excluding test and measurement was 67%, exceeding expectations. This outperformance was driven by a higher portion of software revenue, and fewer lower-margin project shipments than expected, offset by negative geographic mix. Strong quarters from aspirin tech and control systems and software benefited leverage. This red automation had sequential margin improvement from cost actions we took as we saw market conditions continue to decline. The operating leverage from our test and measurement analytical business was diluted in the quarter, primarily due to geographic mix and slower MRL.
Mike Baughman: Test and measurement adjusted segment EBITDA margin was 21.4%, sequentially flat on slightly lower volume as we continue to see the benefit of our synergy actions.
Mike Baughman: Operating leverage excluding test and measurement was 67% exceeding expectations.
Mike Baughman: This outperformance was driven by a higher portion of software revenue and fewer lower-margin project shipments than expected, offset by a negative geographic mix. However, strong quarters from Aspen Tech and control systems and software benefited leverage. Discrete automation had sequential margin improvement from cost actions we took as we saw market conditions continue to decline. However, the operating leverage from our measurement and analytical business was diluted in the quarter, primarily due to geographic mix and slower MRO.
Mike Baughman: This outperformance was driven by a higher portion of software revenue and fewer lower margin project shipments than expected, offset by negative geographic mix.
Mike Baughman: Discrete automation had sequential margin improvement from cost actions we took as we saw market conditions continue to decline.
Mike Baughman: The operating leverage from our measurement and analytical business was diluted in the quarter, primarily due to geographic mix and slower MRO.
Michael Baughman: Adjusted earnings per share grew 11% to $1.43, and I will discuss that in more depth on the next chart. Finally, free cash flow was 975 million, or 27% versus the prior year, and above expectations. This was driven by earnings and improvements in working capital, especially in inventory and receivables. Free cash flow margin in the quarter was 22.3%, inclusive of 40 million of cash outflow for acquisition-related costs, integration activities, and elevated capital expenditures. To date, we have incurred 210 million of the anticipated $250 million headwind we discussed last November.
Mike Baughman: Adjusted earnings per share grew 11% to $1.43, and I will discuss that in more depth on the next chart. This was driven by earnings and improvements in working capital, especially in inventory and receivable. Free cash flow margin in the quarter was 22.3%, inclusive of $40 million of cash outflow for acquisition-related costs, integration activities, and elevated capital expenditures. To date, we have incurred $210 million of the anticipated $250 million headwind we discussed last November.
Mike Baughman: Adjusted earnings per share grew 11% to $1.43, and I will discuss that in more depth on the next chart.
Michael Baughman: Please turn to slide 8. Our adjusted earnings per share increased 14 cents from the prior year. Strong performance from operations, especially in our software and control businesses, contributed 16 cents. Corporate was a 2 cent drag due to a higher income tax rate caused by an earnings mix skewed toward higher rate jurisdictions. AspenTech contributed an incremental 3 pennies versus the prior year, higher than expected due to outperformance in GACB and higher revenue. Test and measurement contributed 9 cents, slightly below expectations, driven by lower volume. We also had a one-set headwind to expectations in Q3 as we stopped accruing interest income from the Copeland note receivable when we reached a definitive agreement to sell it on June 6th.
Mike Baughman: Our adjusted earnings per share increased 14 cents from the prior year. Strong performance from operations, especially in our software and control businesses, contributed $0.16. Corporate was a two cent drag due to a higher income tax rate caused by an earnings mix skewed toward higher rate jurisdictions. Aspen Tech contributed an incremental three pennies versus the prior year, higher than expected due to outperformance in GACV and higher revenue. Test and measurement contributed $0.09, slightly below expectations driven by lower volume. We also had a one-set headwind to expectations in Q3 as we stopped accruing interest income from the Copeland note receivable when we reached a definitive agreement to sell it on June 6th.
Mike Baughman: Strong performance from operations, especially in our software and control businesses, contributed $0.16.
Mike Baughman: Corporate was a two cent drag due to a higher income tax rate caused by an earnings mix skewed toward higher rate jurisdictions.
Michael Baughman: Davis. Please turn to the next slide for details on our updated guidance for 2024. Fiscal Year 2024 underlying sales are now expected to grow approximately 6 percent in line with the midpoint of our May guidance, which is supported by our process and hybrid businesses, which continue to perform well amid a delayed discrete recovery and a weaker China. Reported net sales growth is expected to be approximately 15 percent, with testing measurement contributing approximately 9.5 points of growth, offset by a half point drag from FX. We are increasing our operating leverage expectations to the mid to high 40s, driven by the strong leverage performance through the first nine months and strong leverage expected in Q4.
Mike Baughman: Please turn to the next slide for details on our updated guidance for 2024. Fiscal year 2024 underlying sales are now expected to grow approximately 6% in line with the midpoint of our May guidance, which is supported by our process and hybrid businesses, which continue to perform well amid a delayed discrete recovery and a weaker China. Reported net sales growth is expected to be approximately 15%, with test and measurement contributing approximately 9.5 points of growth offset by a half point drag from FX.
Mike Baughman: Fiscal year 2024 underlying sales are now expected to grow approximately six percent in line with the midpoint of our May guidance which is supported by our process and hybrid businesses which continue to perform well amid a delayed discrete recovery and a weaker China.
Mike Baughman: Reported net sales growth is expected to be approximately 15% with test and measurement contributing approximately nine and a half points of growth offset by a half point drag from FX.
Mike Baughman: We are increasing our operating leverage expectations to the mid to high 40s, driven by the strong leverage performance through the first nine months and the strong leverage expected in Q4. We are raising the midpoint of our adjusted EPS guidance and expect $5.45 to $5.50. Test and measurement is now expected to contribute $0.42 to $0.4244. Test and measurement is a business with very strong leverage. So the impact of our synergy actions is helping maintain profitability despite a weaker volume environment than initially planned.
Mike Baughman: We are increasing our operating leverage expectations to the mid to high 40s driven by the strong leverage performance through the first nine months and strong leverage expected in Q4.
Michael Baughman: We are raising the midpoint of adjusted EPS guidance and expect $5.45 to $5.50. Test and measurement is now expected to contribute 42 to 42.44 cents. Test and measurement is a business with very strong leverage, so the impact of our synergy actions are helping maintain profitability despite a weaker volume environment than initially planned. For the full year, we expect test and measurements adjusted segment EBITOM margin to be approximately 23 percent. A couple points above the prior year benefiting from this energy realization. With AspenTech's strong results in Q3, we are bringing their expected EPS contribution back up to 32 to 34 cents.
Mike Baughman: We are raising the midpoint of adjusted EPS guidance and expect $5.45 to $5.50.
Mike Baughman: For the full year, we expect the test and measurements adjusted segment EBITDA margin to be approximately 23%, a couple points above the prior year, benefiting from the synergy realization. With Aspen Tech's strong results in Q3, we are bringing their expected EPS contribution back up to 32 to 34 cents. We are also raising our free cash flow expectations for the year to approximately $2.8 billion, driven by the working capital improvements and Q3's
Michael Baughman: We are also raising our free cash flow expectations for the year to approximately $2.8 billion, driven by the working capital improvements and Q3's performance. Divident and tax rate expectations are unchanged, and we now expect approximately $300 million of share repurchase. We have been focused on debt paydown, particularly with short-term interest rates saying higher for longer, and we retired $500 million a year old term debt that came due in Q3. Our performance through the first nine months has exceeded expectations, and we are excited to continue delivering strong results. Our transformed portfolio is meaningfully improved with higher profitability driven by gross profit margins above 50 percent and higher organic growth driven by secular trends.
Mike Baughman: Dividend and tax rate expectations are unchanged, and we now expect approximately $300 million of share repurchase. We have been focused on debt repayment, particularly with short-term interest rates staying higher for longer, and we retired 500 million euros of term debt that came due in Q3.
Mike Baughman: We have been focused on debt pay down, particularly with short-term interest rates staying higher for longer, and we retired 500 million euro of term debt that came due in Q3.
Michael Baughman: And our Emerson Management System is driving operational excellence.
Operator: With that, I'll turn the call over to the Q&A portion of our call. Thank you, sir.
Operator: We will now begin the question at your session. To ask a question, you may press star, then 100 touch-zone phone. If you're using a speaker phone, please pick up your headset before pressing the keys. If any time your question has been addressed, you'd like to address your question, please press star, then two. At this time, we'll just pause momentarily to a summer roster.
Operator: Thank you, sir. We will now begin the question-and-answer session. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will just pause momentarily for a summer array. And the first question we have will come from Jeff Sprague with Vertical Research. Please go ahead.
Speaker Change: At this time, we will just pause momentarily to assemble our roster.
Jeffrey Sprague: And the first question we have will come from Jeff Spray with Vertical Research. Please go ahead. Hey, thank you. Good morning, everyone. Hey, two questions. One big picture and one smaller picture, I guess. First on kind of the big picture stuff. Hey, Law, this idea of kind of software defined automation and what you're doing with Ovation. I think this is also sort of instrumental to, you know, better collaborating, integrating, whatever you want to say, between, you know, Delta V and Aspen's offerings.
Speaker Change: And the first question we have will come from Jeff Sprague with Vertical Research. Please go ahead.
Jeff Sprague: Hey, thank you. Good morning, everyone.
Jeff Sprague: Hey, two questions, one big picture and one smaller picture, I guess. First, on kind of the big picture stuff. Hey, Lawl, this idea of kind of software-defined automation and what you're doing with Ovation.
Law Karsanbhai: Maybe, maybe you could kind of address that if I'm correct in that assumption and, you know, where you're at and sort of kind of propagating that change and technology posture across rest of portfolio. Yeah, good morning, Jeff. Good to hear from you. No, you're absolutely right. As we laid out that vision, it certainly is designed to accomplish a couple of factors. The first being to liberate the data that exists in silos across operations in broad industry. And the second then is to actually use the analytics power to drive productivity, efficiency, higher levels of safety and efficiency with analytic packages, inclusive of much of what Aspen Tech can bring to the table to optimize facilities and production.
Jeff Sprague: Maybe you could kind of address that, if I'm correct in that assumption and, you know, where you're at and sort of kind of propagating that change in technology posture across the rest of the portfolio.
Wal Karsanbhai: Yeah, good morning, Jeff. Good to hear from you. No, you're absolutely right.
Speaker Change: Yeah, good morning, Jeff. Good to hear from you. No, you're absolutely right. As we laid out that vision, it certainly is designed to accomplish a couple of factors, the first being
Wal Karsanbhai: As we laid out that vision, it certainly is designed to accomplish a couple of things, the first being to liberate the data that exists in silos across operations in broad industry. And the second, then, is to actually use the analytics power to drive productivity, efficiency, higher levels of safety, and efficiency with analytic packages inclusive of much of what Aspen Tech can bring to the table to optimize facilities and production. So that vision certainly exists.
Jeff Sprague: And the second, then, is to actually use the analytics power.
Jeff Sprague: Much of what Aspen Tech can bring to the table to optimize.
Law Karsanbhai: So that vision certainly exists. We are on the path to bring compute out of centralized silo data approaches and to add into the edge, which is the first step with products that are already released in the marketplace, Delta V. And we'll continue to move forward to deliver on the vision, but this step with Ovation was very critical as well, because, as you know, that serves the power and water industries exclusively, and to be able to bring that capability into those markets was critical.
Wal Karsanbhai: We are on the path to bring compute out of centralized siloed data approaches to the edge, which is the first step with products that are already released in the marketplace with Delta V, and we'll continue to move forward to deliver on the vision. But this step of innovation was very critical as well because, as you know, it serves the power and water industries exclusively, and to be able to bring that capability into those markets was critical.
Jeff Sprague: to bring Compute
Jeff Sprague: which is the first step.
Jeff Sprague: and we'll continue to move forward to deliver on the vision. But this step with Ovation was very critical as well because as you know that serves the power and water industries exclusively and to be able to bring that capability into those markets was critical.
Wal Karsanbhai: Right, and then kind of more near-term, and I may have missed it. I was on five or ten minutes late, but kind of the shorter cycle elements of the portfolio, just your view one. When discrete bottoms, when NI bottoms, you bring down the order outlook a little bit for the year, which is probably tied to those end markets, but maybe. What you see is we start to look into 2025 and the eventual, you know, bottoming and turning in those end marks. Yeah, no, certainly not. So,
Law Karsanbhai: Right, and then kind of more near term. I mean, I missed it. I was on five or 10 minutes late, but kind of the shorter cycle elements of the portfolio, just your view on. When discrete bottoms, when an eye bottoms, you brought down the order outlook a little bit for the year, which is probably tied to those end markets, but maybe just what you see as we start to look into 2025 and the eventual, you know, bottoming and turning in those end markets. Yeah, no, certainly, so the discrete, the discrete cycle recovery has been slower than expected.
Speaker Change: When discrete bottoms, when NI bottoms, you brought down the order outlook a little bit for the year, which is probably tied to those end markets, but maybe just...
Wal Karsanbhai: Yeah, no, certainly. So the discrete cycle recovery has been slower than expected. We certainly believe that we can get close to positive orders in the last quarter of the year here on discrete, but that will be, of course, based on some very weak comparisons. But that will start us on the path to recovery into 2025. Test and measurement, a little slower.
Speaker Change: Yeah, no, certainly. So, the discrete cycle recovery has been slower than expected.
Law Karsanbhai: We certainly believe that we can get to close to positive orders in the last quarter of the year here on discrete, but that will be, of course, based on some very recent comparisons. But that will start us on the path to recovery into 2025. The measurement a little slower; we're watching our customers very carefully there, speaking, engaging with them. Now we're watching our peers in the marketplace as well and their performance, and we foresee sales turning positive there in the second half of 2025, with orders turning positive in the first half of 2025. And then lastly, Jeff, I'll just add that offsetting a lot of that is what continues to be a strong capital cycle formation.
Jeff Sprague: We certainly believe that we can get to close to positive orders in the last quarter of the year here on discrete, but that will be, of course, based on some very weak comparisons. But that will start us on the path to recovery into 2025.
Wal Karsanbhai: We're watching our customers very carefully there, speaking, and engaging with them. We're watching our peers in the marketplace as well and their performance. And we foresee sales turning positive there in the second half of 2025, with orders turning positive in the first half of 2025. And then, Jeff, I'll just add that offsetting a lot of that continues to be a strong capital cycle formation cycle here in process and hybrid markets and also momentum in what we see at Aspen Tech.
Speaker Change: Test and measurement a little slower. We're watching our customers very carefully there, speaking, engaging with them. We're watching our peers in the marketplace as well and their performance. And we foresee sales turning positive there in the second half of 2025 with orders turning positive in the first half of 2025.
Speaker Change: I'll just add that offsetting a lot of that is what continues to be a strong capital cycle.
Law Karsanbhai: A cycle here with with process and hybrid markets and also momentum in what we see at Aspen Tech. And so those offset a little bit of how we're thinking. Certainly, I believe that as we think about 2025 and start to guide, that will be probably towards the lower end of that range. Given on off through the cycle expectations, but well within that. Great. Thanks.
Speaker Change: Formation.
Speaker Change: A cycle here with process and hybrid markets.
Wal Karsanbhai: And so those offset a little bit of how we're thinking. Certainly, I believe that as we think about 2025 and start to guide that, we'll probably be towards the lower end of that range that we've given on through the cycle expectations, but well within that.
Speaker Change: and also momentum in what we see at Aspen Tech. And so those offset a little bit of how we're thinking. Certainly, I believe that as we think about 2025 and start to guide that.
Speaker Change: We'll be probably towards the lower end of that range that we've given on our through the cycle expectations, but well within that.
Operator: Thank you.
Speaker Change: Great, thank you.
Nigel Coe: Next we have Nigel Coe with Wolf Research. Thanks. Good morning everyone. Thanks for the question. I just want to pick up on the last question from Jeff there. The 1.45 to 1.5 billion range for test measurement in the fourth QSELF quite wide. I think just given the expectation that we don't get to revenue growth until the second half of the year, seems that we're tracking towards the lower end of that range. Just wanted to make sure that was that was that was correct. You know, we got it because we still have confidence that we can hit within that guide.
Operator: And next, we have Nigel Coe with Wolf Research.
Speaker Change: And next we have Nigel Coe with Wolf Research.
Nigel Coe: Thanks for the question. I just want to pick up on the last question from Jeff there, you know, the 1.45 to 1.5 billion range for test measurement for 4Q is obviously quite wide. I think, just given the expectation that we don't get to revenue growth until the second half of the year, it seems that we're tracking towards the lower end of that range. Just wanted to make sure that was correct.
Nigel Coe: Thanks, good morning everyone.
Speaker Change: Thanks for the questions. I just want to pick up on the last question from Jeff there, you know, the 1.45 to 1.5 billion, you know, range for
Wal Karsanbhai: You know we got it because we still have confidence that we can hit within that guide, Nigel. I certainly wouldn't wouldn't write it up to the low end of the range at this point. This is the best guide that we feel we can commit to as a management team. Obviously, at some point in the midpoint is how you can think about it.
Speaker Change: You know we got it because we still have confidence that we can hit within that guide, Nigel. I certainly don't wouldn't wouldn't write it up to the low end of the range at this point. This is the best guide that we feel we can commit to as a management team. Obviously some point in the midpoint is how you can think about it.
Law Karsanbhai: Nigel, I certainly don't wouldn't wouldn't write it up to the no end of the range at this point. This is the best guide that we feel we can commit to as a management team.
Law Karsanbhai: Obviously, some point in the midpoint is how you can think about it.
Nigel Coe: Okay, great. And just to kind of zoom in out to sort of a general comment on the environment out there. Obviously, we've seen deterioration in sort of the general industrial markets. It feels like some projects again delayed with some uncertainty, maybe higher rates. It's just, it's just going to know the in terms of what you've seen out there from customers, maybe maybe a bit more of an end market over the, and just wondering, you know, obviously the funnel remains very vibrant. It increases slightly Q to Q.
Nigel Coe: Okay, great. And just kind of zooming out to sort of a general comment on the environment out there. Obviously, we've seen...
Nigel Coe: Okay, great, and just kind of zooming out to sort of a general comment on the environment out there. Obviously, we've seen...
Nigel Coe: Deterioration in sort of general industrial markets; it feels like some projects are getting delayed with some uncertainty, maybe higher rates. Just give us an overview in terms of what you're seeing out there from customers, maybe a bit more of an end market overview, and just wondering, obviously, the funnel remains very vibrant, increased slightly queue to queue, but what about this funnel to order kind of conversion process? Are you starting to see longer decision making? Yeah, thanks, Nigel. Yeah, I'll do it.
Speaker Change: deterioration in sort of German industrial markets
Speaker Change: It feels like some projects are getting delayed with some uncertainty, maybe higher rates.
Speaker Change: It just gives an overview in terms of, you know, what you're seeing out there from customers. Maybe a bit more of an end market overview. And just wondering, you know, obviously the funnel remains very vibrant, increased slightly queue to queue. But what about this funnel to order kind of conversion process? Are you starting to see longer decision making?
Law Karsanbhai: But what about this funnel to order kind of conversion process? Are you starting to see longer decision making?
Law Karsanbhai: Yeah, thanks, Nigel. Yeah, I'll comment to, of course, the funnel. The funnel did grow, as you noted. We booked approximately an equal amount that we've been booking historically on a quarterly basis: $350 million in value. The exchange is a little bit, depending on the end market timing. And we share that with you as well in the deck. So I continue to look at the funnel and the capital formation cycle in a positive manner. I haven't seen the degradation of projects, so projects being eliminated. I haven't seen any slowdown in the expansion of the journey, the sustainability projects, or the LNG, particularly as it relates to the Middle East in Africa.
Wal Karsanbhai: Thanks, Nigel. Yeah, I'll comment. Of course, the funnel did grow, as you noted. We booked approximately an equal amount that we've been booking historically on a quarterly basis, $350 million in value. The mix changes a little bit depending on end market timing, and we shared that with you as well in the deck.
Speaker Change: Yeah, thanks Nigel. Yeah, I'll comment of course the funnel the funnel did grow as you noted We booked approximately
Speaker Change: An equal amount that we've been booking historically on a quarterly basis, $350 million in value. The mix changes a little bit depending on end market timing, and we shared that with you as well in the deck. So I continue to look at this.
Wal Karsanbhai: So I continue to look at the funnel and the capital formation cycle in a positive way. I haven't seen any degradation of projects or projects being eliminated. I haven't seen any slowdown in the expansion of the journey to sustainability projects or the LNG, particularly as it relates to the Middle East and Africa.
Speaker Change: The funnel and the capital formation cycle in a positive manner.
Speaker Change: Degradation of Projects or Projects Being Eliminated.
Speaker Change: I haven't seen any slowdown in the expansion of the journey, the sustainability projects or the LNG, particularly as it relates to the Middle East.
Law Karsanbhai: So I'm still very optimistic there. Now, what we do, we, I'm watching very carefully, is that projects that have been booked, the pace at which all customers are willing to accept product, whether they are delays that are being implemented around inspections in other areas, we're watching that very carefully. And we have experienced some of that in the quarter, which obviously contributed to our lower sales, 3% versus the low end of our guide versus the expectation. But there's some of that going on, which obviously we're watching very carefully. I would just add to that, Nigel, some of that read-through in the leverage this quarter. We talked in the comments about some projects that did get pushed out, which was a little addition by subtraction, because those projects are generally lower margin.
Wal Karsanbhai: So I'm still very optimistic there. Now, what we are watching very carefully is projects that have been booked, the pace at which our customers are willing to accept products, whether there are delays that are being implemented around inspections and other areas. We're watching that very carefully. And we experienced some of that in the quarter, which obviously contributed to our lower sales 3% versus the low end of our guide versus the expectation.
Speaker Change: I'm still very optimistic there. Now what we are watching very carefully is that projects that have been booked,
Speaker Change: The pace at which our customers are willing to accept product.
Speaker Change: Whether there are delays that are being implemented around inspections and other areas, we're watching that very carefully. And we have experienced some of that in the quarter, which obviously contributed to our lower numbers.
Speaker Change: Sales, 3% versus the low end of our guide versus the expectation. But there's some of that going on, which obviously we're watching very carefully. Yeah, I would just add to that, Nigel, some of that read through in the leverage this quarter.
Wal Karsanbhai: But there's some of that going on, which obviously we're watching very carefully. I would just add to that, Nigel, some of that read through in the leverage this quarter. We talked in the comments about some projects that did get pushed out, which was a little addition by subtraction because those projects are generally lower margin. So it was part of the 67% in the quarter. That's a very good point. And, of course, lastly, Nigel, to the question: our process and hybrid orders are still up mid-single-digit. And that's important to recognize.
Speaker Change: We talked in the comments about some projects that did get pushed out.
Speaker Change: Which was a little addition by subtraction because those projects are generally lower margin So it was part of the sixty seven percent of the quarter That's a very good point and of course lastly Nigel to the question our process and hybrid orders are still up mid single digits
Law Karsanbhai: So it was part of the 67% quarter. That's a very good point. And, of course, lastly, Nigel, to the question, our process and hybrid orders are still up mid-single digits. And that's important to recognize. And that's a very good point. Nice. That's great.
Speaker Change: and that's important to recognize.
Operator: Thanks, Bill.
Scott Davis: Thank you, sir. And next we have Scott Davis with Mollie's research. Hey, good, good morning, everybody, and congrats on navigating through the choppiness here. I kind of curious, I mean, you, you know, you're going to have a fair amount of cash on hand once you get this Copeland thing done. Seem kind of in a good spot from a leverage.
Nigel Coe: That's great. Thanks, Lyle. Thank you, sir.
Speaker Change: And next we have Scott Davis with Mully's Research.
Unnamed Speaker: Hey, good morning everybody, and congrats on navigating through the choppiness here. I'm kind of curious. I mean, you're going to have a fair amount of cash on hand once you get this Copeland thing done, and you seem kind of in a good spot from a leverage point of view. Do you feel like you, I mean, I guess my question really is, what do you plan to do with the proceeds? But I guess more explicitly is, do you feel like you have the capacity to do M&A or are we still digesting Natty at this point?
Scott Davis: Hey, good morning everybody and congrats on navigating through the choppiness here.
Unnamed Speaker: Okay. Fair enough.
Speaker Change: Thank you.
Law Karsanbhai: Do you feel like you, I mean, I guess my question really is, what are you planning to do on the proceeds, but I guess more explicitly is, do you feel like you have the capacity to do M&A, or are we still digesting that at this point and want to focus on that? Yeah, no, certainly, I feel great about the balance sheet and what we have to do in terms of maintaining our investment grade. And I think that's very important. We are working very hard to integrate National Instruments and feel really good about the progress that that team continues to make.
Scott Davis: seem kind of in a good spot from a leverage. Do you feel like you, I mean I guess my question really is what do you plan to do with it on the proceeds but I guess more explicitly is do you feel like you have the the capacity to do M&A or are we still digesting Natty at this point?
Speaker Change: I want to focus on that.
Speaker Change: Yeah, no, certainly.
Speaker Change: Maintaining our investment grade, and I think that's very important. We are working very hard to integrate national instruments and feel really good about the progress that that team continues to make.
Law Karsanbhai: It's a set of markets that we like that will drive differentiation and through-the-cycle growth for our company. And I think that’s that we feel very good. Or having settled that we will have the capacity, if we wish to, to put that balance sheet to work. And that's something that Scott, as you know, will continue to evaluate the time and on what the right move would be in terms of the majority position that we know in asset tech.
Speaker Change: It's a set of markets that we like.
Scott Davis: And that's something that Scott, as you know, will continue to evaluate with time and on what the right move would be in terms of the majority position that we own in Aston Tech.
Scott Davis: Okay, fair enough. And then I wanted to follow up on Jeff's question on ovation, because I think it's, you know, it's, you put it on a slide. And it's not, it's not a product line, I think, and historically you guys have talked about a lot, but it is a pretty powerful installed base that you have. I mean, how big a deal is this 4.0 upgrade? And, you know, is there a way for us to think about, like, you know, what percentage of your installed base you would expect to upgrade? Or, you know, is there, is there some sort of kind of way to tangibly think about the impact of this iteration?
Unnamed Speaker: And then I wanted to follow up on Jeff's question about the ovation because I think it's, you know, "How big a deal is this 4.0 upgrade?" And you know, is there a way for us to think about like, You know, what percentage of your installed base you would expect to upgrade or, you know, is there some sort of kind of way to tangibly think about the impact of this iteration?
Speaker Change: Okay, fair enough. And then I wanted to follow up on Jeff's question on ovation because I think it's you know it's you put it on a slide and it's not it's not a product line I think and historically you guys have talked about a lot but it is a pretty powerful installed base that you have. I mean how
Speaker Change: How big a deal is this 4.0 upgrade and you know is there a way for us to think about like
Law Karsanbhai: And, and, and is iteration even the right word to use? Is it a step change, a meaningful step change where you can hit that tipping point where people, you know, like you said, 70% of the people came to your event, you know, where people just generally hit the bit on that more so than maybe they didn't the past. Any color there be helpful out. Yeah, you know, from an ovation perspective, we've continued to have, you know, significant releases in the capabilities of that technology over time. And this is certainly a significant one, which incorporates a lot of technology from Aspen and fundamentally from an optimization perspective, from an analytics perspective, from in terms of copilot provides capability that we've not had innovation before.
Unnamed Speaker: And, and, and is iteration even the right word to use? Is it a step change, a meaningful step change where you can hit that tipping point where people, you know, like you said, 70% of the people came to your event, you know, where people just generally hit the bid on that more so than maybe they did in the past.
Unnamed Speaker: Any color there would be helpful.
Wal Karsanbhai: You know, from an innovation perspective, we've continued to
Speaker Change: You know, from an innovation perspective, we've continued to have
Wal Karsanbhai: TechCenter, we're proud to have significant releases in the capabilities of that technology over time. This is certainly a significant one, which incorporates a lot of technology from Aspen and fundamentally, from an optimization perspective, from an analytics perspective, in terms of co-pilots, provides capability that we've not had innovation before. I think it is significant, given the fact that the investment in power generation infrastructure in this country and globally is at a tipping point, and just given the boom in AI and data centers, and we talked about it in the last earnings call, we expect power generation investments, as well as transmission and distribution and renewables, to be a very, very important growth vector for us.
Speaker Change: you know significant releases in the capabilities of that technology over time and this is certainly a significant one which incorporates
Law Karsanbhai: And I think it is significant given the fact that the investment in the power generation infrastructure in this country and globally is at a tipping point. And, you know, just given the boom in AI and data centers, and we talked about it in the last earnings call, we expect the power generation investments, as well as transmission and distribution and renewables, to be a very, very important growth vector for us. Innovation 4.0 certainly positions us very well in that capacity and, frankly, on green field or modernizations or lifetime extensions of power plants, but also the opportunity to go in and upgrade existing systems with the new capabilities that we have in 4.0.
Speaker Change: And I think it is significant, given the fact that...
Wal Karsanbhai: Innovation 4.0 certainly positions us very well in that capacity, and frankly, on Greenfield, our modernizations, our lifetime extensions of power plants, but also the opportunity to go in and upgrade existing systems with the new capabilities that we have in 4.0. That's really what we're very excited about. I think the step change here, to your question, Scott, lands on the use of AI models, which will enable planning purposes around maintenance, taking down assets for turnaround activities, and will give a higher probability that you're actually going to work on the maintenance records and elements that are most needed in the plant.
Law Karsanbhai: So that's really what we're very excited about. And I think the step change here to your question, Scott, lands on the use of the AI models, which will enable planning purposes around maintenance, taking down assets for turnaround activity. It will give a higher probability that you're actually going to work on the maintenance records and elements that are that most needed in the plant. And I think that's incrementally new and different on the marketplace. And then lastly, Scott, we're highlighting this innovation, but innovation is a core pathway, as we've talked in the past, of how we drive differentiated growth at Emerson: accelerated innovation across our businesses.
Speaker Change: which will enable planning purposes around maintenance.
Wal Karsanbhai: I think that's incrementally new and different in the marketplace. And then lastly, Scott, we're highlighting this innovation, but innovation is a core pathway, as we've talked about in the past, of how we drive differentiated growth at Emerson. Distributed innovation across our businesses is critical. We've seen that. You see, as we report R&D spend as a percent of sales, we have stepped that up, and this is an element and one of the results.
Speaker Change: We're highlighting this innovation, but innovation is a core pathway, as we've talked
Law Karsanbhai: It's critical, and we've seen that you see that as we report R&D spend as a percent of sales, that we have stepped that up, and this is an element and one of the results. of that.
Scott Davis: Okay, appreciate the color.
Operator: Thank you, guys. Thank you, Scott.
Deane Dray: And next we have Deane Dray of RBC Capital. Thank you. Good morning, everyone. Good morning, Deane.
Operator: And next, we have Deane Dray of RBC Kaplowitz.
Speaker Change: And next we have Deane Dray of RBC Capital.
Deane Dray: Thank you. Good morning everyone. Good morning, Dean. Hey, I'd like to go back to page five and
Deane Dray: Hey, I'd like to go back to page five and ask whether you're seeing much demand or overlap with the mega projects. I guess the latest count is 440 projects over a billion. If how much does this funnel overlay to those, and what kind of visibility do you have? All right.
Law Karsanbhai: So, in terms of I'm not quite sure the reference you made, Deane, can you clarify the mega projects you referenced? Yeah, this has been a big focus across the industrial for the past year, looking at North America, non-reset construction projects over a billion dollars. And it encompasses everything from software to batteries. But it's just, it's a way for us to look at all these secular drivers and how are they translating actually into projects. So it's become this benchmark indicator that we're using now. And so that's the reason I'm asking. You're looking at this funnel, at the global funnel. I get it.
Deane Dray: In terms of, I'm not quite sure the reference you made, Deane, can you clarify the megaprojects?
Deane Dray: Yeah, this has been a big focus across the industrials for the past year looking at North America non-residential construction projects over a billion dollars, and it encompasses everything from software to batteries, but it's just a way for us to look at all these secular drivers and how are they translating actually into projects, so it's become this benchmark indicator that we're using now, and so that's the reason I'm asking. You're looking at this funnel. It's a global funnel. I get it, but within North America, how much overlap do you have with these so-called mega projects?
Speaker Change: over a billion dollars and it encompasses everything from
Deane Dray: Benchmark indicator that we're using now and so that's the reason I'm asking you looking at this funnel it's a global funnel I get it but within for North America how much overlap do you have with these so-called mega projects or maybe you don't have that information
Law Karsanbhai: But within for North America, how much overlap do you have with these so-called mega projects? Or maybe you have that information. Yeah, I, you know, we'll go back and map that. But what I will tell you is, in terms of LNG, in terms of energy, in terms of life sciences, and frankly, also semiconductors and EVs, we have our own map of all the project activity in North America. We'll go back and map it with what you're referencing, but I will tell you that we are certainly participating. And every one of those projects is in our funnel with, you know, very, very good win rates.
Wal Karsanbhai: Go back and map that out, but what I will tell you is, in terms of LNG, in terms of energy, in terms of life sciences, and, frankly, also semiconductors and EVs, we have our own map of all the project activity in North America. We'll go back and compare it with what you're referencing, but I will tell you that we are certainly participating, and every one of those projects is in our funnel with very, very good win rates.
Law Karsanbhai: But it's an action we'll take away and work with Colleen and get that map. But our participation in North America on those large projects remains very solid. And we had a very good level of project activity in North America, particularly in life sciences and power and the control systems business, and even in the current world. Yeah. And as a reminder, that funnel represents our automation content versus what the entirety of a project is out there in the universe. So that's also to keep in mind. Of course. All right. So we'll be looking forward to that.
Wal Karsanbhai: But it's an action we'll take away and work with Colleen and get that map, but our participation in North America on those large projects remains very solid, and we had a very good level of project activity in North America, particularly in life sciences and power and the control systems business, even in the current quarter.
Wal Karsanbhai: And as a reminder, that funnel represents our automation content versus what the entirety of a project is out there in the universe. So that's also the case.
Speaker Change: And as a reminder, that funnel represents our automation content versus what the entirety of a project is out there in the universe, so that's also to keep in mind.
Deane Dray: And then, the second question is a bit of a follow-up from Scott on the balance sheet and the cash. Just can you talk to the decrease in buybacks? I know you said that your use of capital was buying back the Copeland note, but you know, all cash is fungible. And just directionally to be pulling away from buybacks. Just maybe I know it's early to talk about 25, but just where to buybacks that are in your priorities.
Speaker Change: Of course. All right, so we'll be looking forward to that. And then second question is a bit of a follow-up from Scott on the balance sheet and the cash.
Michael Baughman: Hey, Dean, it's Mike. Yeah, buybacks are definitely still in the priority, along with the dividend and returned to maintaining capital shareholders generally. We will exit the year with the commercial paper paid off and three and a half plus billion of cash on the balance sheet. But our capital allocation will remain the same. We will continue to focus on funding our organic growth initiatives, will be continued to be committed to the dividend and bolt-on M&A that improves the portfolio. And then, of course, they'll be shared buyback. So yeah, we will continue with shared buyback. We'll be in the market this quarter.
Speaker Change: With the commercial paper paid off and and three and a half
Wal Karsanbhai: We're going to have plus billions of cash on the balance sheet, but our capital allocation will remain the same. We will continue to focus on funding our organic growth initiatives. We'll continue to be committed to the dividend and bolt-on M&A that improves the portfolio. And then, of course, there'll be a share buyback. So yeah, we will continue with the share buyback. We'll be in the market this quarter at, we think, roughly $125 million, which gets us back to that roughly $500 million a year pace.
Speaker Change: funding our organic growth initiatives.
Speaker Change: And then, of course, there'll be shared buyback. So, yeah, we will continue with shared buyback. We'll be in the market this quarter at, we think, roughly $125 million, which gets us back to that roughly $500 million-a-year pace.
Michael Baughman: We think roughly 125 million, which gets us back to that roughly 500 million a year pace.
Charles Tusa: Thank you. Next, we have Steve Tusa of J.P. Morgan, Hey, good morning. Good morning.
Operator: We have Steve Tusa of J.P.
Speaker Change: Next, we have Steve Tusa of J.P. Morgan.
Steve Tusa: Hey, good morning. Good morning.
Steve Tusa: Could you just talk about the seasonality of your underlying cash flow, putting Aspen aside? Typically, I think you have a pretty strong 4Q historically, and you're raising it this year. I guess, how do we think about cash in the fourth quarter and then into next year?
Charles Tusa: Can you just talk about like the seasonality of your underlying cash flow, putting AFP inside? You know, typically I think you have a pretty strong 4Q historically, and you know, you're raising it this year. I guess how do we think about cash in the fourth quarter and then, you know, in the next year? Yeah, so we took the guide up to 2.8, which would imply by 800 million coming through in the fourth quarter, which I think is reasonably consistent seeing a fourth quarter increase. So this third quarter was particularly good. And remember, that has tested measurement in there, which they had a great quarter and peeled about 50 million off the balance sheet, which did skew the numbers this year.
Steve Tusa: Hey, good morning. Good morning. Good morning.
Steve Tusa: Could you just talk about the seasonality of your underlying cash flow, putting Aspen aside? Typically, I think you have a pretty strong 4Q historically.
Steve Tusa: You know, you're raising it this year. I guess, how do we think about cash in the fourth quarter and then, you know, into next year?
Mike Baughman: Yeah, so we took the guide up to 2.8, which would imply about $800 million coming through in the fourth quarter, which I think is reasonably consistent with a fourth quarter increase. So, this third quarter was particularly good, and remember, that includes test and measurement in there, which they had a great quarter and peeled about $50 million off the balance sheet, which did skew the numbers this year. So, we feel good about the 2.8 for the year, and looking at the 800, it looks pretty in line with some of the prior years.
Speaker Change: Yeah, so we took the guide up to 2.8, which would imply about $800 million.
Speaker Change: Coming through in the in the fourth quarter, which I think is reasonably consistent seeing a fourth quarter increase so I For this third quarter was particularly good and remember that has tested measurement in there, which they had a great quarter
Speaker Change: and peeled about $50 million off the balance sheet, which did skew the numbers this year. So we feel good about the $2.8 million for the year, and looking at the $800 million, it looks pretty in line with some of the prior years.
Michael Baughman: So we feel good about the 2.8 for the year, and looking at the 800, it looks pretty in line with some of the prior years.
Steve Tusa: And then, just looking out to next year, anything in the bridge that's more mechanical that you know of today, whether it's merit increases, you know, bonus payments, or, or anything that is kind of outside the normal operating leverage. Dynamics that we should be, you know, aware of.
Michael Baughman: And then just looking out to next year, anything in the bridge that's more mechanical that you know of today, whether it's, you know, merit increases, you know, bonus payments or anything that is kind of outside the normal operating leverage dynamics that we should be, you know, aware of? Can't think of anything in the kind of run the business, but at corporate, I would say we are looking at a headwind and a tailwind that will largely offset and be a slight headwind. We will have an increase in pension expense, all things equal, just given the way the deferral accounting works.
Speaker Change: And then just looking out to next year, anything in the bridge that's more mechanical that you know of today, whether it's...
Speaker Change: You know, merit increases, you know, bonus payments, or anything that's kind of outside the normal operating leverage.
Speaker Change: dynamics that we should be, you know, aware of.
Mike Baughman: I can't think of anything.
Mike Baughman: Anything in the kind of running the business, but at corporate, I would say we are looking at a headwind and a tailwind that will largely offset and be a slight headwind. We will have an increase in pension expense, all things equal, just given the way the deferral accounting works, and then we'll have a lower interest expense because of the Copeland proceeds that come in. Those two should net lower interest expense overall with more cash, yeah. So that should net to a pretty small headwind at corporate.
Speaker Change: can't think of anything in the in the kind of run the business but at corporate I would say we are looking at a headwind and a tailwind that will largely offset and be a slight headwind
Speaker Change: We will have an increase in pension expense, all things equal, just given the way the deferral accounting works. And then we'll have a lower interest expense because of the Copeland proceeds that come in.
Michael Baughman: And then we'll have a lower interest expense because of the coflin proceeds that come in. Those two lower, lower interest expense overall with more cash. Yeah. So that should net to a pretty small headwind at corporate. Okay.
Speaker Change: Those two should net lower interest expense overall with more cash, yeah, so that should net to a pretty small headwind at corporate. Okay, and then one last quick one for you guys. You know, what are the plans for Aspen? Are you guys planning to move on that this year?
Michael Baughman: And then one last quick one for you guys. You know, what are the plans for Aspen? Are you guys planning to move on at this year? Not in this fiscal, as I said, you know, we'll continue to evaluate Steve as we go through times.
Speaker Change: Not in this fiscal, as I said. We'll continue to evaluate, Steve, as we go through time here. Sorry, I'm already on the 25. I meant fiscal 25. I'm already thinking about next year. Sorry about that. Forward looking. No comment there.
Michael Baughman: Sorry, I meant, I meant, sorry, I'm already on the 25. I meant Fiscal 25. I'm already thinking about next year. Sorry about that. Forward-looking.
Steve Tusa: No comment there. Okay, thanks.
Michael Baughman: No comment there.
Michael Baughman: Okay. Thanks.
Speaker Change: Okay, thanks.
Andrew Kaplowitz: Next. We have Andy Kaplowicz of City Group. Hey, good morning, everyone. Good morning, Andy. While operating leverage for Emerson's continued to be impressive, and obviously you raised your kind for this year to midnight 40s, which is higher than the algorithm you gave us at your last investor day, we know price maybe is fading a bit as a help. Maybe supply chain wins are less likely to help an FY 25. I think you just answered Steve's question about sort of other puts and takes.
Operator: Next, we have Andy Kaplowitz of Citigroup.
Speaker Change: Next, we have Andy Kaplowitz of Citigroup.
Andy Kaplowitz: Good morning, everyone.
Andy Kaplowitz: While operating leverage for Emerson has continued to be impressive, and obviously, you raised your guidance for this year to mid to high 40s, which is higher than the algorithm you gave us at your last Investor Day, we know price maybe is fading a bit as a help, and maybe supply chain wins are less likely to help in FY25. I think you just answered Steve's question about sort of other puts and takes, but can you sustain incrementals in the 40s in 25 from what you see today?
Andy Kaplowitz: Good morning, Andy.
Andy Kaplowitz: While operating leverage for Emerson has continued to be impressive and obviously you raised your guidance for this year to mid to high 40s, which is higher than the algorithm you gave us at your last Investor Day, we know price maybe is fading a bit as a help, maybe supply chain wins are less likely to help in FY25. I think you just answered Steve's question about sort of other puts and takes, but can you sustain incrementals?
Law Karsanbhai: But can you sustain incrementals in the 40s in 25? And what do you see today? Yes, thanks for the question. We believe we can. We have a significantly higher margin portfolio today with a thousand basis point move over the transformation of Emerson to plus 50% GDP portfolio. And I think our expectation certainly is that next year will be very similar to the leverage rate of this year.
Speaker Change: in the 40s in 25 from what you see today.
Wal Karsanbhai: Yes, thanks for the question. We believe we can. We have a significantly higher margin portfolio today with a thousand basis point move over the transformation of Emerson to a plus 50% GP portfolio. And I think our expectation is certainly that next year will be very similar to the leverage rate this year.
Speaker Change: Yes, thanks for the question. We believe we can.
Speaker Change: Significantly higher margin portfolio today with a thousand basis point move over the transformation of Emerson to plus 50% GP portfolio And I think our expectation certainly is that next year will be very similar to the leverage rates of this year
Andy Kaplowitz: Great, and then, Lau, you mentioned you have decent visibility toward, I think, the low end of your four to seven percent through the cycle revenue growth. You know, it's as an initial read in FY25. I guess, what do you need to seed to achieve that kind of growth?
Law Karsanbhai: Great. And then you mentioned your decent visibility toward I think the low end of your 4% to 7% due to the second revenue growth, you know, it's as an initial read in death by 25. I guess what you need to see to achieve that kind of good difference?
Speaker Change: Great. And then, Lyle, you mentioned you have decent visibility toward, I think, the low end of your 4 to 7 percent through the cycle revenue growth, you know, as an initial read into FY25. I guess, what do you need to see to achieve that kind of growth?
Tom: Go ahead, Tom. Yes.
Law Karsanbhai: Let's go ahead, though. Yeah, so, you know, I mean obviously the what we're seeing right now is based on the order rates that the second half of this year will generate. And that points to the low end of the 4% to 7%. Now what has to change? Obviously, what the areas were really focused on is pace of discrete recovery. The amplitude of the recovery and then China and now what the North American kill be three of the pace of business is something we're watching. We're not really concerned. Our process hybrid business continues to have order rates of mid single digits.
Tom: So, you know, I mean, obviously, what we're seeing right now is based on the order rates that the second half of this year will generate, and that points to the low end of the four to seven. Now, what has to change? Obviously, what the areas were really focused on was the pace of discrete recovery, the amplitude of the recovery, and then China. And now, the North American KOB3, or the pace of business, is something we're watching.
Speaker Change: Yes, so, you know, I mean, obviously, what we're seeing right now is based on the order rates that the second half of this year will generate, and that points to the low end of the four to seven. Now, what has to change, obviously, what the areas were really focused on is pace of discrete recovery.
Speaker Change: The amplitude of the recovery...
Speaker Change: and then China and now what the North American KOB3 or the pace of business is something we're watching we're not really concerned our process hybrid business continues to have order rates of mid single digits the capital cycle still remains strong so that we feel very good about it's really the pace and amplitude of discrete recovery and China is going to dictate how we guide into next year as we come off that low single-digit order growth we've seen in the second half of 2024
Tom: We're not really concerned. Our process hybrid business continues to have order rates of mid-single digits. The capital cycle still remains strong, so that we feel very good about it. It's really the pace and amplitude of discrete recovery, and China is going to dictate how we guide into next year as we come off that low single-digit order growth we saw in the second half of 2024.
Law Karsanbhai: The capital cycle still remains strong. So that we feel very good about. It's really the pace and amplitude of discrete recovery, and China is going to dictate how we died into next year as we come off. That low single-digit order growth we've seen in the second half of 2024.
Wal Karsanbhai: Lyle, are you seeing China stable at low levels, or is it getting worse? No, I'd suggest stable, Andy.
Law Karsanbhai: While you seem China stable at low levels, or is it getting worse? Well, what's China? No, I suggest stable Andy at this point.
Speaker Change: Lyle, are you seeing China stable at low levels or is it getting worse? Well, what's China? No, I'd suggest stable, Andy, at this point. Excellent, thank you.
Wal Karsanbhai: No, I'd suggest stable, Andy, at this point.
Operator: Excellent.
Julian Mitchell: Thank you.
Julian Mitchell: Next, we have Julian Mitchell of Barclays. Hi, good morning. I think good morning. Loud maybe where I wanted to start was just around the different end market. Verticals because I suppose that the lowered orders guide and the slight miss on sales in Q3. Was that solely tied to discrete automation? I suppose listening to an automation peer half an hour ago, they do talk about weaker energy transition, capex, weaker chemicals and mining spend, and Aspen last night referred to some weakness in the market. So there's types of process verticals as well. So just trying to understand that element of sort of process versus discrete.
Operator: Next, we have Julian Mitchell of Barclays.
Speaker Change: Next we have Julian Mitchell of Barclays.
Julian Mitchell: Hi, good morning. Good morning, Lyle.
Julian Mitchell: Maybe where I wanted to start was just around the different end market verticals, because I suppose the lowered orders guide and the slight miss on sales in Q3. Was that solely tied to discrete automation? Because I was listening to an automation peer half an hour ago, they did talk about weaker energy transition, CAPEX, weaker chemicals, and mining spend, and Aspen last night referred to some weakness in those types of process verticals as well. So just trying to understand that element of process versus discrete.
Julian Mitchell: Hi, good morning.
Julian Mitchell: Good morning, Julian. Good morning, Lyle. Maybe where I wanted to start was just around the different end market.
Julian Mitchell: verticals because I suppose that the lowered orders guide and the slight miss on sales in q3 was that solely tied to discrete automation because I suppose listening
Speaker Change: You know, to an automation peer half an hour ago, they do talk about weaker energy transition, CAPEX, weaker chemicals.
Speaker Change: and mining spend and Aspen last night referred to some weakness in those types of process verticals as well. So just trying to understand that element of sort of process versus discrete
Law Karsanbhai: The outlook there.
Wal Karsanbhai: Yeah, no, I'll answer and let Ram add some color as well from his perspective. Certainly, we continue to see a strong capital formation cycle here, particularly as it relates to energy, energy transition, power generation, life sciences, metals, and mining. And that is relatively broad, from Western Europe through the United States and into the Middle East and Latin America. So I don't have a whole lot of concern today around those markets. I highlighted a few specific wins, but there were others in that $350 million bucket that we won. So mid-single-digit order growth in process and hybrid in the quarter, low single-digit for the company impacted by the discrete automation business and discrete orders, which remain negative through the quarter. Ron?
Law Karsanbhai: Yeah, I know I'll answer and let Ram add some color as well from his perspective. Certainly, we continue to see strong capital formation cycle here, particularly relates to energy. Energy transition, power generation, life sciences, metals and mining. And that is relatively broad from Western Europe through the United States and into the Middle East and Latin America and I. So I haven't I don't have a whole lot of concern today around those markets. We highlighted a few specific wins, but there were others in that 350 million dollar bucket that we want. So mid single digit order growth in process and hybrid in the quarter.
Speaker Change: The Outlook there.
Speaker Change: I'll answer and let Ram add some color as well from his perspective.
Speaker Change: We continue to see strong capital formation cycle here, particularly as it relates to energy, energy transition, power generation, life sciences, metals and mining.
Speaker Change: and that is relatively broad from Western Europe through the United States and into Middle East and Latin America and I so I haven't I don't have a whole lot of concern today around those those markets
Speaker Change: I highlighted a few specific wins, but there were others in that $350 million.
Speaker Change: bucket that we that we want. So mid-single digit
Ram Krishnan: Most single digit for the company impacted by the discrete automation business and the discrete orders which remains negative to the quarter. Yeah, and you said it. I mean I think the cat for us Energy Power Life Sciences is driving a majority of our capital project wins as well as the momentum in our process hybrid business. Certainly, you know, we are not a big player in hybrid markets like food and beverage, which could be the dynamic you're referencing in terms of some slowdown. But our life sciences business continues to be very good. Our metals and mining business continues to be very good.
Speaker Change: Water Growth
Speaker Change: in Process and Hybrid in the quarter.
Speaker Change: Low single digit for the company.
Speaker Change: Impacted by the discrete automation business and the discrete orders which remains
Wal Karsanbhai: Yeah, and you said it. I mean, I think the cap for us, energy, power, life sciences, is driving a majority of our capital project wins, as well as the momentum in our process hybrid business. Certainly, we are not a big player in hybrid markets like food and beverage, which could be the dynamic you're referencing in terms of some slowdown, but our life sciences business continues to be very good. Similarly, our metals and mining business continues to be very good.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Corridor. Rob? Yeah, and you said it. I mean, I think for us, energy, power, life sciences is driving a majority of our capital project wins, as well as the momentum in our process hybrid business.
Speaker Change: Certainly, you know, we are not a big player in hybrid markets like food and beverage, which could be the dynamic you're referencing in terms of some slowdown. But our life sciences business continues to be very good. Our metals and mining business continues to be very good. So no, you know, slowdown. We're not seeing any.
Wal Karsanbhai: So no slowdown; we're not seeing any kind of slowdown in that area. The area we're watching very carefully, as I referenced, is the pace of discrete recovery, particularly markets like semiconductors and EVs, which impact NI, but also markets like automotive, which impact our broader discrete automation business. Now, the one segment of test and measurement where we've seen good momentum is aerospace and defense driven by government spending. That's 25% of their overall mix. So that's certainly come out strong, and that's driven growth in North America, but we are yet to see sustained recoveries in semis and EVs, which our markets will watch closely.
Ram Krishnan: So no, you know, slowdown. We're not seeing any kind of slowdown in that area. But the area we're watching very carefully, as I referenced, is the pace of discrete recovery, particularly markets like semiconductors and EVs, which impact. And I but also are markets like automotive, which impact our broader discrete automation business. Now, the one segment of test and measurement where we've seen good momentum is aerospace and defense, driven by government spending. I think it's 25% of their overall mix, so that's certainly come out strong, and that's driven growth in North America. But we are yet to see sustained recoveries in semis and EVs, which are markets we are watching closely.
Speaker Change: Kind of slow down in that area but
Speaker Change: The area we're watching very carefully, as I referenced, is the pace of discrete recovery, particularly markets like semiconductors and EVs.
Speaker Change: which impact NI but also are markets like automotive which impact our broader discrete automation business. Now the one segment of test and measurement where we've seen good momentum is aerospace and defense driven by government spending. It's 25% of their overall mix so that's certainly come out strong and that's driven growth in North America but we are yet to see sustained recoveries and semis and EVs which our markets will watch it closely.
Law Karsanbhai: Thanks very much, and then just my follow-up, and it's somewhat related, but if I look at your backlog, I think that was $7.4 billion at the end of June, so sort of down a little bit sequentially and down a little bit from where it was in December as well. When you think about that backlog, it's moving around entry here on seasonal factors as much as anything else. Do you still feel confident about sort of decent backlog growth as you enter fiscal 25? Yes, yes, we do. That backlog reduction for us, frankly, about $100 million, it was all in test and measurement.
Speaker Change: Thanks very much, and then just my follow-up.
Speaker Change: And it's somewhat related, but if I look at your backlog, I think that was 7.4 billion at the end of June So sort of down a little bit sequentially
Speaker Change: and down a little bit from where it was in December as well. When you think about that backlog, you know, it's moving around each year on seasonal factors as much as anything else. Do you still feel confident about sort of decent backlog growth as you enter fiscal 25?
Speaker Change: Yes. Yes, we do. That backlog reduction for us, frankly, about $100 million, it was all in test and measurement, you know, our backlog in the base Emerson business.
Law Karsanbhai: Our backlog in the base Emerson business was held effectively flat. Now we typically see a backlog reduction in Q4, but it'll be up year over year, and we feel pretty good about backlog levels as we enter 2025. And I would add to the earlier comment about the capital formation; interestingly, in the quarter, the control systems business actually had a book-to-build above one record order levels. And for the full year, we expect Emerson to run around one. A little to the bill. Yeah.
Speaker Change: We typically see a backlog reduction in Q4 but it will be up year over year and we feel pretty good about backlog levels as we enter 2025.
Speaker Change: And I would add to the earlier comment about the capital formation, you know, interestingly in the quarter, the control systems business actually had to book the bill above one.
Speaker Change: Record order levels. And for the full year we expect Emerson up right around 1.
Operator: That's great. Thank you.
Speaker Change: And we'll go to the bill, yeah.
Speaker Change: That's great. Thank you.
Brett Lindsay: Next we're Brett Lindsay of Mizzouho. Good morning. Thank you. Just wanted to come back to the discrete comments around pace and amplitude of the recovery. As that business comes back, should we think about the operating leverage above the 45% framework, given some of the cost containment and some of the actions you've taken there? Yeah, I would say for our discrete automation business, it'll be right around in the 40s. Certainly the other business that's exposed to the discrete and markets test and measurement given that 75 plus percent GPs will be much fire. Okay, got it.
Speaker Change: Next we have Brett Lindsey of Mizzouho.
Unnamed Speaker: Hi, good morning. Thank you. I just wanted to come back to the discrete comments around pace and amplitude of the recovery. As that business comes back, should we think about operating leverage above the 45% framework, given some of the cost containment and some of the actions you've taken there?
Brett Lindsey: Hi, good morning, thank you. I just wanted to come back to the discreet comments around pace and amplitude of the recovery. As that business comes back should we think about the operating leverage above the 45% framework given some of the cost containment and some of the actions you've taken there?
Wal Karsanbhai: Yeah, I would say for our discrete automation business, it'll be right around in the 40s. Certainly, the other business that's exposed to the discrete end markets, test and measurement, given the 75 plus percent GPs, will be much higher.
Ram Krishnan: And then just on power generation. So you've talked about some of the momentum there in that business. I think the grid resulted ask and look pretty encouraging. Any update on the strategic funnel and how that track through the quarter and some of the activity you're working on there? Yeah, I mean, I think our so aspen clearly reference the capital formation in grid modernization, which is fundamentally transmission and distribution investments. Our exposure to the TND side is through or aside aspen on the power generation side, which is the evasion business that project funnel continues to build both in North America, Europe, but also we're having a very, very strong year in China.
Speaker Change: Yeah, I mean, I think our, so Aspen clearly referenced the capital formation in grid modernization, which is fundamentally transmission and distribution investments, so our exposure to the T&D side is through OSI at Aspen. On the power generation side, which is the evasion business, that project funnel continues to build both in North America, Europe , but also we're having a very, very strong year in China, interestingly. So overall, the generation capacity that is being invested in across the globe continues to be robust.
Ram Krishnan: Yeah, interestingly, so overall the generation capacity that is being invested in across the globe continues to be robust, and the innovation that we're driving with the likes of Evasion 4.0 as well as our Ovation Green that is positioned for renewable investments. The activity there is very robust. Law reference that one project in India with a very strategic investment that's happening in India and the renewable space is just an example of the types of activities or involved in with the ovation plot. Okay, great.
Speaker Change: The activity there is very robust. We'll all reference that one project in India with a very strategic investment that's happening in India in the renewable space is just an example of the types of activities we're involved in with the Avation platform.
Brett Lindsay: Appreciate the color.
Michael Baughman: Next, we have Christopher Glynn of Oppenheimer. Thanks. Good morning. Edit question on the MRO. Curious if you know how that performs specifically in the quarter. Sorry if it didn't catch it, but I'm wondering if there's an impact of some customer inventory rebalancing. If you see any of that from maybe accelerated lot sizes in prior years or, you know, if that markets are mainly what you're seeing on the MRO side. Yeah, this is all I certainly, in totality, MRO didn't really change a whole lot. It remains that 64% of the revenue in the quarter, which is relatively consistent with what we've been and within my expectation for the year.
Speaker Change: Yeah, this is Lowell. I, certainly in totality, MRO didn't really change a whole lot. It remains at 64% of the revenue in the quarter.
Lowell: which is relatively consistent to where we've been and well within my expectation for the year. Having said that, there were a few ebbs and flows as I discussed on the call. European MRO was very strong in the quarter. North America MRO was softer in the quarter.
Michael Baughman: Having said that, there were a few ebbs and flows, as I discuss on the call. European MRO was very strong in the quarter; North America MRO was softer in the quarter. I haven't seen anything there that is alarming in any way. We're not a heavy inventory-driven company from a distribution or customer-level perspective. Our equipment is bought and put into operation shortly thereafter. And so consequently, nothing alarming on the MRO side. But again, strength in Europe, weakness in North America, or softness in North America characterized the quarter for MRO.
Lowell: We haven't seen anything there that is alarming in any way.
Lowell: We're not a heavy inventory driven company from a distribution or customer level perspective. Our equipment is generally bought and put into operation.
Michael Baughman: And just to build on that a little bit, the North American softness, you'll recall in prior quarters, we had talked about how, particularly in the measurement analytical business, there was some strength, and we saw a little bit of that reverse in the quarter. But, as well said, nothing concerning.
Speaker Change: And just to build on that a little bit, the North American softness, you'll recall in prior quarters we had talked about how, particularly in the measurement and analytical business, there was some strength and we saw a little bit of that reverse in the quarter, but as well said, nothing concerning.
Speaker Change: Gotcha, thank you.
Nicole DeBlase: Next we have Nicole DeBlaze of Deutsche Bank. Yeah, thanks. Good morning, guys. Good morning.
Operator: Next, we have Nicole DeBlase of Deutsche Bank.
Speaker Change: Next we have Nicole DeBlaise of Deutsche Bank.
Nicole DeBlaise: Yeah, thanks. Good morning, guys.
Nicole DeBlase: Maybe just starting with the T&M business sounds like the synergy progress is going a bit better than plan. Are you guys actually raising the synergy guidance there, or is it more about timing, like coming through faster than expected, and maybe any update thoughts on synergies in fiscal 24? No, good morning. Now look, we raised the guide a few quarters ago. We've continued to execute across that pace. So no change to the synergy guide, but we are maintaining the pace certainly to be able to deliver these results. Okay, got it. Thanks, Laurel.
Nicole DeBlase: Maybe just starting with the T&M business, sounds like the Synergy progress is going a bit better than planned. Are you guys actually raising the Synergy guidance there, or is it more about timing, like coming through faster than expected, and maybe any updated thoughts on Synergies in Fiscal 24?
Speaker Change: Morning.
Nicole DeBlaise: Maybe just starting with the T&M business, sounds like the Synergy progress is going a bit better than planned. Are you guys actually raising the Synergy guidance there, or is it more about timing, like coming through faster than expected, and maybe any updated thoughts on Synergies in fiscal 24?
Unnamed Speaker: Yeah. Yeah. Yeah.
Speaker Change: No, good morning. No, look, we raised the guy to a few quarters ago. We continue to execute
Speaker Change: So no change to the Synergy Guide, but we are maintaining the pace certainly to be able to deliver these results.
Nicole DeBlase: And then, if I could ask a bit of a detail, a little bit more detail question. The discrete automation comes. Do you get a lot easier in the fourth quarter? Is it possible that organic revenue could turn positive, or do you think that that's more of a one half 25 events at this point? Go ahead. Yeah, it's a one-half 25. I think older Stern positive and Q4 at this point, we're planning on a first half 25 recovery and sales for the discrete automation business. Thank you.
Speaker Change: Okay, got it. Thanks, Lal. And then if I could ask a bit of a detailed, a little bit more detailed question. The discrete automation comps do get a lot easier in the fourth quarter. Is it possible that organic revenue could turn positive, or do you think that that's more of a one-half-25 event at this point?
Speaker Change: Yeah, it's a 1 half 25. I think orders turned positive in Q4. At this point, we're planning on a first half 25 recovery in sales for the discrete automation business.
Unnamed Speaker: Thank you. I'll pass it on.
Nicole DeBlase: I'll pass it on.
Operator: Thank you.
Speaker Change: Thank you. I'll pass it on.
Speaker Change: Thank you.
Operator: Well, this concludes our question and natural session and today's event. I would like to thank the management team for their time today, and thank you all for attending today's presentation.
Speaker Change: Well this concludes our question and answer session and today's event. I would like to thank the management team for their time today and thank you all for attending today's presentation.
Operator: At this time, you may disconnect your lines. Thank you, and have a great day, everyone.
Operator: At this time, you may disconnect your lives. Thank you, and have a great day, everyone.
Speaker Change: At this time, you may disconnect your lines. Thank you, and have a great day, everyone.