Q1 2025 Emerson Electric Co Earnings Call
Good day and welcome to the Emerson First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Colleen Mettler, Vice President of Investor Relations. Please go ahead.
Colleen Mettler: Good morning and thank you for joining us for Emerson's first quarter 2025 earnings conference call. This morning I am joined by President and Chief Executive Officer Lal Karsanbhai, Chief Financial Officer Mike Baughman, and Chief Operating Officer Ram Krishna.
Colleen Mettler: As always, I encourage everyone to follow along with the slide presentation which is available on our website. Please join me on slide 2.
Colleen Mettler: This presentation may include forward-looking statements which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor Statement and note on non-GAAP measures.
Colleen Mettler: I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks.
Thank you, Colleen. Good morning.
Colleen Mettler: Today marks the anniversary of my fourth year as CEO of Emerson.
Colleen Mettler: I reflect on this time with tremendous admiration and gratitude for what we have accomplished as a team to deliver on our collective vision.
Colleen Mettler: Thank you to the Emerson Board of Directors for your trust and support.
Colleen Mettler: to the management team for your commitment and energy and most importantly to the 70,000 Emerson employees around the world for your dedication and deep care for our customers, our communities and each other.
All of you make me better.
Colleen Mettler: Yesterday, alongside the Emerson Board of Directors, employees, community leaders, local CEOs, and Emerson retirees, we held the grand opening ceremony for our new global headquarters in St. Louis.
Colleen Mettler: It was an exciting day. The modern offices aligned our work environment with the industrial technology company we created.
an environment that fosters innovation, collaboration, and inclusiveness.
Colleen Mettler: Thank you to the Emerson leaders who brought our new space to life.
Colleen Mettler: I remain as energized as I was on February 5th, 2021 about the future of our company.
Please turn to slide three.
Colleen Mettler: We are excited about our Q1 performance and the outlook for the year as Healthy Market Fundamentals and our Emerson Management System have positioned us to capitalize on value creation opportunities.
Colleen Mettler: Energy security, near-shoring initiatives, and energy transition commitments are driving sustained spend in LNG, life sciences, power, and metals and mining.
We saw sequential orders improvement in our discrete businesses.
Colleen Mettler: Although, the amplitude was a little softer than expected as momentum in industrial, semiconductor, and discrete MRO was offset by muted performances in automotive and factory automation.
Colleen Mettler: We are expecting discrete orders to turn slightly positive in Q2, with a more meaningful orders ramp in the second half.
Colleen Mettler: We saw robust underlying demand for our software solutions across the portfolio, with 10% growth in ACV, or annual contract value, led by double-digit growth from control systems and software.
Colleen Mettler: Emerson again executed at a world-class level and demonstrated the profitability of our transformed portfolio as margin, leverage, adjusted earnings per share, and cash flow all exceeded our expectations.
Colleen Mettler: Q1 underlying sales were inside the guide. Now, I'll go into more detail on the next slide.
Colleen Mettler: We remain confident in our ability to deliver our 2025 plans and are energized by the robust operational start to the year and sustained high-level performance.
Colleen Mettler: We are pleased to reiterate our guidance for underlying sales, adjusted earnings per share, and free cash flow, with outstanding execution offsetting the profitability headwinds from the large movements in FX since our initial guide.
Colleen Mettler: Additionally, we are increasing our expectations for operating leverage for the year to the 70s from the mid-40s.
Colleen Mettler: The growth and profitability of the Emerson portfolio is evident, supported by our exceptional team, world-class technology, and differentiated Emerson management system.
last week.
Colleen Mettler: We took a significant step forward in the final phase of our portfolio transformation by reaching an agreement with Aspen Tech under which Emerson would acquire all outstanding shares of Aspen Tech common stock not already owned by Emerson for $265 per share pursuant to an all-cash tender offer.
Colleen Mettler: You can find our comments regarding the Aspen Tech Agreement and pursuant tender process in our January 27th press release and we will not be commenting further until appropriate.
Colleen Mettler: The strategic alternatives process for safety and productivity is still underway, and we will provide an update when appropriate.
Colleen Mettler: Now, I want to spend a few moments to talk about tariffs.
Colleen Mettler: In 2018, the United States enacted Section 232 and Section 301 tariffs, primarily targeting exports from China.
Colleen Mettler: At that time, we acted immediately to use price and surcharges to protect profitability. And we also embarked on a program to de-risk our supply chain for raw materials, sub-assemblies and finished goods.
Colleen Mettler: The impact of those tariffs was de minimis due to our swift actions and ability to capture price.
Colleen Mettler: starting with China, we do not expect a material impact based on actions taken since 2018.
Colleen Mettler: Next, we expect the impact from Canada to also be de minimis, as we do not have any material exposure there.
Colleen Mettler: Last, the situation in Mexico is evolving, and we are prepared for a variety of scenarios. We are ready to implement price and surcharges to protect the P&L commitments of the company, and these assumptions are embedded in our guide.
Please turn to slide 4.
Q1 once again showcased Emerson's ability to consistently execute.
Colleen Mettler: Underlying orders were up 1% year over year, led by healthy process and hybrid markets, which were up low single digits, despite a difficult call from the prior year, which benefited from the timing of mega project bookings.
Colleen Mettler: Order's growth was led by robust demand in the Middle East and strength in the U.S., both from MRO business and several project awards.
Colleen Mettler: We saw exceptional demand growth in our power business, as well as continued strength in energy and energy transition projects globally.
Colleen Mettler: Chemical, in the Middle East and Americas, continues to see strong investment from capacity expansion and modernization efforts.
Colleen Mettler: The man in China remained muted, as strength and power was offset by weakness in chemical and discrete end markets.
Colleen Mettler: Underlying sales were up 2%, led by sustained strength in our process and hybrid businesses, which were up mid-single digits.
Colleen Mettler: We saw healthy activity in power and energy markets, globally with sustained capital project momentum as customers are moving to meet the demand for energy security and affordability as well as increasing electricity demand.
Colleen Mettler: Robust project activity in the Middle East offset softness in Asia, and we saw strength in North America MRO and Latin America broadly.
Colleen Mettler: MRO also performed well in the quarter, representing 64% of sales.
Colleen Mettler: Gross profit margin was a record, 53.5%, reflecting the value of our transformed portfolio.
Colleen Mettler: We also delivered record-adjusted segment EBITDA margins of 28%, a 340 basis point improvement driven by strong operational performance, including price-cost management.
Mix, and the Benefits of Cost Reductions and Synergy Realization.
Colleen Mettler: This profit performance, in addition to the impact of FX, drove our operating leverage significantly above our guide.
Colleen Mettler: Emerson also delivered strong free cash flow of $694 million, a margin of approximately 17% and up 89% versus Q1 2024.
Colleen Mettler: Additionally, Emerson completed approximately $1 billion of share repurchase in the quarter as guided.
Speaker Change: Mike Baughman will provide additional color on our financials in a few slides.
Please turn to slide 5.
Speaker Change: Emerson's innovation and differentiated product portfolio continues to be recognized by our customers and industry experts. And I'd like to highlight two recent awards recognizing our Delta V business.
Speaker Change: In December, Emerson's Delta V Edge environment was one of ten products recognized as a 2024 Processing Breakthrough product.
Speaker Change: Processing's annual award honors innovative technology solutions that make significant contributions to increased efficiency, productivity, safety, and profitability in industrial processing operations.
Speaker Change: Delta V-Edge Environment was selected because it is the first of its kind integrated software solution to help customers access and contextualize data to improve enterprise operational performance.
Speaker Change: It also enables customers to run AI tools on the edge, moving the compute process closer to the intelligent field to make better use of their data.
Speaker Change: We also recently released Delta V Edge Environment 2.0, which now supports batch data integration to help life sciences, chemical, and other batch processing industries bridge the gap between OT and IT applications.
Speaker Change: Delta V Edge Environment 2.0 provides secure, contextualized DCS data to help customers deploy advanced analytics, AI and machine learning at the edge or in the cloud to make better operational and business decisions.
Speaker Change: This release is another step forward in our vision to boundless automation, as it helps to eliminate data silos and drive competitive advantage.
Speaker Change: Emerson was also awarded the 2025 IoT Breakthrough Award for Industrial IoT Innovation of the Year for its Delta V Workflow Management Software.
This year's program attracted more than 3,850 nominations globally.
Speaker Change: The award recognizes Emerson's next-generation software-as-a-service solution to help life science companies more efficiently develop, scale, and manufacture life-changing therapies.
Speaker Change: Emerson has been recognized every year by the IOT Breakthrough Awards since their inception due to our industrial technology portfolio driving innovation across the world's essential industries.
Please turn to slide 6.
We see significant opportunity in front of us for LNG.
Speaker Change: When we announced LNG as part of our Energy Transition Growth Platform in 2022, we expected the current wave to add approximately 250 million tons per annum of operational capacity.
predominantly across North America and the Middle East and Africa.
Speaker Change: While we are approximately two-thirds through the initial 250 MTPA, we are seeing large incremental opportunities as additional projects are announced to meet the world's growing demand for gas.
Speaker Change: LNG will continue to play a large role as a transition fuel and will also benefit from a rising demand for power generation.
Speaker Change: An important milestone in the LNG project timeline is when an EPC is selected because this typically starts the process to award automation, which can take up to a year.
Speaker Change: And we have solid visibility into a potential 80 plus MTPA per year being awarded to EPCs over the next three years as the moratorium has been lifted and the LNG wave is proving to be larger than we had initially expected.
Speaker Change: We continue to see an opportunity for automation content of approximately $10 million per MTPA of liquefaction across our leading valve, instrument, and control system and software portfolio.
Speaker Change: We have continued to see a win rate of approximately 50% for the full portfolio and greater than 50% for control systems in large LNG projects and are seen as a premier automation supplier globally.
Speaker Change: For example, around 70% of the world's LNG flows through Emerson valves.
Speaker Change: And we have gone control systems on six of the last 11 projects awarded.
Speaker Change: Given the incremental opportunity for projects expected to move forward in our project scope, we see a potential for greater than $1 billion in Emerson orders over the next few years.
Speaker Change: We were recently awarded one such key win, Cedar LNG, a floating LNG facility in British Columbia.
Speaker Change: Peter LNG is a partnership between Pambina and the Hydla Nation and is being executed by a leading EPC, Black and Veatch.
Speaker Change: Emerson will provide our leading technology from across the automation stack including valves, instruments, control systems, and optimization software.
Emerson was selected, Durag demonstrated S-O-N-G expertise and global reach.
Please turn to slide 7.
Speaker Change: As we communicated last year, power is an area where we have seen strong orders growth as the fundamental opportunities in this sector continue to accelerate.
Speaker Change: As such, we are now classifying traditional power as a growth platform for Emerson.
Power and Renewables represented approximately 10% of sales in 2024.
Speaker Change: and Emerson is poised to capitalize on positive trends across the power landscape as global project investment continues to increase in response to rising electricity demand forecasts and grid complexity.
Speaker Change: Installed renewable capacity globally is expected to triple by 2030, taxing an aging grid developed for the runway flow of electrons.
Speaker Change: It is estimated that over $3 trillion of grid infrastructure investment is required by 2030 to support electrification and renewable energy.
Speaker Change: Utilities are also making large investments for incremental generating capacity through a mix of greenfield, brownfield, and modernization projects.
Speaker Change: Amerson has leading solutions across the technology stack to serve customer needs for power generation, transmission, and distribution, including our industry-leading ovation control systems.
Speaker Change: Our ovation control system technology currently automates around 1.8 terawatts or 20% of the electricity generated globally.
Speaker Change: including 50% of power generated in the U.S. and we also have a large install base in power across our instrument and valve portfolio.
Speaker Change: These projects include many types of generation and I want to highlight our strength in combined cycle gas plants
Speaker Change: Ovation automates 18 of the 20 largest combined cycle gas plants in the U.S. and approximately 100 nuclear reactors globally also use the Ovation technology.
Speaker Change: Our control valves were the first ever to receive ASME certification decades ago for use in nuclear facilities and have been installed in approximately 90% of the world's nuclear plants.
Speaker Change: Emerson has the most complete portfolio of nuclear-grade isolation, control, and safety valves, and has been serving customers in the nuclear power industry for decades.
with nuclear power sales of approximately $325 million last year.
Speaker Change: Emerson's expertise in intelligent devices for the nuclear power industry was critical to recently winning an award for the Sizewell C project in the UK.
Speaker Change: powering the equivalent of around 6 million homes for 60 years.
Please turn to slide 8.
Speaker Change: We are in a resilient capital cycle with a healthy strategic project funnel, and I'd like to walk through some updates to align with our current portfolio and market opportunities.
Speaker Change: As discussed on the prior chart, we are now reclassifying our traditional power funnel as a growth platform.
Speaker Change: Additionally, we have owned Tessa Measurement for a year and integrated into our processes, including how we pursue projects and manage the business.
Speaker Change: While semiconductor has been in a tough cycle, we see it as a driver of future growth supported by micro-trends such as near-shoring, advanced packaging, and the ubiquity of chips.
Speaker Change: We have included the large semiconductor project opportunities currently valued at 300 million dollars and are classifying it as a growth platform.
Speaker Change: Excluding Semiconductor, our funnel is $11.2 billion, consistent with last quarter, and up 7% year-over-year.
Speaker Change: Many verticals in the funnel were up double-digit year-over-year, led by life sciences, LNG, sustainability and decarbonization, nuclear, and traditional power.
Speaker Change: Combined with the approximately $400 million of project awards in the quarter that exited the funnel, this showcases a constructive environment in which customers continue to invest and advance projects.
I'll now turn the call over to Mike Baughman.
Mike Baughman: Thanks all and good morning everyone. Please turn to slide 9 to discuss our first quarter financial results.
Mike Baughman: We continue to see strong performance from our growth platforms, which were collectively up mid-single digits, led by industrial software, energy transition, which includes LNG, and life sciences.
Mike Baughman: Investment across greenfield, brownfield, and modernization projects continues at robust levels.
Price contributed 1.5 points to growth.
Mike Baughman: Underlying growth was up 4% in Asia and the Middle East and up 3% in the Americas.
Europe was down 2%.
Software and Control grew 4% while Intelligent Devices grew 2%.
Backlog increased slightly to $7.3 billion.
Mike Baughman: Sequentially and excluding FX, total backlog was up 4%, led by our process and hybrid businesses, which were up mid-single digits, while our discrete businesses were up low single digits.
Mike Baughman: Adjusted segment EBITDA margin improved 340 basis points to 28%, a record high.
Mike Baughman: Margin expansion was driven by favorable price and net material inflation, mix, the benefit of cost reductions, and synergy realization.
Mike Baughman: Operating leverage of 265% exceeded our guide due to outstanding profit performance and the effect of foreign exchange rates on margins.
Mike Baughman: Adjusted EPS grew 13% to $1.38 up 16 cents and is a strong start to the year.
Mike Baughman: I will discuss adjusted EPS in more depth on the next chart.
Mike Baughman: Lastly, free cash flow was $694 million, up 89% versus the prior year.
Mike Baughman: This strong performance was driven by higher earnings, improved working capital, and tailwinds from the prior year cash outflow of approximately $100 million for acquisition-related costs and integration activities.
Free cash flow margin for the quarter was approximately 17%.
Please turn to slide 10.
We delivered another exceptional quarter operationally in Q1.
Mike Baughman: Adjusted earnings per share increased 16 cents from the prior year due solely to operations.
Mike Baughman: Software and Control led the growth, contributing $0.09, and Intelligent Devices contributed $0.07.
Mike Baughman: Corporate and other items netted to zero as headwinds from stock comp and pension were offset by an FX tailwind from an unfavorable impact last year.
Overall, adjusted EPS grew 13% year-on-year to $1.38.
Mike Baughman: Please turn to slide 11 for details on our Q2 and full year 2025 guidance.
Mike Baughman: The sustained momentum in process and hybrid markets and our strong Q1 operational performance put us in a position to reiterate our full year 2025 guidance for underlying sales, adjusted EPS, and free cash flow.
Mike Baughman: Overall, we expect our process and hybrid businesses to grow mid-single digits for the year, supported by backlog and a resilient funnel.
Mike Baughman: We have lowered our full-year outlook for our discrete businesses to the low single-digit range.
Mike Baughman: Our discrete businesses have started the year slower than expected, but we expect a meaningful recovery against easier comps in the second half.
Mike Baughman: As Wal mentioned earlier, China demand has been muted, but we are looking to see growth in the second half as we are expecting recovery in chemical industry with power continuing to be strong in the region.
Mike Baughman: We are holding underlying sales at 3% to 5% but lowered gap net sales guidance to 1.5% to 3.5% due to a foreign exchange headwind of approximately $350 million as the U.S. dollar strengthened at the end of Q1.
Mike Baughman: This FX movement unfavorably impacted adjusted EPS approximately 8 cents which we have predominantly offset with our strong Q1 operational performance to hold our prior guidance of $5.85 to $6.05 per share.
Mike Baughman: We are increasing our expectations for 2025 operating leverage to the 70s versus the mid 40s guidance from November due to the operating performance in Q1 and the impact of FX on leverage.
Mike Baughman: We are reiterating our free cash flow guidance of $3.2 to $3.3 billion.
Mike Baughman: For the year, we expect to return approximately $3.2 billion to shareholders through dividends of approximately $1.2 billion and share repurchases of approximately $2 billion, of which we completed approximately $1 billion in the first quarter as planned.
Mike Baughman: In the second quarter, we expect underlying sales to be up one to two percent and FX to be unfavorable by approximately one and a half points.
Mike Baughman: Our growth reflects tough prior year comps for our process and hybrid businesses and continued softness in discrete.
Mike Baughman: However, discrete volumes are expected to be up sequentially and better on a year-over-year basis compared to the Q1 year-over-year change.
Mike Baughman: We expect adjusted segment EBITDA margin of approximately 26.5% and adjusted EPS between $1.38 and $1.42.
Mike Baughman: Consistent with November's guide, our current guidance includes safety and productivity and a 57% ownership of Aspen Tech.
Mike Baughman: We have provided the contribution of safety and productivity as a reference for investors to understand what an exit of this business could look like.
Mike Baughman: For the year, we continue to expect safety and productivity to contribute approximately $0.48 of adjusted EPS and approximately $200 million of free cash flow on flat underlying sales.
Mike Baughman: Regarding Aspen Tech, we are expecting $0.11 in our Q2 adjusted EPS guide and $0.44 to $0.46 for the year, also the same as communicated in November.
Finally, regarding the Aspen Tech transaction.
Mike Baughman: While the effect of the pending Aspen Tech transaction is not part of our adjusted EPS guidance today, if we had assumed a successful close in the first half of calendar 2025,
Mike Baughman: And with that, we will now turn the call back to the operator for Q&A.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
Speaker Change: The first question comes from Jeff Sprague from Vertical Research. Please go ahead.
Hey, thank you. Good morning, everyone.
Speaker Change: Law, thanks for the color on the geographic, and congrats on the anniversary. I didn't realize today was the day. Could you just be a little more specific on Mexico, maybe the size of your cogs down there, and what parts of your business are most highly exposed?
Oh, good morning, Jeff. Thank you.
Speaker Change: Good to hear you. Now, look, I think we feel very comfortable, obviously, with
Michael Baughman, Surendralal Karsanbhai, Michael Baughman, Surendralal Karsanbhai, Michael
Speaker Change: But I'm not going to go into the details on the cause, et cetera.
Speaker Change: And then on the discussion on discreet that that Mike went through
Speaker Change: Your commentary on discrete is collectively legacy Emerson discrete plus test and measurement Is there any distinction to be drawn between? What you're expecting, you know for the remainder of the year and in those two businesses in terms of their trajectory or other factors
Speaker Change: The color I gave really applies across both as we have exposure in all markets, obviously.
Speaker Change: Certainly, one or two-weighted one way or the other, strength in semiconductor in the quarter, which was encouraging to see, certain elements of MRO was stronger, and industrial applications of those products. The offset there, we're watching very carefully, is broader factory automation, and of course automotive.
Great, thank you.
Thank you.
Speaker Change: The next question comes from Steve Toussaint from J.P. Morgan. Please go ahead.
Hey, good morning.
Good morning, Steve.
Speaker Change: in the slides that it was a benefit to EPS of like four cents or something. Can you just explain what's going on there?
Mike Baughman: Yes, Steve, it's Mike. The benefit of four cents was largely some transactional effects that was in the prior year that didn't happen in the current year. So we had a number of losses.
Speaker Change: that didn't emerge. And again, that's not the translation of the P&L. That's just translating the non-functional balance sheet pieces. And that's the four cents that we're referencing. Okay, great. And then just one follow-up on the incrementals. I mean, like super strong.
Michael Baughman, Surendralal Karsanbhai
Speaker Change: Is there, did you guys have raw material, you know, deflation this quarter, or is that just a mixed impact? I mean, it was pretty much across the board. So just curious as to maybe a little bit more on the, on the bridge for, for the profits, whether that's.
Speaker Change: Yeah, I think we certainly had positive price, 1.5 points of positive price. We had favorable net material inflation, which is the deflation you referenced. We had strong mix.
Speaker Change: strong growth in Aspen Tech at good margins. So, the mix was in our favor. So, a lot of things went our way in the quarter as it relates to price cost, cost reductions and favorable mix to drive the incrementals that you saw.
Okay. Great.
Speaker Change: The next question comes from Andy Kappelutz from Citigroup. Please go ahead.
Good morning, everyone.
Speaker Change: and Signal to Digits. I know you reiterated that, but you know, confidence level on that.
Speaker Change: Certainly, we have not seen any abatement in the commitment of our customers.
their operations.
They seem to be working hand-in-hand.
Speaker Change: And that's based on commitments that have been made to shareholders and employees and communities. So, we'll continue to see that across the world. Further, the investments in power generation seem to be relatively balanced.
Speaker Change: We certainly think that nuclear will have a, we're in the beginnings of a renaissance on the nuclear space with not just the extension of life of plants, but the recommissioning of
that have been publicly announced so far.
Michael Baughman, Surendralal Karsanbhai, Michael Baughman, Surendralal Karsanbhai,
wind
Speaker Change: and Solar Investments, and of course, the promise of hydrogen continues to be out there with significant investments being made in the Middle East.
Thank you.
Speaker Change: Carefully, don't really have a sense today or concern about a slowdown in a sustainability funnel and would expect that to continue to be robust through the quarter.
Speaker Change: In terms of process and hybrid, yes, we continue to be optimistic based on what we see in the marketplace, not just driven by the capital but also by the modernization and certainly by the MRO.
Speaker Change: People percent of total revenue in a quarter continues to be a very significant driver of our business and the profitability in the business as well
and Ramanan Laxminarayan.
Speaker Change: Tell us a little, maybe a preview of your trip next week, like, in terms of geography, obviously you mentioned, you know, China's still a little slow, do you think China grows in 25? And, you know, if it doesn't, can you offset it, you know, for instance, with continued Middle East strength?
Speaker Change: That's exactly right. You know, we're down mid-single digits in China in the quarter. We do expect it to better towards the second half, but growth is something we're going to be watching carefully there.
Speaker Change: The strength really comes from two world areas, the Americas being one, driven by North America and the Middle East and Africa region, that's the press. And then I will say on a tertiary basis, India and other parts of Asia as well.
Well, I appreciate that.
Speaker Change: Yeah, no, I think on China, certainly the one segment that we're watching very carefully, which is a significant part of our sales mix, is bulk chemicals. But there are pockets of activity in power, in exports. Certainly we have a $20 billion installed base in China, we're driving that.
Speaker Change: But China overall, to your point, I think if we can drive to a flat year in China, I think that's what's baked into a plan, and as Lal said, the upside for us or where we have to really press hard is North America and the Middle East.
Appreciate the color, guys.
Thank you.
Speaker Change: The next question comes from Joe O'Day from Wells Fargo. Please go ahead.
Hi, good morning
Speaker Change: Wanted to spend a little bit more time on the margins. It sounds like price-cost was the biggest driver of the margin strength in the quarter, and so maybe just confirmation around that. And then, as well, how you think about that dynamic moving forward. Is that easing in any color on the cost component of it, is that market-based costs or more Emerson actions?
Speaker Change: Hey Joe, it's Mike. On price-cost, yes, it was a driver, as it consistently is for us.
Speaker Change: I would say this quarter cost reduction was actually a bigger driver. We did a lot of work last year.
Speaker Change: And I'm really glad we did that, given what we saw in FX and the...
Speaker Change: FX headwind that we're going to face in the back half.
Speaker Change: The other thing that we thought that Ron touched on was mixed.
and Michael Karsanbhai.
Speaker Change: the adjusted segment, EBITDA margin up quite a bit. Now, again, that impact in Q2 won't be quite as big.
Speaker Change: And then there was VFS that we touched on, which also drove.
Speaker Change: Actually, a full point of that, 340 basis points in the quarter.
Speaker Change: That we won't see. So it was a combination of all of those things. We'll continue to see cost reductions and price as we do every quarter.
That's great color.
Speaker Change: Well, I just wanted to touch on your comment about being in the final phase of portfolio transformation And you know how we think about that vis-a-vis sort of future M&A appetite you think about sort of post portfolio transformation that you know, we enter more of a bolt-on environment, but just
Speaker Change: Share repurchase where appropriate as we committed to and investing back into our businesses. We have a great portfolio
Speaker Change: and that's where the focus will be as we get through this transformation here, which is by the front house.
Thank you.
Thank you, Joe.
Speaker Change: The next question comes from Nigel Coe from Wolf Research. Please go ahead.
Nigel Coe: These are comps I get and that's very clear, but what about any sort of near-term KPIs you're tracking? I mean, obviously, you know, we're seeing some good news on ISM But are you seeing any, you know, kind of orders inflection or booked a bill Above one and anything to kind of, you know, kind of give you confidence that that's actually playing out
Nigel Coe: Semis for National Instruments on the test and measurement side, and also the broader business, the portfolio business, which is, again, representative of our customers, the broad-based 35,000 customers.
Michael Baughman, Surendralal Karsanbhai, Michael Baughman, Surendralal Karsanbhai,
Nigel Coe: The way the second half recovery for us will work is certainly sequential growth to the first half, which I think is built in at a pretty nominal rate to the plan, but certainly on a year-over-year basis, the second half comparisons given the second half of last year will be more promising. And so I think it's a...
Nigel Coe: Thoughtful plan as it relates to how we expect the markets to come back and the green shoots have certainly been semiconductors portfolio and North America in our discrete business.
Speaker Change: on new LNG permits. And then the pipeline, 75% North America is a stunning number. Does your wind rates vary across regions? I'm just thinking, do you have a stronger wind rate in North America?
Speaker Change: Global, and do you expect any sort of big oil inflection in the back half of the year? Thanks.
Investments paused.
Speaker Change: So, we saw the delay in place there, which resulted in a significantly lower amount of awards to EPCs in 2024, as I described.
In terms of the wind rate itself...
create an understanding and develop relationships.
and in North America.
Speaker Change: to ensure that we could be in a winning position. But our story is even stronger, to be very honest, if you look at Middle East and Africa.
Speaker Change: where the early projects existed in Qatar predominantly and so we feel really good globally and our teams that continue to operate and pursue in a very consistent fashion and win in a very consistent fashion around the world.
Okay. Thanks, guys.
Speaker Change: The next question comes from Brett Lindsey from Mizuho. Please go ahead.
Hey, good morning all.
Brett Lindsey: I wanted to come back to the power and renewables portion of the funnel. Pretty healthy contribution in the first quarter there on the project winds. Any context you can offer on the elongation of the sales cycle there or when these winds might begin to convert to the order backlog?
Brett Lindsey: particularly when you're talking about additional capacity. Those are long lead time projects that take time to work themselves through backlog. I will suggest, however, in our last round to add some color, that in the modernization
or capacity expansions, those go pretty quick.
Brett Lindsey: They're a little faster to bring online. So it really varies. When you're thinking about building a new combined cycle power plant, that's a five-year, six-year type of venture. Ron? Yeah. I think you said it. The modernization projects, which actually had a significant impact in Q1 orders performance for us in power, will go through faster in terms of conversion to sales.
Brett Lindsey: Certainly, the nuclear projects, which is a good portion of our funnel, as well as the combined cycle greenfield plants, take much longer to convert to sales.
Speaker Change: Okay, got it. And then just a follow-up on orders, so up 1% in the quarter, what are you assuming for order growth for the year as part of this operating framework on the sales side? And then any color on, you know, book-to-bill embedded as part of the planning assumptions?
Speaker Change: Yeah, but we don't forecast the orders publicly, so we're not going to comment on that.
Speaker Change: And we will see our typical seasonal book-to-bill with the first half being greater than one and the back half being under one. And for the full year, I'll tell you that we're expecting book-to-bill to be about one.
Yeah.
Okay, great. Appreciate the detail. Best of luck.
Speaker Change: The next question comes from Dean Dre from RBC Capital Markets. Please go ahead.
Scott Knopf
Scott Knopf: The good news is, Dean, you didn't miss anything. We didn't comment on January. I'm not going to comment on it. But, you know, beginning of the quarter, and we feel good about the guide we just put out there.
Okay. Um...
Scott Knopf: and some of the starts that are coming, we think, over the next 12 months.
Scott Knopf: On the project funnel, the areas where I think we are
Scott Knopf: certainly capitalize our two-fold LNG, which Lal described in very much of detail, and there's a big pipeline of new liquefaction capacity coming down the pipe, both in North America as well as in Qatar, where we're well-positioned, and then certainly the power industry. But across the board, activity in terms of chemical modernizations in North America,
life sciences, diabetes-driven drugs investments in the U.S. So there's.
Scott Knopf: If you take semiconductors out with 11.2 and up 7% year over year, it represents a pretty robust set of activities across a diversified set of industries we're pursuing.
Great, thank you.
Speaker Change: The next question comes from Sari Boroditsky from Jeffreys. Please go ahead.
Sari Boroditsky: Thanks for taking the question. You mentioned some of the costs and reactions you realize in the quarter is driving the margin. Could you just talk about how that plays out over the remainder of the year? I think you talked about some discretionary costs coming back starting in the second quarter, so maybe if we should expect a less of a benefit going forward. Thank you.
Sari Boroditsky: Well, yes, certainly compared to the first quarter, there will be a tempering of some of that cost reduction, but the cost reduction benefits will continue throughout the year.
Sari Boroditsky: I think the other thing that we touched on that's important to think about is gross margin in the first quarter was particularly high due to mix, and that will temper a bit as the year goes on as well.
Sari Boroditsky: So, I touched on the other drivers as you think about moving.
Sari Boroditsky: forward in comparing the first quarter to the rest of the year, particularly around FX, which was the one point in the quarter. But we will continue to drive cost reductions throughout the year, and that will be, you know, an uplift to the margin as we move forward.
Speaker Change: EBITDA margins at the segment level will change. We've modeled that into the year as well as dynamics around discretionary spend, which was throttled in the first quarter. Some of that, as Mike referenced, will come back. So that's how I would think about modeling.
Margins for the rest of the year.
Speaker Change: Great. And just a quick one on the discretionary commentary. You talked about factory automation and auto as markets you're watching. Just maybe comment on what you're seeing from both of those and how you expect those to potentially accelerate in the second half.
Speaker Change: And that's how it's modeled in for the rest of the year.
Thank you.
Speaker Change: The next question comes from Christopher Glenn from Oppenheimer. Please go ahead.
Speaker Change: competitive conversions. I think that's part of your story. A lot of end market focus today, but curious about wind rate trends as you leverage the combined technology portfolio across Emerson for competitive displacement, and any updates on any revenue model changes there in terms of
Speaker Change: you know, the install value versus recurring maintenance with the control system side of the business.
The install of base WIM and the MRO conversions, that's...
Speaker Change: We have traditionally operated in our control systems business both with Delta V Innovation. You know, I think the competitive displacements, particularly in our power business, continue. That's been a...
Speaker Change: strength of how we've driven differentiated growth in that space and certainly with Delta V as well, but we couldn't point to any significant change in the level of activity there. I think it's consistent with how we've performed in the past and we continue to gain momentum.
Speaker Change: Great, and then you talked a lot about margins on an overall Emerson level. I think in particular measurement and analytical and control systems and software, it's kind of, you know, new threshold levels of profitability and you know that doesn't get explained by, you know, Aspen Tech having a really strong quarter for Emerson's overall mix. So curious if you could talk a little bit about those couple segments, profitability.
Speaker Change: favorable closeouts of projects due to strong execution. And they also benefited quite a bit from the SG&A.
Speaker Change: very good gross margins, but consistent and benefited from the SG&A. And that was in part due to the work that was done last year to take some cost out of that cost base, and they had some discretionary as well. So that's what was going on with those two, and we're really pleased with the performance there.
Sounds great, thank you.
Speaker Change: This concludes our question and answer session and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.