Q3 2026 Emerson Electric Co Earnings Call

August 4, 2026

Operator: Good afternoon, and welcome to the Emerson Q3 and Full Year 2026 Earnings Conference Call. All participants will be in a listen-only mode. After today's prepared 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 your host, Doug Ashby, Director of Investor Relations at Emerson. Please go ahead.

Speaker #1: Good afternoon, and welcome to the EMERSON Q3 and FY 2026 earnings conference call. All participants will be in a listen-only mode. After today's prepared presentation, there will be an opportunity to ask questions.

Speaker #1: Please note, this event is being recorded. I would now like to turn the conference over to your host, Doug Ashby, Director of Investor Relations at EMERSON.

Speaker #1: Please go ahead.

Speaker #2: Good afternoon, and thank you for joining EMERSON's Q3 2026 earnings conference call. Today I'm joined by EMERSON's President and Chief Executive Officer, Laleh Karsanbhai, Chief Financial Officer, Mike Bachmann, and Chief Operating Officer, Ram Krishnan.

Doug Ashby: Good afternoon, and thank you for joining Emerson's Q3 2026 Earnings Conference Call. Today, I'm joined by Emerson's President and Chief Executive Officer, Lal Karsanbhai, Chief Financial Officer, Mike Baughman, and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to slide two. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks.

Speaker #2: As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty.

Speaker #2: Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to EMERSON's President and CEO, Laleh Karsanbhai, for his opening remarks.

Speaker #3: Thank you, Doug. Good afternoon, everyone. I'd like to begin by thanking my EMERSON colleagues around the world for delivering an outstanding quarter. We have created momentum in our business, built on customer intimacy, investment in innovation, and operational execution.

Lal Karsanbhai: Thank you, Doug. Good afternoon, everyone. I'd like to begin by thanking my Emerson colleagues around the world for delivering an outstanding quarter. We have created momentum in our business built on customer intimacy, investment in innovation, and operational execution. All a testament of the strength of the Emerson management system. Please turn to slide three. I would like to recognize our Chief Technology Officer, Peter Zornio, who will retire on 31 December following an exceptional career at Emerson. Peter joined Emerson in 2006 and played an instrumental role in the development of our industry-leading control systems and software portfolio. He has been a key member of the executive leadership team in our automation business since 2017 and played a pivotal role driving innovation as CTO during our portfolio transformation.

Speaker #3: All a testament of the strength of the EMERSON management system. Please turn to slide 3. I would like to recognize our Chief Technology Officer, Peter Zornio, who will retire on December 31, following an exceptional career at EMERSON.

Speaker #3: Peter joined Emerson in the development of our industry-leading control systems and software portfolio. He has been a key member of the executive leadership team in our automation business since 2017 and played a pivotal role driving innovation as CTO during our portfolio transformation.

Speaker #3: Thank you, Peter. For your contributions and friendship over the past 20 years, and please know it has been an honor working with you. I'm also excited to announce Huri Sengupta as our Senior Vice President and Chief Technology and AI Officer.

Lal Karsanbhai: Thank you, Peter, for your contributions and friendship over the past 20 years, and please know it has been an honor working with you. I'm also excited to announce Rudy Sengupta as our Senior Vice President and Chief Technology and AI Officer effective 15 August. This appointment reinforces Emerson's strategy to lead an AI-enabled automation, advancing the full technology stack, and helping customers achieve autonomous operations at scale. Rudy joined Emerson through the acquisition of NI and brings decades of experience in software-defined automation, spanning engineering, product, and corporate strategy and operations. Currently serving as Vice President and General Manager of Test and Analytics Software, Rudy has advanced NI software differentiation, including the development of award-winning Nigel AI.

Speaker #3: Effective August 15, this appointment reinforces Emerson's strategy to lead in AI-enabled automation, advancing the full technology stack and helping customers achieve autonomous operations at scale.

Speaker #3: Rudy joined EMERSON through the acquisition of NI and brings decades of experience in software-defined automation, spanning engineering, product, and corporate strategy and operations. Currently serving as Vice President and General Manager of Test and Analytics Software, Rudy has advanced NI's software differentiation including the development of award-winning Nigel AI.

Speaker #3: He brings a deep understanding of technology and AI, and his leadership of our enterprise AI vision and long-term technology roadmap will be key in accelerating innovation across EMERSON and positioning the company for continued growth.

Lal Karsanbhai: He brings a deep understanding of technology and AI. His leadership of our enterprise AI vision and long-term technology roadmap will be key in accelerating innovation across Emerson and positioning the company for continued growth. Please turn to slide four. End market demand is robust, supported by secular trends in our growth verticals and meaningful investment in automation. Underlying orders grew 7% in Q3, with broad-based growth across all business groups, led by Software and Systems, which was up 10%. Demand was strongest in North America and Asia. I'll discuss demand trends in more detail on the next slide. Emerson delivered an outstanding Q3, with sales, margin expansion, earnings, and cash all exceeding expectations. Underlying sales grew 6%, led by sustained momentum in Test & Measurement and in our Ovation business, both up 23%.

Speaker #3: Please turn to slide 4. End market demand is robust, supported by secular trends in our growth verticals and meaningful investment in automation. Underlying orders grew 7% in the third quarter, with broad-based growth across all business groups.

Speaker #3: Led by software and systems, which was up Demand was strongest in North America and Asia, and I'll discuss demand trends in more detail on the next slide.

Speaker #3: EMERSON delivered an outstanding third quarter with sales, margin expansion, earnings, and cash all exceeding expectations. Underlying sales grew 6%, led by sustained momentum in test and measurement, and in our ovation business, both up 23%.

Speaker #3: Overall, our growth verticals were up 27%, led by semiconductor and power, which both saw significant growth. Adjusted segment EBITDA margin expanded 140 basis points to 28.5%, and adjusted earnings per share grew 13% to $1.71, above the top of our guidance.

Lal Karsanbhai: Overall, our growth verticals were up 27%, led by semiconductor and power, which both saw significant growth. Adjusted segment EBITDA margin expanded 140 basis points to 28.5%. Adjusted EPS grew 13% to $1.71, above the top of our guidance. Annual contract value of our software grew 9% year over year and ended the quarter at $1.68 billion. While the situation in the Middle East remains dynamic, the resilient efforts by our teams and customers drove a better-than-expected performance in the quarter relative to our reduced expectations. The demand environment in the Middle East is constructive, with repair work underway. Our field service engineers are now operating at pre-conflict levels, but customer operational capacity remains approximately 75%. Large projects are moving forward. We are seeing new opportunities emerge across the energy chain to support energy security and resiliency in the region.

Speaker #3: Annual contract value of our software grew 9% year over year, and ended the quarter at $1.68 billion. While the situation in the Middle East remains dynamic, the resilient efforts by our teams and customers drove a better-than-expected performance in the quarter, relative to our reduced expectations.

Speaker #3: The demand environment in the Middle East is constructive, with repair work underway. Our field service engineers are now operating at pre-conflict levels, but customer operational capacity remains approximately 75%.

Speaker #3: Large projects are moving forward, and we are seeing new opportunities emerge across the energy chain to support energy security and resiliency in the region.

Speaker #3: EMERSON's customer relationships and strong local presence position us well to capture the near-term investment priorities: pipelines and alternative export routes to reduce dependence on the Strait of Hormuz.

Lal Karsanbhai: Emerson's customer relationships and strong local presence position us well to capture the near-term investment priorities, pipelines, and alternative export routes to reduce dependence on the Strait of Hormuz. The long-term capital outlook is robust. We remain confident in the growth potential of the Middle East. Lastly, the year is shaping up largely as expected, with a meaningful H2 step-up in organic growth and a slightly better Middle East than what we forecast in May. We are raising our full-year guidance, reflecting strong Q3 results and healthy demand trends. We are raising sales growth expectations to 5%, with underlying growth of 3.5%. Adjusted segment EBITDA margin is still expected to be approximately 28%. We are raising our adjusted EPS guide to $6.55.

Speaker #3: The long-term capital outlook is robust, and we remain confident in the growth potential of the Middle East. Lastly, the year is shaping up largely as expected.

Speaker #3: With a meaningful second-half step-up in organic growth and a slightly better Middle East than what we forecast in May. We are raising our four-year guidance, reflecting strong third-quarter results and a healthy demand trend.

Speaker #3: We are raising sales growth expectations to 5%, with underlying growth of 3.5%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising our adjusted EPS guide to $6.55.

Speaker #3: Through the third quarter, EMERSON completed 898 million dollars of share repurchases, and we remain committed to returning approximately 2.2 billion dollars of capital to shareholders this fiscal year.

Lal Karsanbhai: Through Q3, Emerson completed $898 million of share repurchases. We remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Please turn to slide five. Underlying orders grew 7% in Q3, with broad-based demand across the portfolio as customers are investing in automation to enhance productivity, reliability, and resilience in their operations. North America and Asia drove the growth, led by the continued strength in the US, India, Japan, and Southeast Asia. Demand in Europe and China remains soft but showed signs of improvement in the quarter. Test & Measurement orders growth of 19% exceeded expectations, with semiconductor up 70% and double-digit growth in aerospace and defense and the portfolio business. We are seeing a continuation of the unprecedented investment in power generation, with orders in our Ovation business up 31%.

Speaker #3: Please turn to slide 5. Underlying orders grew 7% in the third quarter. With broad-based demand across the portfolio as customers are investing in automation to enhance productivity, reliability, and resilience in their operations.

Speaker #3: North America and Asia drove the growth, led by the continued strength in the U.S., India, Japan, and Southeast Asia. Demand in Europe and China remains soft, but showed signs of improvement in the quarter.

Speaker #3: Test and measurement orders growth of 19% exceeded expectations, with semiconductor up 70% and double-digit growth in aerospace and defense and the portfolio business. We are seeing a continuation of the unprecedented investment in power generation, with orders in our ovation business up 31%.

Speaker #3: Electrification is also driving exceptional activity in grid modernization, and ACV in Aspentech's digital grid management suite was up 28%. Our project funnel grew 1.2 billion dollars to 12.4 billion dollars, up 8% year over year, secular tailwinds are supportive of sustained capital activity in our growth verticals, which were up 1 billion dollars sequentially.

Lal Karsanbhai: Electrification is also driving exceptional activity in grid modernization. ACV in AspenTech's Digital Grid Management suite was up 28%. Our project funnel grew $1.2 billion to $12.4 billion, up 8% year over year. Secular tailwinds are supportive of sustained capital activity in our growth verticals, which were up $1 billion sequentially. Power was up $450 million from Q2 and now accounts for $3 billion of the funnel. The power generation build-out is accelerating, with substantial demand for both utility and behind-the-meter power. The need for more stringent cybersecurity and critical infrastructure is also leading customers to accelerate retrofit and upgrade programs. The LNG funnel grew $350 million to $2.2 billion. We see resilient momentum across the Americas and the Middle East, reinforcing the demand trajectory we outlined at our Investor Day last November 2023. In Q3, Emerson won approximately $400 million from the funnel.

Speaker #3: Power was up 450 million dollars from the second quarter and now accounts for 3 billion dollars of the funnel. The power generation build-out is accelerating, with substantial demand for both utility and behind-the-meter power.

Speaker #3: The need for more stringent cybersecurity and critical infrastructure is also leading customers to accelerate retrofit and upgrade programs. The LNG funnel grew $350 million to $2.2 billion, and we see resilient momentum across the Americas and the Middle East, reinforcing the demand trajectory we outlined at our Investor Day last November.

Lal Karsanbhai: We see resilient momentum across the Americas and the Middle East, reinforcing the demand trajectory we outlined at our Investor Day last November 2023. In Q3, Emerson won approximately $400 million from the funnel. 80% came from our growth verticals. I want to highlight a few key wins. First, Emerson was selected to retrofit control systems for a 2.1 gigawatts power plant for CFE, Mexico's largest power producer and national utility. Emerson will deploy its industry-leading Ovation Control System, which was selected for our proven ability to execute complex retrofits within accelerated timelines. This modernization will enhance plant reliability and support CFE in meeting Mexico's growing power generation demand.

Speaker #3: In the third quarter, EMERSON won approximately 400 million dollars from the funnel. 80% came from our growth verticals, and I want to highlight a few key wins.

Lal Karsanbhai: 80% came from our growth verticals. I want to highlight a few key wins. First, Emerson was selected to retrofit control systems for a 2.1 gigawatts power plant for CFE, Mexico's largest power producer and national utility. Emerson will deploy its industry-leading Ovation Control System, which was selected for our proven ability to execute complex retrofits within accelerated timelines. This modernization will enhance plant reliability and support CFE in meeting Mexico's growing power generation demand. Next, Emerson was chosen by China Nuclear Power Engineering Co., Ltd., the design firm for the new Hualong One pressurized water reactor in Guangdong Province, which will add 2.4 gigawatts to China's nuclear installed base. Emerson will supply pressurizer pilot-operated safety valves, one of the most critical valve applications to ensure overpressure protection of the primary circuit. We were selected based upon our strong application expertise, nuclear qualifications, and our local presence and support.

Speaker #3: First, EMERSON was selected to retrofit control systems for a 2.1 gigawatt power plant for CFE Mexico's largest power producer and national utility. EMERSON will deploy its industry-leading ovation control systems, which was selected for our proven ability to execute complex retrofits within accelerated timelines.

Speaker #3: This modernization will enhance plant reliability and support CFE in meeting Mexico's growing power generation demand. Next, Emerson was chosen by China Nuclear Power Engineering Company.

Lal Karsanbhai: Next, Emerson was chosen by China Nuclear Power Engineering Co., Ltd., the design firm for the new Hualong One pressurized water reactor in Guangdong Province, which will add 2.4 gigawatts to China's nuclear installed base. Emerson will supply pressurizer pilot-operated safety valves, one of the most critical valve applications to ensure overpressure protection of the primary circuit. We were selected based upon our strong application expertise, nuclear qualifications, and our local presence and support. Lastly, Emerson will provide AI semiconductor test systems for a leading semiconductor manufacturer based in Taiwan. Emerson's solution improves test accuracy and consistency for critical components, ensuring a faster product roadmap to help the customer capture opportunities in the AI market. With that, I will now turn the call over to Mike Baughman to discuss our financial results and guidance in more detail.

Speaker #3: The design firm for the new Hualong-1 pressurized water reactor in Guangdong Province, which will add 2.4 gigawatts to China's nuclear installed base. Emerson will supply pressurizer pilot-operated safety valves, one of the most critical valve applications, to ensure overpressure protection of the primary circuit.

Speaker #3: We were selected based upon our strong application expertise, nuclear qualifications, and our local presence and support. Lastly, Emerson will provide NI semiconductor test systems for a leading semiconductor manufacturer based in Taiwan.

Lal Karsanbhai: Lastly, Emerson will provide AI semiconductor test systems for a leading semiconductor manufacturer based in Taiwan. Emerson's solution improves test accuracy and consistency for critical components, ensuring a faster product roadmap to help the customer capture opportunities in the AI market. With that, I will now turn the call over to Mike Baughman to discuss our financial results and guidance in more detail.

Speaker #3: EMERSON's solution improves test accuracy and consistency for critical components, ensuring a faster product opportunities in the AI market. With that, I will now turn the call over to Mike Bachmann to discuss our financial results and guidance in more detail.

Speaker #2: Thanks, Lal. Please turn to slide 6 for a more in-depth look at our financial results. Q3 underlying sales growth was 6%. Each of our business groups exceeded expectations, led by software and systems up 11%.

Mike Baughman: Thanks, Lal. Please turn to Slide Six for a more in-depth look at our financial results. Q3 underlying sales growth was 6%. Each of our business groups exceeded expectations, led by Software and Systems, up 11%. I will provide more details on geographic and group performance on the next two slides. Price contributed three points to growth. MRO was 65% of sales. Backlog ended the quarter at $8.2 billion, up 7% year over year. Our book-to-bill was one. Adjusted segment EBITDA margins of 28.5% were up by 140 basis points. Margin expansion exceeded expectations due to better volume than expected and favorable segment mix. Price cost and cost reductions more than offset inflation. Adjusted earnings per share was $1.71, up 13% year over year. Operations contributed the full $0.19 increase, reflecting outstanding performance.

Speaker #2: I will provide more details on geographic and group performance on the next two slides. Price contributed 3 points to growth, and MRO was 65% of sales.

Speaker #2: Backlog ended the quarter at 8.2 billion dollars, up 7% year over year, and our book-to-bill was 1. Adjusted segment EBITDA margins of 28.5% were up by 140 basis points.

Speaker #2: Margin expansion exceeded expectations due to better volume than expected, and favorable segment mix. Price cost and cost reductions more than offset inflation. Adjusted earnings per share was $1.71, up 13% year over year.

Speaker #2: Operations contributed the full 19 cent increase, reflecting outstanding performance. Q3 free cash flow of 1.3 billion dollars was up 36% and at a margin of 27.1%.

Mike Baughman: Q3 free cash flow of $1.3 billion was up 36% and at a margin of 27.1%. Cash exceeded expectations due to good operational performance, along with the impact of tariff refunds and the timing of tax payments, which shifted from Q3 to Q4. Year to date, free cash flow is up 9% with a margin of 19%. Please turn to Slide Seven for details on Q3 underlying sales by region. The Americas were up 8%, with the US up 10%. We saw a very healthy pace of business in the US, with Software and Systems up 14% and Intelligent Devices up 9%. Asia, Middle East, and Africa was also up 8%, led by the Middle East and Africa, up 11%. As Lal mentioned, a great performance by our teams in the Middle East resulted in a revenue impact that was better than our revised expectations coming into the quarter.

Speaker #2: Cash exceeded expectations due to good operational performance, along with the impact of tariff refunds and the timing of tax payments, which shifted from Q3 to Q4.

Speaker #2: Year to date, free cash flow is up 9%, with a margin of 19%. Please turn to slide 7 for details on Q3 underlying sales by region.

Speaker #2: The Americas were up 8%, with the US up 10%. We saw a very healthy pace of business in the US, with Software and Systems up 14% and Intelligent Devices up 9%.

Speaker #2: Asia, Middle East, and Africa was also up 8%, led by the Middle East and Africa, up 11%. As Lal mentioned, a great performance by our teams in the Middle East resulted in a revenue impact that was better than our revised expectations coming into the quarter.

Mike Baughman: As Lal mentioned, a great performance by our teams in the Middle East resulted in a revenue impact that was better than our revised expectations coming into the quarter. Overall, the impact in Q3 was about a $25 million headwind compared to our February guidance, and we expect the Q4 impact to be similar as supply chains remain complex. China improved to down 3% year over year, which was in line with our model. Europe remained soft as expected and declined 1%. Globally, our growth verticals continue to be meaningful drivers of performance, and we were up 27% in the quarter. Growth was very strong in semiconductor, which was up 53%, and power, which was up 37%.

Speaker #2: Overall, the impact in Q3 was about a 25 million dollar headwind compared to our February guidance, and we expect the Q4 impact to be similar, as supply chains remain complex.

Mike Baughman: Overall, the impact in Q3 was about a $25 million headwind compared to our February guidance, and we expect the Q4 impact to be similar as supply chains remain complex. China improved to down 3% year over year, which was in line with our model. Europe remained soft as expected and declined 1%. Globally, our growth verticals continue to be meaningful drivers of performance, and we were up 27% in the quarter. Growth was very strong in semiconductor, which was up 53%, and power, which was up 37%. Please turn to Slide Eight for details on the Q3 underlying sales and margin performance for our three business groups. Software and Systems grew 11% underlying, with robust growth at Test & Measurement, up 23%, and Control Systems & Software, which was up 7%. We saw significant Software and Systems growth in power, semiconductor, and aerospace and defense.

Speaker #2: China improved to down 3% year over year, which was in line with our model. Europe remained soft as expected and declined 1%. Globally, our growth verticals continued to be meaningful drivers of performance, and we were up 27% in the quarter.

Speaker #2: Growth was very strong in Semiconductor, which was up 53%, and in Power, which was up 37%. Please turn to slide 8 for details on the third quarter underlying sales and margin performance for our three business groups.

Mike Baughman: Please turn to Slide Eight for details on the Q3 underlying sales and margin performance for our three business groups. Software and Systems grew 11% underlying, with robust growth at Test & Measurement, up 23%, and Control Systems & Software, which was up 7%. We saw significant Software and Systems growth in power, semiconductor, and aerospace and defense.

Speaker #2: Software and systems grew 11% underlying, with robust growth at Test and Measurement, up 23%, and Control Systems and Software, which was up 7%. We saw significant software and systems growth in Power, Semiconductor, and Aerospace and Defense.

Speaker #2: Software and systems margin of 31.8% decreased 30 basis points year over year, compared to a very strong performance last year. The current year margin included a drag of 1.5 points due primarily to the software contract renewal dynamic and a higher mix of lower margin projects.

Mike Baughman: Software and Systems margin of 31.8% decreased 30 basis points year over year, compared to a very strong performance last year. The current year margin included a drag of one and a half points, due primarily to the software contract renewal dynamic and a higher mix of lower-margin projects. Intelligent Devices underlying sales were up 5%, better than expected, due to our performance in the Middle East and the timing of project shipments and sensors. We saw consistent strength in power and LNG, as well as solid growth in midstream gas and chemical. Intelligent Devices margins of 27.9% increased 240 basis points year-over-year from volume leverage, price cost, and cost reductions. Safety & Productivity was up 2% underlying, driven by electrical products and industrial activity in North America. European and automotive markets remain soft.

Speaker #2: Intelligent Devices underlying sales were up 5%, better than expected, due to our performance in the Middle East and the timing of project shipments and sensors.

Speaker #2: We saw consistent strength in power and LNG, as well as solid growth in midstream gas and chemical. Intelligent devices margins of 27.9% increased 240 basis points year over year, from volume leverage price cost and cost reductions.

Speaker #2: Safety and productivity was up 2% underlying, driven by electrical products and industrial activity in North America. European and automotive markets remained soft. Safety and productivity's margin of 21.2% was up 80 basis points year over year, driven by disciplined price cost and cost reductions, offset by lower volume and inflation.

Mike Baughman: Safety & Productivity's margin of 21.2% was up 80 basis points year-over-year, driven by disciplined price cost and cost reductions, offset by lower volume and inflation. Please turn to slide nine for our 2026 underlying sales guidance by business group. We expect Software and Systems to be up approximately 10% in Q4, with both Test & Measurement and Control Systems & Software expected to grow 10%. We are increasing our full year expectations for Software and Systems to up 6% based on the strength of our growth verticals in this business and strength in the US. We are raising full year growth guidance for Test & Measurement, now 14%, and Control Systems & Software, now 3.5%, including approximately three points of headwind from software renewals. ACV continues to grow on plan, and we still expect ACV growth of 10% plus in 2026.

Speaker #2: Please turn to slide 9 for our 2026 underlying sales guidance by business group. We expect software and systems to be up approximately 10% in Q4, with both test and measurement and control systems and software expected to grow 10%.

Speaker #2: We are increasing our full-year expectations for Software and Systems to up 6%, based on the strength of our growth verticals in this business and strength in the U.S.

Speaker #2: We are raising full-year growth guidance for Test and Measurement, now 14%, and Control Systems at 3.5%, including approximately 3 points of headwind from software renewals.

Speaker #2: ACB continues to grow on plan, and we still expect ACB growth of 10% plus in 2026. Intelligent devices is projected to grow 3% in Q4 and 2% for the full year.

Mike Baughman: ACV continues to grow on plan, and we still expect ACV growth of 10% plus in 2026. Intelligent Devices is projected to grow 3% in Q4 and 2% for the full year. Growth in Intelligent Devices is supported by stable MRO, with strength in the US and growth verticals. We are modeling an approximately $100 million full year 2026 impact from the conflict in the Middle East, as the Strait of Hormuz remains effectively closed. Safety & Productivity is expected to grow 1% in Q4 and 2% for the full year. The North America market continues to recover, and we are seeing sustained strength in electric utilities. However, automotive and European markets remain weak. Overall, Emerson expects to grow approximately 5% in Q4 and 3.5% for the full year.

Mike Baughman: Intelligent Devices is projected to grow 3% in Q4 and 2% for the full year. Growth in Intelligent Devices is supported by stable MRO, with strength in the US and growth verticals. We are modeling an approximately $100 million full year 2026 impact from the conflict in the Middle East, as the Strait of Hormuz remains effectively closed. Safety & Productivity is expected to grow 1% in Q4 and 2% for the full year. The North America market continues to recover, and we are seeing sustained strength in electric utilities. However, automotive and European markets remain weak. Overall, Emerson expects to grow approximately 5% in Q4 and 3.5% for the full year. Please turn to slide 10 for details on our full year and Q4 2026 guidance. We are raising full year guidance for sales, EPS, and cash flow.

Speaker #2: Growth in intelligent devices is supported by stable MRO, with strength in the US and growth verticals. We are modeling an approximately 100 million dollar full year 2026 impact from the conflict in the Middle East, as the Strait of Hormuz remains effectively closed.

Speaker #2: Safety and productivity are expected to grow 1% in Q4 and 2% for the full year. The North America market continues to recover, and we are seeing sustained strength in electric utilities.

Speaker #2: However, automotive and European markets remain weak. Overall, EMERSON expects to grow approximately 5% in Q4 and 3.5% for the full year. Please turn to slide 10 for details on our full year and Q4 2026 guidance.

Mike Baughman: Please turn to slide 10 for details on our full year and Q4 2026 guidance. We are raising full year guidance for sales, EPS, and cash flow. For the full year, we expect 5% GAAP sales growth and 3.5% underlying sales growth. We still expect adjusted segment EBITDA margin of 28%. We are guiding 2026 adjusted EPS of approximately $6.55 and free cash flow of approximately $3.6 billion. There are no changes to our planned return of approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase. Moving to the Q4, sales growth is expected to be approximately 5% with minimal impact from FX.

Speaker #2: We are raising full year guidance for sales EPS and cash flow. For the full year, we expect 5% gap sales growth and 3.5% underlying sales growth.

Mike Baughman: For the full year, we expect 5% GAAP sales growth and 3.5% underlying sales growth. We still expect adjusted segment EBITDA margin of 28%. We are guiding 2026 adjusted EPS of approximately $6.55 and free cash flow of approximately $3.6 billion. There are no changes to our planned return of approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase. Moving to the Q4, sales growth is expected to be approximately 5% with minimal impact from FX. We expect adjusted segment EBITDA margin of 28.5% and adjusted EPS of approximately $1.85. Overall, the full year is unfolding largely as we expected, and underlying orders growth of 7% for the first 9 months reflects stable MRO activity and the secular tailwinds driving long-cycle capital projects.

Speaker #2: We still expect adjusted segment EBITDA margin of 28%. We are guiding 2026 adjusted EPS of approximately $6.55 and free cash flow of approximately $3.6 billion.

Speaker #2: There are no changes to our planned return of approximately 2.2 billion dollars to shareholders through 1.2 billion dollars in dividends and 1 billion dollars of share repurchase.

Speaker #2: Moving to the fourth quarter, sales growth is expected to be approximately 5%, with minimal impact from FX. We expect adjusted segment EBITDA margin of 28.5% and adjusted EPS of approximately $1.85.

Mike Baughman: We expect adjusted segment EBITDA margin of 28.5% and adjusted EPS of approximately $1.85. Overall, the full year is unfolding largely as we expected, and underlying orders growth of 7% for the first 9 months reflects stable MRO activity and the secular tailwinds driving long-cycle capital projects. A stronger than expected growth in the US has offset a slightly weaker China, and we have minimized the effects of the Middle East conflict to approximately half a point of revenue. Our H2 underlying sales growth is accelerating as we lap the software contract renewal dynamic and execute project shipments from our backlog, which continues to grow year-over-year. With that, I would like to turn the call back to Alexandra for Q&A.

Speaker #2: Overall, the full year is unfolding largely as we expected, and underlying orders growth of 7% for the first nine months reflects stable MRO activity and the secular tailwinds driving long cycle capital projects.

Speaker #2: A stronger-than-expected growth in the US has offset a slightly weaker China, and we have minimized the effects of the Middle East conflict to approximately half a point of revenue.

Mike Baughman: A stronger than expected growth in the US has offset a slightly weaker China, and we have minimized the effects of the Middle East conflict to approximately half a point of revenue. Our H2 underlying sales growth is accelerating as we lap the software contract renewal dynamic and execute project shipments from our backlog, which continues to grow year-over-year. With that, I would like to turn the call back to Alexandra for Q&A.

Speaker #2: Our second-half underlying sales growth is accelerating as we lap the software contract renewal dynamic and backlog, which continues to grow year over year.

Speaker #2: With that, I would like to turn the call back to Alexandra for Q&A.

Speaker #1: We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Deane Dray with RBC Capital Markets. Your line is now open. Please go ahead.

Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Dean Dre with RBC Capital Markets.

Speaker #1: Your line is now open. Please go ahead.

Speaker #3: Thank you. Good afternoon, everyone.

Deane Dray: Thank you. Good afternoon, everyone.

Speaker #4: Hi, Dean. Good afternoon.

Mike Baughman: Hi, Deane. Good afternoon.

Speaker #3: Afternoon. Hey, I think I got the numbers right there, as Mike was zipping through them. But it really sounded like semiconductor and power at 53 and 37 percent were really standouts here.

Deane Dray: Afternoon. Hey, I think I got the numbers right there as Mike was zipping through them, but it really sounded like semiconductor and Power at 53% and 37% were really standouts here. Can you unpack the growth opportunity? How much do you think was the underlying market? Are there any share gains going on as well, new product contributions? That type of color, please.

Speaker #3: Can you unpack the growth opportunity? How much do you think was the underlying market? And are there any share gains going on as well?

Speaker #3: New product contributions, that type of color, please.

Speaker #4: Yeah. Hey, Dean, this is Rom here. Certainly, the end power, as you know, is very, very strong. But I will contend that certainly in power, both on the generation side with Ovation, with fleet modernizations, but also behind-the-meter opportunities, driven by data centers and new capacity adds in North America, there are significant penetration gains or participation gains we're driving.

Ram Krishnan: Yeah. Hey, Deane. This is Ram here. Certainly, the underlying market in both semis and Power, as you know, is very strong. I will contend that certainly in Power, both on the generation side with Ovation, with fleet modernizations, but also behind the meter opportunities driven by data centers and new capacity adds in North America, there is significant penetration gains or participation gains we're driving. Similarly, with our DGM business, our Digital Grid Management business on the software side with AspenTech. A combination of a strong market, but participation gains, and I would venture to say maybe to a lesser extent in Test & Measurement, but a very strong market in RF and mixed signal, and participation gains with new products in both spaces.

Speaker #4: And similarly, with our DGM business—our Digital Grid Management business—on the software side with AspenTech. So, a combination of a strong market but also participation gains.

Speaker #4: And I would venture to say, maybe to a lesser extent in test and measurement, but a very, very strong market in RF and mixed signal.

Speaker #4: And participation gains with new products in both spaces.

Speaker #3: Great. And then just as a follow-up, and Lyle, your comments about increasing focus on cybersecurity and critical infrastructure. I mean, that was in the news this week with all of the cyber hacks across the water sector.

Deane Dray: Great. Then just as a follow-up, Lal, your comments about increasing focus on cybersecurity and critical infrastructure, that was in the news this week with all of the cyber hacks across the water sector, a number of facilities, especially in Michigan. Now, I know that's not a big focus for Emerson, but you do have a presence there, and this idea here that cybersecurity is a focus. How do you think this plays out? Is this a place for future investment for Emerson? What kind of opportunity do you see? Thanks.

Speaker #3: A number of facilities, especially in Michigan. Now, I know that's not a big focus for Emerson, but you do have a presence there. And this idea here that cybersecurity is a focus—how do you think this plays out?

Speaker #3: Is this a place for future investment for EMERSON? What kind of opportunity do you see? Thanks.

Lal Karsanbhai: No. Thanks, Deane. Just first of all, yes, we're very aware of the facilities that were impacted. None of those facilities had an Emerson or an Ovation Control System in them. That's first and foremost. Secondly, cybersecurity spend has been a significant driver of upgrades in control systems, both in power generation and in water systems. We continue to see that, Deane, as a significant driver on a forward basis, particularly with these attacks and other vulnerabilities that are in life. Feel good about the offering that we have and the various standards that we bring to market, but a very important part of the business, for sure.

Speaker #4: No, thanks, Dean. So just, first of all, yes, we're very aware that the facilities that were impacted—none of those facilities had an Emerson or an Ovation control system.

Speaker #4: In them, so that's first and foremost. Secondly, cybersecurity spend has been a significant driver of upgrades in control systems, both in power generation and in water systems.

Speaker #4: And we continue to see that, Dean, as a significant driver on a forward basis. Particularly with these attacks and other vulnerabilities that are in light.

Speaker #4: So, we feel good about the offering that we have and the various standards that we bring to market. But it's a very important part of the business, for sure.

Speaker #3: Great. Thank you. And congrats on the quarter.

Deane Dray: Great. Thank you, and congrats on the quarter.

Speaker #4: Thanks, Dean.

Lal Karsanbhai: Thanks, Deane.

Speaker #1: Your next question comes from the line of Jeff Sprague with Vertical Research. Your line is now open; please go ahead.

Operator: Your next question comes from the line of Jeff Sprague with Vertical Research. Your line is now open. Please go ahead.

Speaker #5: Hey, thank you. Good afternoon, everyone. The funnel movement is quite intriguing. Obviously, you gave some anecdotal color on the growth in LNG and power in the funnel.

Jeff Sprague: Hey, thanks. Good afternoon, everyone. The funnel movement is quite intriguing, obviously. You gave some anecdotal color of the growth in LNG and power in the funnel. Just also wondering, is this even increasingly long-dated sort of project activity? In other words, kind of conversion of funnel to proposal to order. Anything changing there of note?

Speaker #5: Just also wondering, is this even increasingly long-dated sort of project activity? In other words, kind of conversion of funnel to proposal to order. Anything changing there?

Speaker #5: No?

Speaker #4: No, not really. Look, we continue to see about the same level of awards in the quarter. If you recall, we won approximately 400 million dollars.

Lal Karsanbhai: No, not really. Look, we continue to see about the same level of awards in the quarter. If you recall, we won approximately $400 million. That's very similar to the amount that we reported in Q2 as well. The timing on financing and awards continues to move relatively consistently over time. What we're seeing is just a very significant increase in the number of projects and the value of projects particularly, well, I'd suggest across all the growth fact verticals, but certainly in liquefied natural gas, which was up 19%, and in power. Now we have almost 1,000 projects, individual projects, in the funnel across those two markets alone. Continue to see good conversion there. Again, as you know, Jeff, we don't look at this is not a 10-year funnel. This is a relatively three to four-year view.

Speaker #4: That's very similar to the amount that we reported in the second quarter as well. So the timing on financing and awards continues to move relatively consistently.

Speaker #4: Over time, what we're seeing is just a very significant increase in the number of projects and the value of projects, particularly—well, I'd suggest across all the growth verticals, but certainly in liquefied natural gas, which was up 19 percent, and in Power.

Speaker #4: And now we have almost 1,000 individual projects in the funnel across those two markets alone. So we continue to see good conversion there. And again, as you know, Jeff, we don't look at this—this is not a 10-year funnel.

Speaker #4: This is a relatively three- to four-year view, and we do work it very, very actively in the quarter.

Lal Karsanbhai: We do work it very actively in the quarter.

Speaker #5: Great. And then, unrelated, maybe pivoting to Mike—just a little bit of an update on where we're at on price/cost at this point. Three percent price looked pretty healthy in the quarter.

Jeff Sprague: Great. Unrelated, maybe pivoting to Mike, just a little bit of update on where we're at on price cost at this point, 3% price looked pretty healthy in the quarter. Are you sort of quote unquote "green" on price cost? Just any tariff update there, refunds you may have gotten in the quarter or expectations in the current quarter for anything on the refund front?

Speaker #5: Are you sort of, quote-unquote, "green" on price cost? And just any tariff update there, refunds you may have gotten in the quarter or expectations in the current quarter for anything on the refund front?

Speaker #4: Yeah. Price cost certainly remains green for us. And if we tracking to about 2 and a half percent price for the year. That's still the case.

Mike Baughman: Yeah. Price cost certainly remains green for us. If we look to the full year, we were tracking to about 2.5% price for the year. That's still the case, might catch a round and be at 3%, but we continue to see good price and managing the inflation, which we certainly have seen. I think as we head into the Q4 here, we will be lapsing all of the tariff pricing. We did have a little bit of tariff pricing in Q3, but the majority was just our annual and spot prices that we do through the year. Price has been strong, and we're green on price cost. Relative to tariffs, we got $82 million in the quarter. We continue to file some claims.

Lal Karsanbhai: Yeah. Price cost certainly remains green for us. If we look to the full year, we were tracking to about 2.5% price for the year. That's still the case, might catch a round and be at 3%, but we continue to see good price and managing the inflation, which we certainly have seen. I think as we head into the Q4 here, we will be lapsing all of the tariff pricing. We did have a little bit of tariff pricing in Q3, but the majority was just our annual and spot prices that we do through the year. Price has been strong, and we're green on price cost. Relative to tariffs, we got $82 million in the quarter. We continue to file some claims.

Speaker #4: Mike catch around and be at 3 percent. But we continue to see good price and managing the inflation, which we certainly have seen I think as we head into the fourth quarter here, we will be lapsing all of the tariff pricing.

Speaker #4: So we did have a little bit of tariff pricing in Q3, but the majority was just our annual and spot prices that we do through the year.

Speaker #4: So yeah. So price has been strong. And we're green on price cost. Relatives to tariffs, we got 82 million dollars in the quarter. We continue to file some claims, just a reminder that we are accounting for those on a cash basis as we get them.

Mike Baughman: Just a reminder that we are accounting for those on a cash basis as we get them, and we report them in cost of sales. The margin, certainly on a GAAP basis, improved in the quarter due to that $82 million that we saw. Yes, that was certainly part of the cash flow performance in the quarter as well, the receipt of $82 million of refunds.

Lal Karsanbhai: Just a reminder that we are accounting for those on a cash basis as we get them, and we report them in cost of sales. The margin, certainly on a GAAP basis, improved in the quarter due to that $82 million that we saw. Yes, that was certainly part of the cash flow performance in the quarter as well, the receipt of $82 million of refunds.

Speaker #4: And we report them in cost of sales. So the margin certainly on a gap basis improved. In the quarter due to that 82 million dollars that we saw.

Speaker #4: So, yes. And that was certainly part of the cash flow performance in the quarter as well—the receipt of $82 million of refunds.

Speaker #5: And even with that $82, do you have net cost headwinds related to other tariffs or other changes? Or should we think of it as some drop through to margins on that?

Jeff Sprague: Even with that $82 million, do you have net cost headwinds related to other tariffs or other changes, or we should think of you have some drop through the margins on that?

Speaker #4: Well, that was taken out of our adjustment, so it's been removed. And the tariff landscape has obviously been changing. Some tariffs have come off.

Mike Baughman: Well, that was taken out of our adjustment, so it's been removed.

Lal Karsanbhai: Well, that was taken out of our adjustment, so it's been removed.

Jeff Sprague: Okay.

Mike Baughman: The tariff landscape has obviously been changing. Some tariffs have come off, some tariffs.

Lal Karsanbhai: The tariff landscape has obviously been changing. Some tariffs have come off, some tariffs. Have come on. When we look at the year, we certainly got a net benefit that was largely eaten up by other inflation that was above and beyond the model that we had when we started the year. A little bit of a tailwind to the bottom line, which was what we talked about and expected last quarter. Pretty much tracking the way we expected.

Speaker #4: Some tariffs have come on. When we look at the year, we certainly got a net benefit that was largely eaten up by other inflation that was above and beyond the model that we had when we started the year.

Lal Karsanbhai: Have come on. When we look at the year, we certainly got a net benefit that was largely eaten up by other inflation that was above and beyond the model that we had when we started the year. A little bit of a tailwind to the bottom line, which was what we talked about and expected last quarter. Pretty much tracking the way we expected.

Speaker #4: So, a little bit of a tailwind to the bottom line, which was what we talked about and expected last quarter. So, pretty much tracking the way we expected.

Speaker #5: Great. Thank you.

Ram Krishnan: Great. Thank you.

Jeff Sprague: Great. Thank you.

Speaker #1: Your next question comes from the line of Scott Davis with Melius Research. Your line is now open; please go ahead.

Operator: Your next question comes from the line of Scott Davis with Melius Research. Your line is now open, please go ahead.

Speaker #6: Hey. Good afternoon, guys.

Scott Davis: Hey, good afternoon, guys.

Speaker #5: Hello.

Lal Karsanbhai: Hello.

Speaker #6: The Ovation orders, I think you said up 31 percent—I think you said, Mike, up 31 percent. But what kind of lead times are you looking at now?

Scott Davis: The Ovation orders, I think you said, Mike, up 31%. What kind of lead times are you looking at now? Are you taking orders well into, I would imagine, well into maybe even the back half of 2027 at this point?

Speaker #6: Are you taking orders well into I would imagine well into maybe even the back half of '27?

Speaker #5: Yes.

Speaker #6: At this point? That's exactly right, Scott. We're sitting in the fourth quarter of '27, reaching into '28 at this point. Oh, jeez. Wow. Okay.

Lal Karsanbhai: That's exactly right, Scott. We're sitting in the Q4 of 2027, reaching into 2028 at this point.

Mike Baughman: That's exactly right, Scott. We're sitting in the Q4 of 2027, reaching into 2028 at this point.

Scott Davis: Of 2020. Geez, wow, okay. Fantastic. I'd call that high visibility, I suppose. Anyways, I think Mike said something positive about chemicals, and I haven't heard a positive thing said about chemicals in a lot of years. Have we turned a corner there, or it's just a little bit of a blip, and chemicals could actually be somewhat helpful to you guys the next couple of years?

Speaker #6: Fantastic. I'd call that high visibility, I suppose. Anyway, I think Mike said something positive about chemicals, and I haven't heard a positive thing said about chemicals in a lot of years.

Speaker #6: So have we turned a corner there, or is it just a little bit of a blip? Could chemicals actually be somewhat helpful to you guys over the next couple of years?

Speaker #4: Yeah. The chemical comment was specific to intelligent devices. And it was a bit of a change in the quarter. And it was up. And that was largely in the final control business.

Lal Karsanbhai: Yeah, the chemical comment was specific to Intelligent Devices. It was a bit of a change in the quarter, and it was up, and that was largely in the final control business. We still have slow chemical markets in China and Europe, but the US and Middle East is doing very well. It was up in the quarter. We did want to make that comment, and it was particularly up in the final control business.

Speaker #4: We still have slow chemical markets in China and Europe. But the United States and Middle East are doing very well, so it was up in the quarter.

Speaker #4: We did want to make that comment. And it was particularly up in the final control business.

Speaker #6: Okay. I'll pass it on. Best of luck, guys. Thank you.

Scott Davis: Okay. I'll pass it on. Best of luck, guys. Thank you.

Speaker #1: Your next question comes from the line of Andrew Obin with Bank of America. Your line is now open; please go ahead.

Operator: Your next question comes from the line of Andrew Obin with Bank of America. Your line is now open, please go ahead.

Speaker #7: Yeah. Thanks so much. Yeah. It's remarkable that turns out companies can exclude IEPA refunds from their numbers. Sorry. Sorry about this quip. Anyway, but thank you for taking more conservative approach.

Andrew Obin: Thanks so much. It's remarkable that turns out companies can exclude IEEPA refunds from their numbers. Sorry about this quip. Thank you for taking a more conservative approach. Just a question on Middle East. I think you said repair construction's underway, $25 million headwind in Q3, Q4 to be similar. The question is, Middle East rebuild opportunity is larger today and starting, but still a net drag in Q4. Does it flip to tailwind in Q1 2027?

Speaker #7: Look, just a question on Middle East. I think you said repair construction's underway. 25 million headwind in third quarter. Fourth quarter to be similar.

Speaker #7: So the question is so Middle East rebuild opportunity is larger today and starting but still in a drag in fourth quarter. Does it flip to tailwind in the first quarter of '27?

Speaker #4: You know, it's a good question. Really, in the status quo, in terms of an on-off situation in the Strait of Hormuz, challenges with getting product out of the Gulf—I think that's going to continue to be touch and go.

Lal Karsanbhai: It's a good question. In the status quo, in terms of an on/off situation, the Strait of Hormuz challenges with getting product out of the Gulf, I think that's going to continue to be touch and go. Maybe conditions improve and that gets a little bit better for us as we go through H2 2027. Right now, as we're planning, I would expect to be realistic that certainly Q4 and perhaps into Q1 of our fiscal year, the conditions remain relatively the same.

Speaker #4: Maybe conditions improve. And that gets a little bit better for us as we go through the second half of 2027. But right now, as we're planning, I would expect to be realistic that the certainly the fourth quarter and perhaps into the first quarter of this of our fiscal year the conditions remain relatively the same.

Speaker #7: Thank about software? I think you said ACV was up 9. Underlying sales were 7. So can we just talk about sort of the pace of contract renewals, year over year, and just generally I think software big topic of conversation last quarter.

Andrew Obin: Thank you. Maybe, can we just talk a little bit about software? I think you said ACV was up 9%, underlying sales were 7%. Can we just talk about sort of the pace of contract renewals year-over-year? Just generally, I think software, a big topic of conversation last quarter. This quarter, I guess, we're back to inflation. Just what are you seeing operationally given all this sort of brouhaha about sort of new solutions coming in? Just give us some color as to what you're seeing in the numbers. Thank you.

Speaker #7: This quarter, I guess, we're back to inflation. But just what are you seeing operationally given all this sort of brouhaha about sort of new solutions coming in?

Speaker #7: Just give us some colors of what you're seeing in the numbers. Thank you.

Speaker #6: Yeah, no, just a correction there—underlying sales were up 6%. Underlying orders were the 7% number that you referenced. But yes, you were right.

Lal Karsanbhai: No. Underlying sales, just a correction there, 6% on underlying sales. Underlying orders were the 7% number that you referenced.

Andrew Obin: Yeah.

Lal Karsanbhai: Yes, you're right, ACV growth of 9%. Ram, if you want to comment on the business as a whole.

Speaker #6: ACV growth of 9 percent. Rom, if you want to comment on the business as a whole.

Speaker #4: Yeah, so ACV at 9. And I think we feel pretty good about exiting the year at 10-plus percent on ACV. So I think from a software perspective, the dynamics—if your specific question was the renewal dynamic—that certainly reverses in the fourth quarter.

Ram Krishnan: Yeah. ACV nine, I think we feel pretty good about exiting the year at 10+% on ACV. I think from a software perspective, the dynamics of, if your specific question was the renewal dynamic, that certainly reverses in Q4, you'll see that-

Speaker #4: And you'll see that reflected in the numbers in the fourth quarter. And then all segments of our software business, whether it is the Aspen core business, certainly DGM when we threw out the number there for DGM was 28 percent growth in DGM.

Andrew Obin: Okay

Ram Krishnan: reflected in the numbers in Q4. Then, all segments of our software business, whether it is the AspenCore business, certainly DGM, when we threw out the number there for DGM, was 28% growth in DGM. That continues to accelerate. The ACV performance there is very strong, then certainly on the Test & Measurement side as well. Our software business is executing according to plan. I think exiting the year at 10% gives us confidence about a very solid 2027.

Speaker #4: So that continues to accelerate the ACV performance there is very, very strong. And then certainly on the test and measurement side as well. So our software business is executing according to plan.

Speaker #4: I think exiting the year at 10 percent gives us confidence about a very, very solid 2027.

Speaker #7: That sounds great. Thanks so much.

Andrew Obin: Sounds great. Thank you so much.

Speaker #1: Your next question comes from the line of Alex Virgo with open; please go ahead.

Operator: Your next question comes from the line of Alex Virgo with Evercore ISI. Your line is now open, please go ahead.

Speaker #5: Yeah. Thanks very much, Scott. For me, gentlemen, thanks for taking the question. I wondered if you could just flesh out a little bit of that power demand for us.

Alex Virgo: Yeah, thanks very much. Good afternoon, gentlemen. Thanks for taking the question. I wondered if you could just flesh out a little bit of that power demand for us. Is that still mostly brownfield now, or are we actually starting to see some of the more greenfield projects with your comment there on Q4 2027 and moving into 2028? I just would like a little bit more detail on that. As a follow-up, really strong numbers on Test & Measurement, really great to see that. One of your peers talked about concerns of a slowing market as you roll into next year on tougher comps and the length of the cycle.

Speaker #5: Is that still mostly brownfield now? Or are we actually starting to see some of the more greenfield projects with your comment there on Q4, '27, and moving into '28?

Speaker #5: I just would like a little bit more detail on that. And then as a follow-up, really strong numbers on test and measurement. So really great to see that.

Speaker #5: One of your peers talked about a concern of a slowing market as you roll into next year on tougher comps and the length of the cycle.

Speaker #5: So without pushing you for a guidance for '27, I wondered if you could give us a sense of the visibility that you have in that business and what we should be thinking about as we do start to think about '27.

Alex Virgo: Without pushing you for a guidance for 2027, I wondered if you could give us a sense of the visibility that you have in that business and what we should be thinking about as we do start to think about 2027. Thank you.

Speaker #5: Thank you.

Speaker #4: Great. I'll take the one on power. Power to date, which has been extremely strong, has been mostly fleet modernizations. But we are starting to see particularly in the quarter we concluded but going into Q4 and into the early part of next year, some of the newer capacity coming online, certainly gas-fired in North America.

Ram Krishnan: Great. I'll take the one on Power. Power to date, which has been extremely strong, has been mostly fleet modernizations. What we are starting to see, particularly in the quarter we concluded, going into Q4 and into the early part of next year, some of the newer capacity coming online, certainly gas-fired in North America, will be a big part about the tailwind. Certainly, the data center opportunity, you can classify that as behind the meter, and that's greenfield. Certainly on the DGM side, which we also capture in Power and nuclear power, a lot more of that is greenfield. Yeah, you're going to start seeing more of that in the numbers. To date, the momentum has been on fleet modernizations or brownfield, as you referenced.

Speaker #4: We'll be a big part of the tailwind, certainly the data center opportunity you can classify that as behind the meter. And that's greenfield. And then certainly on the DGM side, which we also capture and power and nuclear power, a lot more of that is greenfield.

Speaker #4: So yeah, you're going to start seeing more of that in the numbers. But to date, the momentum has been on fleet modernizations or brownfield as you referenced.

Lal Karsanbhai: I'll follow up on the semiconductor question. Look, we're not going to obviously guide into 2027. You can certainly read into the tremendous order momentum that we have in the semiconductor business within Test & Measurement today. I will highlight that there is a differentiation in growth in the applications from the laboratory, where I think the period that you're referencing largely plays, to the validation and production side, where we largely play. That has a different dynamic on growth and in the cycle as well. At this point in time, I continue to be relatively robust on semiconductors through 2027.

Speaker #6: I'll follow up on the semiconductor question. Look, we're not going to, obviously, guide into '27. You can certainly read into the tremendous order momentum that we have in the semiconductor business within TNM today.

Speaker #6: But I will highlight that there is a differentiation in growth in the applications from the laboratory where I think the peer that you're referencing largely plays.

Speaker #6: To the validation and production side where we largely play. And that has a different dynamic on growth. And in the cycle as well. And so at this point in time, I continue to be relatively robust on semiconductor through 2027.

Speaker #7: Super helpful. Thank you very much.

Alex Virgo: Super helpful. Thank you very much.

Speaker #1: Your next question comes from the line of Andy Kaplowitz with Citi Group. Your line is now open; please go ahead.

Operator: Your next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is now open. Please go ahead.

Speaker #8: Good morning. Good afternoon, everyone. How are you doing?

Andrew Kaplowitz: Good morning, everyone. Good afternoon, everyone. How you doing?

Speaker #6: Good. Thank you, Andy.

Lal Karsanbhai: Good, thank you, Andy.

Andrew Kaplowitz: Lal, maybe just your thoughts on MRO in general. I think you've highlighted it today as stable, but I think generally it's been pretty strong across at least you and your peers. What are you seeing there? Is it, I assume, led by North America, but obviously we're running facilities pretty hard, so what are you seeing going forward here?

Speaker #8: Well, maybe just your thoughts on MRO in general. I think you highlighted it today as stable, but I think generally it’s been pretty strong across at least you and your peers.

Speaker #8: So, what are you seeing there? I assume that's led by North America, but obviously we're running facilities pretty hard. So, what are you seeing going forward here?

Speaker #6: Yeah. Really, no material change to the MRO rates anywhere that we've observed. Around that two-thirds of the business level. That seems to be pretty consistent.

Lal Karsanbhai: Yeah, really no material change to the MRO rates anywhere that we've observed. We're around that two-thirds of the business level. That seems to be pretty consistent. There continues to be spend on replacement. We have seen, and I think to your point, we have seen some delays in shutdown turnaround activity because exactly, facilities are being run relatively hard right now. We'll see how the fall season ultimately shapes up there, which may have an impact to MRO activity. Day-to-day MRO continues to be very strong for us across just about every region and every business.

Speaker #6: There continues to be spend on replacement. We have we have seen some delays in shutdown turnaround activity because exactly, facilities are being run relatively hard right now.

Speaker #6: So, we'll see how the fall season ultimately shapes up there, which will—we may have an impact to MRO activity. But day-to-day, MRO continues to be very strong for us across just about every region and every business.

Speaker #8: And maybe related to that, Lyle, just growth by region. Obviously, China has been kind of slow in Emerson down a bit. But maybe a little bit better here.

Andrew Kaplowitz: Maybe related to that, Lal, just growth by region. Obviously, China has been kind of slowing Emerson down a bit, but maybe a little bit better here. I think you mentioned Europe a little bit better, and we've had mixed reads this quarter out of Europe. What are you seeing outside of North America, and does it give you a little more confidence in improvements sort of outside of North America and outside of the Middle East?

Speaker #8: And I think you mentioned Europe a little bit better. We've had Nick Frieds this quarter out of Europe. So sort of what are you seeing outside of North American?

Speaker #8: Does it give you a little more confidence in improvement sort of outside of North America, outside of the Middle East?

Speaker #6: Yeah. No. Look, again, obviously, Andy, we've spoken how bullish we continue to be about the USA and the investments that are being made. In the USA and I think that's got a significant amount of legs to it.

Lal Karsanbhai: Yeah, no, look, again, obviously, Andy, we've spoken how bullish we continue to be about the USA and the investments that are being made in the USA, and I think that's got a significant amount of legs to it. We were up 10% in sales in the US in the quarter. I don't expect that to subside. Recovering Europe. Look, Europe was down a point in sales in the quarter, but again, a little better than expected. Orders were positive in Europe, so that's a good sign as we go through the last part of this year and into Q1 of next. China, slightly better. Still negative, mid-single digit negative. We believe improving, certainly sequentially and as we go into next year. That's kind of how that environment looks like.

Speaker #6: We were up 10% in sales in the U.S. in the quarter. I don't expect that to subside. Recovery in Europe—look, Europe was down a point in sales in the quarter.

Speaker #6: But again, a little better than expected. Orders were positive in Europe. So that's a good sign as we go through the last half of this last part of this year and into the first quarter of next.

Speaker #6: And then China, slightly better. Still negative. Mid-single-digit negative. But we believe improving certainly sequentially as we go into next year. So that's kind of how that environment looks like.

Speaker #6: And then, of course, other Asia was very, very strong. And that's powered by Japan, and India, and Southeast Asia. Go ahead, Mike.

Lal Karsanbhai: Of course, other Asia was very, very strong, and that's powered by Japan, India, and Southeast Asia. Go ahead, Mike.

Alex Virgo: No, that's it. That's great.

Mike Baughman: No, that's it. That's great.

Speaker #4: No. That's great.

Andrew Kaplowitz: Appreciate all the color, guys.

Speaker #8: Appreciate all the color, guys.

Speaker #1: Your next question comes from the line of Andrew Buscaglia with BNP Paribas. Your line is now open; please go ahead.

Operator: Your next question comes from the line of Andrew Buscaglia with BNP Paribas. Your line is now open. Please go ahead.

Speaker #7: Hey, good morning, everyone. Or good afternoon—good afternoon.

Andrew Buscaglia: Hey, good morning, everyone. Or good afternoon. Good afternoon, rather.

Lal Karsanbhai: Afternoon. Yes.

Speaker #4: Good afternoon. Yes.

Speaker #7: It's been a long—it's been a long day. If you guys could expand on the China comment—first off, did it stabilize in the quarter?

Andrew Buscaglia: It's been a long day. If you guys could expand on the China comment. First off, did it stabilize in the quarter? Is it as expected? Then, within Intelligent Devices, I wonder, can that growth rate get back to kind of historical peak levels without China really picking up? Do you think there's enough growth in North America and elsewhere to more than offset it and get back to types of growth we've seen in the past in the double digits in that segment?

Speaker #7: Is it as expected? And then within intelligent devices, I wonder, can that growth rate get back to kind of historical peak levels without China really picking up?

Speaker #7: Or do you think there's enough growth in North America and elsewhere to more than offset it and get back to types of growth we've seen in the past in the double digits in that segment?

Speaker #4: So on intelligent devices, the answer is absolutely, I think, as if you looked at orders performance as a leading indicator, I think you'll start seeing that now.

Ram Krishnan: On Intelligent Devices, the answer is absolutely. I think if you looked at orders performance as a leading indicator, I think you will start seeing that. Majority of the sales impact in the Middle East is in our Intelligent Devices business. You will see that. Obviously suppressed the growth rate so far, but that will unlock in Q4 and into next year. Yeah, no concerns about the return to growth of Intelligent Devices. Our guide there is 3% to 6%. We have had years of double digits, Intelligent Devices are in our long-range framework. Our Software and Systems business is a 6% to 9% growth business, which includes Control Systems & Software and Test & Measurement and Intelligent Devices in 3% to 6%. We feel very good in that framework. Your question on China.

Speaker #4: Majority of the sales impact in the Middle East is in our intelligent device business. So you'll see that obviously suppress the growth rate so far.

Speaker #4: But that will unlock in Q4 and into next year. So yeah, no concerns about the return to growth of intelligent devices. Now, our guide there is three to six percent.

Speaker #4: I mean, we've had years of double digits. But intelligent devices are in our long-range framework. Our systems and software business is a six to nine percent growth business, which includes control systems and TNM.

Speaker #4: And intelligent devices in three to six. So we feel very good in that framework. And then your question on China. China, I think, minus three is better than what we had seen in the first half.

Ram Krishnan: China, I think minus 3% is better than what we had seen in H1. It is improving, and it was sequential growth in Q3 over Q2. We expect China to continue to improve into low single-digit type growth levels as we plan for 2027.

Speaker #4: So, it is improving, and there was sequential growth in Q3 over Q2. So again, we expect China to continue to improve into low single-digit type growth levels as we plan for 2027.

Speaker #7: Okay. Fair enough. And my other question is on software control. I think someone tried to get at this. But maybe I'll ask it in a different way.

Andrew Buscaglia: Okay, fair enough. My other question's on Software and Systems. I think someone's tried to get at this, I will ask it in a different way. There has been a lot of noise in that segment the last couple of years, can you just help us kind of rebase what you anticipate to be more of a through cycle growth rate in Software and Systems? How do we think about that growth, more in an up cycle now that we have this Test & Measurement business that you did not have in past cycles to anchor us to? I guess I am trying to get at what the 2027 number looks like if we are indeed in a strong up cycle.

Speaker #7: But there's been a lot of noise in that segment the last couple of years. Can you just help us rebalance what you anticipate to be more of a through-cycle growth rate in Software and Systems?

Speaker #7: And then how do we think about that growth more in an upcycle now that we have this test and measurement business that you didn't have in past cycles to anchor us to?

Speaker #7: I guess what I'm trying to get at is, what does a 2027 number look like if we are indeed in a strong upcycle?

Speaker #4: Yeah. Obviously, it's a little early to comment yet on 2027. But if your question is what is our thinking as we built this portfolio around long-range growth for the control systems part of software and control, as well as test and measurement, they're both in the six to nine type framework.

Ram Krishnan: Yeah. Obviously, it is a little early to comment yet on 2027. If your question is what is our thinking as we built this portfolio around long-range growth for the Control Systems & Software part of Software and Systems.

Andrew Buscaglia: Yes

Ram Krishnan: as well as Test & Measurement, they're both in the 6 to 9 type framework. That's kind of how we are thinking about it.

Speaker #4: That's kind of how we're thinking about it. Through the cycle.

Lal Karsanbhai: Through the cycle.

Ram Krishnan: Through the cycle.

Speaker #7: Through the cycle. So presumably more than that, though, in if orders are starting to pick up and accelerate from here.

Andrew Buscaglia: Presumably more than that, though, if orders are starting to pick up and accelerate from here.

Ram Krishnan: Was there a question, Andrew? Sorry.

Speaker #4: Was there a question, Andrew? Sorry.

Speaker #7: Yeah, yeah. I guess I'm just saying if orders are accelerating here, we should be anticipating more at the high end of that, or better, in an upcycle.

Andrew Buscaglia: Yeah. I guess I'm just saying if orders are accelerating here, should we anticipate more of the high end of that or better in an up cycle?

Speaker #4: Well, certainly, TNM this year is in that upcycle. And is certainly outside of the range. So yes, when things are on an upcycle, they can get outside above that range.

Ram Krishnan: Well, certainly T&M this year is in that up cycle and is certainly outside of the range. Yes, when things are on an up cycle, they can get outside above that range. Yeah. T&M's 14 this year.

Speaker #7: Yeah. TNM's 14 this year. So yeah.

Andrew Buscaglia: Yeah.

Ram Krishnan: Yeah.

Speaker #4: Yeah.

Speaker #7: Okay. Fair enough. Thank you.

Andrew Buscaglia: Okay. Fair enough. Thank you.

Speaker #1: Your last question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is now open; please go ahead.

Operator: Your last question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is now open. Please go ahead.

Speaker #7: Hey. Good afternoon, guys. Thanks for squeezing me in.

Ken Newman: Hey, good afternoon, guys. Thanks for squeezing me in.

Speaker #4: Sure.

Ram Krishnan: Sure.

Speaker #7: Maybe just to ask the greenfield question in a different way. That was asked earlier. Ron, I appreciate the comments on the power and the semi-markets that you made earlier.

Ken Newman: Maybe just to ask the greenfield question in a different way that was asked earlier. Ram, I appreciate the comments on the power and the semi markets that you made earlier.

Ken Newman: Maybe just to ask the greenfield question in a different way that was asked earlier. Ram, I appreciate the comments on the power and the semi markets that you made earlier. Is there a way to help frame how much of the total project funnel today is for new greenfield versus brownfield? I'm just curious if you're seeing any kind of material differential in pricing for those new orders versus the 3% you recorded this past quarter.

Speaker #7: Is there a way to help frame how much of the total project funnel today is for new greenfield versus brownfield? And I'm just curious if you're seeing any kind of material differential in pricing for those new orders versus the 3% you recorded this past quarter.

Ken Newman: Is there a way to help frame how much of the total project funnel today is for new greenfield versus brownfield? I'm just curious if you're seeing any kind of material differential in pricing for those new orders versus the 3% you recorded this past quarter.

Speaker #4: Yeah. So majority of how we define our project funnel, the bulk of it is greenfield. And the brownfield modernization is lead separately and it's a different cut we take to those type of funnels.

Ram Krishnan: Yeah. Majority of how we define our project funnel, the bulk of it is greenfield. The brownfield modernization is led separately, and it's a different cut we take to those type of funnels. The pricing, obviously, we get better pricing on the modernizations than we do typically on greenfield, and we get better pricing on MRO than brownfield. That's somewhat consistent with how we've always kind of positioned it. Most of the $12.4 billion, I would venture to say, we look at that as greenfield.

Speaker #4: I mean, the pricing obviously we get better pricing on the modernizations than we do typically on greenfield. And we get better pricing on MRO than brownfield.

Speaker #4: So that's somewhat consistent with how we've always kind of positioned it. But most of the 12.4 billion dollars, I would say, venture to say, I mean, we look at that as greenfield.

Speaker #7: Got it. That's helpful. And then look, I know the crystal ball on the Middle East is kind of clear as mud in this environment.

Ken Newman: Got it. That's helpful. Look, I know the crystal ball on the Middle East is kind of clear as mud in this environment, just given what you're hearing from your customers, do they have any comments or thoughts about what kind of stability or a certain amount of stability in terms of timing that they need to see before they can start to normalize orders back to pre-conflict conditions? Or is that just too hard of an exercise to do at this point?

Speaker #7: But just given what you're hearing from your customers, do they have any comments or thoughts about what kind of stability or a certain amount of stability in terms of timing that they need to see before they can start to normalize orders back to pre-conflict conditions?

Speaker #7: Or is that just too hard of an exercise to do at this point?

Lal Karsanbhai: It is. It's a challenge. We're seeing new projects coming online, particularly related to pipeline, storage transportation, built around the resiliency of their networks, obviously trying to avoid the Strait of Hormuz and now avoiding the Red Sea as well. There is a challenge there. There are certain products that are easily transportable via pipeline, but there's some that are impossible, like LNG. LNG can be transported over a couple miles, but you're just not going to build a 400-mile pipeline to take LNG. There are a lot of challenges that customers are wrestling with right now, and I think they're going to need certainty in some kind of a agreement between the United States and Iran before things calm down and there's some trust back in the system.

Speaker #4: It is. It's a challenge. We're seeing new projects coming online, particularly related to pipeline, storage, transportation—built on the resiliency of their networks. Obviously, they're trying to avoid the Strait of Hormuz and now avoiding the Red Sea as well.

Speaker #4: So there is a challenge there. There are certain products that are easily transportable via pipeline. But there are some that are impossible. Like LNG.

Speaker #4: LNG can be transported over a couple of miles. But you're just not going to build a 400-mile pipeline to take LNG. So there are a lot of challenges that customers are wrestling with right now.

Speaker #4: And I think they're going to need certainty in some kind of agreement between the United States and Iran. Before things calm down and there's some trust back in the system.

Speaker #7: Whenever that situation does come to fruition, is there a way to think about how quickly you would expect to see those orders come through?

Ken Newman: Whenever that situation does come to fruition, is there a way to think about how quickly you would expect to see those orders come through?

Speaker #4: I think relatively quickly, to be very honest. We're seeing really good activity in quotation and preparedness for some large petrochemical expansions, LNG field expansions in Qatar.

Lal Karsanbhai: I think relatively quickly, to be very honest. We're seeing really good activity in quotation and preparedness for some large petrochemical expansions, LNG field expansions in Qatar. We know that's coming. We expect that to be released relatively quickly.

Speaker #4: So we know that's coming. And so we expect that to be released relatively quickly.

Speaker #7: Very helpful. Thanks.

Ken Newman: Very helpful. Thanks.

Lal Karsanbhai: You're welcome.

Speaker #4: You're welcome.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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