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Emerson Electric provides automation systems, sensors, and software for various industries, including energy, manufacturing, and utilities. Founded in 1890, the company employs about 73,000 people and operates in over 170 countries. In 2024, it sold its remaining stake in its Copeland climate business to Blackstone to sharpen its focus on automation and sustainability.

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Emerson Electric (EMR): Company Profile, Stock Price, News, Rankings

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Emerson Electric

emerson electric

Good morning, and welcome to Emerson's Fourth Quarter and Full Year 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Please note, this event is being recorded. I would now like to turn the conference over to your host, Carl Schumacher, Vice President of Investor Relations at Emerson. Please go ahead.

Good morning, and thank you for joining Emerson's Fourth Quarter and Full Year 2026 Earnings Conference Call. Before we begin, please allow me to take a moment to introduce myself. My name is Carl Schumacher. I have recently been appointed as Emerson's new investor relations leader. I have been with Emerson for over 12 years now, and I have had the opportunity to hold finance leadership roles across multiple geographies and segments. Most recently, I served as the segment CFO for Test & Measurement. I am excited to work with everyone, and I look forward to meeting with you all soon. Today, I am joined by Emerson's President and Chief Executive Officer, Lal Karsanbhai, Chief Financial Officer, Mike Baughman, and Chief Operating Officer, Ram Krishnan. I would 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.

Thank you, Carl. Good morning, everyone. I would like to begin by thanking Emerson's 70,000 employees for their dedication, passion, and perseverance. Together, we delivered a strong fourth quarter and finish to 2026. Emerson has the most talented team in the automation industry, and our efforts are reflected in the results we will discuss today. More importantly, this team has positioned us to keep winning. One year ago, at our investor conference in New York City, we outlined a value creation framework. One year into this three-year plan, we met our strategic objectives and remain on track to deliver our 2028 commitments. Our momentum carries into 2027, driven by our growth verticals and supported by secular macro trends. Customers are investing in automation at a rapid pace, and our orders reflect it.

The diversity of our customer base and the range of industries we serve give us confidence in the resilience of the company we have built. As I complete my sixth year as CEO, I reflect on the strength of the Emerson management system. Designed in the 1970s under Chuck Knight's leadership, it has evolved over time, but most meaningfully over the past six years. We have deliberately changed our culture to push trust and empowerment deeper into the organization while maintaining a high standard of accountability. This environment enables us to attract and retain top talent, energized to deliver outstanding results and create differentiated value. I am excited about the opportunities ahead and more confident than ever in Emerson's future. Lastly, I would like to thank our customers, the Emerson board of directors, and our investors for your continued trust in us. Please turn to slide three.

Underlying orders grew 14%, with broad-based demand across all business groups. Demand was most pronounced in software and systems, up 18%, and intelligent devices, up 13%. All regions experienced growth, led by North America, up 15%, and the Middle East, up 42%. I will discuss more details on demand later in the presentation. Emerson exceeded expectations for sales and profitability in the fourth quarter. Underlying sales were up 7%, with software and systems accelerating to 14% growth, with strength in Test & Measurement, up 15% and control systems and software up 14%. Adjusted segment EBITA margin expanded 160 basis points to 29.1%, and adjusted earnings per share increased 15% to $1.86. For the full year, we delivered underlying sales growth of 4%, and adjusted earnings per share rose 10% to $6.59, both above expectations.

Free cash flow was up 9% to $3.5 billion, and we completed $1 billion of share repurchase, retiring 7.2 million shares. As expected, annual contract value of our software grew 10.1% to $1.7 billion. For fiscal 2027, we are guiding underlying sales growth of 5%. We expect to deliver adjusted segment EBITA margin of 29% and adjusted earnings per share of $7.25, reflecting meaningful progress on the pathway to our 2028 targets. We plan to continue returning substantial capital to shareholders, and we expect to return $3.8 billion in 2027, $2.5 billion in share repurchases, and $1.3 billion in dividends, a 7% dividend per share increase of $0.16. Please turn to slide four.

Emerson navigated the conflict in the Middle East and inflationary headwinds to deliver another year within our value creation framework, demonstrating the resilience and profitability of our automation portfolio. Underlying sales growth was led by the United States and the Middle East, both of which were up high single digits, offset by persistent softness in Europe and China. Our growth verticals were up 21% year-over-year, as secular tailwinds are supporting investment across greenfield projects, modernizations, and MRO. Adjusted segment EBITA margin of 28.2% expanded 60 basis points, driven by price cost and the benefit of cost reductions and synergy realization. We also realized $100 million of synergies at AspenTech, completing the integration two years ahead of our initial target. Adjusted earnings per share of $6.59 marked our sixth consecutive year of double-digit adjusted EPS growth.

Emerson demonstrated strong free cash flow generation at a margin of 18.6%. Please turn to slide five. Underlying orders grew 14% in the fourth quarter, with broad-based demand across the portfolio and strength in long-cycle project activity, led by power, LNG, and A&D. Test & Measurement orders growth of 14% exceeded expectations, with semiconductor up 59%. Control systems and software orders were up 20%, with orders in our Ovation business up 26%. North America, Southeast Asia, and the Middle East saw significant demand from our growth verticals and energy security projects. China orders remain negative, as both chemical and refining continue to weigh on demand. Electrification is benefiting Emerson across the technology stack, as power generation projects, modernizations, and grid investments are advancing in all regions. The need for energy security is also increasing, the capital being deployed in LNG and traditional energy projects.

Last November, we outlined an opportunity pipeline of 350 million tons per annum of LNG yet to be awarded, and approximately 100 million tons per annum were awarded in 2026. However, the demand for gas continues to grow, and we now see an opportunity of 275 million tons per annum remaining. Nearshoring and self-sufficiency investments continue to unlock activity in semiconductor, life sciences, and A&D. These opportunities are manifesting in our project funnel, which increased $600 million to $13 billion, up 17% year-over-year. New capital formation is being driven by our growth verticals, which were up $500 million sequentially. In our fourth quarter, Emerson won approximately $575 million from the funnel. 75% came from our growth verticals, and I want to highlight a few large wins.

First, we were selected for a major petchem project in Qatar, where our customer is expanding downstream capacity with a world-scale ethylene cracker complex. Emerson will provide integrated control and safety systems, as well as measurement instrumentation. We were chosen for our proven reliability and demonstrated performance on the first phase of this facility. Next, Emerson was chosen by LNG Canada for their phase II expansion at their LNG export facility in Kitimat, British Columbia, which will double the capacity from 14 to 28 million tons per annum. Emerson will provide our leading valve and sensor technology, building on the success of our phase I solutions. Finally, Emerson signed a 10-year DeltaV MES subscription agreement with a leading global life sciences contract manufacturer. Spanning multiple systems across three sites, Emerson's software will help improve operational efficiency through automated data collection.

more accurate electronic batch records, and more consistent manufacturing workflows. Please turn to slide six. We expect the U.S., India, Southeast Asia, and the Middle East, as well as our growth verticals, to be strong contributors to growth again in 2027. The Americas account for around half of Emerson's sales and grew 7% in 2026. We expect sales to be up mid-single digits in 2027, underpinned by broad-based growth in the U.S. with healthy MRO. We are planning for significant activity in growth verticals in the U.S., where about a third of our business is serving power, LNG, life sciences, semiconductor, and A&D. In Latin America, electrification and energy security needs are expected to unlock project activity.

Europe was down 1% in 2026, and we project a modest improvement to low single-digit growth, with sustained project activity in LNG, power, and life sciences, offset by lingering weakness in industrial markets. We do not expect an inflection in the region, as demand in Germany, France, and Italy remains soft. Approximately 30% of Emerson's sales are in Asia, the Middle East, and Africa, which collectively grew 3% in 2026, including an approximately $85 million headwind related to the conflict in the Middle East. In 2027, we model mid-single-digit growth with continued momentum in the Middle East, which we expect to be up high single digits again, assuming the conflict does not escalate. Rehabilitation work is progressing, and resiliency investments provide long-term opportunities in this region. We are not planning for a recovery in China due to the persistent headwinds in bulk chemical and refining.

We have a mid-single-digit outlook for the rest of Asia, as energy security, grid modernization, and FPSOs support greenfield investment and stable MRO. Growth verticals grew 21% in 2026 and now comprise 27% of Emerson's sales. We expect low double-digit growth in 2027, driven by secular trends of electrification, energy security, and nearshoring, which are supporting investments in automation globally and most prominently in the U.S. Our other automation markets were collectively flat in 2026, with prolonged weakness in Europe and China. We model a moderate increase to low single-digit growth in 2027, with improving MRO activity from pent-up demand in energy and favorable trends in North American industrial activity and electrical equipment. We are entering 2027 from a position of strength, and I am confident in our plans to deliver the year.

With that, I will now turn the call over to Mike Baughman to discuss our financial results and guidance in more detail.

Thanks, Lal. Please turn to slide seven for a more in-depth look at our Q4 financial results. As a reminder, the impact of tariff refunds are excluded from our adjusted earnings results. Q4 underlying sales grew 7%, with volume contributing four points. Each of our business groups exceeded expectations, led by software and systems up 14%. I will provide more details on geographic and group performance on the next two slides. Backlog ended the quarter at $8.2 billion, up 11% year-over-year, and our book-to-bill was 1.01, above typical seasonality. Adjusted segment EBITA margin was 29.1%, up 160 basis points. Margin expansion exceeded expectations due to better volume in software and systems and intelligent devices, as well as favorable segment mix. Price cost and cost reductions more than offset inflation. Adjusted earnings per share was $1.86, up 15% year-over-year.

Operations contributed an incremental $0.25, with $0.19 from software and systems. FX was a $0.01 headwind. Fourth quarter free cash flow was $916 million, up 9%, with a margin of 17.6%. Full year free cash flow of $3.5 billion was also up 9%, and margin expanded 60 basis points to 18.6%. Please turn to slide eight for details on Q4 underlying sales by region. The Americas grew 9%, with the U.S. up 11%. The pace of business remained strong in the U.S., with software and systems and intelligent devices both up low double digits. Growth was broad-based across end markets, with the majority of our business units up mid-single digits or better in the U.S. Asia, Middle East, and Africa grew 7%, led by the Middle East and Africa up 19%, while Asia was up 2%.

Another outstanding performance by our teams in the Middle East led to a smaller adverse revenue impact than expected in the quarter. As the duration of the conflict extends, our customers and our teams have consistently found ways to drive business continuity. Europe continued to experience weak markets and grew 1%. Globally, our growth verticals contributed meaningfully to sales and were up 25% in the quarter. Growth was strongest in LNG, which was up 68%, benefiting from the delivery of projects. Growth was also robust in semiconductor, up 43%, and power, up 24%. MRO was 63% in the quarter, and projects ticked up slightly in the quarter to 37% of sales. We saw sustained strength in North America MRO and robust project activity in the Americas, Middle East, and Southeast Asia.

Please turn to slide nine for details on fourth quarter underlying sales and margin performance for our three business groups. Software and systems was up 14% underlying, as Test & Measurement grew 15%, and Control Systems & Software grew 14%. We saw significant growth in power, LNG, and semiconductor. As expected, ACV grew 10.1% year-over-year. Software and systems margin of 32.3% increased 490 basis points due to leverage on volume, price/cost, and mix. Intelligent devices underlying sales were up 4%, better than expected, largely due to final control delivering more project shipments in the Middle East. Growth was led by LNG, power, upstream gas, and midstream gas. Intelligent devices margin of 28.4% was down 10 basis points year-over-year, driven by mix, offset by strong price/cost and leverage on volume. Safety and productivity was up 2% underlying.

Strength in electrical products and U.S. industrial activity was offset by persistent weakness in Europe. Safety and productivity's margin of 22.9% was up 30 basis points year-over-year due to price/cost and cost reductions, offset by inflation. Please turn to slide 10 for our 2027 underlying sales guidance by business group. We expect software and systems to grow 8%-9% in the first quarter and 7%-8% for the full year. We are planning for high single-digit growth in both Test & Measurement and Control Systems & Software from broad-based demand in the U.S. and growth verticals. ACV is expected to grow approximately 10% in 2027. Intelligent devices is projected to grow 3%-4% in the first quarter and 4% for the full year, supported by stable MRO, project activity in growth verticals, and strength in the United States.

Safety and productivity is modeled to grow 3%-4% in both Q1 and the full year. While we are seeing continued growth in electric utilities and North America industrial activity, European markets are soft. Overall, Emerson expects to grow approximately 5% in both Q1 and the full year. Please turn to slide 11 for details on our full year and Q1 2027 guidance. For the full year, we are guiding GAAP and underlying sales growth of approximately 5%. We expect a more normalized pricing environment in 2027 and have built 2% price realization into the plan. We expect adjusted segment EBITA margin of 29%, up 80 basis points year-over-year. We are guiding 2027 adjusted earnings per share of $7.25, up 10%, and free cash flow of $3.8 billion-$3.9 billion.

As Lal discussed, we plan to return approximately $3.8 billion to shareholders through $2.5 billion of share repurchase and $1.3 billion in dividends, including raising dividend per share by 7%. We are entering our 71st consecutive year of increased dividend, and the $0.16 dividend per share increase we have modeled demonstrates our commitment to the dividend. Moving to the first quarter, we expect GAAP and underlying sales growth of approximately 5%, adjusted segment EBITA margin of 28%, and adjusted earnings per share of $1.58-$1.62. We are also planning to complete approximately $1.5 billion of share repurchase in Q1. Please turn to slide 12. At our investor conference last November, we introduced our value creation framework, which rests on three pillars: organic growth, operational excellence, and capital allocation. We also laid out clear targets for 2028.

Our automation portfolio is aligned to multi-year secular tailwinds that support 4%-7% underlying sales growth. Our operational excellence has been a hallmark of Emerson for generations, and our capital allocation is focused on returning cash to shareholders through meaningful share repurchases and dividend increases. We delivered 2026 and exited the year with strength in orders and a backlog position that give us confidence in achieving 2027 results that are right in line with our 2028 targets. With that, I will now turn the call back to the operator for Q&A.

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 Scott Davis with Melius Research. Your line is open, Scott. Please go ahead.

Hey, good morning, guys, Lal, and Mike, and Ram, and welcome, Carl.

Guys, I just wanted to stress test the guidance just a little bit. I have to ask. I mean, you had orders up 14%. You got backlog up 11%. Last quarter, orders were up 7%. I can understand the Q1 kind of being relatively conservative on the top line with the 5%, but I would have thought you would have had that accelerating a little bit after Q1. Are you just being conservative on Europe and macro stuff, or a little cushion in there? Just maybe help us understand those kind of deltas.

Yeah. Great question, Scott. We obviously feel very good about the pacing on orders as we exited, really, the last two quarters and saw significant acceleration in the growth vertical orders particularly. As Mike pointed out, 37% of the Q4 really being driven by projects, whether those are modernizations or greenfield investments. So that acceleration gives us significant confidence as we head into the year, and particularly reflected in the backlog growth in the business as well. Having said that, I think your point is valid. We have a Europe that continues to be something that we need to watch, given the negative performance in 2026. And of course, China.

Although there was positivity in China in a few of our markets, like Test & Measurement, overall, it continues to be a concerning market for us, and that has, combined with Europe, led us to the guide that we put together.

Makes sense. I have to ask a question. I am sure the script was written before the election results. Any tweaks that you would make based on the election results, and markets that you might think might be a little better or a little worse?

Not really. I mean, I think the industrial policy of the U.S., particularly over the last two years, has been really positive for our business. Certainly, an energy policy, a nearshoring policy has benefited Emerson, and we expect that to continue because ultimately, those policies do create American jobs and they create American well-being. We hope that continues. I do not think I would change anything related to how we outlook the year right now.

Okay. Best of luck in 2027, guys. Thank you. I appreciate it.

Your next question comes from the line of Andy Kaplowitz with Citi. Your line is open, Andy. Please go ahead.

Lal, maybe you could characterize a little more of this surge in orders that you saw in Q4, and especially in the Middle East. I know you mentioned a large petchem project in the region, but I assume much of that growth in the region is associated with energy security type projects. When you step back for the overall company, do you think this recent order surge is somewhat durable into 2027 when you look at energy security under the ongoing cycles you have? You mentioned power, LNG, Test & Measurement.

Yeah, Andy, really good question. Maybe answering the first part, the Middle East continues to invest in two facets. One, gas production, liquid production, but of course, the downstream investments as well. Secondly, on resiliency projects, whether that's pipeline storage, transportation, which we're starting to see as well. The particular project that we won in Qatar that I referenced is a downstream petrochemical project, the largest expansion of a downstream facility we've seen in the region in many decades, which was encouraging to see in the midst of all the disruption, of course, resulted in the war. That customer had enough confidence to move that forward and finance it, and we were excited to be awarded the project.

To the second part of your question, we absolutely believe that there is continued momentum in the Middle East and Africa as we go into 2027 in both facets of that type of work. We're excited about what the team's accomplishing there and for the outlook. Now, that assumes, Andy, of course, that we're kind of status quo on the war. But if that's the case, we feel really good about what the plan that we put forward here.

That's great. Then, Ram and Mike, I think you've been relatively positive regarding Emerson's ability to price. Pricing, I think, ended around 3% for the year. Price versus cost stayed in the green. Maybe give us more color into what's embedded in your 2027 expectations in terms of pricing and the confidence level you have to stay ahead of cost, given cost inflation is already out there. I think you've got sort of normal incrementals modeled for 2027, but maybe just elaborate on that.

Yeah. So 3% price was this year. Obviously, a point came from tariff and 2% normalized pricing. Going into next year, we feel pretty good about 2% price in the plan. That's normal level of pricing. I think it's supported by our positioning in almost every category and every end market. So we feel pretty good. That's how we've gone into the year. Now, certainly inflation, particularly material inflation, we've modeled in electronics, and some of the pricing related to memory will be unfavorable. Tariffs will be marginally favorable versus this year, but net-net, good positive green on price cost should underwrite the incrementals and the margin plan for next year.

Your next question comes from the line of Steve Tusa with Wells Fargo. Your line is open, Steve. Please go ahead.

Just on the first quarter, it looks like, I think the implied incremental is a little bit lower than what you've guided for the year. I think you've got a bit of an easy software comp. Is there something else in the bridge for the first quarter on margins that we should be aware of?

Hey, Steve. It's Mike. Yes, for the first quarter, we'll see year-over-year improvement, and as you point out, we'll get some software contract renewal benefit there. We do have some mix. We're continuing to deliver more projects. We've got some startup cost that's coming in for an expansion that we've done that will affect really the first half, and that reads through in intelligent devices, and we continue to invest in the business. As we look at 2027, for the full year, we've dialed in about 80 basis points of improvement, and there will be the software contract dynamic, which creates a tailwind. And we will continue to do what we've been doing around price cost being green and offsetting inflation and cost reduction.

We feel very good about the profitability that we've dialed in, and the full year incrementals, I think at the midpoint, are sitting right there at about 40%. So feel like we've put together a very responsible profitability plan as we move into 2027. Although, as you point out of the gate here, consistent really with, I think, the pacing that we had last year, the first quarter is a little slower than the rest of the year.

Is there something different in the mix relative to Q4? Because, I mean, Q4, I think you had some decent

Greenfield in Q4. Anything different in the mix for Q4?

Yeah. Q4 was really a story of Control Systems & Software, where we had a very strong quarter that came in at 33.1%, which was above our expectations and above the prior year of 27%, which was the lowest quarter of the year, so they had some easy comps. But Q4 had several tailwinds. We continue to do very well in power, so Ovation is in that segment and continues to do well. We had a good quarter in software, so the mix was good. It was the end of the year where we've got project closeouts that typically happen. Sometimes those are a positive, sometimes they're a negative. This year, they were positives. Then we also had good price there. We had the pricing dynamic with the memory cost coming in.

I think we've talked about it before, that in Q3, we had a little bit of leakage in price that all came back in Q4, so they had five points of price in that segment. So that's really what drove the quarter ahead of expectation, and it was just a confluence of a lot of goodness at CSS that called it in the quarter.

Your next question comes from the line of Andrew Obin with Bank of America. Your line is open, Andrew. Please go ahead.

Excellent. Just a question on corporate expense in the fourth quarter. Came in sequentially quite a bit higher than we thought. What is driving it? Are we pulling any expenses forward here?

Yeah, Andrew. Great question. All the goodness I talked about at CSS, we have the exact opposite story at the corporate level, and we were about $45 million higher than we expected to be. I would tell you that that is several individually inconsequential items that all added up to a big number. If you look at the EPS bridge, I think it is worth noting, that was about $0.05 that was offset by lower interest and share count, and we continue to get tax benefits year-over-year. So it really did not have a big impact on the EPS. What was it? We had some FX headwinds. At corporate, we manage assets that are non-operating assets. Sometimes we have gains, sometimes we have impairments and losses.

This quarter, we actually had modeled in a small gain that did not happen, and we had an impairment that we had to take. We also had a really bad performance around our medical claims experience. Corporate charges those out for the year and then pays the actuals and takes the over-under, so we had a bad quarter there. There was just some smaller items, all of which broke bad. In terms of discretionary investments, we did make some discretionary investments in IT, and I think that it is worth noting we continue to plan those investments out into 2027. If you bridge 2026, we finish the year corporate other about $209 million.

The $45 million that we saw in Q4 will largely not repeat, but we will be making an incremental investment of about $25 million through 2027 in digital enablement to improve our commercial tools that support the sales force, contracting, HR systems, and really getting us in a position to better leverage AI as we move forward. So that incremental 25 will read through, and then we have got some inflation that gets you to the 195 assumption for 2027. Yes, Andrew, a tough quarter at corporate with a lot of one-offs that will not affect 2027 in any meaningful way, but we are investing in 2027 in the digital enablement that will read through.

And just to follow up, just on orders, how should we think about how much of your order book right now is actually for 2028 versus 2027? Because I do appreciate your comment in China and Europe, but I would imagine orders reflect those markets as well. So maybe can you talk about from a temporal perspective, how does it flow? What percent of your order book is for 2027, and how much of it now extends into 2028? Thank you.

Yeah, Andrew, you will see in the 10-K, we make that disclosure of the percent of the backlog in the next 12 months, and that has been pretty sticky at 75% for a long time. That dropped to 70%. So your point is a good one and one that we have been making as well, that the order book is filling up with long cycle, and that is starting to read through. Now, that said, MRO activity remains robust in certain markets, and it exited the year very healthy, high single digits, and supported obviously the 7% growth in the quarter. So we feel very good about the orders, but yes, some are longer dated.

Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open, Nigel. Please go ahead.

Oh, hi. Thank you. Thanks. Good morning, guys. Thanks for-

Good morning. Just wanted to dig into a little bit the divergence between obviously Software and Systems, if we Software solutions, if I am assuming the control systems portion of that is growing high single digits, obviously double digits this quarter. The ID portfolio is growing 4% in 2027. I just want to understand a little bit better that divergence. I am assuming it is project versus MRO, but any additional color would be great.

Yeah, I think, Nigel, Ram here. On the two dynamics on Software and Systems, now obviously there is T&M growth in there, which is strong growth at 15%. Our power business, the Ovation business, had significant growth in the quarter, and AspenTech had strong growth. So those are the dynamics as it relates to us, secular tailwinds around T&M and power that is driving the growth. Intelligent devices, of course, which is our final control and our sensor business, has broad-based participation across many markets. Frankly, the dynamics around Europe, China, and also the Middle East did impact intelligent devices.

Great. Then you mentioned Middle East. I had to check the number twice, 40%+ growth in the quarter. How much of that is just a kind of a catch-up on prior activity? I think you're assuming that strength continues in 2027. Just want to understand a little bit better what you're seeing in the Middle East and how much of this is just catch-up versus new project/rebuild?

Yeah, obviously a big part of it was related to project activity. We did reference the downstream petrochemical project in Qatar, which was a big win for us, but there was plenty of good activity in Saudi and UAE as well. I think timing on projects plus strong MRO in the quarter, which should continue, assuming there's no additional bad news in the Middle East and disruptions as it relates to the war. I think all end markets, Qatar, UAE, Saudi, and obviously a strong Africa is what we've modeled in for next year. At this point, we feel pretty good about that plan.

Your next question comes from the line of Julian Mitchell with JPMorgan. Your line is open, Julian. Please go ahead.

Hi, good morning. Maybe just wanted to start off with the capital deployment and sort of cash flow, as that hasn't really come up. You've been very disciplined or constrained on M&A activity for a couple of years now. I'd wondered if you might become a bit more expansive given that, but I suppose should we read the large buyback as a sign that M&A probably remains very limited for some time?

Hey, Julian. Good morning. Lal here. Yeah, I think you've read that correctly. We made a commitment in 2025 at our investor conference around capital allocation and really a focus on returning cash to shareholders over this three-year cycle. Obviously a year in now, guiding into the second year, we maintain that in line with that plan. Having said that, there's ample firepower for bolt-on acquisitions. We continue to work those. So, in terms of bolt-on M&A, billion, sub-billion dollar type opportunities, we'll continue to evaluate them. But in terms of the large-scale work we had done in the past, that's not in the cards in this plan.

Understood. Maybe on the organic revenue outlook for Test & Measurement, just wondered kind of how you've thought about that. You had mid-teens growth in Q4. I think you've guided to sort of steady high single-digit growth through the next 12 months. Understand it's quite a book-and-ship business. Comps are tough. So maybe sort of unpack that T&M sales guide a little bit, please.

Yeah. Ram here, Julian. Yeah, you said it. I think at the end of the day for us, the momentum in T&M, which was about 15% growth in Q4, will certainly continue into the first half because we've got visibility. The aerospace and defense segment is very strong. Semis are very strong. Portfolio has moderated, but still high single digits. Obviously, the one segment which is now less than $200 million of the portfolio is the automotive piece, which is the only segment that is slow. What we have baked in is a strong first half and then a moderating second half, just given a cautious approach to where we see the semi cycle and the power of tougher comparisons. So I think it's a par plan, how we've laid out.

If the semi business continues to be strong into the second half, then we can certainly do better than the plan we've laid out.

Your next question comes from the line of Alexander Virgo with Evercore ISI. Your line is open, Alexander. Please go ahead.

Hi. Thanks very much. Good morning, gentlemen. I wondered if you could just talk a little bit about the complexion of your power orders. You've talked the last couple of quarters of those orders really stemming from brownfield investment, and I'm wondering whether or not we've started to see the benefit of behind-the-meter and new power generation orders starting to filter through into those numbers. That would be my first question. Then on the follow-up, I wondered if you could just give us a sense of how much of the software growth in the quarter was from renewals, and just as we think about that 10% ACV growth next year, where we should be expecting to see sort of lumpiness from those renewals as we look into 2027. Thank you.

Okay. I'll take the first one. On the power side, broad-based power activity. Certainly, the fleet modernizations is where the power activity started, but now it is broad-based where we see greenfield expansions, both brownfield and greenfield, and the greenfield activity has certainly been very, very strong in Q4, and we expect that to continue into next year. Overall, our power business, about $2.5 billion, grew at 25%. Our control systems portion of the power business, which is primarily driven by greenfield, was up close to 45%. We are seeing strong momentum and no slowdown in power, and we expect to repeat that going into next year.

On your second one, Alex, around software, we continue to do very well with our software, and obviously this year it was a bit of a headwind with the renewal dynamic costing us 70 basis points. As we've talked about, that unwinds roughly half next year, half in 2028. We'll get a little more than half next year. For the year, that should be a tailwind of around 35 basis points. I think that's the question you were getting after.

Your next question comes from the line of Amit Mehrotra with UBS. Your line is open, Amit. Please go ahead. As a reminder, remember to unmute on your device locally.

We will take another question from the line of Joe O'Dea with Vertical Research. Your line is open, Joe. Please go ahead.

Hi. You gave some helpful color on some of the growth within growth verticals in Q4, and I was wondering if you could do the same in terms of what rolls up to low double-digit expectations in 2027, and any color on the growth hierarchy across power, LNG, life sciences, semis, and A&D.

Yeah. I mean, I think, well, power and LNG certainly would be in the higher end of that forecast. We see that activity continuing to be very, very strong. Life sciences will be more high single digits. The semi business is where we've modeled as basically mid-single digits, a strong first half, and some slowdown modeled in for the second half, which is the wild card, which if it doesn't happen, we'll have an opportunity to outperform. So that's kind of how we're thinking about it. And strengthening-

Continues in the high single digits to low double digits type performance.

Understood. Then, you made a comment about completing the Aspen integration a couple years ahead of target. Just interested in the setup for growth as you move forward and the go-to-market approach and how you are now poised to leverage the full scope of Emerson capabilities with that addition of Aspen and the full integration.

Yeah, Joe, thanks for the question. We are very excited about the momentum that is building at Aspen as we came through the second half of this year. The team delivering overall in software and systems 10% ACV growth, and gives us confidence as we are going into 2028. But the focus inside of Aspen has been twofold. Number one, accelerate new product development in suites and new products into the marketplace, both within its traditional Aspen products, but as well into the DGM space. Number two, integration of technology within DeltaV Ovation to enable our customers' journey to an autonomous future to be possible in the future. Then I would say the third thing and the work that has been done by the team is really around the commercial engine. It is the customer success journey to manage retention.

It is the acquisition of new logos at AspenTech, and a lot of work there done in conjunction with the broader DeltaV Ovation teams as well. So, great momentum, a really good job by the team integrating and delivering the synergies two years ahead of schedule, and now as we go forward with a lot of confidence.

Your next question comes from the line of Brett Linzey with Mizuho. Your line is open, Brett. Please go ahead.

Hey, good morning all. Hey, wanted to just follow up on the Middle East disruption. Earlier in the year, you had described as roughly $100 million of rebuild and restart opportunities. I guess, how much of that is converted, if any? When you think about the 2027 guide framework, how much are you assuming is rebuild, or of that $100 million, how much is assumed within the framework for the year?

Emerson Electric (EMR) Q4 2026 Earnings Call Transcript

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