Emerson Electric ((EMR)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Emerson Electric’s recent earnings call painted a picture of robust financial performance and strategic growth, albeit with some regional challenges. The company reported strong results and expressed optimism for fiscal 2026, but also acknowledged headwinds in Europe and China, as well as impacts from software renewals and sustainability projects.
Strong Demand in Key Markets
Emerson experienced resilient demand across its key markets, with underlying orders growing by 6% in Q4. This growth was significantly driven by a 27% increase in Test & Measurement orders, alongside robust performances in North America, India, and the Middle East and Africa.
Record Financial Performance
The company achieved record financial performance with an adjusted segment EBITDA margin of 27.5% in Q4 and 27.6% for the year. Adjusted earnings per share rose by 9% to $6, and free cash flow increased by 12% to $3.24 billion, underscoring Emerson’s strong profitability.
Significant Wins in Strategic Projects
Emerson secured major contracts, including deals with Entergy for three power generation facilities and with Bechtel Energy for automating the Woodside Louisiana LNG project. These strategic wins are expected to bolster the company’s growth trajectory.
Expansion in Test & Measurement
Orders in the Test & Measurement segment grew by 27% in Q4, driven by demand from the semiconductor, aerospace, and defense sectors, as well as a broad-based portfolio business.
Positive Outlook for Fiscal 2026
Emerson is optimistic about fiscal 2026, projecting a 5.5% sales growth and adjusted earnings per share between $6.35 and $6.55. The company also expects a 10%+ growth in Annual Contract Value (ACV), reflecting continued investment in digital transformation.
Challenges in Europe and China
Despite overall strong performance, Emerson faced challenges in Europe and China, with Europe experiencing a 2% decline in sales for the year. The company anticipates muted demand in these regions to persist into 2026.
Impact of Software Contract Renewals
Emerson expects a $120 million headwind from lower-value software contracts up for renewal in 2026, impacting Q1 adjusted EPS by $0.07 and full-year EPS by $0.15.
Weakness in Discrete Markets
The discrete markets segment showed only a 1% increase, with ongoing weaknesses in automotive and factory automation, particularly in Europe and China.
Softness in Sustainability and Decarbonization Projects
A significant reduction in the outlook for sustainability and decarbonization projects led to a $1.5 billion reduction in the project funnel, highlighting challenges in this area.
Forward-Looking Guidance
Looking ahead, Emerson provided detailed guidance for fiscal 2026, forecasting a 5.5% sales growth with underlying sales growth of 4%. The company projects an adjusted EBITDA margin of approximately 28% and expects adjusted EPS to be between $6.35 and $6.55. Emerson plans significant capital returns, including $1 billion in share repurchases and $1.2 billion in dividends, reflecting a 5% increase per share.
In summary, Emerson Electric’s earnings call highlighted a strong financial performance and strategic wins, with a positive outlook for fiscal 2026. However, challenges in Europe and China, alongside impacts from software renewals and sustainability projects, present areas of concern. Investors will be keenly watching how the company navigates these challenges while capitalizing on growth opportunities.