Emerson Electric : Q2 EARNINGS PRESENTATION

Published: 2025-05-07 07:01:08 ET EMR

Published on 05/07/2025 at 07:01

2025 Q2 Earnings

EM ER SO N | 1

May 7, 2025

Solid underlying orders growth of 4% with all regions positive. Process and hybrid businesses were up 6%, and T&M turned positive - up 8%.

Underlying sales were at the top of guide with another record margin quarter. Adjusted EPS exceeded top of guide by $0.06.

Sustained momentum in process and hybrid markets with discrete recovery. Demand for industrial software remains strong.

2025 tariff exposure is ~$245M; expect to fully mitigate earnings impact

Underlying sales at ~4%

Raising adjusted EPS midpoint, now $5.90 - $6.05 Updating free cash flow to $3.1B - $3.2B

$2.3B capital return to shareholders through dividend and share repurchase

Closed AspenTech acquisition and expect to be modestly accretive to 2025 Adjusted EPS. Targeting $100M of cost synergies by 2028.

Fully integrated T&M and completed all actions to achieve run-rate of $200M cost synergies.

Determined retaining Safety & Productivity is the best value for our shareholders.

EM ER SO N | 3

Key Messages for the Quarter

ACV Growth

11%

Underlying Orders Growth1

Underlying Sales Growth

1% - 2%

Gross Profit Margin

53.5%

Adjusted Segment EBITA Margin

28.0%

~26.5%

Operating Leverage

180%

Adjusted EPS

$1.48

$1.38 - $1.42

Free Cash Flow

$738M

Note: Definition for annual contract value (ACV) can be found in the end notes. 1 Excludes AspenTech

EM ER SO N

| 4

2025 Q2

Key Metrics

Results

February Guidance

Discrete Recovery and Confidence in Strong Capital Cycle Support Our 2025 Orders Outlook

Trailing Three-Month Underlying Orders1 Versus Prior Year

12%

10%

Process & Hybrid

April T3M 7%

(2%)

(4%)

(6%)

(8%)

(10%)

(12%)

Sep-22

(14%)

Discrete

Underlying % Change

Q3E

Q4E

Process & Hybrid

MSD

Discrete

HSD

Safety & Productivity

(4%)

LSD

MSD

Emerson

MSD

HSD

Dec-22

Mar-23

Jun-23

Sep-23

Dec-23

Mar-24

Jun-24

Sep-24

Dec-24

Mar-25

Jun-25

Sep-25

Note: Process & Hybrid includes Control Systems & Software, Measurement & Analytical and Final Control. Discrete includes Test & Measurement and Discrete Automation.

1 Excludes AspenTech. Orders data includes Test & Measurement results in all periods presented, including on a pro forma basis for periods prior to the acquisition close on October 11, 2023.

EM ER SO N | 5

Favorable Demand Setup Leads to Second Half Acceleration in Underlying Sales for All World Areas With Robust Software Growth

Americas

~50% of sales

Europe

~20% of sales

Asia, Middle East & Africa

~30% of sales

U/L Sales: H1 +3% | 2025E MSD

U/L Sales: H1 (2%) | 2025E ~flat

U/L Sales: H1 +3% | 2025E MSD

PROCESS & HYBRID

DISCRETE

INDUSTRIAL SOFTWARE

2025E ACV Growth: >10%

Note: Process & Hybrid includes Control Systems & Software, Measurement & Analytical and Final Control. Discrete includes Test & Measurement and Discrete Automation. Underlying industrial software sales are embedded within regional and end-market performances and outlooks.

HSD+ MSD LSD

flat

(LSD) ( MSD)

EM ER SO N | 6

China

Favorability AspenTech's Digital Grid Management (DGM) & Manufacturing and Supply Chain (MSC) Robust growth in DeltaV subscriptions and solid performance for LabVIEW driven by enterprise agreements

Strong EPC project backlog across Energy and Energy Transition, bulk Chemical pressured Sustained momentum in Power, Life Sciences, Semiconductor and Aerospace & Defense

2025 Q2 Performance Summary

Underlying

2024 2025

Process and hybrid businesses grew MSD

Price contributed 1.5 pts Backlog1: $7.5B

2024 2025

Price-cost, cost reductions and segment mix

200

bps

Operating leverage: 180%

14%

Outstanding operational performance, especially from AspenTech

Driven by strong profit and working capital performance

Q2'25 includes ~$130M of acquisition-related costs and integration activities compared to ~$60M in Q2'24

Free cash flow margin of 17%

2024 2025 2024 2025

EM ER SO N | 7

1 Excludes AspenTech

$0.14

$0.05

($0.07)

$1.48

NCI Buy-in $0.07

Interest ($0.02)

$1.36

FX ($0.05)

Pension ($0.02)

Software & Control (excl AspenTech) $0.04

AspenTech Operations1

$0.07

Intelligent Devices $0.03

Q2 2024 Operations Impact of AspenTech Buy-in

Other / Non-Operating

Q2 2025

EM ER SO N | 8

1 Operations performance modeled for AspenTech at 57%

Q2 Adjusted EPS Bridge

Expect to Offset ~$455M Annualized Gross Incremental Tariffs

~$320M

~1.75% of sales

~$1.6B

~$725M

~$425M

~$325M

~$150M

China

Rest of World

Mexico

~19% of COGS

China

Rest of World

Mexico

~$45M

~$30M

~$15M

~$100M

~1% of sales

~1.35%

of sales

~1% incremental price and surcharges

(~$55M)

(~$190M)

~$455M (~$455M) Annualized

inventory on hand and supply chain actions

IEEPA and Section 232 tariffs held at current levels2

Reciprocal tariffs (ex-China) assumed at 10% for Q3 and ~15% for Q4 (and annualized)

Reciprocal tariffs (China) assumed at 125%

~2.5% of sales

Price actions in place to cover tariffs on U.S. imports

Applying surcharges to backlog

~$135M

~0.75% of sales

~$105M

U.S.

~80% of imports from Mexico are mitigated by USMCA compliance or in-bond services

Regionalization efforts have moved supply chain away from China

Americas: 80% regionalized COGS

Europe: 82% regionalized COGS

~1% of COGS

~0.35% of sales

AMEA: 85% regionalized COGS

Round 3 tariff3 of 125%, effective 4/10/25

No waiver or exemption mechanism

Country of origin for semiconductor fabrication will be based on location of wafer fabrication

Utilizing Emerson's global manufacturing footprint for China customers

Production shifts to plants in southeast Asia

Note: Numbers may not foot due to rounding. Import value excludes impact from tariffs / duties in place in 2024.

EM ER SO N | 9

1 Includes impact of IEEPA tariffs effective February 4 (China) and March 4 (Mexico/Canada) with benefit of USMCA exemptions. 2 As of May 6, 2025. 3 Round 1 and 2 retaliatory tariffs on U.S. exports to China were not impactful to Emerson.

Solid Execution in a Fluid Environment - Increasing Net Sales and Midpoint of Adjusted EPS 2025 Guidance

Sales

~1% (~1%)

Holding midpoint of underlying guide as price offsets pockets of subdued demand

FX improved 1.5 pts

(1.5%)

flat

Additional price actions to offset tariffs

Muted China expectations

Slower demand recovery in factory automation

Softer demand (S&P)

GAAP Unfavorable FX Underlying H2 Price (Tariffs) Demand Underlying Favorable FX GAAP

Adjusted EPS

Raising midpoint of guide

Strong Q2 operational performance offsets H2 demand impact

$0.08

$0.00

(~$0.10)

~$0.05

H2 FX provides ~5c upside to prior guide

February Guide Q2 Beat Tariffs H2 Demand H2 Favorable FX May Guide

EM ER SO N | 10

2025 Guidance

2025 Q3

2025 Full Year

~1 pt

flat

Operating Leverage

60s

Adjusted EPS

$1.48 - $1.52

$5.90 - $6.05

YoY Growth

7.5% - 10%

FCF Margin

EM ER SO N | 11

~17%

GUIDANCE ASSUMPTIONS

Returning $2.3B to shareholders through

dividend and share repurchase

Tax rate: ~22%

EM ER SO N | 11

Remain Committed to Disciplined Capital Allocation

Priorities

2025 Guide

2026 - 2027

Investing for innovation and growth

Dividend 69th Year of Increased Dividends - $1.2B in 2025

Continues to be a priority

$1.1B in 2025 Expect ~$2.5B over 2 years balanced between share

Completed AspenTech acquisition and focused on integration in 2025

Net Debt / Adj EBITDA expected to be ~2.3x by year end

repurchase and strategic bolt-on M&A

EM ER SO N | 12

Net Debt / Adj EBITDA expected to be less than or equal to 2x by end of 2027

2025E

2026E

2027E

EM ER SO N | 12

1 At fiscal year end

Focused on maintaining A2 / A credit ratings

Corporate and Other Items

(in millions)

2025 Q2 Results

2025 Q3 Expectations

2025 Expectations

Stock Compensation - GAAP

($59)

~($70)

~($250)

Integration-Related Stock Compensation Expense

~$25

~$40

Adjusted Stock Compensation - Non-GAAP

($50)

~($45)

~($210)

Pension

$27

~$25

~$110

Corporate & Other - GAAP

($238)

~($65)

~($410)

Restructuring and Related Costs

~$5

~$15

Acquisition / Divestiture Fees and Related Costs

$160

~$5

~$190

Adjusted Corporate & Other - Non-GAAP

($74)

~($55)

~($205)

Interest Income / (Expense)

($41)

~($100)

~($240)

Non-Controlling Interest - GAAP

$55

~$50

Amortization of Intangibles (AspenTech)

($32)

($73)

NCI impact from the transaction costs incurred by AspenTech.

($48)

Adjusted Non-Controlling Interest - Non-GAAP

($25)

~($71)

Average Diluted Share Count

565.4

~564

~566

EM ER SO N | 14

Control Systems & Software

Historical Results Including AspenTech

Restructuring and related costs

Adjusted segment EBITA (non-GAAP)

$940

$242

$278

$348

$239

$1,107

$337

Adjusted segment EBITA margin (non-GAAP)

25.8%

26.0%

28.8%

33.3%

24.0%

28.1%

33.8%

This information is being provided for investors to see the historical results of Control Systems & Software that now includes AspenTech.

2023

Q1 2024

Q2 2024

Q3 2024

Q4 2024

2024

Q1 2025

Sales

$3,648

$932

$965

$1,043

$995

$3,935

$993

EBIT (GAAP)

$422

$114

$143

$217

$98

$572

$208

EBIT margin (GAAP)

11.6%

12.3%

14.8%

20.8%

9.8%

14.5%

20.9%

Amortization of intangibles

508

127

132

127

126

512

127

EM ER SO N | 15

Reconciliation of Non-GAAP Measures Underlying Sales Growth

This information reconciles non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts)

Underlying Sales Growth

2025 Q2

2025 Q3

Guidance

2025

Guidance

Reported (GAAP)

4.5% - 5.5%

~4%

(Favorable) / Unfavorable FX

(1%)

(Acquisitions) / Divestitures

Underlying (non-GAAP)

3.5% - 4.5%

~4%

2025 Q2 Underlying Sales Change

Reported (GAAP)

(Favorable) / Unfavorable FX

(Acquisitions) / Divestitures

Underlying (Non-GAAP)

Intelligent Devices

(1%)

Software and Control

EM ER SO N | 16

References to underlying orders and underlying sales in this presentation exclude the impact of significant acquisitions, divestitures and currency translation

Reconciliation of Non-GAAP Measures Adjusted Segment EBITA

Adjusted Segment EBITA

2024 Q2

2024

2025 Q2

Net sales

$4,376

$17,492

$4,432

Pretax earnings (GAAP)

711

2,020

629

Pretax earnings margin (GAAP)

16.3%

11.5%

14.2%

Corporate items and interest expense, net

1,069

311

Amortization of intangibles

322

1,274

278

Restructuring and related costs

189

Adjusted segment EBITA (non-GAAP)

$1,139

$4,552

$1,240

Adjusted segment EBITA margin (non-GAAP)

26.0%

28.0%

This information reconciles non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts)

Adjusted Segment EBITA Margin

2025 Q3

Guidance

2025

Guidance

Pretax earnings margin (GAAP)

~16%

~17%

Corporate items and interest expense, net / amortization of intangibles / restructuring

~11%

~10%

and related costs

Adjusted segment EBITA margin (non-GAAP)

~27%

Operating Leverage

2025 Q2

2025

Guidance

Pretax margin leverage (GAAP)

(148%)

~140%

Corporate items and interest expense, net / amortization of intangibles / restructuring and related costs

328%

(~80%)

Adjusted segment EBITA leverage (non-GAAP)

180%

60s

Operating Leverage, or Incremental Margins, throughout the presentation is defined as the ratio of the change in adjusted segment EBITA for the current period less the prior period, divided by the change in the net sales for the current period less the prior period.

EM ER SO N | 17

Reconciliation of Non-GAAP Measures Adjusted EPS

This information reconciles non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts)

2024 Q2

2024

2025 Q2

2025 Q3

Guidance

2025

Guidance

Earnings per share (GAAP)

$0.95

$2.82

$0.86

$1.04 - $1.08

$4.05 - $4.20

Amortization of intangibles

0.36

1.43

0.32

~0.36

~1.34

Restructuring and related costs

0.05

0.33

0.04

~0.06

~0.20

Acquisition/divestitures fees and related costs

0.03

0.26

0.17

~0.02

~0.22

Amortization of acquisition-related inventory step-up

0.38

Discrete taxes

(0.10)

0.09

Loss on Copeland note receivable

0.38

Gain on subordinated interest

(0.10)

Loss on divestiture of business

0.07

0.09

Adjusted earnings per share (non-GAAP)

$1.36

$5.49

$1.48

$1.48 - $1.52

$5.90 - $6.05

EM ER SO N | 18

Reconciliation of Non-GAAP Measures Free Cash Flow

This information reconciles non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts)

$ in billions

2024 Q2

2025 Q2

2025

Guidance

Net Sales

$4,376

$4,432

~$18.2

Operating cash flow (GAAP)

733

825

$3.5 - $3.6

Operating cash flow margin (GAAP)

17%

19%

~19%

Capital expenditures

(82)

(87)

~(0.4)

Free cash flow (non-GAAP)

$651

$738

$3.1 - $3.2

Free cash flow margin (non-GAAP)

15%

17%

~17%

EM ER SO N | 19

Reconciliation of Non-GAAP Measures Net Debt / Adjusted EBITDA

This information reconciles non-GAAP measures with the most directly comparable GAAP measure (dollars in millions, except per share amounts)

2025E

Net Debt / pretax earnings (GAAP) 3.8x

Interest, depreciation, amortization (1.4x)

Acquisition/divestiture fees and related costs, restructuring and related costs (0.1x)

Net Debt / Adjusted EBITDA (non-GAAP) 2.3x

EM ER SO N | 20

Reconciliation of Non-GAAP Measures Other

This information reconciles non-GAAP measures with the most directly comparable GAAP measure (dollars in billions, except per share amounts)

December 31, 2024

March 31, 2025

Backlog (GAAP)

$8.52

$8.8

AspenTech

(1.25)

(1.3)

Backlog excluding AspenTech (non-GAAP)

$7.27

$7.5

EM ER SO N | 21

Endnotes

Annual Contract Value (ACV):

ACV is an estimate of the annual value of our portfolio of term license and software maintenance and support (SMS) contracts, the annual value of SMS agreements purchased with perpetual licenses and the annual value of standalone SMS agreements purchased with certain legacy AspenTech term license agreements. Because software revenue recognition rules require upfront recognition of a significant portion of agreements, comparisons of revenue across periods is primarily impacted by the timing of term license renewals. ACV approximates the estimated annual billings associated with our recurring term license and SMS agreements at a point in time, and management finds this business metric useful in evaluating the growth and performance of our industrial software business.

For agreements denominated in other currencies, a fixed historical rate is used to calculate ACV in U.S. dollars in order to eliminate the impact of currency fluctuations.

EM ER SO N | 22

Disclaimer

Emerson Electric Co. published this content on May 07, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 07, 2025 at 11:00 UTC.