Emerson Electric Co. (EMR) Q4 2026 Earnings Call Transcript

Operator: Good morning, and welcome to Emerson's Fourth Quarter and Full Year 26 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 *1 to raise your hand. To withdraw your question, press *1 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.

Doug Ashby: Good morning. And thank you for joining Emerson's fourth quarter and full year 26 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 and 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 R. Krishnan. I would 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. 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.

Surendralal Lanca Karsanbhai: Thank you, Carl. Good morning, everyone. I would like to begin by thanking Emerson's 70 thousand 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. 1 year ago, at our investor conference in New York City, we outlined a value creation framework. 1 year into this 3-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 6th year as CEO, I reflect on the strength of the Emerson management system. Designed in the 1.97 thousands under Chuck Knight's leadership, It has evolved over time, but most meaningfully, over the past 6 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 3. 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 and measurement, up 15%, and control systems and software, up 14%. Adjusted segment EBITDA 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 repurchases, 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 EBITDA 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 4. 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 EBITDA 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 2 years ahead of our initial target. Adjusted earnings per share of $6.59 marked our 6th 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 5. 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 aerospace and defense. Test and 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. is capital being deployed in LNG and traditional energy projects. Last November, we outlined an opportunity pipeline of 315 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. Near shoring and self sufficiency investments continue to unlock activity in semiconductor, life sciences, and defense. 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 fund; 75% came from our growth verticals, and I want to highlight a few large wins. First, we were selected for a major petrochemical project in Qatar where our customer's 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 its Phase 2 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 1 solutions. And finally, Emerson signed a 10-year DeltaV MES subscription agreement with the leading global life sciences contract manufacturer. Spanning multiple systems across 3 sites, Emerson software will help improve operational efficiency through automated data collection. More accurate electronic batch records, and more consistent manufacturing workflows. Please turn to slide 6. We expect The United States, 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 United States, with healthy MRO. We are planning for significant activity in growth verticals in the United States where about a third of our business is serving power, LNG, life sciences, semiconductor, and aerospace and defense. 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 remain soft. Approximately 30% of Emerson 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 both chemical and refining. We have a mid single digit outlook for the rest of Asia, as energy security grid modernization, and FPSO support greenfield investment and stable MRO. Growth verticals grew 21% in 2026, and now comprise 27% of Emerson 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 United States. 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.

Michael J. Baughman: Thanks, Lal. Please turn to Slide 7 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 4 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 2 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 EBITDA 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 8 for details on Q4 underlying sales by region. The Americas grew 9%, with the U.S. up 11%. The pace of business remains strong in the US, 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 9 for details on fourth quarter underlying sales and margin performance for our 3 business groups. Software and Systems was up 14% underlying as test and measurement grew 15%, and control systems and 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% to 9% in the first quarter and 7% to 8% for the full year. We are planning for high single digit growth in both Test and Measurement and Control Systems and Software, from broad based demand in the US and growth verticals. ACV is expected to grow approximately 10% in 2027. Intelligent Devices is projected to grow 3% to 4% in the first quarter and 4% for the full year. Supported by stable MRO, project activity and growth verticals, and strength in the United States. Safety and productivity is modeled to grow 3% to 4% in both Q1 and the full year. While we are seeing continued growth in electric utilities in 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 27 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 EBITDA 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 to $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 EBITDA margin of 28%, and adjusted earnings per share of $1.58 to $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 3 pillars, organic growth, operational excellence and capital allocation. We also laid out clear targets for 2028. Our automation portfolio is aligned to multiyear secular tailwinds that support 4% to 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.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a 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.

Scott Davis: Hey. Good morning, guys. Lal and Mike and Ram and welcome, Carl.

Michael J. Baughman: Good morning.

Scott Davis: Yes. 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 motorcycle stuff? Or a little cushion in there. Just maybe help us understand that those kind of deltas.

Surendralal Lanca Karsanbhai: Yeah, good question, Scott. We obviously feel very good about the pacing of orders as we exited them. Really the last 2 quarters and saw significant acceleration in the growth vertical orders, particularly And as Mike pointed out, 37% of sales in Q4 really being driven by projects, whether those are modernizations of greenfield investment 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 something that we need to watch. Given the week. The negative performance in 2026. And, of course, China, although there was positivity in China in a few of our markets like test and 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.

Scott Davis: Makes sense. And I have to ask a question. Just I am sure the script is written before the election results. Any tweaks that you would make based on the election results? Or end markets that you might think might be a little better or a little worse?

Surendralal Lanca Karsanbhai: Not really. I mean, I think we have. I think the industrial policy of The United States, particularly over the last 2 years, has been really positive for our business. Certainly, a. An energy policy, a near shoring policy, has benefited Emerson, and we expect that to continue because, ultimately, those policies do create American jobs and they create American well-being. So we hope that continues. I do not think that would change anything to how we outlook the year right now.

Scott Davis: Okay. Best of luck in 2027, guys.

Surendralal Lanca Karsanbhai: Thank you. I appreciate it. Thanks, Scott.

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

Andy: Morning, everyone.

Surendralal Lanca Karsanbhai: Morning, Andy. Lal, maybe you could characterize a little more of surge in orders that you saw in Q4 and especially in The Middle East. I know you mentioned a large pet chem project in the region, but I assume much of that growth in the region is 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 you look at energy security under the ongoing cycles you have, that you mentioned power, LNG, test measurement. Yeah, and really good question. So maybe answering the first part, The Middle East continues to invest in 2 facets. 1, gas production, liquid production, but, of course, the downstream investments as well. And then secondly, on resiliency projects, whether that is pipeline storage transportation, which we are 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 the downstream facility we have 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. So 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. So we are excited about what the team's accomplishing there. And for the Outlook. Now that assumes, of course, that we are kind of status quo on the war. But if that is the case, we feel really good about what the plan that we put forward here.

Andy: that is great. And then, Lal, Mike, I think you have 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. So maybe give us more color into what is embedded in your full-year expectations. In terms of pricing and the confidence level you have to stay ahead of cost, given cost efficiency is already out there. I think you have got sort of normal incrementals modeled for 2017, but maybe just elaborate on that.

Surendralal Lanca Karsanbhai: Yeah, 3% price was this year obviously a point came from tariff and 2% normalized pricing. And so going into next year, we feel pretty good about 2% price in the plan. Normal level of pricing. I think it is supported by our positioning in almost every category in every end market. So we feel pretty good. that is how we have gone into the year now. Certainly inflation, particularly material inflation, we have modeled in electronics, and some of the pricing related to memory will be unfavorable. Tariffs will be marginally favorable versus this year. But net, good positive green on price-cost should underwrite the incrementals and the margin plan for next year.

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

Steve: Good morning, guys.

Surendralal Lanca Karsanbhai: Morning, Steve.

Steve: Just on the first quarter, it looks like I think the implied incremental is a little bit lower than what you have guided for the year. I think you have 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?

Michael J. Baughman: Hey Steve, it is Mike. Yeah. For the first quarter, we will see year over year improvement. And as you point out, we will get some software contract renewal benefit there. We do have some mix. We are continuing to deliver more projects. We have got some startup cost that is coming in for an expansion that we have 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 the full year, for the full year, we have dialed in about 80 basis points of improvement, and there will be the software contract dynamic, which creates tailwind And we will continue to do what we have been doing around price-cost being green, and offsetting inflation and cost reduction. So we feel very good about the profitability that we have dialed in the full year incrementals. I think at the midpoint, we are sitting right there at about 40%. So feel like we have put together a very responsible profitability plan as we move into 2027. Although, as you point out, 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.

Steve: And is there something different in the mix relative to Q4? Because, I mean, 4 q, I think you had some decent, yeah, greenfield in 4 q.

Michael J. Baughman: Yeah. So 4 q was really a story of control systems and 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 have got project closeouts that typically happen. Sometimes those are a positive. Sometimes they are a negative this year; they were positives. And then we also had good price there. We had the pricing dynamic with the memory cost coming in. I think we 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 5 points of price in that segment. So that is really what drove the quarter ahead of expectation. And it was just a confluence of a lot of goodness at CS&S that all hit in the quarter?

Steve: Okay. Thanks a lot. Great color.

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

Andrew Obin: Yeah. Good morning. Can you hear me?

Surendralal Lanca Karsanbhai: Good morning, Andrew.

Andrew Obin: 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?

Michael J. Baughman: Yeah, Andrew, great question. You know, all the goodness I talked about at CS&S, we have the exact opposite story at the corporate level, and we were about $45 million higher than we had expected to be. I would tell you that is several individually inconsequential items that all added up to a big number. And 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. Now what was it? We had some FX headwinds. At corporate, we manage assets that are nonoperating 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. And then there was just some smaller items, all of which broke bad. Now 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. So if you bridge 2026, we finish the year corporate other at 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 2025 will read through, and then we have got some inflation that gets you to the $1.95 assumption for 2027. So yes, Andrew, a tough quarter at corporate with a lot of 1 offs that will not affect 2027 in any meaningful way, but we are investing in 2027 in the digital enablement that will read through.

Andrew Obin: And just a 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, like, time 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.

Michael J. Baughman: Yes, Andrew. You will see in the 10 k, you know, 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 it is a. Your point is a good 1 and 1 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 is exited the year very healthy, high single digits. So, and supported, obviously, the 7% growth in the quarter. So we feel very good about the orders. But, yes, some are longer dated. Thank you.

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

Nigel Coe: Oh, thank you. Thanks. Good morning, guys. Thanks for the question.

Surendralal Lanca Karsanbhai: Good morning.

Nigel Coe: Just wanted to just dig into a little bit divergence in between, obviously, software and services. If we--so, software solutions, we 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. So just wanna understand a little bit better that divergence. I am assuming it is a project versus MRO, but any additional cover would be great.

Ram R. Krishnan: Yeah, I think--I mean, So Nigel, Ram here. On the on the on systems and software, as a--now, obviously, there is T and 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 and 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. And frankly the dynamics around Europe China and also The Middle East did impact intelligent devices. Brett.

Nigel Coe: And then you mentioned Middle East. I have to check the number twice. 40% plus growth in the quarter. How much of that is just kind of a catch up on prior activity? I think you are assuming that strength continues in 2027. So just wanna understand a little better what you are seeing in The Middle East and how much of this is just catch up versus new projects, stroke, rebuild?

Ram R. Krishnan: Yeah. I mean, 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. so I think timing on projects plus strong MRO in the quarter, which should continue, assuming there is 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 have modeled in for next year. And at this point, we feel pretty good about that plan.

Nigel Coe: Okay. Thanks, man.

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

Julian Mitchell: Hi. Good morning. Maybe just wanted to start off with the capital deployment and sort of cash flow as that has not really come up. So you have been very disciplined or constrained on M&A activity for a couple of years now. I would 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?

Surendralal Lanca Karsanbhai: Julian, good morning. Lal here. Yes, think you have 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 3-year cycle. Obviously, at year end, now guiding into the second year, we maintain that. In line with that plan. Having said that, there is 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 will continue to evaluate them. But in terms of the large scale work we had done in the past that is not in the cards in this plan.

Julian Mitchell: Understood. And then maybe on the organic revenue outlook for Test and Measurement, Just wondered kind of how you have thought about that. You had mid teens growth in Q4. I think you have guided for sort of steady high single digit growth through the next 12 months. I understand it is quite a book and ship business. Comps are tough. So maybe sort of unpack that T and M sales guide a little bit, please.

Ram R. Krishnan: Yeah. Ram here, Julian. Yeah. You said it. I think at the end of the day, the momentum in T and M, which was about 15% growth in Q4, will certainly continue into the first half. Because we have got visibility, the aerospace and defense segment is very strong. Semis are very strong. And portfolio has moderated. but still high single digits. Obviously, the 1 segment which is now less than $200 million of the portfolio is the automotive piece. Which is the only segment that is slow. Now 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 pain of tougher comparisons. I think it is a par plan, how we have laid out. Now, obviously, if the semi business continues to be strong into the second half, then we can certainly do better than the plan we have laid out.

Julian Mitchell: Great. Thank you.

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

Alexander Virgo: Thanks very much. Good morning, gentlemen. I wondered if you could just talk a little bit about the complexion of your power orders You talked the last couple of quarters of those orders really stemming from brownfield investment. And I am wondering whether or not we have started to see the benefit of behind the meter and new power generation or starting to filter through into those numbers? That would be my first question. And then on the I wondered if you could 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.

Ram R. Krishnan: Okay. I will take the first 1. On the on the power side, you know, broad based power activity. Certainly, you know, the fleet modernization 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 is 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%. So we are seeing strong momentum. And no slowdown in power, we expect to repeat that going into next year.

Michael J. Baughman: So on your second 1, Alexander, around software, you know, 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 have talked about that unwinds roughly half next year, half in 2028. We will get a little more than half next year. So for the year, that should be a tailwind of around 35 basis points. I think that is the question you were getting after. Yeah. Thanks, Mike.

Alexander Virgo: that is great. Okay.

Operator: 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. Thank you. We will take another question from the line of Joe O'Deane with Vertical Research. Your line is open, Joe. Please go ahead.

Joseph O'Dea: Hi. Good morning. Good morning, Joe.

Surendralal Lanca Karsanbhai: You gave some--hi. I gave some helpful color on some of the growth within growth verticals in Q4. 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 LNG, life sciences, I mean, and A&D.

Ram R. Krishnan: 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 have modeled as, basically, mid single digits, a strong first half and some slowdown modeled in for the second half, which is the wildcard which if it does not happen, we will have an opportunity to outperform. So that is kind of how we are thinking about it. and strengthening A&D in the high single digits. In the high single digits to low double digits type. Performance.

Joseph O'Dea: Understood. And then Lal, you made a comment about completing the Aspen integration a couple of years ahead of Target. And I am just interested in the setup for AspenTech 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.

Surendralal Lanca Karsanbhai: 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 go into 2028. The focus inside of AspenTech has been twofold, Number 1, 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. And then number 2, integration of technology within Delta v innovation to enable our customers' journey to an autonomous future to be possible in the future. And that is--the third thing then the work that is 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 innovation teams as well. So great momentum. A really good job by the team integrating and delivering the synergies 2 years ahead of schedule. And now as we go forward with a lot of confidence. Thank you.

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

Brett Linzey: Hey. Good morning. Hey. Wanted to do just follow-up on the middle The Middle East disruption. So earlier in the year, you had--did $100 million of rebuild and restart opportunities. I guess, how much of that is converted, if any, in, and 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?

Ram R. Krishnan: So we got some of that this year, I would say, from a modeling perspective, $50 million to $75 million still available in terms of rebuild opportunity or rehab opportunity going into next year. that is kind of how we are thinking about it.

Brett Linzey: Okay. that is helpful. And then on Test and Measurement into next year, is the bigger opportunity around the top line recovery or is there really a nice operating leverage story as that volume comes back. I know you guys have taken a lot of cost out of that business. Just trying to think about the incremental margin profile into next year.

Ram R. Krishnan: Yeah. I think the answer is both. I mean, obviously, the orders momentum is supports another strong year. From a top line perspective, and we drove good, really good leverage and significant margin expansion this year and a similar type of expansion modeled in for next year.

Michael J. Baughman: Brett, I would just add, our commitment there was to get to 31% in 5 years. We ended the year at 29%. I certainly would expect there to be a point-plus of improvement coming. Or going through 2027. So certainly on track with the commitments that we laid out at the beginning there.

Brett Linzey: Thanks for the detail.

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

Andrew Buscaglia: Hey. Good morning, everyone.

Surendralal Lanca Karsanbhai: Good morning.

Andrew Buscaglia: Just wanted to touch on intelligent devices. it is been another year of kind of low growth in that segment. it is picking up a little bit in the second half. And order suggests that could be changing a bit. So what is it that what sort of underlying subverticals or regions need to improve meaningfully to get you back to, like, a high single digit number that you have done in years past? Like, what is really kind of the biggest drag that needs to flatten?

Ram R. Krishnan: You know, for us, Europe and China, so I think impact of Europe and China in intelligent devices is significant and that really has to turn in a meaningful way. We have not. We do not see that. We do not see that where we are talking a high single digit. Think our model, long term model for intelligent devices is a 3% to 6% type framework. Now there will be years where we will go past the 6% but I think at this point, I think it is a par plan. And it is got a reasonable expectation for Europe and China built into it going into next year.

Andrew Buscaglia: Yeah. And specifically on China, you kind of called it out early as 1 of the reasons for putting out a bigger guide relative to your orders on the top line. What is it that is most concerning to you that could go 1 way or the other in that region? I guess, what do you have your eye on that could change 1 way or the other if the year progresses?

Ram R. Krishnan: You know, again, I think as Lal said earlier, we see pockets of growth. I mean, test and measurement business, for example, had 31% growth in China. Now it is $200 million out of the $1 billion we do in China. We see good activity in power, and we see good activity in export business from China. and marine. As those become a larger part of our business, I think you will see some net positive there. But the biggest issue we have is 40% of our sales in China is exposed to petrochemical and refining, and that segment has to new capital formation in a meaningful way, and it is over-capacitized. So until we see that move in a direction of new capacity being added, it is gonna be hard for us to turn China around. Now we do have the power of easier comparisons going into next year, so we will see growth. But for China to return to historic levels, it is got to have greenfield investment in chemical, petrochemical. And refining.

Andrew Buscaglia: Yep. Great color. Thank you.

Operator: Your next question comes from the line of Varun with Bernstein. Your line is open, Varun. Please go ahead.

Varun: Morning, everyone. Thank you for the question. I just wanted to dive a little bit deeper. I mean, talked a bit about China, but on the Europe side, it is a market that is in decline. It is a market not growing very fast. what is your strategy there? Are you thinking about, you know, in an environment where the market is not growing all that much? Are there any levers that you can pull to try and gain share? Absolutely.

Ram R. Krishnan: We have done a lot of work in identifying white spaces, identifying new customer segments, new markets because to your point, we do see extraordinary growth in China in our test and measurement business. there is very-- there is significant growth in semiconductors. The humanoid segment, and other elements of the economy. So The job of our selling organizations, as we have said, is knocking on new doors and finding those new customer segments that actually can spend and share of wallet. So really important for us to do in both China and Europe as we go through this year, and I think we are set up to execute in that fashion.

Varun: Thank you for the color. And then as a follow-up, can you share any incremental feedback on the Nigel AI assistant platform that you have launched for LabVIEW. it is been out for some time now. How is customer feedback been? And are you seeing any impact on retention rates from it?

Ram R. Krishnan: Yeah. I think, first off, great customer feedback. In fact, we do our annual event at NI Connect and. Where we bring a lot of our customers in. And Nigel was obviously a big feature of how what we shared with our customers and the feedback has been overwhelmingly positive. Now the way we are positioning Nigel is it is part of the high--the highest tier of LabVIEW, and we can see clear migration of purchase towards that tier which has built in Nigel capability. Now, obviously, the roadmap has more and more capabilities with Nigel towards autonomous workflows, and that is really what we are excited about where we can truly go from a virtual assistant, if you will, to automating test workflows for customers, which will have meaningful impact on productivity and speed. So more to come in the Nigel area.

Varun: Thanks so much. I will hand it off.

Operator: Your next question comes from the line of Amit Mehrotra with UBS. Your line is open, Amit. Please go ahead.

Amit Mehrotra: Okay. Thank you. Let's try this again. I am clearly still learning how to use the phone. Thank you. Sorry about that. Gentlemen. Good morning.

Surendralal Lanca Karsanbhai: Maybe I could just start. You know, 1 thing that is very clear is when you guys had a lot of curveballs thrown at you in fiscal 26. With The Middle East. And not only did you hit your initial guidance, but you were able to sort of exceed it. And I wonder as I think about sort of the 2027 and how you guys frame the guidance, I am assuming there is some level of prudency in how you are thinking about Europe. Because when I look at your fiscal first quarter organic growth guidance or underlying growth guidance, it is similar to the full year. I would think comps get a little bit easier. You are obviously accelerating order growth. There should be maybe some level of accelerating growth. So maybe just talk about that question specifically and how you sort of. the level of prudence that you applied when you formed--formulating the 2027 guide. Amit, thank you. This is Lal. Great question and commentary. I appreciate your, you know, reflection on 2026. Now look. We certainly exit the. Exited the year with momentum in underlying orders. And I think that, as reflected in the backlog gives us confidence to execute 2027. Having said that, it is not all roses out there. The European market, the China market, has been called out a few times on the call already. Are concerning. We are expecting moderate, slight improvements in each, but they are. There will be headwinds to underlying growth, I believe, throughout the year. that is where the conservatism really lies in. We continue to be relatively optimistic about The Middle East under a status quo of the conflict. We continue to be optimistic about The United States. In areas such as India and Southeast Asia. So that is really the offset that led us to the construct of this guide. But overall, I certainly feel positive as I enter 2027.

Amit Mehrotra: Okay. Thank you, Lal. And just as a follow-up, I noticed that when I look at the buyback, how front end loaded the buyback is, I think most of it the majority of it is actually in the first quarter relative to the full year guide. Can you just talk about what the driving factor is to front-load it so significantly? Maybe it is just a sort of cash flow thing or balance sheet capacity or maybe a reflection of where you think your stock's trading at? Any color on why it is so front-loaded would be appreciated.

Michael J. Baughman: Sure. Thanks for the question, Amit. You know, we are committed to the $2.5 billion, but as we have talked about in the sort of longer range capital planning, we do wanna create flexibility for acquisitions. So front loading gave us the opportunity to get the benefit of the lower share count that will, you know, support the 2027 guide. While giving us flexibility as the year unfolds, if an opportunity, a bolt on comes up, we can do that. And still be in a position to deliver 2028. So it was really buying us some flexibility. And, of course, yes, there is a valuation perspective that we took at the time that we saw some opportunity there, and that has certainly borne out over the course of the last couple months. So we feel very good about the decision. Good about having the flexibility And, you know, if no acquisition candidate comes up, then we will stick to the plan and return the additional $1 billion in the back 9 months of the year.

Amit Mehrotra: Got it. Okay. Thank you very much. Appreciate it.

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