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The call presented a predominantly constructive operational and financial picture: solid order momentum, healthy growth in Test & Measurement and power, strong backlog and funnel expansion, disciplined pricing and cost actions, raised EPS guidance, and continued shareholder returns. Headwinds include a material but localized Middle East disruption, a meaningful China slowdown tied to chemicals, and a temporary software contract renewal dynamic that depressed software sales and margins in the quarter. Management conveyed confidence in second-half execution while acknowledging geopolitical and renewal-related uncertainties.
Emerson updated 2026 guidance with GAAP sales growth of ~4.5% and underlying sales growth of ~3% (ex-software-renewal growth ~4%), an FX tailwind of ~1.5%, and adjusted segment EBITDA margin of ~28%; adjusted EPS was raised to $6.45–$6.55 (Q2 EPS $1.54; Q3 EPS guide $1.65–$1.70), free cash flow is targeted at $3.5–$3.6B (H1 cash flow $694M, 15% margin; on track for ~10% FCF growth at >18% margin), ACV expected to finish up 10%+ (Q2 ACV $1.64B, +9% YoY), backlog $8.2B (+9% YoY) with a project funnel of $11.2B, book-to-bill 1.07, and ~$2.2B capital return for the year ($1.2B dividends, $1.0B repurchases; $542M repurchased in H1); Q3 sales growth ~5.5% (underlying ~5%) with segment pacing: Software & Systems ~+5% FY (Q3 ~+8%), Test & Measurement Q3 mid‑teens / FY low‑teens, Control Systems mid‑/low‑single, Intelligent Devices Q3 +4% / FY ~+2%, Safety & Productivity Q3 +1% / FY +2%; guidance includes a modeled one‑point 2026 headwind from the Middle East conflict (≈$150M disruption, with ~$100M near‑term rebuild/restart opportunity).
North America (U.S.) showed strength with Americas up 5% and the U.S. up 9%; growth verticals (power, LNG, life sciences, semiconductors, aerospace & defense) were up 22% in the quarter and are expected to be multi‑year drivers.
Management highlighted resilient operations amid disruption, disciplined pricing and cost reductions that offset inflation, and commercial progress on AI-enabled solutions (customer interest and pilot deployments such as the Aramco multisite optimization integration) that position Emerson for long-term software differentiation.
Underlying orders grew 5% in Q2, supporting second-half plans; underlying sales growth was 5% in Q2 (approximately 3% excluding the software renewal and Middle East headwinds) and backlog ended the quarter at $8.2 billion, up 9% year over year with a book-to-bill of 1.07.
Test and Measurement grew 12% year over year in Q2 and was a key driver of performance; Ovation (power) was up mid-teens in the quarter and Power as a vertical was up 23%.
Annual contract value (ACV) grew 9% year over year to $1.64 billion at quarter end; Software & Systems orders grew 18% year over year, and ACV growth is expected to be 10%+ for the full year.
Adjusted segment EBITDA margin came in around 27%–27.6% in Q2 (above expectations) and adjusted EPS was $1.54, up 4% year over year. Management raised the bottom and midpoint of full-year adjusted EPS guidance to $6.45–$6.55.
Project funnel grew to $11.2 billion and Emerson won ~ $450 million of funnel wins in the quarter (85% from growth verticals). Notable wins included Encore (DGM for electric delivery), NextDecade LNG Train 4&5, a multi-site oral GLP-1 pharma program, and aerospace test system work for a next‑gen communications satellite.
Completed $542 million of share repurchases in the first half and remain committed to returning ~ $2.2 billion to shareholders this fiscal year; Q2 cash flow was $694 million (cash flow margin ~15%) and management is on track for full-year cash flow growth of ~10% with free cash flow guidance of $3.5–$3.6 billion.
Greetings, and welcome to the Emerson Electric Co. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Doug Ashby, Director of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining Emerson Electric Co.’s second quarter 2026 earnings conference call. Today, I am joined by Emerson Electric Co.’s President and Chief Executive Officer, Surendralal Karsanbhai, Chief Financial Officer, Michael J. Baughman, and Chief Operating Officer, Ram R. Krishnan. As always, I encourage everyone to follow along with the slide presentation available on our website. Please turn to Slide 2, which contains 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 Electric Co.’s President and CEO, Surendralal Karsanbhai, for his opening remarks.
Thank you, Doug. Good afternoon. I would like to begin by thanking our colleagues around the world. At this moment, it is important to highlight our teams in the Middle East who persevered in a challenging, at times dangerous, environment. All of our employees and families remain safe and we continue to serve our customer needs throughout the region. What defines our company is a high-performance culture based on deep respect for each other and an unwavering commitment to our customers. Led by Liam Hurley, our team in the ...