Emerson Electric Co (EMR) (Q4 2026) Earnings Call Highlights: Strong Orders and Double-Digit ...

Negative Points

• Europe remains a weak market, with sales down 1% in 2026 and only low single-digit growth projected for 2027, as demand in Germany, France, and Italy stays soft.

• China continues to face persistent headwinds in chemical and refining, with orders negative and no recovery planned for 2027 due to overcapacity in petrochemical and refining segments.

• Intelligent Devices segment growth remains low at 4% in Q4 and is projected at 4% for 2027, hampered by weakness in Europe and China.

• Corporate expenses in Q4 were $45 million higher than expected due to several one-off items, including FX headwinds, impairments, and poor medical claims experience.

• First-quarter 2027 margin guidance is lower than the full-year outlook due to mix, start-up costs, and continued investments, with adjusted segment EBITDA margin expected at 28% versus 29% for the full year.

• The Middle East conflict remains a risk, with an $85 million headwind in 2026 and the 2027 outlook assuming no escalation; any disruption could impact results.

Q & A Highlights

Q: Scott Davis of Melius Research asked whether Emerson's fiscal 2027 guidance of roughly 5% underlying sales growth is conservative, given 14% order growth and 11% backlog growth exiting the year. A: CEO Lal Karsanbhai said the acceleration in ordersparticularly in growth verticals, with 37% of Q4 driven by projectsgives significant confidence, and backlog growth supports the year. However, continued weakness in Europe (down 1% in 2026) and China, where chemical and refining remain under pressure, led to the measured guide.

Q: Andrew Kaplowitz of Citi asked whether the Q4 order surge, especially in the Middle East, is durable into 2027 given energy security and power/LNG cycles. A: Karsanbhai said the Middle East is investing in both gas/liquids production and downstream projects, plus resiliency work such as pipeline storage and transportation. He cited the large Qatar downstream petrochemical win as evidence of customer confidence despite regional disruption, and said Emerson expects continued momentum in the Middle East and Africa in 2027, assuming the conflict remains status quo.

Q: Steve Tusa of JPMorgan asked why Q1 2027 implied incrementals look lower than the full-year guide, and whether mix differs from Q4. A: CFO Mike Baughman said Q1 will see year-over-year improvement, helped by software contract renewals, but also faces mix headwinds, project start-up costs affecting the first half (reading through Intelligent Devices), and continued investment. For the full year, Emerson has dialed in about 80 basis points of margin improvement, with midpoint incrementals around 40%. He noted Q4's strong Control Systems & Software margin of 33.1% benefited from easy comps, power/Ovation strength, software mix, positive project closeouts, and 5 points of price.

Q: Andrew Obin of Bank of America asked what drove the higher-than-expected Q4 corporate expense and whether expenses were pulled forward. A: Baughman said corporate/other came in about $45 million above expectations due to several individually small itemsFX headwinds, a missed gain and an impairment on nonoperating assets, poor medical claims experience, and smaller itemsplus discretionary IT investments. The $45 million largely won't repeat, but Emerson plans about $25 million of incremental digital enablement investment in 2027 (commercial tools, contracting, HR systems, AI readiness), leading to a corporate/other assumption of $195 million.

Q: Andrew Obin also asked how much of the order book is for 2027 versus 2028. A: Baughman pointed to the 10-K disclosure of backlog scheduled within the next 12 months, which had been sticky at 75% but dropped to 70%evidence the order book is filling with longer-cycle work. He added that MRO activity remains robust in certain markets and exited the year at healthy high single digits.

Q: Julian Mitchell of JPMorgan asked whether the large buyback signals M&A will remain limited. A: Karsanbhai confirmed the read: Emerson is committed to returning cash to shareholders over the three-year cycle outlined at its 2025 Investor Conference. There is ample firepower for bolt-on acquisitions in the $1 billion and sub-$1 billion range, which the company continues to evaluate, but large-scale M&A is not in the plan.

Q: Julian Mitchell also asked about the Test & Measurement organic revenue outlook after mid-teens Q4 growth, with guidance calling for high single digits. A: COO Ram Krishnan said T&M momentum (about 15% growth in Q4) should continue into the first half, with aerospace and defense very strong, semiconductors very strong, and the portfolio business moderating but still high single digits; automotive, now under $200 million, is the only slow segment. The plan assumes a strong first half and a moderating second half on caution about the semi cycle and tougher comparisons, leaving upside if semis stay strong.

Q: Alexander Virgo of Evercore ISI asked about the complexion of power orderswhether behind-the-meter and new generation orders are filtering throughand how much software growth came from renewals. A: Krishnan said power activity started with fleet modernizations but is now broad-based, with greenfield very strong in Q4 and expected to continue. The roughly $2.5 billion power business grew 25%, and the control systems portion, primarily greenfield-driven, was up close to 45%. Baughman added that the software renewal dynamic was a 70-basis-point headwind in 2026 that unwinds roughly half in 2027 and half in 2028, implying a tailwind of about 35 basis points next year.

Q: Joe O'Dea of Vertical Research asked for the growth hierarchy within growth verticals for the low double-digit 2027 outlook. A: Krishnan said power and LNG are at the higher end of the forecast with very strong activity, life sciences is more high single digits, and semiconductors are modeled at mid-single digits with a strong first half and some second-half slowdownthe wildcard that could drive outperformance. LNG is expected in the high single digits to low double digits.

Q: Joe O'Dea also asked about the setup for AspenTech growth now that integration is complete two years ahead of target. A: Karsanbhai said Aspen momentum built through the second half, supporting 10% ACV growth in Software & Systems and confidence into 2028. Focus areas are accelerating new product development (traditional Aspen products and the DGM space), integrating technology with DeltaV innovation to enable customers' autonomous operations journey, and strengthening the commercial enginecustomer success, retention, and new logo acquisition.

Q: Brett Linzey of Mizuho asked how much of the roughly $100 million Middle East rebuild/restart opportunity has converted and what is assumed in the 2027 guide. A: Krishnan said some converted in 2026, and $50 million to $75 million of rebuild/rehab opportunity remains available going into 2027, which is how the company is modeling it.

Q: Brett Linzey also asked whether Test & Measurement's 2027 opportunity is more top-line recovery or operating leverage.For the complete transcript of the earnings call, please refer to the full earnings call transcript .