• Underlying Sales Growth: 2%, led by process and hybrid businesses up approximately 5%.
• Gross Profit Margin: Record 53.5%.
• Adjusted Segment EBITDA Margin: 28%, a 340 basis points improvement.
• Adjusted Earnings Per Share (EPS): $1.38, up 13% year-over-year.
• Free Cash Flow: $694 million, up 89% versus Q1 2024, with a margin of approximately 17%.
• Share Repurchase: Approximately $1 billion completed in the quarter.
• Backlog: Increased slightly to $7.3 billion.
• Operating Leverage: Increased expectations to the 70s from the mid-40s.
• Price Contribution to Growth: 1.5 points.
• Full Year 2025 Guidance: Underlying sales growth of 3% to 5%; adjusted EPS of $5.85 to $6.05; free cash flow of $3.2 billion to $3.3 billion.

• Warning! GuruFocus has detected 7 Warning Signs with ZWS.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Emerson Electric Co (NYSE:EMR) reported strong Q1 performance with underlying sales growth of 2%, driven by robust demand in process and hybrid markets.
• The company achieved record gross profit margin of 53.5% and adjusted segment EBITDA margins of 28%, reflecting strong operational performance.
• Emerson Electric Co (NYSE:EMR) completed approximately $1 billion in share repurchases during the quarter, demonstrating a commitment to returning value to shareholders.
• The company reiterated its full-year guidance for underlying sales, adjusted EPS, and free cash flow, indicating confidence in its operational outlook.
• Emerson Electric Co (NYSE:EMR) continues to see significant opportunities in LNG and power sectors, with a strong project funnel and potential for over $1 billion in orders in the coming years.

Negative Points

• Discrete businesses, including safety and productivity, experienced a decline of approximately 4%, indicating challenges in certain market segments.
• The company faced foreign exchange headwinds, impacting GAAP net sales guidance and adjusted EPS by approximately $0.08.
• Demand in China remained muted, with weakness in chemical and discrete end markets offsetting strength in power.
• Factory automation and automotive markets remained depressed, particularly on the EV side, with no significant recovery expected in the near term.
• The impact of tariffs and geopolitical uncertainties, particularly related to Mexico, remains a concern, although Emerson Electric Co (NYSE:EMR) has strategies in place to mitigate potential effects.

Q & A Highlights

Q: Could you provide more details on the potential impact of tariffs in Mexico and the exposure of your business there? A: Lal Karsanbhai, President and CEO, stated that Emerson is comfortable with its understanding of the exposure related to potential tariffs in Mexico. The company has assessed the necessary price adjustments and is prepared to implement them, but specific details on the cost of goods sold (COGS) were not disclosed.

Q: Can you explain the foreign exchange impact on sales and EPS, as it seems to be a headwind on sales but a benefit to EPS? A: Michael Baughman, CFO, explained that the $0.04 benefit to EPS was due to transactional effects from the prior year that did not occur in the current year. This was not related to the translation of the P&L but rather to non-functional balance sheet pieces.

Q: What are the expectations for the discrete business, including legacy Emerson discrete and test and measurement, for the remainder of the year? A: Lal Karsanbhai confirmed that the commentary on discrete applies to both legacy Emerson discrete and test and measurement businesses. There was strength in semiconductors and certain MRO elements, but broader factory automation and automotive sectors were weaker.

Q: How do you view the potential for LNG projects, especially with the lifting of the US moratorium on export licenses? A: Lal Karsanbhai noted that the lifting of the moratorium has positively impacted LNG investments, allowing for financing and project awards to proceed. Emerson has a strong global position, particularly in the Middle East and Africa, and expects significant opportunities in LNG automation content.

Q: Can you discuss the margin performance in Q1 and the drivers behind it? A: Ram Krishnan, COO, highlighted that positive price, favorable net material inflation, strong mix, and growth in AspenTech contributed to the strong margin performance. Cost reductions and favorable mix were significant drivers of the incrementals seen in the quarter.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.