Q1 2025 Summary
Published Feb 7, 2025, 7:58 PM UTC- Cost reductions and positive price/cost management are expected to continue throughout the year, supporting strong margins.
- EMR is gaining momentum in competitive displacement in their power business, particularly with control systems, indicating market share gains.
- Sequential orders growth in the discrete business, especially in semiconductors, shows positive signs for potential recovery in these markets.
- Emerson's automotive and factory automation markets remain significantly depressed, with no expectation of a meaningful recovery in the near term, which could negatively impact sales growth in these segments.
- Sales in China are down mid-single digits, and growth remains uncertain, potentially affecting the company's performance in the region.
- First-quarter margins benefited from favorable mix and discretionary cost reductions that are expected to temper as the year progresses, potentially leading to lower profitability in future quarters.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Underlying Sales | FY 2025 | 3% to 5% | reiterated, no specific figure | no change |
Adjusted EPS | FY 2025 | $5.85 to $6.05 | reiterated, no specific figure | no change |
Free Cash Flow | FY 2025 | $3.2B to $3.3B | reiterated, no specific figure | no change |
Operating Leverage | FY 2025 | mid-40s | 70s | raised |
Book-to-Bill Ratio | FY 2025 | no prior guidance | ~1 | no prior guidance |
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Margin Outlook
Q: What drove margin strength; will it continue?
A: Emerson's margin strength was driven by cost reductions, positive price/cost dynamics, and favorable mix, including a significant contribution from AspenTech. These benefits are expected to continue, but the exceptional mix that boosted first-quarter margins may temper in the rest of the year. -
China Sales and Outlook
Q: Will China sales grow this year?
A: China sales were down mid-single digits in the quarter. Emerson aims for a flat year in China, expecting improvement in the second half. Growth may be offset by strength in North America and the Middle East. -
Order Growth and Book-to-Bill
Q: What are the order growth assumptions and book-to-bill outlook?
A: Emerson does not publicly forecast orders but noted that book-to-bill was greater than 1 in the first quarter and expects it to be about 1 for the full year, following typical seasonal patterns. -
Discrete and National Instruments Outlook
Q: Are there signs of recovery in discrete and National Instruments?
A: Emerson saw sequential orders growth in the discrete business. Positive signs include an uptick in semiconductors, restocking by distributors, and promising activity in North America. A second-half recovery is expected due to easier comparisons and nominal sequential growth. -
M&A Plans Post-Transformation
Q: What is the future M&A strategy after portfolio transformation?
A: Post-transformation, Emerson will focus on disciplined bolt-on acquisitions to bring in technology and expand customer relevance, while returning cash to shareholders and investing in organic growth opportunities. -
Project Funnel Growth and LNG Impact
Q: Can the project funnel continue to grow; how did LNG moratorium affect you?
A: Emerson sees a robust project funnel with no slowdown in sustainability projects. The LNG moratorium delayed investments, but lifting it has opened opportunities, especially in North America and Qatar, where Emerson is well-positioned. -
Cost Actions and Synergies
Q: How will cost and synergy actions affect future margins?
A: Cost reduction benefits will continue throughout the year, but the extraordinary mix benefits seen in Q1 may temper. Some discretionary spending throttled in Q1 will partially return in subsequent quarters. -
Automotive and Factory Automation Outlook
Q: What is the outlook for automotive and factory automation markets?
A: Both markets remain depressed, particularly automotive and EVs. Emerson does not expect significant absolute recovery in the second half, but easier comparisons should drive growth in these segments. -
Segment Profitability Drivers
Q: What drove profitability in measurement & analytical and control systems?
A: Strong gross margins due to favorable project closeouts and cost reductions drove profitability in these segments. SG&A spend control also contributed to improved margins. -
FX Impact on Earnings
Q: Why was FX a headwind on sales but a benefit to EPS?
A: The $0.04 EPS benefit from FX was due to transactional effects not repeating from the prior year, specifically nonfunctional balance sheet translations, not from P&L translation.