Emerson Electric Q4 2026 Earnings Call Transcript

Emerson Electric (NYSE:EMR) reported fourth-quarter financial results on Wednesday. The transcript from the company’s fourth-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/405969020

Summary

Emerson Electric reported strong Q4 and full-year 2026 results, with underlying sales up 7% in Q4 and adjusted EPS up 15% to $1.86. Full-year adjusted EPS rose 10% to $6.59, exceeding expectations.

The company met its strategic objectives for the first year of a three-year value creation framework and is on track for 2028 commitments, driven by growth in sectors like automation and supported by macro trends.

For fiscal 2027, Emerson Electric guides for 5% underlying sales growth, an adjusted segment EBITDA margin of 29%, and adjusted EPS of $7.25. The company plans substantial capital returns to shareholders, including $2.5 billion in share repurchases and $1.3 billion in dividends.

Demand was strong across all regions in Q4, particularly in North America and the Middle East. Software and Systems saw 14% growth, and Intelligent Devices grew 4%.

Emerson Electric completed the integration of AspenTech two years ahead of schedule, realizing $100 million in synergies, and continues to see robust order growth in sectors like power, LNG, and aerospace.

Management expressed confidence in the outlook for 2027, highlighting ongoing investments in automation and energy security projects, while noting challenges in Europe and China.

The company plans to continue disciplined M&A, mostly focusing on bolt-on acquisitions, while prioritizing shareholder returns through buybacks and dividends.

Full Transcript

OPERATOR

Good morning and welcome to Emerson Electric’s fourth quarter and full year 2026 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 star one to raise your hand. To withdraw your question, press star one 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 Electric.

Please go ahead.

Carl Schumacher (Vice President of Investor Relations)

Good morning and thank you for joining Emerson Electric’s fourth quarter and full year 2026 earnings conference call. Before we begin, please allow me to take a moment to introduce myself. My name is Carl Schumacher. I’ve recently been appointed as Emerson Electric’s new Investor Relations Leader. I’ve been with Emerson Electric for over 12 years now and I’ve had the opportunity to hold finance leadership roles across multiple geographies and segments.

Most recently, I served as a segment CFO for Test and Measurement. I’m excited to work with everyone and I look forward to meeting with you all soon. Today I am joined by Emerson Electric’s President and Chief Executive Officer Lal Karsanbhai, Chief Financial Officer Michael Baughman, and Chief Operating Officer Ram 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 Electric’s President and CEO, Lal Karsanbhai, for his opening remarks.

Lal Karsanbhai (President and Chief Executive Officer)

Thank you, Carl. Good morning, everyone. I’d like to begin by thanking Emerson Electric’s 70,000 employees for their dedication, passion, and perseverance. Together, we delivered a strong fourth quarter and finish to 2026. Emerson Electric 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. One year ago at our investor conference in New York City, we outlined a value creation framework. One year into this three-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 range of industries we serve give us confidence in the resilience of the company we have built.

As I complete my sixth year as CEO, I reflect on the strength of the Emerson Management System designed in the 1970s under Chuck Knight’s leadership. It has evolved over time, but most meaningfully over the past six 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 Electric’s future. Lastly, I would like to thank our customers, the Emerson Electric 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 Electric 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 of 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 repurchase, 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 Electric 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 two years ahead of our initial target. Adjusted earnings per share of $6.59 marked our sixth consecutive year of double-digit adjusted EPS growth. Emerson Electric 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 Electric 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 the 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. Nearshoring and self-sufficiency investments continue to unlock activity in semiconductor, life sciences, and aerospace 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 are up $500 million sequentially.

In our fourth quarter, Emerson Electric won approximately $575 million from the funnel; 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 is expanding downstream capacity with a world-scale ethylene cracker complex. Emerson Electric 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 Electric was chosen by LNG Canada for their phase two expansion at their LNG export facility in Kitimat, British Columbia, which will double the capacity from 14 to 28 million tons per annum. Emerson Electric will provide our leading valve and sensor technology, building on the success of our phase one solutions. And finally, Emerson Electric signed a 10-year DeltaV MES subscription agreement with a leading global life sciences contract manufacturer spanning multiple systems across three sites. Emerson Electric 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 Electric 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 remains soft. Approximately 30% of Emerson Electric’s 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 bulk chemical and refining. We have a mid-single-digit outlook for the rest of Asia as energy security, grid modernization, and FPSOs support greenfield investment and stable MRO. Growth verticals grew 21% in 2026 and now comprise 27% of Emerson Electric 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 Michael Baughman to discuss our financial results and guidance in more detail.

Michael Baughman (Executive Vice President and Chief Financial Officer)

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 two 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 U.S., 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 three 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 U.S. 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 in European markets is soft. Overall, Emerson Electric 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 2027 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 16-cent 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 three pillars: organic growth, operational excellence and capital allocation. We also laid out clear targets for 2028. Our automation portfolio is aligned to multi-year secular tailwinds that support 4% to 7% underlying sales growth. Our operational excellence has been a hallmark of Emerson Electric 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 one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question 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 (Analyst at Melius Research)

Hey, good morning, guys. Lal and Mike and Ram, and welcome, Carl.

Lal Karsanbhai (President and Chief Executive Officer)

Good morning.

Scott Davis (Analyst at Melius Research)

Guys, I just wanted to stress-test the guidance just a little bit. I have to ask. I mean, you had orders up 14%, you’ve 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 those kind of deltas.

Lal Karsanbhai (President and Chief Executive Officer)

Yeah, great question, Scott. We obviously feel very good about the pacing on orders as we exited really the last two quarters and saw significant acceleration in the growth vertical orders particularly, and as Mike pointed out, 37% of Q4 really being driven by projects, whether those are modernizations or greenfield investments. So that acceleration gives us significant confidence as we head into the year, and it’s 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 be something that we need to watch, given 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 (Analyst at Melius Research)

Makes sense. I have to ask a question. I’m sure the script was 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?

Lal Karsanbhai (President and Chief Executive Officer)

Not really. I mean, I think the industrial policy of the United States, particularly over the last two years, has been really positive for our business. Certainly energy policy and near-shoring policy have benefited Emerson Electric, 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 don’t think I would change anything related to how we outlook the year right now.

Scott Davis (Analyst at Melius Research)

Okay, best of luck in ’27, guys. Thank you, I appreciate it.

OPERATOR

Thanks, Todd. Your next question comes from the line of Andy Kaplowitz with Citi. Your line is open. Andy, please go ahead.

Andy Kaplowitz (Analyst at Citi)

Good morning, everyone.

Lal Karsanbhai (President and Chief Executive Officer)

Morning, Andy.

Andy Kaplowitz (Analyst at Citi)

Well, maybe you could characterize a little more of this surge in orders that you saw in Q4 and especially in the Middle East. I know you mentioned the large petchem project in the region, but I assume much of that growth in the region is associated with energy security type projects. When you step back for the overall company, do you think this recent order surge is somewhat durable into ’27 when you look at energy security and the ongoing cycles you have—you know, you mentioned power, LNG, Test and Measurement?

Lal Karsanbhai (President and Chief Executive Officer)

Yeah, Andy, really good question. So maybe answering the first part: the Middle East continues to invest in two facets. One, gas production, liquid production, but of course the downstream investments as well. And then secondly, on resiliency projects—whether that’s pipeline, storage, transportation—which we’re 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 a downstream facility we’ve seen in the region in many decades, which was encouraging to see in the midst of all the disruption, of course resulting from 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’re excited about what the team’s accomplishing there and for the outlook. Now, that assumes, Andy, of course, that we’re kind of status quo on the war, but if that’s the case, we feel really good about the plan that we put forward here.

Andy Kaplowitz (Analyst at Citi)

That’s great. And then, Lal, I think you’ve been relatively positive regarding Emerson’s ability to price. Pricing, I think, ended around 3% for the year, price versus cost data in the green. So maybe give us more color into what’s embedded in your ’27 expectations in terms of pricing and the confidence level you have to stay ahead of cost, given cost efficiency out there. I think you’ve got sort of normal incrementals modeled for ’27, but maybe just elaborate on that.

Ram Krishnan (Executive Vice President and Chief Operating Officer)

Yeah, so 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. That’s normal level of pricing. I think it’s supported by our positioning in almost every category and every end market. So we feel pretty good. That’s how we’ve gone into the year. Now, certainly inflation, particularly material inflation, we’ve modeled in electronics. And some of the pricing related to memory will be unfavorable.

Tariffs will be marginally favorable versus this year. But net-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 Toussa with Wells Fargo. Your line is open, Steve. Please go ahead.

Steve Toussa (Analyst at Wells Fargo)

Hi, good morning, guys. Just on the first quarter, it looks like, I think the implied incremental is a little bit lower than what you’ve guided for the year. I think you’ve 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 Baughman (Executive Vice President and Chief Financial Officer)

Hey, Steve, it’s Mike. Yeah, for the first quarter we’ll see year-over-year improvement and as you point out, we’ll get some software contract renewal benefit there. We do have some mix. We’re continuing to deliver more projects. We’ve got some startup costs that’s coming in for an expansion that we’ve 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 27, for the full year, we’ve dialed in about 80 basis points of improvement and there will be the software contract dynamic which creates a tailwind, and we will continue to do what we’ve been doing around price/cost being green and offsetting inflation and cost reduction. So we feel very good about the profitability that we’ve dialed in, and the full-year incrementals, I think at the midpoint, are sitting right there at about 40%. So feel like we’ve put together a very responsible profitability plan as we move into 27.

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 Toussa (Analyst at Wells Fargo)

And is there something different in the mix relative to 4Q? Because I mean 4Q I think you had some decent greenfield and 4Q…

Michael Baughman (Executive Vice President and Chief Financial Officer)

It 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’ve got project closeouts that typically happen.

Sometimes those are a positive, sometimes they’re 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’ve 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’s really what drove the quarter ahead of expectation. And it was just a confluence of a lot of goodness at CSS that all hit the quarter.

Steve Toussa (Analyst at Wells Fargo)

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 (Analyst at Bank of America)

Good morning, can you hear me? Excellent. Just a question on corporate expense in the fourth quarter came in sequentially quite a bit higher than we thought. What’s driving it? Are we pulling any expenses for…

Michael Baughman (Executive Vice President and Chief Financial Officer)

Yeah, Andrew, great question. You know, all the goodness I talked about at CSS, we have the exact opposite story at the corporate level, and we were about $45 million higher than we expected to be. I would tell you that 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’s worth noting that was about 5 cents. That was offset by lower interest and share count, and we continue to get tax benefits year over year.

So it really didn’t have a big impact on the EPS. Now what was it? We had some FX headwinds at corporate. We manage assets that are non-operating assets. Sometimes we have gains, sometimes we have impairments and losses. This quarter we actually had modeled in a small gain that didn’t 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 were 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’s worth noting we continue to plan those investments out into 27. So if you bridge 26, we finished the year corporate other 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 Salesforce, contracting, HR systems, and really getting us in a position to better leverage AI as we move forward.

So that incremental $25 will read through, and then we’ve got some inflation that gets you to the $195 million assumption for 2027. So yes, Andrew, a tough quarter at corporate with a lot of one-offs that won’t affect 27 in any meaningful way. But we are investing in 27 in the digital enablement that will read through.

Andrew Obin (Analyst at Bank of America)

And just to follow up, just on orders, how should we think about how much of your order book right now is actually for 28 versus 27? Because I do appreciate your comments in China and Europe, but you know, I would imagine orders reflect those markets as well. So maybe can you talk about from a temporary, like time, perspective, how does it flow? What percent of your order book is for 27 and how much of it now extends into 28? Thank you.

Michael Baughman (Executive Vice President and Chief Financial Officer)

Yes, Andrew, you’ll 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 your point is a good one, and one that we’ve been making as well, that the order book is filling up with long cycle, and that’s starting to read through now. That said, MRO activity remains robust in certain markets and it exited the year very healthy, high single digits, and supported obviously the 7% growth in the quarter.

So we feel very good about the orders. But yes, some are longer dated.

Andrew Obin (Analyst at Bank of America)

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 (Analyst at Wolfe Research)

Thank you. Thanks. Good morning, guys. Thanks. Good morning. Good morning. Just wanted to dig into a little bit the divergence, you know, between obviously software and services. If we—software solutions—if we, I’m assuming the control systems portion of that is growing high single digits, obviously double digits this quarter. The ID portfolio is growing, you know, 4% in 2027. So I just want to understand a little bit better that divergence. I’m assuming it’s project versus MRO, but any additional color would be great.

Ram Krishnan (Executive Vice President and Chief Operating Officer)

Yeah, I think—I mean, Nigel, Ram here—on the two dynamics on Systems and Software. Now obviously there’s TNM 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 TNM and power—that are 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.

Nigel Coe (Analyst at Wolfe Research)

Great. And then you mentioned Middle East. I had to check the number twice—40% plus growth in the quarter. How much of that is just a kind of a catch up on prior activity? I think you’re assuming that strength continues in 2027. So I want to understand a little better what you’re seeing in the Middle East and, you know, how much of this is just catch up versus new projects/retrofits.

Ram Krishnan (Executive Vice President and Chief Operating Officer)

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’ve modeled in for next year. And at this point we feel pretty good about that plan.

Nigel Coe (Analyst at Wolfe Research)

Okay, thanks.

OPERATOR

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

Julian Mitchell (Analyst at JPMorgan)

Hi, good morning. Maybe just wanted to start off with the capital deployment and sort of cash flow, as that hasn’t really come up. So you’ve been very disciplined or constrained on M&A activity for a couple of years now. I’d 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?

Lal Karsanbhai (President and Chief Executive Officer)

Hey, Julian. Good morning. Lal here. Yeah, I think you’ve 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 three-year cycle. Obviously at year-end now, guiding into the second year, we maintain that in line with that plan. Having said that, there’s 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’ll continue to evaluate them.

But in terms of the large-scale work we had done in the past, that’s not in the cards in this plan.

Julian Mitchell (Analyst at JPMorgan)

Understood. And then maybe on the organic revenue outlook for Test and Measurements, just wondered kind of how you’ve thought about that. You had mid-teens growth in Q4. I think you’ve got it for sort of steady high single-digit growth through the next 12 months. Understand it’s quite a book-and-ship business, comps are tough, so maybe sort of unpack that TNM sales guide a little bit, please.

Ram Krishnan (Executive Vice President and Chief Operating Officer)

Yeah, Julian, you said it. I think at the end of the day for us, the momentum in TNM, which was about 15% growth in Q4, will certainly continue into the first half because we’ve got visibility. The aerospace segment is very strong, semis are very strong, and portfolio has moderated but still high single digits. Obviously the one 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 power of tougher comparisons. So I think it’s a pause plan, how we’ve laid out. Now, obviously, if the semi business continues to be strong into the second half, then we can certainly, you know, do better than the plan we’ve laid out.

Julian Mitchell (Analyst at JPMorgan)

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 (Analyst at Evercore ISI)

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’m wondering whether or not we’ve started to see the benefit of behind-the-meter and new power generation orders starting to filter through into those numbers. That would be my first question. And then on the follow-up, I wondered if you could just 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 as we look into ’27. Thank you.

Ram Krishnan (Executive Vice President and Chief Operating Officer)

Okay, I’ll take the first one. On the power side, broad-based power activity, certainly the fleet modernizations is where the power activity started. Now it is broad-based where we see greenfield expansions, both brownfield and greenfield. And the greenfield activity certainly has been very, very strong in Q4, and we expect that to continue into next year. Overall, our power business, about two and a half billion dollars, 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, and we expect to repeat that going into next year.

Michael Baughman (Executive Vice President and Chief Financial Officer)

So on your second one, Alex, around software, you know, we 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’ve talked about, that unwinds roughly half next year, half in ’28. We’ll 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’s the question you were getting after.

Alexander Virgo (Analyst at Evercore ISI)

Yeah, thanks, Mike. That’s great.

OPERATOR

Okay, your next question comes from the line of Manit Mehrotra with UBS. Yes, 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’Dea with Vertical Research. Please go ahead.

Joe O’Dea (Analyst at Vertical Research Partners)

Hi, good morning. Good morning. You gave some—hi—gave some helpful color on some of the growth within growth verticals in Q4, and I was wondering if you could do the same in terms of what rolls up to low double-digit expectations in ’27 and any color on the growth hierarchy across power, LNG, life sciences, and semis.

Lal Karsanbhai (President and Chief Executive Officer)

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’ve 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 doesn’t happen, we’ll have an opportunity to outperform. So that’s kind of how we’re thinking about it and strengthening in the high single digits to low double-digits type performance.

Joe O’Dea (Analyst at Vertical Research Partners)

Understood. And then Lal made a comment about completing the Aspen integration a couple years ahead of target, and just interested in the setup for growth as you move forward and the go-to-market approach, and how you’re now poised to leverage the full scope of Emerson Electric capabilities with that addition of Aspen and the full integration.

Lal Karsanbhai (President and Chief Executive Officer)

Joe, thanks for the question. We’re very excited about the momentum that’s building at Aspen. As we came through the second half of this year, the team delivering overall in software and systems, 10% ACV growth, gives us confidence as we go into ’28. The focus inside of Aspen has been twofold. Number one, 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 two, integration of technology within DeltaV innovation to enable our customers’ journey to an autonomous future to be possible in the future.

And the third thing and the work that’s been done by the team is really around the commercial engine. It’s the customer success journey to manage retention. It’s 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 two years ahead of schedule, and now as we go forward with a lot of confidence.

OPERATOR

Thank you. Your next question comes from the line of Brett Lindsey with Mizuho. Your line is open. Brett, please go ahead.

Brett Lindsey (Analyst at Mizuho)

Hey, good morning all. Hey, wanted to just follow up on the Middle East disruption. So earlier in the year you had described as roughly $100 million of rebuild and restart opportunities. I guess how much of that has converted, if any? And when you think about the ’27 guide framework, how much are you assuming is rebuild, or of that hundred million, how much is assumed within the framework for the year?

Michael Baughman (Executive Vice President and Chief Financial Officer)

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

Brett Lindsey (Analyst at Mizuho)

Okay, that’s 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.

Michael Baughman (Executive Vice President and Chief Financial Officer)

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

Lal Karsanbhai (President and Chief Executive Officer)

Yeah, Brett, I would just add, you know, our commitment there was to get to 31% in five years. We ended the year at 29. I certainly would expect there to be a point-plus of improvement coming or going through ’27. So we’re certainly on track with the commitments that we laid out at the beginning there.

Brett Lindsey (Analyst at Mizuho)

Thanks for the detail.

OPERATOR

Your next question comes from the line of Andrew Buscalia with BNP Paribas. Your line is open, Andrew, please go ahead.

Andrew Buscalia (Analyst at BNP Paribas)

Hey, good morning everyone. Good morning. Just wanted to touch on Intelligent Devices. So it’s been another year of kind of low growth in that segment. It’s picking up a little bit in the second half, and orders suggest that could be changing a bit. So what is it that—what sort of underlying sub-verticals or regions need to improve meaningfully to get you back to like a high single-digit number that you’ve done in years past? Like what’s really kind of the biggest drag that needs to flip?

Lal Karsanbhai (President and Chief Executive Officer)

You know, for us, Europe and China. So I think the impact of Europe and China in Intelligent Devices is significant and that really has to turn in a meaningful way. And we don’t see that—we don’t see that where you’re talking a high single digit. I think our long-term model for Intelligent Devices is a three to six type framework. Now there’ll be years where we’ll go past the six, but I think at this point it’s a part plan and it’s got a reasonable expectation for Europe and China built into it going into next year.

Andrew Buscalia (Analyst at BNP Paribas)

Yeah, and specifically on China, you know, you kind of called it out early as like one of the reasons precluding you from, you know, putting out your high relative to your orders on the top line. What is it that’s most concerning to you that could go one way or the other in that region? I guess what do you have your eye on that, you know, could change one way or the other as the year progresses?

Michael Baughman (Executive Vice President and Chief Financial Officer)

You know, again, I think as Lal said earlier, we see pockets of—I mean, our test and measurement business, for example, had 31% growth in China. Now it’s 200 million out of the billion-eight we do in China. We see good activity in power, and we see good activity in export business from China now, and marine. So as those become a larger part of our business, I think you’ll 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 receive 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’s going to be hard for us to turn China around. Now we have the power of easier comparisons going into next year, so we’ll see growth. But for China to return to historic levels, it’s got to have greenfield investment in chemical, petrochemical, and refining.

Andrew Buscalia (Analyst at BNP Paribas)

Great color, thank you.

OPERATOR

Your next question comes from the line of Varun Govindaraj with Bernstein. Your line is open. Varun, please go ahead.

Varun Govindaraj (Analyst at Bernstein)

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

Ram Krishnan (Executive Vice President and Chief Operating Officer)

Absolutely. We’ve 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’s significant growth in semiconductors in the humanoid segment and other elements of the economy. So the job of our selling organizations, as we said, is knocking on new doors and finding those new customer segments that actually are spending wallet.

So really important for us to do in both China and Europe as we go through this year. And I think we’re set up to execute in that fashion.

Varun Govindaraj (Analyst at Bernstein)

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’ve launched for LabVIEW? It’s been out for some time now. How has customer feedback been, and are you seeing any impact on retention rates from it?

Ram Krishnan (Executive Vice President and Chief Operating Officer)

Yeah, I think first off, great customer feedback. In fact, we do our annual event at NI Connect where we bring a lot of our customers in, and Nigel was obviously a big feature of what we shared with our customers, and the feedback has been overwhelmingly positive. Now the way we’re positioning Nigel is it’s part of 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’s really what we’re most 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. Thanks so much. I’ll hand it off.

OPERATOR

Your next question comes from the line of Manit Mehrotra with UBS. Your line is open. Amit, please go ahead.

Amit (Analyst at Vertical Research Partners)

Okay, thank you. Let’s try this again. I’m clearly still learning how to use a phone. Thank you. Sorry about that. Gentlemen, good morning. Maybe I could just start. You know, one thing that’s very clear is when you guys had a lot of curveballs thrown at you in fiscal ’26 with the Middle East, not only did you hit your initial guidance, but you were able to exceed it. And I wonder, as I think about 2027 and how you guys frame the guidance, I’m assuming there’s some level of prudence in how you’re thinking about Europe because when I look at your fiscal first-quarter organic growth guidance, or underlying growth guidance, it’s similar to the full year when I would think comps get a little bit easier. You’re obviously accelerating order growth. There should be maybe some level of accelerating growth. So maybe just talk about that question specifically and the level of conservatism or prudence that you applied when you were formulating the ’27 guidance.

Lal Karsanbhai (President and Chief Executive Officer)

Amit, thank you. This is Lal. Great question and commentary, and appreciate your reflection on 2026. Now look, we certainly 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’s not all roses out there. The European market, the China market, which has been called out a few times on this call already, are concerning. We are expecting moderate, slight improvements in each. But there will be headwinds to underlying growth, I believe, throughout the year.

That’s 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 and areas such as India and Southeast Asia. So that’s really the offset that led us to the construct of this guide. But overall I certainly feel positive as I enter 2027.

Amit (Analyst at Vertical Research Partners)

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 the majority of it’s actually in the first quarter relative to the full-year guide. Can you just talk about what the driving factor is for it being front loaded so significantly? Maybe it’s just a cash flow thing or balance sheet capacity, or maybe a reflection of where you think your stock’s trading. Any color on why it’s so front loaded would be appreciated.

Michael Baughman (Executive Vice President and Chief Financial Officer)

Sure. Thanks for the question, Amit. We are committed to the $2.5 billion, but as we’ve talked about in the longer-range capital planning, we do want to create flexibility for acquisitions. So front loading gave us the opportunity to get the benefit of the lower share count that will support the 2027 guide, while giving us flexibility as the year unfolds to, if a bolt-on opportunity comes up, we can do that and still be in a position to deliver 28.

So it was really buying us some flexibility. And of course, yes, there’s 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, feel good about having the flexibility and, you know, if no acquisition candidate comes up, then we will stay to the plan and return the additional billion dollars in the back nine months of the year.

Amit (Analyst at Vertical Research Partners)

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.

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