Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Emerson Electric Co (EMR, Financial) announced a proposal to acquire the remaining shares of AspenTech, which is expected to unlock significant value creation potential for shareholders, employees, and customers.
- The company plans to repurchase approximately $2 billion of common stock in fiscal 2025, demonstrating a strong commitment to returning capital to shareholders.
- Emerson Electric Co (EMR) delivered strong financial performance in 2024, with adjusted EPS at the high end of guidance and free cash flow exceeding expectations.
- The company has a robust project funnel, with strong activity in LNG, life sciences, and sustainability, indicating continued growth opportunities.
- Emerson Electric Co (EMR) achieved record gross margins of 50.8% in 2024, reflecting the success of its portfolio transformation and operational efficiency.
Negative Points
- The Safety and Productivity business, which represents 8% of 2024 revenue, is being reviewed for strategic alternatives, indicating it does not align with the company's automation focus.
- Discrete Automation orders were down mid-single digits for the year, although they turned positive in Q4, highlighting challenges in this segment.
- The company is cautious about the recovery in China, particularly in the discrete and chemical markets, which could impact growth expectations.
- Test & Measurement orders were down 7% in the quarter, although there is optimism for recovery in 2025, indicating current challenges in this business.
- The proposed acquisition of AspenTech involves complexities, including regulatory obligations and the need for a special committee agreement, which could delay the transaction.
Q & A Highlights
Q: Can you discuss Emerson's overall book-to-bill for 2025 and the end markets driving process and hybrid markets to support your growth expectations?
A: Surendralal Karsanbhai, President and CEO, stated that the backlog at $7.2 billion is healthy and supportive of the guide for next year. The order environment and sales environment suggest a stable book-to-bill going into 2025, with strong sustainability and decarbonization activity in Europe, life sciences globally, and power generation in the U.S. and Europe.
Q: Did you experience any customer delays or hesitancy in project approvals, and what are your assumptions for the second half recovery in China?
A: Ram Krishnan, COO, noted no delays from customers, with strong capital cycles in energy and power. For China, they expect a recovery in discrete and chemical markets, driven by stimulus and green shoots in the chemical space, leading to low to mid-single-digit growth next year.
Q: Are you confident in narrowing declines in discrete automation in the first half of fiscal '25, and what does EPS neutrality for AspenTech mean?
A: Surendralal Karsanbhai confirmed discrete automation turned positive in Q4, indicating early recovery signs. Michael Baughman, CFO, explained that EPS neutrality for AspenTech considers synergies, seasonality, and increased debt, expecting a neutral impact on adjusted earnings per share for fiscal 2025.
Q: Can you provide more detail on the power business growth vector for '25, particularly in nuclear?
A: Surendralal Karsanbhai highlighted power generation investments driven by data center demands, with nuclear representing about 20% of their power business. Emerson has a strong presence in nuclear facilities globally, offering instrumentation, valves, and control systems.
Q: What is the timeline for the evolution towards more software-defined automation, and how will it be implemented across different environments?
A: Surendralal Karsanbhai described a phased approach over three to five years, starting at the foundational level, moving to site-level integration, and eventually enterprise-level operations. Ram Krishnan added that the technology roadmap will support both brownfield and greenfield environments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
