Emerson Electric’s Middle East Conflict Timeline and Intelligent Devices Growth Outlook Don’t Match

Date of Call: Aug 4, 2026

Financials Results

• Revenue: Underlying sales grew 6% in Q3.
• EPS: Adjusted EPS grew 13% to $1.71, above the top of guidance.
• Operating Margin: Adjusted segment EBITDA margin expanded 140 basis points to 28.5%.

Guidance:

• Full year 2026 sales growth raised to 5% (underlying 3.5%).
• Full year adjusted EPS raised to $6.55.
• Q4 2026 sales growth expected at ~5%; adjusted EPS expected at ~$1.85.
• Full year adjusted segment EBITDA margin still expected at ~28%.
• Expect $100M full year impact from Middle East conflict.

Business Commentary:

Revenue Growth and Segment Performance:

• Emerson reported underlying sales growth of 6% in Q3, with the software and systems segment up 11%, and test and measurement and control systems and software each growing by 23% and 7%, respectively.
• The growth was driven by robust demand in test and measurement, particularly in semiconductor and power, and strong performance in software and systems, supported by investments in automation.

Geographic Demand and Market Conditions:

• The Americas showed an 8% increase in sales, led by the U.S. with 10% growth, while Asia, Middle East, and Africa also grew by 8%, with the Middle East and Africa up 11%.
• Demand was strongest in North America and Asia, supported by secular trends and significant investments in automation, while Europe and China remained soft but showed signs of improvement.

Project Funnel and Power Generation:

• Emerson's project funnel grew by 8% year-over-year to $12.4 billion, with the power sector accounting for $3 billion.
• The increase in the funnel was driven by a significant rise in power generation projects, including both utility and behind-the-meter power, as well as increased demand for LNG and grid modernization.

Cybersecurity and Critical Infrastructure:

• Cybersecurity concerns have driven upgrades in control systems, particularly in power generation and water systems, contributing to Emerson's business.
• The company's offerings in cybersecurity and critical infrastructure are seen as significant drivers for future growth, with increased demand for secure and resilient infrastructure solutions.

Middle East Impact and Strategic Positioning:

• The Middle East conflict resulted in a $25 million headwind in Q3, with customer operational capacity at approximately 75%.
• Despite this, Emerson's strong local presence and customer relationships position it well to capture near-term investment priorities and emerging opportunities in the region.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'We have created momentum in our business... All a testament of the strength of the Emerson management system.' and 'We delivered an outstanding third quarter with sales, margin expansion, earnings, and cash all exceeding expectations.'

Q&A:

• Question from Dean Dre (RBC Capital Markets): Unpack the growth opportunity in semiconductor and power (53% and 37% growth). How much is underlying market vs. share gains/new products?
  Response: Strong underlying market with significant penetration/participation gains in power (ovation, behind-the-meter) and test & measurement, driven by new products.

• Question from Dean Dre (RBC Capital Markets): How is cybersecurity focus impacting Emerson, and what opportunity exists?
  Response: Cybersecurity is a significant driver for control system upgrades in power and water; spend is expected to continue, and it's a key part of Emerson's offering.

• Question from Jeff Sprague (Vertical Research): Is funnel conversion timing changing (long-dated projects)?
  Response: No change in conversion timing; similar awards as Q2, with good conversion in LNG and power, driven by increased project numbers and value.

• Question from Jeff Sprague (Vertical Research): Update on price/cost and tariff refunds?
  Response: Price/cost remains green; ~3% price for full year. Tariff refunds provide benefit but are offset by other inflation; net impact as expected.

• Question from Scott Davis (Mellius Research): What are Ovation lead times, and are orders extending into 2H 2027?
  Response: Orders extend into 2027 and 2028, indicating high visibility and strong demand.

• Question from Scott Davis (Mellius Research): Is the chemicals market turning positive?
  Response: Chemicals in Intelligent Devices grew in Q3, driven by final control business in US/Middle East, but markets in China and Europe remain slow.

• Question from Andrew Obin (Bank of America): Will Middle East drag flip to tailwind in Q1 2027?
  Response: Conditions in Q4 and likely Q1 2027 will remain similar due to Strait of Hormuz challenges; improvement may come in 2H 2027.

• Question from Andrew Obin (Bank of America): Discuss software ACV (up 9%) vs. underlying sales (6%) and contract renewals.
  Response: ACV growth strong; renewal headwinds reverse in Q4. Software business executing well, exiting year at 10%+ ACV growth, confident for 2027.

• Question from Alex Virgo (Evercore ISI): Is power demand mostly brownfield or greenfield now?
  Response: Power growth initially from brownfield (fleet modernizations), but increasingly includes greenfield (new capacity, data centers, nuclear).

• Question from Alex Virgo (Evercore ISI): What is visibility in test & measurement for 2027?
  Response: Strong order momentum in TNM; differentiation in applications (laboratory vs. production) suggests robust growth through 2027.

• Question from Andy Kaplowitz (City Group): Thoughts on MRO trends?
  Response: MRO stable at ~2/3 of business; replacement spend strong, but some shutdown delays due to facilities running hard.

• Question from Andy Kaplowitz (City Group): Regional growth outside North America (Europe/China)?
  Response: Europe sales down 1% but orders positive; China improving sequentially (-3% in Q3), expected to reach low single-digit growth in 2027; other Asia very strong.

• Question from Andrew Buscalia (BNP Paribas): Can Intelligent Devices return to historical peak growth without China pickup?
  Response: Yes, growth will be unlocked in Q4 and next year as Middle East impact unwinds; long-range framework targets 3-6% growth for the segment.

• Question from Andrew Buscalia (BNP Paribas): What is through-cycle growth rate for software and systems?
  Response: Long-range framework targets 6-9% growth for control systems and test & measurement; upcycles can exceed this range.

• Question from Ken Newman (KeyBank Capital Markets): How much of project funnel is greenfield vs. brownfield?
  Response: Majority of the ~$12.4B funnel is greenfield; brownfield modernizations have better pricing.

• Question from Ken Newman (KeyBank Capital Markets): What stability is needed for Middle East orders to normalize?
  Response: Customers need certainty from a US-Iran agreement; new projects (pipeline, LNG) are being planned to avoid Hormuz/Red Sea, with potential for quick order release.

Contradiction Point 1

Timeline for Middle East Conflict Headwind to Resolve

It involves differing expectations on when the $25M quarterly headwind from the Middle East conflict will flip to a tailwind, directly impacting financial forecasting and investor outlook.

Andrew Obin (Bank of America) - Andrew Obin (Bank of America)

2026Q3: Conditions are expected to remain relatively the same through Q4 2026 and potentially into Q1 2027. A return to normalcy likely requires a political resolution between the U.S. and Iran. - [Mike Bachman](CFO)

"When will the Middle East conflict's $25M quarterly headwind turn into a tailwind?" - Andrew Obin (Bank of America)

2026Q3: Conditions in the Strait of Hormuz are expected to remain challenged into Q1 2027. A potential improvement is possible in the second half of 2027, but planning assumes similar headwinds in Q4 and into Q1. - [Lal Karsanbhai](CEO)

Contradiction Point 2

Characterization of Power Demand Growth as Greenfield vs. Brownfield

It involves a contradiction on whether recent power demand is driven by greenfield or brownfield projects, impacting understanding of market growth drivers.

What was the question from Alex Virgo of Evercore ISI? - Alex Virgo (Evercore ISI)

2026Q3: While past momentum has been driven by brownfield/fleet modernizations, the company is now starting to see greenfield/growth in new capacity, particularly gas-fired in North America and data center (behind-the-meter) projects. - [Ram Krishnan](COO)

Is power demand still primarily brownfield, or are greenfield projects emerging? - Alex Virgo (Evercore ISI)

2026Q3: Recent power demand has been mostly fleet modernizations (brownfield). However, newer capacity additions are starting to appear... - [Ram Krishnan](COO)

Contradiction Point 3

Intelligent Devices Segment Growth Outlook

It involves a shift in the expected growth trajectory for the Intelligent Devices segment, moving from mid-single digits to the low end of a higher range, affecting investor expectations.

Andrew Buscalia (BNP Paribas) - Andrew Buscalia (BNP Paribas)

2026Q3: Yes. The segment's long-range framework targets 3-6% growth, which is achievable. - [Lal Karsanbhai](CEO)

Okay, let's see. The user wants me to rewrite the input into a single, concise earnings-call question. The input is: "Can the Intelligent Devices segment return to double-digit historical growth rates without a significant pickup in China?" First, I need to make sure I follow all the rules. The output must be exactly one line, only the final question text, end with a question mark if possible. No explanations or anything else.The original input is already a question, so I need to check if it's concise enough. The key elements here are the Intelligent Devices segment, double-digit historical growth rates, and the condition of without a significant pickup in China. Is there any way to make this more concise? Let's see. "Return to double-digit historical growth rates" could maybe be simplified to "achieve double-digit growth rates again" but "return to" is already pretty direct. The segment name is specific, so that's necessary. The condition about China is important, so that has to stay.I don't see any redundant words here. The question is clear: they want to know if the segment can grow at double-digit rates without China's significant contribution. Since the original input is a valid question and concise, maybe the answer is just to output it as-is. But wait, the user said if it's already a clear question, output as-is. However, the instruction says to rewrite into one concise question. But the original is already a question. So according to the rules, if the input is already a clear question, do we output it as-is or try to rephrase? The rules say "If the input is NOT a question, is too vague, or lacks enough information to form a clear earnings-call question, output the input EXACTLY as-is..." So since the input is a valid question, maybe we can just output it. But the user says "rewrite the input into one concise..." which suggests that even if it's a question, we need to rephrase if possible. Hmm. Wait, the original input is a question, but maybe it's not concise enough? Let me check. The original is: "Can the Intelligent Devices segment return to double-digit historical growth rates without a significant pickup in China?" That's 18 words. Maybe we can make it shorter. For example: "Can the Intelligent Devices segment achieve double-digit growth without significant China demand?" But does that capture the same meaning? "Historical growth rates" is specified, but maybe "double-digit growth" is sufficient. "Without a significant pickup in China" could be "without significant China demand" or "without China's growth". But the user's rule says if the input is a question and has enough info, output as-is. But the instruction says to rewrite into one concise. Maybe the user wants it to be as concise as possible even if it's already a question. Let me check the example. Suppose the input is a question but can be made more concise. Should I rephrase? The rules are a bit conflicting here. Looking back at the rules: "If the input is NOT a question, is too vague, or lacks enough information to form a clear earnings-call question, output the input EXACTLY as-is..." So if it's a valid question, even if it's not the most concise, but can be made more concise, should I rephrase? The instruction says "rewrite the input into ONE concise..." So I think the user expects a rephrased version if possible. So let me try to make it more concise. Original: "Can the Intelligent Devices segment return to double-digit historical growth rates without a significant pickup in China?" Possible rephrasing: "Can the Intelligent Devices segment return to double-digit growth without significant China demand?" That's shorter. "Historical growth rates" becomes "growth", which is okay if "double-digit" is understood as referring to historical rates. Also, "significant pickup in China" becomes "significant China demand". But is that accurate? The original mentions "pickup in China", which could refer to increased sales, demand, or market activity. Using "demand" might be acceptable. Alternatively: "Can the Intelligent Devices segment achieve double-digit growth without China's significant contribution?" But "contribution" might not capture the exact meaning of "pickup". Alternatively: "Can the Intelligent Devices segment return to double-digit growth without a significant China rebound?" "Rebound" implies a recovery, which might not be what's intended. The original is about a "pickup", which is an increase. So maybe "growth" in China. "Can the Intelligent Devices segment return to double-digit growth without significant China growth?" But that's repetitive. Alternatively: "Can the Intelligent Devices segment return to double-digit growth without China's significant market growth?" Hmm. Alternatively, maybe keep "pickup" as in: "Can the Intelligent Devices segment return to double-digit growth without a significant China pickup - Andrew Obin (Bank of America)

2026Q2: The immediate priority is finding alternatives to the Strait of Hormuz (e.g., pipelines). In the long term, producers will likely regionalize production and balance capacity needs globally. - [Lal Karsanbhai](CEO)

Contradiction Point 4

Outlook for China's Chemical Market

It involves a contradiction on China's market improvement timeline and current conditions, affecting regional demand forecasts.

Scott Davis (Melius Research) - Scott Davis (Melius Research)

2026Q3: The chemical market remains slow in China and Europe but is performing well in the United States and the Middle East. - [Lal Karsanbhai](CEO)

Has the chemicals market shown positive momentum, particularly due to the positive comment for Intelligent Devices? - Jeffrey Sprague (Vertical Research Partners)

20260204-2026 Q1: China's outlook has worsened, with expectations of low single-digit negative growth for the year, driven by a lackluster chemical sector. - [Ram Krishnan](COO)

Contradiction Point 5

Growth Expectations for the Intelligent Devices Segment

It involves a contradiction on whether segment growth is tied to a significant pickup in China, influencing regional dependency assessments.

What were the key takeaways from BNP Paribas' earnings call? - Andrew Buscalia (BNP Paribas)

2026Q3: Yes. The segment's long-range framework targets 3-6% growth, which is achievable. - [Lal Karsanbhai](CEO)

Can the Intelligent Devices segment return to double-digit growth rates without significant China growth? - Julian Mitchell (Barclays)

20260204-2026 Q1: A return to growth is expected in the second half, with Q2 being another softer quarter. - [Surendralal Karsanbhai](CEO)