Emerson Q3 Earnings Beat on Software & Systems Strength, Outlook Raised

EMR's Orders and Regional Trends

Demand was broad-based across Emerson’s business groups, led by Software & Systems. The company recorded persistent strength in North America, Japan, India and Southeast Asia. Bookings across longer-cycle projects remained strong, supported by the power and aerospace & defense markets.

The Americas and the Asia, Middle East and Africa each registered 8% underlying sales growth. U.S. sales increased 10%, while the Middle East and Africa advanced 11%. Europe declined 1%, and China fell 3%, reflecting continued softness in those markets.

Emerson's Software & Systems Momentum

Software & Systems revenues increased 11% year over year to $1.64 billion, exceeding management’s prior underlying growth expectation of approximately 8%. The group’s adjusted EBITA margin was 31.8%.

Within the segment, Test & Measurement sales climbed 23% to $445 million, supported by strength in the Power, Semiconductor and Aerospace & Defense verticals. Control Systems & Software revenues advanced 7% to $1.20 billion. Annual contract value rose 9% year over year to $1.68 billion.

EMR's Intelligent Devices and Safety & Productivity Results

Intelligent Devices generated revenues of $2.68 billion, up 6% on a reported basis and 5% on an underlying basis. The adjusted EBITA margin expanded to 27.9% from 25.5% in the prior-year quarter. Performance benefited from strength in power, liquefied natural gas and midstream gas.

Within the segment, Safety & Productivity revenues increased 3% to $552 million, with underlying growth of 2%. Its adjusted EBITA margin improved to 21.2% from 20.4%. Momentum in electrical products and North American industrial activity was partly tempered by continued weakness in Europe and Automotive markets.

Emerson's Margin and Cash Flow Gains

The cost of sales increased 2.7% to $2.22 billion from the year-ago quarter. Selling, general and administrative expenses rose 6.1% year over year to $1.34 billion. 

Pretax earnings (on reported basis) increased to $916 million from $734 million, while the pretax margin expanded 270 basis points to 18.8%. Adjusted segment EBITA rose to $1.39 billion from $1.23 billion. The corresponding margin improved 140 basis points to 28.5%, as price-cost actions and cost reductions offset inflationary impact.

Exiting the third quarter of fiscal 2026, Emerson had cash and cash equivalents of $2.18 billion compared with $1.54 billion at the end of fiscal 2025. Long-term debt was $7.53 billion compared with $8.32 billion at the end of fiscal 2025.

Operating cash flow jumped 34% to $1.43 billion. Free cash flow increased 36.4% to $1.32 billion, helped by operational results, tariff refunds and the tax payment timing.

For the first nine months of fiscal 2026, free cash flow rose 9%, with a margin of 19.0%. Emerson paid out dividends of $935 million and repurchased shares worth $898 million in the first nine months.

EMR Raises Fiscal 2026 Outlook

Emerson raised its fiscal 2026 net sales growth forecast to approximately 5% and underlying sales growth guidance to about 3.5%. The prior outlook called for net sales growth of roughly 4.5% and underlying growth of around 3%. Adjusted earnings are now projected at approximately $6.55 per share.

For the fiscal fourth quarter (ending September 2026), management expects net and underlying sales growth of approximately 5%. Adjusted earnings are projected at about $1.85 per share, while the adjusted segment EBITA margin is expected to be roughly 28.5%.

The company continues to expect fiscal 2026 free cash flow of approximately $3.6 billion and operating cash flow of about $4.1 billion. Emerson plans to return roughly $2.2 billion to shareholders through approximately $1 billion in share repurchases and $1.2 billion in dividends.

Zacks Rank and Stocks to Consider

EMR currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the same space are discussed below:

Applied Industrial Technologies AIT carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Industrial’s earnings surpassed the consensus estimate in each of the trailing four quarters. The average earnings surprise was 4.0%.  In the past 60 days, the Zacks Consensus Estimate for Applied Industrial’s fiscal 2026 bottom line has inched up 0.1%.

IDEX Corporation IEX presently carries a Zacks Rank of 2. IDEX’s earnings surpassed the consensus estimate in each of the trailing four quarters. The average earnings surprise was 7.7%. In the past 60 days, the Zacks Consensus Estimate for IEX’s 2026 earnings has increased 1.4%.

The Middleby Corporation MIDD currently carries a Zacks Rank of 2. Middleby’s earnings topped the consensus estimate in each of the trailing four quarters. The average earnings surprise was 10.4%. In the past 60 days, the Zacks Consensus Estimate for MIDD’s 2026 earnings has increased 0.3%.

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