The operator introduces the Emerson Second Quarter 2024 Earnings Conference Call and reminds participants of the format. Colleen Mettler, Vice President of Investor Relations, welcomes everyone and introduces the speakers. Lal Karsanbhai, President and CEO of Emerson, expresses gratitude to the global team for strong operating results and thanks the board of directors and shareholders for their support. The second quarter saw strong operating performance that exceeded expectations.

In the second paragraph, the speaker expresses confidence in the market conditions and discusses the company's strong performance in the quarter. They also mention their plans for the future, including no major portfolio moves and the integration of a new CFO. The speaker concludes by emphasizing the company's innovative technology and commitment to ongoing Board refreshment, announcing the election of Calvin Butler as the newest member of the Board.

Calvin, who has held senior management roles in various areas related to energy, will be joining Emerson's Board in August 2024. This will bring the total number of board members to 12, with equal representation of women and people of color. The second quarter results exceeded expectations, with strong sales and earnings driven by operational performance and backlog conversion. Process and hybrid markets saw growth, while discrete orders declined but are expected to turn positive in the fourth quarter. Test & Measurement orders were softer than anticipated.

Emerson expects mid-single-digit growth in orders for the second half of the year, with a slight delay in discrete improvement. Test & Measurement business performed well in Q2 and is expected to turn to positive orders in the first half of 2025. Softness in transportation and semiconductor demand is offset by positive performance in aerospace and defense. Synergy actions will accelerate, leading to a higher expected realization of $100 million in 2024. Emerson's differentiated portfolio is creating value for shareholders, and the company has increased its full-year guidance for underlying sales and adjusted EPS. The company remains focused on execution and integration, leveraging its Emerson Management System. The company is confident in the strength of its new portfolio and its ability to deliver differentiated results. Q2 results exceeded guidance for underlying sales and profitability.

The company experienced strong growth in underlying sales, driven by energy security and sustainability commitments. The process and hybrid businesses performed well, particularly in energy, LNG, chemical, and power markets. There was also strong demand in life sciences, metals and mining, and growth platforms. Gross margins have significantly improved since the CEO took over, and the company expects to achieve gross margins over 50% this fiscal year. Operating leverage was stronger than expected, and adjusted EPS and free cash flow also exceeded expectations. The company is pleased with their Q2 performance and is confident in their outlook for the rest of the year.

Emerson's strategic project funnel has grown to $10.8 billion, with a significant increase in growth programs related to sustainability and energy security. In the second quarter, the company was awarded $350 million in project content, including a partnership with AspenTech for an automation pilot project in China and support for Shell's proposed carbon capture project in Canada. This showcases the unique capabilities of Emerson and AspenTech's integrated portfolio in providing solutions for customers.

Emerson has been selected to automate a $4 billion manufacturing complex in Indiana for a large life science customer. This is significant as data centers are driving a surge in electricity demand in the US, leading to the retirement of carbon-intensive assets and a shift towards a bidirectional intelligent grid. Data centers, especially those using AI, consume significantly more power and are expected to continue driving demand for years to come. This has resulted in utilities revising their low-growth estimates upward, with some seeing a 30% increase in peak demand for the 2030-2031 winter. Dominion Energy is one of the utilities benefiting from this growth, with their 10-year average annual summer peak load expected to more than double from 2022.

The North American Electric Reliability Corporation predicts a significant increase in demand for power in the next nine years, with Emerson being a key player in the industry. Emerson's Ovation automation platform and Green solutions are specifically designed for power generation and have a large market share in North America and globally. Emerson's strategic project funnel in power is also growing, with a recent win to modernize nine sites for a Midwest utility. In addition, AspenTech's DGM software is crucial for managing the complexity of today's grid and has a strong market share in North America and globally.

Emerson's investments in grid digitalization are driving growth in the advanced software capabilities market, with a high-teens forecasted growth. The company's leading products and expertise in the power landscape position them well to capture these investments globally. In the second quarter, the company saw 8% underlying sales growth, with strong growth in Europe and Asia, and solid growth in the Americas. Intelligent Devices and Software and Control also had significant growth. Adjusted segment EBITDA margin improved by 140 basis points to 26%, driven by factors such as volume leverage, favorable mix, price, and productivity programs.

In the third quarter, Test & Measurement adjusted segment EBITDA margin exceeded expectations due to higher sales volume and cost actions. Adjusted EPS grew by 25% to $1.36. Free cash flow also improved by 32%, driven by earnings and improved inventory levels. The company has updated its guidance for Q3 and 2024, with expected underlying sales growth of 5.5% to 6.5% and reported net sales growth of 15% to 16%. Adjusted EPS has increased to $5.40 to $5.50, with Test & Measurement expected to contribute $0.40 to $0.45. $100 million in synergies are expected to be realized this year.

AspenTech has lowered their guidance and the latest revisions have been incorporated into the guide. They are now expecting to deliver $0.30 to $0.32 for the year and free cash flow of approximately $2.7 billion. Their third quarter expectations include underlying sales growth between 3% and 4.5%, adjusted earnings per share of $1.38 to $1.42, and similar levels of Test & Measurement sales and earnings per share contribution as seen in quarter two. The company's first half performance exceeded expectations and their portfolio and operational excellence continue to drive strong results. During the Q&A portion of the call, a question was asked about the synergies and cost savings, and Lal Karsanbhai provided some details on the structural cost-out and potential impact on profitability in a more normalized situation.

The speaker is talking about their excitement for the company and how it has exceeded their expectations in terms of the people, technology, and customer base. They have a great management team in place and are pleased with their responsiveness to market conditions. They are currently working on cost reduction measures and have already implemented some actions that were originally planned for 2025. These actions are focused on optimizing G&A, go-to-market strategies, and R&D efforts, with additional opportunities in logistics and supply chain. The $185 million committed to these actions is being divided across four segments and has been accelerated due to the well-planned and action-oriented teams.

The speaker is discussing the upgrade cycle for the DGM and Ovation assets, and how they integrate and work together. They mention the high growth in projects and activity, opportunities for optimization software, and synergy opportunities between Ovation and AspenTech. They also mention the leverage of their customer base in the transmission and distribution software. The speaker wishes the company luck for the rest of the year.

Nigel Coe from Wolfe Research asks about operating leverage assumptions for the back half of the year. Lal Karsanbhai and Mike Baughman discuss a mix change and a decrease in price and US growth that will affect the 54% growth seen in the last quarter. They also mention a moderate in the back half of the year from AspenTech. Nigel Coe asks for comments on 2025, but none are given. They also briefly discuss National Instruments.

The third quarter is expected to be flat with sales of $360 million and then increase to $400 million in the fourth quarter. The increase is due to seasonal factors and not a major shift in the market cycle. The company expects margins to continue to improve in the second half of the year. In terms of long-term planning, the company does not anticipate significant changes in leverage rates in 2025 compared to 2024. In response to a question about order growth in the second half, the company states that they have seen a good start in April with a double-digit increase in orders. They expect mid-single-digit growth in the second half, driven by the process and hybrid market. This growth is not weighted to a specific quarter and is seen across most of the world.

Lal Karsanbhai discusses the current state of the discrete industries, particularly in Western Europe, where they are seeing some positive signs of recovery. This has given them confidence that they will be able to achieve mid-single digit or low single digit growth in orders by the end of the year. There were no exceptional projects in April that caused this shift, and the team is focused on driving efficiency and productivity while also investing in core technology programs for future growth. The management team is also actively engaged with customers and will be speaking at upcoming events. They are optimistic about the potential for this business to turn positive in early 2025.

In a recent conference call, Ram Krishnan, the CEO of a company, discussed the company's performance and mentioned that they have seen positive trends in certain segments such as defense and government. He also stated that backlog conversion has been better than expected, thanks to improved supply chains and plant output.

The company overshipped in the quarter due to improved supply chain response and lower lead times. This, along with higher GP businesses, helped profitability. There were no missed orders in the test and measurement segment, and orders came in as expected. The company expects a slight sequential growth in the second half and a positive outlook for Q25. The defense and battery testing sectors are showing positive signs, but the RF and mixed signal chip testing sector is expected to recover in six months.

Steve Tusa asks about the sales performance in the second half of the year compared to the first half, specifically regarding the impact of Natty and Aspen. Lal Karsanbhai clarifies that the second half is expected to see high single-digit growth sequentially in the core business, excluding Natty and Aspen. Mike Baughman adds that the mix of MRO and lower margin project work is not expected to change significantly. They also have confidence in the second half due to expected STOs and turnaround opportunities.

In a recent conference call, Steve Tusa asked about the third quarter guidance for Natty and whether the revenue would be flat in the second half. Mike Baughman confirmed that the revenue would be flat in Q3 and then increase in Q4. Joe O'Dea asked about the growth trends in measurement and analytical and final control, with measurement solutions growing faster due to a backlog in final control. The order rates for both businesses are similar. It was also noted that Aspen Tech's fourth quarter EBITDA would be down around $20 million year-over-year.

In response to a question about the revenue and margin outlook for the company, Ram Krishnan, the company's representative, stated that there is a lumpy forecast due to ASC 606 and that the revenue is expected to be lower in the fourth quarter compared to the third quarter. Another question was asked about the potential for revenue and margin growth in the power franchise, to which Lal Karsanbhai, another representative, provided some figures on the potential opportunities in newbuild and retrofit projects. He also mentioned the potential for MRO opportunities in the nuclear power market. When asked about inventory levels, the representatives did not provide specific numbers but noted that the company's channel dynamics are different from their peers.

Ram Krishnan, from Emerson, discusses the inventory levels in the machine building industry. He mentions that the Discrete Automation business has normalized inventory levels in the channel, while the Test & Measurement business has elevated levels that should decrease in the next quarter. Overall, there are no major impacts on orders momentum from channel inventory. Julian Mitchell from Barclays asks about the recovery slope for the Discrete business, to which Ram responds that they expect flat sales in Q3 and a slight increase in Q4. He also notes that the Test & Measurement business, which is also exposed to the Discrete market, will see a slower recovery in the first half of 2025 due to its focus on semiconductors and China.

The speaker, Lal Karsanbhai, is excited about the partnership with AspenTech and believes that their combined technology stack is highly differentiated. He also mentions the recent CFO change and believes that it will bring positive changes to the company. When asked about potential changes in AspenTech's capital deployment plans, Karsanbhai states that there will be no changes for now and they will continue to operate as is. He also mentions that there was some pull-forward of orders last quarter.

The speaker, Ram Krishnan, discusses the trend of orders growth, which was plus 4% in Q1 and down 1% in Q2. He expects low single-digit growth in the third quarter, followed by a potential increase in the fourth quarter. He also mentions that the sustainability and decarbonization project funnel has nearly doubled in the last 18 months, with some projects getting closer to final investment decisions. However, the pace of progression varies depending on the segment. The moderator, David Ridley-Lane, asks about the trend of orders growth and the progress of sustainability projects. The conference concludes with management thanking the attendees and offering call backs later in the afternoon.

This summary was generated with AI and may contain some inaccuracies.