The paragraph is a transcript from a conference call announcing Emerson's strategic updates and financial results for Q4 and the full year of 2024. The session is hosted by Colleen Mettler, Emerson's Vice President of Investor Relations, and features key figures such as CEO Lal Karsanbhai, CFO Mike Baughman, and COO Ram Krishnan. The presentation is available online and contains forward-looking statements with business risks and uncertainties. The discussion will cover strategic announcements and financial outcomes. Notably, Emerson completed its acquisition of National Instruments, worked on synergies and integration, and marked its 80th anniversary on the New York Stock Exchange. CEO Lal Karsanbhai highlights the company's operational success and upcoming results presentation.

In 2025, Emerson is celebrating its 135th anniversary and acknowledges the contributions of its employees to its long-standing success. The company is concluding a portfolio transformation aimed at creating a cohesive industrial technology portfolio, continuing a tradition of transformation under past leadership. Emerson has proposed to acquire the remaining shares of AspenTech for $240 per share, making the proposal public due to its 57% shareholder position. The company looks forward to private negotiations with AspenTech's Board special committee for an agreement that benefits both parties, with the transaction proposed to proceed via a tender offer requiring majority approval from minority stockholders.

The paragraph discusses the intentions of a stockholder in acquiring remaining shares of AspenTech and merging it with Emerson to unlock value for stakeholders. The partnership has been successful since 2022, prompting the decision to integrate fully, enhancing Emerson's industrial software strategy and realizing cost synergies. The paragraph also outlines the exploration of strategic alternatives for the Safety & Productivity segment, including a potential cash sale, as it doesn't align with Emerson's automation focus. Additionally, Emerson plans to return capital to shareholders by repurchasing $2 billion of common stock in fiscal 2025, with $1 billion expected to be completed by the fiscal first quarter.

The paragraph discusses Emerson's commitment to returning approximately 100% of their guided free cash flow in 2025 to shareholders through dividends and stock repurchases, highlighting confidence in the company's strong outlook and strategic actions. Post-transactions, they aim to retain an A2A credit rating. Emerson's plans involve fully integrating Aspen Technology (AspenTech), emphasizing the significant value of their industrial software in driving efficiency and sustainability for global clients. This integration is expected to enhance innovation in the industry by evolving the control system landscape towards a software-defined enterprise automation architecture.

The paragraph describes the integration of field devices, control hardware, and AspenTech's optimization software within a distributed control system to enhance plant performance. It highlights Emerson's traditional strength in automation, but notes the challenges of managing data from multiple manufacturers' devices within a single plant, which creates silos. Emerson aims to address this by developing a software-defined approach that uses a unified data fabric, allowing seamless data flow into edge controllers and a suite of customizable software modules, collectively called Emerson's Enterprise Operations platform. This platform is designed to improve production, safety, reliability, and optimization both regionally and at the enterprise level. Emerson believes this approach will help customers evolve their production efficiently by leveraging the latest technologies.

The paragraph discusses how companies are increasingly adopting new automation technologies to improve productivity and asset longevity, while still valuing traditional features like security and reliability. Emerson's Enterprise Operations platform aims to connect manufacturing processes from the field to the cloud, allowing flexible management of assets. The platform's deployment will happen in phases, starting with software integration at individual sites and expanding to enterprise-wide optimization. Collaboration between Emerson and AspenTech is key to this transition, aiming to shift the market towards a more software-focused model with recurring revenue. Their combined software capabilities offer unmatched value across the entire asset life cycle, helping customers optimize production and manage data effectively.

The paragraph discusses the benefits of Emerson integrating AspenTech, highlighting the potential to better align technology strategies and accelerate the company's vision of automation and software solutions. It mentions that this integration would offer unique advantages over competitors and nontraditional players in the Enterprise Operations platform market through enhanced software, cybersecurity, and connectivity capabilities. AspenTech's software will remain compatible with third-party systems. The transaction is expected to provide shareholder value by improving operating margins, cash flow, and innovation productivity, while also meeting Emerson's financial return targets. Synergies will be achieved by streamlining corporate costs, leveraging regional models, consolidating facilities, and reducing external spending. The acquisition of AspenTech's outstanding shares is deemed timely and strategically beneficial.

The paragraph outlines Emerson's strategic plan to acquire AspenTech, aiming to enhance software-defined automation capabilities and reduce complexity for investors. Additionally, Emerson is exploring strategic alternatives, including a possible sale, for its Safety & Productivity business, which is a technology-based manufacturer. The ultimate goal is to transform into a $16 billion global industrial technology company with a strong, cohesive portfolio focusing on growth aligned with market trends, targeting an organic growth rate of 4% to 7%.

The paragraph discusses the company's focus on industrial software as its main growth platform, with software accounting for 14% of post-transaction sales. The metric ACV has grown by 10% year-over-year, reaching $1.4 billion. The company plans to simplify its reporting segments from seven to five by incorporating AspenTech into its Control Systems & Software segment, emphasizing automation. The AspenTech proposal has been made public, but further details will be kept private until a definitive agreement is reached. The company will not answer questions regarding the proposal for now. The conversation then shifts to Mike Baughman, who will discuss the 2024 financial performance and 2025 guidance, highlighting the company's continued success in creating value.

The paragraph discusses the company's financial performance, highlighting a 6% growth in underlying sales and a 47% operating leverage, both aligning with August's guidance. Adjusted EPS reached $5.49, meeting the high end of expectations, while free cash flow exceeded forecasts at $2.9 billion. Underlying orders grew by 2% for both the quarter and the year, driven by the process and hybrid businesses' mid-single-digit growth. Discrete Automation orders fell mid-single digits for the year but turned positive in Q4. Test & Measurement orders dropped 7% but showed a sequential improvement, with recovery anticipated in 2025. The company conducted $435 million in share repurchases, creating value through early buybacks at favorable valuations. The 2024 performance, characterized by strong results and a transformed portfolio, saw significant regional growth, particularly in Asia, the Middle East, Africa, and Europe, with notable contributions from sectors like LNG, chemical, power, and life sciences. China's market contracted slightly due to low demand in chemical and discrete sectors.

The paragraph discusses the financial performance of a company, highlighting that its Test & Measurement segment contributed $1.46 billion in net sales, down 12% for the year, but met expectations. The company's backlog increased to $7.2 billion, with a $150 million growth excluding Test & Measurement, driven by process and hybrid investments. The adjusted segment EBITDA margin rose to 26%, benefiting from favorable pricing and cost reductions. Operating leverage, excluding Test & Measurement, was 47% in 2024, showcasing strong operational execution. Test & Measurement achieved a 24% EBITDA margin, bolstered by $100 million in synergies and acquisition timing benefits. Adjusted earnings per share increased by 24% to $5.49, with significant contributions from operations, Test & Measurement, and AspenTech. The company generated a stronger-than-expected free cash flow of $2.9 billion, a 23% increase year-on-year, aided by higher earnings and inventory improvements despite acquisition-related costs. The free cash flow margin improved by 110 basis points to 16.6%. The paragraph concludes by mentioning the need to review the company's financial performance over the past three years before discussing 2025 guidance.

The paragraph details the progress and achievements of Emerson's portfolio transformation that began in 2021. The company has experienced significant sales growth, achieving high gross margins of 50.8% in 2024, and improved adjusted segment EBITDA to a record 26%. Adjusted earnings per share have grown over 20% for three consecutive years. These accomplishments are attributed to a higher-margin portfolio and updated management processes. As the portfolio transformation nears completion, Emerson sees continued investment in growth areas like LNG, life sciences, and sustainability, with a large project funnel reaching $11.2 billion by year-end.

The paragraph discusses Emerson's successful performance in a capital formation cycle, highlighting their project wins in automation content across various industries, including LNG, chemicals, and sustainability. Notably, Emerson was selected for the Porthos carbon capture project, a petrochemical complex in Saudi Arabia, and a semiconductor company contract for their OptimalPlus analytics platform. Their MRO business constituted 64% of sales, and despite serving diverse industries, their top 20 customers comprised only about 9% of sales, with the largest single customer contributing around $180 million.

The paragraph outlines Emerson's positive market outlook for 2025, anticipating resilient growth in process and hybrid markets, with moderate growth across all regions. The company expects continued investment in digitalization and automation by customers to improve efficiency and sustainability. Both capital projects and MRO are driven by trends like energy security, sustainability, and digital transformation, showing strong activity in sectors such as LNG, life sciences, and power. Emerson projects mid-single-digit growth in process and hybrid markets, with a recovery in discrete market demand expected in the latter half of the year. While there are recovery signs in semiconductor and industrial automation, the automotive market, especially EVs, remains weak. Additionally, their Test & Measurement business is expected to benefit from accelerated synergy actions, targeting $200 million in savings.

The paragraph discusses anticipated growth in various global regions, driven by investments in energy and energy transition projects, with significant contributions expected from the Middle East, Africa, India, Southeast Asia, and Mexico. It predicts China's growth to recover by the second half of 2024 and forecasts low single-digit growth in North America due to demand in LNG, life sciences, and electricity. Europe is expected to see mid-single-digit growth from energy transition investments. The guidance for 2025, excluding announced portfolio changes, projects a 3% to 5% sales growth, with Safety & Productivity growth being flat and not materially impacting overall growth. Operating leverage is expected in the mid-40s, and adjusted earnings per share are projected between $5.85 and $6.05. AspenTech and Safety & Productivity are anticipated to contribute $0.44 to $0.46 and approximately $0.48, respectively, to the earnings.

The paragraph outlines Emerson's financial outlook and capital allocation strategy. For the full year, Emerson expects free cash flow of $3.2 to $3.3 billion, with 2024's RD&E spending at about 8% of sales. The company's priorities include reinvesting in the business, share repurchases, and dividends. Approximately $2 billion will be allocated to share repurchases in 2025, with $1 billion planned for the first quarter. Dividend payments are projected to be around $1.2 billion, marking the 69th year of increased dividends. The capital return strategy aims to equal 100% of free cash flow by 2025, reflecting their focus on portfolio transformation and shareholder returns. Over the past three years, Emerson returned $6.5 billion to shareholders through dividends and share buybacks while also focusing on strategic M&A and debt reduction.

In the paragraph, the company expects that after completing the announced actions, their net debt to adjusted EBITDA ratio will be under two, meeting credit rating agencies' standards to maintain their A2A credit ratings. Looking ahead beyond 2025, they aim to keep these ratings, leveraging expected future free cash flows and debt capacity to provide flexibility for capital returns to shareholders and strategic acquisitions. The speaker thanks Emerson employees for their role in achieving excellent financial results, highlighting their dedication as key to customer and shareholder success. The session is then handed over to Colleen Mettler, who invites questions limited to the quarter and outlook for Emerson, excluding portfolio announcements. She reminds the audience of Lal's comments and passes the session to the operator for Q&A. Andy Kaplowitz from Citigroup is the first to ask a question, noting the $7.2 billion end-of-Q4 backlog and an increase in the pipeline of new awards.

In the paragraph, Lal Karsanbhai discusses Emerson's expectations for its book-to-bill ratio and growth in 2025. He notes that the backlog has decreased in Q3 due to seasonal factors but is still at a healthy level to support future guidance. He anticipates a stable order and sales environment in 2025. Karsanbhai also mentions positive developments in the process and hybrid markets, including strong activity in sustainability and decarbonization in Europe, life sciences globally, and power generation in the U.S. and Europe. Despite a pause in LNG awards in North America, growth continues in Africa and the Middle East. Andy Kaplowitz and Deane Dray acknowledge the insights and express optimism moving forward.

The paragraph features a dialogue between Deane Dray and Ram Krishnan regarding customer delays and the outlook for China. Krishnan says there are no observed project delays in the Middle East, North America, or Europe, and the capital cycle remains strong, particularly in sectors like energy and LNG. The Discrete Automation business is expected to see a positive order turn in Q4, and there is confidence in continued momentum in Test & Measurement into 2025. Regarding China, there are positive developments in the power and chemical sectors, with hopes for recovery in discrete manufacturing in the second half of 2025, projecting low to mid-single-digit growth. Nigel Coe then prompts the next discussion about DA trends for the next year.

In the paragraph, Lal Karsanbhai expresses confidence in narrowing declines in fiscal '25, noting that the discrete segment saw positive growth in the fourth quarter, signaling early recovery signs. Ram Krishnan adds that their company is well-balanced across four markets in Test & Measurement, with growth momentum in Semiconductors, ADG, transportation, and their portfolio business. However, the transportation segment linked to EV markets has not turned yet, though the overall Test & Measurement industry shows signs of recovery, supporting their growth plans for the second half of 2025.

In this paragraph, various aspects of the financial and operational impacts of a transaction involving AspenTech are discussed during a call. Mike Baughman mentions expected synergies from the transaction and highlights the seasonality of AspenTech's business, which is more active in the latter half of the year. He also notes that their financial models show an increase in short-term debt, which is expected to be managed despite high long-term interest rates. During the call, Steve Tusa from JPMorgan asks about the backlog increase, which Mike confirms is year-over-year, not sequential. Lal Karsanbhai refrains from detailing the expected neutral financial impact of the AspenTech transaction for the year.

The paragraph features a discussion between Lal Karsanbhai and Andrew Obin regarding the firm's power sector prospects in 2025. Andrew Obin highlights power as a growth vector and inquires about the company's traditional power business and nuclear exposure. Lal Karsanbhai responds that there has been accelerated investment in power generation, transmission, and distribution in North America, largely due to data center needs. This shift includes extending the life of existing facilities, reviving old nuclear plants, and developing new combined cycle plants, along with significant grid investments. Power generation currently constitutes about 9% of the company's revenue, with orders growing at mid- to high single digits over the year.

The paragraph discusses the diversified performance of the company's ovation business, which supports various segments of the power generation market, including traditional, hydro, solar, and wind, and is expected to continue thriving through 2025. It highlights the growth in AspenTech's GGM business driven by investments in the grid, with a notable low teens annual contract value (ACV) growth. Nuclear power constitutes about 20% of the overall power business, with strong capabilities in instrumentation, valves, and control systems, securing a global presence. Jeff Sprague from Vertical Research seeks clarification on the timing of an AspenTech acquisition, to which Mike Baughman responds that the comment regarding timing is intended for the full year without providing specifics.

In the paragraph, Jeff Sprague asks Lal Karsanbhai about the potential sale of the Safety & Productivity business and its implications, including potential tax leakage. Lal Karsanbhai states that all options are being considered and declines to provide further details. Jeff also inquires about the recovery timing for Emerson's legacy discrete and T&M sectors, to which Lal responds that both are expected to recover concurrently. Joe O'Dea from Wells Fargo then asks about the shift towards software-defined automation and the challenges associated with implementing it across different types of facilities, with Lal describing it as an ongoing journey.

The paragraph discusses a three-phase strategy for addressing market needs at different organizational levels. The first phase focuses on foundational site-level improvements, such as digital transformation and data democratization, to enhance reliability and safety and enable remote operations. The second phase involves implementing these changes at a site level over a three-to-five-year period, with varying adoption rates. The third phase targets enterprise-level efficiencies across entire asset fleets. Ram Krishnan emphasizes the scalability of their technology, making it applicable to both brownfield and greenfield environments, acknowledging the importance of digital transformation in existing facilities. Joe O'Dea briefly mentions increased discussion on megaprojects.

The paragraph discusses the outlook for the chemicals market and mentions the expected recovery in chemical and petrochemical activities in North America post-elections, despite recent slowdowns in China. The company has not heavily factored chemical recovery into its plans, focusing more on energy, LNG, and other sectors. If chemicals perform better than expected, particularly in Europe and China, it could positively impact their projections. Additionally, the paragraph touches on the Test & Measurement segment, where organic sales are anticipated to grow by 3% to 5%, with mid-single-digit growth in process, hybrid, and discrete segments and high single-digit orders as backlog is consumed.

The paragraph discusses a company's strategy to increase orders at a faster rate than sales, with a sales forecast for the Test & Measurement division growing in the mid-single digits by 2025 and accelerating in the second half of the year. Julian Mitchell asks about expected synergies, mentioning a plan for $100 million in synergies over two years, with a majority expected in 2025. Lal Karsanbhai confirms the assumptions about Test & Measurement and states that details on synergies for Aspen will be provided once a definitive agreement is reached. The session concludes with the operator ending the presentation and thanking participants.

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