Emerson Electric Company (EMR) — Q3 2025 Earnings Call Transcript

Good morning, and thank you for joining Emerson's Third Quarter 2025 Earnings Conference Call. This morning, I am joined by President and Chief Executive Officer, Lal Karsanbhai; Chief Financial Officer, Mike Baughman; and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to Slide 2. This presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the safe harbor statement and note on non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks.

Thank you, Colleen. Good morning, everyone. I would like to begin by thanking the global Emerson teams for delivering yet another strong quarter. With the support of Emerson's Board of Directors, we are energized by the company we have created with highly differentiated technology, serving a diverse set of industries and customers and a compelling value creation proposition for investors. Please turn to Slide 3. In May, we hosted approximately 3,000 attendees from 51 countries at Emerson Exchange, where we showcased how Emerson is accelerating innovation to lead the future of automation. Innovation is integral to Emerson. And 3 key product developments demonstrate the notable progress we are making to advance our world-class industrial software portfolio. First, we announced a strategic collaboration with TotalEnergies, a significant milestone in realizing Emerson's boundless automation vision with our new enterprise operations platform. Building on a nearly 30-year relationship, Emerson will deploy our industrial data fabric to continuously collect, store, and contextualize millions of real-time data points from TotalEnergies facilities, providing secure and unified access to data across the organization. The digital infrastructure, which also includes Emerson's advanced process control solutions, will enable TotalEnergies to optimize operational performance and accelerate AI implementation. This data fabric technology is foundational for Emerson's enterprise operations platform, the industry-first software-defined OT-ready digital platform that seamlessly integrates and optimizes industrial operations. Next, we released the Ovation AI-enabled Virtual Adviser, which is the first Gen AI adviser integrated into a control system for power generation. The Ovation Virtual Adviser, as part of Ovation 4.0, enables advanced power plant diagnostics using Microsoft Azure OpenAI to increase productivity and operational awareness. This highly differentiated solution is driving strong traction with over 80% of upcoming modernization projects involving an upgrade to Ovation 4.0. For example, Ovation was selected by Entergy to automate power generation at 2 greenfield combined cycle power plants. Entergy today provides electricity to 3 million customers and is expanding in Texas and Mississippi with 2 754-megawatt generation facilities. Emerson was chosen for our leading technology, local presence, and enterprise scalability across multiple sites. Third, Emerson unveiled the Nigel AI adviser in its market-leading test software. This innovation is the company's first step in integrating test-optimized AI technology into its trusted LabVIEW portfolio, which will aid engineers in unlocking the full potential of our world-class software tools to address the increasing complexity of test and measurement across industries like semiconductor, transportation, and electronics. Nigel can analyze, code, and provide recommendations for improvements when developing and executing tests through plain language prompts, enabling engineers to focus on their own innovation and business goals. Please turn to Slide 4. Investments in automation continue to drive resilient demand in Emerson's process and hybrid markets as customers seek to modernize and improve their operations. The discrete recovery progressed further, particularly in test and measurement markets. North America, India, and the Middle East and Africa have been strong. And we expect these regions to remain growth drivers with sustained investment across LNG, power, and life sciences. Our industrial software, ACV again grew double digits over the prior year and ended the quarter at $1.5 billion. Underlying orders grew 4% and led by Test & Measurement, up 16%, and with our process and hybrid businesses again up mid-single digits. MRO remained strong at 62% of sales, with software and cybersecurity upgrades driving increased activity in long-term service agreements. The dynamic tariff environment persisted, and our exposure was less than expected in the quarter. As the quarter progressed, we decided to ease the scope of surcharges, which meaningfully impacted our third quarter sales growth. Underlying sales growth was 3%, and we delivered excellent profitability. Emerson's adjusted earnings per share of $1.52 met the top end of our guide, and better-than-expected free cash flow generation led to a 21.3% margin. Mike Baughman will provide additional color on the results in a few slides. Our teams are committed to completing a strong 2025, and we are pleased to see the turn in our discrete end markets. In the fourth quarter, we expect underlying sales growth of 5% to 6%, driven by further improvements in Test & Measurement and sustained growth in our process and hybrid businesses. We project an adjusted segment EBITDA margin of 27%, higher than previously planned due to the impact of lower tariff exposure, with adjusted EPS of $1.58 to $1.62. As we look forward to fiscal 2026, we expect strong exit rates for underlying orders to support underlying sales within our growth framework. Additionally, we will be hosting an investor conference on November 20 in New York City. We look forward to talking about our transport portfolio and a differentiated value creation framework. More details will be communicated as we approach the conference. Please turn to Slide 5. Emerson's demand outlook remains healthy. As expected, underlying orders in our process and hybrid businesses grew mid-single digits in the quarter and are expected to maintain similar growth in the fourth quarter. The secular need for energy security and affordability is leading to significant activity in LNG across the globe, and increasing electricity demand in the Americas and Asia is driving robust activity in power. For example, underlying orders in our Ovation business were up 40% in the quarter, and we expect to end the year up over 20%. We are also seeing strong demand in Life Sciences, with customers investing in biomedicines and GLP-1 drugs. The capital cycle remains constructive, and we continue to see new investments replenish projects booked from our $11.2 billion funnel. Underlying orders in our discrete businesses were up 6% in the third quarter, led by Test & Measurement, which was up 16% due to robust growth across all world areas. The recovery in these markets is building momentum, and we expect underlying orders growth in test and measurement to approach 20% in the fourth quarter, supporting double-digit order rates in our discrete businesses as we exit the year. Emerson has now posted 2 consecutive quarters of mid-single-digit underlying orders growth. In July, with a strong start to the fourth quarter, the trailing 3-month underlying orders growth was 6%. As we exit the year, we expect underlying orders growth between 5% and 7%. Please turn to Slide 6. Our view for full-year 2025 underlying sales remains similar to what we communicated in the May earnings call. Demand trends are favorable and support our fourth quarter outlook for underlying sales growth to accelerate to 5% to 6%. We expect fourth quarter underlying sales for our process and hybrid businesses in the mid-single digits, driven by global investment in LNG, power, and life sciences. Our discrete businesses are expected to be up double digits in the quarter, reinforced by the recovery in Test & Measurement, which is expected to be up sharply with growth in the high teens. In the Americas, we expect broad-based strength in North America, MRO, and greenfield projects. We plan to see growth accelerate in Europe, led by energy security and modernization projects, coupled with recovery in discrete markets. Robust investment is expected to continue in the Middle East, India, and Southeast Asia, and we expect China to be up slightly, supported by power and marine, with improving business fundamentals in Test & Measurement markets. We continue to see strength in customer adoption of our subscription software and expect double-digit ACV growth for the full year. Notably, ACV in AspenTech's digital grid management grew 26% in the third quarter, with strong momentum across North America and Europe.

Thanks, Lal. Please turn to Slide 8, where I will discuss our third quarter financial results. Underlying sales growth was 3%. Growth was led by our resilient process and hybrid businesses, which were up 3.5%, and our discrete businesses collectively turned positive, up 2% year-over-year. Price contributed 2.5 points in the quarter, less than previously expected due to easing some surcharges. Our sales fell short of guidance driven primarily by this dynamic. Underlying growth was 7% in the Americas and 2% in Asia and the Middle East and Africa, while Europe was down 7%. Software and Control grew 2%, and Intelligent Devices was up 3%. Backlog increased to $7.6 billion, and our book-to-bill for the quarter was 1%. Sequentially, backlog was up 2% in both our process and hybrid and discrete businesses. Adjusted segment EBITDA margin of 27.1% met expectations and was negatively impacted by 40 basis points due to tariffs, which primarily affected profitability in Intelligent Devices. We had strong profit contributions from software and control, including synergy realization at AspenTech and Test & Measurement. Operating leverage was 25%, and excluding the impact of tariffs, operating leverage was 38%. Adjusted earnings per share in the quarter of $1.52 grew 6% year-over-year, and I will discuss this in more depth on the next chart. On a year-to-date basis, adjusted earnings per share of $4.38 is up 9%, with strong operational performance contributing an incremental $0.45. Finally, Emerson generated better-than-expected free cash flow of $970 million, resulting in a margin of 21.3%. The cash flow performance was led by higher earnings and improvements in working capital. Year-to-date, free cash flow is up 20% versus the prior year and at a margin of 18%. Please turn to Slide 9. Emerson executed well again in Q3. Operations added $0.09 versus the prior year adjusted earnings per share of $1.43. Software and Control added $0.06, and Intelligent Devices added $0.03. The AspenTech buy-in was slightly accretive in the quarter, driven by synergy realization. Nonoperating items netted to 0 as share count and other favorability offset a $0.02 headwind from FX and a $0.02 headwind from pension. Overall, adjusted EPS grew 6% year-on-year to $1.52. Please turn to Slide 10 for additional details on our fourth quarter and full year 2025 guidance. We expect fourth quarter underlying sales growth of 5% to 6%, supported by a meaningful acceleration in Test & Measurement, a sustained healthy pace of business in our process and hybrid businesses, a strong backlog position as we enter the quarter, and expected incremental tariff-related revenue. Adjusted segment EBITDA is expected to be approximately 27%, up 80 basis points over the prior year with operating leverage of approximately 40%. With this, we expect to land adjusted earnings per share between $1.58 and $1.62, a strong year-over-year growth of 7% to 10%. For the full year, we expect underlying sales to be up approximately 3.5%. Price is now expected to contribute approximately 2.5 points of growth versus 3 points in the prior guide due to decreased tariff exposure, resulting in lower surcharges. We are increasing adjusted segment EBITDA margin guidance to approximately 27.5% with operating leverage of approximately 70%. Adjusted EPS is increased at the midpoint to approximately $6 per share. Free cash flow was also increased to approximately $3.2 billion resulting in a margin of approximately 18%, which includes $200 million of transaction-related headwinds.

I thought you were going with Geoffrey for the AI adviser. Could we just maybe touch on the margins again and sort of intelligent devices in particular? So I kind of get the tariff math, but dollar sales were actually up in the quarter sequentially and dollar profits were down sequentially. So can we just unpack that a little bit? Were you technically behind on price cost relative to tariffs in the quarter and expecting to catch that up in Q4 or maybe there's something going on in mix or else otherwise?

Yes. Jeff, thanks for the question. The Intelligent Devices, you're right, 24.4% and 25% with the adjusted EBITDA margin down about 1.1 points. And there was a meaningful impact of tariffs, which we expected, but there was also a meaningful impact with FX included in there that really wasn't expected that drove that down. When you take those 2 out, it's up 20 basis points. The other thing to bear in mind is that the tariffs largely hit that group. There isn't nearly as much tariffs in Control Systems and Software. So that's where you see all of that tariff math reading through for the most part. There's some in the other, but it's primarily there. So the unexpected piece was the FX, which is FX, to be clear, of balance sheet exposures that then get mark-to-market, and that is in the segment EBITDA margins.

Yes, great. Thanks for clarifying that. Yes, I was surprised that FX was a headwind on that bridge given you got a translation positive, but the hedge is working through. Understood. And then maybe just on Test & Measurement, the inflection that you're seeing there, how would you kind of characterize vertical markets that might be driving that? Is it broad-based? Is it concentrated in a few areas, if there's any geographic color to add, I'd be interested in that also.

Yes. No, I'll comment, Jeff, and I'll let Ram add as well. No, we saw a very broad-based recovery across all segments, in all world areas in Test & Measurement. I would suggest that the most encouraging segment recovery has been in the portfolio business, which is the vast array of thousands of customers with a diversified end market basis and gives us the best indication of the recovery in the market. But in addition to that, aerospace defense continues to remain strong as it has been for a number of quarters now, but the recovery in semiconductor and, of course, easy comparisons in automotive made it possible to have a positive order number across all 4 of the segments. Ram?

Yes. And just to add to that, from a world area or region of the world perspective, Asia being the strongest they went down first, so they're recovering, rebounding very strong. China has been actually very good in terms of recovery as well, followed by North America and then Europe. So I think as Lal said, every segment and every world area is strongly positive.

Can you just maybe talk about how you saw the quarter play out? I think you guys said the orders in April were up 7%. And I think you may have exited at a bit of a lower rate, maybe May was weak and June came back? Just maybe some color on how these orders trended in May and June.

Yes, we were confident about the mid-single-digit exit rate we discussed at the start of the quarter. There were some variations regarding timing and speed with certain orders, which is not uncommon. Some of them were delayed until July, and a few might have been postponed due to larger capital bookings. However, our MRO bookings remained very steady throughout the quarter, providing a solid foundation. The capital fluctuations came in and out primarily based on timing.

Okay. And then just as we move into next year from a kind of software perspective, always tough to model that. Is anything next year with regards to the comps at Aspen or anything like that from a growth perspective that we should keep in mind?

No. I think from an Aspen perspective, certainly ACV continues in terms of high single-digit growth into double digits as some of the synergies come through. So nothing in terms of ACV from an Aspen perspective that is concerning. And then certainly, as it relates to our other businesses, the Process segment will remain pretty consistent at mid-single digits with recovering discrete.

Lal, just a little bit more on your core process and hybrid markets. I know you expected mid-single-digit order growth. That's what you got. If you look at the business or the end markets, you expect stability or maybe slight improvement moving forward. How do you get that? Is it all from power and LNG? And maybe you could talk about some of the weaker markets, what you're seeing like in chemical stabilization there, still getting weaker. How do you look at it?

Yes. No, certainly, LNG, power generation, and life sciences will continue to fuel process hybrid on a forward basis here, given the visibility we currently have. And we feel very positive about the underlying drivers across all 3 of those. Chemicals is a mixed story. We actually are doing quite well in specialty chemicals. The bulk chemical story is negatively impacted in Europe and in China, and we just have a demand condition and an overcapacity condition that impacts those end markets. And so those are negative for us. But just about as I look forward into 2026, certainly, I expect the momentum to continue as capacity is invested, not just to meet the energy security needs, but also to nationalize localized manufacturing of drugs and, of course, the enormous expansion we have in generation and transmission distribution capacity.

Got you. And then just back to Test & Measurement, I know, Lal, you've been working on sort of the commercialization of growth there. So maybe you can talk about how much of the improvement is the market, as you answered Jeff's question, but maybe just your own self-help and where you are in that process of improving the business. Obviously, you mentioned LabVIEW and the presentation is outperforming. So maybe you could talk about that as well.

Yes. I will, and I'll let Ram jump in here as well. Look, so much work has been done, Andy, as you know, by this team led by Ram and Ritu Favre, and they've done an exceptional job resetting this company to address and to be a quick, more nimble responding to market opportunities. So certainly, we have seen market recovery, underlying market recovery, which fuels, but we believe that we're outperforming the market. And that is based on not just the reset of the commercial focus in the company, but also in the new products that we're bringing to market. And the example I highlighted with LabVIEW is a new generation, new incremental product in the marketplace. And I think that's going to make a big difference across the segments. Ram?

Yes, you said it well. I think the focus on new products, I think, as Lal said, LabVIEW, the software suite, they're launching a new DAQ or a data acquisition product, which I think is a core capability that NI and NI customers were expecting. So I think that's going to be a net positive. But also on the commercial side, going back to the basics as it relates to country-specific growth plans. They have great exposure in many, many parts of the world, and going back to the basics and developing go-to-market plans and growth initiatives. Simple things, but hugely important as the market recovers, where our management system deployed is helping NI grow faster than the market, and that's clearly evident in the pace of business we're seeing.

Let me discuss Ovation for a moment. Some of this may involve reeducating us on how you generate revenue there. When you mention that orders are up 40%, is that solely from new projects, or is there a combination of retrofits and new initiatives? How do you assess what qualifies as a new order? I have a follow-up question on that as well.

Yes, there are several categories to consider. One is new projects, such as the Entergy combined cycle plans, which typically involve long lead times. You first book the project, then conduct engineering work, construction starts, and automation is integrated. There are also life extension projects, which we are observing in combined cycle, coal, and nuclear sectors in both the United States and Asia. Lastly, there are modernizations aimed at improving cybersecurity, incorporating AI, or upgrading control systems, including Ovation. All three of these categories are considered bookings and have different impacts on the ship ratio due to the varying time required for implementation and construction. Ram?

Yes, you said it. I think traditionally, the power industry for us has been one of competitive displacement. As you know, greenfield opportunities have really picked up in the recent past. But over the years, we've owned this, it was a competitive displacement story. But what is certainly a net positive for us is the greenfield capacity investment in combined cycle happening in the U.S. to fuel the power needs for the data centers. But certainly, markets like China as well, there is a significant level of greenfield activity, and we're capitalizing on that with the technology position we have in Ovation. So all 3 aspects of the business: greenfield, modernizations, as well as continued MRO and competitive displacement is fueling the order growth, which will convert to sales over the next couple of years.

Can you talk through Control Systems and Software a little bit? We saw really good organic growth there last quarter, this quarter, more in that kind of low mid-single-digit range. Just talk about kind of what you saw within Aspen and then Controls and how you're thinking about that growth into the fourth quarter?

Yes, I'll start this one. Last quarter, we mentioned that the Total deal was pushed into Q2, which was originally set for Q3, and traditionally, Emerson's Q4 is their biggest. So, we have experienced that shift. However, Aspen's ACV growth and overall revenue growth have been very strong this year. Additionally, the systems business is performing well in the mid-single digits and is benefiting from the dynamics that Lal and Ram have discussed.

Yes. Yes, I think you said it. I think overall, from a full-year perspective, mid-single-digit growth plus in the systems and software business. But as Mike described, the lumpiness associated with how Aspen recognizes ASC 606 with the Total, for example, as well as project lumpiness and how we execute within systems and software will have variations from 1 quarter to the next. But overall, we feel very, very good about the high end of the 4% to 7% range for underlying growth in our systems and software business.

Great. That's helpful. And then just a little bit more color on the discrete side of the business and kind of contrasting Test & Measurement with legacy discrete. You did see order acceleration there in Test & Measurement. It looks like discrete orders may be pacing more flattish. And so what you're seeing in the different demand trends there and your expectation for kind of legacy discrete recovery?

I'll start off, and Ram can add some color. So there are 2 very important dimensions of the legacy discrete, Joe, that differ from Test & Measurement. The first is exposure to automotive and packaging businesses, particularly in Western Europe and China. And both of those markets continue to be relatively depressed and challenging, and that certainly dampened the recovery there. Offset, of course, by some of the more traditional broad-based industrials which have impacted positively. But generally speaking, a much more muted. And you're right, slightly positive as they came out of the quarter, but significantly more muted than the broad-based applications and market exposures that the Test & Measurement business has.

Yes. And I think the outsized market exposure for us in Europe, which has been the slowest market to recover for our traditional discrete business, our factory automation piece, versus test and measurement points to the disparity in the pace and amplitude of recovery. But as Lal described, I think the automotive segment and then factory automation as it relates to Europe and China have more muted recovery than many of the markets in Test & Measurement.

Lal, just a broader question on your power vertical. You sort of enter the power cycle with sort of very material endowment in terms of market share, the Ovation orders up nicely. Clearly, the Aspen Grid business is doing very well. What do you think is a sustainable growth rate going forward? Can it stay elevated for the next, I don't know, 12 to 24 months, given what's happening in the power gen industry broadly?

Thank you, Andrew. I'll share my thoughts, and if Ram or Mike want to add anything, they can. I definitely believe that there is potential for growth based on the opportunities we see in both the generation and transmission distribution markets. I think we can sustain growth in the high teens range over the next few years. In fact, we are likely to emphasize this market when we gather in New York City in November as a key growth driver for the company, given the substantial dollar spend we are observing. This is not solely a U.S. phenomenon; it has significant implications. As Ram mentioned, our approach has shifted significantly; we have refocused our team, which previously had a high participation rate, towards pursuing projects and expanding our market presence. We are seeing positive momentum and maintaining close relationships with our customers due to our strong business involvement, and we are very optimistic about experiencing high growth rates over the next 24 months. Ram?

Yes. To add to that, our customer connections in this business are very strong. Bob Yeager, who leads this division, maintains excellent relationships with many major power companies in the U.S. Their plans for ongoing investment in capacity expansion in combined cycle, along with developments in digital grid management on the transmission and distribution side, indicate a cycle of investment that extends well beyond two years. While we cannot predict far beyond that, we believe the prospects for the next two years are very robust in both generation and transmission and distribution. Therefore, we expect to maintain these growth rates.

Excellent. And then just looking at where we are in the cycle, I think the narrative from a lot of companies back in the spring, early summer was that tariffs are really impacting the ability of companies to sign off on large projects. I think with 65% of U.S. trading partners sort of having some form of agreement with the U.S. How has the dialogue with your customers changed? Are you getting more visibility? What does the funnel look like? What's the likelihood of large projects actually being released into the calendar year and in early '26?

Yes, Andrew, this is Ram. From our standpoint, particularly in LNG, power, and life sciences, which constitute the majority of our project pipeline, there has been no slowdown in decision-making or approvals for advancing projects. That's the key takeaway. However, regarding some sustainability projects in our pipeline, not necessarily related to tariffs, we have noted a few project cancellations that have slightly reduced the overall size of our pipeline, though not significantly. The most critical point is that we are seeing growth in LNG, power, and life sciences. Additionally, there is no slowdown in U.S. chemical and petrochemical projects or in the Middle East, and we continue to secure project wins of $350 million to $400 million per quarter from our $11.2 billion pipeline, which has remained consistent with our experience over the past several quarters.

And the chat, this is not the chatbot. This is the real person.

Yes, Nigel, we honored you with that.

It's great to see this. I hope it has a British accent. To address the order push-out you mentioned, I’d like to focus on the order rates for the second half of the year, which appear to be in the mid-single-digit range. You previously indicated that we might see high single-digit order rates during this period. Can you elaborate on the specific areas where you've observed these push-outs? I'm assuming some energy transition projects might have been canceled or delayed. Additionally, I’d like to hear about the North American greenfield projects. You've discussed power and other sectors, but do you think we're starting to see the impact of reshoring announcements translating into actual orders?

Yes, I did not mention any order pushouts, Nigel. That was not a factor we encountered this quarter. There are variations in the timing of bookings, with some occurring earlier in the quarter and others in July. However, we did not observe any delays or pushouts in capital bookings. As I noted earlier, the maintenance, repair, and operations activity and its booking pace, which makes up 62% of our business, remained very consistent throughout the quarter. Ram, why don't you provide some insights on the greenfields?

Yes. I believe that the greenfield projects, including LNG, power, life sciences, as well as activity in chemicals, ethylene, and methanol, remain positive for us in North America. There have been no delays or slowdowns in that area. You may have noted that we've seen some shifts in sustainability and decarbonization projects in our pipeline, but those projects are not expected to materialize in the quarter or in the near term. Overall, we remain very optimistic about the progress of these greenfield projects in North America.

Yes. Sorry about that, the chatbot gave me the wrong information. So moving on to the discrete automation, sort of the discrete and Test & Measurement outlook. Clearly, we're hitting some really deeply favorable comps here. So we've got a mathematical uplift on comps. But are we seeing a genuine increase in investment from your customers? That's the first part of my second question. And just maybe just touch on this FX pinch to margins. Do you think that's going to be a factor in 4Q as well?

I'll take the second part of that, Nigel. We are not planning for the FX pinch on margins in the fourth quarter.

Yes. In terms of the discrete markets, the growth rates in Test & Measurement have significantly contributed to our recovery momentum. Many markets within Test & Measurement are showing signs of change. For instance, aerospace and defense, which is our largest market, is seeing continued spending growth worldwide, particularly in Europe and North America. This is a clear sign of change. In semiconductors, both RF and mixed signal, we expect to see investments in validation, research and development, and capacity. Moreover, the overall recovery in Test & Measurement indicates that markets are gaining confidence in their investment pace, with distributors and integrators restocking our products. Several areas of our discrete market have inflection points and ongoing recovery, but we are particularly monitoring factory automation investments in Germany and China, where we have yet to see a sustained change.

When we were at the Emerson Exchange in San Antonio, we saw that demo of Ovation AI? And can you just remind us, is this still in beta test? Has it been launched? And it was interesting, the first application, I guess, it's not surprising, is power gen. What's the plan for the rollout for other applications?

Yes. No. I noted that on Slide 3, Deane, that Ovation Virtual Advisor has been launched, and it's integrated in Ovation 4.0. So that's not in the marketplace, and it's off to a very good looking start already. I give an example of Entergy, which is building 2 combined cycle 754-megawatt power plants in Mississippi and Texas, and they're using the technology. So there's a really good customer adoption there already on that product that you saw as a demo.

Good to hear. And then in your Q this morning, there's a reference to the One Big Beautiful bill talking about the accelerated depreciation that you're saying it would not be a meaningful impact for Emerson. Can you just clarify, is that a reference to your own CapEx? And what about customer CapEx with all this reshoring, there could be some benefit there. Can you just clarify? You are correct. That is a reference to ours. And you're also correct that it could certainly benefit our customers as they consider their capital expenditures. To expand on that, the provisions of the One Big Beautiful bill are generally favorable for Emerson, helping us avoid some downsides expected from the TCJA and altering some rates, which will provide modest assistance as we move forward.

Just wanted to ask about the order outlook for 4Q. I think previously, it was up high singles. Now we're looking at 5% to 7% growth. Was that driven by a revision in the factory automation outlook? Can you guys just elaborate a bit there?

No. The process hybrid has remained consistent for us in terms of outlook. We still expect it to exit in the mid-single digits as we did before. The discrete recovery has been very encouraging as we went through the quarter, and that's evident from the call. We still anticipate a double-digit exit rate there. For safety productivity, there are some comparisons included, but we expect lower single digits for that. Overall, it's a mix of different factors, ranging from 5% to 7%. I don't necessarily need to define it precisely, but it still aligns with our expectation range.

Yes. In the fourth quarter, compared to the third quarter, maintaining our position at 27% clearly indicates an improvement in tariff-related pricing in Q4 over Q3. We had always intended to implement pricing changes in Q3. While we experienced some challenges in fully offsetting the tariffs, we anticipate achieving complete relief in Q4. As a result, our Q4 margin is strong, showing an increase of 80 basis points year-over-year and remaining flat compared to Q3.