EMR Earnings Call

OperatorGood afternoon and welcome to the Emerson third quarter and full year 2026 earnings conference call. All participants will be in a listen-only mode. After today's prepared presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to your host, Doug Ashby, Director of Investor Relations at Emerson. Please go ahead.

Doug AshbyGood afternoon and thank you for joining Emerson's third quarter 2026 earnings conference call. Today I'm joined by Emerson's 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 the non-GAAP measures. I will now pass the call over to Emerson's President and CEO, Lal Karsanbhai, for his opening remarks.

Lal KarsanbhaiThank you, Doug. Good afternoon, everyone. I'd like to begin by thanking my Emerson colleagues around the world for delivering an outstanding quarter. We have created momentum in our business built on customer intimacy, investment in innovation, and operational execution, all a testament of the strength of the Emerson management system. Please turn to slide 3.

Lal KarsanbhaiI would like to recognize our Chief Technology Officer Peter Zornio, who will retire on December 31st following an exceptional career at Emerson. Peter joined Emerson in 2006 and played an instrumental role in the development of our industry-leading control systems and software portfolio. He has been a key member of the executive leadership team in our automation business since 2017 and played a pivotal role driving innovation as CTO during our portfolio transformation. Thank you, Peter, for your contributions and friendship over the past 20 years, and please know it has been an honor working with you. I'm also excited to announce Rudy Sengupta as our Senior Vice President and Chief Technology and AI Officer, effective August 15th. This appointment reinforces Emerson's strategy to lead an AI-enabled automation advancing the full technology stack and helping customers achieve autonomous operations at scale.

Lal KarsanbhaiRudy joined Emerson through the acquisition of NI and brings decades of experience in software-defined automation spanning engineering, product, and corporate strategy and operations. Currently serving as Vice President and General Manager of Test and Analytics Software, Rudy has advanced NI software differentiation, including the development of award-winning Nigel AI. He brings a deep understanding of technology and AI, and his leadership of our enterprise AI vision and long-term technology roadmap will be key in accelerating innovation across Emerson and positioning the company for continued growth. Please turn to slide 4. End market demand is robust, supported by secular trends in our growth verticals and meaningful investment in automation. Underlying orders grew 7% in the third quarter, with broad-based growth across all business groups, led by Software and Systems, which was up 10%. Demand was strongest in North America and Asia, and I'll discuss demand trends in more detail on the next slide.

Lal KarsanbhaiEmerson delivered an outstanding third quarter with sales, margin expansion, earnings, and cash all exceeding expectations. Underlying sales grew 6%, led by sustained momentum in test and measurement and in our Ovation business, both up 23%. Overall, our growth verticals were up 27%, led by Semiconductor and Power, which both saw significant growth. Adjusted segment EBITDA margin expanded 140 basis points to 28.5%, and adjusted earnings per share grew 13% to $1.71, above the top of our guidance. Annual contract value of our software grew 9% year over year and ended the quarter at $1.68 billion.

Lal KarsanbhaiWhile the situation in the Middle East remains dynamic, the resilient efforts by our teams and customers drove a better-than-expected performance in the quarter relative to our reduced expectations. The demand environment in the Middle East is constructive with repair work underway. Our field service engineers are now operating at pre-conflict levels, but customer operational capacity remains approximately 75%. Large projects are moving forward and we are seeing new opportunities emerge across the energy chain to support energy security and resiliency in the region. Emerson's customer relationships and strong local presence position us well to capture the near-term investment priorities, pipelines, and alternative export routes to reduce dependence on the Strait of Hormuz. The long-term capital outlook is robust and we remain confident in the growth potential of the Middle East. Lastly, the year is shaping up largely as expected, with a meaningful second half step up in organic growth and a slightly better Middle East than what we forecast in May.

Lal KarsanbhaiWe are raising our full-year guidance, reflecting strong third quarter results and healthy demand trends. We are raising sales growth expectations to 5%, with underlying growth of 3.5%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising our adjusted EPS guide to $6.55.

Lal KarsanbhaiThrough the third quarter, Emerson completed $898 million of share repurchases. And we remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Please turn to slide 5.

Lal KarsanbhaiUnderlying orders grew 7% in the third quarter with broad-based demand across the portfolio as customers are investing in automation to enhance productivity, reliability, and resilience in their operations. North America and Asia drove the growth, led by the continued strength in the US, India, Japan, and Southeast Asia. Demand in Europe and China remained soft but showed signs of improvement in the quarter. Test and measurement orders growth of 19% exceeded expectations, with semiconductor up 70% and double-digit growth in aerospace and defense and the portfolio business. We are seeing a continuation of the unprecedented investment in power generation with orders in our Ovation business up 31%.

Lal KarsanbhaiElectrification is also driving exceptional activity in grid modernization. And ACV in AspenTech's digital grid management suite was up 28%. Our project funnel grew $1.2 billion to $12.4 billion, up 8% year over year. Secular tailwinds are supportive of sustained capital activity in our growth verticals, which were up $1 billion sequentially. Power was up $450 million from the second quarter and now accounts for $3 billion of the funnel. The power generation buildout is accelerating with substantial demand for both utility and behind-the-meter power. The need for more stringent cybersecurity in critical infrastructure is also leading customers to accelerate retrofit and upgrade programs. The LNG funnel grew $350 million to $2.2 billion, and we see resilient momentum across the Americas and the Middle East, reinforcing the demand trajectory we outlined at our Investor Day last November. In the third quarter, Emerson won approximately $400 million from the funnel.

Lal Karsanbhai80% Came from our growth verticals, and I want to highlight a few key wins. First, Emerson was selected to retrofit control systems for a 2.1-gigawatt power plant for CFE, Mexico's largest power producer and national utility. Emerson will deploy its, its industry-leading Ovation control system which was selected for our proven ability to execute complex retrofits within accelerated timelines. This modernization will enhance plant reliability and support CFE in meeting Mexico's growing power generation demand.

Lal KarsanbhaiNext, Emerson was chosen by China Nuclear Power Engineering Company, the design firm for the new Hualong-1 pressurized water reactor in Guangdong Province, which will add 2.4 gigawatts to China's nuclear installed base. Emerson will supply pressurizer pilot-operated safety valves, one of the most critical valve applications to ensure overpressure protection of the primary circuit. We were selected based upon our strong application expertise, nuclear qualifications, and our local presence and support. Lastly, Emerson will provide NI semiconductor test systems for a leading semiconductor manufacturer based in Taiwan. Emerson's solution improves test accuracy and consistency for critical components, ensuring a faster product roadmap to help the customer capture opportunities in the AI market. With that, I will now turn the call over to Mike Baughman to discuss our financial results and guidance in more detail.

Mike BaughmanThanks, Lal. Please turn to slide 6 for a more in-depth look at our financial results. Q3 underlying sales growth was 6%. Each of our business groups exceeded expectations, led by Software and Systems, up 11%. I will provide more details on geographic and group performance on the next 2 slides. Price contributed 3 points to growth, and MRO was 65% of sales. Backlog ended the quarter at $8.2 billion, up 7% year over year, and our book-to-bill was 1. Adjusted segment EBITDA margins of 28.5% were up by 140 basis points. Margin expansion exceeded expectations due to better volume than expected and favorable segment mix. Price-cost and cost reductions more than offset inflation. Adjusted earnings per share was $1.71, up 13% year over year. Operations contributed the full 19-cent increase, reflecting outstanding performance. Q3 free cash flow of $1.3 billion was up 36% and at a margin of 27.1%. Cash exceeded expectations due to good operational performance along with the impact of tariff refunds and the timing of tax payments, which shifted from Q3 to Q4.

Mike BaughmanYear-to-date free cash flow is up 9% with a margin of 19%.

Mike BaughmanPlease turn to slide 7 for details on Q3 underlying sales by region. The Americas were up 8%, with the US up 10%. We saw a very healthy pace of business in the US, with software and systems up 14% and intelligent devices up 9%. Asia, Middle East, and Africa was also up 8%. Led by the Middle East and Africa, up 11%. As Lal mentioned, a great performance by our teams in the Middle East resulted in a revenue impact that was better than our revised expectations coming into the quarter. Overall, the impact in Q3 was about a $25 million headwind compared to our February guidance, and we expect the Q4 impact to be similar as supply chains remain complex. China improved to down 3% year over year, which was in line with our model, and Europe remained soft as expected and declined 1%. Globally, our growth verticals continue to be meaningful drivers of performance, and we were up 27% in the quarter. Growth was very strong in semiconductor, which was up 53%, and power, which was up 37%.

Mike BaughmanPlease turn to slide 8 for details on the third quarter underlying sales and margin performance for our three business groups. Software and Systems grew 11% underlying, with robust growth at test and measurement, up 23%, and control systems and software, which was up 7%. We saw significant Software and Systems growth in power Semiconductor and Aerospace and Defense. Software and Systems margin of 31.8% decreased 30 basis points year over year compared to a very strong performance last year. The current year margin included a drag of 1.5 points due primarily to the software contract renewal dynamic and a higher mix of lower margin projects. Intelligent Devices underlying sales were up 5%. Better than expected due to our performance in the Middle East and the timing of project shipments and sensors. We saw consistent strength in power and LNG, as well as solid growth in midstream gas and chemical.

Mike BaughmanIntelligent Devices margins of 27.9% increased 240 basis points year over year from volume leverage, price-cost, and cost reductions. Safety and Productivity was up 2% underlying, driven by electrical products and industrial activity in North America. European and automotive markets remain soft. Safety and Productivity's margin of 21.2% was up 80 basis points year over year, driven by disciplined price cost and cost reductions, offset by lower volume and inflation.

Mike BaughmanPlease turn to slide 9 for our 2026 underlying sales guidance by business group.

Mike BaughmanWe expect Software and Systems to be up approximately 10% in Q4, with both Test and Measurement and Control Systems and Software expected to grow 10%. We are increasing our full-year expectations for Software and Systems to up 6% based on the strength of our growth verticals in this business and strength in the US. We are raising full-year growth guidance for Test and Measurement, now 14%, and Control Systems and Software, now 3.5%, including approximately 3 points of headwind from software renewals. ACV continues to grow on plan, and we still expect ACV growth of 10%+ in 2026.

Mike BaughmanIntelligent Devices is projected to grow 3% in Q4 and 2% for the full year. Growth in Intelligent Devices is supported by stable MRO with strength in the US and growth verticals. We are modeling an approximately $100 million full year 2026 impact from the conflict in the Middle East as the Strait of Hormuz remains effectively closed. Safety and productivity is expected to grow 1% in Q4 and 2% for the full year. The North America market continues to recover and we are seeing sustained strength in electric utilities. However, automotive and European markets remain weak. Overall, Emerson expects to grow approximately 5% in Q4 and 3.5% for the full year.

Mike BaughmanPlease turn to Slide 10 for details on our full year and Q4 2026 guidance. We are raising full year guidance for sales, EPS, and cash flow. For the full year, we expect 5% GAAP sales growth and 3.5% underlying sales growth. We still expect adjusted segment EBITDA margin of 28%. We are guiding 2026 adjusted EPS of approximately $6.55 and free cash flow of approximately $3.6 billion. There are no changes to our planned return of approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase. Moving to the fourth quarter, sales growth is expected to be approximately 5% with minimal impact from FX. We expect adjusted segment EBITDA margin of 28.5% and adjusted EPS of approximately $1.85.

Mike BaughmanOverall, the full year is unfolding largely as we expected, and underlying orders growth of 7% for the first 9 months reflects stable MRO activity and the secular tailwinds driving long-cycle capital projects. Stronger than expected growth in the US has offset a slightly weaker China, and we have minimized the effects of the Middle East conflict to approximately half a point of revenue. Our second half underlying sales growth is accelerating as we lap the software contract renewal dynamic and execute project shipments from our backlog, which continues to grow year over year. With that, I would like to turn the call back to Alexandra for Q&A.

OperatorWe will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

OperatorYour first question comes from the line of Deane Dray with RBC Capital Markets. Your line is now open. Please go ahead.

Deane DrayThank you. Good afternoon, everyone.

Lal KarsanbhaiHi, Deane. Good afternoon.

Deane DrayAfternoon. I think I got the numbers right there as Mike was zipping through them, but it really sounded like semiconductor and power at 53% and 37% were really standouts here. Can you unpack the growth opportunity? You know, how much do you think was the underlying market? And are there any share gains going on as well? New product contributions, you know, that type of color, please.

Ram KrishnanYeah, hey Deane, this is Ram here. You know, certainly the underlying market in both semis and power as you know, is very, very strong. But I will contend that certainly in power, both on the generation side with Ovation, with fleet modernizations, but also behind-the-meter opportunities driven by data centers and new capacity adds in North America, there is significant penetration gains or participation gains we're driving. And similarly with our DGM business, our digital grid management business, on the software side with AspenTech. So a combination of a strong market but participation gains. And I would venture to say maybe to a lesser extent in test and measurement, but a very, very strong market in RF and mixed signal and participation gains with new products in both spaces.

Deane DrayGreat. And then just as a follow-up, um, and Lal, your comments about Increasing focus on cybersecurity and critical infrastructure. I mean, that was in the news this week with all of the cyberattacks across the water sector, a number of facilities, especially in Michigan. Now, I know that's not a big focus for Emerson, but you do have a presence there. And this idea here that cybersecurity is, is a focus. How do you think this plays out? Is this a place for future investment? For Emerson? What kind of opportunity do you see? Thanks.

Lal KarsanbhaiNo, thanks, Deane. So just first of all, yes, we're very aware of the facilities that were impacted. None of those facilities had an Emerson or an Ovation control system in them. So that's, that's first and foremost. Secondly, cybersecurity spend has been a significant driver of upgrades in control systems, both in power generation and in water systems. And we continue to see that, Deane, as a significant driver on a forward basis, particularly with these attacks and other vulnerabilities that are in light. So feel good about the offering that we have and the various standards that we bring to market, but a very important part of the business for sure.

Deane DrayGreat. Thank you and congrats on the quarter.

Lal KarsanbhaiThanks, Deane.

OperatorYour next question comes from the line of Jeff Sprague with Vertical Research. Your line is now open. Please go ahead.

Jeff SpragueHey, thank you. Good afternoon, everyone.

Jeff SpragueThe funnel movement is quite intriguing, obviously. You gave some anecdotal color of the growth in LNG and power in the funnel. Just also wondering, is this even increasingly long-dated, you know, sort of project activity? In other words, you know, kind of conversion of, you know, funnel to, you know, proposal to order. Anything changing there of note?

Lal KarsanbhaiNo, not really. Look, we continue to see that see about the same level of awards in the quarter. If you recall, we won approximately $400 million. That's very similar to the amount that we reported, uh, in the second quarter as well. So the, the timing on financing and awards continues to move relatively consistently over time. What we're seeing is just a very significant increase in the number of projects and the value of projects, particularly Well, I'd suggest across all the growth fact verticals, but certainly in liquefied natural gas, which was up 19%, and in power. And now we have almost 1,000 projects, individual projects in the funnel across those two, those two markets alone. So continue to see good conversion there. And again, as you know, Jeff, we don't look at this. This is not a 10-year funnel. Is a relatively 3 to 4 year view and we do work it very, very actively in the quarter.

Jeff SpragueGreat. And then unrelated, maybe pivoting to Mike, just a little bit of update on where we're at on price cost at this point. 3% Price looked pretty healthy in the quarter. Are you sort of quote unquote green on price cost and just any tariff update there, refunds you may have gotten in the quarter or expectations in the current quarter for anything on the refund front.

Mike BaughmanYeah, price cost certainly remains green for, for us. And, you know, if we look to the full year, we were tracking to about 2.5% price for the year. That's still the case, might catch around and be at 3%.

Mike BaughmanBut we continue to, to see good price and managing the inflation, which we certainly have, have seen. I think as we head into the fourth quarter here, we will be lapsing all of the tariff pricing. So we did have a little bit of tariff pricing in Q3, but the majority was, was just our, our annual and spot prices that we do through the year. Um, so that, the— yeah, so price, uh, price has been strong and we're, we're green on price cost. Uh, relative to tariffs, we got $82 million in the quarter. Um, we continue to, uh, file some claims. Just a reminder that we are accounting for those on a cash basis as we get them and we report them in cost of sales. So the, the margin certainly on a GAAP basis improved in the quarter due to that $82 million that we saw. So yes, and that was certainly part of the cash flow performance in the quarter as well, uh, the receipt of $82 million in refunds.

Jeff SpragueAnd even with that $82, do you have net cost headwinds related to other tariffs or other changes, or we should think of you had some drop through margins on that?

Mike BaughmanWell, that was taken out of our adjusted, so, so it's, it's been removed. Um, and you know, the tariff landscape has obviously been changing. Some tariffs have come off, some tariffs, uh, have come on. When we look at the year, um, we certainly got a net benefit that was largely eaten up by, uh, other inflation that was above and beyond the model that we had when we started the year. So a little bit of a tailwind to the bottom line, which was what we talked about and expected last quarter. So pretty much tracking the way, the way we expected.

Jeff SpragueGreat, thank you.

OperatorYour next question comes from the line of Scott Davis with Melius Research. Your line is now open, please go ahead.

Scott DavisHey, uh, good afternoon, guys. Hello. The, um, the Ovation orders, I think you said up 31%, uh, I think you said, Mike, up 31%, but what kind of lead times are you looking at now? Are you taking orders well into, I would imagine, well into maybe even the back half of '27?

Lal KarsanbhaiYeah, at this point, that's exactly right, Scott. We're sitting in the fourth quarter of '27, reaching into '28 at this point.

Scott DavisOh, 20 Gs. Wow. Okay. Fantastic. I'd call that high visibility, I suppose. Anyways, and I think Mike said something positive about chemicals, and I haven't heard a positive thing said about chemicals in a lot of years. So have we turned a corner there, or is it just a little bit of a blip? Chemicals could actually be somewhat helpful to you guys the next couple years.

Mike BaughmanYeah, the chemical comment was specific to intelligent devices, um, and, and it was a bit of a change, uh, in the quarter, and it was up, and that was largely in the final control business. We still have slow chemical markets in China and Europe, and Europe, but the United States and Middle East is, is, uh doing very well. So it was up in the quarter. We did want to make that comment, and it was particularly up in the final control business.

Scott DavisOkay. I'll pass it on. Best of luck, guys.

Mike BaughmanThank you.

OperatorYour next question comes from the line of Andrew Obin with Bank of America. Your line is now open. Please go ahead.

Andrew ObinYeah, thanks so much.

Andrew ObinYeah, it's remarkable that turns out companies can exclude IEEPA refunds from their numbers. Sorry, sorry about this quip. Anyway, but thank you for taking a more conservative approach. Look, just a question on Middle East. You know, I think you said repair construction is underway, $25 million headwind in third quarter, fourth quarter to be similar. So the question is, so Middle East rebuild opportunity is larger today and starting, but still in a drag in fourth quarter. Does it flip to tailwind in the first quarter of '27?

Lal KarsanbhaiYou know, it's, it's a good question. It really, you know, in the status quo, uh, in terms of an on-off situation, the Strait of Hormuz challenges with getting product out of the the Gulf, I think that's going to continue to be touch and go.

Lal KarsanbhaiMaybe conditions improve and that gets a little bit better for us as we go through the second half of 2027. But right now, as we're planning, I would expect to be realistic that the— certainly the fourth quarter and perhaps into the first quarter of this— of our fiscal year, The conditions remain relatively the same.

Andrew ObinThank you. And then maybe can we just talk a little bit about software? I think you said ACV was up 9%, underlying sales were 7%. So can we just talk about sort of the pace of contract renewals year over year? And just generally, you know, I think software, a big topic of conversation last quarter. This quarter, I guess we're back to inflation. But just, you know, what are you seeing operationally given all this sort of brouhaha about sort of new solutions coming in. Just give us some colors what you're seeing in the numbers. Thank you.

Lal KarsanbhaiYeah, no, we underlying sales, just a correction there, uh, 6% on underlying sales. Underlying orders were the 7% number that you referenced. But yes, you were right, ACV growth of 9%. Ram, if you want to comment on, um, on, on the business as a whole.

Ram KrishnanYeah, you know, so ACV 9, and I think we feel pretty good about exiting the year at 10+ percent on ACV. So I think From a software perspective, the dynamics of— if your specific question was the renewal dynamic, that certainly reverses in the fourth quarter, and you'll see that, okay, uh, reflected in the, in the numbers in the fourth quarter. And then, um, you know, all segments of our software business, whether it is the Aspen core business, certainly DGM— when we threw out the number there for DGM was 28% growth in DGM, so that continues to accelerate the ACV performance there is very, very strong. And then certainly on the test and measurement side as well. So our software business is executing according to plan. I think exiting the year at 10% gives us confidence about a very, very solid 2027.

Andrew ObinNo, sounds great. Thanks so much.

OperatorYour next question comes from the line of Alex Virgo with Evercore ISI. Your line is now open. Please go ahead.

Alex VirgoYeah, thanks very much. Good afternoon, gentlemen. Thanks for taking the question. I wondered if you could just flesh out a little bit of that power demand for us. Is that still mostly brownfield now, or are we actually starting to see some of the more greenfield projects with your comment there on Q4 '27 and moving into '28? I just would like a little bit more detail on that. And then as a follow-up, really strong numbers on Test and Measurement. So really great to see that. One of your peers talked about concerns of a slowing market as you roll into next year on tougher comps and the length of the cycle. So without pushing you for a guidance for '27, I wondered if you could give us a sense of the visibility that you have in that business and what we should be thinking about as we do start to think about '27. Thank you. Great.

Ram KrishnanI'll take the one on power. You know, for power to date, which has been extremely strong, has been mostly fleet modernizations. What we are starting to see, particularly in the quarter we concluded, but going into Q4 and into the early part of next year, some of the newer capacity coming online, certainly gas-fired in, in North America, will be a big part of the tailwind. Certainly the data center opportunity, you can classify that as behind the meter, and that's greenfield. And then certainly on the DGM side, which we also capture in power and nuclear power, a lot more of that is greenfield. So yeah, you're going to start seeing more of that in the numbers. But to date, the momentum has been on fleet modernizations or brownfield, as you referenced.

Lal KarsanbhaiI'll follow up on the semiconductor question. Look, we're not going to obviously guide into '27. You can certainly read into the tremendous sort of momentum that we have in, in the semiconductor business within T&M today. But I will highlight that there is a differentiation in growth in the applications from the laboratory, where I think the peer that you're referencing largely plays, to the validation and production side where we largely play. And that has a different dynamic on growth and in the cycle as well. And so at this point in time, I continue to be relatively robust on semiconductor through 2027.

Alex VirgoSuper helpful. Thank you very much.

OperatorYour next question comes from the line of Andy Kaplowitz with Citigroup. Your line is now open. Please go ahead.

Andy KaplowitzGood morning. Good afternoon, everyone. How are you doing?

Lal KarsanbhaiGood. Thank you, Andy.

Andy KaplowitzWell, maybe just your thoughts on MRO in general. I think you highlighted it today as stable, but I think generally it's seen, it's been pretty strong across at least you and your peers. So what are you seeing there? Is it, I assume, led by North America? But, you know, obviously we're running facilities pretty hard. So what are you seeing going forward here?

Lal KarsanbhaiYeah, really no material change to the MRO rates anywhere. That we've observed around that two-thirds of the business level. That seems to be pretty consistent. There continues to be spend on replacement. We have seen, and I think your point, we have seen some delays in shutdown turnaround activity because exactly facilities are being run relatively hard right now. So the, that we'll see how the fall season ultimately shapes up there, which will, will, may have an impact to MRO activity, but day-to-day MRO continues to be very strong for us. Across the every, just about every region and every business.

Andy KaplowitzAnd maybe related to that, Lal, like just growth by region, obviously China has been kind of slowing Emerson down a bit, but maybe a little bit better here. And I think you mentioned Europe a little bit better. We've had mixed reads this quarter out of Europe. So sort of what are you seeing, you know, outside of North America? And does it give you a little more confidence in improvement sort of outside of North America and outside of the Middle East?

Lal KarsanbhaiYeah, no, look, I, again, obviously, you know, Andy, we've spoken how bullish we continue to be about the USA and the investments that are being made in the USA. And I think that's got a significant amount of legs to it. And we were up 10% in sales in the US in the quarter. I don't expect that to subside. Recovering Europe, look, Europe was down a point in sales in the quarter, but again, um, a little better than expected. Orders were positive in Europe, so that's a good sign, uh, as we go through the last half of this year, the last part of this year, and into the first quarter of next. And then China, slightly better, still negative, mid-single-digit negative, uh, but we believe improving, uh, certainly sequentially and as we go into next year. So that's kind of how that environment looks like. And then of course other Asia was very, very strong, and that's powered by Japan and India and Southeast Asia.

Lal KarsanbhaiGo ahead, Mike.

Mike BaughmanNo, that's it. That's great.

Andy KaplowitzAppreciate all the color, guys.

OperatorYour next question comes from the line of Andrew Buscaglia with BNP Paribas. Your line is now open, please go ahead.

Andrew BuscagliaHey, good morning everyone, or good afternoon.

Lal KarsanbhaiGood afternoon.

Andrew BuscagliaYes, it's been a long day.

Andrew BuscagliaIf you guys could expand on the China comment, first off, did it stabilize in the quarter? Is it as expected? And then, you know, within intelligent devices, I wonder, can that growth rate get back to kind of historical peak levels without China really picking up, or do you think there's enough, enough growth in North America and elsewhere to more than offset it and get back to like types of growth we've seen in the past in the double digits in that segment?

Ram KrishnanSo on intelligent devices, the answer is absolutely. I think as, as, as if you looked at orders performance as a leading indicator, I think you'll start seeing that. Now majority of the sales impact in the Middle East is in our intelligent device business. So you'll see that obviously suppress the growth rate so far, but that will unlock in Q4 and into next year. So yeah, no concerns about the return to growth of intelligent devices. Now, our guide there is 3 to 6%. I mean, we've had years of double digits, but intelligent devices are in our long-range framework. Our systems and software business is a 6 to 9% growth business, which includes control systems and T&M. And intelligent devices in 3 to 6. So we feel very good in that, in that framework. And then your question on China. China, I think -3 is better than what we had seen in the first half. So it is improving and it was sequential growth in Q3 over Q2.

Ram KrishnanSo again, we expect China to continue to improve into low single-digit type growth levels as we, as we plan for 2027.

Andrew BuscagliaOkay, fair enough. And, and my other question is on software control. I think someone tried to get at this, but they asked it in a different way. But there's been a lot of noise in that segment the last couple years, and can you just help us kind of rebase what you anticipate to be more of like a through-cycle growth rate, um, in, in software and systems? Um, and then how How do we think about that growth? You know, more in an upcycle now that we have this test and measurement business that you didn't have in past cycles to anchor us to? I guess I'm trying to get at what the 2027 number looks like if we are indeed in a strong upcycle. You know, obviously it's a little early to comment yet on 2027, but if your question is what is our Thinking as we built this portfolio around long-range growth for soft— the control systems part of software and control, as well as test and measurement, they're both in the 6 to 9 type framework.

Andrew BuscagliaThat's kind of how we're thinking about it through the cycle.

Andrew BuscagliaThrough the cycle. Through the cycle. So presumably more than that though, and if orders are starting to pick up and accelerate from here.

Mike BaughmanIt was—. Was there a question, Andrew?

Ram KrishnanSorry.

Andrew BuscagliaYeah, I guess I'm just— I'm just saying if orders are accelerating here, should we anticipate the more the high end of that or better in an upcycle?

Mike BaughmanWell, certainly T&M this year is in that upcycle and, you know, is certainly outside of the range So yes, when things are on an upcycle, they can get outside above that range.

Andrew BuscagliaYeah.

Ram KrishnanT&M is 14 this year. So yeah.

Andrew BuscagliaOkay. Fair enough. Thank you.

OperatorYour last question comes from the line of Ken Newman with KeyBanc Capital Markets. Your line is now open. Please go ahead.

Ken NewmanHey, good afternoon, guys. Thanks for squeezing me in.

Lal KarsanbhaiSure.

Ken NewmanMaybe just to ask the greenfield question in a different way that was asked earlier. You know, Ram, I appreciate the comments on the power and the semi markets that you made earlier. Is there a way to help frame how much of the total project funnel today is for new greenfield versus brownfield? And I'm just curious if you're seeing any kind of material differential in pricing for those new orders versus the 3% you're calling out. Reported this past quarter?

Ram KrishnanYeah, so majority of how we define our project funnel, the bulk of it is greenfield, and, and the brownfield modernization is led separately, and it's a, it's a different, uh, cut we take to those type of funnels. I mean, the pricing, obviously we get better pricing on the modernizations than we do typically on greenfield, and we get better pricing on MRO than brownfield. So that's somewhat consistent with how we've always kind of positioned it, but most of the $12.4 billion, I would venture to say, we look at that as greenfield.

Ken NewmanGot it, that's helpful. And then, you know, look, I know the crystal ball on the Middle East is kind of clear as mud in this environment, but, you know, just given what you're hearing from your customers, do they have any comments or thoughts about what kind of stability or a certain amount of stability in terms of timing that they need to see before they can start to normalize orders back to, you know, pre-conflict conditions? Or is that just too hard of an exercise to do at this point? It is.

Lal KarsanbhaiIt's a challenge. You know, we're seeing new projects coming online, particularly related to pipeline. Storage, transportation, built on the resiliency of their networks, obviously trying to avoid the Strait of Hormuz and, and, and now avoiding the Red Sea as well. So there's a challenge there. There are certain products that are easily transportable via pipeline, but there's some that are impossible, like LNG. LNG is— can be transported over a couple miles, but you're just not going to build a 400 mile pipeline to take LNG. So there's all— there are a lot of challenges that customers are wrestling with right now, and I think they're going to need certainty in a, in a, in some kind of an agreement between the United States and Iran before things calm down and there's some trust back in the system.

Ken NewmanWhenever that, that situation does come to fruition, Is there a way to think about how quickly you would expect to see those orders come through?

Lal KarsanbhaiI think relatively quickly, to be very honest. We're seeing, we're seeing really good activity in quotation and preparedness for some large petrochemical expansions, LNG field expansions in Qatar. So we know that's, that's coming. And so we expect that to be released relatively quickly.

Ken NewmanVery helpful. Thanks.

Lal KarsanbhaiYou're welcome.

OperatorThere are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.