tapebrief
EMR · Q1 2026

EMR · Q2 2026 Earnings

Cautious

Emerson Electric

Reported May 5, 2026

30-second summary

Emerson printed Q2 FY2026 revenue of $4.56B (+3% YoY) with adjusted EPS of $1.54 — near the top end of the prior $1.50–$1.55 guide — but underlying sales growth of just +0.5% missed the ~4% Q2 guide (a ~350bps miss) as Middle East conflict erased ~$50M of revenue and 47 customer sites were impacted. Despite the miss, management raised the FY2026 framework across the board: net sales growth to ~4.5% (from 3–4%), underlying sales growth to ~3% (from 1–2%), and adjusted EPS low end to $6.45 (mid $6.50, +$0.05 at low end, +$0.025 at midpoint) — leaning on +9% YoY backlog, +5% orders, and a Q3 guide of ~5% underlying to underwrite the H2 ramp. The setup is binary: either H2 orders convert as guided or the FY math breaks.

Headline numbers

EPS

Q2 FY2026

$1.54

Revenue

Q2 FY2026

$4.56B

+3.0% YoY

Gross margin

Q2 FY2026

53.1%

Free cash flow

Q2 FY2026

$0.69B

Operating margin

Q2 FY2026

17.4%

Key financials

Q2 FY2026
MetricQ2 FY2026YoYQ1 FY2026QoQ
Revenue$4.56B+3.0%$4.35B+5.0%
EPS$1.54—$1.46+5.5%
Gross margin53.1%—53.2%-10bps
Operating margin17.4%—17.8%-40bps
Free cash flow$0.69B—$0.60B+15.3%

Guidance

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
Adjusted EPSQ2 FY2026$1.50 - $1.55$1.54in-line (at midpoint of prior guide)Beat
Net Sales GrowthQ2 FY2026~5.5%3%-2.5pts below guideBeat
Underlying Sales GrowthQ2 FY2026~4%0.5%-3.5pts below guideMissed

New guidance

MetricPeriodGuideYoY
Adjusted EPSQ3 FY2026$1.65 - $1.70—
Net Sales GrowthQ3 FY2026~5.5%+20.9% to +20.9%
Underlying Sales GrowthQ3 FY2026~5%—
Adjusted Segment EBITDA MarginQ3 FY2026~28%—

Changes to prior guidance

MetricPeriodPrior guideNew guideΔResult
Adjusted EPS
FY2026
$6.40 - $6.55$6.45 - $6.55+$0.05 (raised low end from $6.40 to $6.45)Raised
Net Sales Growth
FY2026
3% - 4%~4.5%+0.5 to +1.5pts (raised to ~4.5% from 3-4% range)Raised
Underlying Sales Growth
FY2026
1% - 2%~3%+1 to +2pts (raised to ~3% from 1-2% range)Raised

Reaffirmed unchanged this quarter: Adjusted Segment EBITDA Margin (~28%), Free Cash Flow ($3.5B - $3.6B)

Segment KPIs

Q2 FY2026
SegmentQ2 FY2026YoY
Software & Systems$1.503B+4.0%
Intelligent Devices$2.512B+2.0%
Safety & Productivity$0.547B+5.0%

Other KPIs

Q2 FY2026
SegmentQ2 FY2026
Underlying Orders Growth5%
Underlying Sales Growth0.5%
Adjusted Segment EBITA Margin27.6%
Adjusted EBITA Margin26.2%
Operating Cash Flow$0.779B

Management tone

Tariff defense → discrete recovery → "transformation complete" → Middle East conflict containment

Three quarters ago management was framing the discrete recovery as building momentum; two quarters ago they declared the post-Aspen transformation complete and stepped up capital return; last quarter they reaffirmed the FY top line on a soft Q1 guide with H2 ramp confidence; this quarter they raised the FY across revenue, underlying, and EPS even while absorbing a one-point Middle East headwind. The anchor: "we are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.45 to $6.55." Management is signaling enough H2 strength — orders, backlog, growth-vertical project conversion — to overpower a specific exogenous shock and a softer China.

The Middle East framing is notably mature for an initial disclosure. Three quarters ago the FY guide assumed mid-single-digit underlying growth with no geopolitical caveat; this quarter management is modeling the conflict as a structural one-point FY headwind, not a transient shock — "the situation remains challenging, and we expect it to impact the full year 2026 underlying sales by one point." The 6-quarter recovery timeline and explicit assumption that the conflict remains contained to the Arabian Peninsula reveal that management is treating this as a persistent, not episodic, factor. That's a more sober framing than the typical "we expect normalization in H2" boilerplate.

China has been quietly re-rated from cyclical to structural. Last quarter China was implicit in the AMEA print with India strength offsetting; this quarter management explicitly guided China to mid-single-digit decline for the full year (vs prior low-single-digit growth) and attributed it to chemical industry overcapacity — a supply-side rather than demand-side problem. "China chemical industry overcapacitized and weak." The framing matters: overcapacity unwinds take multi-year cycles, not quarters. The China downgrade is independent of the Middle East shock and adds a second persistent headwind to the FY2026 underlying story.

Software & Systems narrative has both broadened and sharpened. Management reiterated the 10%+ FY ACV growth target, with Q2 ACV at $1.64B (+9% YoY) — the falsifiable software KPI is back in the framework. Management also leaned harder on the durability of mission-critical software in AI-embedded industrial applications: "these applications require real time compute and traceability of data, where being right 99.9% of the time is not good enough." That's a defensible positioning against broader software-multiple compression concerns, paired with a quantified ACV anchor.

The growth-verticals framing has shifted from "accelerating" to "multi-year drivers." "We expect our growth verticals to be multi-year drivers of growth supported by secular tailwinds." The "multi-year" qualifier is subtle but matters — last quarter the framing implied a FY2026 acceleration; this quarter it's normalized to a longer arc. Power, life sciences, LNG, aerospace & defense remain the named pillars; the rhetorical compression of the timeline is the tone shift.

Recurring themes management leaned on this quarter:

Middle East conflict disruption and recoveryGrowth verticals momentum (Power, Life Sciences, LNG, Aerospace & Defense)Software ACV growth resilience despite broader software market concernsNorth America strength offsetting China weaknessAI-embedded solutions in mission-critical industrial applicationsBacklog strength and project funnel expansion

Risks management surfaced:

Middle East conflict causing one-point headwind to full-year sales and ongoing operational disruptionsChina market slower than expected with mid-single-digit decline anticipatedEurope remaining soft with 4% underlying sales decline in Q2Software contract renewal dynamic creating headwinds to sales growth and marginBroader software market concerns regarding AI adoption and sustainability

Q&A highlights

Andrew Obin · Bank of America

Clarification on $100 million rebuild value estimate for Middle East damage and whether it should be significantly higher given reported damage to Ras Laffan and LNG capacity; also asked about potential shifts in downstream/chemical CapEx geography post-disruption.

Management clarified that $100 million estimate covers near-term MRO and restart services on 47 impacted sites, while the 17% LNG capacity rebuild is a separate, much larger opportunity not yet quantified. They acknowledged the bigger opportunity but stated they're focused on near-term disruptions. On CapEx geography, management discussed potential pipeline alternatives in Middle East and eventual regionalization of chemical production capacity, but no immediate shift to North America expected.

$100 million estimated disruption impact in Middle East for next 6 months47 sites impacted across region17% LNG capacity offline - separate, larger opportunity not quantifiedSupply chain capacity running at 75%

Jeff Spray · Vertical Research

Broad question on second-order economic impacts of Middle East conflict beyond the region - energy costs affecting Europe, feedstock impacts on China, and how management is incorporating these into guidance.

Management acknowledged the framework for H2 guidance assumes conflict remains contained to Arabian Peninsula/Gulf region. They noted they've accounted for known feedstock pricing, supply chain, and electricity curtailment impacts in Southeast Asia, but have not assumed significant broader economic deterioration in India or Southeast Asia, which would be heavily impacted by wider conflict.

Guidance assumes conflict contained to Arabian Peninsula, Arabian Sea, Persian GulfFeedstock pricing and supply impacts factored inElectricity curtailments in Southeast Asia accounted forNo assumed deterioration in growth for India or Southeast Asia in base case

Scott Davis · Mellius Research

Clarification on Middle East revenue loss (1 point) and recovery expectations (0.5 point), and separately, understanding of China's 9% decline and whether it's chemical-industry related.

Management confirmed $50M disruption in Q2, expecting ~$100M additional disruption in H2. They characterized revenues as not permanently lost, with 6-quarter recovery timeline, though capacity at 75% limits near-term recovery. On China: confirmed weakness is driven by chemical industry overcapacity and weak spend, leading to downgrade from low single-digit to mid-single-digit negative guidance for full year.

$50 million Q2 revenue impact from Middle East$100 million expected H2 disruption from Middle EastSupply chain capacity at 75%6 quarters timeline for rebuild/restart

Andy Kaplowitz · Citigroup

Whether mid-single-digit order growth rates are sustainable given difficult year-over-year comparisons; asks about order cadence differences between January and April and demand environment outside Middle East.

Management expressed confidence in sustainable mid-single-digit order growth, citing strong Q2 outside Middle East driven by US and India. Noted broad growth across growth verticals with semiconductors at mid-teens being weakest. Referenced strong backlog and momentum for setting H2 and H1 2027. Also discussed pricing discipline, cost reductions, and favorable mix offsetting inflation.

Mid-single-digit order growth sustainable through 2026Semiconductor orders up mid-teens (weakest growth vertical)Strong momentum in US and India in Q2Backlog sufficient to support H2 well

Dean Dre · RBC Capital Markets

Deep dive on power segment (up 23%): breakdown between plant modernization vs. greenfield; behind-the-meter visibility and outlook; MRO segment at 65% of mix and whether oil price spikes cause MRO deferrals as seen historically.

Management highlighted strong project funnel combining modernizations and greenfield (starting in Q2, accelerating in H2). Behind-the-meter opportunities ramping in H2/2027. Noted broad-based strength across valves, instruments, and digital grid management, led by North America but with momentum in Latin America (Mexico), China, rest of Asia, Europe. On MRO: stated no negative trends observed globally outside Middle East; high-utilization typically increases MRO opportunities in stringent applications.

Power segment up 23%MRO represents 65% of mixProject funnel $11.2 billion and growingGreenfield activity starting Q2, accelerating H2

Answers to last quarter's watch list

Q2 FY2026 underlying sales growth vs. ~4% guide — Q2 underlying printed +0.5%, well below the ~4% guide. Management attributed the shortfall to the Middle East conflict ($50M Q2 impact). The FY underlying guide was simultaneously raised to ~3% from 1–2%, but that requires Q3 underlying of ~5% and a sustained Q4 — a meaningfully steeper H2 ramp than the prior framework implied.
Resolved negatively
Reinstatement of FY2026 segment EBITA margin and ACV growth — the ~28% Adjusted Segment EBITA margin was reaffirmed for both Q3 and FY. The 10%+ ACV growth commitment was explicitly reiterated, with Q2 ACV printing $1.64B, +9% YoY. Both falsifiable software/margin anchors are back in the framework.
Resolved positively
Q2 orders growth cadence — Q2 underlying orders printed +5%, decelerating from Q1's +9% but sustaining the mid-single-digit cadence management says underwrites the H2 ramp. Backlog up +9% YoY at quarter end. Status: Resolved positively (in line with guide expectations)
Test & measurement growth durability — T&M FY guide was raised to low teens (from prior high single digits), with Q3 guided to mid-teens. The discrete recovery is widening, not narrowing — the strongest data point in this print.
Resolved positively
AMEA inflection — AMEA deteriorated to -5% YoY in Q2 (six-month AMEA -3%), confirming the structural Asia headwind. China specifically downgraded to mid-single-digit decline for FY on chemical overcapacity. The Middle East conflict adds a second AMEA drag on top of China.
Resolved negatively
Segment margin path — Adjusted Segment EBITA margin printed 27.6% in Q2, exceeding expectations per management commentary (though -40bps YoY vs 28.0% in Q2 FY2025). The ~28% FY guide reaffirmed. Margin is doing the heavy lifting that supports the EPS raise.
Resolved positively

What to watch into next quarter

Q3 underlying sales growth vs. ~5% guide — this is the linchpin of the raised FY guide. Q2 printed +0.5%; Q3 needs to print +5% to validate H2 ramp credibility. A print below +3% would force a FY cut and break the +9% backlog conversion thesis.

Middle East rebuild conversion timing — management framed ~$100M near-term MRO over the next 6 months plus a separate unquantified LNG capacity rebuild. Watch whether Q3 disclosure quantifies the LNG opportunity and whether orders are booked, not just funnel-tracked.

China underlying sales print — mid-single-digit decline is the new FY guide vs prior low-single-digit growth. A Q3 print worse than -5% would suggest the overcapacity unwind is deeper than modeled and threaten the FY 3% underlying guide.

Conflict containment assumption — management's H2 guide assumes the Middle East conflict stays geographically contained. Any broadening into India/Southeast Asia growth corridors would force a FY cut beyond the 1pt already taken.

ACV growth tracking toward 10%+ — Q2 ACV +9% YoY at $1.64B against a reiterated 10%+ FY target. Watch Q3 ACV acceleration to validate the FY anchor.

Q3 orders cadence on widening comps — Q2 orders +5% vs Q1 +9%. Q3 FY2025 comp was +4% underlying — the comp is widening but not punishing. Watch whether Q3 sustains mid-single-digit orders to underwrite a Q4 +5%+ underlying print.

Free cash flow build toward $3.5B–$3.6B FY — H1 FCF is $602M (Q1) + $694M (Q2) = $1.30B. FY guide requires ~$2.2B in H2, a step-up that depends on working capital release and Q4 collections. Watch Q3 FCF pace.

Sources

  1. Emerson Electric Q2 FY2026 earnings press release, SEC EDGAR (https://www.sec.gov/Archives/edgar/data/32604/000003260426000034/a2026q2release_ex991.htm)
  2. Emerson Electric Q1 FY2026 brief (prior-quarter guide baseline for FY2026 EPS, underlying sales growth, segment margin, FCF comparisons)
  3. Emerson Electric Q4 FY2025 brief (FY2026 framework origination; Ovation/power, T&M, software renewal context)
  4. Emerson Electric Q3 FY2025 brief (Q3 FY2025 revenue $4.55B baseline for Q3 FY2026 YoY math)

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