Emerson Electric (EMR)

Engineering and automation solutions company Emerson (NYSE:EMR) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 5.1% year on year to $4.86 billion. Next quarter’s revenue guidance of $4.34 billion underwhelmed, coming in 2.3% below analysts’ estimates. Its non-GAAP profit of $1.62 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 1890, Emerson Electric (NYSE:EMR) is a multinational technology and engineering company providing solutions in the industrial, commercial, and residential markets.

Industrial Internet of Things (IoT) companies are buoyed by the secular trend of a more connected world. They often specialize in nascent areas such as hardware and services for factory automation, fleet tracking, or smart home technologies. Those who play their cards right can generate recurring subscription revenues by providing cloud-based software services, boosting their margins. On the other hand, if the technologies these companies have invested in don’t pan out, they may have to make costly pivots.

Competitors of Emerson Electric include Honeywell (NASDAQ:HON), Siemens (ETR:SIE), and ABB (NYSE:ABB).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Emerson Electric’s sales grew at a weak 1.4% compounded annual growth rate over the last five years. This was below our standards and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Emerson Electric’s annualized revenue growth of 9% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, Emerson Electric’s revenue grew by 5.1% year on year to $4.86 billion, missing Wall Street’s estimates. Company management is currently guiding for a 4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Emerson Electric has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 48.3% gross margin over the last five years. Said differently, roughly $48.28 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

In Q3, Emerson Electric produced a 51.9% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Emerson Electric has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Emerson Electric’s operating margin rose by 4.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Emerson Electric generated an operating margin profit margin of 24.5%, up 6.9 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Emerson Electric’s EPS grew at a solid 11.6% compounded annual growth rate over the last five years, higher than its 1.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Emerson Electric’s earnings can give us a better understanding of its performance. As we mentioned earlier, Emerson Electric’s operating margin expanded by 4.2 percentage points over the last five years. On top of that, its share count shrank by 5.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Emerson Electric, its two-year annual EPS growth of 16.1% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Emerson Electric reported adjusted EPS of $1.62, up from $1.48 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Emerson Electric’s full-year EPS of $6 to grow 8.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Emerson Electric has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 13.6% over the last five years.

Taking a step back, we can see that Emerson Electric’s margin dropped by 2.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Emerson Electric’s free cash flow clocked in at $843 million in Q3, equivalent to a 17.4% margin. The company’s cash profitability regressed as it was 2.5 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Emerson Electric hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.1%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Emerson Electric’s ROIC decreased by 4.7 percentage points annually over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Emerson Electric reported $1.54 billion of cash and $13.12 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $5.04 billion of EBITDA over the last 12 months, we view Emerson Electric’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $52 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue and EPS were in line with expectations this quarter. On the other hand, its EPS guidance for next quarter missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 7.8% to $127.09 immediately after reporting.

Updated: December 4, 2025 at 10:33 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Emerson Electric.

There are some bright spots in Emerson Electric’s fundamentals, but its business quality ultimately falls short. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while Emerson Electric’s diminishing returns show management's prior bets haven't worked out, its admirable gross margins indicate the mission-critical nature of its offerings.

Emerson Electric’s P/E ratio based on the next 12 months is 20.9x. This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $150.51 on the company (compared to the current share price of $137.64).