EMR Q2 Deep Dive: Automation Demand Steady, Margin Expansion Faces Tariff and FX Headwinds

August 12, 2025 at 03:15 AM EDT

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Engineering and automation solutions company Emerson (NYSE: EMR) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 3.9% year on year to $4.55 billion. On the other hand, the company expects next quarter’s revenue to be around $4.90 billion, close to analysts’ estimates. Its non-GAAP profit of $1.52 per share was 0.7% above analysts’ consensus estimates.

Is now the time to buy EMR? Find out in our full research report (it’s free).

Emerson Electric (EMR) Q2 CY2025 Highlights:

Revenue: $4.55 billion vs analyst estimates of $4.59 billion (3.9% year-on-year growth, 0.8% miss)
Adjusted EPS: $1.52 vs analyst estimates of $1.51 (0.7% beat)
Adjusted EBITDA: $1.23 billion vs analyst estimates of $1.30 billion (27.1% margin, 4.9% miss)
Revenue Guidance for Q3 CY2025 is $4.90 billion at the midpoint, roughly in line with what analysts were expecting
Management slightly raised its full-year Adjusted EPS guidance to $6 at the midpoint
Operating Margin: 20.3%, up from 19.2% in the same quarter last year
Market Capitalization: $74.27 billion

StockStory’s Take

Emerson’s second quarter results were met with a negative market reaction, reflecting a shortfall in revenue versus Wall Street expectations. Management attributed the sales miss primarily to easing certain surcharges as tariff exposure lessened late in the quarter, which reduced price contributions and sales growth. CEO Lal Karsanbhai also cited a dynamic tariff environment and unexpected foreign exchange impacts on profits within the Intelligent Devices segment. He emphasized, “Our sales fell short of guidance driven primarily by this dynamic,” while noting that strong aftermarket and modernization activity partially offset weaker legacy discrete demand.

Looking ahead, Emerson’s updated outlook is anchored by continued strength in process and hybrid markets, with management expecting robust activity in liquefied natural gas, power generation, and life sciences. The company slightly raised its full-year non-GAAP earnings per share guidance, supported by improvements in tariff-related pricing and anticipated acceleration in Test & Measurement. CFO Mike Baughman highlighted, "We expect fourth quarter underlying sales growth of 5% to 6%, supported by a meaningful acceleration in Test & Measurement and sustained healthy pace of business in our process and hybrid businesses."

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to resilient demand in process and hybrid markets, a broad-based recovery in Test & Measurement, and the easing of price surcharges as tariffs moderated.

Process and Hybrid Stability: Emerson’s process and hybrid businesses continued to deliver steady growth, driven by investments in liquefied natural gas (LNG), power, and life sciences infrastructure. Management noted ongoing momentum in these sectors, with mid-single-digit order growth and strong project pipelines, especially in North America, India, and the Middle East.
Test & Measurement Inflection: The Test & Measurement segment experienced a broad-based recovery across all regions and end markets, including aerospace, semiconductors, and automotive. COO Ram Krishnan cited Asia’s rebound and improving demand in China as key contributors, with new product launches like the AI-enabled LabVIEW portfolio helping Emerson outperform industry trends.
Tariff and FX Headwinds: The easing of U.S. tariffs led Emerson to reduce certain customer surcharges, impacting both top-line growth and price realization. Unexpected foreign exchange effects also pressured profitability in Intelligent Devices, with CEO Karsanbhai stating that these factors combined to create a margin drag in the quarter.
Aftermarket and Modernization Activity: High-margin aftermarket services and modernization projects, especially in the Ovation power platform, remained resilient. Management emphasized that modernization and long-term service agreements now represent a growing share of orders, providing recurring revenue streams and supporting margins.
Software Momentum: Emerson’s industrial software portfolio, including AspenTech and digital grid management, continued to deliver double-digit annual contract value (ACV) growth. Management highlighted the successful deployment of new AI-enabled products and synergies from recent integrations as supporting factors for software revenue expansion.

Drivers of Future Performance

Emerson’s outlook is shaped by sustained demand in core end markets, ongoing recovery in discrete automation, and strategic price actions to manage tariffs.

End Market Investment: Management expects continued robust investment in LNG, power generation, and life sciences to drive growth in process and hybrid segments. The company cited a constructive capital spending environment and a strong project funnel, particularly in North America and Asia, as reasons for confidence in near-term sales acceleration.
Test & Measurement Acceleration: The recovery in Test & Measurement is projected to strengthen, with management expecting double-digit order growth as new products gain traction and global industrial activity rebounds. The segment’s exposure to aerospace, semiconductors, and broad industry modernization positions it as a key growth engine for the next quarter.
Margin and Tariff Dynamics: Emerson is implementing pricing actions and supply chain adjustments to offset remaining tariff impacts, aiming for stable adjusted EBITDA margins. Management noted that further easing of tariff exposure could influence future pricing strategies and profitability, while FX risks are not expected to materially impact margins in the coming quarter.

Catalysts in Upcoming Quarters

Looking ahead, our analyst team will be closely monitoring (1) the pace of recovery in discrete automation and Test & Measurement, (2) the effectiveness of further tariff management and pricing actions on margins, and (3) continued order momentum in core process and hybrid markets, especially LNG and power. Progress on software integration and new AI-enabled product adoption will also be important markers for Emerson’s ability to sustain growth and profitability.

Emerson Electric currently trades at $131.96, down from $140.44 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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