“Intelligent Devices is projected to grow 3% in Q4 and 2% for the full year.”

In context

“Mike Baughman (Chief Financial Officer): Thanks, 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 & Systems up 11%. And I will provide more details on geographic and group performance on the next two 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 1.0. 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 $0.19 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. Year-to-date, free cash flow was up 9% with a margin of 19%. Please turn to Slide 7 for details on Q3 underlying sales by region. The Americas were up 8% with the U.S. up 10%. We saw a very healthy pace of business in the U.S. with Software & 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%. Please turn to Slide 8 for details on the third quarter underlying sales and margin performance for our three business groups. Software & Systems grew 11% underlying with robust growth at Test & Measurement, up 23% and Control Systems & Software, which was up 7%. We saw significant Software & Systems growth in power, semiconductor and aerospace and defense. Software & 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. Intelligent Devices margins of 27.9% increased 240 basis points year-over-year from volume leverage, price, cost and cost reductions. Safety & Productivity was up 2% underlying, driven by electrical products and industrial activity in North America. European and automotive markets remain soft. Safety & 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. Please turn to Slide 9 for our 2026 underlying sales guidance by business group. We expect Software & Systems to be up approximately 10% in Q4, with both Test & Measurement and Control Systems & Software expected to grow 10%. We are increasing our full year expectations for Software & Systems to up 6%, based on the strength of our growth verticals in this business and strength in the U.S. We are raising full year growth guidance for Test & Measurement, now 14%, and Control Systems & 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% plus in 2026. Intelligent 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 U.S. 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 & 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. Please 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. Overall, the full year is unfolding largely as we expected, and underlying orders growth of 7% for the first nine months reflects stable MRO activity and the secular tailwinds driving long-cycle capital projects. A stronger-than-expected growth in the U.S. has offset a slightly weaker China, and we have minimized the effects of the Middle East conflict to approximately 0.5 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.”