Emerson Electric Co

NYSE:EMR

Q1-2026 Earnings Call

[Operator]

Greetings, and welcome to the Emerson First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Ashby, Director of Investor Relations. Thank you. You may begin.

[Doug Ashby, executive]

Good afternoon, and thank you for joining Emerson's First Quarter 2026 Earnings Conference Call. For those who don't know me, my name is Doug Ashby. I'm the Director of Investor Relations for Emerson. 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 risks 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.

[Surendralal Karsanbhai, executive]

Thank you, Doug, and good afternoon, everyone. Thursday, February 5, marks my fifth anniversary as Chief Executive of Emerson. Over the 5 years, I have found the work challenging, motivating and rewarding. The execution of our vision to transform Emerson into the world's leading automation company has been incredibly gratifying. We aligned the company to important secular drivers, which will experience outsized growth well into the future.

Our customer engagement teams now deliver an unequaled software-enabled technology stack to solve industry's biggest challenges. I am surrounded by the best management team in industrial tech and by 70,000 talented, engaged colleagues all around the world. The Emerson management system will enable best-in-class execution led by growth, earnings, cash, and resulting in differentiated value creation. I remain ever grateful to Emerson's Board of Directors, employees and investors for their trust and support.

Please turn to Slide 3. In November, we hosted our first investor conference since completing our transformation, and it was energizing to present Emerson as the global automation leader, executing on our vision to engineer the autonomous future. In addition to highlighting our technology advancements and innovation, we introduced our value creation framework, which guides how we operate the company, beginning with organic growth. Emerson's automation portfolio is aligned to powerful secular tailwinds, electrification, energy security, and near-shoring and sovereign self-sufficiency. And we expect these to drive growth over the next 3 years and beyond.

We are also delivering innovation that enables customers to unlock significant value from automation. Operational excellence is a hallmark of Emerson, and we have plans to further expand adjusted segment EBITA margins by 240 basis points by 2028. And importantly, we plan to return $10 billion or 70% of cumulative cash to shareholders through $6 billion of share repurchase and $4 billion of dividend payout. We remain confident in achieving our 2028 targets, the $21 billion top line, 40% incrementals that deliver a 30% adjusted segment EBITA margins, $8 of adjusted EPS and 20% free cash flow margin. We believe this is a highly differentiated value creation framework, and we are excited for the future of Emerson.

Please turn to Slide 4. 2026 marks the 50th anniversary of National Instruments, which was founded in Austin, Texas, in 1976 by James Truchard, Jeff Kodosky, and Bill Nowlin. The trio was frustrated by the inefficient tools they encountered while working in a test lab at the University of Texas and believe connecting instruments to a computer could revolutionize electronic test and measurement. They developed LabVIEW while working out of Truchard's garage. And since its release in 1986, LabVIEW has redefined productivity and engineering workflows through software-defined test. Today, Emerson's NI is the leader in test automation systems. And 2 recent developments demonstrate how Emerson is still driving test forward through software.

In January, our Nigel AI Advisor was 1 of 13 products recognized as a 2025 Product of the Year by Electronic Product Design & Test. This U.K.-based trade publication focused on electronic test, validation and manufacturing, and their annual list highlights products that use innovation to achieve even greater levels of performance. Nigel provides intelligent workflows with AI-driven test design and orchestration to accelerate troubleshooting, optimize lab performance and enhance decision-making. This award demonstrates Emerson's leadership in AI-enabled test automation and reflects continued momentum as we move the industry towards autonomous test operations. Nigel AI is purpose-built to support the specific tasks engineers face throughout the different stages of the product life cycle. And today, Emerson released the next generation of Nigel AI, strengthening our capabilities in AI-enabled test.

These upgrades deliver a step change in performance by moving Nigel AI from an AI Assistant to an AI Author, accelerating co-development to make engineering workflows more efficient from design and validation through production. Processes that previously took hours can now be completed in minutes. For our customers, this means engineers spend less time navigating tasks and more time focused on improving test outcomes. This evolution marks a clear step along our road map towards agentic AI, where software increasingly enhances productivity, and we are seeing accelerated user adoption of LabVIEW since the first launch of Nigel in 2025.

Please turn to Slide 5. Robust demand continued in the first quarter with underlying orders growth of 9%. Customers are deploying capital in longer-cycle projects in our growth verticals, with momentum building in North America, India and the Middle East and Africa. I will discuss more details on demand on the next slide.

Emerson's first quarter results reflect disciplined execution. Underlying sales met expectations and were up 2% year-over-year. Momentum continued in Test & Measurement, up 11% year-over-year; and our Ovation business accelerated sharply, up 20%, driven by the secular demand for power. Profitability exceeded expectations with adjusted segment EBITA margin of 27.7% and adjusted earnings per share of $1.46.

Annual contract value of our software grew 9% year-over-year and ended the quarter at $1.6 billion. We remain confident in our plans for 2026, supported by a good start to the year and our proven track record of operational excellence. We are reiterating our guidance of 5.5% sales growth, 4% underlying sales growth and an adjusted segment EBITA margin of approximately 28%. We are also raising the bottom and midpoint of our adjusted EPS guide and now expect $6.40 to $6.55 per share. Emerson completed $250 million of share repurchase in the first quarter, and we are committed to our plan to return approximately $2.2 billion of capital to shareholders.

Finally, I want to highlight multiple key developments in technology and innovation at Emerson. In January, Emerson was named the 2026 Industrial IoT Company of the Year by IoT Breakthrough, marking the fourth time in the past 5 years that we have received this recognition. Over 4,000 companies were nominated globally for the 2026 competition, and Emerson was selected for having the most complete industrial IoT technology stack.

Additionally, we released DeltaV version 16, which advances our software-defined automation vision and is an integral piece of our enterprise operations platform. With flexible architecture and enterprise integration, DeltaV version 16 empowers customers to make smarter decisions by improving access and providing context to operational data to facilitate advanced analytics and AI optimization.

Lastly, we strengthened our leadership position in life sciences through a strategic collaboration with Roche, underscoring how Emerson's software dramatically improves and shortens the technology transfer process. The new DeltaV modality library enables life science customers to efficiently design, scale and deploy new production processes with prebuilt and proven solutions that save months of development.

Please turn to Slide 6. Underlying orders were up 9%, marking 4 consecutive quarters of strong order growth. Trailing 12-month orders are up 6%, providing the backlog to support sales in the second half of 2026 and into 2027. North America, India and the Middle East and Africa continued to show robust demand, while we are seeing ongoing softness in Europe and China. Orders growth was most pronounced in our Software & Systems group, which was up 23% year-over-year. Broad-based strength in Test & Measurement drove orders growth of 20%, led by semiconductor, aerospace and defense, and the portfolio business. AI and digital transformation of manufacturing are leading customers to deploy significant capital towards greenfield and modernization projects for power generation, especially in the U.S.

Orders in our Ovation business were up 74%, driven by large project wins, including behind-the-meter data centers and fleet modernizations for major utility customers, and we expect growth in the mid-teens for the year. We are also seeing healthy investments in grid digitization with ACV and AspenTech's digital grid management suite, up 25% year-over-year.

Secular tailwinds are driving substantial long-cycle project activity, and Emerson won approximately $450 million of automation content from our project funnel in the quarter. 80% of these wins came from our growth verticals, led by power and LNG. Our funnel remains at $11.1 billion, replenished by new opportunities in our growth verticals. And I want to highlight a few projects that support our confidence in continuing to win at high rates.

First, Emerson was chosen to automate on-site power generation for a new 1.7-gigawatt AI data center in the United States, helping to meet accelerated deployment timelines and mission-critical reliability. The project will leverage proven behind-the-meter power generation management software as part of the Ovation platform, enabling faster time to market for the customer.

Emerson's recently announced strategic collaboration with Prevalon Energy played an instrumental role in our selection for this project. As the collaboration brings together Emerson's automation and control expertise with advanced energy storage to help data center operators improve reliance -- resilience, reliability and efficiency in increasingly power-constrained environments.

Next, Emerson was selected for Sempra Infrastructure's Port Arthur LNG Phase 2 project, which will add 13 million tons per annum in capacity to the U.S. Gulf Coast facility. Emerson's DeltaV control system and severe service control valves were chosen based upon our reputation for strong operational performance in LNG applications and our local presence and support.

Lastly, Emerson won projects have multiple large new space customers. It will help develop, test and validate complex communication links for their satellite-based programs to provide reliable, high-speed Internet around the world. The customers will use NI's leading test software and PXI platform, which were selected due to their superior performance in reducing test times while providing best-in-class measurement accuracy.

I will now turn the call over to Mike Baughman to discuss our results and 2026 guidance in more detail.

[Michael Baughman, executive]

Thanks, Lal. Please turn to Slide 7 for a more in-depth look at our Q1 financial results. As a reminder, our first half financial results are adversely affected by a software contract renewal dynamic that we detailed in our November earnings call. This impacted our Q1 year-over-year sales growth by approximately 1 percentage point, adjusted segment EBITA margin expansion by 70 basis points and earnings per share growth by $0.06.

For Q1 and including the 1 point drag, underlying sales growth was 2%, with all segments reporting growth. Growth was led by Software & Systems, which was up 3% and 6% without the software contract renewal dynamic, while Intelligent Devices grew 2% and Safety & Productivity was up 1%. I will provide more details on geographic and group performance on the next 2 slides.

Price contributed 3 points to growth as expected. MRO for the company represented 65% of sales. Our backlog ended the quarter at $7.9 billion, up 9% year-over-year, and our book-to-bill was 1.13. Adjusted segment EBITA margin of 27.7% came in above expectations. Favorable price/cost and cost reductions, including synergies, outpaced inflation to benefit margin. Excluding the 70 basis point impact from the software dynamic, adjusted segment EBITA margin was up 40 basis points. Adjusted earnings per share came in at $1.46, a 6% increase year-over-year. Q1 free cash flow of $602 million with a margin of 14% came in slightly better than expected, positioning us well for our expected full year growth of approximately 10%, at greater than 18% margin. Overall, Q1 was a very good start to 2026.

Please turn to Slide 8 for details on Q1 underlying sales by region. As expected, underlying sales were strongest in the U.S. and the Middle East and Africa, while China remains soft. The Americas were up 3% and the U.S. remained strong, up 6%, with sustained momentum in power and LNG while also benefiting from nearshoring with expansions in life sciences and semiconductor. North America pace of business remained healthy with resilient MRO spend.

Europe was up 3%, benefiting from the timing of projects in Eastern Europe, although the overall pace of business was subdued. 9% growth in the Middle East and Africa was driven by greenfield project activity. We are seeing broad-based momentum in our growth verticals, which collectively were up 14%. Power led the strength, up 17% with elevated activity across lifetime extensions, upgrades and greenfield projects to support the unprecedented increase in electricity demand.

Life sciences also provided significant growth, driven by GLP-1 demand with greenfield and modernization products to support nearshoring and self-sufficiency in multiple regions. Ongoing strength in North America and the Middle East as well as our growth verticals and sustained demand for automation give us confidence in our full year outlook.

Please turn to Slide 9 for details on sales and margin performance for our 3 business groups. Software & Systems underlying sales growth of 3% was led by broad-based strength in Test & Measurement, which was up 11% and helped offset a 3-point drag from the software contract renewal dynamic in Q1. We saw significant growth in power, life sciences, semiconductor, and aerospace and defense. Software & Systems margin of 31.3% increased 20 basis points year-over-year, driven by strong profitability from Test & Measurement and the benefit of synergies offsetting a 2-point headwind from the software contract renewal dynamic.

Intelligent Devices underlying sales growth of 2% was led by power, LNG and North America MRO offset by weakness in China. The pace of business in Europe and China was light, although Q1 growth in Europe benefited from the timing of projects. Intelligent Devices margin of 26.9% decreased by 70 basis points year-over-year, driven primarily by mix and headwinds from FX due to a favorable impact last year.

Safety & Productivity was up 1% underlying, driven by electrical products and stable project activity in North America, while European markets remain soft. Safety & Productivity's margin of 20.9% was down 40 basis points year-over-year due to lower volume, offset by benefits from price and cost reductions.

Please turn to Slide 10, where I will bridge Q1 adjusted EPS from the prior year. Excluding the $0.06 impact of software renewals, operations delivered $0.10 of incremental EPS in Q1. Software & Systems contributed $0.08, reflecting strong operational execution; and Intelligent Devices added $0.02. Nonoperating items added $0.04 from share count and tax rate benefits. Overall, adjusted EPS grew 6% year-on-year to $1.46.

Please turn to Slide 11 for an overview of our Q2 and full year 2026 guidance. We are reiterating our full year guidance for sales, adjusted segment EBITA margin and free cash flow. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.40 to $6.55. We still expect to return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase, of which we completed $250 million in Q1.

Turning to the second quarter. Sales growth is expected to be 3% to 4%, with underlying sales growth of 1% to 2%. We expect adjusted segment EBITA margin of approximately 27% and adjusted EPS of $1.50 to $1.55. I will provide additional details on guidance in the following 2 slides.

Please turn to Slide 12 for our 2026 group underlying sales guidance. We expect Software & Systems to be flat in Q2 and up 4% for the full year. Test & Measurement is planned to have high single-digit growth in both Q2 and the full year, while the Control Systems & Software segment is expected to be down low single digits in Q2 due to a $65 million headwind from the timing of software contract renewals.

As a reminder, this accounting dynamic adversely affects GAAP revenues by $110 million in the first half and $120 million for the full year. We continue to see robust adoption of our software and expect ACV to grow 10% plus in 2026. Intelligent Devices are projected to grow 2% to 3% in Q2 and 4% for the full year with stable MRO led by strength in North America. Second half growth is supported by backlog phasing and the timing of project shipments.

Safety & Productivity is expected to grow 1% to 2% in Q2 and 2% to 3% for the full year. Growth is driven by North American markets and electric and utility strength, but offset by continuing weakness in European markets. Overall, Emerson expects to grow 1% to 2% in Q2 and approximately 4% for the full year. The second half growth acceleration to approximately 6% is supported by our strong orders momentum and lapping of the software contract renewal dynamic. Excluding the impact of software contract renewals, Emerson's growth rate is expected to be 3% to 4% for Q2 and 5% for the full year.

Please turn to Slide 13 for additional detail on adjusted segment EBITA margin and EPS guidance. For Q2 2026, we expect operations to contribute around $0.05 to EPS with another $0.09 from nonoperating items, primarily of FX to offset $0.09 impact from the software contract renewal dynamic. As a reminder, Q2 2025 adjusted EPS of $1.48 benefited from about $0.04 from the TotalEnergies project that we discussed in our Q2 2025 earnings call.

The lower volume from renewals and the TotalEnergies deal impacts Emerson's adjusted segment EBITA margin by approximately 150 basis points compared to Q2 2025. We are guiding our Q2 2026 adjusted EPS at $1.50 to $1.55. For the full year, we are raising the bottom of our EPS guide by $0.05, reflecting the good performance in Q1. The renewal dynamic reduces adjusted EPS by approximately $0.15 and adjusted segment EBITA margin by approximately 40 basis points. We still expect operations to generate about $0.50 of incremental EPS with approximately 80 basis points of margin expansion from positive price costs and the continued benefit of synergy realization from AspenTech and Test & Measurement.

With that, I would like to turn the call back to the operator.

[Operator]

[Operator Instructions] Our first question comes from the line of Andy Kaplowitz with Citigroup.

[Andrew Kaplowitz, analyst]

Lal, could you break down a bit more your 9% order growth in Q1 between process and hybrid? I think you said 74% Ovation growth, which was impressive, and I think you said mid-teens growth in power is expected this year. But could that higher level behind-the-meter power opportunities lead to a more extended runway of power? And then generally, would you say your process and hybrid markets are settling into sort of this mid-single-digit order growth rate despite some of the concerns that we hear out there?

[Surendralal Karsanbhai, executive]

Yes. No, look, we were very -- let me start with power. Very energized with what we saw in the marketplace. It's, as you know, started to develop in 2025, but we saw certainly an acceleration in orders in the first quarter. And it's predominantly driven by 2 areas today, but there will be a third that I think starts to pick up steam as we go forward into the year. And the 2 areas are modernization, upgrades of existing facilities and behind-the-meter power generating capacity at data centers. That's generally what drove the investment in the power generating capacity. Of course, on the same line, we saw modernizations of the grid and investments in our -- and we saw that reflected in the ACV of our DGM business at Aspen. What we'll see, I think, develop a little bit more further longer cycle, Andy, will be new generating capacity coming in. We see plans being put forward, but we're really right now on evergreen modernizations and behind-the-meter work.

I'll also highlight, in terms of the order drivers, the activity at Test & Measurement. Orders were up 20% in the Q. And Andy, it was broad-based. Portfolio business, semiconductor and ADG, all up between 20 and 30-plus percent. The one offset there continues to be the Transportation segment, which is relatively challenged. But overall, great momentum in that business, and we've seen very steady, consistent growth there. Ram, anything to add?

[Ram Krishnan, executive]

Just to add, I'll give you geographic color on the 9%. Lal, gave it to you about business, but North America was up 18%, reflecting many of the end markets that Lal described. Certainly power, LNG and many of the T&M markets in North America were very strong. Middle East was up 6% for us. Latin America was up 9%. So those fundamentally drove the strength. India was up 22%. So consistent with the commentary where we thought we had strength, we demonstrated a lot of positive momentum that should continue. Certainly, Europe was down low single digits, and China was down high single digits in the quarter from an orders perspective.

[Surendralal Karsanbhai, executive]

And the last thing I'll add, Andy, just on the funnel, on the projects. It was a significant, as we highlighted, $432 million of wins. It came from approximately 70 project wins, 1/3 of those were in power, but they had a heavy participation in LNG and in semiconductor, life science and ADG as well with each of those representing about 15% of the wins. So lots of broad-based activity, but of course, power generating, transmission and distribution really driving the numbers right now.

[Andrew Kaplowitz, analyst]

Lal, that's very helpful. And then ACV growth was 9% in the quarter. You're still talking about expected 10% plus growth for the year. But as you know, there's angst regarding AI's impact on software. So I think you already spoke about Nigel AI. I know you've talked about the greater vision of boundless automation. So maybe you can remind us why AI could be complementary to growth for you guys in ACV and margin in your software businesses?

[Ram Krishnan, executive]

Yes. For us, from a software perspective, first off, all of our software offerings are built on first principle models. Very, very sticky and a lot of domain knowledge built into the simulation capabilities, not just at Aspen, but also our software offerings with Ovation, DeltaV, and certainly the NI suite. So the threat of AI disrupting our software business is very minimal as we see it today. And really as a counterpoint, the AI capability we're building into our software, should frankly accelerate the growth. So we see AI and all the AI capabilities we've launched, not just with Nigel, but also the capabilities, innovation and DeltaV should be a net accelerator for our software offerings, and that's really what we expect to see with continued ACV growth.

[Operator]

Our next question comes from the line of Nigel Coe with Wolfe Research.

[Nigel Coe, analyst]

Going back to the order commentary, you've obviously called out LNG, called out power. Obviously, these are two very long cycle end markets. So I'm just wondering if some of the orders we're seeing, especially in power, are pushing beyond this year and into sort of multiyear basis?

[Surendralal Karsanbhai, executive]

Yes, you're absolutely right. Certainly, it's given us the confidence not just in the back half of '26 as we see the backlog timing, but we start to gain confidence into our 2027 as we see those orders and the timing of those shipments. But I'll also suggest, Nigel, that if you look at the Test & Measurement business, that's -- there are projects in that business, but there's a lot more of the short cycle activity, particularly in the portfolio business and in elements of semiconductor as well.

[Nigel Coe, analyst]

Okay. And then a quick follow-up on the, I guess, the Sensors is the new name. The Sensors margins were down, I think, 200 basis points year-over-year. I think you talked about FX benefits in the prior year quarter. Is there any impact of memory chip inflation here? Because if there's one area of Emerson where you might see some of this extreme inflation, I think it might be there. So just maybe just touch on the margin weakness and then talk about the memory chip inflation as well.

[Michael Baughman, executive]

Nigel, it's Mike. Yes, your memory is very good. We did last year have some FX benefits that were in that segment that we don't have this year, which drove about a point of the year-over-year negative comparison of about 2 points. The other thing that's going on there is related to mix. There was geographic mix...

[Technical Difficulty]

[Operator]

Ladies and gentlemen, thank you for your patience. We will resume, and you may continue.

[Surendralal Karsanbhai, executive]

Nigel, that was such a great question. They just tried to end the call on that. Okay.

[Nigel Coe, analyst]

Yes, seriously. I think I broke the system.

[Ram Krishnan, executive]

So Nigel, where did we drop so we can -- where did we drop?

[Nigel Coe, analyst]

I think you were talking about geographic mix and then it went dead.

[Ram Krishnan, executive]

Did I finish the DRAM explanation on or not?

[Nigel Coe, analyst]

No, nothing on DRAM, though.

[Michael Baughman, executive]

Okay. Let's go back to your question, Nigel, about sensors margins. And I was commenting that you were correct about the FX impact, which was about a point of the approximately 2 points that the sensor margin was down on a year-over-year basis. There was also some mix dynamics. The prior year had a stronger North America and some backlog dynamic going on that benefited them. And then there's some other regional mix that affected profitability. The Sensors business had a good quarter in Europe, which was largely project-based, which had a negative effect on the comparisons as well in the mix. So that was about the other point of margin decline in that business.

As we look out to the full year, we expect some improvement on the 28.6% that that business reported in the prior year. As for the second part of your question, around the DRAM from a profitability perspective, no impact, but I'll pass it to Ram to talk a little bit about that.

[Ram Krishnan, executive]

So Nigel, we're obviously watching that carefully. We buy about $8 million of DRAMs that impact many product lines, but mostly in Control Systems & Software and T&M, the sensors to your specific question, less than $1 million of DRAM exposure. Of that, most of our buy is really Gen 3 and Gen 4 DDR3 and 4, where, yes, supply chains have extended. We're watching that carefully. We don't have a lot of exposure in Gen 5 DDRs, which is really the AI-driven constraints and inflation that we're seeing. But net-net, for us, the margin impact from the price inflation is something very manageable. We'll manage that within the scope of our P&L. It's really the availability that we're watching very carefully and making sure that we're addressing this with our suppliers and ensuring that we have enough availability to cover the year and beyond.

[Operator]

Our next question comes from the line of Steve Tusa with JPMorgan.

[Chigusa Katoku, analyst]

This is Chigusa Katoku on for Steve. Just following up on the orders. The order trends are encouraging and the backlog is up quarter-over-quarter too. But just there's longer cycle orders in there too, as you mentioned, earlier. And so just how should we think about the cadence of these orders translating into sales? And what businesses specifically do you expect to hit the second half that supports the full year guidance?

[Ram Krishnan, executive]

Yes. I mean, so if you look at the phasing of the backlog, they're very supportive of hitting our second half sales. So these backlogs translate into the mid-single-digit growth, [indiscernible] the 6% growth that we've guided for the second half. Our trailing 12-month orders at 6% also substantiate that. Our backlog at $7.9 billion, which is up 9%, also phases into the second half and into the first half of 2027. The backlog build is, frankly, across the board, certainly in our Control Systems & Software business, both in power as well as our DeltaV business. In Final Control, we have a balanced backlog position in our Sensors business to support the second half, so the build is across the board.

[Operator]

Our next question comes from the line of Jeff Sprague with Vertical Research Partners.

[Jeffrey Sprague, analyst]

Lal, congrats for 5 years. I can't believe it. That's amazing. Time does fly. Certainly seems like 4.5 to you, right? Just a couple of quick ones from me. Mike, thanks for all those bridge items. One thing I was curious about, though, is just the drop in sequential margins Q1 to Q2 on what should be looking maybe a couple of hundred million higher revenues sequentially. Can you give us a little bit of insight on what would be driving that?

[Ram Krishnan, executive]

Yes. It's primarily the impact of the software renewal dynamic even sequentially. I mean, frankly, the $65 million over the $45 million and the dilution driven by that is the fundamental driver and frankly, unfavorable mix.

[Michael Baughman, executive]

And the Total deal, Jeff, that came through, that was another boost to the barrier that won't be there.

[Jeffrey Sprague, analyst]

And those software numbers have moved around a little bit, right? I think you were thinking $50 million in Q1, and it's $40 million. It sounds like Q2 went up a little bit. I think you were saying...

[Michael Baughman, executive]

That's correct.

[Jeffrey Sprague, analyst]

So just a little bit of movement there. Could you just also just address sort of the weak verticals? And do you see stabilization? I'm thinking chem probably, most notably, but some of these areas that have been just under a lot of secular pressure and this whole deindustrialization trend that's ongoing in Europe chemicals. Do you see any bottom there? Is that eroding your MRO activity? And I don't know if there's any other verticals to kind of talk about also.

[Surendralal Karsanbhai, executive]

Yes. Certainly, Jeff. You hit a very important point here. We're seeing continued flat activity in Europe for the year. Certainly, there are industries such as automotive, packaging, but certainly chemicals in places like the Benelux and Germany that are still very challenged. And then our outlook on China has turned a little more bearish as we navigated another quarter. We now believe that we'll be down low single digits for the year based, again, on lackluster activity particularly in the chemical sector.

There are some green shoots in China, of course. There's activity that Test & Measurement is seeing, that's very encouraging. There's power generation activity, but a large chemical business, which we've had and fostered for many years, continues to be challenging, and we have not seen recovery in that business in either one of those large world areas.

[Ram Krishnan, executive]

And then certainly, the automotive segment, which is not as big as chemical for us, but certainly a meaningful part of Safety & Productivity and T&M, continues to remain soft in both Europe and China.

[Operator]

Our next question comes from the line of Julian Mitchell from Barclays.

[Julian Mitchell, analyst]

Maybe just wanted to understand kind of your own perspectives on the order strength. So I guess, first off, was it a surprise to you what those orders did, or it was sort of in the plan based on what you knew of the dollar value of orders a year ago that we can't really see on the outside? And I suppose I'm asking that just because you didn't change your organic sales guide for the year. In the second quarter, we don't seem to see a sort of short cycle pull-through into Intelligent Devices revenue growth, for example, from these orders.

[Ram Krishnan, executive]

Yes. I mean I think this -- obviously, we didn't expect plus 9%, so there were some projects from Q2 that we got into Q1. But certainly, the last 4 quarters, we were plus 4%, plus 4%, plus 6%, plus 9%. On a trailing 3-month, plus 6% is consistent. The mid-single digits is consistent with how we thought about how the first half of this year will unfold and provide the needed momentum to deliver on the second half shipments. So I wouldn't say we're necessarily surprised why the level of order activity is consistent with how the funnel is manifested and these growth initiatives in LNG, power, semis, aerospace and life sciences playing out.

[Surendralal Karsanbhai, executive]

I think you bring up a good point in Intelligent Devices, Julian. We've been -- certainly, we had a phenomenal year as we work through backlog in that business in 2024 and 2025. We're now at a point where we've been a little bit challenged over the last few quarters in the business. We'll see that accelerate in the second half as we work our way out of it. But it will be another softer quarter in Q2, and that will be largely behind us.

[Julian Mitchell, analyst]

And then just my follow-up on the margins. So you've clarified second quarter. The second half of the year, I think, you're dialing in kind of 40s type operating leverage year-on-year. So I just wanted to make sure that that's roughly the right ballpark. And when you're thinking about that, is there any risks to it around price cost, for example? Or do you think that's a good kind of -- you're confident in it and it's a good run rate going into the following fiscal year?

[Michael Baughman, executive]

Yes. We feel good about that leverage. And you're correct, it's the expectation for the year is in that high 30s, which again is affected by the software renewal dynamic. We do feel good about that. The leverage for the quarter of 20% when you adjust for that software renewal is back up in the mid-30s. So yes, I think as we move forward and think about the profitability and the growth and the leverage that we should see from the growth, we feel good about the expected leverage for the year and the back half.

[Ram Krishnan, executive]

And the other way to look at the leverage is, obviously, on a sequential basis, half 2 to half 1 will be up mid- to high single digits from a growth perspective, and that should lever in the 40s. So you can look at it year-over-year, you can look at it sequentially, and I think you'll calibrate that the second half margins will trend towards that 28% plus in terms of EBITA margins.

[Operator]

Our next question comes from the line of Andrew Obin with Bank of America.

[Andrew Obin, analyst]

Just on the 3% pricing, what would we be thinking about for the second half? How should it flow?

[Ram Krishnan, executive]

2% approximately in the second half or about 2.5% for the full year.

[Andrew Obin, analyst]

Got you. And just going back to this 18% North America order number, it's very, very impressive. Can we just -- I know you've sort of talked about it, but it's just a nice acceleration. And I know you sort of talked about sort of pull forward and people have tried to see what's going on. But maybe can you describe to us how did it go through the quarter? What are we seeing? Are we seeing these rate of orders sustainable? And what do you think has changed in North American economy to drive orders like this? And I appreciate that you have behind-the-meter? I understand that you're in a number of sort of high growth industries and there are sort of idiosyncratic stories, but 18% is just very, very impressive.

[Surendralal Karsanbhai, executive]

Thank you, Andrew. I'll try to give a little color and Ram can jump in as well. So look, I believe, and we're seeing it reflected in the customer activity that the industrial policy of the administration is benefiting 5 specific sectors that just happen to be our growth verticals. Electrification and power generation, data centers, investments in AI, modernization of our grid and generating capacity, nearshoring impacting life sciences and semiconductor, a robust open energy policy that enables the development of shale gas and the export of LNG to our partners.

And lastly, a defense policy that continues to modernize the American military apparatus, and we benefit from that through NI. So that industrial policy has -- holistically, falls incredibly well in the United States and aligns to where our technology stack serves incredibly well.

[Ram Krishnan, executive]

Yes. And just to break it down. On the 18%, a large majority of the $450 million in project wins came in North America from a power and LNG perspective. We indicated our Ovation business was up 74% in orders. A lot of it was in North America. T&M was up 20% in orders, up close to 30% in North America. So the elements of LNG, power, semiconductors, aerospace, defense, life sciences, augmented with a strong MRO, which was up mid- to high single digit from an orders perspective, drove the strength in North America. Now we don't expect the 18% to continue through the quarter. But I think we're very confident that high single-digit growth in North America is something we would take into the plan for the full year.

[Operator]

Our next question comes from the line of Scott Davis with Melius Research.

[Scott Davis, analyst]

I have to ask this question even though I'm not sure you're going to be able to answer it with much precision, but on the opportunity out there in Venezuela, and there's got to be just a lot of old, aging equipment in there that needs a refresh, but I'm not sure if you guys have any color you could provide on that opportunity, or whether you're already talking to customers about potentially having some boots on the ground there or what you can do to kind of make sure you can benefit from a rebuild.

[Surendralal Karsanbhai, executive]

So I appreciate the question, Scott. Certainly a subject that we've renewed here in the walls of our company with our teams. We have a long-established history in Venezuela and relationship with PDVSA that goes back for decades. We estimate to have approximately $1 billion of installed base in the country. And largely, many of our channel partners, believe it or not, are still intact in the country, although we are not -- we've not been transacting in Venezuela since the sanctions but have been transacting over the last 2 years directly with Chevron. That's sub-million dollars a year.

So we have a plan. We've mobilized and thought through what the investments we need to put back into the country. We'll watch and see what happens with the national oil laws that need to be amended to enable foreign investment into Venezuela. But we believe that a market -- and you're absolutely right, that has been underinvested, lacks talent, is ripe for growth. So we'll see how things evolve, and we'll be ready to go in there and provide technology into those installations.

[Michael Baughman, executive]

And just to add to that. Interestingly, as we looked at it, the first area that will probably go will be power. And so we'll have to work on the power situation there, and there's an opportunity there for us as well.

[Scott Davis, analyst]

That's what I was going to ask as a follow-up really is I'm thinking about traditional upstream and perhaps maybe not thinking as much about some of the other stuff, including downstream or even other industries. I don't know Venezuela well enough to know if there's any infrastructure out there otherwise. But is there a wider TAM out there than perhaps just what we're talking about in oil and gas?

[Surendralal Karsanbhai, executive]

Yes. I think Mike's point on power generation is a valid one. But the biggest challenge that country is going to have, Scott, is there's been an incredible brain drain that's impacted Venezuela over the last 20 years, lack of engineers, technical knowledge. And a lot of that has to be reestablished. Security situation needs to be improved, and investment capability needs to be enabled by their Congress. So we're ways away, but we're watching it very carefully. And we're at least, and to be honest, much like we did in Iraq after the Gulf War, becoming prepared so that we can hit the ground running.

[Operator]

Our last question will be from the line of Deane Dray with RBC Capital Markets.

[Deane Dray, analyst]

Just a couple of quick ones. Any update on tariffs, mitigation activity? Any color there?

[Ram Krishnan, executive]

Yes. I mean, obviously, from a tariff perspective, the positive news on China, the IEEPA tariffs there, fentanyl tariffs going from 20% to 10%. Now we did get some tariffs from Mexico where countries that don't have a trade agreement with Mexico and importing into Mexico have tariffs. So that's a little bit of a headwind. But net-net -- and obviously, the development today, it's early, but with India, has a meaningful impact. So I would say more favorability. We still haven't quantified versus what we built in. I mean we built in -- I don't know if we've shared the number, Doug. On the amount of tariffs, we've built in about $130 million of tariffs into the plan. We are seeing relief to that number, but it's early to quantify how much. But it will be a net positive for the year versus what we've baked into the plan.

[Deane Dray, analyst]

Got it. That's helpful. And then China has come up a couple of different times. I know it's not a new region of softness, but Lal, you mentioned it could be some green shoots. So what's the latest there? What's the opportunity? What are those green shoots you were referencing?

[Surendralal Karsanbhai, executive]

Yes. We've seen really good activity in the Test & Measurement space in a broad portfolio of business. As you know, we don't participate in the aerospace and defense segment there. Then semiconductor, where we're allowed to with various sanctions and certainly in portfolio. And that business is up in the high double digits. So we feel very good about that. There are great opportunities and continue to be great opportunities in power generation.

Again, there is a dynamic in China that very much aligns in the U.S. around data center build-out, AI infrastructure and power generation needs. We're seeing new capacity come online as opposed to that wave hitting the U.S. Yes, there were 25 ethane coal-fired power plants last year. There's a bunch of nuclear work to be done as well as behind-the-meter work. So that's where we see the activity. But overall, still -- I continue to be just overall concerned that we will be in a low single-digit negative world by the time we are said and done this year.

[Operator]

Ladies and gentlemen, we have reached the end of the question-and-answer session. And this also concludes today's conference, and you may disconnect your line at this time. We thank you for your participation. Have a great day.