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.

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"Emerson delivered a solid fiscal 2025, marked by continued margin expansion, robust cash generation and strong execution. The dedication of our global teams was instrumental in driving our performance and advancing Emerson's position as the leading automation company," said Emerson President and Chief Executive Officer Lal Karsanbhai.

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.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Emerson Electric grew its sales at a weak 1.4% compounded annual growth rate. This was below our standards and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. 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 indicates its products and services will face some demand challenges.

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Operating Margin

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.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

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.

We can take a deeper look into Emerson Electric’s earnings quality to better understand the drivers 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 more recent period because it can provide insight into an emerging theme or development for 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%.

Key Takeaways from Emerson Electric’s Q3 Results

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.

The latest quarter from Emerson Electric’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.