Frank Dellaquila
Senior Executive Vice President & Chief Financial Officer at Emerson Electric
Thank you, Lal.
Please turn to Slide 15. This slide highlights Emerson's enhanced financial profile on several key metrics as we become a focused automation business. The transformation Lal discussed will position Emerson to increase its through-the-cycle growth rate to mid- to high single digits from historical low single-digit levels. Benefits from the pervasive secular growth trends that Lal mentioned and an emphasis on innovation will be important factors in this transformation. Our more concentrated exposure to these growth trends, our management process and wide-sized fixed cost structure will drive higher levels of profitability, reflected an expected incremental margins in the 35% range.
Structurally, Emerson's new portfolio will have higher margins based on increasing software content and high-margin recurring aftermarket and subscription revenues. Emerson will be less capital-intensive at approximately 2% of sales and cash conversion will continue to be strong at approximately 100% of net income.
Please turn to Slide 16. We want to reiterate our commitment to a disciplined capital allocation strategy that balances growth with return of capital to our shareholders. The proceeds received from the Climate Tech and InSinkErator divestitures will enhance our ability to drive internal growth programs and expand our portfolio while continuing to provide robust cash returns to our shareholders. Driving organic growth will be a priority as we invest to accelerate innovation through new processes and higher R&D spend focusing on breakthrough technologies.
Our balance sheet capacity will enable us to pursue strategic acquisitions in defined automation verticals to accelerate growth and enhance end-market diversity. And we remain committed to providing meaningful cash returns to our shareholders through our dividend and share repurchases. We announced this morning that in 2023, we will increase our dividend for the 67th consecutive year. And we intend to repurchase $2 billion of our stock during the fiscal year.
Please turn to Slide 17. We believe this transaction is a critical step in the process of unlocking value for our shareholders. This slide walks through the multiple levers that we believe support value creation potential. First and importantly, is the value of the new Emerson, a company that benchmarks favorably against our automation peers in terms of growth outlook, profit margins, free cash flow conversion and software content. The second lever is our controlling ownership position in AspenTech, a premier industrial software leader whose market cap has increased 40% since we closed the transaction on May 16. As a part of Emerson, AspenTech enables significant strategic benefits to our business through the synergies we have discussed in the past and also provides a high multiple vehicle for further investment in industrial software. Third is the approximately $10 billion in cash net proceeds from the divestitures of Climate Tech and InSinkErator which enables capital deployment at scale for organic growth and M&A and return of capital to shareholders via share repurchase.
Finally, this transaction structure allows us to retain a noncontrolling investment in Climate Tech through both our $2.25 billion note and $2 billion in common equity which will be monetized over time, providing additional resources for strategic investments. We believe all of these factors result in a compelling story supporting shareholder value creation. I hope you can see why we and our Board are excited about this transaction and the value potential we believe it will unlock for Emerson shareholders over time.
Now please turn to Slide 19 and we'll discuss the outlook for 2023. We intend to report Climate Technologies, InSinkErator and Therm-O-Disc financial results as discontinued operations starting in the first quarter of 2023. This slide includes the 2022 reported results I discussed a few minutes ago on the left side. On the right side are the components of the reported results that will comprise our continuing operations in 2023. To continuing operations data for 2021 and the first quarter of 2022 are also included in the appendix for your reference. Continuing operations consist of Automation Solutions, AspenTech and our safety and productivity business which is a rebrand of the core capabilities of our professional tools business after the InSinkErator divestiture.
We will provide guidance for 2023 continuing operations and that is how we will communicate about our business in the future. Also, we are in the process of determining the reporting segments for our new automation-focused business and we plan to provide additional information on segments at our Investor Day on November 29.
If you would, please turn to Slide 20. We continue to see strong market dynamics in 2023. Process, hybrid and discrete markets are all expected to grow mid-to-high single digits. Specifically, LNG, hydrogen and clean fuels will all benefit from energy security, resiliency and sustainability trends. Life Sciences continues to be a growth opportunity for Emerson as ongoing investment support drug vaccine and medicine development. We expect 2023 to be another strong year for our discrete business coming off accelerated growth in the previous 2 years.
We continue to be optimistic about the long-term prospects for discrete, especially within semiconductor, electronics and EV manufacturing markets. From a world area perspective, we expect Americas growth to continue to be strong, led by energy investments. European growth will likely lag as demand resulting from the energy crisis is expected to be offset from downside effects on our discrete and chemical businesses. We continue to keep a close watch on developments in China but at this point, we still expect mid-single-digit sales growth in 2023.
Please turn to Slide 21. Expected strength in our key end markets, together with our robust backlog support our guidance for underlying sales growth between 6.5% and 8.5%. Acquisitions, mainly AspenTech are expected to add another 4 points to reported growth, approximately offset by a currency headwind from the strong U.S. dollar, equating to negative 3.5 points of sales growth and approximately $0.09 of EPS headwind at current exchange rates. We remain committed to driving our business to mid-30s incremental margins through our operational execution with additional leverage from AspenTech.
We expect adjusted EPS to increase from $3.64 in 2022 to between $4 and $4.15 in 2023, a 12% increase at the midpoint. Please note that the adjusted EPS guide does not include any interest income from undeployed divestiture proceeds which could exceed $100 million at current interest rates if we close halfway through the fiscal year.
Free cash flow conversion is expected to continue to approximate 100%. For the first quarter, we expect net and underlying sales to increase between 6% and 8%. Currency will be a substantial headwind in the first quarter, reducing sales growth by approximately 6 points and earnings per share by about $0.03 at current exchange rates. Adjusted earnings per share is expected to be between $0.85 and $0.89, a 10% increase at the midpoint.
Before we head to Q&A, I'll pass it back to Lal for some closing comments. Thank you.