Lal Karsanbhai
President and Chief Executive Officer at Emerson Electric
Thank you, Colleen, and good morning. This quarter's results are a testament to the tremendous people of Emerson. I am humbled by what you do every day. Thank you for the passion and energy and the effort you bring to our great company every single day. 2.5 years ago when I became CEO, we expressed our vision for accelerated value creation, culture, portfolio and execution. I am proud today more than ever before of the progress we have made. The Emerson Management System has empowered our leaders and opened the world of possibilities for our company in the field of innovation and commercial excellence with a higher growth, more cohesive portfolio.
But above all, the Emerson Management System is the tool that enables our team to continue to deliver differentiated financial results. The work never ends, but I am proud of how far we have journeyed and the clear road ahead. Please turn to slide three. Q3 was an exceptional quarter, and our teams continue to perform well and deliver for our shareholders. We made tremendous progress on our strategic priorities, closing the climate -- the Copeland transaction, launching new-to-the-world products and winning several key projects in our organic growth platforms, energy transition, industrial software and priority discrete and hybrid markets. We have once again increased our expectations for the year based on our continued operational execution.
We now expect double-digit underlying sales growth, approximately 50% operating leverage and over 20% adjusted EPS growth for 2023, top quartile performance. As we look ahead, we are energized by our value creation opportunities. Emerson is and will continue to benefit from our significant exposure to secular growth trends, like energy affordability and security, sustainability and decarbonization, digital transformation and nearshoring. Over 30% of our sales are directly aligned to these trends, as we discussed at our investor conference in November. Our technology and solutions are highly differentiated in these spaces, positioning our business for growth. We are also innovating for these markets, helping customers solve their toughest challenges with disruptive technology and solutions.
Our portfolio transformation is paying off as we have aligned our cohesive portfolio to these secular trends. And our favorable value drivers, combined with our Emerson Management System, provide the road map for future success at Emerson. Turning to slide four. This quarter exceeded expectations across the board. Underlying orders were up 3%, led by high single-digit process and hybrid demand growth. We continue to see secular trends driving the demand strength. As an example, LNG projects continue to move forward. And customers' energy transition and sustainability budgets are growing, improving resilience, both for greenfield projects in hydrogen, clean fuels and renewables and for brownfield, decarbonization opportunities, like emissions reductions and carbon capture.
Renewables is a particular area of strength we are winning based on our superior technology and breadth of capabilities, which we'll discuss shortly. Nearshoring is also driving incremental investments around the globe in areas like life sciences and metals and mining. It is still early stages of global stimulus for programs like the United States IRA, CHIPS and IIJA are driving additional conversations with our customers, which we expect to turn to funded projects down the road. Our strong performance in process and hybrid was partially offset by demand in discrete, which continues to slow. Orders were down in Q3 against tougher comparisons for this piece of the business.
As we mentioned previously, Europe, especially Germany, continues to slow, and we have seen some softening in the U.S. and Asia. Looking at the overall business and given continued robust demand and strong underlying growth drivers, we still expect mid-single-digit full year order growth. The continued demand and improving supply chain environment, which includes improved availability of electronic components, enabled 14% underlying sales growth in the quarter, above our expectations. The Americas and Europe were up 11% and 13%, respectively, while Asia, Middle East and Africa were up 20%, strong performance of last year's impact of the Shanghai COVID shutdowns.
Intelligent Devices and software and control were both up double digits. It is clear when we speak to customers and compete for projects that our technology is winning in the marketplace. We are proud of what we have built and confident this will continue. Software and control growth of 19% is a testament to our leading control systems, DeltaV innovation, which are well positioned where our customers are spending, areas like life sciences, metals and mining, hydrogen, clean fuels and renewables. Within the quarter, we won large projects in life sciences, metals and mining, including lithium and LNG. Intelligent Devices grew 13%. Final control and Measurement & Analytical are the de facto standards for traditional energy, transition energy, chemical and power markets across the globe.
This later cycle exposure and the business' continued technology leadership in areas like control valves, actuators, regulators, pressure, temperature, flow, level and wireless are differentiators for Emerson and are leading to strong financial returns. This strong sales performance and the continued operational execution of our teams led to 59% operating leverage in the quarter, excluding AspenTech. Favorable impacts from price cost and mix also drove accretive margin performance. Adjusted EPS was $1.29, beating our guidance, again driven by the strong sales and operational performance. Free cash flow was up 83% year-over-year and is up 47% year-to-date. Please turn to slide five. We continue to accelerate progress on our strategic priorities.
On May 31, we closed the Copeland transaction. Emerson received $9.7 billion in upfront cash or approximately $8 billion after tax for the transaction. We also have the future proceeds from the $2.25 billion Copeland note receivable and our 40% common equity ownership with a transaction value of $1.7 billion. Post closing, Emerson has a net cash position and taking into consideration the NI acquisition, Emerson expects to have a net debt-to-EBITDA ratio of less than two. I also want to provide a quick update on our corporate and platform rightsizing activities we announced at the beginning of the year. As planned, we did not have any stranded costs due to the Copeland sale and are well on track to achieve our $100 million annualized cost savings by 2024.
We also released our ESG report in June, highlighting a 42% reduction in greenhouse gas emission intensity from our 2018 baseline. This achievement surpasses our 20% target six years ahead of schedule. In the report, we also highlight numerous examples of how Emerson is helping customers navigate the energy transition and the application of our technology to reducing emissions and energy usage. Lastly, before moving on to some exciting innovation and customer wins, I wanted to provide a quick update on the NI acquisition. We remain on track to close the acquisition in the first half of our fiscal 2024, and the teams are actively working on integration planning as we're prepared to be ready for day one.
In late June, NI shareholders voted in favor of our acquisition. HSR was once again approved and all necessary regulatory filings have been made. And I released their earnings last week with another record sales quarter, up 5% year-on-year and strong margin performance. They, too, are seeing supply chain constraints easing, which helped drive their sales performance by converting backlog despite the negative orders environment, which was down 17%. The demand environment for the business is playing out largely as we expected with discrete and semiconductor weakness expected to improve as the calendar year goes on. Please turn to slide six.
As the rate of our customer sustainability and digital investments continue to accelerate, Emerson is ensuring that we are positioned to capture this spend. Part of this is through our strong dedication to innovation,and new-to-the-world products. Recently, Emerson has had numerous impactful innovations. First, aspenONE V14 is the next step in helping customers on the sustainability journey. Not only does V14 offer more than 100 sustainability-specific models, it also provides solutions to help customers manage emissions and design new hydrogen processes. V14 also further incorporates artificial intelligence, which, when combined with first principle models, helps users reach optimal production, increasing profitability while reducing emissions.
Emerson also recently launched enhancements to our AMS device management software platform, now aligned for more seamless integration with AspenTech solutions like Mtell. This allows users to have more access to critical intelligent device data for use in advanced analytics and models. This example shows the differentiation of the Emerson plus AspenTech portfolio and technology synergy opportunities together. Emerson has long been a trusted partner of utilities around the globe, as evidenced by the fact that Ovation controls approximately 50% of the electricity generated in the United States. This leadership uniquely positions Emerson to support our customers' transition to renewables.
And we are doing so through our new integrated renewable energy control solution, Ovation Green. Ovation Green allows customers to manage their renewables assets like solar, wind, hydro and hydrogen, all in one platform, and we are already seeing early success with some of the largest utilities in the United States. Lastly, our Measurement & Analytical business recently launched a new-to-the-world noncontacting radar device that is ideally suited for a range of applications in chemical, life sciences and food and beverage. With advanced capabilities like Bluetooth and a built-in historian to store process data and insights, the transmitter is optimized for ease-of-use and simplicity. This device incorporates radar technology, a fast-growing technology in the measurement space.
As we look at continued growth in our measurement business, this innovation will serve as a foundation to building Level as the next technology pillar, accompanying our leadership in pressure, temperature and flow. As one of our key drivers -- growth drivers, Emerson is committed to accelerating innovation and meeting the rapidly evolving needs of our customers, like the ones highlighted here. Turning to slide seven. At our November investor conference, we outlined our through-the-cycle growth strategy, which includes our strategic focus on organic growth platforms. These markets, including life sciences, metals and mining, factory automation, industrial software and energy transition are areas closely aligned to the secular growth trends that are driving incremental customer investment. This is demonstrated in the evolution of our funnel over the past nine months.
Not only have we successfully expanded our funnel to $9.7 billion, over this time frame, up from $7.1 billion, but nearly all of this growth can be attributed to our growth markets, namely energy transition, life sciences and metals and mining. Our energy transition funnel is now nearly $5 billion, up from $3.5 billion in November. This expanded funnel is driven by new project announcements in hydrogen, clean fuels, carbon capture and EV batteries, all where we are actively engaged in our technologies well suited. We have also continued to expand our metals and mining and life science funnel, and we are now capturing additional strategic projects in our funnel as we dedicate more time and resources towards pursuing these engagements.
In the third quarter alone, we added over 300 projects to the funnel and were awarded a content in over 50. This indicates a solid pace of project announcements as near-shoring and sustainability trends spread globally. We expect these organic growth platforms will grow double digits through the cycle, and we are off to an excellent start in 2023. Please turn to slide eight, where we'll highlight a few key wins across these segments, which underscore the power of Emerson's highly differentiated portfolio of solutions and the opportunity ahead for Emerson. The LNG wave continues to progress, and Emerson is winning our share of opportunities. Of the projects that have moved forward over the past two years, Emerson has been awarded content in seven, demonstrating our continued leadership in this space.
These are large projects with ample automation opportunity. On average, approximately $10 million of automation opportunity per million ton per annum of liquefaction. Our unmatched portfolio of measurement devices, valves, control systems and now optimization software differentiates Emerson as the only automation company capable of providing a holistic solution. Emerson's leading project execution is also a key differentiator for these large and complex projects. Through our project certainty approach, Emerson helps customers expedite project time lines and reduce project costs, key measures to reaching profitability faster. One of these seven projects was the Port Arthur LNG project. Emerson is excited to announce it will be supporting Bechtel Energy and Sempra Infrastructure in the automation of the Port Arthur LNG Phase one project.
This liquefaction and export terminal in Southeast Texas is a premier LNG project designed for safe, reliable and efficient operations, delivering LNG to global markets through two trains capable of producing up to 13.5 million metric tons per annum. Emerson was chosen as a key automation partner for Bechtel Energy, providing our leading DeltaV control system, final control valves and measurement technology. Further, on slide nine, the next market we'd like to highlight is the battery value chain. This is an area where we are winning projects based on the breadth, depth and strength of Emerson's end-to-end capabilities from the mining of lithium and copper through refining and processing and finally to EV battery manufacturing, assembly and recycling. In 2022, Emerson technology helped produce over 65% of global electric vehicles.
We are excited to continue supporting companies around the world as production expands across each of these high-growth segments. Recently, Emerson was selected to automate two very strategic projects in mining. First, the Ganfeng Lithium project in Argentina. Emerson's DeltaV control system was selected to automate the large-scale lithium mine, a strategic win in the lithium triangle between Argentina, Chile and Bolivia that holds much of the world's lithium reserves. DeltaV was selected because of its differentiated and flexible architecture and commissioning savings with CHARMs. The next project success was for Codelco in the Andina copper mine in Chile. Codelco is the world's largest producer of copper, and Andina site will represent over 10% of Codelco's overall output.
Emerson's DeltaV and control software were selected to help automate the treatment of water on the site, allowing Codelco to accurately control water quality, efficiency and recycling. Emerson recently won a contract with one of the largest EV manufacturers because of our unique ability to support production across multiple processes in the value chain. With this project, Emerson will be the trusted automation partner to support two facilities: a lithium refining project and cathode production facility in Texas. DeltaV was chosen for both projects due to its robust software architecture and ability to bring together previous islands of automation. As the customer continues to grow operations globally with numerous expansions and new operations, Emerson is well positioned to be the supplier of choice given the unique nature and value of the capabilities that we can deliver.
Emerson was also recently awarded a large project with a leading German EV manufacturer to help automate the battery cell assembly process. As we look at future opportunities, NI has a leadership position with many of the largest EV and battery manufacturers in the world. And I've differentiated hardware and software solutions help customers with the R&D, testing and validation of batteries and vehicles, and we look forward to leveraging those relationships to expand our current factory automation business and build upon our recent successes. As you can tell, we are energized by these projects and our relevance with customers. We will share our progress as Emerson continues to partner with leading EV manufacturers around the world and benefit from the strength and differentiation of our portfolio of assets.
I'll now turn the call over to Mike Baughman.
