Lal Karsanbhai
President and Chief Executive Officer at Emerson Electric
Thank you, Colleen. Good morning. 2023 was an exceptional year for Emerson. The management team, alongside the Board of Directors, boldly delivered across the three dimensions of our value-creation strategy. Firstly, culture. Our management team just completed a trip around the world, where we had the opportunity to engage with our customers and our teams. It was an energizing trip and it was evident to me that the changes we are driving in the culture of Emerson are embraced as evidenced by our engagement survey.
2023 was an important year. We made significant progress across multiple dimensions of culture. We rolled out an employee value proposition, advanced our diversity and inclusion metrics and made significant strides in our sustainability targets as well as launching a differentiated talent engine program.
Second. Our portfolio transformation is largely complete. The Copeland divestiture and more importantly, the Acquisition of NI, have enabled us to create and Emerson focused on automation, with a cohesive higher-growth, higher profit margin, diversified portfolio aligned to the critical macro secular drivers, energy security and affordability, nearshoring sustainability & decarbonization and digital transformation. I would like to welcome Ritu Favre and the NI family to Emerson. This is an exciting time. With NI, our technology stack is unequaled and we are in position to continue to push the boundaries of automation to meet our customers' needs.
Thirdly, execution. The Emerson management system is delivering differentiated results. Underlying sales for 2023 grew 10%. GT expanded 330 basis points to 49%. And adjusted segment EBITDA expanded 220 basis points to 25% after delivering yet another year of over 50% leverage. Adjusted earnings per share in 2023 grew 22% to $4.44 and free cash flow was $2.4 billion. Orders growth exited the year at 5% and we grew across all world areas. We had strong price realization in the business at 4% for the year and MRO represents 65% of our revenue, with now a $150 billion installed-base around the world. And we exited the year with $6.6 billion of backlog, up 12% year-over-year. We delivered on innovation in 2023. It was a year of significant releases in our DeltaV e-platform, Aspen models and intelligent devices. Our R&D spend as a percent of sales rose to 7% in 2023.
Cost management is the way of life at Emerson. The differentiated leverage of 53% is reflective of aggressive cost actions across our business. We also delivered on commitments of no stranded costs related to the Copeland transaction and we'll be delivering on that $100 million corporate cost takeout by the end of 2024 through significant transformational activities, driving certain functional activities to centralization and best cost locations. I am humbled by the exactness of our performance and I'm certainly optimistic about the future of our company.
I would like to express my appreciation to our customers who increasingly placed their trust in Emerson to solve the world's most challenging problems. And lastly, in my opening remarks, I would like to say, I am, but one of over 70,000 Emerson team members around the world. I'd like to thank our global employees for your passion, hard work and energy that you bring to Emerson every single day.
Please turn to Slide three. As I said earlier, any bears repeating. 2023 was an exceptional year. We are excited to run this cohesive high-growth and diversified portfolio. The financial performance was differentiated with double-digit underlying sales growth, 53% operating leverage and 22% adjusted EPS growth. As we look ahead, 2024 is expected to be another strong year. Operating leverage excluding NI is expected to be in the mid-to-high 40s and adjusted EPS is expected to be $5.1 5 to $5.35, including roughly $0.35 to $0.40 contribution from NI.
We hit the ground running on October 11, as soon as we close the transaction to begin executing the synergy plan and we expect it to provide early benefits in 2024. We are expecting 46% underlying sales growth, driven by our focus and commitment to winning in our growth platforms and leveraging our innovation. Energy transition, industrial software, life sciences and metals and mining are expected to remain resilient parts of our portfolio and we are utilizing our leading technology, customer relationships, installed base and expertise to capture investments in these markets. While discrete markets are down in both our factory automation business and test and measurement, we are expecting recovery in the second half of the year.
Turning to Slide four for some additional details on how we finished the year. 2023 was a remarkable operational year for Emerson. Starting with the orders performance, our teams executed exceptionally throughout the year. We won in the marketplace. We won in markets like LNG, hydrogen, renewables, life sciences and metals and mining, resulting in 5% orders growth for the year. This shows our portfolio relevance and leadership position for our customers. Orders were also up 5% in Q4, led by double-digit order growth in China and the rest of Asia.
Underlying sales were up double digits for the year, exceeding our initial expectation of 6.5% to 8.5% last November, and in line with our August Guidance. The strength was widespread across the organization with all world areas growing 9% to 10% and both business groups growing 10%. I am most proud of our performance around operating leverage this year. 53% is differentiated. It is a testament to our Emerson management system and our operational talent, which drove strong performance. Adjusted EPS ended the year at $4.44, beating the midpoint of our original November guidance by $0.37 and near the top of our August guidance. Lastly, free cash flow of $2.4 billion was up 35% year-over-year and above our August guidance.
Turning to Slide five. Our 2023 performance caps three strong years of execution, demonstrating the power of our Emerson management system and its ability to create value for our shareholders. We embarked on a transformational journey of Emerson in 2021 and remain focused on execution. Underlying sales growth of 7% and 10% in 2022 and 2023 respectively shows the leadership position of our automation technology and our world-class sales organization. It is also indicative of our market share expansion within the $160 billion served automation market. Our ability to both leverage our $150 billion installed base as evidenced by our MRO sales in 2023 of 65% and win new projects are strengths of this company and critical to the long-term success of this business.
As we invest more in digital technology and software, we are also seeing the benefits to gross margins, which have expanded 470 basis points to 49% since 2021. Strong price discipline and differentiated technology have also provided positive contributions, and the addition of NI will further expand our gross margins. This enabled strong operational leverage across the business. Over 50% leverage for 2022 and 2023 is distinguished amongst industrials. Cost discipline remains part of the DNA at Emerson, driving further cost productivity and margin expansion. Put all this together, and Emerson has delivered back-to-back years of 20 plus percent EPS growth.
Please turn to Slide six. I want to provide a couple strategic updates on our business. In October, we hosted Emerson exchange immerse in Anaheim, California. The event showcased our control systems and software technology and highlighted our integration with AspenTech throughout different solutions and industries. Featuring over 1,400 attendees and over 100 customer presentations, the week was spent discussing the exciting roadmap of our DeltaV, Ovation and AspenTech products, and working with customers to solve their toughest challenges. This was all reflected in our keynote presentations from three important customers, CCG, a provider of electric catalyst reactor technology, Biogen and Tesla, who discussed their automation challenges in partnership with Emerson. These types of engagements not only help our users understanding of our current products, but also provide important inputs into our next-generation products and innovation. Throughout this event, we highlighted our boundless automation vision, the next-generation automation architecture that Emerson is uniquely positioned to deliver based on our leadership position in intelligent devices, control systems and software. This vision empowers our customers to unlock and access all their operational data, enabling better decisions through analytics and optimization. It also enables customers to balance their production in sustainability goals through enterprise management and a unified software platform.
On Slide seven. As part of this vision, we continue to accelerate innovation across four priority domains. Disruptive measurement technologies, software-defined automation systems, self optimizing asset software and our sustainability portfolio. Each of these areas provide stepping stones to enable the boundless automation vision.
At Amherst [Phonetic] we introduced many significant new products to our leading DeltaV portfolio. First, DeltaV version 15 feature pack 1 is one of our biggest rollouts in recent history. The package includes enhancements to software-like DeltaV live, the most advanced eltaV HMI ever developed. And the introduction of a subscription controller PK flex. It also includes the DeltaV Edge Environment, a first-of-its-kind edge solution, allowing users to securely move data into their enterprise environments. As we look at the next-generation of software solutions and automation platforms, this is the key enabler to unlocking data that users previously discarded.
Throughout the rest of the organization, we are also making focused investments in strategic areas. This includes next-generation intelligent devices to further cement our leadership position in our Measurement & Analytical portfolio and relevant additions to our sustainability portfolio. At AspenTech, many of the new releases are focused on enabling sustainability and Eenergy Transition segments, in addition to further building our capabilities like AI and DataWorks to enable self optimizing asset maintenance.
Please turn to Slide eight. On October 11, we closed the acquisition of NI and announced we will report the business as a new Test and Measurement segment in 2024. We are very pleased with the progress already in the first month with NI and are excited about the opportunities in this business. We remain committed to the $165 million of synergies by the end of year five, resulting in approximately 31% adjusted segment EBITDA when moving stock comp to corporate. As we have openly stated, NI completes a significant portion of our portfolio transformation and we are excited to execute as a new company. We will, however, continue to be active with bolt-on acquisitions that fill technology gaps in our business and we have the balance sheet flexibility to do so. These will be prioritizing four segments we introduced a year ago, industrial software, test and measurement, factory automation and smart grid solutions.
In the fourth quarter, we completed two of these bolt-on acquisitions. Flexim is a global leader for clamp-on ultrasonic technology measuring liquids, gases and steam. The business is highly complementary to our existing leading flow portfolio consisting of Coriolis, DP flow, Mag [Phonetic] and vortex and will also serve attractive growth markets in the energy transition. We also completed the acquisition of Afag in the fourth quarter, a highly strategic asset in the factory automation market. Afag's electric linear motion solutions combined with our existing pneumatic motion offering cCreate a leading motion portfolio for discrete industries in a $9 billion TAM.
Please turn to Slide nine. As I mentioned, the large pieces of our portfolio transformation are behind us. And this slide shows that we were able to accomplish what we were able to accomplish over the last few years. We had three main objectives that I communicated when when we started this journey. First, cohesiveness, which we now have with an unmatched technology stack. Second, diversification. Discrete is now our second largest end-market with further opportunities to expand into attractive diversified industries. And third, our growth is aligned to secular growth drivers. This alignment to energy security and affordability, sustainability & decarbonization, nearshoring and digital transformation will allow Emerson to move to a more secular and less cyclical business profile.
$36 billion worth of transactions, disposing of assets with low-single digit growth profiles and adding businesses, we expect to grow cumulatively in the high-single digits to low-double digits. The profitability improvement is also remarkable. Trading 30% GT businesses for those that operate 70% plus gross profits which are already seeing -- that we are seeing the benefits of today. We are all energized by the opportunity we have with this new Emerson.
Please turn to Slide 10. Our current strategic funnel is now over $10 billion in opportunity with nearly two thirds residing in our growth platforms. We're also encouraged by the activity of projects already in the funnel considering the interest rate environment and global uncertainty. In the fourth quarter, Emerson was awarded over $500 million of project content with over 60% of those in our growth platforms. This includes strategic wins in LNG, carbon capture, hydrogen, life sciences and metals and mining. These successes are indicative of our team's focus and our technology's relevance within these markets.
As we look at further diversifying our portfolio into hybrid and energy transition markets, 2023 was a fund fundamental foundational year. Specifically, there were three highly strategic projects to highlight. First, Emerson was selected to automate five different plants for Samsung Biologics as it standardizes on our DeltaV automation platform. The Emerson solution provides control for both production skills and for plant-wide operations. We are also currently engaging with a customer on the potential to leverage AspenTech software for future expansion.
Secondly, in the third quarter we highlighted Emerson's selection for the Port Arthur LNG project with Bechtel Energy and Sempra. This quarter, we are pleased to announce we were also selected for another large-scale world-class LNG facility in the United States. The Rio Grande LNG project from Bechtel Energy and NextDecade located in Texas, will be capable of producing 17.6 million metric tons per annum of LNG across three liquefaction trains. Emerson is providing much of our leading technology, including analytical and measurement technology and control, pressure release and isolation valves.
And finally, AspenTech was awarded a synergy win in the most recent quarter with a world-leading pulp and paper producer. Emerson's DeltaV system is already installed at the site. And through this relationship with the customer, Emerson was able to bring AspenTech to the table. Through this engagement, the customer chose to displace the current incumbent provider of adaptive process control software and instead moved to AspenTech. This example demonstrates the power of our Emerson AspenTech integrated solutions and the opportunity to expand AspenTech utilizing our global sales channels. These wins and the continued evolution of the funnel provide a strong foundation as we head into 2024.
With that, I will now turn the call over to Mike Baughman.
