Emerson Pricing Spineometer: 4 of 5 Vertebrae

Emerson, a global electrical products and engineering services concern, had a strongly positive Q2 2024. Revenue rose 17 % to $4.4 billion and earnings before interest and taxes rose 23% to $988 million over the same period last year.

A review of Emerson’s 8 May earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

Lal Karsanbhai, CEO of Emerson, highlighted the importance of the Emerson Management System and the 87,000 professionals working for Emerson to drive performance. He also mentioned that “we now expect to realize $100 million of synergies in 2024.” These remarks highlight the importance of cost and employee management for Lal Karsanbhai.

Mike Baughman, CFO of Emerson, spoke to the importance of revenue growth, both in terms of quantity and price. He stated, “Underlying sales growth was 8% led by our process and hybrid businesses. Price contributed approximately three points of growth slightly higher than expected due to the mix of our shipments this quarter.”

Combined, these remarks indicated a balanced approach to business management at Emerson.

Given the operations of Emerson, we hold the following expectations regarding the required pricing capability.

1. Industry benchmarks would suggest Emerson should employ 30 to 150 pricing professionals.
2. With high volumes of customers and products, pricing analytics for defining pricing guidance would be a focal area.
3. Pricing professionals charged with supporting commercial policy and driving pricing guidance for sales negotiations should be located globally matching the market footprint of Emerson.
4. To align sales incentives to the company’s profit incentives as it relates to price and mix, pricing may be engaged with setting profit-based incentives with sales executives. See
5. Given the broad product portfolio and the importance of product launches and evolution, Emerson should have pricing professionals engaged with product managers to set list and target prices throughout the new product development effort. See Adopting Profit-Based Sales KPI for more information.
6. Emerson sells stand-alone products, complete solutions, software, and much else. This implies the opportunity for unit pricing, versioning, bundling, subscriptions, tying arrangements, and other price structures. As such, Emerson should have someone well-versed in the tradeoffs between the ten different fundamental price structures.
7. Input cost inflation and deflation, competitive dynamics, and macroeconomic shocks would also all impact pricing at Emerson as well as demonstrate a need for pricing and economic professionals at Emerson.
8. Customer demand shifts are having an outsized impact on Emerson today, and therefore increase the need for pricing capability to be integrated into product, sales, marketing, and financial management. Energy customers are transitioning industry from traditional energy and power to liquified natural gas, nuclear, renewables, hydrogen, clean fuels, carbon capture, and electric vehicle batteries. On top of these huge shifts, hyperscaler data centers are a major market opportunity driving increases in energy demand. Plant automation, intelligent devices and software and control, and test and measurement sectors are each exhibiting large shifts in demand and customer requirements.
9. On top of all this, Emerson is actively engaged in mergers and acquisitions which also benefit from pricing reviews before the business transaction and pricing actions upon transaction completion.

Overall, the pricing requirements at Emerson are significant.

Research into the investment by Emerson in pricing yielded encouraging results.

1. The number of professionals identifying with pricing in their title is within expectations. The geographical distribution of pricing professionals also matched expectations.
2. Pricing professionals were identified with titles ranging from specialist, analyst, lead, and manager to director. Sources indicate pricing professionals report to a Sr. VP of Commercial Excellence.
3. The responsibilities of pricing include analytics and strategy.
4. Sources indicate Emerson operates with a “Pricing Council” model to coordinate activities across divisions that include nearly 200 participants from our “Price Setters, Price Getters, and Friends”.

Given the importance and capability of pricing at Emerson as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of June 2024.

Emerson Pricing Spineometer: 4 out of 5 Vertebrae. Pricing appears to be well managed overall yet, given the dynamics of their market and the wider variety of questions pricing could be addressing, we felt there is untapped opportunity within this domain.

EMR (Emerson Electric Co.) was relatively unchanged at 107 the day prior to their earnings call and 113 one week later. FY 2023 revenue of $15.2 billion with a 21% operating margin and P/E ratio near 5.

For FY 2023, a 1% improvement in price would yield a 5% improvement in operating profits holding all else constant at Emerson.