Rockwell Automation Reports Third Quarter 2024 Results; Updates Fiscal 2024 Guidance

• Reported and organic sales down (8.4%) year over year
• Total ARR up 17% year over year
• Diluted EPS of $2.02, down (41.4)%; includes a restructuring charge of $0.46
• Adjusted EPS of $2.71, down (10.0)% year over year
• Updates fiscal 2024 reported sales growth guidance target to ~ (8.5)%; organic sales growth target to ~ (10.0)%
• Updates fiscal 2024 diluted EPS guidance target to ~ $8.32; adjusted EPS guidance target to ~ $9.60

Rockwell Automation, Inc. (NYSE: ROK) today reported third quarter fiscal 2024 results.

"Rockwell delivered another quarter of good execution with sales, margin, and EPS all above our expectations. I’m particularly pleased with the progress we are making on driving productivity to support our long-term margin expansion targets. We are already seeing the benefit from these actions this fiscal year and expect to drive margin growth and productivity through FY25 and beyond. On the demand side, we did see additional project delays this quarter, with customers citing weaker consumer demand, high interest rates, and policy uncertainty around tax, tariffs, and stimulus incentives as the main drivers for deferring their investment plans. Therefore, while we saw progress on inventory de-stocking at our distributors and machine builders in Q3, our low-single-digit sequential growth in orders was lower than we expected," said Blake Moret, Chairman and CEO.

Fiscal Q3 2024 Financial Results

Fiscal 2024 third quarter sales were $2,051 million, down 8.4% from $2,239 million in the third quarter of fiscal 2023. Organic sales decreased 8.4%, currency translation decreased sales by 0.6%, and acquisitions increased sales by 0.6%.

Fiscal 2024 third quarter Net income attributable to Rockwell Automation was $232 million or $2.02 per share, compared to $400 million or $3.45 per share in the third quarter of fiscal 2023. The decreases in Net income attributable to Rockwell Automation and diluted EPS were primarily due to lower sales volume and lower pre-tax margin. Fiscal 2024 third quarter adjusted EPS was $2.71, down 10.0% compared to $3.01 in the third quarter of fiscal 2023 primarily due to lower sales volume and lower segment operating margin.

Pre-tax margin was 12.4% in the third quarter of fiscal 2024 compared to 21.1% in the same period last year. The decrease in pre-tax margin was primarily due to lower sales volume, prior year PTC investment gain, and restructuring charges, partially offset by lower incentive compensation.

Total segment operating earnings were $427 million in the third quarter of fiscal 2024, down 9.8% from $473 million in the same period of fiscal 2023. Total segment operating margin was 20.8% compared to 21.1% a year ago. The decrease in segment operating margin was primarily due to lower sales volume and unfavorable mix, partially offset by positive price/cost, lower incentive compensation, and the benefits from cost reduction actions.

Cash flow generated by operating activities in the third quarter of fiscal 2024 was $279 million, compared to $282 million in the third quarter of fiscal 2023. Free cash flow in the third quarter of fiscal 2024 was $238 million, compared to $240 million in the same period last year. Decreases in cash flow provided by operating activities and free cash flow were primarily due to lower pre-tax income partially offset by decreases in working capital.

Fiscal Year 2024 Outlook

The table below provides updated guidance for sales growth and earnings per share for fiscal 2024.

⁽¹⁾ Organic sales growth and Adjusted EPS are non-GAAP measures. See Other Supplemental Information for detail on these non-GAAP measures.

"We expect continued sequential order growth in the fourth quarter and into our next fiscal year, but at a more gradual pace than we originally expected. We are reducing our fiscal 2024 guidance to reflect this pace. Margins will continue to show the positive impact of productivity actions and pricing. We believe Rockwell is an outsized beneficiary of new capacity investments in our home market of North America, and while manufacturers are taking a pause in adding capacity, Rockwell and our customers continue to invest in resilience, agility, and sustainability. Rockwell’s technology portfolio, domain expertise, and ecosystem are uniquely positioned to help customers in these areas,” Moret continued.

Following is a discussion of third quarter results for our business segments.

Intelligent Devices

Intelligent Devices third quarter fiscal 2024 sales were $957 million, a decrease of 1.1% compared to $968 million in the same period last year. Organic sales decreased 1.2%, currency translation decreased sales by 0.6%, and acquisitions increased sales by 0.7%. Segment operating earnings were $194 million compared to $163 million in the same period last year. Segment operating margin increased to 20.2% from 16.8% a year ago. The increase from prior year was driven by positive price/cost, lower incentive compensation, and the benefits from cost reduction actions, partially offset by lower sales volume.

Software & Control

Software & Control third quarter fiscal 2024 sales were $512 million, a decrease of 31.8% compared to $751 million in the same period last year. Organic sales decreased 31.3% and currency translation decreased sales by 0.5%. Segment operating earnings were $121 million compared to $262 million in the same period last year. Segment operating margin decreased to 23.6% from 34.8% a year ago, driven by lower sales volume partially offset by positive price/cost, lower incentive compensation, and the benefits from cost reduction actions.

Lifecycle Services

Lifecycle Services third quarter fiscal 2024 sales were $581 million, an increase of 11.8% compared to $520 million in the same period last year. Organic sales increased 11.3%, acquisitions increased sales by 1.3% and currency translation decreased sales by 0.8%. Segment operating earnings were $112 million compared to $48.4 million in the same period last year. Segment operating margin was 19.3% compared to 9.3% a year ago driven by lower incentive compensation, higher sales volume, strong project execution, and ongoing savings from the prior year structural actions.

Supplemental Information

ARR - Total ARR grew 17% and Organic ARR grew 14% compared to the end of the third quarter of fiscal 2023.

Corporate and other - Fiscal 2024 third quarter Corporate and other expense was $28.6 million compared to $32.3 million in the third quarter of fiscal 2023.

Purchase accounting depreciation and amortization - Fiscal 2024 third quarter Purchase accounting depreciation and amortization expense was $35.6 million, up $8.4 million from the third quarter of fiscal 2023 primarily related to the acquisitions of Clearpath Robotics and Verve Industrial Protection.

Restructuring charges - Fiscal 2024 third quarter restructuring charges were $69.8 million, which relate to actions in conjunction with an enterprise-wide comprehensive program to optimize cost structure and expand margins. The charges are primarily related to severance benefits.

Tax - On a GAAP basis, the effective tax rate in the third quarter of fiscal 2024 was 9.4% compared to 15.5% in the third quarter of fiscal 2023. The adjusted effective tax rate for the third quarter of fiscal 2024 was 13.3% compared to 14.1% in the prior year. These decreases were primarily due to higher discrete benefits recognized in the current year.

Share repurchases - During the third quarter of fiscal 2024, the Company repurchased approximately 0.6 million shares of its common stock at a cost of $161.2 million. At June 30, 2024, approximately $0.5 billion remained available under our existing share repurchase authorization.

Return on Invested Capital (ROIC) - ROIC was 16.0% for the twelve months ended June 30, 2024, compared to 20.9% for the twelve months ended June 30, 2023. The decrease is primarily driven by a lower pre-tax net income.

Definitions

Non-GAAP Measures - Organic sales, total segment operating earnings, total segment operating margin, adjusted income, adjusted EPS, adjusted effective tax rate, free cash flow, free cash flow conversion, and ROIC are non-GAAP measures that are reconciled to GAAP measures in the attachments to this release.

Total ARR - Annual recurring revenue (ARR) is a key metric that enables measurement of progress in growing our recurring revenue business. It represents the annual contract value of all active recurring revenue contracts at any point in time. Recurring revenue is defined as a revenue stream that is contractual, typically for a period of 12 months or more, and has a high probability of renewal. The probability of renewal is based on historical renewal experience of the individual revenue streams, or management's best estimates if historical renewal experience is not available. Total ARR growth is calculated as the dollar change in ARR, adjusted to exclude the effects of currency, divided by ARR as of the prior period. The effects of currency translation are excluded by calculating Total ARR on a constant currency basis. Total ARR includes acquisitions even if there was no comparable ARR in the prior period. We believe that Total ARR provides useful information to investors because it reflects our recurring revenue performance period over period including the effect of acquisitions. Our measure of ARR may be different from measures used by other companies. Because ARR is based on annual contract value, it does not represent revenue recognized during a particular reporting period or revenue to be recognized in future reporting periods and is not intended to be a substitute for revenue, contract liabilities, or backlog.

Organic ARR - Organic ARR growth is calculated as the dollar change in ARR, adjusted to exclude the effects of currency translation and acquisitions, divided by ARR as of the prior period. The effects of currency translation are excluded by calculating Organic ARR on a constant currency basis. When we acquire businesses, we exclude the effect of ARR in the current period for which there was no comparable ARR in the prior period. We believe that Organic ARR provides useful information to investors because it reflects our recurring revenue performance period over period without the effect of acquisitions and changes in currency exchange rates. Organic ARR growth is also used as a financial measure of performance for our annual incentive compensation.

Conference Call

A conference call to discuss the quarterly results will be held at 8:30 a.m. Eastern Time on August 7, 2024. The call will be an audio webcast and accessible on the Rockwell Automation website (www.rockwellautomation.com/en-us/investors.html). Presentation materials will also be available on the website prior to the call.

Interested parties can access the conference call by using the following numbers: (888) 330-2022 in the U.S. and Canada; (646) 960-0690 for other countries. Use the following passcode: 5499533. Please call in 10 minutes prior to the start of the call.

Both the presentation materials and a replay of the call will be available on the Investor Relations section of the Rockwell Automation website through September 7, 2024.

This news release contains statements (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “believe”, “estimate”, “project”, “plan”, “expect”, “anticipate”, “will”, “intend”, and other similar expressions may identify forward-looking statements. Actual results may differ materially from those projected as a result of certain risks and uncertainties, many of which are beyond our control, including but not limited to:

• macroeconomic factors, including inflation, global and regional business conditions (including adverse impacts in certain markets, such as Oil & Gas), commodity prices, currency exchange rates, the cyclical nature of our customers’ capital spending, and sovereign debt concerns;
• the severity and duration of disruptions to our business due to pandemics, natural disasters (including those as a result of climate change), acts of war, strikes, terrorism, social unrest or other causes, liquidity and financial markets, demand for our hardware and software products, solutions, and services, our supply chain, our work force, our liquidity and the value of the assets we own;
• the availability and price of components and materials;
• the availability, effectiveness, and security of our information technology systems;
• our ability to attract, develop, and retain qualified employees;
• our ability to manage and mitigate the risk related to security vulnerabilities and breaches of our hardware and software products, solutions, and services;
• the successful integration and management of strategic transactions and achievement of the expected benefits of these transactions;
• laws, regulations, and governmental policies affecting our activities in the countries where we do business, including those related to tariffs, taxation, trade controls, cybersecurity, and climate change;
• the successful development of advanced technologies and demand for and market acceptance of new and existing hardware and software products;
• our ability to manage and mitigate the risks associated with our solutions and services businesses;
• the successful execution of our cost productivity initiatives;
• competitive hardware and software products, solutions, and services, pricing pressures, and our ability to provide high quality products, solutions, and services;
• the availability and cost of capital;
• disruptions to our distribution channels or the failure of distributors to develop and maintain capabilities to sell our products;
• intellectual property infringement claims by others and the ability to protect our intellectual property;
• the uncertainty of claims by taxing authorities in the various jurisdictions where we do business;
• the uncertainties of litigation, including liabilities related to the safety and security of the hardware and software products, solutions, and services we sell;
• our ability to manage costs related to employee retirement and health care benefits; and
• other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission (SEC) filings.

Rockwell Automation, Inc. (NYSE: ROK), is a global leader in industrial automation and digital transformation. We connect the imaginations of people with the potential of technology to expand what is humanly possible, making the world more productive and more sustainable. Headquartered in Milwaukee, Wisconsin, Rockwell Automation employs approximately 29,000 problem solvers dedicated to our customers in more than 100 countries. To learn more about how we are bringing The Connected Enterprise^(R) to life across industrial enterprises, visit www.rockwellautomation.com.

Organic Sales

We translate sales of subsidiaries operating outside of the United States using exchange rates effective during the respective period. Therefore, changes in currency exchange rates affect our reported sales. Sales by acquired businesses also affect our reported sales. We believe that organic sales, defined as sales excluding the effects of acquisitions and changes in currency exchange rates, which is a non-GAAP financial measure, provides useful information to investors because it reflects regional and operating segment performance from the activities of our businesses without the effect of acquisitions and changes in currency exchange rates. We use organic sales as one measure to monitor and evaluate our regional and operating segment performance. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we divest a business, we exclude sales in the prior period for which there are no comparable sales in the current period. Organic sales growth is calculated by comparing organic sales to reported sales in the prior year, excluding divestitures. We attribute sales to the geographic regions based on the country of destination.

The following is a reconciliation of reported sales to organic sales for the three and nine months ended June 30, 2024, compared to sales for the three and nine months ended June 30, 2023:

The following is a reconciliation of reported sales to organic sales for our operating segments for the three and nine months ended June 30, 2024, compared to sales for the three and nine months ended June 30, 2023:

The following is a reconciliation of reported sales growth to organic sales growth for the three and nine months ended June 30, 2024, compared to sales for the three and nine months ended June 30, 2023:

The following is a reconciliation of reported sales growth to organic sales growth for our operating segments for the three and nine months ended June 30, 2024, compared to sales for the three and nine months ended June 30, 2023:

Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate

Adjusted income, adjusted EPS, and adjusted effective tax rate are non-GAAP earnings measures that exclude non-operating pension and postretirement benefit (credit) cost, purchase accounting depreciation and amortization attributable to Rockwell Automation, change in fair value of investments, restructuring charges aligned with enterprise-wide strategic initiatives, and Net loss attributable to noncontrolling interests, including their respective tax effects. In 2024, we updated the definition of our non-GAAP earnings measures to exclude significant restructuring charges aligned with enterprise-wide strategic initiatives. In the three and nine months ended June 30, 2024, we recognized these restructuring charges in conjunction with an enterprise-wide comprehensive program to optimize cost structure and expand margins. We believe the change to our definition provides a more useful presentation of our operating performance to investors as these restructuring charges are significant and enterprise-wide severance actions and not reflective of our ongoing operations. We did not revise prior years because there were no similar restructuring actions with significant costs.

We believe that adjusted income, adjusted EPS, and adjusted effective tax rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Adjusted EPS is also used as a financial measure of performance for our annual incentive compensation. Our measures of adjusted income, adjusted EPS, and adjusted effective tax rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate.

The following are the components of operating and non-operating pension and postretirement benefit cost (credit):

The components of net periodic pension and postretirement benefit cost other than the service cost component are included in Other income (expense) in the Condensed Statement of Operations.

The following are reconciliations of Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate to adjusted income, adjusted EPS, and adjusted effective tax rate, respectively:

Free Cash Flow

Our definition of free cash flow, which is a non-GAAP financial measure, takes into consideration capital investments required to maintain the operations of our businesses and execute our strategy. In our opinion, free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends, and share repurchases. We use free cash flow, as defined, as one measure to monitor and evaluate our performance, including as a financial measure for our annual incentive compensation. Our definition of free cash flow may be different from definitions used by other companies.

The following table summarizes free cash flow by quarter:

Free cash flow conversion (free cash flow as a percentage of adjusted income) is a non-GAAP financial measure, which reflects our ability to generate cash from the operations of our business while considering the capital investments required to maintain operations and execute our strategy as a ratio of our operating performance. We believe free cash flow conversion provides useful information to investors about our ability to convert operating performance into cash generation. Our measure of free cash flow conversion may be different from measures used by other companies.

The table below provides free cash flow conversion for the three months ended June 30, 2024 and 2023:

Return On Invested Capital

Our press release contains information regarding ROIC, which is a non-GAAP financial measure. We believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate our performance. Our measure of ROIC may be different from that used by other companies. We define ROIC as the percentage resulting from the following calculation:

(a) Net income, before Interest expense, Income tax provision, and purchase accounting depreciation and amortization, divided by;

(b) average invested capital for the year, calculated as a five quarter rolling average using the sum of Short-term debt, Long-term debt, Shareowners’ equity, and accumulated amortization of goodwill and other intangible assets, minus Cash and cash equivalents, short-term investments, and long-term investments (fixed income securities), multiplied by;

(c) one minus the effective tax rate for the period.

ROIC is calculated as follows (in millions, except percentages):

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