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    Rockwell Automation Inc (ROK)

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    Business Description

    Rockwell Automation, Inc. is the world's largest company dedicated to industrial automation and digital transformation, operating through three main segments: Intelligent Devices, Software & Control, and Lifecycle Services. The company sells a range of products and services, including industrial components, control and visualization software, and digital consulting, primarily through independent distributors and a direct sales force . Revenue is generated from product sales recognized at a point in time and solutions and services recognized over time .

    1. Intelligent Devices - Offers products such as drives, motion, advanced material handling, safety, sensing, industrial components, and configured-to-order products.
    2. Software & Control - Provides control and visualization software and hardware, digital twin, simulation and information software, and network and security infrastructure.
    3. Lifecycle Services - Delivers digital consulting, professional services including engineered-to-order solutions, recurring services like cybersecurity, safety, remote monitoring, and asset management, and includes the Sensia joint venture.

    Q4 2024 Summary

    Initial Price$274.82June 30, 2024
    Final Price$268.46September 30, 2024
    Price Change$-6.36
    % Change-2.31%

    What went well

    • Continued investment in R&D and customer-facing resources, with R&D in Software & Control at double digits percentage of sales, positioning the company for future growth.
    • Strong position in the Americas, the best-performing region, with the largest share, best channel, largest installed base, and deepest relationships, expecting more orders from mega projects in '25 than in '24.
    • Tracking thousands of projects across both new verticals (e.g., semiconductor) and traditional ones (e.g., food and beverage, automotive, life sciences), each side representing hundreds of billions of dollars of CapEx, with the biggest amount of these projects still to come over the next few years, offering significant growth opportunities.

    What went wrong

    • Rockwell Automation is experiencing negative mid-single-digit Compound Annual Growth Rates (CAGR) for fiscal '24 and the guide for '25, falling short of their prior expectation of mid- to high single-digit organic sales growth, indicating challenges in reversing declining sales trends.
    • Management's guidance of up to +2% sales growth for fiscal '25 relies on better-than-expected sequential improvement and earlier recovery in end markets, which may be challenging given current market conditions, suggesting potential risk in achieving growth targets.
    • Despite having a strong market share in the Americas, increased competition from rivals aiming to expand their footprint in the U.S. could intensify, potentially impacting Rockwell's market position and growth prospects in its key region.

    Q&A Summary

    1. 2025 Growth Guidance
      Q: How can you achieve +2% growth in 2025 given the slow start?
      A: Achieving a 2% growth in 2025 depends on better sequential improvements and earlier recovery in end markets that would turn Intelligent Devices and Software & Control products to positive shipments for the year. If growth picks up earlier and builds sequentially, we'll see the pickup. Products will be the swing factor, while Lifecycle Services, with its longer lead times and exposure to process markets, is less likely to change dramatically.

    2. Q1 Guidance and Margins
      Q: Is Q1 EPS expected to be significantly below $2 due to headwinds?
      A: Yes, Q1 EPS will be significantly below $2. We face headwinds from non-recurring earn-out adjustments, compensation inflation, and volume reduction, all contributing to real decrementals as we enter Q1.

    3. Demand Recovery Timing
      Q: When will demand bottom and start to recover?
      A: We expect a very gradual sequential growth in orders after Q1, based on insights from various industries. Recovery in end markets will influence the turnaround, especially for products. We're not anticipating a sharp snapback but expect gradual improvement.

    4. Impact of Destocking
      Q: How does destocking affect orders and shipments?
      A: Destocking has caused shipments to outpace incoming orders during 2024. While there's still some stock left in the channel, its movement depends on end user demand. The biggest impact is on product-centric verticals like automotive and food and beverage.

    5. Americas Market and Share Gains
      Q: How is Rockwell performing in the Americas market?
      A: The Americas was our best-performing region in '24 and is expected to continue in '25. We have the largest share, best channel, largest installed base, and deep relationships. We're seeing modest share gains and expect more orders from mega projects in '25 than in '24.

    6. Investment in R&D and Growth
      Q: Are you confident in returning to mid-single-digit growth without heavier investment?
      A: Yes, we've preserved spending in customer-facing resources and R&D for new product introductions. We're launching new products across our portfolio, and we continue to uphold our framework for top-line and margin expectations. We've made surgical cuts to align costs but are not compromising future growth acceleration.

    7. European Machine Builders
      Q: What's happening with European machine builders?
      A: We're seeing increased engagement from European machine builders, which is encouraging. Coming off a year with overstock conditions leading to declines, we expect Europe to perform well after the Americas in '25 as overstock conditions dissipate and normal order patterns return.

    8. Shift in CapEx and Positioning
      Q: How is Rockwell positioned as CapEx shifts to new industries?
      A: Our project funnel is split between industries where we have less penetration, like semiconductor, and those where we have strong share, like food and beverage, automotive, and life sciences. Both sides present substantial opportunities, each representing hundreds of billions of dollars in CapEx. We're still in the early stages of these projects being awarded, with the biggest amounts yet to come over the next few years.

    9. Non-R&D Investments
      Q: Can you provide more color on non-R&D investments and OpEx versus CapEx?
      A: Our investments include a mix of OpEx and CapEx. We're expanding facilities like Cubic to manage strong growth in the data center business, adding a new facility in India for resilience in Asia, and enhancing digital infrastructure within IT to boost productivity internally and with partners.

    10. Tariffs Impact
      Q: How have tariffs affected customer behavior?
      A: We didn't see significant changes in customer behavior due to tariffs. We showed agility in reflecting tariffs in our pricing to customers and didn't observe purchases being brought forward. Investment continues in the U.S. to complement labor with technology, which aligns with our strengths.

    Guidance Changes

    Quarterly guidance for Q1 2025:

    • Q1 Sales: down high single digits (no prior guidance)
    • Q1 Margins: low to mid-teens (no prior guidance)
    • Intelligent Devices Sales: down low teens (no prior guidance)
    • Software & Control Margin: low 20s (no prior guidance)
    • Lifecycle Services Sales: down low single digits (no prior guidance)

    Annual guidance for FY 2025:

    • Sales Growth: +2% to -4% (raised from -10% )
    • Annual Recurring Revenue (ARR): 10% (lowered from 15% )
    • Segment Margin: just under 19% (lowered from slightly over 19% )
    • Adjusted EPS: $8.60–$9.80 (lowered from $9.60 )
    • Free Cash Flow Conversion: 100% (raised from 60% )
    • Tax Rate: 17% (raised from 16% )
    • Corporate and Other Expenses: $130 million (no change from prior guidance )
    • Net Interest Expense: $145 million (raised from $140 million )
    • Average Diluted Shares Outstanding: 113.1 million (lowered from 114.5 million )
    • Share Repurchases: $300 million (lowered from $600–$800 million )

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Blake D. MoretChairman of the Board, President and Chief Executive OfficerJuly 1, 2016Blake D. Moret has been serving as the Chairman of the Board since January 1, 2018, and as the President and CEO since July 1, 2016. He began his career with the company as a sales trainee in 1985 .
    Matheus De A G Viera BulhoSenior Vice President, Software and ControlApril 1, 2024Matheus De A G Viera Bulho has been in this role since April 1, 2024. He previously served as Vice President and General Manager, Production Automation from April 2021 to April 2024 .
    Robert L. ButtermoreSenior Vice President and Chief Supply Chain OfficerFebruary 13, 2023Robert L. Buttermore has been serving in this role since February 13, 2023. He was previously the Vice President and General Manager of the Power Control Business from July 2018 to February 2023 .
    Matthew W. FordenwaltSenior Vice President, Lifecycle ServicesJune 1, 2023Matthew W. Fordenwalt has held this position since June 1, 2023. He was previously Vice President and General Manager of the Systems and Solutions Business from April 2019 to June 2023 .
    Scott A. GenereuxSenior Vice President and Chief Revenue OfficerFebruary 1, 2021Scott A. Genereux has been serving in this role since February 1, 2021. Before joining Rockwell Automation, he was the Executive Vice President of Worldwide Field Operations at Veritas from 2017 to 2020 .
    Rebecca W. HouseSenior Vice President, Chief People and Legal Officer, SecretaryJanuary 3, 2017Rebecca W. House has been serving in this role since January 3, 2017, and took on the additional role of Chief People Officer in July 2020 .
    Veena M. LakkundiSenior Vice President, Strategy and Corporate DevelopmentNovember 1, 2021Veena M. Lakkundi has been serving in this role since November 1, 2021. She previously held various positions at 3M Company, including Senior Vice President, Strategy & Business Development .
    John M. MillerVice President and Chief Intellectual Property CounselNovember 1, 2022John M. Miller has held this position since at least November 1, 2022. His age as of November 1, 2024, is 57 .
    Tessa M. MyersSenior Vice President of Intelligent DevicesJune 6, 2022Tessa M. Myers has held this position since June 6, 2022. She previously served as Vice President and General Manager of Production Operations Management from April 2021 to June 2022 .
    Christopher NardecchiaSenior Vice President and Chief Information OfficerNovember 1, 2017Christopher Nardecchia has held this position since November 1, 2017 .
    Cyril P. PerducatSenior Vice President and Chief Technology OfficerJuly 1, 2021Cyril P. Perducat has been serving in this role since July 1, 2021. He was previously the Executive Vice President at Schneider Electric .
    Terry L. RiestererVice President and ControllerNovember 29, 2019Terry L. Riesterer has been serving in this role since November 29, 2019. He was previously the Vice President of Corporate Financial Planning and Analysis and Corporate Development from August 2016 to November 2019 .
    Christian E. RotheSenior Vice President and Chief Financial OfficerAugust 19, 2024Christian E. Rothe began his role on August 19, 2024. Prior to joining Rockwell Automation, he served as President of the Global Industrial Division at Graco Inc. .
    Isaac R. WoodsVice President and TreasurerOctober 1, 2020Isaac R. Woods has been serving in this role since October 1, 2020. He was previously the Director of Finance for the Power Control Business from March 2019 to October 2020 .

    Questions to Ask Management

    1. Your organic sales CAGR has recently been negative mid-single-digit, far below your mid- to high single-digit target; how do you plan to return to positive growth without heavier investment, and are you confident you can achieve this?
    2. With the significant sequential revenue decline expected in Intelligent Devices from Q4 to Q1, much larger than past declines, can you elaborate on the specific drivers of this step down and its implications for future performance?
    3. Given the shift in capital expenditure towards electronic components like chips and larger electrical equipment, is the content for automation industries lower in these products, and how is Rockwell positioned to compete effectively in these new verticals?
    4. Despite winning new capacity projects, it appears that the mega projects are slow to convert into orders; what is causing these delays, and how confident are you in your expectation of increased orders during fiscal year 2025?
    5. As competition intensifies in the U.S. market, especially with competitors expanding their footprint, what strategies are you implementing to defend your market share in the Americas and ensure continued growth?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateMay 2, 2022 September 11, 2024
    End Date/DurationN/AN/A
    Total Additional Amount$1.0 billion $1.0 billion
    Remaining Authorization$346.1 million $1.0 billion
    DetailsDiscretionary repurchase Discretionary repurchase

    Past Guidance

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Sales Growth: Projected sales growth in the range of positive 2% to negative 4% .
      2. Annual Recurring Revenue (ARR): Expected to grow about 10% .
      3. Segment Margin: Projected to be down slightly versus the prior year, with a full-year segment margin expected to be just under 19% .
      4. Adjusted EPS: Expected to be $9.20 at the midpoint, with a range of $8.60 to $9.80 .
      5. Free Cash Flow Conversion: Expected to return to 100% in fiscal year 2025 .
      6. Tax Rate: Full-year adjusted effective tax rate expected to be around 17% .
      7. Corporate and Other Expenses: Expected to be around $130 million .
      8. Net Interest Expense: Expected to be about $145 million .
      9. Average Diluted Shares Outstanding: Assumed to be 113.1 million shares .
      10. Share Repurchases: Targeting $300 million of share repurchases during the year .
      11. Q1 Sales: Expected to be down high single digits sequentially .
      12. Q1 Margins: Expected to be in the low to mid-teens .
      13. Intelligent Devices Sales: Expected to be down low teens sequentially in Q1 .
      14. Software & Control Margin: Expected to be in the low 20s on flat sequential sales growth in Q1 .
      15. Lifecycle Services Sales: Expected to be down low single digits sequentially in Q1 .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted EPS: Lowered to $9.60, down 21% year-over-year .
      2. Inventory Days: Expected to end fiscal year 2024 with 160 days of inventory .
      3. Free Cash Flow Conversion: Expected to be about 60% of adjusted income .
      4. Sales: Expected to decline 10% for the year .
      5. Acquisitions Contribution: Expected to contribute about 1.5 points of growth .
      6. Currency Impact: Expected to be about neutral for the year .
      7. Total ARR Growth: Expected to grow about 15% and exceed 10% of total sales .
      8. Segment Margin: Expected to be slightly over 19% for the year, representing about a 200 basis point decrease versus last year .
      9. Corporate and Other Expense: Expected to be around $130 million .
      10. Average Diluted Shares Outstanding: Assumed to be 114.5 million shares .
      11. Share Repurchases: Expected to deploy between $600 million and $800 million during the year .
      12. Net Interest Expense: Expected to be $140 million for fiscal 2024 .
      13. Adjusted Effective Tax Rate: Expected to be around 16% for the full year .
      14. Cost Savings: Expected to deliver $100 million of savings in the second half of the fiscal year and $120 million of incremental savings in fiscal year 2025 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales:
        • Reported sales are expected to decline in the range of negative 6% to negative 4%.
        • Organic sales are expected to decline in the range of negative 8% to negative 6% .
      2. Acquisitions and Currency:
        • Acquisitions are expected to add 150 basis points to growth .
        • Currency is expected to contribute about 50 basis points to growth .
      3. Adjusted EPS: Adjusted EPS guidance is lowered to a range of $10 to $11 .
      4. Free Cash Flow Conversion: Expected to be about 80% of adjusted income .
      5. Tax Rate: Full year adjusted effective tax rate is expected to be around 17% .
      6. Inventory: Inventory days on hand are expected to drop to 125 days by the end of fiscal year '24 .
      7. Order Growth: Mid-single-digit sequential order growth is expected in Q3 and high teens sequential order growth in Q4 .
      8. Margins: Segment margin is expected to be lower in Q3 compared to Q2, with Q4 expected to be the highest revenue dollar and margin quarter of the year .
      9. Investment Spending: Full year investment spending is expected to be down approximately $50 million versus the prior year .
      10. Share Repurchases: Expected to deploy between $600 million and $800 million to share repurchases during the year .
      11. Net Interest Expense: Expected to be about $135 million for fiscal '24 .
      12. Corporate and Other Expense: Expected to be around $130 million .
      13. Diluted Shares Outstanding: Assuming average diluted shares outstanding of 114.3 million shares .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales Growth:
        • Reported sales growth is expected to be between 0.5% to 6.5%.
        • Organic sales growth is projected in the range of negative 2% to positive 4% .
      2. Acquisitions: Acquisitions are expected to add 150 basis points to growth, up from the previous guidance of 100 basis points .
      3. Currency Impact: A full-year currency tailwind of 100 basis points is expected, down from the prior guidance of 150 basis points .
      4. Adjusted EPS: Adjusted EPS is guided to be in the range of $12 to $13.50 .
      5. Free Cash Flow Conversion: Full-year fiscal 2024 free cash flow conversion is expected to be about 100% of adjusted income .
      6. Inventory Days: Inventory days on hand are expected to drop to approximately 125 days by the end of fiscal year 2024, compared to 140 days at the end of fiscal year 2023 .
      7. Adjusted Effective Tax Rate: The full-year adjusted effective tax rate is expected to be around 17% .
      8. Segment Margin: Segment margin is expected to increase slightly versus the prior year, with significant increases in the second half due to increased product volume, spending discipline, and productivity initiatives .
      9. Annual Recurring Revenue (ARR): ARR is expected to grow about 15% .
      10. Net Interest Expense: Net interest expense for fiscal 2024 is expected to be about $120 million .
      11. Corporate and Other Expense: Corporate and other expense is expected to be around $125 million .
      12. Share Repurchases: The company expects to deploy between $300 million and $500 million for share repurchases during the year .
      13. Order Growth: Full-year orders are expected to grow low single digits versus the prior year, with strong sequential growth through the balance of the fiscal year .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Siemens AG
    • ABB Ltd
    • Schneider Electric SA
    • Emerson Electric Co.
    • Mitsubishi Electric Corp.
    • Honeywell International Inc.
    • AVEVA Group plc
    • Dassault Systemes
    • Aspen Technology, Inc.