Q1 2025 Summary
Published Feb 10, 2025, 7:29 PM UTC- Rockwell Automation's orders surpassed $2 billion in the quarter, indicating strong demand and supporting expectations for sequential growth throughout the year.
- The company achieved margin upside due to favorable mix with better-than-expected performance in its high-margin Software & Control business, effective cost measures, and better-than-expected progress on cost reduction and margin expansion activities, targeting $250 million in benefits for the full year.
- Rockwell Automation is experiencing broad-based improvement in underlying markets, with destocking largely over, and strong growth in e-commerce, warehouse automation, and hybrid industries, supported by successful new product introductions that are winning new customers and pulling through larger solutions.
- Tariff Exposure and Potential Impact on Costs and Customer Relationships: Rockwell Automation faces potential tariff exposure on imports into the U.S. from various regions, which may increase costs. The company plans to implement incremental pricing to mitigate tariff costs, including repricing backlog orders—a new experience for customers—which could impact customer relationships and demand.
- Weakness in the Asia Pacific Region, Particularly China: The company expects Asia Pacific to be the weakest region for the year, with China experiencing slow recovery due to structural challenges and mild deflation. Limited growth expectations from China and India may negatively affect overall sales growth in the region.
- Increased Corporate Expenses Affecting Profitability: Rockwell raised its corporate expense guidance for the year due to execution costs associated with margin expansion and cost reduction activities. The increase in corporate expenses could negatively impact overall profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -8% → US$1,881M | The decrease was driven by lower sales volume in both Intelligent Devices and Software & Control segments, reflecting softening demand and inventory reductions in key end markets. Pricing improvements offered a partial offset. |
Intelligent Devices | -13% → US$806M | The decline stemmed from reduced shipment volumes across nearly all geographies (especially EMEA and Asia Pacific), along with cautious capital spending by machine builders. Cost-control efforts only partially mitigated the drop. |
Software & Control | -12% → US$529M | Lower hardware volume (e.g., Logix controllers) and fewer new software licenses contributed to the drop. While cost-reduction actions helped margin preservation, they did not offset lower overall demand. |
EMEA | -14% → US$332M | The region saw weakness in Germany and France, coupled with challenging prior-year comparisons. Some stabilization was noted in Italian machine builders, but it was insufficient to overcome broader regional softness. |
Asia Pacific | -9% → US$251M | A double-digit decline in China led the region’s contraction, driven by structural challenges (e.g., mild deflation) and sluggish capital investments. While China is a smaller portion of the portfolio, it still significantly impacted growth. |
Net Income | -13% → US$184M | Lower pre-tax margins, reflecting volume-driven declines and restructuring costs, drove the drop. Though cost optimization partially offset these factors, pricing gains did not fully compensate for weaker volumes. |
Diluted EPS | -13% → US$1.61 | The decline was primarily due to reduced net income on lower volumes and restructuring expenses, with no major non-operating gains (like prior PTC fair-value benefits) to counterbalance the soft operating results. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Sales (growth range & midpoint) | FY 2025 | -4% to +2% range (midpoint ≈ -1%), ~$8.2B | -4% to +2% range (midpoint ≈ -2.5%), ~$8.1B | lowered |
Adjusted EPS | FY 2025 | $8.60 to $9.80 (midpoint $9.20) | $8.60 to $9.80 (midpoint $9.20) | no change |
Cost savings | FY 2025 | $250M year-over-year | $250M year-over-year | no change |
Corporate & other expense | FY 2025 | $130M | $145M | raised |
Net interest expense | FY 2025 | $145M | $140M | lowered |
Share repurchases | FY 2025 | $300M | $300M | no change |
Average diluted shares | FY 2025 | 113.1M | 113.4M | raised |
Compensation & inflation headwind | FY 2025 | no prior guidance | $190M | no prior guidance |
Currency impact | FY 2025 | no prior guidance | ~1.5 points headwind | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Q1 2025 Sales | Q1 2025 | Down high single digits sequentially | 1,881, a 7.6% drop from 2,035.5(Q4 2024), which is within “high single digits” | Met |
Q1 2025 Segment Margin | Q1 2025 | Low to mid-teens | ~13.4% (252÷ 1,881) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Sustained focus on order momentum and backlog fluctuations | • Q2–Q4 FY24: Mixed order results (down in Q4, low-single-digit growth in Q3, low double-digit in Q2). Backlog was a key focus, with backlog execution helping offset softer demand. | • Q1 FY25: Orders up 10% YOY, mid-single-digit sequential growth; backlog remains strong, aided by large customer projects. | Sentiment improved from slower recent quarters to stronger momentum. |
Recurrent emphasis on margin expansion and cost-reduction strategies | • Q2–Q4 FY24: Company initiated major cost-savings programs, achieving $100M+ in FY24; targeted $250M savings in FY25. | • Q1 FY25: Achieved $70M benefit from margin initiatives; reaffirmed $250M FY25 goal. | Consistent focus on cost actions, sustaining margin gains. |
Region-specific performance concerns, especially in Asia Pacific and China | • Q2–Q4 FY24: Asia sales declined, China down nearly 30% in Q2 and further declines in Q3–Q4. | • Q1 FY25: Asia down 9%, China experiencing double-digit decline amid deflation and structural challenges (now <5% of total revenue). | Continued weakness in China, with slow recovery expected. |
Software & Control segment as a high-margin growth driver | • Q2–Q4 FY24: Margins generally in mid-20s to low-30s, but volume volatility affected results. Software portion grew despite Logix softness. | • Q1 FY25: Margin at 25.1%, organic sales declined 12% YOY; strong Logix recovery, double-digit sequential orders. | Remains a top-margin contributor with ongoing software expansion. |
Clearpath acquisition and autonomous mobile robot offerings | • Q2–Q4 FY24: Saw lumpy AMR project revenues but strong pipeline; contributed to growth in Intelligent Devices. | • Q1 FY25: Double-digit YOY growth in Clearpath sales; key AMR win with Thermo Fisher to address labor challenges. | Continues to gain traction; strengthens logistics and warehouse automation. |
Tariff exposure as a new risk factor impacting costs and pricing | • Q4 FY24: Mentioned no significant customer behavior change; handled tariffs via pricing. (No specific Q2–Q3 mentions) | • Q1 FY25: Tariffs on <10% of U.S. revenue, using price adjustments and supply chain shifts to mitigate. | Newly highlighted risk; actively managed through pricing and relocation. |
Transition from elevated inventory levels to destocking largely being over | • Q2–Q4 FY24: Persistent destocking issues, especially in China; North America destocking mostly done by Q3–Q4. | • Q1 FY25: Destocking nearly complete except in China; new demand flowing normally through distributors. | Destocking phase nearly finished, supporting improved order visibility. |
Mega-projects in the Americas offering significant future growth opportunities | • Q2 FY24: Highlighted semiconductor fabs, renewables, warehouse automation as mega-projects. • Q4 FY24: Expects more mega-project orders in FY25, strong funnel. | • Q1 FY25: Major sustainability and renewables projects drive multi-year growth, with energy at ~15% of revenue. | Key long-term driver, tapping multi-year investments in energy and infrastructure. |
Shifting sentiment around orders, from slower growth in Q3 2024 to strong demand in Q1 2025 | • Q3 FY24: Slower than expected due to inventory and weaker end-user demand. | • Q1 FY25: Orders grew 10% YOY, reflecting renewed strength; backlog builds for upcoming quarters. | Marked improvement in demand, aided by destocking easing and broad-based growth. |
Increasing corporate expenses balancing margin gains | • Q2–Q4 FY24: No specific mention of higher corporate expense offsets. | • Q1 FY25: Corporate costs rose due to execution of margin-expansion activities. | New disclosure, corporate spending up but aligned with margin programs. |
Heightened R&D investment to drive innovation and long-term competitiveness | • Q2–Q4 FY24: ~6% of sales allocated to R&D; emphasis on software, AI, new products. | • Q1 FY25: R&D spend remains in low-teens % in Software & Control; continued product launches and AI focus. | Ongoing commitment to innovation funding and competitive differentiation. |
-
SKU Rationalization Impact
Q: How will the SKU rationalization impact revenue and margins in 2025?
A: Management explained that the SKU rationalization involves eliminating 21,000 low or no sales SKUs, a process not previously undertaken by Rockwell. This initial reduction targets low-hanging fruit, so the impact on revenue is expected to be insignificant. The effort aims to streamline operations and reduce costs. They are also evaluating another 39,000 SKUs for potential rationalization but do not anticipate a material impact on revenue or margins in 2025.
-
Guidance Conservatism
Q: Is there a positive bias to the 2025 organic growth guidance given the strong orders?
A: Management acknowledged a good start to the year with orders overperforming expectations. While pleased with the early growth, they suggest the guidance remains appropriate considering global conditions. They expect gradual sequential growth to continue through the year but did not indicate a significant positive bias in the guidance.
-
Order Trends and Market Improvement
Q: Can you provide more color on the improved order trends and market conditions?
A: Orders were up mid-single digits sequentially, outperforming flat expectations. This suggests destocking is largely complete in most markets except China. Improvements were noted in hybrid markets like food and beverage and home and personal care. There are "green shoots" in Italian machine builders focused on packaging for life sciences and beverage. E-commerce and warehouse automation remain strong, including growth in fulfillment centers, data centers, and parcel handling projects. New product introductions are contributing positively.
-
Cost Reduction and Margin Expansion
Q: Could the cost reduction and margin expansion actions result in more benefit than the expected $1.85 per share for the year?
A: Management stated that some cost actions materialized earlier than expected in Q1, contributing $0.50 per share. While this was ahead of schedule, they did not suggest increasing the overall benefit. The program's size remains the same, with ongoing efforts expected to build on the existing cost reductions throughout the year.
-
Software and Control Margins
Q: Will Software and Control segment margins improve as volumes build through the year?
A: The Software and Control segment showed strong margins in Q1, up year-over-year despite double-digit revenue decline, due to favorable mix and better performance in the Logix and IO businesses. Management expects margins to continue progressing gradually throughout the year, with the business anticipated to be flat year-over-year, supporting expanded margins.
-
Tariff and Pricing Impact
Q: How quickly can you implement price increases in response to new tariffs?
A: Management indicated they can adjust pricing immediately in response to tariffs. They have processes in place to respond swiftly, as they did in 2018, ensuring they can recover additional costs without significant delay.
-
Destocking and Regional Differences
Q: What is the status of channel destocking across regions?
A: Destocking is largely complete in North America, particularly with distributors. In Europe, destocking at major machine builders is normalizing, evidenced by strong sequential order growth. China may take until the end of Q2 or Q3 to complete destocking, but it represents less than 5% of total revenue.
-
Impact of Election on Orders
Q: Did moving past the election positively impact orders?
A: Management believes there was a slight positive impact, with increased general optimism among customers, especially in the home market. Companies are eager to advance efficiency and transformation plans, concerned about losing share to more assertive competitors. This is reflected in the broad-based project activity seen in the first quarter.
-
First Half to Second Half Ramp
Q: What supports the expected revenue ramp from the first half to the second half of the year?
A: Management anticipates gradual sequential improvement throughout the year. Orders performed slightly better than expected in Q1, reducing the required ramp. Margins are expected to expand from 17% in Q1 to around 18% in Q2, aligning with their full-year guidance.
-
Cost Reductions Timing
Q: How much of the $250 million cost reduction program has been actioned, particularly the $130 million in COGS savings?
A: Much of the cost reduction program is already underway, contributing to Q1 results. Improvements stemmed from manufacturing efficiencies like reduced overtime and enhanced quality, which lowered material expenses. Logistics provided some outperformance, and material cost savings were realized in metal fabrication and stamping. Momentum is building, with further benefits expected in the second half of the year.