Rockwell Automation, Inc. (NYSE:ROK) Q1 2023 Earnings Name Transcript
Rockwell Automation, Inc. (NYSE:ROK) Q1 2023 Earnings Name Transcript January 26, 2023
Operator: Thanks for holding, and welcome to Rockwell Automation’s Quarterly Convention Name. I must remind everybody that immediately’s convention name is being recorded. Later within the name, we are going to open up the strains for questions. Right now, I want to flip the decision over to Aijana Zellner, Head of Investor Relations and Market Technique. Ms. Zellner, please go forward.
Aijana Zellner: Thanks, Julianne. Good morning and thanks for becoming a member of us for Rockwell Automation’s first quarter fiscal 2023 earnings launch convention name. With me immediately is Blake Moret, our Chairman and CEO; and Nick Gangestad, our CFO. Our outcomes had been launched earlier this morning, and the press launch and charts have been posted to our web site. Each the press launch and charts embrace and our name immediately will reference non-GAAP measures. Each the press launch and charts embrace reconciliations of those non-GAAP measures. A webcast of this name will probably be obtainable on our web site for replay for the subsequent 30 days. To your comfort, a transcript of our ready remarks can even be obtainable on our web site on the conclusion of immediately’s name.
Earlier than we get began, I must remind you that our feedback will embrace statements associated to the anticipated future outcomes of our firm, and are due to this fact forward-looking statements. Our precise outcomes might differ materially from our projections attributable to a variety of dangers and uncertainties which might be described in our earnings launch and particulars in all our SEC filings. So with that, I will hand it over to Blake.
Blake Moret: Thanks, Aijana, and good morning, everybody. Thanks for becoming a member of us immediately. Let’s flip to our first quarter outcomes on Slide 3. I am happy with our crew’s distinctive focus and execution as we delivered one other quarter of sturdy progress and profitability. Natural gross sales and earnings had been each up year-over-year and higher than we anticipated this quarter. Rockwell’s continued investments in resiliency and agility, together with a steadily enhancing provide chain surroundings, helped greater than offset most of the headwinds we confronted heading into Q1. Orders and backlog had been up sequentially within the quarter. Order cancellation charges had been flat to prior quarter and stay within the low single digits by way of January. We’re inspired by the continued energy of our finish person demand throughout all enterprise segments and areas.
Whole gross sales grew nearly 7% versus prior yr. Natural gross sales had been up 10% year-over-year, higher than our expectations regardless of a really dynamic provide chain surroundings. Foreign money translation decreased gross sales by 4% and acquisitions contributed a couple of level of progress this quarter. In step with our prior assumptions, the break up of gross sales by enterprise phase, area and trade was impacted by entry to particular digital elements and the composition of our backlog. Within the Clever Units enterprise phase, natural gross sales elevated about 7% versus prior yr with progress in all areas and product strains. We had one other quarter of outstanding order progress in our unbiased cart know-how enterprise, pushed by massive multi-year offers throughout many industries together with EV, materials dealing with and semiconductor.
I will cowl a few of these strategic wins in a couple of minutes. Software program and Management natural gross sales grew nearly 16% versus prior yr. Higher than anticipated progress was pushed by our crew’s skill to rapidly redesign and requalify sure Logix merchandise to safe extra elements provide with the assist from key suppliers. We additionally proceed to see a gradual enchancment in digital part provide. Lifecycle Providers natural gross sales had been up 10% year-over-year. Guide-to-bill on this phase was a wholesome 1.21 and was constant throughout options, providers and Sensia companies. Info Options and Related Providers gross sales had one other quarter of double-digit year-over-year progress. We’re seeing a major uptick right here in massive multisite and multiyear offers, each in software program and providers.
Certainly one of our Info Options wins this quarter was with a number one potato processing firm, the place a mix of our Kalypso digital consulting and enterprise analytics capabilities helped the client enhance throughput and cut back power prices throughout a number of manufacturing strains. We’re proud to be an necessary digital accomplice to this international firm as they concentrate on doubling their income over the subsequent 5 years. Our latest software program acquisitions proceed to land us new logos throughout varied industries and areas. These embrace Plex wins in metals, meals and beverage and automotive and quite a few enterprise asset administration wins Fiix’s cloud-native providing in Asia, the place we’re leveraging the distribution community to amplify our gross sales with native prospects.
On the Related Providers facet, we proceed to construct momentum with enterprise cybersecurity wins with prospects throughout meals and beverage, life sciences and client packaged items, prioritizing their investments and resiliency of their operations. Certainly one of our key cyber wins this quarter was with one of many world’s largest international client items firms, who selected Rockwell’s differentiated portfolio of {hardware}, software program and providers together with the capabilities of our accomplice Claroty to handle OT safety at a whole bunch of their websites globally. This multiyear deal can even contribute to our double-digit progress in annual recurring income. Q1 ARR grew 14%. Phase margin of 20% was up over 100 foundation factors year-over-year and was higher than anticipated.
Adjusted EPS grew 15% year-over-year. Let’s now flip to Slide 4 to evaluate key highlights of our Q1 finish market efficiency. All three trade segments noticed sturdy year-over-year progress and had been above expectations, in step with the continued gradual enchancment in digital part availability. In our discrete industries, gross sales had been up low teenagers. Inside discrete, automotive gross sales had been up 25% versus prior yr. We proceed to win new and follow-on orders with each the model house owners and the supporting EV ecosystem, together with automobile and battery OEMs and system integrators. A very good instance of Rockwell’s sturdy place in EV this quarter is our win with a number one battery provider. Our unbiased cart know-how was chosen for the battery cell meeting and formation course of to assist Ford’s BlueOval greenfield vegetation in Kentucky and Tennessee.
We talked about our strategic partnership with Ford at our Investor Day final November, and we’re excited concerning the progress we’re making collectively. Semiconductor gross sales grew over 20% versus prior yr. That is one other vertical the place we’re in a position to increase our choices to new functions, together with unbiased cart for wafer transport and Logix-based automation for silicon carbide wafer manufacturing. In eCommerce and warehouse automation, our gross sales had been down low teenagers versus prior yr. A few of our largest eCommerce prospects are within the means of shifting their funding from greenfield to brownfield, and we anticipate continued investments in upgrading present services, together with next-gen sortation methods over the course of this fiscal yr.
Certainly one of our massive multiyear wins in eCommerce this quarter was with CMC, a pacesetter in sensible options for sustainable packaging. Rockwell’s sensible machine structure, which incorporates our full portfolio of {hardware} and software program, will assist CMC produce its progressive on-demand packaging at scale. One other necessary win within the quarter was with Phononic, a know-how firm centered on distinctive heating and cooling methods. This buyer is working with our Kalypso crew to create the cloud and IoT infrastructure essential to assist Phononic’s disruptive design for chilly chain options and warehouse functions. Shifting to our Hybrid trade phase. Gross sales on this phase grew low teenagers year-over-year, led by sturdy progress in meals and beverage. Meals and beverage gross sales had been up over 15% versus prior yr.
As I discussed earlier, we noticed a lot of massive cybersecurity wins on this vertical, underscoring prospects’ concentrate on resiliency and safety of their operations. Life Sciences gross sales grew mid-single digits within the quarter. Along with software program, we noticed a excessive variety of cybersecurity wins on this finish market this quarter with a number of necessary wins coming from Europe. Tire was additionally up mid-single digits within the quarter. Let’s flip to Course of. This phase grew mid-single digits versus prior yr, led by progress in metals and oil and fuel. We not often speak about our metals vertical, however we had an necessary sustainability win with Cornish Lithium, a pioneering mineral exploration and improvement firm, who selected Rockwell’s PlantPAx course of management system for its demo plant to transform lithium focus into high-grade refined lithium used for battery manufacturing.
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We’re excited to accomplice with Cornish Lithium on this power transition journey. Turning now to Slide 5 in our Q1 natural regional gross sales. Just like final fiscal yr, our efficiency here’s a reflection of digital part availability moderately than the underlying buyer demand. North America natural gross sales grew 8% year-over-year, Latin America gross sales had been up 6%, EMEA gross sales elevated by over 13% and Asia Pacific was up 16%. Let’s now transfer to Slide 6, fiscal 2023 outlook. Given our Q1 efficiency, our report backlog and a steadily enhancing provide chain we’re growing our high line and backside line outlook for fiscal 2023. Whereas we’re inspired by the enhancing digital part panorama, the macroeconomic surroundings remains to be very dynamic and we proceed to take a conservative strategy in our operations.
Our fiscal 2023 steerage tasks complete reported gross sales progress of 12%. Natural gross sales progress of 13% on the midpoint assumes continued provide chain enchancment. Nearly all of our fiscal 2023 shipments are already in backlog. We proceed to anticipate acquisitions to contribute some extent of worthwhile progress and foreign money to be a headwind of about 2 factors. Nick will contact extra on this later. ARR remains to be anticipated to develop 15%. Phase margin is predicted to extend by over 100 foundation factors year-over-year. Adjusted EPS is predicted to develop 17% versus prior yr and we proceed to focus on 95% free money move conversion. Let me flip it over to Nick to offer extra element on our Q1 efficiency and monetary outlook for fiscal 2023. Nick?
Nick Gangestad: Thanks, Blake, and good morning, everybody. I will begin on Slide 8, first quarter key monetary data. First quarter reported gross sales had been up 6.7% over final yr, Q1 natural gross sales had been up 9.9% and acquisitions contributed 80 foundation factors to complete progress. Foreign money translation decreased gross sales by 4 factors. About 7 factors of our natural progress got here from worth. Phase working margin expanded to twenty.2% and was considerably larger than our expectations. Nearly all of our margin enchancment versus our expectations was pushed by the upper income from the redesign exercise and improved digital part availability that Blake mentioned earlier. The 110 foundation level year-over-year enhance in margin was pushed by constructive worth price and better gross sales quantity, partially offset by larger funding spend.
Company and different expense was $27 million, in keeping with our expectations. Adjusted EPS of $2.46 was forward of our expectations and grew 15% versus prior yr. I will cowl a year-over-year adjusted EPS bridge on the later slide. The adjusted efficient tax charge for the primary quarter was 17.1%. This was in keeping with our expectations and aligned with our full yr estimate of an 18% adjusted efficient tax charge. Free money move of $42 million was $91 million larger in comparison with final yr, pushed by larger pre-tax earnings. As in latest quarters, working capital continued to develop sequentially. We anticipate yet one more quarter of working capital will increase this yr. We anticipate working capital balances to say no barely within the second half of the yr as our provide chain steadily improves.
One extra merchandise not proven on the slide, we repurchased roughly 600,000 shares within the quarter at a value of $156 million. On December thirty first, $1.1 billion remained obtainable beneath our repurchase authorization. Slide 9 gives the gross sales and margin efficiency overview of our three working segments. Natural gross sales grew double digits in Software program and Management and Lifecycle Providers, with Clever Units rising 7% year-over-year. As Blake talked about earlier, orders grew sequentially in Q1 as we noticed a wholesome demand pushed by continued sturdy challenge exercise with our prospects. We proceed to see buyer ordering patterns in step with the longer lead instances we’ve got for parts of our portfolio. We anticipate additional normalization of ordering patterns as lead instances and completely different merchandise enhance.
Turning to margins. Clever Units margin declined by 130 foundation factors year-over-year attributable to larger resiliency spend and an unfavorable foreign money affect, partially offset by constructive affect from larger worth price. Phase margin for software program and management elevated 630 foundation factors in comparison with final yr on constructive worth price, the favorable year-over-year affect of Plex and better gross sales. Lifecycle Providers margin was roughly flat year-over-year. Just like Q2 fiscal yr 2022, we anticipate Lifecycle Providers margin to increase by way of the steadiness of the yr. The following Slide 10 gives the adjusted EPS stroll from Q1 fiscal 2022 to Q1 fiscal 2023. Core efficiency was up $0.55 on a 9.9% natural gross sales enhance. The affect of foreign money was a $0.15 discount in earnings per share.
This was barely higher than our expectations. The year-over-year affect was attributable to a stronger U.S. greenback. Incentive compensation was a $0.10 headwind, barely greater than our authentic plan and pushed by our elevated progress and earnings expectations for the yr. Our larger adjusted efficient tax charge was a $0.05 headwind and our discount in excellent shares added about $0.05. Let’s transfer on to the subsequent Slide, 11, steerage for fiscal 2023. We’re growing our reported gross sales steerage to about $8.7 billion in fiscal 2023 or 12% progress on the midpoint. We anticipate natural gross sales progress to be in a spread of 11% to fifteen% or 13% on the midpoint of our vary. We anticipate quantity to be 9 factors of progress and worth to be 4 factors of progress. This steerage takes under consideration our Q1 outperformance and relies on our present view of digital part availability and the speed at which we will ship on our backlog.
By quarter, we anticipate natural progress charges in Q2 and Q3 to be the best of the yr with every up within the mid to excessive teenagers year-over-year, whereas This autumn income is predicted to develop organically single digits. Whereas we anticipate gross sales to be up sequentially in Q2, we anticipate margins to be much like Q1 ranges attributable to larger sequential spend on new product improvement, resiliency and the timing of our annual benefit enhance. We now anticipate a full yr foreign money headwind of 200 foundation factors, which is 50 foundation factors higher than our earlier steerage. This up to date outlook primarily displays the strengthening of the euro towards the U.S. greenback. We anticipate full yr phase working margin to be about 21%, up from prior steerage of about 20.5%. We proceed to anticipate constructive worth/price for the total yr, with many of the favorability coming from the value actions we took in fiscal 2022.
As anticipated, nearly all of our year-over-year worth/price profit this yr is coming within the first half of the yr. Our up to date steerage now assumes full yr core earnings conversion of round 35%. We proceed to anticipate the total yr adjusted efficient tax charge to be round 18%. We’re growing our adjusted earnings per share steerage to $10.70 to $11.50. On the midpoint of this vary, this represents 17% adjusted EPS progress, up from the prior steerage of roughly 12% on the midpoint. We anticipate full yr fiscal 2023 free money move conversion of about 95% of adjusted earnings. Just a few extra feedback on fiscal 2023 steerage. Company and different expense remains to be anticipated to be round $120 million. Web curiosity expense for fiscal 2023 is now anticipated to be about $130 million.
We’re assuming common diluted shares excellent of 115.4 million shares. We have additionally included on Slide 12 an adjusted EPS stroll from our earlier steerage to our present steerage on the midpoint on your reference. With that, I will flip it again over to Blake for some closing remarks earlier than we begin Q&A. Blake?
Blake Moret: Thanks Nick. On this dynamic surroundings, we’re positioning ourselves and our prospects for a extra resilient, agile and sustainable future. Automation has by no means been extra necessary in fixing our prospects’ greatest challenges. A big proportion of those international investments are being made within the U.S., the place we’ve got the strongest market share, the most effective channel and decades-long relationships. Shoring is actual for a lot of of our most necessary verticals, and we see these investments, together with the early advantages of the Inflation Discount Act, mirrored in our continued, sturdy order charges. We’re accelerating the tempo of our innovation, together with new product introductions throughout all key product platforms and our latest acquisitions.
These had been showcased at our very profitable automation truthful in Chicago, the place we welcomed over 18,000 prospects, companions and staff to a tremendous demonstration of the worth offered by Rockwell and our buddies. I used to be additionally in a position to meet our new CUBIC crew in Denmark a couple of weeks in the past, and I’m excited concerning the new alternatives to increase our sustainability portfolio with an elevated presence in renewables, CUBIC’s largest buyer phase. Importantly, I am pleased with how our tradition is each embraced and enriched by our latest additions. And I am excited to see how we ship sturdy progress and new buyer worth collectively within the years to come back. Aijana will now start the Q&A Session.
Aijana Zellner: Thanks, Blake. Thanks. Julienne, let’s take our first query.
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