MILWAUKEE — Rockwell Automation, Inc. today reported fiscal 2019 first quarter sales of $1,642.3 million, up 3.5 percent from $1,586.6 million in the first quarter of fiscal 2018. Organic sales grew 5.7 percent. Currency translation decreased sales by 2.2 percentage points.
Fiscal 2019 first quarter net income was $80.3 million or $0.66 per share, compared to a net loss of $(236.4) million or $(1.84) per share in the first quarter of fiscal 2018. The increases in net income and EPS were driven by the absence of charges associated with the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) recognized in the first quarter of fiscal 2018, partially offset by fair-value adjustments recognized in first quarter of fiscal 2019 in connection with the PTC investment (the “PTC adjustments”). Fiscal 2019 first quarter Adjusted EPS was $2.21, up 13 percent compared to $1.96 in the first quarter of fiscal 2018. The increase in Adjusted EPS was primarily due to higher sales and lower share count, partially offset by higher investment spending.
Pre-tax margin was 7.4 percent in the first quarter of fiscal 2019 compared to 18.8 percent in the same period last year. The decrease in pre-tax margin was primarily due to the PTC adjustments.
Total segment operating margin was 22.8 percent compared to 22.4 percent a year ago. The increase in total segment operating margin was primarily due to higher sales, partially offset by higher investment spending. Total segment operating earnings were $374.9 million in the first quarter of fiscal 2019, up 5.5 percent from $355.4 million in the same period of fiscal 2018.
Commenting on the first quarter results, Blake D. Moret, chairman and chief executive officer, said, “I am pleased with our results for the quarter. Almost six percent organic sales growth was well above expectations, led by consumer and heavy industries. Adjusted EPS grew by 13 percent and our backlog increased.”
Moret continued, “We are performing well in our key focus areas. Logix grew seven percent organically and Process grew five percent. Revenue from Information Solutions and Connected Services, which is a measure of adoption of new value from the Connected Enterprise, once again profitably grew double digits. Our strategic partnership with PTC continues to gain momentum. We have had wins across all regions and in our key industry verticals, and the pipeline of opportunities is growing every day.
“I want to thank our employees, partners, and suppliers for their contributions to a good start to the fiscal year.”
Outlook
Commenting on the outlook, Moret added, “We see continuing uncertainty due to trade tensions and geopolitical risks. However, forecasts continue to call for Industrial Production growth. We had a good first quarter and our backlog grew. Project quoting activity was also strong in the quarter. With one quarter behind us, our full-year outlook for organic sales growth and Adjusted EPS remains unchanged.”
Moret continued, “Yesterday, we announced our latest acquisition, Emulate3D, which is a great addition to our FactoryTalk software portfolio. This acquisition aligns very well with our growth strategy, which includes share gains in our core platforms, double-digit growth in Information Solutions and Connected Services, and a point or more of growth per year from inorganic investments. Our strategy is working, and we have strong financial flexibility to execute it within our capital deployment framework.”
Following is a discussion of fiscal 2019 first quarter results for both segments.
Architecture & Software
Architecture & Software quarterly sales were $753.1 million, an increase of 2.4 percent compared to $735.6 million in the same period last year. Organic sales increased 4.6 percent and currency translation decreased sales by 2.2 percentage points. Segment operating earnings were $237.0 million compared to $224.2 million in the same period last year. Segment operating margin increased to 31.5 percent from 30.5 percent a year ago.
Control Products & Solutions
Control Products & Solutions quarterly sales were $889.2 million, an increase of 4.5 percent compared to $851.0 million in the same period last year. Organic sales increased 6.6 percent and currency translation decreased sales by 2.1 percentage points. Segment operating earnings were $137.9 million compared to $131.2 million in the same period last year. Segment operating margin increased to 15.5 percent from 15.4 percent a year ago.
Other Information
In the first quarter of fiscal 2019, cash flow provided by operating activities was $212.0 million. Free cash flow was $170.0 million. Return on invested capital was 39.2 percent.
Fiscal 2019 first quarter general corporate-net expense was $21.9 million compared to $24.0 million in the first quarter of fiscal 2018.
On a GAAP basis, the effective tax rate in the first quarter of fiscal 2019 was 33.5 percent, which included the tax effects on the PTC adjustments. In comparison, the first quarter of fiscal 2018 effective tax rate was 179.4 percent, which included provisional charges related to the Tax Act. The Adjusted Effective Tax Rate for the first quarter of fiscal 2019 was 18.7 percent compared to 18.9 percent a year ago.
During the first quarter of fiscal 2019, the Company repurchased 1.8 million shares of its common stock at a cost of $292.8 million. At December 31, 2018, $815.6 million remained available under the September 6, 2018 share repurchase authorization.
Organic sales, total segment operating earnings, total segment operating margin, Adjusted Income, Adjusted EPS, Adjusted Effective Tax Rate, free cash flow, and return on invested capital are non-GAAP measures that are reconciled to GAAP measures in the attachments to this release.
Fiscal 2019 Reporting Changes
The following summarizes several reporting changes that have been implemented beginning with the first quarter of fiscal 2019.
- As previously disclosed, the Company adopted ASC 606, the new revenue recognition standard.
- In our regional sales reporting (page 11), U.S. and Canada are now combined and reported as North America.
Effective October 1, 2018, we realigned certain business activities between the Architecture & Software and Control Products & Solutions business segments. Approximately $48 million of fiscal 2018 revenue, and associated operating earnings, previously reported in Architecture & Software will now be reported in Control Products & Solutions. - In the attached Sales and Earnings Information (page 7), interest income was previously reported in General corporate-net. Interest income is now combined with interest expense on the line captioned Interest (expense) income, net.
- We have adopted ASU 2017-07, which defines operating and non-operating pension and postretirement benefit cost. Under this new standard, only the service cost component of pension and postretirement benefit cost is an operating cost. All other components of pension and postretirement benefit cost are considered to be non-operating costs. In the Statement of Operations (page 8), non-operating amounts previously reported in Cost of sales and Selling, general and administrative expenses are now reported in Other (expense) income. For segment reporting (page 7) and our Adjusted Income and Adjusted EPS non-GAAP measures, we are conforming our definition of non-operating pension and postretirement benefit (credit) cost to the ASU 2017-07 definition.
ASC 606 was adopted using the modified retrospective transition method, which resulted in an adjustment to the opening balance of retained earnings as of October 1, 2018. For the other reporting changes described above, amounts shown for the first quarter of fiscal 2018 have been recast to conform with fiscal 2019 reporting.
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