Rockwell Automation Reports 2Q 2019 Results

MILWAUKEE — Rockwell Automation, Inc. today reported fiscal 2019 second quarter sales of $1,657.2 million, up 0.4 percent from $1,651.2 million in the second quarter of fiscal 2018. Organic sales grew 3.6 percent. Currency translation decreased sales by 3.2 percentage points.

Fiscal 2019 second-quarter net income was $346.0 million or $2.88 per share, compared to $227.4 million or $1.77 per share in the second quarter of fiscal 2018. The increases in net income and EPS were driven by the fair-value adjustment recognized in second quarter of fiscal 2019 in connection with the PTC investment (the “PTC adjustment”) and the absence of charges associated with the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) recognized in the second quarter of fiscal 2018. Fiscal 2019 second quarter Adjusted EPS was $2.04, up 8 percent compared to $1.89 in the second 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 and higher net interest expense.

Pre-tax margin was 24.3 percent in the second quarter of fiscal 2019 compared to 18.1 percent in the same period last year. The increase in pre-tax margin was primarily due to the PTC adjustment.

Total segment operating margin was 21.3 percent compared to 20.9 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 $353.8 million in the second quarter of fiscal 2019, up 2.6 percent from $344.9 million in the same period of fiscal 2018.

Commenting on the second quarter results, Blake D. Moret, chairman and chief executive officer, said, “Our results for the quarter reflect profitable growth in all regions, led by strong process industry performance. We saw accelerating growth in Information Solutions and Connected Services, reflecting adoption of the Connected Enterprise. Our growth was tempered by weaker-than-expected automotive sales, which impacted our product sales. Adjusted EPS increased by 8 percent in the quarter.”

Moret continued, “Our strategic partnership with PTC is progressing well. We are winning profitable new business across all focus industries and geographies, and some of our engagements are expanding to multi-site rollouts. In addition, in February we announced that we will be forming the Sensia joint venture with Schlumberger, creating the oil and gas industry’s first fully integrated automation solutions provider for the digital oilfield. The announcement has been well-received by target customers.”

Outlook

The following table provides updated guidance as it relates to sales growth and earnings per share for fiscal 2019:

Commenting on the outlook, Moret added, “We continue to see broad-based growth, with strong financial performance. However, given the weakness in automotive, we are reducing the high end of our guidance range for organic sales growth and Adjusted EPS. The mid-point of the updated Adjusted EPS guidance range is now $9.00, compared to $9.05 in previous guidance.”

Moret continued, “We are accelerating the execution of our strategy. I’m very encouraged to see employees and partners embrace our new ways to win, expanding value for customers and shareowners.”

In February 2019, we entered into an agreement to create a new joint venture, Sensia. The transaction is expected to close in calendar 2019, subject to regulatory approvals and satisfaction of other customary conditions. Sensia will operate as an independent entity, with Rockwell Automation owning 53% and Schlumberger owning 47% of the joint venture. As part of the transaction, we will make a $250 million payment to Schlumberger at closing, which will be funded by cash on hand. We expect that we will consolidate Sensia in our financial results. Sensia is expected to generate initial annual revenue of approximately $400 million, slightly less than half of which relates to businesses to be contributed to the joint venture by Rockwell Automation. Due to uncertainty regarding the closing date of the Sensia transaction, our guidance for fiscal 2019 does not include the estimated Sensia impact.

Following is a discussion of fiscal 2019 second quarter results for both segments.

Architecture & Software

Architecture & Software quarterly sales were $739.7 million, a decrease of 2.2 percent compared to $756.5 million in the same period last year. Organic sales increased 1.2 percent, currency translation decreased sales by 3.5 percentage points, and an acquisition increased sales by 0.1 percentage points. Segment operating earnings were $209.9 million compared to $217.2 million in the same period last year. Segment operating margin decreased to 28.4 percent from 28.7 percent a year ago.

Control Products & Solutions

Control Products & Solutions quarterly sales were $917.5 million, an increase of 2.5 percent compared to $894.7 million in the same period last year. Organic sales increased 5.7 percent and currency translation decreased sales by 3.2 percentage points. Segment operating earnings were $143.9 million compared to $127.7 million in the same period last year. Segment operating margin increased to 15.7 percent from 14.3 percent a year ago due to higher sales, partially offset by higher investment spending.

Other Information

In the second quarter of fiscal 2019, cash flow provided by operating activities was $143.8 million. Free cash flow was $104.9 million, which included a payment of $31.1 million for taxes due under the Tax Act related to deemed repatriation of foreign earnings, and a payment of $35.7 million to settle hedges executed in connection with our issuance of $1.0 billion of long-term notes in the second quarter of fiscal 2019. Return on invested capital was 39.6 percent.

Fiscal 2019 second quarter general corporate-net expense was $26.7 million compared to $24.8 million in the second quarter of fiscal 2018.

On a GAAP basis, the effective tax rate in the second quarter of fiscal 2019 was 14.0 percent compared to 24.1 percent in the second quarter of fiscal 2018. The effective tax rate in the second quarter of 2018 included charges related to the Tax Act. The effective tax rate in the second quarter of 2019 included a tax benefit on the PTC adjustment. The Adjusted Effective Tax Rate for the second quarter of fiscal 2019 was 18.6 percent compared to 20.5 percent in the prior year. The lower Adjusted Effective Tax Rate in 2019 is primarily related to the Tax Act.

During the second quarter of fiscal 2019, the Company repurchased 1.4 million shares of its common stock at a cost of $236.0 million. At March 31, 2019, $579.6 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.