Rockwell Automation(ROK) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited consolidated financial statements detail the company's financial position and performance Consolidated Balance Sheet Consolidated Balance Sheet | Metric | Dec 31, 2022 (millions) | Sep 30, 2022 (millions) | | :-------------------------------- | :---------------------- | :---------------------- | | ASSETS | | | | Cash and cash equivalents | $460.0 | $490.7 | | Receivables | $1,839.4 | $1,736.7 | | Inventories | $1,270.5 | $1,054.2 | | Total current assets | $3,859.5 | $3,610.7 | | Total assets | $11,149.8 | $10,758.7 | | LIABILITIES AND SHAREOWNERS' EQUITY | | | | Short-term debt | $548.2 | $359.3 | | Current portion of long-term debt | $608.5 | $609.1 | | Accounts payable | $1,034.5 | $1,028.0 | | Total current liabilities | $3,746.7 | $3,572.2 | | Long-term debt | $2,866.9 | $2,867.8 | | Total shareowners' equity | $3,200.6 | $3,016.7 | | Total liabilities and shareowners' equity | $11,149.8 | $10,758.7 | Consolidated Statement of Operations Consolidated Statement of Operations | Metric | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :------------------------------------ | :---------------------- | :---------------------- | | Sales | $1,981.0 | $1,857.3 | | Cost of sales | $(1,167.4) | $(1,108.2) | | Gross profit | $813.6 | $749.1 | | Selling, general and administrative expenses | $(469.5) | $(447.5) | | Change in fair value of investments | $140.6 | $7.6 | | Income before income taxes | $467.9 | $282.5 | | Income tax provision | $(89.2) | $(43.6) | | Net income | $378.7 | $238.9 | | Net income attributable to Rockwell Automation, Inc. | $384.0 | $241.5 | | Basic EPS | $3.33 | $2.08 | | Diluted EPS | $3.31 | $2.05 | Consolidated Statement of Comprehensive Income Consolidated Statement of Comprehensive Income | Metric | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :---------------------------------------------------- | :---------------------- | :---------------------- | | Net income | $378.7 | $238.9 | | Other comprehensive income | $64.3 | $4.9 | | Comprehensive income | $443.0 | $243.8 | | Comprehensive income attributable to Rockwell Automation, Inc. | $448.3 | $246.4 | Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows | Metric | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :------------------------------------------ | :---------------------- | :---------------------- | | Cash provided by (used for) operating activities | $66.3 | $(12.0) | | Cash used for investing activities | $(18.3) | $(48.7) | | Cash used for financing activities | $(105.3) | $(52.0) | | Effect of exchange rate changes on cash | $18.0 | $(9.5) | | Decrease in cash, cash equivalents, and restricted cash | $(39.3) | $(122.2) | | Cash, cash equivalents, and restricted cash at end of period | $468.6 | $557.2 | Consolidated Statement of Shareowners' Equity - Cash dividends declared were $1.18 per share for the three months ended December 31, 2022, up from $1.12 per share in the prior year[19] Consolidated Statement of Shareowners' Equity | Metric | Sep 30, 2022 (millions) | Dec 31, 2022 (millions) | | :------------------------------------------------ | :---------------------- | :---------------------- | | Balance at beginning of period | $3,016.7 | $2,725.6 | | Net income (loss) | $378.7 | $384.0 | | Other comprehensive income | $64.3 | $64.3 | | Share repurchases | $(156.0) | $(156.0) | | Cash dividends declared | $(135.9) | $(135.9) | | Balance at end of period | $3,200.6 | $2,914.8 | Notes to Consolidated Financial Statements Detailed notes explain accounting policies, revenue, acquisitions, and other key financial statement components - The unaudited Consolidated Financial Statements include all necessary adjustments for fair presentation, primarily normal, recurring adjustments[22] - The company retroactively adopted a new FASB standard in October 2021 regarding contract assets and liabilities in business combinations, which did not materially impact the financial statements[27] - The company is currently assessing the impact of a new FASB standard issued in September 2022, requiring disclosures about supplier finance programs[28] Note 1. Basis of Presentation and Accounting Policies This note outlines the basis of preparation, key accounting policies, and recent accounting pronouncements - Receivables are recorded net of an allowance for doubtful accounts ($15.7 million at Dec 31, 2022) and an allowance for customer returns, rebates, and incentives ($16.3 million at Dec 31, 2022)[23] - Non-cash investing and financing activities included capital expenditures accrued within Accounts payable and Other current liabilities ($32.9 million at Dec 31, 2022) and outstanding common stock share repurchases recorded in Accounts payable ($0.8 million at Dec 31, 2022)[25] Earnings Per Share Calculation | Metric | Dec 31, 2022 (millions, except per share) | Dec 31, 2021 (millions, except per share) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income attributable to Rockwell Automation, Inc. | $384.0 | $241.5 | | Net income available to common shareowners | $382.5 | $240.8 | | Basic weighted average outstanding shares | 114.8 | 116.0 | | Diluted weighted average outstanding shares | 115.5 | 117.3 | | Basic EPS | $3.33 | $2.08 | | Diluted EPS | $3.31 | $2.05 | Note 2. Revenue Recognition This note details revenue recognition policies, breaking down revenue by segment and geographic region - Revenue is recognized as products are transferred or services are performed, with offerings including hardware, software, custom-engineered systems, technical support, asset management, and training[30][31] - As of December 31, 2022, the company expects to recognize approximately $1,260 million of revenue from unfulfilled performance obligations, with $625 million expected within the next 12 months[33] Revenue by Segment and Geographic Region (millions) | Geographic Region | Intelligent Devices (2022) | Software & Control (2022) | Lifecycle Services (2022) | Total (2022) | Intelligent Devices (2021) | Software & Control (2021) | Lifecycle Services (2021) | Total (2021) | | :---------------- | :------------------------- | :------------------------ | :------------------------ | :----------- | :------------------------- | :------------------------ | :------------------------ | :----------- | | North America | $567.4 | $384.1 | $227.4 | $1,178.9 | $558.9 | $324.1 | $217.7 | $1,100.7 | | EMEA | $171.2 | $85.8 | $115.8 | $372.8 | $157.8 | $88.4 | $108.5 | $354.7 | | Asia Pacific | $131.3 | $68.4 | $96.8 | $296.5 | $123.3 | $73.7 | $81.9 | $278.9 | | Latin America | $66.3 | $35.0 | $31.5 | $132.8 | $60.3 | $27.7 | $35.0 | $123.0 | | Total Company Sales | $936.2 | $573.3 | $471.5 | $1,981.0 | $900.3 | $513.9 | $443.1 | $1,857.3 | Note 3. Share-Based Compensation This note details share-based compensation expense and the types and fair values of shares granted - Pre-tax share-based compensation expense was $18.4 million for the three months ended December 31, 2022, up from $15.5 million in the prior year[42] Share-Based Compensation Grants | Type of Grant | Grants (2022, thousands) | Wtd. Avg. Share Fair Value (2022) | Grants (2021, thousands) | Wtd. Avg. Share Fair Value (2021) | | :-------------------------------- | :----------------------- | :-------------------------------- | :----------------------- | :-------------------------------- | | Stock options | 233 | $77.62 | 164 | $87.68 | | Performance shares | 66 | $340.77 | 37 | $481.28 | | Restricted stock and restricted stock units | 211 | $259.67 | 139 | $348.32 | | Unrestricted stock | 6 | $259.81 | 3 | $350.76 | Note 4. Inventories This note provides a breakdown of inventory components as of December 31, 2022, and September 30, 2022 Inventory Breakdown | Inventory Component | Dec 31, 2022 (millions) | Sep 30, 2022 (millions) | | :------------------ | :---------------------- | :---------------------- | | Finished goods | $385.5 | $325.0 | | Work in process | $372.7 | $317.3 | | Raw materials | $512.3 | $411.9 | | Total Inventories | $1,270.5 | $1,054.2 | Note 5. Acquisitions This note details the company's acquisition activities, including the recent acquisition of CUBIC - In October 2022, Rockwell Automation acquired CUBIC, a company specializing in modular systems for electrical panels, for a net purchase consideration of $133.8 million[44] - Goodwill from the CUBIC acquisition was assigned to the Intelligent Devices segment, while goodwill from 2022 acquisitions (AVATA and Swinton Technology) was assigned to the Lifecycle Services segment[44][47][48] CUBIC Preliminary Purchase Price Allocation | Asset/Liability | Amount (millions) | | :-------------------------- | :---------------- | | Receivables | $21.3 | | Inventories | $17.7 | | Property | $27.0 | | Goodwill | $64.5 | | Other intangible assets | $36.4 | | All other assets | $1.5 | | Total assets acquired | $168.4 | | Less: Total liabilities assumed | $(34.6) | | Net assets acquired, excluding cash | $133.8 | Note 6. Goodwill and Other Intangible Assets This note provides a breakdown of changes in goodwill by segment and details other intangible assets - The company performs an annual goodwill impairment evaluation in the second quarter and found no triggering events for interim quantitative testing in the first quarter of 2023[51] Changes in Goodwill by Segment | Segment | Sep 30, 2022 (millions) | Acquisition of business (millions) | Translation (millions) | Dec 31, 2022 (millions) | | :------------------ | :---------------------- | :------------------------- | :--------------------- | :---------------------- | | Intelligent Devices | $503.0 | $64.5 | $19.1 | $586.6 | | Software & Control | $2,398.7 | — | $22.4 | $2,421.1 | | Lifecycle Services | $622.3 | — | $10.6 | $632.9 | | Total | $3,524.0 | $64.5 | $52.1 | $3,640.6 | Other Intangible Assets (millions) | Intangible Asset | Carrying Amount (Dec 31, 2022) | Accumulated Amortization (Dec 31, 2022) | Net (Dec 31, 2022) | Carrying Amount (Sep 30, 2022) | Accumulated Amortization (Sep 30, 2022) | Net (Sep 30, 2022) | | :------------------------------- | :----------------------------- | :-------------------------------------- | :----------------- | :----------------------------- | :-------------------------------------- | :----------------- | | Software products | $98.6 | $60.2 | $38.4 | $97.6 | $57.9 | $39.7 | | Customer relationships | $598.8 | $115.9 | $482.9 | $582.7 | $107.2 | $475.5 | | Technology | $422.8 | $133.2 | $289.6 | $410.8 | $119.3 | $291.5 | | Trademarks | $84.7 | $22.0 | $62.7 | $70.4 | $19.4 | $51.0 | | Other | $7.6 | $6.8 | $0.8 | $6.4 | $5.8 | $0.6 | | Total amortized intangible assets | $1,212.5 | $338.1 | $874.4 | $1,167.9 | $309.6 | $858.3 | | Allen-Bradley trademark (not amortized) | $43.7 | — | $43.7 | $43.7 | — | $43.7 | | Total Other intangible assets | $1,256.2 | $338.1 | $918.1 | $1,211.6 | $309.6 | $902.0 | Note 7. Short-Term and Long-Term Debt This note provides details on the company's short-term and long-term debt balances and fair values - Short-term debt at December 31, 2022, included $462.0 million in commercial paper borrowings (weighted average interest rate of 4.40%) and $50.0 million from Sensia's new line of credit (interest rate of 5.35%)[54] Fair Value of Debt (millions) | Debt Type | Carrying Value (Dec 31, 2022) | Fair Value (Dec 31, 2022) | Carrying Value (Sep 30, 2022) | Fair Value (Sep 30, 2022) | | :-------------------------- | :---------------------------- | :-------------------------- | :---------------------------- | :-------------------------- | | Current portion of long-term debt | $608.5 | $592.6 | $609.1 | $589.1 | | Long-term debt | $2,866.9 | $2,503.6 | $2,867.8 | $2,485.4 | Note 8. Other Current Liabilities This note itemizes the components of other current liabilities Other Current Liabilities Breakdown | Liability Component | Dec 31, 2022 (millions) | Sep 30, 2022 (millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Unrealized losses on foreign exchange contracts | $16.1 | $31.2 | | Product warranty obligations | $15.9 | $16.5 | | Taxes other than income taxes | $44.6 | $65.6 | | Accrued interest | $38.2 | $18.1 | | Income taxes payable | $111.8 | $81.1 | | Operating lease liabilities | $87.2 | $83.3 | | Other | $94.1 | $107.2 | | Total Other current liabilities | $407.9 | $403.0 | Note 9. Investments This note details the company's investments, primarily consisting of fixed income and equity securities - Equity securities (level 1) primarily consist of PTC Inc. common stock, valued at $925.0 million at December 31, 2022[59] Investment Portfolio | Investment Type | Dec 31, 2022 (millions) | Sep 30, 2022 (millions) | | :---------------------- | :---------------------- | :---------------------- | | Fixed income securities | $12.4 | $12.6 | | Equity securities (level 1) | $925.0 | $928.8 | | Equity securities (other) | $76.4 | $76.4 | | Other | $56.2 | $50.8 | | Total investments | $1,070.0 | $1,068.6 | | Less: Short-term investments | $(12.4) | $(12.6) | | Long-term investments | $1,057.6 | $1,056.0 | Investment Gains and Losses | Metric | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Net gain on equity securities (level 1) | $141.0 | $14.4 | | Equity method loss on Other investments | $(0.4) | $(6.8) | | Change in fair value of investments | $140.6 | $7.6 | | Total net unrealized gain on equity securities | $107.1 | $14.4 | Note 10. Retirement Benefits This note outlines the components of net periodic pension and postretirement benefit cost - The service cost component is included in Cost of sales and SG&A, while other components are in Other income[64] Net Periodic Benefit (Credit) Cost (millions) | Component | Pension Benefits (2022) | Pension Benefits (2021) | Other Postretirement Benefits (2022) | Other Postretirement Benefits (2021) | | :-------------------------------- | :---------------------- | :---------------------- | :----------------------------------- | :----------------------------------- | | Service cost | $10.6 | $20.4 | $0.1 | $0.2 | | Interest cost | $39.2 | $32.4 | $0.6 | $0.3 | | Expected return on plan assets | $(51.3) | $(59.4) | — | — | | Amortization of net actuarial (gain) loss | $(1.0) | $22.3 | $0.1 | $0.2 | | Amortization of prior service credit | — | — | — | $(0.2) | | Net periodic benefit (credit) cost | $(2.5) | $15.7 | $0.8 | $0.5 | Note 11. Other Income This note outlines the components of net periodic pension and postretirement benefit (credit) cost Other Income Breakdown | Component | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :---------------------------------------- | :---------------------- | :---------------------- | | Interest income | $1.3 | $0.5 | | Royalty income | $2.5 | $2.7 | | Legacy product liability and environmental charges | $(2.8) | $(3.2) | | Non-operating pension and postretirement benefit credit | $12.4 | $4.4 | | Other | $3.9 | $(1.5) | | Total Other income | $17.3 | $2.9 | Note 12. Accumulated Other Comprehensive Loss This note details changes in Accumulated other comprehensive loss, including reclassifications into net income - For the three months ended December 31, 2022, the company reclassified $9.6 million in pre-tax net gains related to cash flow hedges from Accumulated other comprehensive loss into the Consolidated Statement of Operations[70][143] Changes in Accumulated Other Comprehensive Loss | Component | Sep 30, 2022 (millions) | Other comprehensive income (loss) before reclassifications (millions) | Reclassifications (millions) | Dec 31, 2022 (millions) | | :---------------------------------------------------- | :---------------------- | :---------------------------------------------------- | :--------------------------- | :---------------------- | | Pension and other postretirement benefit plan adjustments, net of tax | $(447.8) | — | $(0.5) | $(448.3) | | Accumulated currency translation adjustments, net of tax | $(465.0) | $85.9 | — | $(379.1) | | Net unrealized losses on cash flow hedges, net of tax | $(4.7) | $(12.0) | $(9.1) | $(25.8) | | Total accumulated other comprehensive loss, net of tax | $(917.5) | $73.9 | $(9.6) | $(853.2) | Note 13. Commitments and Contingent Liabilities This note addresses various lawsuits and claims, which are not expected to have a material effect - The company is a defendant in asbestos lawsuits but believes it has meritorious defenses and substantial insurance coverage, expecting no material impact on its financial condition[73][74] - Liabilities from divested businesses are not expected to have a material effect, and no material indemnification claims related to intellectual property were probable or reasonably possible as of December 31, 2022[75][76] Note 14. Income Taxes This note explains the company's effective tax rate and details unrecognized tax benefits - The effective tax rate was lower than the U.S. statutory rate of 21% in both periods, primarily due to lower non-U.S. tax rates and, in 2021, excess income tax benefits from share-based compensation[80] - An income tax liability of $233.7 million related to the U.S. transition tax under the Tax Cuts and Jobs Act of 2017 is recorded in Other liabilities[81] - Gross unrecognized tax benefits were $3.9 million at December 31, 2022, with a potential reduction of up to $3.4 million in the next 12 months due to resolution of tax matters and lapse of statutes of limitations[82][83] Effective Tax Rate | Metric | Dec 31, 2022 | Dec 31, 2021 | | :---------------- | :----------- | :----------- | | Effective tax rate | 19.1% | 15.4% | Note 15. Business Segment Information This note presents sales and operating results for the company's three reportable segments - Total segment operating earnings increased by 12.9% year-over-year, primarily due to higher sales and pricing increases, partially offset by higher input costs and investment spend[114] Segment Sales and Operating Earnings | Segment | Sales (2022, millions) | Sales (2021, millions) | Segment Operating Earnings (2022, millions) | Segment Operating Earnings (2021, millions) | | :------------------ | :--------------------- | :--------------------- | :------------------------------------------ | :------------------------------------------ | | Intelligent Devices | $936.2 | $900.3 | $209.4 | $213.0 | | Software & Control | $573.3 | $513.9 | $167.3 | $117.6 | | Lifecycle Services | $471.5 | $443.1 | $24.3 | $24.5 | | Total | $1,981.0 | $1,857.3 | $401.0 | $355.1 | Report of Independent Registered Public Accounting Firm - The independent registered public accounting firm, Deloitte & Touche LLP, concluded that no material modifications are needed to the interim financial information for conformity with U.S. GAAP[88] - The firm expressed an unqualified opinion on the consolidated financial statements for the year ended September 30, 2022, and confirmed the fair statement of the September 30, 2022 consolidated balance sheet[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, condition, and future outlook - The company is a global leader in industrial automation and digital transformation, aiming to enhance productivity and sustainability through its "Connected Enterprise" strategy[96] - Long-term financial goals include above-market organic sales growth, increasing recurring revenue, EPS growth exceeding sales growth, return on invested capital over 20%, and free cash flow equal to about 100% of adjusted income[97] - Acquisitions are expected to contribute a percentage point or more per year to long-term sales growth[97] Results of Operations This subsection details operational performance, segment results, and the company's financial outlook - The discussion includes non-GAAP measures such as organic sales, total segment operating earnings and margin, adjusted income, adjusted EPS, adjusted effective tax rate, and free cash flow, which management believes are useful for investors to assess operating performance[95] - Overall demand for products and services is driven by investments in manufacturing, basic materials production, customer needs for productivity and risk management, quality/safety/sustainability improvements, industrial production levels, and regional economic factors[96] - The company's growth strategy focuses on exceeding automation market growth, expanding core platform market share, driving double-digit growth in information solutions, connected services, and annual recurring revenue (ARR), and strategic acquisitions[98] Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties - Forward-looking statements are identified by words like "believe," "estimate," "project," "plan," "expect," and "anticipate"[93] - Key risks include component availability and price, macroeconomic factors (inflation, currency rates), supply chain disruptions (pandemics, war), ability to attract talent, IT system security, integration of acquisitions, regulatory policies, and competitive pressures[94] Non-GAAP Measures This section defines non-GAAP financial measures used to provide useful information and compare performance - Non-GAAP measures like organic sales, total segment operating earnings and margin, adjusted income, adjusted EPS, adjusted effective tax rate, and free cash flow are used to provide useful information to investors and compare operating performance[95] Overview This section describes Rockwell Automation as a global leader in industrial automation and digital transformation - Rockwell Automation aims to achieve above-market organic sales growth, increase recurring revenue, and drive EPS growth above sales growth, with acquisitions contributing to long-term sales growth[97] - The company helps customers reduce time to market, lower total cost of ownership, improve asset utilization, and manage enterprise risks[98] U.S. Economic Trends This section analyzes U.S. economic indicators, noting a softening in both the IP Index and PMI in Q1 2023 - U.S. sales account for over half of total sales, with key indicators being the IP Index and Manufacturing PMI[99] - The IP Index declined in Q1 2023 versus Q4 2022, and Manufacturing PMI softened, with December 2022 being the second consecutive month below 50[99] - The Producer Price Index (PPI) year-over-year increase declined over the past three quarters, though still higher than historic measures (6.2% increase at Dec 31, 2022)[100] U.S. Economic Indicators | Quarter Ended | IP Index | PMI | | :------------ | :------- | :-- | | Dec 2022 | 101.0 | 48.4 | | Sep 2022 | 101.7 | 50.9 | | Jun 2022 | 101.8 | 53.0 | | Mar 2022 | 101.1 | 57.1 | | Dec 2021 | 100.1 | 58.8 | | Sep 2021 | 98.8 | 60.5 | Non-U.S. Economic Trends This section discusses economic trends outside the U.S., noting lower industrial output and softening PMI readings - Non-U.S. sales account for less than half of total sales, with international demand driven by regional industrial economy strength, infrastructure investments, and expanding consumer markets[101] - Industrial Output outside the U.S. was lower in Q1 2023 compared to Q4 2022, with many countries' PMI readings ending the quarter below 50[102] - Persistent supply chain disruptions, labor shortages, global inflation, and elevated geopolitical instability continue to impact non-U.S. markets[102] Supply Chain This section addresses ongoing global supply chain challenges and the company's mitigation actions - Supply chain stress has led to difficulties in procuring components, increased costs for commodities, and delays in delivering products and services[104][108] - The company is managing its supply chain by extending order visibility, securing longer-term supply agreements, re-engineering products for resiliency, investing in capacity, and qualifying additional suppliers[104][108] COVID-19 Pandemic The company continues to monitor the impacts of the COVID-19 pandemic, focusing on employee health and customer needs - The company continues to monitor the impacts of the COVID-19 pandemic, acknowledging ongoing uncertainty due to its evolving nature and government responses[105] - Priorities include employee health and safety, customer needs, and protecting critical investments for long-term differentiation[105] Outlook This section provides the company's sales growth and earnings per share guidance for fiscal year 2023 - The updated guidance reflects strong first-quarter performance and a record backlog, assuming a gradual improvement in the supply chain environment[106] Fiscal Year 2023 Guidance | Metric | Guidance | | :-------------------- | :---------------- | | Reported sales growth | 10.0% - 14.0% | | Organic sales growth | 11.0% - 15.0% | | Inorganic sales growth | ~1.0% | | Currency translation | ~(2.0)% | | Diluted EPS | $10.99 - $11.79 | | Adjusted EPS | $10.70 - $11.50 | Summary of Results of Operations This section provides a consolidated overview of the company's sales and operating results - Total segment operating earnings and margin are non-GAAP measures used to monitor and evaluate segment profitability, excluding items not directly related to operating performance[109] Q1 2023 Financial Highlights | Metric | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | YoY Change | | :------------------------------------ | :---------------------- | :---------------------- | :--------- | | Total sales | $1,981.0 | $1,857.3 | +6.7% | | Total segment operating earnings | $401.0 | $355.1 | +12.9% | | Income before income taxes | $467.9 | $282.5 | +65.6% | | Net income attributable to Rockwell Automation | $384.0 | $241.5 | +58.9% | | Diluted EPS | $3.31 | $2.05 | +61.5% | | Adjusted EPS | $2.46 | $2.14 | +15.0% | | Pre-tax margin | 23.6% | 15.2% | +8.4 pp | | Total segment operating margin | 20.2% | 19.1% | +1.1 pp | Three Months Ended December 31, 2022, Compared to Three Months Ended December 31, 2021 This section provides a detailed comparison of financial performance for Q1 2023 versus Q1 2022 - Sales increased 6.7% year over year, with organic sales up 9.9%, while currency translation decreased sales by 4.0 percentage points; acquisitions added 0.8 percentage points[110] - Pricing increased total company sales by approximately 7 percentage points, primarily in the Intelligent Devices and Software & Control segments[110] - Income before income taxes increased significantly to $467.9 million (from $282.5 million), mainly due to fair value adjustments from the PTC investment and higher sales, partially offset by higher input costs[114] - Diluted EPS increased to $3.31 (from $2.05), and adjusted EPS rose 15.0% to $2.46 (from $2.14), driven by higher sales and PTC adjustments, despite increased input costs[116] Sales This sub-section details overall sales performance, including growth by geographic region - Sales results by region and segment were primarily influenced by component availability rather than underlying demand[111] Sales by Geographic Region | Geographic Region | Sales (2022, millions) | Change vs. 2021 | Change in Organic Sales vs. 2021 | | :---------------- | :--------------------- | :-------------- | :------------------------------- | | North America | $1,178.9 | 7.1% | 7.7% | | Europe, Middle East and Africa | $372.8 | 5.1% | 13.3% | | Asia Pacific | $296.5 | 6.3% | 16.0% | | Latin America | $132.8 | 8.0% | 6.3% | | Total Company Sales | $1,981.0 | 6.7% | 9.9% | Corporate and Other This sub-section reports corporate and other expenses for Q1 2023 compared to the prior year - Corporate and other expenses decreased slightly to $27.3 million in Q1 2023 from $29.4 million in Q1 2022[113] Income before Income Taxes This sub-section highlights the significant increase in income before income taxes - Income before income taxes increased to $467.9 million in Q1 2023 from $282.5 million in Q1 2022, a 65.6% increase[114] - The increase was primarily driven by fair value adjustments from the PTC investment and higher sales, partially offset by higher input costs[114] Income Taxes This sub-section discusses the effective and adjusted effective tax rates for the current and prior periods - The increase in both effective and adjusted effective tax rates was mainly due to reduced excess income tax benefits from share-based compensation[115] Tax Rate Comparison | Metric | Dec 31, 2022 | Dec 31, 2021 | | :------------------------ | :----------- | :----------- | | Effective tax rate | 19.1% | 15.4% | | Adjusted effective tax rate | 17.1% | 15.3% | Diluted EPS and Adjusted EPS This sub-section reports the diluted and adjusted EPS for the current and prior periods - Increases in Net income attributable to Rockwell Automation and diluted EPS were primarily due to PTC adjustments and higher sales, partially offset by higher input costs[116] EPS Comparison | Metric | Dec 31, 2022 | Dec 31, 2021 | YoY Change | | :----------- | :----------- | :----------- | :--------- | | Diluted EPS | $3.31 | $2.05 | +61.5% | | Adjusted EPS | $2.46 | $2.14 | +15.0% | Intelligent Devices This sub-section details the performance of the Intelligent Devices segment - Intelligent Devices sales increased 4.0% year over year, with organic sales up 6.6% and the CUBIC acquisition adding 1.5 percentage points, while currency translation decreased sales by 4.1 percentage points[117] - Segment operating margin decreased to 22.4% from 23.7%, primarily due to higher investment spend and unfavorable currency impact, partially offset by pricing increases[118] Software & Control This sub-section reports the performance of the Software & Control segment - Software & Control sales increased 11.6% year over year, with organic sales up 15.5%, while currency translation decreased sales by 3.9 percentage points[119] - Segment operating margin increased to 29.2% from 22.9%, driven by higher sales, pricing increases, and the favorable year-over-year impact from the Plex acquisition, partially offset by higher input costs[120] Lifecycle Services This sub-section details the performance of the Lifecycle Services segment - Lifecycle Services sales increased 6.4% year over year, with organic sales up 10.2% and acquisitions adding 0.4 percentage points, while currency translation decreased sales by 4.2 percentage points[121] - Segment operating margin decreased slightly to 5.2% from 5.5%[122] Supplemental Segment Information This section provides a breakdown of certain costs not allocated to operating segments for internal measurement Purchase Accounting Depreciation and Amortization by Segment | Segment | 2022 (millions) | 2021 (millions) | | :------------------ | :-------------- | :-------------- | | Intelligent Devices | $1.0 | $0.7 | | Software & Control | $16.9 | $17.3 | | Lifecycle Services | $7.8 | $7.9 | Non-operating Pension and Postretirement Benefit Credit by Segment | Segment | 2022 (millions) | 2021 (millions) | | :------------------ | :-------------- | :-------------- | | Intelligent Devices | $(3.9) | $(2.1) | | Software & Control | $(3.9) | $(2.1) | | Lifecycle Services | $(5.3) | $(2.8) | Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation This section provides reconciliations of GAAP measures to non-GAAP adjusted measures - Adjusted measures exclude non-operating pension and postretirement benefit credit, purchase accounting depreciation and amortization, change in fair value of investments, and net loss attributable to noncontrolling interests, along with their tax effects[125] - Adjusted EPS is used as a financial measure for annual incentive compensation[126] GAAP to Non-GAAP Reconciliation Summary (millions, except per share data) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :---------------------------------------------------- | :----------- | :----------- | | Net income attributable to Rockwell Automation | $384.0 | $241.5 | | Adjusted income | $285.3 | $251.3 | | Diluted EPS | $3.31 | $2.05 | | Adjusted EPS | $2.46 | $2.14 | | Effective tax rate | 19.1% | 15.4% | | Adjusted effective tax rate | 17.1% | 15.3% | Financial Condition This subsection analyzes the company's financial health, focusing on cash flows, debt, and liquidity - The company expects future uses of cash to include working capital, capital expenditures, retirement plan contributions, acquisitions, dividends, share repurchases, and debt repayments, funded by existing cash, operating activities, commercial paper, or new debt/securities[134] - The majority of cash and cash equivalents are held by non-U.S. subsidiaries, with earnings of a limited number of these subsidiaries indefinitely reinvested[135] Cash Flow Summary This sub-section summarizes cash flows and presents free cash flow, a non-GAAP measure - The year-over-year increases in operating cash flow and free cash flow were primarily due to higher pre-tax income and lower income tax payments, partially offset by increases in working capital[130] - The company generated $144.8 million in gross inflow from sales of PTC shares in the first three months of fiscal 2023[131] Cash Flow Activities | Activity | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :------------------------------------------ | :---------------------- | :---------------------- | | Cash provided by (used for) operating activities | $66.3 | $(12.0) | | Cash used for investing activities | $(18.3) | $(48.7) | | Cash used for financing activities | $(105.3) | $(52.0) | | Effect of exchange rate changes on cash | $18.0 | $(9.5) | | Decrease in cash, cash equivalents, and restricted cash | $(39.3) | $(122.2) | Free Cash Flow Reconciliation | Metric | Dec 31, 2022 (millions) | Dec 31, 2021 (millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Cash provided by (used for) operating activities | $66.3 | $(12.0) | | Capital expenditures | $(24.2) | $(37.1) | | Free cash flow | $42.1 | $(49.1) | Share Repurchases This sub-section details the company's share repurchase activities - The company repurchased approximately 0.6 million shares of common stock for $156.0 million in the first three months of fiscal 2023[133] - As of December 31, 2022, approximately $1,095.3 million remained authorized for share repurchases under existing board authorizations[133] Debt and Credit Facilities This sub-section provides information on the company's debt and credit facilities - Short-term debt at December 31, 2022, included $462.0 million in commercial paper borrowings (4.40% weighted average interest rate) and $50.0 million from Sensia's $75.0 million line of credit (5.35% interest rate)[132] - In June 2022, the company replaced its $1.25 billion revolving credit facility with a new five-year $1.5 billion unsecured revolving credit facility, which uses SOFR as the primary basis for interest payments[136][137] Credit Ratings | Credit Rating Agency | Short-Term Rating | Long-Term Rating | Outlook | | :------------------- | :---------------- | :--------------- | :------ | | Standard & Poor's | A-1 | A | Negative | | Moody's | P-2 | A3 | Stable | | Fitch Ratings | F1 | A | Stable | Foreign Currency Risk Management This sub-section explains how the company uses foreign currency forward exchange contracts to manage risks - The company uses foreign currency forward exchange contracts to hedge exposure to foreign currency exchange rate variability in expected future cash flows and net investments in non-U.S. subsidiaries[142] - During the three months ended December 31, 2022, $12.7 million in pre-tax net gains related to cash flow hedges were reclassified from Accumulated other comprehensive loss into the Consolidated Statement of Operations[143] - Approximately $16.0 million of pre-tax net unrealized gains on cash flow hedges as of December 31, 2022, are expected to be reclassified into earnings within the next 12 months[143] Supplemental Sales Information This section defines "organic sales" and provides reconciliations of reported sales to organic sales - Organic sales, a non-GAAP measure, excludes the effects of acquisitions and changes in currency exchange rates to reflect regional and operating segment performance[146] Reconciliation of Reported Sales to Organic Sales by Geographic Region This sub-section provides a table reconciling reported sales to organic sales for each geographic region Geographic Region Sales Reconciliation | Geographic Region | Reported Sales (millions) | Less: Effect of Acquisitions (millions) | Effect of Changes in Currency (millions) | Organic Sales (millions) | | :---------------- | :------------------------ | :-------------------------------------- | :--------------------------------------- | :----------------------- | | North America | $1,178.9 | $1.2 | $(8.1) | $1,185.8 | | Europe, Middle East and Africa | $372.8 | $11.7 | $(40.9) | $402.0 | | Asia Pacific | $296.5 | $2.7 | $(29.7) | $323.5 | | Latin America | $132.8 | — | $2.1 | $130.7 | | Total Company Sales | $1,981.0 | $15.6 | $(76.6) | $2,042.0 | Reconciliation of Reported Sales to Organic Sales by Operating Segment This sub-section provides a table reconciling reported sales to organic sales for each operating segment Operating Segment Sales Reconciliation | Operating Segment | Reported Sales (millions) | Less: Effect of Acquisitions (millions) | Effect of Changes in Currency (millions) | Organic Sales (millions) | | :------------------ | :------------------------ | :-------------------------------------- | :--------------------------------------- | :----------------------- | | Intelligent Devices | $936.2 | $13.7 | $(37.6) | $960.1 | | Software & Control | $573.3 | — | $(20.2) | $593.5 | | Lifecycle Services | $471.5 | $1.9 | $(18.8) | $488.4 | | Total Company Sales | $1,981.0 | $15.6 | $(76.6) | $2,042.0 | Critical Accounting Estimates No material changes to critical accounting estimates are reported as of December 31, 2022 - No material changes to critical accounting estimates were reported as of December 31, 2022, referring to the Annual Report on Form 10-K for detailed information[148] Environmental Matters No material changes to information regarding environmental matters are reported as of December 31, 2022 - No material changes to information regarding environmental matters were reported as of December 31, 2022, referring to the Annual Report on Form 10-K[149] Recent Accounting Pronouncements This section directs readers to Note 1 in the Consolidated Financial Statements for details - Information on recent accounting pronouncements is provided in Note 1 of the Consolidated Financial Statements[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures are reported as of December 31, 2022 - No material changes to quantitative and qualitative disclosures about market risk were reported as of December 31, 2022, referring to the Annual Report on Form 10-K[151] Item 4. Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2022[152] - No material changes in internal control over financial reporting occurred during the quarter[153] PART II. OTHER INFORMATION Item 1. Legal Proceedings No material changes to legal proceedings are reported since the last Annual Report on Form 10-K - No material changes to information regarding legal proceedings were reported as of December 31, 2022, referring to the Annual Report on Form 10-K[155] Item 1A. Risk Factors No material changes to risk factors are reported since the last Annual Report on Form 10-K - No material changes to information regarding risk factors were reported as of December 31, 2022, referring to the Annual Report on Form 10-K[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities during the first quarter of fiscal 2023 - The company repurchased 635,087 shares of common stock at an average price of $245.62 per share during the three months ended December 31, 2022[157] - As of December 31, 2022, approximately $1,095.3 million remained authorized for share repurchases under existing board programs[157] Share Repurchases Share Repurchase Activity | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Approx. Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------------------- | | October 1 - 31, 2022 | 359,580 | $233.60 | $1,167,267,571 | | November 1 - 30, 2022 | 243,087 | $261.61 | $1,103,672,484 | | December 1 - 31, 2022 | 32,420 | $259.00 | $1,095,275,574 | | Total | 635,087 | $245.62 | | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and data files - Exhibits include certifications from the CEO (31.1, 32.1) and CFO (31.2, 32.2) as required by the Securities Exchange Act and Sarbanes-Oxley Act, as well as the independent auditor's letter (15) and Interactive Data Files (101, 104)[159] Signatures This section contains the required signatures confirming the submission of the Form 10-Q - The report was signed by Nicholas C. Gangestad, Senior Vice President and Chief Financial Officer, and Terry L. Riesterer, Vice President and Controller, on January 26, 2023[162]