Rockwell Automation(ROK) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section provides Rockwell Automation's unaudited consolidated financial statements and related notes for recent periods Consolidated Balance Sheet This statement details the company's assets, liabilities, and equity at specific points in time | ASSETS (in millions) | June 30, 2023 | September 30, 2022 | | :------------------- | :------------ | :----------------- | | Cash and cash equivalents | $443.5 | $490.7 | | Receivables | $2,245.0 | $1,736.7 | | Inventories | $1,435.2 | $1,054.2 | | Total current assets | $4,401.1 | $3,610.7 | | Goodwill | $3,700.9 | $3,524.0 | | Total Assets | $11,743.3 | $10,758.7 | | LIABILITIES AND SHAREOWNERS' EQUITY (in millions) | June 30, 2023 | September 30, 2022 | | :------------------------------------------------ | :------------ | :----------------- | | Short-term debt | $278.5 | $359.3 | | Accounts payable | $1,009.1 | $1,028.0 | | Contract liabilities | $621.2 | $507.0 | | Total current liabilities | $3,922.1 | $3,572.2 | | Long-term debt | $2,866.9 | $2,867.8 | | Total shareowners' equity | $3,622.2 | $3,016.7 | | Total Liabilities and Shareowners' Equity | $11,743.3 | $10,758.7 | Consolidated Statement of Operations This statement reports the company's revenues, expenses, and net income over specific periods | (in millions, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales | $2,238.7 | $1,968.7 | $6,495.1 | $5,634.1 | | Gross profit | $915.4 | $802.4 | $2,661.5 | $2,215.6 | | Income before income taxes | $471.8 | $344.2 | $1,291.1 | $667.8 | | Net income attributable to Rockwell Automation, Inc. | $400.2 | $297.9 | $1,084.5 | $593.3 | | Diluted EPS | $3.45 | $2.55 | $9.34 | $5.06 | Consolidated Statement of Comprehensive Income This statement presents net income and other comprehensive income components for the period | (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $398.7 | $294.8 | $1,072.3 | $583.1 | | Other comprehensive income (loss) | $71.1 | $(124.6) | $192.1 | $59.7 | | Comprehensive income attributable to Rockwell Automation, Inc. | $470.8 | $173.5 | $1,276.5 | $652.9 | Consolidated Statement of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities | (in millions) | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------ | :------------------------------ | :------------------------------ | | Net income | $1,072.3 | $583.1 | | Cash provided by operating activities | $535.1 | $423.7 | | Cash provided by (used for) investing activities | $88.6 | $(99.2) | | Cash used for financing activities | $(709.2) | $(478.5) | | Decrease in cash, cash equivalents, and restricted cash | $(55.8) | $(179.3) | | Cash, cash equivalents, and restricted cash at end of period | $452.1 | $500.1 | Consolidated Statement of Shareowners' Equity This statement details changes in equity components, including net income, dividends, and share repurchases | (in millions) | Balance at March 31, 2023 | Net income (loss) | Other comprehensive income | Common stock issued | Share repurchases | Cash dividends declared | Balance at June 30, 2023 | | :------------ | :------------------------ | :---------------- | :------------------------- | :------------------ | :---------------- | :---------------------- | :----------------------- | | Total shareowners' equity | $3,435.5 | $398.7 | $71.1 | $51.4 | $(62.3) | $(272.2) | $3,622.2 | | (in millions) | Balance at September 30, 2022 | Net income (loss) | Other comprehensive income | Common stock issued | Share repurchases | Cash dividends declared | Balance at June 30, 2023 | | :------------ | :---------------------------- | :---------------- | :------------------------- | :------------------ | :---------------- | :---------------------- | :----------------------- | | Total shareowners' equity | $3,016.7 | $1,072.3 | $192.1 | $142.0 | $(256.8) | $(544.1) | $3,622.2 | Notes to Consolidated Financial Statements These notes provide detailed explanations of the accounting policies and specific financial statement line items Note 1. Basis of Presentation and Accounting Policies This note details the basis of presentation, key accounting policies, and the adoption of new FASB standards - The allowance for doubtful accounts increased to $17.4 million at June 30, 2023, from $13.1 million at September 30, 2022[28] | Earnings Per Share (in millions, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income available to common shareowners | $398.5 | $296.9 | $1,079.9 | $591.4 | | Basic EPS | $3.47 | $2.56 | $9.41 | $5.10 | | Diluted EPS | $3.45 | $2.55 | $9.34 | $5.06 | - The company retroactively adopted a new FASB standard (ASC 606) for contract assets and liabilities as of October 1, 2021, with no material impact on financial statements. A new standard on supplier finance programs will be adopted in Q1 2024, expanding disclosures[32][33][34] Note 2. Revenue Recognition This note explains revenue recognition policies for products and services, detailing unfulfilled performance obligations - As of June 30, 2023, Rockwell Automation expects to recognize approximately $1,126 million of revenue from unfulfilled performance obligations, with $716 million anticipated within the next 12 months[38] | Revenue Disaggregation by Geographic Region (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | North America | $1,260.9 | $1,239.9 | $3,750.4 | $3,412.2 | | Europe, Middle East and Africa | $494.4 | $352.6 | $1,353.7 | $1,056.2 | | Asia Pacific | $343.5 | $246.8 | $974.2 | $791.9 | | Latin America | $139.9 | $129.4 | $416.8 | $373.8 | | Total Company Sales | $2,238.7 | $1,968.7 | $6,495.1 | $5,634.1 | | Contract Liabilities (in millions) | June 30, 2023 | June 30, 2022 | | :----------------- | :------------ | :------------ | | Balance as of beginning of year | $541.3 | $462.5 | | Balance as of end of period | $672.5 | $549.5 | | Revenue recognized from beginning balance (9 months) | $362.7 | $296.8 | Note 3. Share-Based Compensation This note details the significant increase in pre-tax share-based compensation expense and grants year-over-year | Share-Based Compensation Expense (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Pre-tax share-based compensation expense | $23.4 | $17.6 | $65.0 | $48.8 | | Share-Based Compensation Grants (in thousands) | Nine Months Ended June 30, 2023 (Grants) | Nine Months Ended June 30, 2022 (Grants) | | :--------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Stock options | 233 | 164 | | Performance shares | 66 | 37 | | Restricted stock and restricted stock units | 236 | 214 | Note 4. Inventories This note reports a substantial increase in total inventories across all categories from September 2022 to June 2023 | Inventories (in millions) | June 30, 2023 | September 30, 2022 | | :------------------------ | :------------ | :----------------- | | Finished goods | $507.5 | $325.0 | | Work in process | $373.8 | $317.3 | | Raw materials | $553.9 | $411.9 | | Total Inventories | $1,435.2 | $1,054.2 | Note 5. Acquisitions This note details the fiscal 2023 acquisitions of CUBIC and Knowledge Lens, and their sales contributions - In October 2022, Rockwell Automation acquired CUBIC for $133.8 million (net of cash acquired), assigning $66.3 million to goodwill in the Intelligent Devices segment[49] - In February 2023, Rockwell Automation acquired Knowledge Lens for $52.0 million (net of cash acquired), assigning $35.2 million to goodwill in the Lifecycle Services segment[51] - Total sales from 2023 acquisitions were $23.8 million for the three months and $59.4 million for the nine months ended June 30, 2023[56] Note 6. Goodwill and Other Intangible Assets This note reports an increase in goodwill due to acquisitions and confirms no impairment after Q2 2023 evaluation | Goodwill (in millions) | Intelligent Devices | Software & Control | Lifecycle Services | Total | | :--------------------- | :------------------ | :----------------- | :----------------- | :---- | | Balance as of September 30, 2022 | $503.0 | $2,398.7 | $622.3 | $3,524.0 | | Acquisition of businesses | $66.3 | — | $35.2 | $101.5 | | Translation and other | $26.9 | $31.6 | $16.9 | $75.4 | | Balance as of June 30, 2023 | $596.2 | $2,430.3 | $674.4 | $3,700.9 | - The company performed its annual goodwill impairment evaluation in Q2 2023, concluding no impairment for Intelligent Devices, Software & Control, and Lifecycle Services (excluding Sensia) through qualitative tests, and for Sensia through a quantitative test where fair value exceeded carrying value by approximately 10%[59][165] | Other Intangible Assets (in millions) | June 30, 2023 (Net) | September 30, 2022 (Net) | | :------------------------------------ | :------------------ | :----------------------- | | Software products | $35.4 | $39.7 | | Customer relationships | $477.5 | $475.5 | | Technology | $265.8 | $291.5 | | Trademarks | $60.1 | $51.0 | | Allen-Bradley trademark (not amortized) | $43.7 | $43.7 | | Total Other Intangible Assets | $883.1 | $902.0 | Note 7. Short-Term and Long-Term Debt This note details a decrease in short-term debt and stable long-term debt, with fair values below carrying values - Short-term debt at June 30, 2023, included $183.0 million in commercial paper (5.10% interest, 9-day maturity) and $65.0 million borrowed against Sensia's $75.0 million line of credit (6.14% interest)[62] | Long-term Debt (in millions) | June 30, 2023 (Carrying Value) | June 30, 2023 (Fair Value) | September 30, 2022 (Carrying Value) | September 30, 2022 (Fair Value) | | :--------------------------- | :----------------------------- | :------------------------- | :---------------------------------- | :-------------------------------- | | Current portion of long-term debt | $608.3 | $605.0 | $609.1 | $589.1 | | Long-term debt | $2,866.9 | $2,585.8 | $2,867.8 | $2,485.4 | Note 8. Other Current Liabilities This note reports an increase in other current liabilities, primarily due to higher dividends and income taxes payable | Other Current Liabilities (in millions) | June 30, 2023 | September 30, 2022 | | :------------------------------------ | :------------ | :----------------- | | Unrealized losses on foreign exchange contracts | $22.0 | $31.2 | | Dividends payable | $137.0 | $0.6 | | Income taxes payable | $130.0 | $81.1 | | Total Other current liabilities | $577.1 | $403.0 | Note 9. Investments This note details a decrease in total investments, primarily PTC Inc. stock, with significant net gains in 2023 | Investments (in millions) | June 30, 2023 | September 30, 2022 | | :------------------------ | :------------ | :----------------- | | Equity securities (level 1) | $863.9 | $928.8 | | Equity securities (other) | $81.4 | $76.4 | | Total investments | $1,002.6 | $1,068.6 | - Equity securities (level 1) primarily consist of PTC Inc. common stock, with 6,070,905 shares held at June 30, 2023, down from 8,879,717 shares at September 30, 2022[67] | Change in Fair Value of Investments (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net gain (loss) on equity securities (level 1) | $86.4 | $(8.4) | $290.4 | $(136.0) | | Change in fair value of investments | $85.7 | $(5.2) | $289.3 | $(138.3) | Note 10. Retirement Benefits This note reports a significant increase in net periodic pension benefit cost due to U.S. plan remeasurements | Net Periodic Pension Benefit Cost (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Service cost | $9.4 | $15.4 | $30.6 | $56.1 | | Settlement and curtailment charges (benefit) | $2.2 | $(0.7) | $120.1 | $24.2 | | Net periodic pension benefit cost | $3.2 | $3.2 | $116.0 | $60.3 | - The U.S. pension plan assets and liabilities were remeasured in March and June 2023, resulting in settlement expense of $2.2 million and $120.1 million for the three and nine months ended June 30, 2023, respectively. The discount rate used for remeasurement was 5.45% at June 30, 2023[73] Note 11. Other Income (Expense) This note details a shift to net other expense, driven by higher non-operating pension and product liability costs | Other Income (Expense) (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Non-operating pension and postretirement credit (cost) | $5.5 | $11.9 | $(87.5) | $(5.0) | | Legacy product liability and environmental (charges) benefit | $(4.8) | $0.8 | $(10.7) | $(6.6) | | Other income (expense) | $6.5 | $19.8 | $(83.3) | $(1.0) | Note 12. Accumulated Other Comprehensive Loss This note reports an improvement in accumulated other comprehensive loss due to currency and pension adjustments | Accumulated Other Comprehensive Loss (in millions) | Balance as of September 30, 2022 | Other comprehensive income (loss) | Amounts reclassified | Balance as of June 30, 2023 | | :------------------------------------------------- | :------------------------------- | :-------------------------------- | :------------------- | :-------------------------- | | Pension and other postretirement benefit plan adjustments, net of tax | $(447.8) | $(18.8) | $90.1 | $(376.5) | | Accumulated currency translation adjustments, net of tax | $(465.0) | $147.2 | — | $(317.8) | | Net unrealized losses on cash flow hedges, net of tax | $(4.7) | $(6.3) | $(20.2) | $(31.2) | | Total accumulated other comprehensive loss, net of tax | $(917.5) | $122.1 | $69.9 | $(725.5) | - Reclassifications out of Accumulated other comprehensive loss into the Consolidated Statement of Operations for the nine months ended June 30, 2023, included $90.1 million from pension and other postretirement benefit plan adjustments and $(20.2) million from net unrealized gains/losses on cash flow hedges[78] Note 13. Commitments and Contingent Liabilities This note discusses various lawsuits and claims, with management expecting no material impact on financial condition - Rockwell Automation is a defendant in asbestos lawsuits but believes it has meritorious defenses and substantial insurance coverage, expecting no material effect on its financial condition[81][82] - The company provides limited intellectual property indemnity and was not aware of any material indemnification claims as of June 30, 2023[84] Note 14. Income Taxes This note reports an increased effective tax rate due to lower discrete benefits and PTC adjustments, and a U.S. transition tax liability | Effective Tax Rate | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Effective tax rate | 15.5% | 14.4% | 16.9% | 12.7% | - The effective tax rate was lower than the U.S. statutory rate of 21% due to non-U.S. tax rates and other discrete benefits[88] - An income tax liability of $175.3 million related to the U.S. transition tax under the Tax Cuts and Jobs Act of 2017 is recorded in Other liabilities[89] Note 15. Business Segment Information This note details sales and operating earnings performance across all three business segments for the period | Sales by Segment (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Intelligent Devices | $968.1 | $878.3 | $2,927.5 | $2,587.2 | | Software & Control | $750.6 | $606.9 | $2,065.0 | $1,655.7 | | Lifecycle Services | $520.0 | $483.5 | $1,502.6 | $1,391.2 | | Total Sales | $2,238.7 | $1,968.7 | $6,495.1 | $5,634.1 | | Segment Operating Earnings (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Intelligent Devices | $163.1 | $173.2 | $579.4 | $504.4 | | Software & Control | $261.5 | $190.6 | $678.1 | $439.7 | | Lifecycle Services | $48.4 | $45.4 | $100.6 | $103.6 | | Total Segment Operating Earnings | $473.0 | $409.2 | $1,358.1 | $1,047.7 | Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP reviewed interim financial information, finding no material modifications needed for U.S. GAAP conformity - The independent registered public accounting firm, Deloitte & Touche LLP, concluded that no material modifications are needed for the interim financial information to conform with U.S. GAAP[97] - The firm expressed an unqualified opinion on the consolidated financial statements as of September 30, 2022, and confirmed the fair statement of the accompanying consolidated balance sheet as of that date[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and outlook, including sales trends, economic factors, and strategic initiatives Forward-Looking Statements This section highlights forward-looking statements, subject to various risks including supply chain, macroeconomic, and cybersecurity factors - Forward-looking statements are subject to risks including component availability, macroeconomic factors (inflation, currency rates), supply chain disruptions, ability to attract talent, IT system security, integration of acquisitions, regulatory policies, technology development, competitive pressures, and litigation[102] Non-GAAP Measures This section defines and explains the use of non-GAAP financial measures for enhanced insight into operating performance - Non-GAAP measures used include organic sales, total segment operating earnings and margin, adjusted income, adjusted EPS, adjusted effective tax rate, and free cash flow, with reconciliations provided for investor utility[104] Overview Rockwell Automation's strategy focuses on above-market organic sales growth, increasing recurring revenue, and strategic acquisitions - Rockwell Automation's long-term strategy aims for above-market organic sales growth, increasing recurring revenue, EPS growth above sales growth, return on invested capital over 20%, and free cash flow equal to about 100% of adjusted income, with acquisitions adding 1% or more to sales growth annually[106] - Key drivers for demand include investments in manufacturing, basic materials production, customer needs for faster time to market, operational productivity, asset management, quality, safety, and sustainability, as well as global industrial production levels and regional economic factors[105] U.S. Economic Trends U.S. economic indicators show mixed trends, with a soft Manufacturing PMI and decelerating but elevated PPI increases | U.S. Economic Indicators | June 2023 | March 2023 | December 2022 | | :----------------------- | :-------- | :--------- | :------------ | | IP Index | 99.9 | 99.5 | 99.6 | | PMI | 46.0 | 46.3 | 48.4 | - The Manufacturing PMI was below 50 for the eighth consecutive month in June 2023, indicating contraction in the U.S. manufacturing economy[108][109] - Producer Price Index (PPI) year-over-year increases decelerated to 0.1% in June 2023, from 2.7% in March 2023 and 8.5% in September 2022, though prices remain elevated[109] Non-U.S. Economic Trends Non-U.S. industrial output was mixed, with many PMI readings indicating economic contraction - Industrial output outside the U.S. was mixed in Q3 2023, and PMI readings were mostly lower, with many countries ending the quarter below 50, indicating contraction[111] Supply Chain Supply chain challenges persist, prompting the company to implement mitigation strategies like long-term agreements and capacity investments - Supply chain challenges persist, potentially leading to difficulties in procuring components, increased costs, and delivery delays, despite gradual improvements[112] - Actions to mitigate supply chain issues include extending order visibility, securing long-term supply agreements, re-engineering products for component resiliency, capacity investments, and diversifying the supplier base[116] - A change in the U.S. distribution center in Q3 2023 impacted shipment timing but is expected to provide future flexibility and scale[113] Outlook The company provides updated fiscal year 2023 guidance, projecting sales growth and diluted EPS ranges | Fiscal 2023 Guidance (as of August 1, 2023) | Range | | :-------------------------- | :------------ | | Reported sales growth | 14.0% - 16.0% | | Organic sales growth | 14.0% - 16.0% | | Diluted EPS | $12.46 - $12.86 | | Adjusted EPS | $11.70 - $12.10 | Summary of Results of Operations The company reported strong sales, operating earnings, net income, and diluted EPS growth for the periods ended June 30, 2023 | Financial Highlights (in millions, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total sales | $2,238.7 | $1,968.7 | $6,495.1 | $5,634.1 | | Total segment operating earnings | $473.0 | $409.2 | $1,358.1 | $1,047.7 | | Net income attributable to Rockwell Automation | $400.2 | $297.9 | $1,084.5 | $593.3 | | Diluted EPS | $3.45 | $2.55 | $9.34 | $5.06 | | Total segment operating margin | 21.1% | 20.8% | 20.9% | 18.6% | Three and Nine Months Ended June 30, 2023, Compared to Three and Nine Months Ended June 30, 2022 This section provides a detailed year-over-year performance comparison, including sales, operating expenses, income, and EPS by segment Sales Total sales and organic sales grew significantly, with pricing contributing positively and currency having a negative impact - Total sales increased 13.7% (3 months) and 15.3% (9 months) year-over-year. Organic sales increased 13.2% (3 months) and 16.6% (9 months)[118] - Currency translation decreased sales by 0.7 percentage points (3 months) and 2.4 percentage points (9 months). Acquisitions increased sales by 1.2 percentage points (3 months) and 1.1 percentage points (9 months)[118] | Change in Organic Sales vs. Prior Year | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2023 | | :------------------------------------- | :------------------------------- | :------------------------------ | | North America | 1.7% | 10.3% | | Europe, Middle East and Africa | 33.9% | 29.6% | | Asia Pacific | 44.4% | 30.2% | | Latin America | 6.7% | 9.7% | | Total Company Sales | 13.2% | 16.6% | Corporate and Other Corporate and other expenses increased due to mark-to-market adjustments for compensation plans - Corporate and other expenses increased to $32.3 million (3 months) and $88.8 million (9 months) in 2023, up from $15.6 million and $69.6 million in 2022, mainly due to mark-to-market adjustments for compensation plans[121] Income before Income Taxes Income before income taxes significantly increased, driven by higher sales and PTC investment gains, partially offset by pension expense - Income before income taxes increased to $471.8 million (3 months) and $1,291.1 million (9 months) in 2023, up from $344.2 million and $667.8 million in 2022, primarily due to higher sales and PTC investment fair value adjustments[122] - Higher non-operating pension expense partially offset the increase in income before income taxes for the nine months ended June 30, 2023[122] Total segment operating earnings Total segment operating earnings increased due to higher sales and pricing, partially offset by increased costs and investments - Total segment operating earnings increased 15.6% (3 months) and 29.6% (9 months) year-over-year, driven by higher sales volume and pricing[123] - Increases were partially offset by higher investment spend, incentive compensation, input costs, and unfavorable currency impact (for the nine-month period)[123] Income Taxes The effective tax rate increased due to lower discrete benefits and PTC adjustments, impacting both reported and adjusted rates | Effective Tax Rate | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Effective tax rate | 15.5% | 14.4% | 16.9% | 12.7% | | Adjusted effective tax rate | 14.1% | 14.5% | 16.2% | 15.2% | - The increase in the effective tax rate was primarily due to lower discrete benefits and PTC adjustments in the current year[124][125] Diluted EPS and Adjusted EPS Diluted and Adjusted EPS significantly increased, driven by higher sales, improved pre-tax margin, and PTC adjustments | Earnings Per Share | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Diluted EPS | $3.45 | $2.55 | $9.34 | $5.06 | | Adjusted EPS | $3.01 | $2.66 | $8.48 | $6.45 | - The increase in diluted EPS was primarily due to higher sales and pre-tax margin (21.1% in Q3 2023 vs. 17.5% in Q3 2022), influenced by PTC adjustments[126] - Adjusted EPS increased 13.2% (3 months) and 31.5% (9 months) year-over-year, driven by higher sales and improved segment operating margin[126][127] Intelligent Devices Intelligent Devices segment reported sales growth, but operating margin saw mixed trends due to investments and mix - Intelligent Devices sales increased 10.2% (3 months) and 13.2% (9 months) year-over-year. Organic sales increased 8.2% (3 months) and 13.5% (9 months)[129] - Segment operating margin decreased to 16.8% (3 months) from 19.7% due to higher investment, unfavorable mix, and incentive compensation. For the nine months, it increased to 19.8% from 19.5% due to higher sales volume and pricing, partially offset by increased costs[130][131] Software & Control Software & Control segment achieved significant sales growth and substantial operating margin improvement due to volume and pricing - Software & Control sales increased 23.7% (3 months) and 24.7% (9 months) year-over-year. Organic sales increased 24.4% (3 months) and 27.2% (9 months)[132] - Segment operating margin increased to 34.8% (3 months) from 31.4% and to 32.8% (9 months) from 26.6%, primarily driven by higher sales volume and pricing, partially offset by higher investment spend[133] Lifecycle Services Lifecycle Services segment reported sales growth, but operating margin slightly decreased due to compensation and expansion costs - Lifecycle Services sales increased 7.5% (3 months) and 8.0% (9 months) year-over-year. Organic sales increased 8.0% (3 months) and 10.0% (9 months)[134] - Segment operating margin decreased to 9.3% (3 months) from 9.4% and to 6.7% (9 months) from 7.4%, as higher sales were offset by higher incentive compensation costs and one-time items to expand future profitability[135] Supplemental Segment Information This section provides a breakdown of purchase accounting depreciation, amortization, and non-operating pension costs by segment | (in millions) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Purchase accounting depreciation and amortization: | | | | | | Intelligent Devices | $1.3 | $0.5 | $3.5 | $1.9 | | Software & Control | $17.1 | $17.3 | $51.2 | $51.8 | | Lifecycle Services | $8.5 | $7.9 | $24.3 | $23.7 | | Non-operating pension and postretirement benefit (credit) cost: | | | | | | Intelligent Devices | $(1.9) | $(4.7) | $23.0 | $(1.9) | | Software & Control | $(1.9) | $(4.7) | $23.0 | $(1.9) | | Lifecycle Services | $(2.7) | $(6.3) | $30.6 | $(2.6) | Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation This section reconciles GAAP to non-GAAP adjusted income, EPS, and effective tax rate, excluding specific non-operating items | Reconciliation (in millions, except per share) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income attributable to Rockwell Automation | $400.2 | $297.9 | $1,084.5 | $593.3 | | Adjusted income | $349.1 | $311.1 | $984.5 | $756.9 | | Diluted EPS | $3.45 | $2.55 | $9.34 | $5.06 | | Adjusted EPS | $3.01 | $2.66 | $8.48 | $6.45 | | Effective tax rate | 15.5% | 14.4% | 16.9% | 12.7% | | Adjusted effective tax rate | 14.1% | 14.5% | 16.2% | 15.2% | - Adjusted income, adjusted EPS, and adjusted effective tax rate exclude non-operating pension and postretirement benefit cost, purchase accounting depreciation and amortization, and change in fair value of investments, along with their tax effects[137] | Fiscal 2023 Guidance (as of August 1, 2023) | Amount | | :------------------------------------------ | :----- | | Diluted EPS | $12.46 - $12.86 | | Adjusted EPS | $11.70 - $12.10 | | Effective tax rate | ~17.5% | | Adjusted effective tax rate | ~17.5% | Financial Condition The company's financial condition improved with increased cash flow, reduced debt, share repurchases, and strong credit ratings | Cash Flows (in millions) | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :----------------------- | :------------------------------ | :------------------------------ | | Operating activities | $535.1 | $423.7 | | Investing activities | $88.6 | $(99.2) | | Financing activities | $(709.2) | $(478.5) | | Free cash flow | $437.8 | $323.4 | - The company generated $355.2 million from sales of PTC Shares in the first nine months of 2023, compared to $66.0 million in the prior year, supporting future cash uses[143] - Short-term debt decreased, with commercial paper borrowings at $183.0 million (5.10% interest) and $65.0 million drawn on Sensia's line of credit (6.14% interest) as of June 30, 2023[144] - Approximately 1.0 million shares were repurchased for $256.2 million in the first nine months of 2023, with $995.1 million remaining under board authorization[145] - Rockwell Automation maintains strong credit ratings (S&P: A-1/A Negative, Moody's: P-2/A3 Stable, Fitch: F1/A Stable) and access to a $1.5 billion unsecured revolving credit facility, expiring in June 2027[148][152] Supplemental Sales Information This section reconciles reported sales to organic sales, providing a clearer view of underlying business performance by segment and region | Reconciliation of Reported to Organic Sales by Geographic Region (in millions) | Three Months Ended June 30, 2023 (Reported) | Three Months Ended June 30, 2023 (Organic) | Nine Months Ended June 30, 2023 (Reported) | Nine Months Ended June 30, 2023 (Organic) | | :--------------------------------------------------------------------------- | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------------------------------- | | North America | $1,260.9 | $1,261.5 | $3,750.4 | $3,762.4 | | Europe, Middle East and Africa | $494.4 | $472.3 | $1,353.7 | $1,368.7 | | Asia Pacific | $343.5 | $356.4 | $974.2 | $1,030.8 | | Latin America | $139.9 | $138.1 | $416.8 | $410.0 | | Total Company Sales | $2,238.7 | $2,228.3 | $6,495.1 | $6,571.9 | | Reconciliation of Reported to Organic Sales by Operating Segment (in millions) | Three Months Ended June 30, 2023 (Reported) | Three Months Ended June 30, 2023 (Organic) | Nine Months Ended June 30, 2023 (Reported) | Nine Months Ended June 30, 2023 (Organic) | | :--------------------------------------------------------------------------- | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | :---------------------------------------- | | Intelligent Devices | $968.1 | $950.7 | $2,927.5 | $2,936.2 | | Software & Control | $750.6 | $755.2 | $2,065.0 | $2,106.0 | | Lifecycle Services | $520.0 | $522.4 | $1,502.6 | $1,529.7 | | Total Company Sales | $2,238.7 | $2,228.3 | $6,495.1 | $6,571.9 | Critical Accounting Estimates This section outlines critical accounting estimates, including goodwill impairment testing and retirement benefit discount rates - A quantitative goodwill impairment test for the Sensia reporting unit in Q2 2023 showed its fair value exceeded carrying value by approximately 10%, based on estimated future revenue growth, margins, and a discount rate of 5.45%[163][164][165][166] - The discount rate for the U.S. pension plan assets and liabilities was remeasured at 5.45% as of June 30, 2023, following settlement accounting rules[166] Recent Accounting Pronouncements This section refers to Note 1 for details on recently adopted and issued accounting pronouncements - Refer to Note 1 for information on recently adopted and issued accounting pronouncements[168] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Annual Report for market risk disclosures, noting no material changes as of June 30, 2023 - No material change to information regarding foreign currency risk and interest rate risk from the Annual Report on Form 10-K for the year ended September 30, 2022[169] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023[170] - No material changes occurred in internal control over financial reporting during the quarter[171] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal and equity matters Item 1. Legal Proceedings This section refers to the Annual Report for legal proceedings, noting no material changes as of June 30, 2023 - No material change to information regarding legal proceedings from the Annual Report on Form 10-K for the year ended September 30, 2022[173] Item 1A. Risk Factors This section refers to the Annual Report for risk factors, noting no material changes as of June 30, 2023 - No material change to information regarding risk factors from the Annual Report on Form 10-K for the year ended September 30, 2022[174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 222,127 shares of common stock, with $995.1 million remaining authorized for future repurchases | Share Repurchases (Three Months Ended June 30, 2023) | Total Number of Shares Purchased | Average Price Paid Per Share | | :--------------------------------------------------- | :------------------------------- | :--------------------------- | | April 1 - 30, 2023 | 82,169 | $277.42 | | May 1 - 31, 2023 | 112,790 | $272.69 | | June 1 - 30, 2023 | 27,168 | $309.06 | | Total | 222,127 | $278.88 | - As of June 30, 2023, approximately $995.1 million remained authorized for share repurchases under the existing board authorization[175] Item 5. Other Information Several officers adopted Rule 10b5-1 trading arrangements to cover taxes on upcoming restricted stock unit and performance share vests - Matthew Fordenwalt, Nicholas Gangestad, Veena Lakkundi, John Miller, and Brian Shepherd adopted Rule 10b5-1 trading arrangements in May 2023[177] - These arrangements primarily cover the sale of shares to cover taxes on upcoming restricted stock unit and performance share vests[177] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and interactive data files - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2), a letter from Deloitte & Touche LLP (15), and Interactive Data Files (101, 104)[180] Signatures The report was signed by the Senior Vice President and Chief Financial Officer and the Vice President and Controller - The report was signed by Nicholas C. Gangestad (Senior Vice President and Chief Financial Officer) and Terry L. Riesterer (Vice President and Controller) on August 1, 2023[183]