Rockwell Automation(ROK) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The adjusted effective tax rate for Q3 was 14.1%, consistent with the prior year [1] - Free cash flow was $240 million, down $87 million from the previous year due to increased working capital and income tax payments [1] - Adjusted EPS for Q3 was $3.01, reflecting a 13% year-over-year growth [88] Business Line Data and Key Metrics Changes - Organic sales growth was led by Software & Control, which grew 24% year-over-year, while Intelligent Devices saw an 8% increase [67][76] - Lifecycle Services organic sales increased by 8% year-over-year, with a book-to-bill ratio of 1.08 [58] - The Intelligent Devices segment's margin decreased by 290 basis points year-over-year due to higher investment spend and unfavorable mix [67] Market Data and Key Metrics Changes - North America organic sales grew about 2% year-over-year, while EMEA sales increased by 34% and Asia-Pacific by over 44% [64] - Semiconductor sales grew in the high teens, while e-commerce and warehouse automation sales declined by high teens due to delays and cancellations [62][64] - The backlog is expected to remain high between $4.5 billion and $5 billion, with 80% shippable in fiscal year 2024 [18] Company Strategy and Development Direction - The company is increasing the midpoint of its reported sales guidance from 14.5% to 15% for fiscal 2023, expecting organic sales growth of 14% to 16% [3] - The focus remains on automation and technology to address workforce shortages and improve business resiliency [119] - Lifecycle services are expected to be a significant contributor to margin expansion in the coming years [34] Management's Comments on Operating Environment and Future Outlook - Management noted strong underlying demand but acknowledged a moderation in orders due to improving lead times [90] - The company expects to achieve 80% free cash flow conversion for fiscal 2023, reflecting higher working capital [85] - Management expressed confidence in the long-term growth outlook driven by investments in sectors like semiconductors and electric vehicles [150] Other Important Information - The company repurchased approximately 220,000 shares at a cost of $62 million during the quarter [1] - The adjusted effective tax rate for the full year is expected to be around 17.5% [69] Q&A Session Summary Question: Impact of U.S. distribution changes on sales and earnings - Management indicated that the change in U.S. distribution had a significant impact on sales and earnings in Q3, with expectations of margin recovery moving forward [8][9] Question: Future margin expectations for segments - Management expects margins to expand in Q4, with strong performance anticipated in Software and Control, and lifecycle services expected to exceed 10% [9][34] Question: Order trends and normalization - Management noted that backlog is expected to normalize as lead times improve, with a strong front log remaining [17][127] Question: Demand environment and project push-outs - Management confirmed that demand remains strong despite some project delays, particularly in North America [152]