Rockwell Automation(ROK) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The adjusted effective tax rate for Q1 was 18%, slightly above the prior year rate [8] - Free cash flow was negative $35 million, compared to a positive$ 42 million in the prior year, driven by higher incentive compensation payouts [8] - Reported sales were up 3.6% year-over-year, with Q1 organic sales up 1% [20] - Adjusted EPS of $2.04 was down 17% compared to last year, primarily due to lower-than-expected sales and lower segment operating margin [23] Business Line Data and Key Metrics Changes - Intelligent Devices margin decreased to 16.2% from 22.4% a year ago, driven by lower sales volume and the timing of prior year investment spend [10] - Software & Control margin decreased to 25% from 29.2% due to lower supply chain utilization [11] - Lifecycle Services margin doubled to 10.4% from 5.2%, driven by higher sales and productivity benefits from restructuring actions [12] Market Data and Key Metrics Changes - North America organic sales were up over 4% year-over-year, while Latin America was down half a point, EMEA sales were down about 2%, and Asia Pacific sales declined over 7% [16] - Life sciences sales grew 10% in the quarter, with strong momentum in software and services [14] - Sales in the process industry segment grew over 10% year-over-year, led by strong growth in oil and gas [15] Company Strategy and Development Direction - The company is transitioning from a backlog-driven model to a more diverse book-and-bill approach, focusing on new orders received in the quarter [2] - The company expects full-year orders to grow low-single-digits versus the prior year, with strong sequential growth through the balance of the fiscal year [17] - The company is reaffirming its fiscal 2024 sales guidance range with organic sales projected to grow 1% at the midpoint [18] Management's Comments on Operating Environment and Future Outlook - Management noted challenges in the Chinese manufacturing economy, with high cancellations and pushouts relative to the rest of the world [16] - The company expects margins in Q2 to remain similar to Q1 levels, with significant increases expected in Q3 and Q4 driven by increased product volume [66] - Management expressed confidence in the underlying demand from machine builders and end-users, despite geopolitical volatility [105] Other Important Information - The company repurchased approximately 400,000 shares in the quarter at a cost of$ 120 million [46] - The company expects to deploy between $300 million and$ 500 million to share repurchases during the year [67] Q&A Session Summary Question: Can you tell us where backlog was ending Q1? - The backlog ended at $4.1 billion, down high single digits during the first quarter [110] Question: Are you beginning to see a more substantial turn in orders here in fiscal Q2? - Yes, there is an expectation of continued double-digit growth in orders into Q2, with a broad-based recovery across key industries [92][93] Question: What are the supply chain challenges you're facing? - The challenges include lingering past-due backlog items and component challenges, but progress is expected in Q2 [128] Question: How do you ensure that Rockwell can deliver the volumes over the next 18 months? - The company is making investments to ensure adequate capacity and is working on efficiency and redundancy across multiple plants [120] Question: What is the outlook for the mining sector? - The company expects low single-digit growth in mining, driven by materials for batteries [122]