Rockwell Automation Reports Third Quarter 2019 Results

  • Reported sales down 2.0 percent year over year; organic sales up 0.5 percent
  • Diluted EPS of $2.20; Adjusted EPS of $2.40
  • Updating fiscal 2019 Diluted EPS guidance: $7.58 - $7.78
  • Updating fiscal 2019 Adjusted EPS guidance: $8.50 - $8.70
  • Board authorized additional $1.0 billion for share repurchases

MILWAUKEE — (BUSINESS WIRE) — July 25, 2019 — Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2019 third quarter sales of $1,665.1 million, down 2.0 percent from $1,698.7 million in the third quarter of fiscal 2018. Organic sales grew 0.5 percent. Currency translation decreased sales by 2.5 percentage points.

Fiscal 2019 third quarter net income was $261.4 million or $2.20 per share, compared to $198.6 million or $1.58 per share in the third quarter of fiscal 2018. The increases in net income and EPS were primarily due to fair value adjustments in connection with the PTC investment (“the PTC adjustments”). Fiscal 2019 third quarter Adjusted EPS was $2.40, up 11 percent compared to $2.16 in the third quarter of fiscal 2018. The increase in Adjusted EPS was primarily due to lower incentive compensation expense, higher organic sales, and lower share count, partially offset by higher net interest expense.

Pre-tax margin was 19.3 percent in the third quarter of fiscal 2019 compared to 14.8 percent in the same period last year. The increase in pre-tax margin was primarily due to the PTC adjustments.

Total segment operating margin was 23.8 percent compared to 22.5 percent a year ago. The increase in total segment operating margin was primarily due to lower incentive compensation expense, partially offset by higher investment spending. Total segment operating earnings were $395.9 million in the third quarter of fiscal 2019, up 3.5 percent from $382.6 million in the same period of fiscal 2018.

Commenting on the third quarter results, Blake D. Moret, chairman and chief executive officer, said, "Globally, organic sales were up 0.5 percent. In general, we saw strong growth in our longer-cycle end markets, while shorter-cycle end markets weakened. Organic sales growth in the quarter was led by heavy industries, including oil and gas, pulp and paper, and mining, as well as life sciences, each of which grew double digits. Growth was tempered by year-over-year declines in automotive, semiconductor, and food and beverage. At the same time, Information Solutions and Connected Services continued to do very well, growing double digits in the quarter. Adjusted EPS increased by 11 percent in the quarter."

Outlook

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

Sales Growth Guidance

 

EPS Guidance

Reported sales growth

 

~ (0.5)%

 

Diluted EPS

 

$7.58 - $7.78

Organic sales growth

 

~ 1.5%

 

Adjusted EPS

 

$8.50 - $8.70

Currency translation

 

~ (2)%

 

 

 

 

Commenting on the outlook, Moret added, "We believe that uncertainty with respect to global trade is impacting some customers’ investment decisions, particularly those related to the timing of capital investments. Taking into account our year-to-date results, we now expect our fiscal 2019 organic sales to be up about 1.5 percent year over year and we are reducing our Adjusted EPS guidance range to $8.50 to $8.70, which includes aligning our spending to the current market environment.”

Moret continued, "I’m happy with how the market is embracing new Rockwell offerings that add innovation and new expertise to help our customers be more productive. This is important regardless of the macro environment. We also continue to look for ways to be more productive in our own operations, by using all of our strengths and directing resources to initiatives that best accelerate our strategy. That begins with our highly engaged employees and partners who are committed to their roles in this journey.”

Sensia Update

In February 2019, we entered into an agreement to create a new joint venture, Sensia. We continue to believe the transaction will close in calendar 2019, subject to a few remaining 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 third quarter results for both segments.

Architecture & Software

Architecture & Software quarterly sales were $747.9 million, a decrease of 4.6 percent compared to $783.7 million in the same period last year. Organic sales decreased 1.9 percent, currency translation decreased sales by 2.8 percentage points, and an acquisition increased sales by 0.1 percentage points. Segment operating earnings were $222.9 million compared to $238.6 million in the same period last year. Segment operating margin decreased to 29.8 percent from 30.4 percent a year ago.

Control Products & Solutions

Control Products & Solutions quarterly sales were $917.2 million, an increase of 0.2 percent compared to $915.0 million in the same period last year. Organic sales increased 2.7 percent and currency translation decreased sales by 2.5 percentage points. Segment operating earnings were $173.0 million compared to $144.0 million in the same period last year. Segment operating margin increased to 18.9 percent from 15.7 percent a year ago due to lower incentive compensation expense and higher organic sales, partially offset by higher investment spending.

Supplemental Information

Cash Flow and ROIC - In the third quarter of fiscal 2019, cash flow provided by operating activities was $351.2 million. Free cash flow was $323.4 million. Return on invested capital was 39.0 percent.

General Corporate - Fiscal 2019 third quarter general corporate-net expense was $23.8 million compared to $33.0 million in the third quarter of fiscal 2018. The decrease was primarily due to lower functional expenses, including lower incentive compensation expense.

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