Rockwell Automation, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months of fiscal 2022 ended March 31, 2022. Unless otherwise noted, financial amounts are in millions of dollars. Interim financial statements are unaudited; the independent accountant performed a review, not an audit.
Business context and results
Rockwell Automation provides industrial automation and digital transformation products, software, solutions, and services through Intelligent Devices, Software & Control, and Lifecycle Services. Management reported strong demand and record backlog, while describing supply-chain constraints, inflation, and geopolitical disruption as significant challenges.
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Sales | $1,808.1 | $1,776.1 | $3,665.4 | $3,341.4 |
| Gross profit | $664.1 | $767.4 | $1,413.2 | $1,413.9 |
| Gross margin | 36.7% | 43.2% | 38.6% | 42.3% |
| Net income attributable to Rockwell | $53.9 | $415.0 | $295.4 | $1,008.3 |
| Diluted EPS | $0.46 | $3.54 | $2.51 | $8.59 |
| Adjusted EPS (non-GAAP) | $1.66 | $2.41 | $3.79 | $4.79 |
| Total segment operating margin (non-GAAP) | 15.7% | 22.0% | 17.4% | 20.9% |
Q2 sales increased 1.8% reported and 1.3% organically; six-month sales rose 9.7% reported and 8.6% organically. Q2 sales growth included 2.3 percentage points from acquisitions and was reduced by 1.8 percentage points from currency translation. Q2 segment operating earnings fell 27.4%, primarily due to higher input costs and investment spending, partly offset by better price realization and lower incentive compensation.
- Intelligent Devices: Q2 sales declined 4.9%; segment margin fell to 14.6% from 23.8%.
- Software & Control: Q2 sales increased 6.5%, including acquisition contribution; segment margin declined to 24.6% from 29.8%.
- Lifecycle Services: Q2 sales increased 9.7%; segment margin declined to 7.3% from 9.0%, with lower labor utilization attributed partly to supply constraints.
Cash flow, liquidity, and debt
For the six months ended March 31, operating cash flow was $78.8, compared with $595.4 a year earlier. Capital expenditures were $82.0, resulting in negative free cash flow of $3.2 (non-GAAP), versus positive $543.3. The company attributed the decrease to higher incentive and income-tax payments, lower pre-tax income, working-capital increases, and the prior-year $70.0 legal settlement receipt.
At March 31, cash and cash equivalents were $443.0, down from $662.2 at September 30, 2021. Short-term debt was $641.0 and long-term debt was $3,466.0, for total debt of $4,107.0. Current assets were $3,284.9 and current liabilities were $3,027.6. The company reported $617.0 of commercial paper borrowings and access to a $1.25 billion revolving credit facility, which was undrawn; it was in compliance with facility covenants.
Six-month dividends paid were $260.2 and share repurchases were $49.4. The board authorized an additional $1.0 billion share-repurchase program on May 2, 2022; approximately $502.9 remained under the earlier authorization at March 31.
Material changes and unusual items
- Reported Q2 income was materially affected by changes in the fair value of the company’s PTC investment: a $140.7 loss in Q2 FY2022 versus a $190.9 gain in Q2 FY2021. The six-month comparison was a $133.1 loss versus a $581.3 gain. PTC investment volatility was the primary reason reported net income and EPS fell sharply; adjusted EPS also declined, reflecting cost pressures and investment spending.
- The prior-year six-month results included a $70.0 legal settlement gain. This also contributed to the year-over-year decline in adjusted EPS comparisons described by management.
- In March 2022, pension settlement accounting resulted in a $24.9 expense; remeasurement reduced the net benefit obligation by $199.2.
- The company acquired AVATA and, through its Sensia affiliate, Swinton Technology during fiscal 2022. The filing identifies $11.7 of goodwill from fiscal 2022 acquisitions at March 31. The prior-year Plex acquisition contributed significantly to Software & Control acquisition-related sales and purchase-accounting amortization.
- Goodwill impairment testing found no impairment. Sensia’s estimated fair value exceeded carrying value by approximately 20%; the valuation depends on forecast growth and margins, including recovery from pandemic disruption and offsetting inflation and supply-chain costs through pricing.
Guidance, outlook, and risks
Fiscal 2022 guidance was 11%–15% reported sales growth, 10%–14% organic sales growth, diluted EPS of $7.60–$8.20, and adjusted EPS of $9.20–$9.80. Management cited strong demand and record backlog but cautioned that the outlook incorporates volatile supply conditions, including COVID-related shutdowns in China and the war in Ukraine, whose effects were difficult to quantify.
Management said supply-chain stress, component availability, freight costs, labor shortages, and inflation could disrupt production, delay deliveries, and increase costs. Other disclosed risks include macroeconomic and customer capital-spending cycles, Russia-related sanctions and geopolitical instability, cybersecurity and IT risks, acquisition integration, competition, foreign exchange, and volatility in the PTC investment. The company also disclosed asbestos and other legal matters, but stated it did not believe pending matters would materially affect its business or financial results.
Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states that fiscal 2022 results to date are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether supply constraints, input-cost inflation, and labor utilization improve enough to support the fiscal 2022 sales and EPS guidance.
- How much reported earnings continue to fluctuate with the PTC share price, and whether adjusted earnings trends better reflect operating performance.
- Whether working-capital needs and tax payments normalize, given the sharp decline in operating cash flow and negative six-month free cash flow.
- Progress in restoring segment margins, particularly in Intelligent Devices and Lifecycle Services, and the realized benefits and costs of acquisitions.
- Whether Sensia achieves the growth and margin assumptions supporting its goodwill valuation, and any developments in disclosed legal or indemnification exposures.