Rockwell Automation, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 31, 2021; balance-sheet comparisons are with September 30, 2021. Rockwell Automation supplies industrial automation and digital transformation products, software, solutions, and services through Intelligent Devices, Software & Control, and Lifecycle Services. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Sales | $1,857.3 million | $1,565.3 million |
| Gross profit / gross margin | $749.1 million / 40.3% | $646.5 million / 41.3% |
| Income before income taxes | $282.5 million | $700.7 million |
| Net income attributable to Rockwell Automation | $241.5 million | $593.3 million |
| Diluted EPS | $2.05 | $5.06 |
| Adjusted EPS (non-GAAP) | $2.14 | $2.38 |
| Operating cash flow / free cash flow (non-GAAP) | $(12.0) million / $(49.1) million | $346.5 million / $319.4 million |
Sales increased 18.7% reported and 16.8% organically. Pricing contributed approximately one percentage point. Sales by segment were $900.3 million for Intelligent Devices, $513.9 million for Software & Control, and $443.1 million for Lifecycle Services. Total segment operating earnings rose 14.8% to $355.1 million, while segment operating margin eased to 19.1% from 19.8%. Intelligent Devices margin improved to 23.7% from 19.4%; Software & Control fell to 22.9% from 30.2%; Lifecycle Services fell to 5.5% from 8.9%.
The 15.4% effective tax rate was slightly below 15.8% a year earlier. Cash flow was pressured by higher incentive compensation and tax payments and working-capital investment, including increased receivables and inventories. The prior-year quarter also included a $70 million legal settlement receipt.
Financial position and liquidity
- At December 31, cash and cash equivalents were $540.0 million; current assets were $3,132.3 million and current liabilities were $2,914.1 million.
- Short-term debt was $605.9 million and long-term debt $3,469.1 million, or $4,075.0 million combined. Short-term debt included $580 million of commercial paper at a 0.20% weighted-average rate.
- The company reported $1.25 billion of available capacity under its unsecured revolving credit facility and had not borrowed against it. It was in compliance with credit-facility covenants. Standard & Poor’s outlook was Negative; Moody’s and Fitch outlooks were Stable.
- Quarterly dividends paid were $130.1 million; share repurchases were $49.8 million in cash-flow reporting. Approximately $502.9 million remained under repurchase authorizations at quarter-end.
Material changes and unusual items
- Reported pretax income and EPS were sharply lower year over year, mainly because the prior-year quarter recorded a $390.4 million investment fair-value gain, largely related to PTC, versus a $7.6 million net gain in the current quarter. The current-period amount included a $14.4 million PTC gain and a $6.8 million impairment loss on another investment.
- Prior-year results included the $70 million favorable legal settlement. Excluding specified items, adjusted EPS declined 10.1% to $2.14.
- Acquisitions contributed 2.6 percentage points to consolidated sales growth; acquired businesses included Plex, acquired in August 2021, and AVATA, acquired in November 2021. Management reported $42.4 million of sales from fiscal 2021 acquisitions in the current quarter.
Outlook, commentary, and risks
FY2022 guidance was 16%–19% reported sales growth, including 14%–17% organic growth, approximately 2% inorganic growth, and approximately zero currency impact. Guidance for diluted EPS was $10.01–$10.61 and adjusted EPS was $10.50–$11.10. Management cited strong demand and record backlog, while assuming supply-chain conditions improve gradually through the year.
Management said supply-chain constraints, component and materials availability, freight costs, labor shortages, and inflation remained significant challenges. The filing also identifies pandemic uncertainty, customer capital-spending cycles, foreign exchange, cybersecurity and IT risks, acquisition integration, competition, and volatility in the PTC investment as factors that could affect results. The company disclosed asbestos claims and other litigation, but stated it did not expect pending matters to have a material effect; future valid indemnification claims could nevertheless be significant. The interim financial statements received an independent accountant’s review, not an audit; management reported disclosure controls were effective.
Important facts for investors to verify
- Whether backlog converts to sales and whether supply-chain and labor constraints ease as assumed in guidance.
- Whether price increases keep pace with component, freight, and other input-cost inflation, especially in Software & Control and Lifecycle Services.
- Whether working-capital needs normalize and operating cash flow recovers after the quarter’s outflow.
- How PTC share-price movements affect reported earnings, and the implications of the company’s 10b5-1 plan to sell some PTC shares.
- Whether acquisition integration, including Plex and AVATA, delivers expected growth and margins while debt and credit-rating outlooks remain under monitoring.
- Developments in litigation, tax matters, and other contingencies; the filing does not provide a clear estimate of ultimate exposure for asbestos claims.