Rockwell Automation, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2021. This is an annual report, not a standalone fourth-quarter filing. Unless stated otherwise, amounts are in U.S. dollars.
Business context
Rockwell Automation is a global industrial automation and digital transformation company. Beginning in FY2021, it reported three segments: Intelligent Devices, Software & Control, and Lifecycle Services. It sells in more than 100 countries, primarily through independent distributors, which account for approximately 75% of global sales.
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Sales | $6,997.4 million | $6,329.8 million | Up 10.5%; organic sales up 6.7% |
| Gross profit / margin | $2,897.7 million / 41.4% | $2,595.2 million / 41.0% | Margin calculated from reported sales and gross profit |
| Income before income taxes | $1,526.2 million | $1,136.1 million | Includes investment fair-value gains and FY2021 legal settlement |
| Net income attributable to Rockwell | $1,358.1 million | $1,023.4 million | Up from prior year |
| Diluted EPS | $11.58 | $8.77 | Reported measure |
| Adjusted EPS | $9.43 | $7.87 | Non-GAAP; up 19.8% |
| Total segment operating earnings / margin | $1,391.3 million / 19.9% | $1,257.9 million / 19.9% | Non-GAAP; margin essentially unchanged |
| Operating cash flow | $1,261.0 million | $1,120.5 million | Up year over year |
| Free cash flow | $1,140.7 million | $1,006.6 million | Non-GAAP; after $120.3 million capital expenditures |
| Cash and cash equivalents | $662.2 million | $704.6 million | At September 30 |
| Total debt | $3,974.3 million | $1,999.3 million | Short- and long-term debt combined; increased mainly with Plex financing |
| Backlog | $2,910.5 million | $1,557.1 million | At September 30; up substantially |
Segment results: Intelligent Devices sales were $3,311.9 million, up 12.0%, with operating margin rising to 21.2% from 19.9%. Software & Control sales were $1,947.0 million, up 15.8%, while margin declined to 27.3% from 28.2%, reflecting planned investment and restored incentive compensation. Lifecycle Services sales were $1,738.5 million, up 2.7% reported but down 1.8% organically; margin fell to 9.1% from 11.6%.
Material changes versus FY2020
- Demand recovered: organic sales increased 6.7%, following a 7.8% decline in FY2020. Sales growth included approximately 1 percentage point from pricing, 2.3 points from currency translation, and 1.5 points from acquisitions.
- Reported earnings were significantly affected by fair-value gains on investments, primarily the PTC shareholding: $397.4 million in FY2021 versus $153.9 million in FY2020. Adjusted EPS excludes investment fair-value changes and other specified items.
- FY2021 included a favorable $70 million pre-tax legal settlement. The effective tax rate was 11.9%, versus 9.9%; the adjusted effective tax rate was 11.6%, versus 12.4%.
- Rockwell acquired Plex Systems in August 2021 for net consideration of approximately $2.21 billion. The preliminary allocation included $1.73 billion of goodwill and $531.4 million of intangible assets. Net cash used for acquisitions was $2.49 billion.
- In August 2021, Rockwell issued $1.5 billion of long-term notes, using proceeds primarily to fund Plex. Long-term debt rose to $3.46 billion from $1.97 billion, and short-term debt rose to $509.7 million from $24.6 million.
Outlook, risks and unusual items
- FY2022 guidance: reported sales growth of 16%–19%, organic growth of 14%–17%, diluted EPS of $9.91–$10.51, and adjusted EPS of $10.50–$11.10. Guidance assumes gradual supply-chain improvement; management cited strong demand and record backlog.
- Management noted supply-chain stress, component and materials shortages, higher commodity and freight costs, labor constraints, and delivery delays. The pace of improvement is uncertain.
- COVID-19 effects remained uncertain, including possible operational disruption, customer spending impacts, workforce constraints, and changing health and safety requirements. Oil & Gas weakness affected some markets, particularly Lifecycle Services and Latin America.
- Other key risks include competition, dependence on distributors and suppliers (including some single-source components), cybersecurity and product security, execution of service projects, talent retention, foreign exchange, tax and regulatory matters, and environmental or asbestos-related claims.
- PTC investment fair-value movements can materially affect reported earnings and are not directly tied to operating performance. The shares were valued at $1.27 billion at September 30, 2021, and transfer restrictions applied through September 2023, subject to exceptions.
- Standard & Poor’s changed its outlook to Negative following increased leverage for Plex; Moody’s and Fitch maintained Stable outlooks. Rockwell reported compliance with credit-facility covenants and no difficulty accessing commercial paper markets.
- Environmental remediation liabilities, net of expected recoveries, were $53.6 million. The company said pending litigation and claims were not expected to have a material effect, while noting inherent uncertainty.
- The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Plex controls were excluded from management’s FY2021 internal-control assessment because of the acquisition timing; integration and evaluation were ongoing.
Most important facts for investors to verify
- How much FY2022 sales and margin performance depends on backlog conversion, supply availability, pricing, and gradual supply-chain recovery.
- Whether adjusted earnings and cash generation support the FY2022 EPS guidance, and how reported results compare after investment fair-value gains and other adjustments.
- Plex’s post-acquisition growth, integration, purchase-accounting assumptions, and contribution to recurring software revenue.
- Debt reduction, refinancing capacity, credit-rating outlook, and liquidity after the acquisition; FY2021 investing cash outflows were $2.63 billion.
- Whether Lifecycle Services margins recover and whether the strong backlog translates into recognized revenue and cash collection.
- Potential exposure from PTC share-price volatility, cybersecurity incidents, supply disruptions, pension assumptions, and legal or environmental contingencies.