Rockwell Automation, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended December 31, 2023; comparisons are with the three months ended December 31, 2022 unless stated otherwise. Rockwell provides industrial automation and digital transformation products, solutions, and services. Financial statements are unaudited; Deloitte & Touche performed an interim review and reported no material modifications were needed for GAAP conformity.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change / context |
|---|---|---|---|
| Sales | $2,052.1 million | $1,981.0 million | Up 3.6%; organic sales up 1.0%, with currency adding 1.2 percentage points and acquisitions 1.4 points. Pricing added about 3 points; volume reduced sales about 2 points. |
| Gross profit | $794.6 million | $813.6 million | Gross margin about 38.7%, versus 41.1%. |
| Income before taxes | $259.6 million | $467.9 million | Pre-tax margin 12.7%, versus 23.6%. |
| Net income attributable to Rockwell | $215.2 million | $384.0 million | Diluted EPS $1.86, versus $3.31. |
| Adjusted EPS (non-GAAP) | $2.04 | $2.46 | Down 17.1%; adjusted income was $236.0 million versus $285.3 million. |
| Total segment operating earnings (non-GAAP) | $355.5 million | $401.0 million | Down 11.3%; segment operating margin 17.3%, versus 20.2%. |
| Operating cash flow | $32.6 million | $66.3 million | Free cash flow (non-GAAP) was negative $35.3 million, versus positive $42.1 million. |
| Cash and cash equivalents | $439.5 million | $1,071.8 million at September 30, 2023 | Quarter-end cash declined following acquisitions and other cash uses. |
| Debt | $3,374.3 million | $2,966.2 million at September 30, 2023 | Includes $501.4 million short-term debt, $9.9 million current long-term debt, and $2,863.0 million long-term debt. Short-term debt included $407.0 million of commercial paper at a 5.41% weighted-average rate. |
Segments and material changes
- Intelligent Devices: Sales of $927.3 million, down 1.0% reported and 4.5% organically. Operating margin fell to 16.2% from 22.4%; management cited lower volume, investment-spending timing, and acquisition impact.
- Software & Control: Sales of $603.6 million, up 5.3% reported and 4.0% organically. Operating margin declined to 25.0% from 29.2%, reflecting investment-spending timing and lower supply-chain utilization.
- Lifecycle Services: Sales of $521.2 million, up 10.5% reported and 8.1% organically. Operating margin rose to 10.4% from 5.2%, supported by higher volume, lower incentive compensation, and higher Sensia margins.
- North American sales rose 5.8%; Asia Pacific sales fell 7.0%. China experienced a high-teens decrease in reported and organic sales.
- Reported income and EPS comparisons were substantially affected by the prior-year $140.6 million investment fair-value gain, primarily related to PTC shares, which had been sold by September 30, 2023. Lower segment earnings also weighed on results. Adjusted EPS excludes this investment change and other specified items.
Cash, liquidity, and capital allocation
- Investing cash outflow was $817.4 million, including $748.7 million for acquisitions and $67.9 million of capital expenditures. Financing provided $134.2 million, including $409.0 million net issuance of short-term debt, offset in part by $144.0 million of dividends and $120.3 million of treasury-stock purchases.
- Cash flow from operations and free cash flow declined year over year. Management attributed the operating cash decrease mainly to higher incentive-compensation payments tied to FY2023 performance and lower pre-tax income; working-capital decreases partly offset those items.
- Rockwell had a $1.5 billion unsecured revolving credit facility expiring in June 2027, with no borrowings under it at quarter-end, and stated it was in compliance with credit-facility covenants. It also reported access to non-U.S. credit facilities. The company said it had not experienced difficulty accessing commercial paper markets.
- About $820.0 million remained under the board’s share-repurchase authorization at December 31, 2023. Future repurchases depend on business conditions, free cash flow, other cash needs, and stock price.
Outlook, management commentary, and risks
- The filing provides no numerical full-year FY2024 sales or earnings guidance. Management said first-quarter results are not necessarily indicative of the full year.
- Management reported improvement in the supply-chain environment and actions to normalize lead times, while noting ongoing exposure to component availability, cost increases, and delivery delays.
- Management described U.S. industrial production as having declined sequentially and U.S. manufacturing PMI as remaining soft; many international PMI readings were also below 50. Demand remains sensitive to customer capital spending, industrial activity, regional conditions, and markets including Oil & Gas.
- Principal disclosed risks include macroeconomic and customer-spending weakness, input-cost and supply-chain disruption, cybersecurity and IT security, acquisition integration, competition and pricing, product acceptance, regulation and trade controls, foreign exchange, litigation, and talent retention.
- Clearpath Robotics and Verve Industrial Protection were acquired during the quarter. Together, these acquisitions added $400.0 million of goodwill; their reported quarter sales were $17.2 million. Purchase-price allocations are preliminary. Clearpath consideration includes up to $50 million contingent on future revenue performance.
- Litigation includes asbestos-related claims and other matters. Management believes pending matters will not materially affect the company, but states outcomes are uncertain; future valid intellectual-property indemnification claims could be significant. Management reported no material change to the risk factors in the FY2023 Form 10-K.
Important facts for investors to verify
- Whether organic demand and segment margins recover, particularly in Intelligent Devices, and whether China and broader Asia Pacific weakness persists.
- How much of the earnings decline reflects the prior-year PTC-related gain versus underlying operating trends; compare GAAP results with the company’s non-GAAP adjustments.
- Whether operating cash flow and free cash flow improve after elevated incentive payments and acquisition spending, and how cash, commercial paper, and total debt evolve.
- Progress integrating Clearpath and Verve, realized revenue and synergies, and any revisions to preliminary acquisition valuations or contingent consideration.
- Any subsequent guidance, material developments in supply-chain conditions, commercial-paper access, litigation, or other disclosed risks.