Rockwell Automation, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022; balance sheet as of that date. Comparisons are with the three months ended December 31, 2021, unless otherwise noted. The interim financial statements were reviewed by Deloitte & Touche, not audited.
Business context and performance
Rockwell Automation supplies industrial automation and digital transformation products, solutions, and services through Intelligent Devices, Software & Control, and Lifecycle Services. Reported sales rose 6.7% to $1.981 billion; organic sales rose 9.9%. Currency translation reduced reported growth by 4.0 percentage points, while acquisitions added 0.8 points. Pricing contributed approximately 7 points to sales growth. Management said regional and segment results were primarily affected by component availability relative to underlying demand.
Key financial metrics
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Sales | $1,981.0 million | $1,857.3 million |
| Gross profit | $813.6 million | $749.1 million |
| Net income attributable to Rockwell | $384.0 million | $241.5 million |
| Diluted EPS | $3.31 | $2.05 |
| Adjusted EPS (non-GAAP) | $2.46 | $2.14 |
| Operating cash flow | $66.3 million | $(12.0) million |
| Free cash flow (non-GAAP) | $42.1 million | $(49.1) million |
Reported gross profit was approximately 41.1% of sales, compared with 40.3% a year earlier (calculated from reported figures). Total segment operating earnings increased 12.9% to $401.0 million; segment operating margin rose to 20.2% from 19.1%.
At December 31, cash and cash equivalents were $460.0 million. Debt comprised $548.2 million of short-term debt, $608.5 million current portion of long-term debt, and $2,866.9 million of long-term debt. Current assets were $3,859.5 million and current liabilities $3,746.7 million. Inventories were $1,270.5 million, up from $1,054.2 million at September 30, 2022.
Material changes and unusual items
- Net income and diluted EPS rose substantially, primarily because of higher sales and a $140.6 million gain in the fair value of investments, primarily PTC shares. Adjusted EPS, which excludes this investment change and other specified items, increased 15.0%.
- Software & Control sales increased 11.6% and segment margin improved to 29.2% from 22.9%. Intelligent Devices margin declined to 22.4% from 23.7%; Lifecycle Services margin declined to 5.2% from 5.5%.
- Operating cash flow improved year over year, mainly due to higher pre-tax income and lower income tax payments, partly offset by working-capital increases. Inventory was a notable use of cash.
- The company acquired CUBIC in October 2022 for $133.8 million net of cash acquired; preliminary purchase accounting included $64.5 million of goodwill assigned to Intelligent Devices.
- The company received $144.8 million from PTC share sales during the quarter. PTC investment fair-value movements can cause volatility in reported quarterly earnings.
Outlook, commentary, and risks
As of January 26, 2023, FY2023 guidance was 10%–14% reported sales growth, 11%–15% organic sales growth, and diluted EPS of $10.99–$11.79; adjusted EPS guidance was $10.70–$11.50. The outlook reflected first-quarter performance and record backlog and assumed a gradually improving supply chain. Guidance included an estimated approximately 2-point currency headwind and approximately 1-point inorganic sales contribution.
Management reported persistent supply-chain disruption, labor shortages, inflation, and geopolitical instability, while noting gradual supply-chain improvement and ongoing capacity, sourcing, and supplier-diversification actions. U.S. manufacturing PMI fell below 50 for a second consecutive month in December; many non-U.S. PMI readings also ended the quarter below 50. Risks identified include component availability and costs, customer capital spending and economic conditions, cybersecurity, geopolitical events and sanctions, foreign exchange, acquisitions, competition, and PTC share-price volatility.
The company stated that pending litigation and claims, including asbestos-related matters, were not expected to have a material effect based on current assessments; outcomes remain uncertain. It reported no material change to previously disclosed risk factors, and disclosure controls were effective.
Investor facts to verify
- Whether the assumed supply-chain recovery materializes and backlog converts into sales and cash flow.
- How much reported earnings continue to depend on volatile PTC investment gains or share sales, versus underlying adjusted performance.
- Whether inventory and other working-capital balances normalize, supporting sustained free cash flow.
- Debt maturities, commercial-paper refinancing access, and borrowing costs; short-term debt included $462.0 million of commercial paper at a 4.40% weighted-average rate.
- Whether the FY2023 sales and EPS guidance remains achievable amid softening manufacturing indicators and the stated economic and geopolitical risks.