Rockwell Automation, Inc. — Q3 FY2023 Form 10-Q
Reporting period: Fiscal quarter and nine months ended June 30, 2023. The company supplies industrial automation and digital transformation products, solutions, and services. Financial statements are unaudited; Deloitte & Touche conducted an interim review, not an audit.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Sales | $2,238.7 million | $1,968.7 million | $6,495.1 million | $5,634.1 million |
| Net income attributable to Rockwell | $400.2 million | $297.9 million | $1,084.5 million | $593.3 million |
| Diluted EPS | $3.45 | $2.55 | $9.34 | $5.06 |
| Adjusted EPS (non-GAAP) | $3.01 | $2.66 | $8.48 | $6.45 |
| Total segment operating margin (non-GAAP) | 21.1% | 20.8% | 20.9% | 18.6% |
Q3 sales increased 13.7% year over year (organic growth 13.2%); nine-month sales rose 15.3% (organic growth 16.6%). Q3 gross profit was $915.4 million, approximately 40.9% of sales, versus $802.4 million, approximately 40.8%. Q3 pre-tax margin was 21.1%, versus 17.5%; the nine-month figures were 19.9% and 11.9%.
For the nine months, operating cash flow was $535.1 million, compared with $423.7 million; free cash flow, a non-GAAP measure, was $437.8 million, versus $323.4 million. Cash and cash equivalents were $443.5 million at June 30. Total debt, including short-term debt and current maturities, was approximately $3.75 billion. Current assets were $4.40 billion and current liabilities $3.92 billion. Dividends paid were $406.9 million and treasury-stock purchases were $257.1 million in the nine-month period.
Material changes and drivers
- Software & Control led Q3 segment growth: sales increased 23.7% and operating margin rose to 34.8% from 31.4%. Intelligent Devices sales rose 10.2%, but its margin declined to 16.8% from 19.7%, reflecting investment spending, unfavorable mix, and incentive compensation. Lifecycle Services sales rose 7.5%; margin was 9.3% versus 9.4%.
- Reported earnings benefited materially from gains on the PTC investment: fair-value gains were $85.7 million in Q3 and $289.3 million for nine months, versus losses of $5.2 million and $138.3 million in the comparable 2022 periods. Adjusted EPS excludes these gains or losses and other specified items.
- Nine-month results included $120.1 million of pension settlement and curtailment charges, compared with $24.2 million in the prior-year period. Higher sales and pricing supported segment earnings; higher investment spend, incentive compensation, input costs, and unfavorable currency effects were offsets.
- Receivables rose to $2.25 billion from $1.74 billion and inventories to $1.44 billion from $1.05 billion at September 30, 2022. Management attributed the year-over-year cash-flow improvement partly to higher pre-tax income, partly offset by increased working capital.
Outlook, risks, and contingencies
As of August 1, 2023, FY2023 guidance was reported sales growth of 14%–16%, organic sales growth of 14%–16%, diluted EPS of $12.46–$12.86, and adjusted EPS of $11.70–$12.10. Guidance assumes continued supply-chain improvement. Management noted that a U.S. distribution-center transition affected shipment timing in the second half of 2023, while adding capacity for future growth. It expects future cash uses to include working capital, investment, acquisitions, retirement-plan contributions, dividends, repurchases, and debt repayment.
Management described gradual supply-chain improvement but warned of continued component availability, cost, and delivery risks. Other cited uncertainties include subdued manufacturing indicators, inflation and customer capital-spending cycles, foreign exchange, geopolitical events, cybersecurity, talent, competition, and integration of acquisitions. Sensia’s goodwill fair value exceeded carrying value by approximately 10%; management noted sensitivity to Oil & Gas demand, projected growth and margins, discount rates, and market multiples. The filing reports pending litigation, including asbestos-related claims, but management does not expect pending matters to have a material effect. No material indemnification claims were identified as probable or reasonably possible of an unfavorable outcome.
Key investor verification points
- Assess the underlying earnings trend separately from volatile PTC fair-value gains and pension-related items; review the company’s non-GAAP reconciliations.
- Track whether working-capital growth, particularly receivables and inventory, converts into sustained operating cash flow and free cash flow.
- Compare subsequent sales, margins, and shipments with FY2023 guidance and management’s assumed supply-chain improvement; monitor segment-level margin pressure.
- Review PTC investment exposure and share-sale activity: the company reported $355.2 million of gross proceeds from PTC-share sales in the first nine months.
- Monitor Sensia’s Oil & Gas exposure and the assumptions supporting the goodwill valuation, along with debt refinancing costs and liquidity access.