Rockwell Automation, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended March 31, 2023; comparable periods ended March 31, 2022. The company supplies industrial automation and digital transformation products, solutions, and services through Intelligent Devices, Software & Control, and Lifecycle Services. Unaudited interim financial statements received an independent accountant’s review, not an audit.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Sales | $2,275.4 million | $1,808.1 million | $4,256.4 million | $3,665.4 million |
| Gross profit | $932.5 million | $664.1 million | $1,746.1 million | $1,413.2 million |
| Net income attributable to Rockwell | $300.3 million | $53.9 million | $684.3 million | $295.4 million |
| Diluted EPS | $2.59 | $0.46 | $5.90 | $2.51 |
| Adjusted EPS (non-GAAP) | $3.01 | $1.66 | $5.48 | $3.79 |
| Total segment operating margin (non-GAAP) | 21.3% | 15.7% | 20.8% | 17.4% |
Reported sales grew 25.8% in Q2 and 16.1% year to date; organic sales grew 27.3% and 18.5%, respectively. Q2 growth reflected pricing, volume, and backlog conversion, with currency translation reducing sales growth by 2.8 percentage points and acquisitions adding 1.3 points. Pricing contributed approximately 6.5 percentage points in Q2. Gross margin was approximately 41.0% in Q2, compared with 36.7% a year earlier.
Q2 sales by segment were $1,023.2 million in Intelligent Devices (+26.5%), $741.1 million in Software & Control (+38.5%), and $511.1 million in Lifecycle Services (+10.0%). Segment operating margins were 20.2%, 33.6%, and 5.5%, respectively. Lifecycle Services margin declined from 7.3%, as higher incentive compensation and one-time investments outweighed sales growth.
For the six months, operating cash flow was $253.4 million versus $78.8 million; capital expenditures were $55.7 million versus $82.0 million; and free cash flow (non-GAAP) was $197.7 million versus negative $3.2 million. Management attributed the improvement mainly to higher pre-tax income and lower income-tax payments, partly offset by working-capital increases. Cash, cash equivalents, and restricted cash ended the period at $464.6 million.
At March 31, 2023, total debt was approximately $4.0 billion, including $513.8 million short-term debt, $608.8 million current long-term debt, and $2,868.1 million long-term debt. Cash and cash equivalents were $456.0 million. Current assets were $4.10 billion and current liabilities $3.79 billion. Short-term debt included $434.5 million of commercial paper at a 4.84% weighted-average rate and $50.0 million drawn on Sensia’s credit line. The company reported compliance with credit-facility covenants and no borrowing under its $1.5 billion revolving facility.
Material changes and unusual items
- Reported income and EPS benefited from PTC investment fair-value gains of $63.0 million in Q2 and $203.6 million for the six months; the comparable prior-year periods included losses of $140.7 million and $133.1 million. These market-value changes make reported earnings more volatile; adjusted EPS excludes them.
- The company recorded a $117.9 million U.S. pension settlement charge in March after lump-sum payments triggered settlement accounting. The remeasurement increased the net benefit obligation by $76.2 million. Adjusted EPS excludes non-operating pension costs.
- Receivables rose to $2.05 billion from $1.74 billion at September 30, 2022, and inventories to $1.33 billion from $1.05 billion. Working-capital outflows included $211.1 million from receivables and $220.6 million from inventories.
- Acquisitions included CUBIC and Knowledge Lens; cash paid for acquisitions, net of cash acquired, was $168.0 million in the six-month period. Goodwill increased to $3.69 billion. The annual impairment review found no impairment; Sensia’s estimated fair value exceeded carrying value by approximately 10%.
- Dividends paid were $271.4 million and share repurchases were $195.2 million in the six months. Approximately $1.06 billion remained under board repurchase authorizations at March 31.
Outlook, commentary, and risks
As of April 27, 2023, management raised/updated fiscal 2023 guidance to reported sales growth of 12.5%–16.5%, organic sales growth of 13.0%–17.0%, diluted EPS of $11.71–$12.41, and adjusted EPS of $11.50–$12.20. The outlook reflects first-half performance and record backlog and assumes continued improvement in electronic-component availability. Guidance incorporates approximately 1.0% inorganic growth and approximately 1.5% adverse currency translation. The filing notes that forward estimates for PTC fair-value movements and pension settlement charges are not available with reliable visibility.
Management described supply-chain conditions as gradually improving but said component availability, labor shortages, inflation, and geopolitical instability remained concerns. U.S. manufacturing PMI was below 50 for a fifth consecutive month in March, while global industrial and purchasing-manager indicators were mixed. Principal risks include supply and input costs, customer capital-spending cycles and macroeconomic conditions, cybersecurity and IT systems, competition, talent retention, transaction integration, foreign exchange, litigation, and volatility in the PTC investment. Management said pending legal matters, including asbestos claims, were not expected to have a material effect, while noting that outcomes are uncertain. Controls and procedures were reported effective, with no material quarterly change to internal control over financial reporting.
Important facts for investors to verify
- How much of sales growth and record backlog converts to shipments and cash as component availability improves, and whether working capital continues to absorb cash.
- Whether fiscal 2023 sales and EPS guidance is achieved, including the assumptions for pricing, currency, acquisitions, and component supply.
- The effect of PTC share-price changes and future PTC-share sales on reported earnings, cash proceeds, and remaining investment exposure.
- Whether Lifecycle Services margins recover and whether the one-time spending and incentive costs affecting that segment abate.
- Developments in pension obligations and settlement-related charges, plus Sensia’s performance against the assumptions supporting its relatively narrow goodwill headroom.
- Short-term refinancing and liquidity conditions, including commercial-paper access and the company’s ability to maintain credit ratings and covenant compliance.