Rockwell Automation, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; the filing also reports fourth-quarter results. Rockwell Automation is a global industrial automation and digital transformation company. Fiscal 2020 had two segments: Architecture & Software and Control Products & Solutions; the company reorganized into three segments beginning in fiscal 2021.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Sales | $6.330 billion | $6.695 billion |
| Organic sales change | -7.8% | +2.8% |
| Gross profit / gross margin | $2.595 billion / approximately 41.0% | $2.900 billion / approximately 43.3% |
| Net income attributable to Rockwell | $1.023 billion | $696 million |
| Diluted EPS | $8.77 | $5.83 |
| Adjusted EPS (non-GAAP, FY2020 definition) | $7.68 | $8.67 |
| Total segment operating earnings / margin | $1.258 billion / 19.9% | $1.474 billion / 22.0% |
| Cash from operating activities | $1.121 billion | $1.182 billion |
| Free cash flow (non-GAAP) | $1.007 billion | $1.049 billion |
Annual sales fell 5.5%; acquisitions contributed 3.5 percentage points and currency reduced sales by 1.2 points. Weakness in Oil & Gas and other process markets weighed on results. Segment operating earnings declined 15%, with lower sales partly offset by temporary and structural cost reductions. Net income and GAAP EPS rose despite weaker operations, primarily because the PTC investment generated a $153.9 million fair-value gain in 2020 versus a $368.5 million loss in 2019. The effective tax rate fell to 9.9% from 22.8%, reflecting PTC-related tax effects, Sensia formation benefits and other items. Adjusted EPS declined 11%.
Fourth quarter: Sales were $1.570 billion versus $1.730 billion in Q4 FY2019; gross profit was $639 million versus $723 million. Net income attributable to Rockwell was $263 million versus $8 million, and diluted EPS was $2.25 versus $0.07. The substantial earnings comparison was affected by investment fair-value movements and other unusual items; quarterly results should not be read as a like-for-like measure of operating improvement.
Liquidity, debt and capital allocation
At September 30, 2020, cash and cash equivalents were $705 million, down from $1.018 billion. Current assets were $2.686 billion and current liabilities $1.811 billion. Long-term debt was $1.975 billion and short-term debt $25 million; no commercial paper was outstanding. The $1.25 billion revolving credit facility, due November 2023, was undrawn, and the company reported compliance with its covenants. It repaid a $400 million term loan in September 2020. Operating cash flow and free cash flow decreased year over year, partly due to lower pre-tax income and a voluntary $50 million pension contribution.
Capital expenditures were $114 million. Dividends paid were $473 million, or $4.08 per share. The company repurchased approximately 1.4 million shares for $255 million during FY2020; $854 million remained under repurchase authorizations at year-end. FY2021 capital expenditures were expected to be about $150 million.
Outlook, commentary and risks
FY2021 guidance assumed a gradual recovery, with no renewed pandemic-related facility closures or supply-chain disruptions. Management projected reported sales growth of 6%–9%, organic sales growth of 3.5%–6.5%, and diluted EPS of $8.07–$8.47. Adjusted EPS guidance was $8.45–$8.85 under a revised non-GAAP definition that additionally excludes specified purchase-accounting depreciation and amortization.
COVID-19 disrupted customer demand, access to customer facilities, project execution and supply chains. Management reported project delays and lower labor utilization in some services work. Cost actions included eliminating discretionary spending, delaying noncritical investment, reducing contract labor, deferring nonessential capital expenditures, temporary salary reductions and suspending the U.S. 401(k) match from May through November 2020. No payout was earned under FY2020 incentive plans. Oil & Gas weakness and pandemic uncertainty remained notable headwinds.
Other key risks include industrial spending cycles, competition and pricing pressure, supplier and distributor dependence, cybersecurity and product-security exposure, foreign currency and regulatory risks, and execution and integration of acquisitions. The company’s $875 million PTC equity investment is subject to market-price volatility and transfer restrictions. Sensia goodwill and acquired customer-relationship valuations rely on estimates; management reported no Sensia goodwill impairment. Environmental remediation liabilities, net of expected recoveries, were $59 million; the company also disclosed asbestos claims and other litigation, while stating it did not expect pending matters to have a material effect. The financial statements received an unmodified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Separate underlying operating trends from PTC fair-value gains or losses and from the unusually low FY2020 effective tax rate; review adjusted measures and their definitions.
- Track recovery in organic sales, segment margins and customer end markets, particularly Oil & Gas, and compare actual results with FY2021 guidance assumptions.
- Assess cash generation against dividends, pension funding, acquisitions, repurchases and debt obligations; confirm future repurchase activity and capital spending.
- Monitor PTC investment valuation and transfer restrictions, and Sensia performance, goodwill assumptions and exposure to oil-market conditions.
- Review acquisition integration, supply-chain and cybersecurity developments, as well as environmental, asbestos and other contingent liabilities.