01—Abstract
Summary
Summary of the 10-K filed November 14, 2011. Cited figures are marked; the original filing is the authoritative source.
Rockwell Automation (ROK) closed fiscal 2011 (year ended September 30, 2011) with a strong rebound in results.
Sales rose 24% to $6.0 billiona, driven by volume recovery across both segments, with organic sales up roughly 20% and emerging markets up 31%. Income from continuing operations more than doubled... actually rose 58% pre-tax to $867.6 million, and diluted EPS from continuing operations increased to $4.79 from $3.05. Operating leverage was visible: SG&A fell to 24.4% of sales from 27.2%, and the Architecture & Software segment margin expanded to 25.4% while Control Products & Solutions improved to 10.8%.
Balance sheet and cash generation were solid. Free cash flow (a non-GAAP measure that adds back the excess tax benefit from share-based compensation) was $561.7 millionb, up from $410.7 million, though it includes a $150 million discretionary U.S. pension contribution in both 2011 and 2010. Total debt was stable at about $905 million of long-term notes, with no commercial paper outstanding at year-end.
Debt-to-total-capital fell to 34.1% from 38.3%, and shareowners' equity rose to $1.75 billionc. The company returned capital through $211 million in dividends (raised 21% to a $1.70 annualized rate) and roughly $299 million in buybacks. In October 2011, it made a $300 million pension contribution, partly funded with $275 million of commercial paper, which will weigh on near-term cash.
Key risks for investors include the cyclical nature of industrial capital spending, sovereign debt concerns in Europe, growing pension and retiree health liabilities (the retirement benefits liability rose to $1.06 billiond), asbestos and environmental exposures, and dependence on distributors (about 70% of global sales flow through independent distributors). Management's outlook remains cautiously optimistic about a continued but potentially slower and more uneven recovery into fiscal 2012, with long-term targets of 6-8% revenue growth, double-digit EPS growth, and 60% of revenue outside the U.S.
02—Key points
Key Highlights
- Sales grew 24% to $6.0 billion in FY2011, with organic growth of roughly 20% and emerging markets up 31%.
- Diluted EPS from continuing operations rose to $4.79 from $3.05; pre-tax income from continuing operations rose 58% to $867.6 million.
- Operating margin expansion: Architecture & Software segment margin reached 25.4% (up 2.9 points), and Control Products & Solutions reached 10.8% (up 2.0 points).
- Free cash flow of $561.7 million (up from $410.7 million), though it includes $150 million of discretionary pension contributions in each of 2010 and 2011.
- Shareholder returns: dividends were raised 21% to $0.425 per quarter ($1.70 annualized) and about $299 million was spent on buybacks in 2011, with about $202 million left on the authorization.
- Balance sheet strengthened: debt-to-total-capital fell to 34.1% from 38.3%, no commercial paper was outstanding at year-end, and an October 2011 $300 million pension contribution was partly funded with $275 million of commercial paper.
- Risks to watch: pension and retiree health costs (pension expense expected to rise to about $103.9 million in 2012), European sovereign debt concerns, roughly 51% of revenue from outside the U.S., and asbestos and environmental liabilities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Rockwell Automation kept $0.12.
- Revenue$6.00B100.0%
- Cost of revenue−$3.61B60.2%
- Gross profit$2.39B39.8%
- Operating costs−$1.69B28.2%
- Operating income$697.1M11.6%
- Interest, other & tax$700,0000.0%
- Net income$697.8M11.6%
Where FY2011 revenue went
$6.00B- Cost of revenue: $3.61B, 60% of revenue
- SG&A: $1.46B, 24% of revenue
- Operating income: $697.1M, 12% of revenue
- R&D: $243.9M, 4.1% of revenue
Kept 12% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed November 14, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $6.00B$4.86B | +23.5% |
| Cost of Revenue | $3.61B$2.92B | +23.6% |
| Gross Profit | $2.39B$1.94B | +23.4% |
| R&D Expenses | $243.90M$198.90M | +22.6% |
| SG&A Expenses | $1.46B$1.32B | +10.4% |
| Operating Income | $697.10M$440.40M | +58.3% |
| Interest Expense | $59.50M$60.50M | −1.7% |
| Net Income | $697.80M$464.30M | +50.3% |
| EPS (Basic) | $4.88$3.26 | +49.7% |
| EPS (Diluted) | $4.80$3.22 | +49.1% |
| Shares Outstanding (Basic) | 142.70M142.00M | +0.5% |
| Shares Outstanding (Diluted) | 145.20M144.00M | +0.8% |
05—Questions
Frequently Asked Questions
What drove Rockwell Automation's strong fiscal 2011 results?
Results were driven mainly by volume recovery in industrial production and customer capital spending, with pricing contributing less than one point. Emerging markets sales rose 31%, Logix controller sales exceeded $900 million (up 29%), and operating leverage held SG&A to 24.4% of sales, down from 27.2%.
Is the company's free cash flow truly as strong as the headline number suggests?
Free cash flow of $561.7 million benefited from a $38.1 million excess tax benefit from share-based compensation, which the company adds back by definition. Both 2010 and 2011 also absorbed $150 million of discretionary U.S. pension contributions, and 2011 operating cash flow was $643.7 million. Investors should note that a $300 million contribution was made in October 2011, which reduces near-term cash.
How exposed is Rockwell to economic and regional risks?
About 51% of 2011 revenue came from outside the U.S., and the company cited European sovereign debt concerns as a drag on industrial growth. Demand is tied to customer capital spending, which is cyclical. Management remains cautiously optimistic about continued recovery into fiscal 2012 but expects slower and potentially more uneven growth.
What are the main long-term liability concerns?
The retirement benefits liability rose to $1.06 billion from $923 million, and the funded status of pension plans was a deficit of about $910 million. Pension expense is expected to rise to about $103.9 million in 2012, and the U.S. discount rate is set to fall to 5.20%. Environmental reserves were $41.1 million net, and asbestos claims remain pending but are largely indemnified or insured, according to management.
What is the company's capital return policy and outlook?
The board raised the quarterly dividend 21% to $0.425 per share. In 2011 the company paid $1.475 per share in dividends and repurchased about 4.0 million shares for $299.2 million. Future buybacks depend on business conditions, free cash flow, and stock price. Long-term financial goals include 6-8% revenue growth, double-digit EPS growth, and 60% of revenue outside the U.S.
06—Continue