10-QPeriod: Q3 FY2016

ROCKWELL AUTOMATION, INC Quarterly Report for Q3 Ended Jun 30, 2016

Filed August 3, 2016For Securities:ROK

Summary

For the nine months ended June 30, 2016, Rockwell Automation, Inc. (ROK) reported a decrease in sales and net income compared to the same period in the prior year. Sales were down 7.6% to $4.34 billion, and net income fell to $544.5 million from $626.3 million. This decline was attributed to broader macroeconomic factors, including weak demand in heavy industries like oil and gas, and unfavorable currency translations, particularly impacting sales in Asia Pacific and Canada. Despite the overall sales decline, the company's "Architecture & Software" segment showed resilience with a smaller organic sales decrease than the "Control Products & Solutions" segment. The company also highlighted a significant settlement related to the Rocky Flats facility, which is expected to be fully reimbursed by the Department of Energy. Management remains focused on strategic growth initiatives, including acquisitions, to expand their market reach and technology offerings. Investors should note the decrease in free cash flow and the company's ongoing share repurchase program.

Financial Statements
Beta
Revenue$1.47B
Cost of Revenue$857.20M
Gross Profit$616.80M
SG&A Expenses$346.70M
Interest Expense$18.10M
Net Income$191.00M
EPS (Basic)$1.47
EPS (Diluted)$1.46
Shares Outstanding (Basic)129.80M
Shares Outstanding (Diluted)130.80M

Key Highlights

  • 1Total sales for the nine months ended June 30, 2016, decreased by 7.6% to $4.34 billion compared to the prior year, with a 3.9% decrease in organic sales.
  • 2Net income for the nine months ended June 30, 2016, declined to $544.5 million ($4.13 diluted EPS) from $626.3 million ($4.60 diluted EPS) in the same period last year.
  • 3The "Architecture & Software" segment saw a 6.1% sales decrease (2.4% organic), while "Control Products & Solutions" experienced a 8.8% sales decrease (5.1% organic).
  • 4The company reached an agreement to settle the Rocky Flats facility claims for $375.0 million, of which Rockwell Automation's share is $243.75 million, with full reimbursement expected from the U.S. Department of Energy.
  • 5Free cash flow for the nine months ended June 30, 2016, decreased to $598.3 million from $768.7 million in the prior year, primarily due to lower net income and less favorable working capital performance.
  • 6The company continued its share repurchase program, spending $370.0 million in the first nine months of 2016, with approximately $1.075 billion remaining under board authorizations.
  • 7The effective tax rate for the nine months ended June 30, 2016, was 22.9%, favorably impacted by discrete tax items and the R&D tax credit extension.

Frequently Asked Questions

The decline in sales and net income for the nine months ended June 30, 2016, was primarily driven by challenging macroeconomic factors, including weakness in heavy industries such as oil and gas, and unfavorable foreign currency exchange rates. These factors impacted sales across multiple geographic regions, particularly in Asia Pacific and Canada.

Cash provided by operating activities and free cash flow decreased in the first nine months of fiscal year 2016 compared to the prior year. This was mainly due to lower net income and less favorable working capital performance. The company repurchased shares and paid dividends, funded by operating cash flows and existing credit facilities. Management expects future free cash flow generation to be a key measure for strategic uses like acquisitions, debt servicing, and share repurchases.

Rockwell Automation has agreed to a $375.0 million settlement for claims related to the Rocky Flats facility, with its share being $243.75 million. The company expects to be fully reimbursed by the U.S. Department of Energy for this amount. While there might be a short-term cash outlay, the full reimbursement mitigates the financial impact on the company's balance sheet and results of operations.

The "Architecture & Software" segment experienced a smaller sales decline (6.1% reported, 2.4% organic) compared to the "Control Products & Solutions" segment (8.8% reported, 5.1% organic) for the nine months ended June 30, 2016. The "Architecture & Software" segment's operating margin also saw a larger decrease than the "Control Products & Solutions" segment, indicating differing performance dynamics within the company's operations.