10-QPeriod: Q2 FY2018

ROCKWELL AUTOMATION, INC Quarterly Report for Q2 Ended Mar 31, 2018

Filed May 2, 2018For Securities:ROK

Summary

Rockwell Automation, Inc.'s (ROK) Q2 2018 10-Q filing reveals a solid increase in sales and profitability compared to the prior year. Sales grew by 6.2% year-over-year, driven by a 3.5% increase in organic sales, indicating strong underlying business performance. This growth was broad-based across most regions and particularly strong in heavy industries like oil and gas, mining, and metals. Profitability also saw significant improvement, with income before income taxes increasing by 30% year-over-year, reflecting effective cost management and higher sales volumes. The company's strategic initiatives, such as the 'Connected Enterprise' and growth in areas like Logix and Process solutions, appear to be gaining traction. Management highlighted positive economic indicators in the U.S. manufacturing sector, although they are monitoring potential impacts from trade tariffs.

Financial Highlights

50 data points
Beta

Revenue

$1.65B

42.6% Gross Margin

Net Income

$227.40M

13.8% Net Margin

EPS (Diluted)

$1.77

Total Assets

$6.51B

Cash & Equivalents

$1.43B

Free Cash Flow

$359.30M

Financial Statements
Beta
Revenue$1.65B
Cost of Revenue$947.30M
Gross Profit$703.90M
SG&A Expenses$386.60M
Interest Expense$17.30M
Net Income$227.40M
EPS (Basic)$1.79
EPS (Diluted)$1.77
Shares Outstanding (Basic)126.90M
Shares Outstanding (Diluted)128.50M

Key Highlights

  • 1Total sales increased by 6.2% to $1,651.2 million, with organic sales up 3.5% year-over-year.
  • 2Income before income taxes rose significantly by 30.0% to $299.6 million, indicating improved profitability.
  • 3Architecture & Software segment sales grew 6.9% to $768.4 million, with a notable increase in segment operating margin to 28.4%.
  • 4Control Products & Solutions segment sales increased by 5.7% to $882.8 million, also showing an improved operating margin of 14.4%.
  • 5The company successfully managed its effective tax rate, with an adjusted effective tax rate of 20.5% for the quarter, despite provisional tax charges related to the Tax Cuts and Jobs Act.
  • 6Free cash flow remained strong at $537.9 million for the six months ended March 31, 2018, slightly down from the prior year but indicating robust cash generation.
  • 7The company repurchased approximately 2.5 million shares for $465.2 million during the quarter, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

The primary driver of Rockwell Automation's sales growth was a combination of broad-based regional demand and strength in heavy industries such as oil and gas, mining, and metals. Organic sales growth of 3.5% indicates that the increase was driven by core business performance rather than just currency fluctuations or acquisitions.

Profitability showed a significant improvement. Income before income taxes increased by 30% year-over-year to $299.6 million. This was supported by higher sales and likely effective cost management, as evidenced by the increase in segment operating earnings.

The Tax Cuts and Jobs Act has led to provisional tax charges, particularly related to the transition tax on deemed repatriation of foreign earnings and revaluation of net deferred tax assets. This resulted in a higher effective tax rate (101.5%) for the six-month period. However, the company's adjusted effective tax rate remained more stable, reflecting an effort to provide a clearer view of ongoing operational tax performance. Management is continuing to analyze the full impact of the act.

The company generated strong free cash flow of $537.9 million for the six months ended March 31, 2018. During the quarter, Rockwell Automation repurchased approximately 2.5 million shares of its common stock for $465.2 million, indicating an active share repurchase program and a commitment to returning capital to shareholders. The company also expects to continue repatriating foreign earnings.