10-QPeriod: Q3 FY2018

ROCKWELL AUTOMATION, INC Quarterly Report for Q3 Ended Jun 30, 2018

Filed July 27, 2018For Securities:ROK

Summary

Rockwell Automation's third-quarter 2018 report shows solid sales growth driven by broad-based demand across regions and industries, with Architecture & Software and Control Products & Solutions segments both experiencing increases. The company is navigating the impact of the Tax Cuts and Jobs Act of 2017, with provisional amounts recorded for the transition tax and revaluation of deferred tax assets. A significant event during the quarter was the agreement to purchase securities of PTC Inc., leading to a substantial unrealized loss recorded due to fair value adjustments of this forward contract. Financially, the company demonstrated strong operating cash flow and free cash flow. Despite a decrease in net income year-over-year, primarily due to the PTC investment impact and the Tax Act provisional expenses, the company's operational performance remains robust. Rockwell Automation continues to execute its long-term strategy focused on The Connected Enterprise and remains committed to returning capital to shareholders through its enhanced share repurchase program.

Financial Highlights

50 data points
Beta

Revenue

$1.70B

43.8% Gross Margin

Net Income

$198.60M

11.7% Net Margin

EPS (Diluted)

$1.58

Total Assets

$5.84B

Cash & Equivalents

$940.10M

Free Cash Flow

$320.70M

Financial Statements
Beta
Revenue$1.70B
Cost of Revenue$954.00M
Gross Profit$744.70M
SG&A Expenses$399.60M
Interest Expense$16.50M
Net Income$198.60M
EPS (Basic)$1.60
EPS (Diluted)$1.58
Shares Outstanding (Basic)124.40M
Shares Outstanding (Diluted)125.80M

Key Highlights

  • 1Total sales increased by 6.2% to $1,698.7 million for the three months ended June 30, 2018, compared to the prior year, with organic sales up 5.7%.
  • 2Both segments, Architecture & Software (up 8.7%) and Control Products & Solutions (up 4.1%), contributed to sales growth.
  • 3Net income decreased to $198.6 million from $216.9 million in the prior year's quarter, impacted by a significant unrealized loss of $76.8 million related to a forward contract for PTC Inc. securities and provisional tax expenses from the Tax Cuts and Jobs Act.
  • 4Adjusted EPS (excluding non-operating pension costs and other items) increased to $2.16 from $1.76 in the prior year's quarter, indicating strong underlying operational performance.
  • 5Operating cash flow for the nine months ended June 30, 2018, was $937.2 million, a slight increase from $927.1 million in the prior year, with free cash flow also showing a modest increase to $858.6 million.
  • 6The company significantly increased its share repurchase target for fiscal year 2018 to $1.5 billion, reflecting confidence in its financial position and commitment to shareholder returns.

Frequently Asked Questions

The primary driver of Rockwell Automation's sales growth in the third quarter of fiscal 2018 was broad-based demand across various regions and industries. Specifically, both the Architecture & Software segment and the Control Products & Solutions segment saw increases in sales. Organic sales growth also played a significant role.

The Tax Cuts and Jobs Act of 2017 has influenced Rockwell Automation's financial results, particularly in the nine-month period. Provisional tax expenses related to the transition tax on deemed repatriation of foreign earnings ($389.5 million) and the revaluation of net deferred tax assets ($94.2 million) significantly increased the effective tax rate for the nine months. However, for the current quarter, the lower U.S. statutory tax rate provided some benefit, partially offset by adjustments related to the PTC investment.

Rockwell Automation entered into an agreement to purchase securities of PTC Inc. during the quarter. This agreement was treated as a forward contract and recorded at fair value. A significant unrealized loss of $76.8 million was recognized in the quarter due to a decrease in PTC's stock price and a valuation adjustment for lack of marketability. This has impacted the reported net income and earnings per share for the period, introducing volatility not related to the company's core operations.

Rockwell Automation generated strong operating cash flow of $937.2 million and free cash flow of $858.6 million for the nine months ended June 30, 2018. The company is actively returning capital to shareholders, significantly increasing its share repurchase target for fiscal year 2018 to $1.5 billion. This demonstrates a commitment to enhancing shareholder value.