10-QPeriod: Q3 FY2020

ROCKWELL AUTOMATION, INC Quarterly Report for Q3 Ended Jun 30, 2020

Filed July 28, 2020For Securities:ROK

Summary

Rockwell Automation, Inc. (ROK) reported its Q3 fiscal year 2020 results, showing a decrease in sales year-over-year, largely attributed to the economic impacts of the COVID-19 pandemic and weakness in sectors like Oil & Gas. Despite the top-line pressure, the company demonstrated resilience with improved operating earnings in the Architecture & Software segment and managed its costs effectively. The company also saw a significant boost from its investment in PTC Inc., which positively impacted net income and EPS for the quarter. Financially, ROK maintained a solid liquidity position, evidenced by a healthy free cash flow generation for the nine-month period. The company has also proactively managed its debt, including repaying short-term notes and securing a new term loan. Management has provided updated fiscal year 2020 guidance, projecting a decline in reported sales but maintaining a positive outlook for Adjusted EPS, reflecting disciplined cost management and strategic focus amidst a challenging global economic environment.

Financial Statements
Beta
Revenue$1.39B
Cost of Revenue$839.80M
Gross Profit$554.20M
SG&A Expenses$370.20M
Interest Expense$25.40M
Net Income$317.80M
EPS (Basic)$2.74
EPS (Diluted)$2.73
Shares Outstanding (Basic)115.70M
Shares Outstanding (Diluted)116.40M

Key Highlights

  • 1Total sales decreased by 16.3% year-over-year for the three months ended June 30, 2020, largely due to the COVID-19 pandemic and associated economic slowdown.
  • 2Net income attributable to Rockwell Automation increased to $317.8 million for the quarter, up from $261.4 million in the prior year period, significantly boosted by a $175.5 million gain from its investment in PTC Inc.
  • 3Diluted Earnings Per Share (EPS) rose to $2.73 from $2.20 year-over-year, also significantly influenced by the PTC investment gains.
  • 4Adjusted EPS, which excludes certain non-recurring items like investment gains/losses, decreased to $1.27 from $2.40 year-over-year, reflecting the impact of lower sales on core operations.
  • 5The company generated $702.8 million in free cash flow for the nine months ended June 30, 2020, an increase from $598.3 million in the prior year period, indicating strong cash generation capabilities.
  • 6Significant acquisitions were completed, including the formation of the Sensia joint venture and the acquisitions of MESTECH, Avnet, ASEM, and Kalypso, contributing to goodwill and intangible assets.
  • 7The company provided fiscal year 2020 guidance, expecting reported sales growth of approximately -5.5% and Diluted EPS between $8.06 - $8.26.

Frequently Asked Questions

The increase in Net Income and Diluted EPS for the three months ended June 30, 2020, was primarily driven by a significant gain of $175.5 million related to the change in fair value of the company's investment in PTC Inc. (PTC Shares), which is accounted for as an equity security and subject to market value fluctuations.

The COVID-19 pandemic had a significant negative impact on sales. Total sales decreased by 16.3% year-over-year for the three months ended June 30, 2020, and organic sales decreased by 17.6%. The company cited disruptions to business, global economic impacts, and reduced demand for its products and services as key consequences.

For fiscal year 2020, Rockwell Automation projected reported sales growth of approximately -5.5% and diluted EPS between $8.06 - $8.26. The company anticipates a gradual recovery, assuming no further major pandemic-related disruptions, and is focused on cost management and strategic investments.

The company repaid its $300 million in 2.050% notes in March 2020. In April 2020, Rockwell Automation entered into a $400 million senior unsecured 364-day term loan. The total long-term debt remained relatively stable, with short-term debt increasing due to the new term loan and Sensia-related loans.