Why did Rockwell's EPS decline so sharply if sales grew?

The prior-year quarter included a $140.6 million non-cash fair value gain on Rockwell's former PTC investment, which inflated Q1 FY2023 earnings. Underlying operating margin also declined, with segment operating margin falling to 17.3% from 20.2%, due to the timing of prior-year investment spend, product/solutions mix, and lower supply chain utilization. Diluted EPS fell 44% to $1.86, and adjusted EPS, which strips out the PTC gain and certain other items, fell 17% to $2.04.

Is the 3.6% sales growth organic?

No. Only 1.0% was organic growth. Acquisitions (notably Clearpath Robotics and Verve Industrial Protection) added 1.4 points and favorable currency translation added 1.2 points. Intelligent Devices organic sales declined 4.5%, while Software & Control (+4.0%) and Lifecycle Services (+8.1%) grew.

Is Rockwell's fiscal 2024 outlook changing?

Sales and adjusted EPS guidance were reaffirmed, with reported sales growth of 0.5%-6.5%, organic growth of (2.0)%-4.0%, and adjusted EPS of $12.00-$13.50. Diluted EPS guidance was lowered to $11.24-$12.74 from $11.49-$12.99 because of purchase accounting amortization from recent acquisitions. Management expects EPS growth to be weighted toward the second half of the fiscal year.

Why was free cash flow negative this quarter?

Operating cash flow fell to $32.6 million from $66.3 million, mainly because of a larger payout of fiscal 2023 incentive compensation. Capital expenditures also rose to $67.9 million from $24.2 million. Together these produced free cash flow of $(35.3) million. Management did not describe this as a structural problem, and quarterly cash flow is typically seasonal and weighted toward the fiscal fourth quarter.

What signals suggest the demand environment is improving?

Management said customer orders rose double digits sequentially, with growth across all segments and regions and particular strength in North America. Recurring revenue also grew, with Total ARR up 20%. Sensia, the joint venture with SLB, posted over 25% growth in orders and sales. Lingering channel inventory and supply chain constraints still affect shipment timing, so the order recovery has not yet fully translated into sales.

ROK 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed January 31, 2024. Cited figures are marked; the original filing is the authoritative source.

Rockwell Automation (ROK) reported fiscal Q1 2024 results (quarter ended December 31, 2023) with reported sales of $2,052 million^a, up 3.6% year over year, but organic sales grew only 1.0%, with acquisitions adding 1.4% and currency adding 1.2%.

Profitability weakened sharply: diluted EPS fell 44% to $1.86^b and adjusted EPS fell 17% to $2.04, as pre-tax margin dropped to 12.7% from 23.6% (the prior year included a large fair value gain on the previous PTC investment) and total segment operating margin declined to 17.3% from 20.2%. Free cash flow was negative at $(35.3) million, versus $42.1 million a year earlier, largely due to a higher incentive compensation payout tied to fiscal 2023 performance. Segment results were mixed.

Intelligent Devices organic sales fell 4.5%^c with segment margin compressing to 16.2%, reflecting lower volume and channel inventory effects. Software & Control organic sales rose 4.0%, though margin fell to 25.0%. Lifecycle Services was the standout, with organic sales up 8.1% and segment margin nearly doubling to 10.4%, helped by Sensia, the joint venture with SLB.

Recurring revenue remained a bright spot, with Total ARR up 20% and Organic ARR up 18%. Management said orders rose sequentially across all segments and regions, with double-digit sequential growth overall, which it views as an early inflection. Fiscal 2024 guidance was reaffirmed for reported sales growth (0.5%-6.5%), organic sales growth ((2.0)%-4.0%) and adjusted EPS ($12.00^d-$13.50).

Diluted EPS guidance was lowered to $11.24-$12.74 from $11.49-$12.99, reflecting purchase accounting amortization from the Clearpath Robotics and Verve Industrial Protection acquisitions. Management expects modest EPS growth weighted toward the second half, contingent on continued order recovery and channel inventory normalization.

02—Key points

Key Highlights

Reported sales rose 3.6% to $2,052 million, but organic sales grew only 1.0%, with acquisitions contributing 1.4% and currency 1.2%.
Diluted EPS fell 44% to $1.86 and adjusted EPS fell 17% to $2.04; the prior-year comparison was inflated by a $140.6 million fair value gain on the PTC investment.
Total segment operating margin declined to 17.3% from 20.2%, and pre-tax margin fell to 12.7% from 23.6%.
Free cash flow was $(35.3) million versus $42.1 million a year ago, driven by higher incentive compensation payouts.
Total ARR grew 20% and Organic ARR grew 18%, supporting the recurring software and services story.
Orders increased sequentially across all segments and regions, with double-digit sequential growth, signaling an early demand rebound.
Fiscal 2024 sales and adjusted EPS guidance was reaffirmed, while diluted EPS guidance was lowered to $11.24-$12.74 due to acquisition-related amortization.

03—Questions

Frequently Asked Questions

Why did Rockwell's EPS decline so sharply if sales grew?
The prior-year quarter included a $140.6 million non-cash fair value gain on Rockwell's former PTC investment, which inflated Q1 FY2023 earnings. Underlying operating margin also declined, with segment operating margin falling to 17.3% from 20.2%, due to the timing of prior-year investment spend, product/solutions mix, and lower supply chain utilization. Diluted EPS fell 44% to $1.86, and adjusted EPS, which strips out the PTC gain and certain other items, fell 17% to $2.04.
Is the 3.6% sales growth organic?
No. Only 1.0% was organic growth. Acquisitions (notably Clearpath Robotics and Verve Industrial Protection) added 1.4 points and favorable currency translation added 1.2 points. Intelligent Devices organic sales declined 4.5%, while Software & Control (+4.0%) and Lifecycle Services (+8.1%) grew.
Is Rockwell's fiscal 2024 outlook changing?
Sales and adjusted EPS guidance were reaffirmed, with reported sales growth of 0.5%-6.5%, organic growth of (2.0)%-4.0%, and adjusted EPS of $12.00-$13.50. Diluted EPS guidance was lowered to $11.24-$12.74 from $11.49-$12.99 because of purchase accounting amortization from recent acquisitions. Management expects EPS growth to be weighted toward the second half of the fiscal year.
Why was free cash flow negative this quarter?
Operating cash flow fell to $32.6 million from $66.3 million, mainly because of a larger payout of fiscal 2023 incentive compensation. Capital expenditures also rose to $67.9 million from $24.2 million. Together these produced free cash flow of $(35.3) million. Management did not describe this as a structural problem, and quarterly cash flow is typically seasonal and weighted toward the fiscal fourth quarter.
What signals suggest the demand environment is improving?
Management said customer orders rose double digits sequentially, with growth across all segments and regions and particular strength in North America. Recurring revenue also grew, with Total ARR up 20%. Sensia, the joint venture with SLB, posted over 25% growth in orders and sales. Lingering channel inventory and supply chain constraints still affect shipment timing, so the order recovery has not yet fully translated into sales.

04—Continue

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