During the quarterly conference call for Rockwell Automation, the operator introduces the speakers and reminds participants that the call is being recorded. Aijana Zellner, Head of Investor Relations and Market Strategy, then takes over and thanks everyone for joining. She mentions that the company's results have been released and are available on their website, and that the call will reference non-GAAP measures. She also provides information on how to access a webcast and transcript of the call. Before turning it over to CEO Blake Moret, she reminds listeners that their comments will include forward-looking statements and that actual results may differ due to various risks and uncertainties. Moret then discusses the company's strong double digit growth in sales and earnings for the fourth quarter.

Rockwell's strong execution and improved supply chain led to double digit sales growth in Q4 across all regions and business segments. This was supported by record shipments and investments in capacity, resulting in a 20.5% increase in total sales. The intelligent devices business segment saw an 18% increase in organic sales, with strong growth in all regions and a successful acquisition of Clearpath Robotics. Software and control also had a 23% increase in organic sales, thanks to new offerings and investments. Lifecycle Services saw a 10% increase in organic sales and a book to bill ratio above the historical average.

The Sensia joint venture had a strong finish to the year with over 50% year-over-year order growth, driven by strategic wins in process automation and artificial lift control systems. Information Solutions and Connected Services also saw growth, with a significant win with Prometeon Tyre. The integration of the company's portfolio has made it easier for customers to standardize their global operations. The cybersecurity practice also saw significant growth, contributing to a record quarterly earnings of $3.64. Lead times improved, leading to a backlog of over $4.1 billion, which is well above pre-pandemic levels.

In the fourth quarter, our focus on providing superior customer service has remained a top priority. Our discrete sales have grown by over 15%, with a significant increase in automotive sales, particularly in the electric vehicle and battery sector. We have also secured a strategic partnership with Nanotech Energy for their battery Gigafactories. Our semiconductor sales have also grown, with a strong pipeline of projects in advanced wafer transport solutions and data centers. Our recent acquisition of CUBIC has expanded our reach into the power distribution segment of data centers. While sales in the e-commerce and warehouse automation vertical declined, we are starting to see new investments in this area, positioning us for growth in the future.

In the hybrid industries segment, food and beverage sales saw strong growth, driven by wins in cybersecurity and infrastructure modernization, as well as the incorporation of generative AI functionality. Life Sciences also saw mid single digit growth, thanks to a combination of software, hardware, and digital services. Tire sales were up high teens, with multiple wins globally. In the process industry segment, sales grew over 25%, with strong growth in oil and gas, mining, and metals. This was driven by digital oilfield solutions and new carbon capture wins. The combination of Sensia and Rockwell oil and gas capabilities also contributed to growth, with a notable win at Multitex Filtration Engineers in India.

In the fourth quarter, our sales in the Americas, particularly in North America, outperformed the rest of the world. Overall, our fiscal year 2023 saw record sales and earnings, with total sales exceeding $9 billion and a 17% growth in both reported and organic sales. Our Information Solutions and Connected Services also saw significant growth, with a 9% increase and a 16% growth in total ARR. Our operating performance resulted in a 140 basis points margin expansion and a 28% increase in adjusted EPS. We also generated a record $1.2 billion in free cash flow, with an 86% conversion rate for the year. Additionally, we continue to invest in key areas of growth.

Rockwell has recently made two acquisitions, Clearpath and Verve, to drive growth. They are particularly excited about Clearpath's impact on their near and long-term growth. Clearpath specializes in autonomous mobile robots and serves various industries. Their portfolio of AMRs is focused on production logistics, which is a top opportunity for efficiency and safety. With the increasing demand for autonomous operations and a shortage of manual labor, the market for industrial mobile robots is expected to grow significantly. Rockwell and Clearpath are well-positioned to capitalize on this growth, as they are the only end-to-end provider in this space. They will integrate Clearpath's AMRs with their FactoryTalk design capabilities, cloud-native operations management software, and embedded AI to optimize production processes. This is a significant milestone for Rockwell, and they will showcase its capabilities at upcoming events.

The company's recent acquisition is expected to contribute to a 1% growth in top line performance in fiscal year '24. Orders decreased in fiscal year '23 but are expected to increase in fiscal year '24, with the Americas seeing the highest growth. Lead times have returned to pre-pandemic levels and orders are expected to recover in Q1 and build in Q2. Customers are moving forward with capacity investments and resilience projects, and the company has added resources to focus on projects incentivized by recent legislation. Fiscal year '24 guidance projects total reported sales of $9.4 billion and organic sales growth of 1%.

The company is expecting to see an increase in sales and acquisitions in the upcoming year, with projected double digit growth in ARR and a slight increase in segment margin. Adjusted EPS is expected to grow by 5% at the midpoint, with strong conversion and reduced backlog contributing to this growth. The CFO, Nick, then provides more detail on the company's fourth quarter performance, including a 20.5% increase in reported sales, 17.7% increase in organic sales, and a 140 basis point contribution from acquisitions. The company also took a restructuring charge in the quarter, which is expected to yield benefits in the future. Adjusted EPS grew by 20% compared to the previous year.

In the fourth quarter, the company saw a strong increase in free cash flow due to higher income and a decrease in working capital. They also repurchased shares and have remaining authorization for future repurchases. The sales and margin performance of the three operating segments were affected by higher bonus expenses, with Intelligent Devices seeing a decrease in margin due to investments in their next generation portfolio. Software and control saw strong margin due to top line growth, while Lifecycle Services margin was impacted by restructuring charges. The company also discussed their Sensia joint venture.

The joint venture underperformed due to the pandemic and supply chain constraints, resulting in a partial goodwill impairment. However, Sensia has shown strong growth and is expected to continue with profitable double digit growth. The adjusted EPS walk from Q4 of fiscal '22 to Q4 of fiscal '23 shows a core performance increase of $1.05 on a 17.7% organic sales increase. Full fiscal year 2023 saw reported sales grow 17% to $9.1 billion, with organic sales up 17%. Segment margin increased by 140 basis points and adjusted EPS was up 28%. Free cash flow conversion was ahead of expectations at 86% in fiscal '23.

In fiscal year '23, the company saw an increase in free cash flow due to higher pre-tax income. Return on invested capital also improved, driven by higher net income. The company used its strong capital structure and liquidity to fund acquisitions and pay down debt. Orders decreased in Q4, but the company expects them to grow in fiscal year '24. The company's focus for fiscal year '24 is on growing earnings, investing in resilience and innovation, and capitalizing on strong demand for automation. They expect reported sales growth of 0.5% to 6.5%, organic sales growth of -2% to 4%, and a 100 basis point contribution from acquisitions and 150 basis point currency tailwind.

In fiscal year '24, the software and control segment is expected to have the lowest growth due to strong backlog execution in the previous year. Positive organic sales growth is expected in the Intelligent Devices and Lifecycle Services segments, with a 21.5% segment margin. The acquisitions of Clearpath and Verve will have a 60 basis point headwind, with Verve having a relatively flat impact on adjusted EPS and Clearpath reducing earnings per share by $0.25 in fiscal year '24. The Clearpath acquisition is expected to become accretive to earnings in fiscal year '26. The adjusted effective tax rate is expected to be around 17%, with an adjusted EPS guidance range of $12.00 to $13.50. The company expects free cash flow conversion of about 100% of adjusted income in fiscal year '24, with a drop in inventory days on hand. However, in the first half of the year, free cash flow conversion is expected to be below 100% due to timing of incentive compensation and income tax payments. Organic sales are expected to grow in the low single digits in Q1, with sequential growth throughout the year. Volumes will be lower in Q1 compared to Q4 due to strong backlog performance in Q4.

The company is expecting a slow start to the year with improvements throughout. They project a modest increase in earnings from core operations and structural productivity, offset by increased growth investments and dilution from acquisitions. Strong performance in the previous year will provide a tailwind, and currency and interest tax will contribute positively. Corporate and other expenses are expected to be $120 million, net interest expense at $115 million, and share repurchases between $300 million and $500 million. The CEO is proud of the company's performance in the previous year and acknowledges the uncertain economic and geopolitical environment. They plan to focus on workforce productivity and invest in areas of growth.

In this paragraph, the company discusses their customers' reliance on their innovation and differentiation to provide energy and critical infrastructure security globally. They also mention their upcoming Investor Day in Boston where they will share their long-term strategy and exciting developments in their key markets. The Q&A session begins with a question about delays and cancellations in China, to which the company responds that China is a relatively low exposure for them but they did see lower orders and cancellations in the country due to high distributor inventories.

Blake Moret, CEO of Rockwell Automation, discusses the company's outlook for the next few years and their recent goodwill impairment on Sensia. He notes that the pandemic and supply chain shortages caused the impairment, but they have since changed management and seen improvement in orders, backlog, and profitability. Moret is confident in their guidance of low single digit order growth in FY '24 and a trough in orders in Q4 '23, citing strong orders in October as support. He also mentions the possibility of lumpy orders centered around mega projects in FY '24 and notes that they are seeing improvement in multiple verticals.

The company saw orders ramp up in Q4 and expects continued recovery in Q1 and Q2. They have done a detailed analysis of their customers' CapEx and OpEx expectations and are confident in the shape of the order recovery curve. They expect mega projects to contribute positively to their business in fiscal year '24 and beyond. The majority of these projects have not made a decision or released automation equipment yet. The company's tracking processes and early wins are encouraging. The analyst also asks about the company's margin expectations for the segments in '24, and the CEO answers that they expect a step up in Lifecycle Services, but they are still confident in their margin expectations for Sensia.

During the fiscal year of 2023, the Lifecycle Services segment is expected to have the most significant year-on-year margin expansion due to actions taken in 2023 and the outlook for 2024. The software and control segment is expected to have the lowest organic growth and a lower year-on-year margin, while the Intelligent Devices segment is expected to have flat to slightly higher margins, despite a 100 basis point headwind from Clearpath. Orders ramped up during Q4, but the ending backlog is 4.1 billion.

Blake Moret and Nick Gangestad discuss the reasons behind the decrease in orders for the fourth quarter, attributing it to distributors working to right size their inventory and bring it down to a normal level. They expect this trend to continue through the first quarter but anticipate an increase in orders in the second quarter as inventory levels reach a more normal level. They also mention having good visibility into their distributors' incoming orders from customers and machine builders.

The company expects positive organic growth in Q1 and believes that orders will increase as distributors reduce their inventory levels. The guide range for the year includes a negative organic growth option, which would be caused by slower inventory reduction and a deteriorating macro environment. However, if distributors stabilize their inventory levels and there is an increase in demand from users and integrators, the company could see positive growth. The company also expects sales to ramp up throughout the year, with a combination of backlog sales and lower Q1 orders.

During the question and answer portion of the earnings call, analyst Jeff Sprague asked about the impact of strong shipments at the end of the year on year-over-year growth. CEO Blake Moret responded that this could lead to a minus 2% growth rate if projects are pushed out or cancelled. Another analyst, Andrew Obin, asked about the macro environment behind the minus 2% forecast and the ARR growth rate of 16%. Moret explained that a significant reduction in projects, particularly in the semiconductor and energy industries, could contribute to the downside of the forecast, and that a 15% ARR growth rate is expected for 2024.

The speaker discusses the company's ARR number, which is expected to increase in the coming year due to a combination of software and recurring services. They also mention organizational changes and new offerings that will contribute to growth. In the first quarter, they expect low single digit organic growth and a lower margin compared to the previous year due to acquisitions and mix of products.

The company expects lower utilization in its factories due to lower orders and adjustments to production. This will result in lower margins. In terms of revenue outlook, North America is expected to have mid single-digit sales growth, outpacing the rest of the world. This is due to the backlog of orders, rather than current demand. The impact of stimulus projects is still in the early stages, with more business expected in the future. The book to bill ratio is expected to be around 0.9x.

The company expects backlog to stabilize at 30-35% of annualized revenue and exit fiscal year above $3 billion. They received $1.4 billion of orders in the fourth quarter of fiscal year. The company expects a tailwind of 1.5 points from FX, although some calculations suggest a minus one. The Lifecycle Services margin is expected to improve in fiscal year 2024.

The fourth quarter saw a decrease in margin due to restructuring actions and increased bonus expenses. However, in 2024, the bonus expense will be a tailwind and the actions taken in 2023 will lead to margin expansion. Currencies are expected to provide a 1.5% benefit in fiscal year '24. Orders for the full year were 8.2 billion, with the third quarter being above average and the fourth quarter slightly below. Incentive compensation will be a significant tailwind in the first and second quarters.

In fiscal year '23, the company's bonus expense was $240 million, but it is expected to drop to $120 million in fiscal year '24, with an equal distribution across the four quarters. Cancellations were not a major contributor to the decrease in orders, with high inventory levels at distributors being the main factor. The $0.25 acquisition headwind for Clearpath is due to incremental investments and is expected to be accretive in fiscal year '26.

The speaker discusses the integration of a new project into Rockwell, comparing it to a startup and emphasizing the importance of surrounding it with the right resources. They mention the need for technical, commercial, and infrastructure resources to drive cost reduction and unit cost for AMRs. The speaker also notes that this integration is a major milestone for the company and requires additional investment. In response to a question, they state that price growth for 2024 is expected to be slightly over 1%, with neutral input costs resulting in a net price cost accretion of over 100 basis points to margin. The call then concludes.

This summary was generated with AI and may contain some inaccuracies.