The operator introduces the Rockwell Automation Quarterly Conference Call and reminds participants that it is being recorded. Aijana Zellner, Head of Investor Relations and Market Strategy, then takes over and introduces the CEO, Blake Moret, and CFO, Nick Gangestad. They discuss the company's first quarter fiscal 2024 earnings and mention that their comments will include forward-looking statements. They also note that there was double-digit sequential growth in orders in all business segments and regions compared to the previous quarter.

The company has seen a positive year-over-year increase in sales, with strong demand from machine builders and end-users. However, there have been some challenges with excess inventory and supply chain constraints. The Intelligent Devices segment saw a decrease in organic sales, but this was offset by strong performance from configure-to-order businesses and recent acquisitions. The Software & Control segment had a 4% increase in organic sales, driven by investments in Logix software.

In the third paragraph, the speaker discusses the success and growth of their cloud-native and on-prem information software offerings, with double-digit sales growth and strong order activity. They also highlight the progress and profitability of their Sensia joint venture, including a major win with Mellitah Oil & Gas. The company also saw a 20% increase in annual recurring revenue, driven by growth in their Plex and Fiix SaaS offerings and recurring services. The speaker also mentions a recent partnership with EOS Energy and Acro Automation Systems, where Rockwell Automation will provide Plex MES and QMS software for a new battery manufacturing line. However, the segment margin and adjusted EPS were both down from the previous year, which will be further discussed by Nick.

In the first quarter, the most product-intensive industries were impacted by planned shipments moving to later in the year. Discrete sales were down 10%, with automotive sales down high single-digits due to a focus on near-term profitability and a temporary slowdown in EV demand. However, Rockwell is well-positioned to capture additional market share in the automotive industry. In addition, there were new wins in the automotive sector, including a battery producer and automotive tier supplier using Rockwell's Logix platform for their production plants and a large brand owner using over 100 of Rockwell's Otto autonomous mobile robots. Semiconductor sales were also down, but there are new announcements and orders for projects and upgrades in the industry.

In the eCommerce and Warehouse Automation industry, sales declined as expected due to customers updating their operations. However, there is potential for growth in the future as customers plan to invest in fulfilment centers. In the hybrid industries segment, there was growth in life sciences and tire, but a decline in food and beverage due to internal capacity constraints. The company is seeing a trend of customers investing in digital and cyber capabilities, with a recent win in the food and beverage industry. Life sciences sales grew due to investments in software and services, particularly in high-growth areas. Tire sales also saw growth.

Sales in the oil and gas, metals, and mining industry segment grew by over 10% year-over-year, driven by strong performance in Sensia and continued investments in decarbonization and digitization projects. North America is expected to be the strongest-performing market this year, while Latin America and EMEA saw slight declines and Asia Pacific saw a significant decline due to challenges in the Chinese manufacturing economy. The company reaffirms its fiscal 2024 sales guidance and expects organic sales to grow 1% at the midpoint, with currency and acquisitions contributing to overall growth. Segment margin is also expected to increase slightly, with significant increases in the second half of the year from increased product volume, spending discipline, and productivity initiatives.

In the first quarter, the company's reported sales increased by 3.6% and organic sales were up 1%. Acquisitions and currency translation also contributed to growth. The segment operating margin decreased by 290 basis points, mainly due to higher investment spend and lower supply chain utilization. The company expects strong sequential order growth for the rest of the year. Adjusted EPS of $2.04 was down 17% compared to last year, primarily due to lower sales and margin. The adjusted effective tax rate for the quarter was 18%.

In the first quarter, the company's free cash flow was negative $35 million compared to a positive $42 million in the previous year, due to higher incentive compensation payout. The company also repurchased 400,000 shares for $120 million and had $800 million remaining in their repurchase authorization. The three operating segments saw a decrease in margin compared to the previous year due to lower sales volume and the timing of investment spend. However, Lifecycle Services had a book-to-bill ratio of 1.13 and doubled their margin to 10.4% due to higher sales and lower incentive compensation.

The company is seeing productivity benefits from restructuring and has provided an adjusted EPS walk from Q1 fiscal 2023 to Q1 fiscal 2024. Core performance was down due to negative product mix and lower supply chain utilization, but offset by positive price/cost and lower incentive compensation. Acquisitions and currency had a slight negative impact, but interest expense had a positive impact. The company reaffirms its guidance for fiscal 2024, with expected sales growth and organic sales growth, and an increase in acquisitions and a decrease in currency impact. The company also expects price to be a positive contributor to growth for the year.

The company expects a 17% adjusted effective tax rate and reaffirms their adjusted EPS guidance range for the full year. They also expect free cash flow conversion of 100% of adjusted income for fiscal year 2024, with a decrease in inventory days. The first half is expected to have lower margins due to higher incentive compensation and tax payments, but margins are expected to increase in the second half as sales return to normal levels. The company plans for balanced spending throughout the year, with investment spend remaining relatively flat across all quarters.

The company expects to see increases in investment spend in the second and third quarters of fiscal year 2024, followed by a decrease in the fourth quarter. They also anticipate corporate and other expenses of around $125 million, net interest expenses of $120 million, and share repurchases of $300-500 million. Despite geopolitical volatility, the company remains optimistic about market conditions and is focused on gaining share, profitability, and cash flow through integration and efficiency. Recent acquisitions, such as Clearpath Robotics, are performing well and the company has seen significant wins in various industries. They believe their unique portfolio and partner ecosystem will drive growth and success.

During the Q&A session, Andy Kaplowitz from Citigroup asks about the company's backlog and order growth. Nick Gangestad, the CFO, responds that the backlog ended at $4.1 billion and orders have increased double-digits from the previous quarter. He also mentions that distributor inventory is going down. CEO Blake Moret adds that the increase in orders is seen across industries and there is strong annual recurring revenue from software and high-value services.

The speaker, Andy Kaplowitz, thanks the group for their helpful insights and asks about the company's adjusted EPS guidance and confidence level in achieving a margin jump in Q3. Blake Moret reaffirms their previously stated guidance and explains that the expected increase in EPS in the second half of the year is based on increased volume, similar to the previous year. The cause for this increase is not due to chip supply, but rather the ramp of orders. Jeff Sprague then asks for clarification on the supply chain comments, as they seem inconsistent with the lower revenue in the current quarter compared to the previous three quarters.

In this paragraph, Blake Moret is responding to a question about the company's supply chain and the increase in shipments in the past three quarters. He explains that the increase is due to a shift from backlog-based shipments to a more normal product book-and-bill process. He also mentions challenges with components and the need to build safety stock. He reassures that the company's capacity to ship is over $10 billion and will support future growth.

During the conference call, an analyst asked about the margins for Q2 and Nick Gangestad, the CFO, explained that they are expecting similar margins and revenue to Q1. The mix of orders will shift, with more coming from current quarter orders, and investment spend will remain similar. The mix may negatively impact margins, with higher growth in Lifecycle Services and more sales in Intelligent Devices coming from configure-to-order business. Another analyst asked about Rockwell's transition year and how they plan to ensure volume growth over the next 18 months.

Rockwell Automation is making structural changes to their internal processes and supply chains to ensure a smooth ramp-up. This includes investing in fixed assets and labor, as well as implementing lean concepts and building redundancy in operations and sourcing. They expect to see strong margins and continued growth in 2025 and beyond as a result of these changes.

Nigel Coe from Wolfe Research asked about the slowdown in packaging CapEx and mining, and Blake Moret, CEO of Rockwell Automation, responded by saying that they are seeing strong underlying demand in the packaging industry and expect low single-digit growth in mining. Nick Gangestad, CFO, also mentioned that there was double-digit growth in orders and backlog exiting the quarter.

The company saw double-digit order growth in Q1 and expects the same for Q2, with further growth in Q3 and Q4. The backlog decreased by high single-digit percent in Q1 and is expected to reach a more normal range of 30-35% of revenue by fiscal year 2024. The 240 basis points of gross margin compression year-over-year is due to mix impacts, M&A impacts, and investment spend on R&D. Acquisitions contributed 30 basis points to the decline.

In the first quarter, the company experienced underutilization of its supply chain, resulting in a choppy outcome for deliveries. This was due to a shift from past-due backlog to a more normal book-and-bill environment, primarily in the Intelligent Devices segment. The first half of the year is expected to be relatively low, but Q3 and Q4 are expected to reflect more normal end-demand as excess inventory is worked through.

The company expects a significant increase in revenue and earnings growth in the second half of the year, with a double-digit sequential growth in orders from Q4 to Q1 and continuing through the year. The company also expects a sharp sequential increase in margins from the high teens level in the fiscal second quarter to mid-20s in the fiscal third quarter, driven primarily by the volume increase and improved utilization of factories and supply chain. Additionally, good progress on Lifecycle services margin is expected to contribute to the margin expansion in the second half.

In the first quarter, supply chain constraints impacted sales by $50-70 million, which will be deferred to the second half of the year. Inventories have been running at a mid-teens share of sales, but are expected to decrease to 125 days in the future. This may be achieved through faster sell-through or underproduction, and inventories may stay higher than pre-COVID levels in the medium term despite normal lead-times.

The company is seeing a shift in their revenue mix, with more current quarter orders being booked and billed. As a result, they are expecting to see an increase in finished goods inventory, but this will be offset by reductions in components and work in progress. This shift is necessary in order to meet customer expectations and improve lead-times. Overall, the company expects their inventory levels to be higher than pre-pandemic levels, but still below 125 days.

The speaker explains that they expect distributors to carry higher inventory levels due to customer service challenges in the industry. They also mention that machine builders are still working to reduce their inventory levels, but they don't expect any changes in their approach. The speaker then clarifies that there are some differences in the production constraints for configure-to-order products compared to backlog products, such as different focus and personnel requirements.

The company is experiencing a shift from servicing backlog to shipping out book-and-bill products. This is due to a move towards a more diverse set of SKUs and a decrease in visibility of future orders. The company is working on building up safety stock to deal with this change. There has been no change in the company's organic industry segment outlook for the full year.

The company's cadence is driven by production considerations and channel inventory, but there may be a shift in timing among end-customers. Process applications in areas like oil and gas, specialty chemical, and mining are relatively strong, while there has been some slowdown in EV projects. However, the company is still winning new business in EV and traditional engine manufacturing. The back half of the year margin profile may be impacted by a mix of products shipping out of backlog in 2023 compared to a book-and-ship quarter in 2024, with Devices and Lifecycle potentially up and Software and Control potentially down.

Blake Moret, CEO of a company, discusses the increase in orders and the positive impact it will have on their products. He also mentions the headwinds they are facing due to previous year's strong performance and cost-cutting measures they have taken. When asked about channel inventory, Moret explains that it is taking longer than expected to reach targeted levels but they are seeing a sequential increase in orders and expect inventory to decrease in the coming months. CFO Nick Gangestad adds that they are in close communication with their distributors and expect inventory levels to reach equilibrium in the second quarter.

The conference call has ended and the operator is giving participants permission to disconnect.

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