The operator introduces the Rockwell Automation's Quarterly Conference Call and reminds everyone that it is being recorded. Aijana Zellner, Head of Investor Relations and Market Strategy, introduces the CEO and CFO and mentions that the results have been released and are available on the website. She also mentions that the comments made during the call are forward-looking statements and may differ from actual results due to risks and uncertainties. The CEO, Blake Moret, notes that operational performance was strong in the third quarter, but order growth was slower than expected.

The company has taken accelerated actions to bring costs in line with lower outlook on current year orders, resulting in strong margin performance. They expect savings of $100 million in the second half of the year and have reduced worldwide headcount by 6%. They have a new CFO who will work with the team to achieve market-beating growth and financial performance. Q3 orders were up, but lower than expected due to weaker end user demand. Sales, margins, and EPS exceeded expectations, but total and organic sales were down 8.4% from the previous year.

In the third quarter, organic sales were better than expected, driven by strong backlog execution in longer cycle businesses. Sales in the Intelligent Devices segment were down slightly, but there is a strong pipeline of projects in all product lines. Software and control sales declined, but were still better than expected due to better Logix recovery and growth in software offerings. Investment in innovation and new product introduction is a priority. Lifecycle services had a strong quarter, with organic sales up over 11%. However, there were some project delays due to manufacturing customers pausing large investments in light of consumer demand, interest rates, and policy uncertainty.

Despite some project delays and end user CapEx slowdown in certain industries, the company's recurring managed services continue to experience double-digit sales growth. The company also saw a 17% increase in total ARR, with a segment margin of 20.8% and adjusted EPS of $2.71. However, there were declines in sales in the automotive and semiconductor industries due to delays in new capacity builds and reassessment of product strategies. On the other hand, e-commerce and warehouse automation sales saw strong growth, while the hybrid industry segment experienced a decline in sales, particularly in the food and beverage and Life Sciences sectors.

The food and beverage market is experiencing inflation as consumers shift to more affordable brands, leading to a decrease in greenfield activity. There is high demand for software and services that optimize processes in this industry. In the Life Sciences sector, sales were down but there were important wins with two leading pharmaceutical companies. Process sales were mixed, with growth in oil and gas and mining but declines in chemicals and metals. The Sensia JV had double digit growth in process automation and digital solutions. There were some project push outs in North America due to potential policy changes after the U.S. elections. Mining sales increased due to growth in Latin America.

In this paragraph, Rockwell was chosen to provide a comprehensive solution for Vale's new processing plant, showcasing the company's ability to integrate hardware, software, and services for its customers. The Americas region continues to perform well, while EMEA and Asia Pacific sales were impacted by economic challenges. Looking ahead, Rockwell is adjusting its fiscal year 2024 guidance due to a slower pace of orders growth, potentially influenced by manufacturers focusing on cost control and waiting for potential policy changes.

In summary, the company expects Q4 orders to increase slightly and organic sales to decline by 10% for the year. Acquisitions and currency are expected to have a positive impact, and total ARR is expected to grow by 15%. The segment margin is projected to be slightly over 19% for the year, showing the improving resilience of the business model. Adjusted EPS is expected to decline by 21%, and the company aims for a free cash flow conversion of 60%. The company is also focused on long-term productivity and margin expansion, with a target of $100 million in savings for this year and $120 million in fiscal year 2025. Additional savings of $130 million are expected in fiscal year 2025 through margin expansion and productivity projects.

In the third quarter, the company saw a decrease in sales and operating margin compared to the previous year. However, they were able to improve their adjusted EPS and maintain a relatively low effective tax rate. Free cash flow was slightly lower due to lower pretax income, but working capital improved for the second consecutive quarter. The company is also implementing productivity projects to reduce costs and optimize their operations in the future.

In the third quarter, the company repurchased 600,000 shares for $160 million, leaving $500 million available for repurchase. The sales and margin performance of the three operating segments were discussed, with Intelligent Devices and Lifecycle Services showing improvements in margin. Software and control margin decreased due to lower sales volume, but exceeded expectations. The adjusted EPS walk from Q3 fiscal 2023 to Q3 fiscal 2024 showed a decline of $0.80, driven by lower volume and mix, partially offset by positive price cost. Cost reduction actions and lower incentive compensation contributed to a year-over-year increase. The company has lowered its guidance for fiscal 2024.

The company has adjusted its sales and organic sales expectations to a decline of 8.5% and 10%, respectively, with acquisitions adding 150 basis points to growth and currency remaining neutral. Price is expected to be a positive contributor. The adjusted effective tax rate is now expected to be around 16%. The adjusted EPS guidance has been lowered to $9.60, a 21% decrease from the previous year. The company expects to end fiscal year 2024 with 160 days of inventory and a free cash flow conversion of about 60% of adjusted income. The fourth quarter is expected to have flat sequential sales in each business segment with a decline in margins due to less favorable mix. Corporate and other expenses are expected to be around $130 million, with average diluted shares outstanding of 114.5 million and $600 million to $800 million allocated for share repurchases. Net interest expense for fiscal 2024 is expected to be $140 million.

Nick discusses how the actions taken this year will benefit the company's results in the future, with a $250 million year-over-year benefit expected next year. He also mentions his upcoming retirement and thanks Blake for the opportunity. Blake thanks Nick and announces that Christian will join him in leading the fourth quarter earnings call and Investor Day in November. Registration for the event opens tomorrow. Blake also highlights the company's technology portfolio and invites investors to attend the event in Anaheim in November.

The Q&A session has begun and the first question is from Scott Davis about the $250 million benefit from productivity and cost savings. Nick confirms that the bonus expense for next year is expected to be between $160-170 million, and the total cost and margin benefits will be offset by bonuses and compensation. He also mentions that the anticipated merit increase for fiscal year 2025 will bring the total to about $250 million. Scott also asks about incremental margins for 2025.

During a recent earnings call, Rockwell Automation executives discussed their expectations for incremental margins and order growth in the future. They stated that they are focused on increasing the conversion on incremental revenue and are confident in continued order growth despite manufacturers taking a pause in adding capacity. They also mentioned that they expect mid-single digit sequential order growth and that they have seen this trend throughout the year. Additionally, they discussed the impact of excess inventories at distributors and machine builders on order growth and stated that they expect mid-single digit order growth to continue.

The company has seen low single digit sequential orders growth in Q3 and expects it to continue as a gradual recovery. Inventories are depleting, but weaker conditions in end markets are tempering their view. On the tailwind side, they will be lapping some of the quarters that were more impacted by inventory this fiscal year. The cost out program is expected to be two-thirds in Q4 and one-third in Q3, with lower margins in Q4 due to mix in Intelligent Devices and Lifecycle Services. The company also expects Logix to improve.

Nick Gangestad, the Chief Financial Officer of Logix, discussed the company's expected performance in Q4. He mentioned that the $100 million cost savings plan will be split more evenly between Q3 and Q4, rather than the previously estimated one-third and two-thirds split. He also noted that the company's margins in Q3 were better than expected due to strong sales in the Logix software and control business. However, he expects a decline in both Intelligent Devices and Lifecycle Services in Q4, as the favorable mix seen in Q3 is expected to reverse. Overall, he predicts that Q4 will be similar to Q3 in terms of revenue and margin for Logix.

The company is seeing a return to pre-COVID levels of orders and sales, with a high percentage conversion rate and good operational performance. This has resulted in orders and shipments being similar from quarter-to-quarter for products such as drives and Logix controllers.

The company expects to see significant increases in order rates in the fourth quarter and into next year, despite project delays and uncertainty in North American manufacturing. They also anticipate gradual sequential revenue increases and mention the potential risk of a weaker economy. The de-stocking of inventory at distributors has been a significant factor throughout the year, but it is expected to have less of an impact moving forward. The company has limited visibility for regions outside of North America.

Blake Moret, CEO of Rockwell Automation, explains that the company has clear visibility into distributor stock in North America, with the majority of it being sold. However, there is still stubborn inventory in China, which will take longer to sell due to weaker end market demand. In Europe, where there is a higher amount of direct business, the company is in regular communication with machine builders to monitor inventory levels. The company's Lifecycle Services margins have noticeably improved, with a doubling in profits, due to factors such as the absence of bonuses and better project execution.

The speaker discusses how the company's fiscal year 2025 will be impacted by incentive compensation and mentions a reduction in life cycle services margin due to this. They then answer a question about how sell-through from distributors to end users is tracking for Rockwell products, stating that inventory levels at distributors have decreased and shipments to end users have seen positive year-over-year growth. They also mention that distributors have had a good year, particularly with end users who are not dealing with higher stock at machine builders.

Nick Gangestad confirms that new orders are increasing, but not at the expected pace, indicating weaker end demand. For 2025, they expect headwinds from compensation and investments, but tailwinds from margin expansion, positive price cost, and recent acquisitions. M&A contribution for the quarter was lower due to the project-based nature of the Clearpath acquisition.

The speaker expresses optimism and pride in the company's recent acquisition and cybersecurity efforts. A question is then asked about the company's high inventory levels compared to lower levels for customers and distributors. The speaker explains that the company has been focused on ensuring customer needs are met and that they expected to see increased demand in the second half of the year, depleting excess inventory.

The company is seeing a gradual increase in demand, leading to more inventory at the end of the fiscal year than expected. This is affecting their cash conversion story, with a decrease in their prior guide from 80% to 60%. They have also experienced one-time non-recurring headwinds, such as extra tax payments and restructuring actions. The demand environment has shifted from destocking to CapEx cuts, with weaker spending in food and beverage and auto industries.

The speaker discusses the impact of inventory de-stocking on revenue and mentions the potential for cost actions to benefit the P&L. They also mention the potential for reinstatement of bonus comp and merit increases to be spread out quarterly throughout the next year.

The paragraph discusses the financial results and plans of the company Rockwell Automation, with CEO Blake Moret and CFO Nick Gangestad answering questions about inventory, cost actions, and restructuring benefits. They mention a gradual improvement in orders and a larger number of investments in North America, as well as the front and back loading of restructuring benefits. They also thank an individual named Noah and take a question from Steve Tusa.

The speaker clarifies that next year's earnings will be relatively clean due to productivity measures and offsets that will balance out any headwinds from compensation. The $250 million projected for next year will benefit gross margin and reduce SG&A spending. The company is striving to keep ongoing R&D investments flat as a percentage of revenue. There are no major bridge items other than those mentioned. The speaker also mentions overproduction, which will be offset by negative mix.

The analyst asks about the company's inventory and potential impact on growth in 2025. The CFO clarifies that the inventory is not increasing, but not decreasing as quickly as expected. They do not anticipate a significant impact on growth in 2025 due to underutilization. The analyst wishes the retiring CFO well and asks about the company's two biggest end markets, food and beverage and auto. The CEO responds that they are having conversations with customers and there is a possibility of not growing in 2025, but it is not the most likely scenario.

Blake Moret and Joe Ritchie discuss Rockwell's plans for next year, including investments in areas such as automotive and food and beverage. They are focused on resilience and efficiency in existing facilities and are excited about the potential of mobile robots. They also mention the company's confidence in their position for future growth. They clarify that there will not be a noticeable seasonal uptick in Intelligent Devices revenue in the fourth quarter.

The company has been working on increasing efficiency and reducing costs through various means such as adding new capabilities and technologies, but also facing challenges due to COVID and supply chain volatility. Now, they are implementing a broad-based approach to integrate these efforts and drive out inefficiency through a continuous improvement model. This will result in margin expansion and higher customer service for frequently bought items.

The company is focused on reducing the cost of goods sold to become more competitive. This will be a long-term structural change and not just a one-time fix. Demand has not gotten worse but is not improving as quickly as expected. Sequential order growth is expected to continue, but at a slower pace.

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