Rockwell Automation, Inc. reported third quarter fiscal 2022 results.
"Rockwell delivered a strong quarter, both on top line and bottom line, with Adjusted EPS growing over 15% year over year. Our continued order strength reflects the value our customers place on Rockwell’s differentiated offerings and the increased need for automation solutions. This, coupled with gradually improving supply chain, strong operating performance, and price/cost execution resulted in exceptional earnings in the quarter," said Blake Moret, Chairman and CEO.
Fiscal Q3 2022 Financial Results
Fiscal 2022 third quarter sales were $1,969 million, up 6.5% from $1,848 million in the third quarter of fiscal 2021. Organic sales increased 7.1%, currency translation decreased sales by 3.1%, and acquisitions increased sales by 2.5%.
Fiscal 2022 third quarter net income attributable to Rockwell Automation was $298 million or $2.55 per share, compared to $271 million or $2.32 per share in the third quarter of fiscal 2021. The increases in net income attributable to Rockwell Automation and Diluted EPS are primarily due to higher sales, including price increases, lower pension and post-retirement costs, partially offset by fair value adjustments recognized in fiscal 2022 as compared to fiscal 2021 in connection with our investment in PTC (the "PTC adjustments"). Fiscal 2022 third quarter Adjusted EPS was $2.66, up 15% compared to $2.31 in the third quarter of fiscal 2021 primarily due to higher sales and higher margin. Price/cost was positive in the quarter.
Pre-tax margin was 17.5% in the third quarter of fiscal 2022 compared to 17.0% in the same period last year.
Total segment operating earnings were $409 million in the third quarter of fiscal 2022, up 11.0% from $369 million in the same period of fiscal 2021. Total segment operating margin was 20.8% compared to 19.9% a year ago primarily due to higher sales and lower incentive compensation, partially offset by higher investment spend.
Cash flow generated by operating activities in the third quarter of fiscal 2022 was $345 million, compared to $462 million in the third quarter of fiscal 2021. Free cash flow in the third quarter of fiscal 2022 was $327 million, compared to $437 million in the same period last year. Decreases in cash flow from operating activities and free cash flow were due to increases in working capital.
Fiscal Year 2022 Outlook
The table below provides guidance for sales growth and earnings per share for fiscal 2022. Our guidance reflects our strong demand and record backlog along with our latest view of supply chain constraints.
|
Guidance |
Prior Guidance |
|
|
Reported sales growth |
10.5% - 12.5% |
11% - 15% |
|
Organic sales growth |
10% - 12% |
10% - 14% |
|
Inorganic sales growth |
~2.5% |
~2.5% |
|
Currency translation |
~(2.0)% |
~(1.5)% |
|
Diluted EPS |
$7.74 - $8.14 |
$7.60 - $8.20 |
|
Adjusted EPS |
$9.30 - $9.70 |
$9.20 - $9.80 |
"We continue to expect strong double-digit year-over-year and sequential sales growth in Q4. However, we are reducing the midpoint of our fiscal year organic growth range to reflect ongoing supply chain volatility in this environment. In volatile times like these, we are executing very well, and I'm proud of how our teams are working together with our partners, suppliers, and customers," Moret continued.
Following is a discussion of third quarter results for our business segments.
Intelligent Devices
Intelligent Devices third quarter fiscal 2022 sales were $878 million, a decrease of 0.5% compared to $883 million in the same period last year. Organic sales increased 2.7% and currency translation decreased sales by 3.2%. Segment operating earnings were $173 million compared to $194 million in the same period last year. Segment operating margin decreased to 19.7% from 21.9% a year ago primarily driven by higher investment spend.
Software & Control
Software & Control third quarter fiscal 2022 sales were $607 million, an increase of 19.1% compared to $510 million in the same period last year. Organic sales increased 13.4%, currency translation decreased sales by 2.8%, and our Plex acquisition increased sales by 8.5%. Segment operating earnings were $191 million compared to $128 million in the same period last year. Segment operating margin increased to 31.4% from 25.2% a year ago, driven by higher sales.
Lifecycle Services
Lifecycle Services third quarter fiscal 2022 sales were $484 million, an increase of 6.1% compared to $456 million in the same period last year. Organic sales increased 8.7%, currency translation decreased sales by 3.2%, and acquisitions increased sales by 0.6%. Segment operating earnings were $45.4 million compared to $46.8 million in the same period last year. Segment operating margin decreased to 9.4% from 10.3% a year ago driven by supply chain constraints and higher investment spend, partially offset by higher sales and lower incentive compensation. Segment operating margin was up 210 bps sequentially from prior quarter margin primarily due to higher sales.
Supplemental Information
ARR - Total ARR grew 59% and organic ARR grew 18% compared to the end of the third quarter of fiscal 2021.
Corporate and Other - Fiscal 2022 third quarter corporate and other expense was $15.6 million compared to $29.2 million in the third quarter of fiscal 2021. The decrease was primarily due to mark-to-market adjustments related to our deferred and non-qualified compensation plans.
Purchase Accounting Depreciation and Amortization - Fiscal 2022 third quarter purchase accounting depreciation and amortization expense was $25.9 million, up $13.0 million from the third quarter of fiscal 2021 primarily related to the August 2021 acquisition of Plex Systems.
Tax - On a GAAP basis, the effective tax rate in the third quarter of fiscal 2022 was 14.4% compared to 14.2% in the third quarter of fiscal 2021. The Adjusted Effective Tax Rate for the third quarter of fiscal 2022 was 14.5% compared to 14.6% in the prior year.
Share Repurchases - During the third quarter of fiscal 2022, the Company repurchased approximately 0.8 million shares of its common stock at a cost of $176 million. At June 30, 2022, $1.3 billion remained available under our existing share repurchase authorization.
ROIC - Return on invested capital was 12.8% compared to 40.4% in the third quarter of fiscal 2021. The decrease is driven by lower pre-tax income primarily related to PTC adjustments and higher debt due to the acquisition of Plex Systems.
Definitions
Non-GAAP Measures - Organic sales, total segment operating earnings, total segment operating margin, Adjusted Income, Adjusted EPS, Adjusted Effective Tax Rate, free cash flow, free cash flow conversion, and return on invested capital are non-GAAP measures that are reconciled to GAAP measures in the attachments to this release.
Organic ARR - Annual recurring revenue (ARR) is a key metric that enables measurement of progress in growing our recurring revenue business. It represents the annual contract value of all active recurring revenue contracts at any point in time. Recurring revenue is defined as a revenue stream that is contractual, typically for a period of 12 months or more, and has a high probability of renewal. The probability of renewal is based on historical renewal experience of the individual revenue streams, or management's best estimates if historical renewal experience is not available. Organic ARR growth is calculated as the dollar change in ARR, adjusted to exclude the effects of currency translation and acquisitions, divided by ARR as of the prior period. The effects of currency translation are excluded by calculating Organic ARR on a constant currency basis. When we acquire businesses, we exclude the effect of ARR in the current period for which there was no comparable ARR in the prior period. Organic ARR growth is also used as a financial measure of performance for our annual incentive compensation. Because ARR is based on annual contract value, it does not represent revenue recognized during a particular reporting period or revenue to be recognized in future reporting periods and is not intended to be a substitute for revenue, contract liabilities, or backlog.
Conference Call
A conference call to discuss the quarterly results will be held at 8:30 a.m. Eastern Time on July 27, 2022. The call will be an audio webcast and accessible on the Rockwell Automation website (https://ir.rockwellautomation.com/investors/). Presentation materials will also be available on the website prior to the call.
Interested parties can access the conference call by dialing the following numbers: (888) 330-2022 in the U.S. and Canada; (646) 960-0690 for other countries. Use the following passcode: 5499533. Please dial in 10 minutes prior to the start of the call.
Both the presentation materials and a replay of the call will be available on the Investor Relations section of the Rockwell Automation website through August 27, 2022.
