Rockwell Automation Reports First Quarter 2016 Results

MILWAUKEE

Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2016 first quarter sales of $1,426.6 million, down 9.4 percent from $1,574.4 million in the first quarter of fiscal 2015. Organic sales declined 3.3 percent, and currency translation reduced sales by 6.1 percent.

Fiscal 2016 first quarter Adjusted EPS was $1.49, down 9 percent compared to $1.64 in the first quarter of fiscal 2015. Total segment operating earnings were $295.9 million in the first quarter of fiscal 2016, down 15 percent from $346.8 million in the same period of fiscal 2015. Total segment operating margin was 20.7 percent compared to 22.0 percent a year ago, primarily due to lower sales and unfavorable currency effects.

On a GAAP basis, fiscal 2016 first quarter net income was $185.5 million or $1.40 per share, compared to $214.2 million or $1.56 per share in the first quarter of fiscal 2015. Pre-tax margin decreased to 16.6 percent in the first quarter of fiscal 2016 from 18.3 percent in the same period last year.

Commenting on the results, Keith D. Nosbusch, chairman and chief executive officer, said, “As expected, we had a weak start to the fiscal year with organic sales down 3 percent due to challenging market conditions in the U.S. and Asia Pacific. Heavy industry end markets continued to soften globally, particularly oil and gas in the U.S. I am pleased with the continued solid growth we are seeing in EMEA and Latin America.

“We were able to hold segment operating margin near 21 percent despite 9 percent lower sales. This demonstrates our ability to execute well in challenging market conditions.”

Outlook

Commenting on the outlook, Nosbusch added, “Since providing guidance in November, oil and commodity prices have further deteriorated, and projections for economic growth including industrial production have softened. As a result, we are lowering the mid-point of our organic growth guidance by one point. Taking into account an additional headwind from currency, we are now expecting fiscal 2016 sales of approximately $5.9 billion and are updating our Adjusted EPS guidance range to $5.70 to $6.20.

“We have a proven track record of navigating through challenging market conditions, balancing short-term financial performance with our long-term priorities. We will protect our key investments in innovation, domain expertise and commercial resources, and will continue to expand our served market and gain share. I am very optimistic on our long-term growth prospects, and would like to thank our employees, partners and suppliers for their continued dedication in serving our customers.”

Following is a discussion of fiscal 2016 first quarter results for both segments.

Architecture & Software

Architecture & Software quarterly sales were $642.9 million, a decrease of 9.2 percent compared to $707.8 million in the same period last year. Organic sales decreased 2.7 percent, and currency translation reduced sales by 6.5 percent. Segment operating earnings were $176.2 million compared to $221.4 million in the same period last year. Segment operating margin decreased to 27.4 percent from 31.3 percent a year ago, primarily due to lower sales and unfavorable currency effects.

Control Products & Solutions

Control Products & Solutions quarterly sales were $783.7 million, a decrease of 9.6 percent compared to $866.6 million in the same period last year. Organic sales decreased 3.8 percent, and currency translation reduced sales by 5.8 percent. Segment operating earnings were $119.7 million compared to $125.4 million in the same period last year. Segment operating margin increased to 15.3 percent from 14.5 percent a year ago despite lower sales, primarily due to productivity.

Other Information

In the first quarter of fiscal 2016 free cash flow was $145.3 million and cash flow provided by operating activities was $184.8 million. Return on invested capital was 32.6 percent.

Fiscal 2016 first quarter general corporate-net expense was $18.0 million compared to $22.8 million in the first quarter of fiscal 2015.

The Adjusted Effective Tax Rate for the first quarter of fiscal 2016 was 22.8 percent compared to 26.0 percent in the first quarter of fiscal 2015. On a GAAP basis, the effective tax rate in the first quarter of fiscal 2016 was 21.7 percent compared to 25.5 percent a year ago. The Company now expects a full-year Adjusted Effective Tax Rate for fiscal 2016 of approximately 25 percent. Both the quarter and full year rates reflect the benefit of recent tax legislation related to the U.S. research and development credit.

During the first quarter of fiscal 2016, the Company repurchased 1.2 million shares of its common stock at a cost of $121.8 million. At December 31, 2015, $323.4 million remained available under the existing share repurchase authorization.

Organic sales, total segment operating earnings, total segment operating margin, Adjusted Income, Adjusted EPS, Adjusted Effective Tax Rate, free cash flow and return on invested capital are non-GAAP measures that are reconciled to GAAP measures in the attachments to this release.

Conference Call

A conference call to discuss our financial results will take place at 8:30 a.m. Eastern Time on Wednesday, January 27, 2016. The call and related financial charts will be webcast and accessible via the Rockwell Automation website (http://www.rockwellautomation.com/investors/).

This news release contains statements (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “believe”, “estimate”, “project”, “plan”, “expect”, “anticipate”, “will”, “intend” and other similar expressions may identify forward-looking statements. Actual results may differ materially from those projected as a result of certain risks and uncertainties, many of which are beyond our control, including but not limited to:

• macroeconomic factors, including global and regional business conditions, the availability and cost of capital, commodity prices, the cyclical nature of our customers’ capital spending, sovereign debt concerns and currency exchange rates;
• laws, regulations and governmental policies affecting our activities in the countries where we do business;
• the successful development of advanced technologies and demand for and market acceptance of new and existing products;
• the availability, effectiveness and security of our information technology systems;
• competitive products, solutions and services and pricing pressures, and our ability to provide high quality products, solutions and services;
• a disruption of our business due to natural disasters, pandemics, acts of war, strikes, terrorism, social unrest or other causes;
• our ability to manage and mitigate the risk related to security vulnerabilities and breaches of our products, solutions and services;
• intellectual property infringement claims by others and the ability to protect our intellectual property;
• the uncertainty of claims by taxing authorities in the various jurisdictions where we do business;
• our ability to attract and retain qualified personnel;
• our ability to manage costs related to employee retirement and health care benefits;
• the uncertainties of litigation, including liabilities related to the safety and security of the products, solutions and services we sell;
• our ability to manage and mitigate the risks associated with our solutions and services businesses;
• a disruption of our distribution channels;
• the availability and price of components and materials;
• the successful integration and management of acquired businesses;
• the successful execution of our cost productivity and globalization initiatives; and
• other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission (SEC) filings.

These forward-looking statements reflect our beliefs as of the date of filing this release. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Rockwell Automation, Inc. (NYSE: ROK), the world’s largest company dedicated to industrial automation and information, makes its customers more productive and the world more sustainable. Headquartered in Milwaukee, Wis., Rockwell Automation employs over 22,000 people serving customers in more than 80 countries.

¹Total segment operating earnings and total segment operating margin are non-GAAP financial measures. We exclude purchase accounting depreciation and amortization, general corporate – net, non-operating pension costs, interest expense and income tax provision because we do not consider these costs to be directly related to the operating performance of our segments. We believe that these measures are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our Company. Our measures of total segment operating earnings and total segment operating margin may be different from those used by other companies.

²Adjusted EPS is a non-GAAP earnings measure that excludes the non-operating pension costs and their related income tax effects. See “Other Supplemental Information – Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate” section for more information regarding non-operating pension costs and a reconciliation to GAAP measures.

ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)

Organic Sales

Our press release contains information regarding organic sales, which we define as sales excluding the effect of changes in currency exchange rates and acquisitions. We believe this non-GAAP measure provides useful information to investors because it reflects regional and operating segment performance from our activities without the effect of changes in currency exchange rates and/or acquisitions. We use organic sales as one measure to monitor and evaluate our regional and operating segment performance. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the currency exchange rates that were in effect during the prior year. When we acquire businesses, we exclude sales in the current year for which there are no comparable sales in the prior period. Organic sales growth is calculated by comparing organic sales to reported sales in the prior year. Sales are attributed to the geographic regions based on the country of destination.

The following is a reconciliation of reported sales to organic sales for the three months ended December 31, 2015 compared to sales for the three months ended December 31, 2014:

The following is a reconciliation of reported sales to organic sales for our operating segments for the three months ended December 31, 2015 compared to sales for the three months ended December 31, 2014:

ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions, except per share amounts and percentages)

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate

Our press release contains financial information and earnings guidance regarding Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate, which are non-GAAP earnings measures that exclude non-operating pension costs and their related income tax effects. We define non-operating pension costs as defined benefit plan interest cost, expected return on plan assets, amortization of actuarial gains and losses and the impact of any plan curtailments or settlements. These components of net periodic benefit cost primarily relate to changes in pension assets and liabilities that are a result of market performance; we consider these costs to be unrelated to the operating performance of our business. We believe that Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Our measures of Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for income from continuing operations, diluted EPS and effective tax rate.

The following are the components of operating and non-operating pension costs for the three months ended December 31, 2015 and 2014:

The following are reconciliations of income from continuing operations, diluted EPS from continuing operations, and effective tax rate to Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate:

ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions, except percentages)

Free Cash Flow

Our definition of free cash flow, which is a non-GAAP financial measure, takes into consideration capital investments required to maintain the operations of our businesses and execute our strategy. We account for share-based compensation under U.S. GAAP, which requires that we report the excess income tax benefit from share-based compensation as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flow in order to generally classify cash flows arising from income taxes as operating cash flows.

In our opinion, free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends and share repurchases. We use free cash flow, as defined, as one measure to monitor and evaluate performance. Our definition of free cash flow may be different from definitions used by other companies.

The following table summarizes free cash flow by quarter:

Return On Invested Capital

Our press release contains information regarding Return On Invested Capital (ROIC), which is a non-GAAP financial measure. We believe that ROIC is useful to investors as a measure of performance and of the effectiveness of the use of capital in our operations. We use ROIC as one measure to monitor and evaluate performance. Our measure of ROIC may be different from that used by other companies. We define ROIC as the percentage resulting from the following calculation:

ROIC is calculated as follows:

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Rockwell Automation
Darice Brown
Media Relations
414.382.4852
or
Rockwell Automation
Patrick Goris
Investor Relations
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