Rockwell Automation Reports Second Quarter 2019 Results

Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2019 second
quarter sales of $1,657.2 million, up 0.4 percent from $1,651.2 million
in the second quarter of fiscal 2018. Organic sales grew 3.6 percent.
Currency translation decreased sales by 3.2 percentage points.

Fiscal 2019 second quarter net income was $346.0 million or $2.88 per
share, compared to $227.4 million or $1.77 per share in the second
quarter of fiscal 2018. The increases in net income and EPS were driven
by the fair-value adjustment recognized in second quarter of fiscal 2019
in connection with the PTC investment (the “PTC adjustment”) and the
absence of charges associated with the Tax Cuts and Jobs Act of 2017
(the “Tax Act”) recognized in the second quarter of fiscal 2018. Fiscal
2019 second quarter Adjusted EPS was $2.04, up 8 percent compared to
$1.89 in the second quarter of fiscal 2018. The increase in Adjusted EPS
was primarily due to higher sales and lower share count, partially
offset by higher investment spending and higher net interest expense.

Pre-tax margin was 24.3 percent in the second quarter of fiscal 2019
compared to 18.1 percent in the same period last year. The increase in
pre-tax margin was primarily due to the PTC adjustment.

Total segment operating margin was 21.3 percent compared to 20.9 percent
a year ago. The increase in total segment operating margin was primarily
due to higher sales, partially offset by higher investment spending.
Total segment operating earnings were $353.8 million in the second
quarter of fiscal 2019, up 2.6 percent from $344.9 million in the same
period of fiscal 2018.

Commenting on the second quarter results, Blake D. Moret, chairman and
chief executive officer, said, “Our results for the quarter reflect
profitable growth in all regions, led by strong process industry
performance. We saw accelerating growth in Information Solutions and
Connected Services, reflecting adoption of the Connected Enterprise. Our
growth was tempered by weaker-than-expected automotive sales, which
impacted our product sales. Adjusted EPS increased by 8 percent in the
quarter.”

Moret continued, “Our strategic partnership with PTC is progressing
well. We are winning profitable new business across all focus industries
and geographies, and some of our engagements are expanding to multi-site
rollouts. In addition, in February we announced that we will be forming
the Sensia joint venture with Schlumberger, creating the oil and gas
industry’s first fully integrated automation solutions provider for the
digital oilfield. The announcement has been well-received by target
customers.”

Outlook

The following table provides updated guidance as it relates to sales
growth and earnings per share for fiscal 2019:

Commenting on the outlook, Moret added, “We continue to see broad-based
growth, with strong financial performance. However, given the weakness
in automotive, we are reducing the high end of our guidance range for
organic sales growth and Adjusted EPS. The mid-point of the updated
Adjusted EPS guidance range is now $9.00, compared to $9.05 in previous
guidance.”

Moret continued, “We are accelerating the execution of our strategy. I’m
very encouraged to see employees and partners embrace our new ways to
win, expanding value for customers and shareowners.”

In February 2019, we entered into an agreement to create a new joint
venture, Sensia. The transaction is expected to close in calendar 2019,
subject to regulatory approvals and satisfaction of other customary
conditions. Sensia will operate as an independent entity, with Rockwell
Automation owning 53% and Schlumberger owning 47% of the joint
venture. As part of the transaction, we will make a $250 million payment
to Schlumberger at closing, which will be funded by cash on hand. We
expect that we will consolidate Sensia in our financial results. Sensia
is expected to generate initial annual revenue of approximately $400
million, slightly less than half of which relates to businesses to be
contributed to the joint venture by Rockwell Automation. Due to
uncertainty regarding the closing date of the Sensia transaction, our
guidance for fiscal 2019 does not include the estimated Sensia impact.

Following is a discussion of fiscal 2019 second quarter results for both
segments.

Architecture & Software

Architecture & Software quarterly sales were $739.7 million, a decrease
of 2.2 percent compared to $756.5 million in the same period last year.
Organic sales increased 1.2 percent, currency translation decreased
sales by 3.5 percentage points, and an acquisition increased sales by
0.1 percentage points. Segment operating earnings were $209.9 million
compared to $217.2 million in the same period last year. Segment
operating margin decreased to 28.4 percent from 28.7 percent a year ago.

Control Products & Solutions

Control Products & Solutions quarterly sales were $917.5 million, an
increase of 2.5 percent compared to $894.7 million in the same period
last year. Organic sales increased 5.7 percent and currency translation
decreased sales by 3.2 percentage points. Segment operating earnings
were $143.9 million compared to $127.7 million in the same period last
year. Segment operating margin increased to 15.7 percent from 14.3
percent a year ago due to higher sales, partially offset by higher
investment spending.

Other Information

In the second quarter of fiscal 2019, cash flow provided by operating
activities was $143.8 million. Free cash flow was $104.9 million, which
included a payment of $31.1 million for taxes due under the Tax Act
related to deemed repatriation of foreign earnings, and a payment of
$35.7 million to settle hedges executed in connection with our issuance
of $1.0 billion of long-term notes in the second quarter of fiscal 2019.
Return on invested capital was 39.6 percent.

Fiscal 2019 second quarter general corporate-net expense was $26.7
million compared to $24.8 million in the second quarter of fiscal 2018.

On a GAAP basis, the effective tax rate in the second quarter of fiscal
2019 was 14.0 percent compared to 24.1 percent in the second quarter of
fiscal 2018. The effective tax rate in the second quarter of 2018
included charges related to the Tax Act. The effective tax rate in the
second quarter of 2019 included a tax benefit on the PTC adjustment. The
Adjusted Effective Tax Rate for the second quarter of fiscal 2019 was
18.6 percent compared to 20.5 percent in the prior year. The lower
Adjusted Effective Tax Rate in 2019 is primarily related to the Tax Act.

During the second quarter of fiscal 2019, the Company repurchased 1.4
million shares of its common stock at a cost of $236.0 million. At
March 31, 2019, $579.6 million remained available under the September 6,
2018 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 Thursday, April 25, 2019. The call and related
financial charts will be webcast and accessible via the Rockwell
Automation website (https://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, including those
  related to tariffs, taxation, and trade controls;
• the successful development of advanced technologies and demand for
  and market acceptance of new and existing hardware and software
  products;
• the availability and price of components and materials;
• the successful execution of our cost productivity initiatives;
• the availability, effectiveness and security of our information
  technology systems;
• competitive hardware and software products, solutions and services
  and pricing pressures, and our ability to provide high quality
  products, solutions and services;
• disruptions to our distribution channels or the failure of
  distributors to develop and maintain capabilities to sell our products;
• 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, develop, and retain qualified personnel;
• the uncertainties of litigation, including liabilities related to
  the safety and security of the hardware and software products,
  solutions and services we sell;
• our ability to manage and mitigate the risks associated with our
  solutions and services businesses;
• the successful integration and management of strategic transactions
  and achievement of the expected benefits of these transactions;
• risks associated with our investment in common stock of PTC Inc.,
  including the potential for volatility in our reported quarterly
  earnings associated with changes in the market value of such stock;
• our ability to manage costs related to employee retirement and
  health care benefits; 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 approximately 23,000 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 and postretirement benefit credit (cost), costs related to the
unsolicited Emerson proposals in the first quarter of fiscal 2018, gains
and losses on investments, valuation adjustments related to the
registration of PTC securities, gains and losses from the disposition of
businesses, interest (expense) income, net 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
operating segments. Our measures of total segment operating earnings and
total segment operating margin may be different from measures used by
other companies.

²Adjusted EPS is a non-GAAP earnings measure that excludes
non-operating pension and postretirement benefit credit (cost), costs
related to the unsolicited Emerson proposals, gains and losses on
investments, and valuation adjustments related to the registration of
PTC securities, including their respective tax effects and the charges
associated with the enactment of the Tax Act. See “Other Supplemental
Information – Adjusted Income, Adjusted EPS and Adjusted Effective Tax
Rate” section for more information regarding non-operating pension and
postretirement benefit credit (cost) and a reconciliation to GAAP
measures.

¹Beginning with the first quarter of fiscal 2019, we have
adopted ASU 2017-07, which defines operating and non-operating pension
and postretirement benefit cost. Under this new standard, only the
service cost component of pension and postretirement benefit cost is an
operating cost. All other components of pension and postretirement
benefit cost are considered to be non-operating costs. Amounts shown for
fiscal 2018 have been recast to conform to fiscal 2019 reporting.
Accordingly, in the three and six months ended March 31, 2018,
non-operating pension and postretirement benefit cost were reclassified
out of Cost of sales and Selling, general and administrative expenses
and into Other income (expense). In the three months ended March 31,
2018, the reclassification resulted in a decrease in Cost of sales of
$3.1 million, an increase in Gross profit of $3.1 million, a decrease in
Selling, general and administrative expenses of $2.6 million, and an
increase in expense within Other income (expense) of $5.7 million. In
the six months ended March 31, 2018, the reclassification resulted in a
decrease in Cost of sales of $6.2 million, an increase in Gross profit
of $6.2 million, a decrease in Selling, general and administrative
expenses of $5.3 million, and an increase in expense within Other income
(expense) of $11.5 million.

²In the three months ended March 31, 2019, Other income
(expense) included a $98.2 million gain due to the change in value of
our investment in PTC and in the six months ended March 31, 2019, Other
income (expense) included a $148.2 million loss due to the change in
value of our investment in PTC and a $33.7 million gain due to the
valuation adjustments related to the registration of PTC securities.

³In the six months ended March 31, 2019, income tax provision
included the tax effects on the PTC adjustments. In the three and six
months ended March 31, 2018, income tax provision included charges of
$11.5 million and $491.2 million, associated with the enactment of the
Tax Act.

¹Included in change in fair value of investments in the six
months ending March 31, 2019 is a $148.2 million loss on investments and
a $33.7 million gain due to the reversal of valuation adjustments
related to the registration of PTC securities.

²We entered into treasury locks to manage the potential
change in interest rates in anticipation of the issuance of $1.0 billion
of fixed rate debt in March 2019. As a result of the changes in the
interest rates on the treasury locks between the time we entered into
the agreements and the time we priced and issued the debt securities,
the Company made a payment of $35.7 million to the counterparty on March
1, 2019.

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

Organic Sales

We translate sales of subsidiaries operating outside of the United
States using exchange rates effective during the respective period.
Therefore, changes in currency exchange rates affect our reported sales.
Sales by acquired businesses also affect our reported sales. We believe
that organic sales, defined as sales excluding the effects of changes in
currency exchange rates and acquisitions, which is a non-GAAP financial
measure, provides useful information to investors because it reflects
regional and operating segment performance from the activities of our
businesses without the effect of changes in currency exchange rates and
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 same currency exchange rates that
were in effect during the prior year. When we acquire businesses, we
exclude sales in the current period for which there are no comparable
sales in the prior period. When we divest a business, we exclude sales
in the prior period for which there are no comparable sales in the
current period. Organic sales growth is calculated by comparing organic
sales to reported sales in the prior year, excluding divestitures. We
attribute sales to the geographic regions based on the country of
destination.

The following is a reconciliation of reported sales to organic sales for
the three and six months ended March 31, 2019 compared to sales for the
three and six months ended March 31, 2018:

The following is a reconciliation of reported sales to organic sales for
our operating segments for the three and six months ended March 31, 2019
compared to sales for the three and six months ended March 31, 2018:

The following is a reconciliation of reported sales to organic sales for
Logix and Process for the three and six months ended March 31, 2019:

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

Adjusted Income, Adjusted EPS and Adjusted
Effective Tax Rate

Adjusted Income, Adjusted EPS and Adjusted Effective Tax Rate are
non-GAAP earnings measures that exclude non-operating pension and
postretirement benefit (credit) cost, costs related to the unsolicited
Emerson proposals in the first quarter of fiscal 2018, gains and losses
on investments, and valuation adjustments related to the registration of
PTC securities, including their respective tax effects, and the
adjustments related to the Tax Act in fiscal 2018.

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. Adjusted EPS is also used as a financial
measure of performance for our annual incentive compensation. 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 net income,
diluted EPS and effective tax rate.

We have adopted ASU 2017-07, which defines operating and non-operating
pension and postretirement benefit cost. Under this new standard, only
the service cost component of pension and postretirement benefit cost is
an operating cost. All other components of pension and postretirement
benefit cost are considered to be non-operating costs. These components
of net periodic pension and postretirement benefit cost primarily relate
to changes in pension assets and liabilities that are a result of market
performance; we consider these and other excluded costs to be unrelated
to the operating performance of our business.

The following are the components of operating and non-operating pension
and postretirement benefit cost (in millions):

The components of net periodic pension and postretirement benefit cost
other than the service cost component are included in the line “Other
income (expense)” in the Statement of Operations.

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

¹Includes (gain)/loss on investments and valuation
adjustments related to the registration of PTC securities.

¹The actual year-to-date adjustments, which are based on
PTC’s share price at March 31, 2019, are used for guidance, as estimates
of these adjustments on a forward-looking basis are not available due to
variability, complexity and limited visibility of these items.

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. 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 our performance, including as a financial
measure for our annual incentive compensation. Our definition of free
cash flow may be different from definitions used by other companies.

The following table summarizes free cash flow by quarter:

¹Free cash flow for the fourth quarter of fiscal 2017
included a discretionary pre-tax contribution of $200 million to the
Company’s U.S. pension trust.

²Includes a payment of $31.1 million for taxes due under the
Tax Act related to deemed repatriation of foreign earnings and a payment
of $35.7 million to settle hedges executed in connection with our
issuance of $1.0 billion of long-term notes in the second quarter of
fiscal 2019.

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 our performance, including as a
financial measure for our annual incentive compensation. Our measure of
ROIC may be different from that used by other companies. We define ROIC
as the percentage resulting from the following calculation:

(a) Net Income, before interest expense, income tax provision, and
purchase accounting depreciation and amortization, divided by;

(b) average invested capital for the year, calculated as a five quarter
rolling average using the sum of short-term debt, long-term debt,
shareowners’ equity, and accumulated amortization of goodwill and other
intangible assets, minus cash and cash equivalents, short-term
investments, and long-term investments (fixed income securities),
multiplied by;

(c) one minus the effective tax rate for the period.

ROIC is calculated as follows (in millions, except percentages):

¹The income tax provision used to calculate the effective tax
rate is adjusted to remove amounts associated with the enactment of the
Tax Act. For the twelve months ended March 31, 2019 and March 31, 2018,
these adjustments were $47.1 million and $491.2 million, respectively.

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