2018.08.20. Rockwell Automation Reports Third Quarter 2018 Results

Reported sales up 6.2 percent year over year;

organic sales up 5.7 percent

Diluted earnings per share of $1.58; Adjusted EPS of $2.16

Reported results include adjustments related to the PTC Securities Purchase Agreement

Updating fiscal 2018 diluted EPS guidance: $3.29 - $3.49

Increasing fiscal 2018 Adjusted EPS guidance: $7.90 - $8.10

MILWAUKEE--(BUSINESS WIRE)-- Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2018 third quarter sales of $1,698.7 million, up 6.2 percent from $1,599.2 million in the third quarter of fiscal 2017. Organic sales grew 5.7 percent. Currency translation increased sales by 1.8 percentage points, and the prior year divestiture reduced sales by 1.3 percentage points.


Fiscal 2018 third quarter net income was $198.6 million or $1.58 per share, compared to net income of $216.9 million or $1.67 per share in the third quarter of fiscal 2017. The decrease in net income and EPS was driven by $76.8 million of fair value adjustments recognized in connection with the PTC Securities Purchase Agreement (the "PTC adjustments"). Of this amount, $69.5 million will reverse upon registration of the PTC securities, which is expected by calendar 2018 year end. Fiscal 2018 third quarter Adjusted EPS was $2.16, up 23 percent compared to $1.76 in the third quarter of fiscal 2017. The increase in Adjusted EPS was primarily due to higher sales.


Pre-tax margin was 14.8 percent in the third quarter of fiscal 2018 compared to 17.3 percent in the same period last year. The decrease in pre-tax margin was driven by the PTC adjustments. Total segment operating margin was 22.5 percent compared to 21.1 percent a year ago. The increase in total segment operating margin was primarily due to higher sales. Total segment operating earnings were $382.9 million in the third quarter of fiscal 2018, up 14 percent from $337.0 million in the same period of fiscal 2017.


Commenting on the third quarter results, Blake D. Moret, chairman and chief executive officer, said, "I am very pleased with our results for the quarter. Our 6 percent organic sales growth was above expectations, driven by broad-based growth across regions and industries. We expanded segment margins by more than a point, increased Adjusted EPS by over 20 percent, and delivered strong free cash flow performance. We continue to invest for growth and are executing well on our key strategic initiatives."


Outlook
The following table provides updated guidance as it relates to sales growth and earnings per share for fiscal 2018:

Reported sales growth ~ 6%

Diluted EPS $3.29 - $3.49

Organic sales growth ~ 5.5%

Adjusted EPS $7.90 - $8.10

Currency translation ~ 2%

Divestiture ~ (1)% 

Commenting on the outlook, Moret added, "Global Industrial Production and other production indicators remain strong. Taking into consideration our year-to-date results, growing backlog, and the macro outlook, we are raising fiscal 2018 organic sales growth guidance to about 5.5 percent and continue to expect fiscal 2018 reported sales to be about $6.7 billion. We are increasing our Adjusted EPS guidance range to $7.90 - $8.10."


Moret continued, "We are focused on profitable, above-market growth through a combination of share gains in core platforms, double-digit growth in Information Solutions and Connected Services, and a point or more per year of growth from acquisitions. We are delivering in each of these areas. In our core platforms, Logix grew 10 percent and Process grew 8 percent this quarter. Revenue from the new value of The Connected Enterprise again grew double digits. Our strategic partnership with PTC creates the most comprehensive and flexible information software offering in the industry. This will unlock new levels of productivity at our customers and accelerate our profitable growth.


"The dedication of our employees, partners, and suppliers continues to make the difference at our customers and is the key to our success."


Following is a discussion of fiscal 2018 third quarter results for both segments.


Architecture & Software
Architecture & Software quarterly sales were $795.7 million, an increase of 8.7 percent compared to $731.9 million in the same period last year. Organic sales increased 6.7 percent, and currency translation increased sales by 2.0 percentage points. Segment operating earnings were $239.0 million compared to $204.3 million in the same period last year. Segment operating margin increased to 30.0 percent from 27.9 percent a year ago.


Control Products & Solutions
Control Products & Solutions quarterly sales were $903.0 million, an increase of 4.1 percent compared to $867.3 million in the same period last year. Organic sales increased 4.9 percent, currency translation increased sales by 1.6 percentage points, and the prior year divestiture reduced sales by 2.4 percentage points. Segment operating earnings were $143.9 million compared to $132.7 million in the same period last year. Segment operating margin increased to 15.9 percent from 15.3 percent a year ago.


Other Information
In the third quarter of fiscal 2018, cash flow provided by operating activities was $343.1 million and free cash flow was $320.7 million. Return on invested capital was 43.8 percent.


Fiscal 2018 third quarter general corporate-net expense was $27.7 million compared to $16.5 million in the third quarter of fiscal 2017. The increase in 2018 is primarily due to corporate development related costs.


On a GAAP basis, the effective tax rate in the third quarter of fiscal 2018 was 21.1 percent compared to 21.4 percent in the third quarter of fiscal 2017. The lower effective tax rate was due to the reduced tax rate under the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and a provisional benefit related to the Tax Act, partially offset by the tax effects on the PTC adjustments. The Adjusted Effective Tax Rate for the third quarter of fiscal 2018 was 18.7 percent compared to 22.4 percent a year ago. The decrease in the Adjusted Effective Tax Rate was primarily due to the reduced tax rate under the Tax Act. For fiscal 2018, the Company now expects an effective tax rate of approximately 60 percent and an Adjusted Effective Tax Rate of approximately 20 percent.


During the third quarter of fiscal 2018, the Company repurchased 2.5 million shares of its common stock at a cost of $430.8 million. At June 30, 2018, $504.0 million remained available under the January 15, 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.

https://ir.rockwellautomation.com/press-releases/press-releases-details/2018/Rockwell-Automation-Reports-Third-Quarter-2018-Results/default.aspx

 

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