Rockwell Automation Reports First Quarter 2017 Results

• Reported sales up 4.5 percent; organic sales up 3.8 percent year over year
• Diluted EPS of $1.65 ; Adjusted EPS of $1.75
• Increasing fiscal 2017 EPS guidance: Diluted EPS $5.56 - $5.96 ; Adjusted EPS $5.95 - $6.35

MILWAUKEE --(BUSINESS WIRE)-- Rockwell Automation, Inc. (NYSE: ROK) today reported fiscal 2017 first quarter sales of $1,490.3 million , up 4.5 percent from $1,426.6 million in the first quarter of fiscal 2016. Organic sales grew 3.8 percent. Currency translation reduced sales by 1.1 percentage points, and acquisitions contributed 1.8 percentage points to sales growth.

Fiscal 2017 first quarter net income was $214.7 million or $1.65 per share, compared to $185.5 million or $1.40 per share in the first quarter of fiscal 2016. Fiscal 2017 first quarter Adjusted EPS was $1.75 , up 17 percent compared to $1.49 in the first quarter of fiscal 2016. The increases in EPS and Adjusted EPS were primarily due to higher sales, strong margin performance and lower tax rates.

Pre-tax margin increased to 17.3 percent in the first quarter of fiscal 2017 from 16.6 percent in the same period last year. Total segment operating earnings were $316.6 million in the first quarter of fiscal 2017, up 7 percent from $295.9 million in the same period of fiscal 2016. Total segment operating margin was 21.2 percent compared to 20.7 percent a year ago. The increases in pre-tax margin and total segment operating margin were primarily due to higher sales and productivity, partially offset by higher incentive compensation.

Commenting on the results, Blake D. Moret , president and chief executive officer, said, “Four percent organic growth in the quarter is a great start to the fiscal year, better than we expected. We returned to organic growth in our largest market, the U.S., and we saw double-digit growth in emerging markets. I am also pleased with the contribution from recent acquisitions, along with our strong margin performance."

Outlook

Commenting on the outlook, Moret added, "The macro environment remains consistent with our assumptions earlier in the fiscal year. Oil and commodity prices have been stable or have inched up, and our business in these markets has been relatively flat now for a few quarters. Recent projections continue to call for improving GDP and Industrial Production growth rates, as well as a higher level of capital expenditures. We therefore expect continued growth in the consumer and transportation verticals, and expect heavy industry end markets to be about flat year over year.

"Taking the macro outlook and our strong first quarter into consideration, we are increasing full-year organic sales guidance by one point across the range, and increasing EPS guidance by ten cents across the range."

The following table provides updated guidance as it relates to sales growth and earnings per share for fiscal 2017:

Moret continued, “Strong underlying demand for our products enables us to accelerate investments this year in core technologies and domain expertise, and to expand the new value we are providing in Information Solutions and Connected Services. Together, these will further enhance our ability to bring The Connected Enterprise to life and profitably grow share at customers globally.

“I would like to thank our employees, partners and suppliers for their continued dedication in serving our customers.”

Following is a discussion of fiscal 2017 first quarter results for both segments.

Architecture & Software

Architecture & Software quarterly sales were $696.4 million , an increase of 8.3 percent compared to $642.9 million in the same period last year. Organic sales increased 7.6 percent, currency translation reduced sales by 1.0 percentage point, and acquisitions contributed 1.7 percentage points to sales growth. Segment operating earnings were $208.6 million compared to $176.2 million in the same period last year. Segment operating margin increased to 30.0 percent from 27.4 percent a year ago, primarily due to higher sales.

Control Products & Solutions

Control Products & Solutions quarterly sales were $793.9 million , an increase of 1.3 percent compared to $783.7 million in the same period last year. Organic sales increased 0.7 percent, currency translation reduced sales by 1.3 percentage points, and acquisitions contributed 1.9 percentage points to sales growth. Segment operating earnings were $108.0 million compared to $119.7 million in the same period last year. Segment operating margin decreased to 13.6 percent from 15.3 percent a year ago, primarily due to higher incentive compensation.

Other Information

In the first quarter of fiscal 2017 cash flow provided by operating activities was $310.8 million and free cash flow was $271.4 million . Return on invested capital was 34.6 percent.

Fiscal 2017 first quarter general corporate-net expense was $14.9 million compared to $18.0 million in the first quarter of fiscal 2016.

On a GAAP basis, the effective tax rate in the first quarter of fiscal 2017 was 16.7 percent compared to 21.7 percent in the first quarter of fiscal 2016. The Adjusted Effective Tax Rate for the first quarter of fiscal 2017 was 18.1 percent compared to 22.8 percent a year ago. The decreases in the effective tax rate and the Adjusted Effective Tax Rate were primarily due to larger favorable discrete tax items in the current quarter compared to the prior year. For fiscal 2017, the Company now expects an effective tax rate of approximately 22.5 percent and an Adjusted Effective Tax Rate of approximately 23.5 percent.

During the first quarter of fiscal 2017, the Company repurchased 646 thousand shares of its common stock at a cost of $80.8 million . At December 31, 2016, $864.2 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 25, 2017. 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 to 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 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 approximately 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.

The following is a reconciliation of reported sales to organic sales for our operating segments for the three months ended December 31, 2016 compared to sales for the three months ended December 31, 2015:

The following are the components of operating and non-operating pension costs for the three months ended December 31, 2016 and 2015:

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:

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 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) Income from continuing operations, before interest expense, income tax provision, and purchase accounting depreciation and amortization, for the most recent twelve months; 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 and short-term investments; multiplied by

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

ROIC is calculated and reconciled to GAAP measures as follows:

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Source: Rockwell Automation, Inc.