Rockwell Automation, Inc. (ROK)

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Rockwell Automation, Inc. (ROK)

F1Q10 Earnings Call

January 27, 2010 8:30 am ET


Rondi Rohr-Dralle - Vice President of Investor Relations

Keith Nosbusch - Chairman and CEO

Ted Crandall - Chief Financial Officer


Bob Cornell – Barclays Capital

John Inch – Merrill Lynch

John Baliotti – FTN Equity Capital Markets

Mark Koznarek – Cleveland Research

Steve Tusa – JP Morgan

Mark Zeff – Goldman Sachs

Mark Douglass – Longbow Research

Richard Eastman – Robert W. Baird



(Operator Instructions)  Welcome to Rockwell Automation’s quarterly conference call. At this time I would now like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations.

Rondi Rohr-Dralle

Thanks for joining us for Rockwell Automation’s First Quarter Fiscal 2010 Earnings Release Conference Call. Our results were released this morning and the press release and charts have been posted to our website at Please note that the press release and charts include reconciliations to non-GAAP measures. A webcast of the audio portion of this call and all of the charts that we reference during the call are available at that website. The webcast will be available for replay and the materials from this call will be accessible for the next 30 days.

With me today are Keith Nosbusch, our Chairman and CEO and Ted Crandall, our Chief Financial Officer. Our agenda includes opening remarks by Keith that will include highlights of the first quarter and thoughts about our outlook for 2010. Then Ted will provide more details around the first quarter financial performance our revised 2010 guidance. There will of course be time at the end of the call to take your questions and we’ll try to get to as many of you as possible, so please limit yourself to one or two questions and we’ll try and get to as many folks.

We expect the call today to take about 45 minutes to an hour. As is always the case on these calls, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings.

So, with that, I’ll turn the call over to Keith.

Keith Nosbusch

As we exited last fiscal year we were cautious in our outlook for fiscal ’10. We had just experienced the largest and most rapid yearly revenue decline in my history with Rockwell Automation and we were just beginning to see stabilization in the macro environment and in our order rates. Fast forward three months and we now believe we are seeing the signs of recovery, reflected by continued improvement in key global economic indicators like industrial production and PMI and by our performance in the first quarter. I’ll talk more about our outlook later.

First, let me give you some highlights for the first quarter. Revenue in the first quarter was better then our expectation, particularly in our Product businesses in December. Even though we think Product revenue in the quarter benefited from some unusual year end budget consumption by our customers, it still exceeded our expectations.

In our Solutions businesses, revenue declined sequentially in Q1 as expected. We did see improvement in order rates for the first time since the first quarter of fiscal 2009. Favorable revenue mix along with the benefit of previous cost reduction actions contributed to sequential margin improvement in the quarter even after adjusting for the restructuring actions in the fourth quarter of last year.

The results in the quarter and an improved outlook for the year caused us to reverse our temporary pay and benefit cuts in January a quarter earlier then we originally expected. We believe this was the appropriate timing but it will create some additional sequential headwinds to margins for the remainder of the year. The first quarter was another very strong quarter for cash generation, over $100 million. I want to thank our customers, employees and partners for a great start to the fiscal year.

Let me set the stage for our outlook for the remainder of the year. While key indicators such as industrial production and PMI are improving, we remain concerned about other factors such as continued high unemployment, historically low levels of capacity utilization and a very cautious capital spending outlook. It now seems that the recovery has started but the shape of the recovery remains uncertain. Absent some unexpected shock to the global economy we believe demand will trend flat to up from here.

With this backdrop and using our Q1 results as a new baseline we are providing a revised outlook for fiscal 2010 full year revenue of $4.4 to $4.6 billion compared to our previous range of $4.1 to $4.4 billion. As in our previous guidance, to achieve the high end of the range we need to have meaningful second half over first half growth. At these new revenue levels we do expect to incur some additional expense from restoration of temporary action and higher incentive compensation in 2010. We expect to begin to make some incremental investments to support growth.

With these factors in mind we are raising our earnings per share guidance. Our new range is $2.00 to $2.40. This revised guidance reflects the strong earnings leverage that we would expect on incremental volumes, especially with respect to our product businesses.

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