Rockwell Automation, Inc. (ROK)

ROK 
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Rockwell Automation (ROK)

Q3 2011 Earnings Call

July 28, 2011 8:30 am ET

Executives

Keith Nosbusch - Chairman, Chief Executive Officer and President

Theodore Crandall - Chief Financial Officer and Senior Vice President

Rondi Rohr-Dralle - Vice President of Investor Relations & Corporate Development

Analysts

Richard Kwas - Wells Fargo Securities, LLC

John Inch - BofA Merrill Lynch

Richard Eastman - Robert W. Baird & Co. Incorporated

Jason Feldman - UBS Investment Bank

Shannon O'Callaghan - Nomura Securities Co. Ltd.

C. Stephen Tusa - JP Morgan Chase & Co

Jeffrey Sprague - Citigroup

Julian Mitchell

D. Mark Douglass - Longbow Research LLC

Mark Koznarek - Cleveland Research Company

Presentation

Operator

Thank you for holding, and welcome to Rockwell Automation's quarterly conference call. I need to remind everyone that today's conference call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations. Ms. Rohr-Dralle, please go ahead.

Theodore Crandall

Okay, thanks, Mary. Good morning, everyone. Thank you for joining us for Rockwell Automation's Third Quarter Fiscal 2011 Earnings Release Conference Call. Our results were released this morning, and a press release and charts have been posted to our website at www.rockwellautomation.com. Please note that both the press release and charts include reconciliations to non-GAAP measures. Additionally, webcast of this call is accessible at that website and will be available for replay for the next 30 days.

With me today, as always, 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 on the company's performance in the third quarter and our updated outlook for the fiscal year. Then, Ted will provide more details around the third quarter results and our revised guidance for fiscal 2011.

And then of course we'll take questions at the end of Ted's remarks. We expect the call today to take about an hour. And as I've always, the case on this call, I need to remind you that our comments will include statements related to the expected future results of the 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 a detailed in all of our SEC filings.

So with that, I'll hand the call over -- Okay, thank you. I'm turning the call over to Keith then.

Keith Nosbusch

Thanks, Rondi. Good morning, everyone, and thank you for joining us on the call today. I appreciate your time and interest in Rockwell Automation. Please turn to Page 4, which captures the key messages from the quarter. I'll touch on these during my remarks. I am very pleased with the record results in the third quarter. Sales of over $1.5 billion, earnings per share from continuing operations of $1.22 and after-tax return on invested capital of 29.3% are all new quarterly highs for the company. Strong organic growth of almost 14% and the diversity of that sales growth across regions and verticals indicate that we are capitalizing on our growth opportunities. Architecture & Software had an outstanding quarter with LOGIX growth of over 25% excluding the impact of currency. Operating margins continue to improve in the quarter and year-to-date margin is up over 2 percentage points compared to a year ago. Here again, A&S was a standout, with the highest quarterly operating margin since the third quarter of fiscal 2007. Control Products & Solutions margins dipped compared to Q2, primarily because of lower organic volume and acquisitions. Plus keep in mind that Solutions margins tend to fluctuate more quarter-to-quarter. On a year-to-date basis, we are pleased that the margin in this segment has expanded almost 2 percentage points.

Cash flow was strong again this quarter in spite of the additional layer of inventory that we added to protect our customers after the Japan crisis. Fortunately, at this point, we don't see any significant risk to our supply chain due to Japan. I think Japan has managed very well through the crisis. Before I comment on the outlook, let me give you some other highlights in the quarter.

India was a star in emerging Asia with 27% organic growth. China was at mid-teens growth, which was in line with our expectations given the very strong Q3 from last year. We are gaining traction in emerging Europe in Q3. We had a significant $3 million water waste water win in Turkey. I'm pleased with the progress we are making in Process. Our Process business had its best quarter of the year with 18% year-over-year sales growth and 9% sequential growth, both on a currency neutral basis.

Globally, we are seeing more and larger legacy DCS conversion opportunities, and we continue to invest in our process domain expertise for selling, Application Engineering and technical support. Success with OEM customers continues to contribute to the above market growth we have seen in EMEA. And we closed 2 acquisitions in the quarter announced at 21% dividend increase and stepped up our share repurchases.

Our results in the third quarter kept us on track for an outstanding year for the company and for our shareowners. We have had excellent performance through the first 3 quarters of the year by capitalizing on the strength of the industrial recovery and executing our growth and performance strategy. We are now 9 quarters into the recovery and market growth rates are moderating just as we would expect at this stage.

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