Rockwell Automation, Inc. (ROK)

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Rockwell Automation (ROK)

Q1 2013 Earnings Call

January 30, 2013 8:30 am ET

Executives

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

Keith D. Nosbusch - Chairman, Chief Executive Officer and President

Theodore D. Crandall - Chief Financial officer and Senior Vice President

Analysts

Charles Stephen Tusa - JP Morgan Chase & Co, Research Division

Scott R. Davis - Barclays Capital, Research Division

Julian Mitchell - Crédit Suisse AG, Research Division

John G. Inch - Deutsche Bank AG, Research Division

Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division

Mark Douglass - Longbow Research LLC

Richard M. Kwas - Wells Fargo Securities, LLC, Research Division

Shannon O'Callaghan - Nomura Securities Co. Ltd., Research Division

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Nigel Coe - Morgan Stanley, Research Division

Presentation

Operator

Thank you for holding, and welcome to the 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'd like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations. Ms. Rohr-Dralle, please go ahead.

Rondi Rohr-Dralle

Thanks, Frances. Good morning, and thanks to everyone for joining us on Rockwell Automation's First Quarter Fiscal 2013 Earnings Release Conference Call. 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 include highlights on the company's performance in the quarter and outlook for the full year, and then Ted will provide more detail on both of those. We'll take questions at the end of Ted's remarks. Our results were released this morning, and the 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. A webcast of this call is accessible at that website, and will be available for replay for the next 30 days.

Before we get started, I need to remind that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements. 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 D. Nosbusch

Thanks, Rondi. Good morning, everyone, and thank you for joining us on the call today. I know it's been a busy earnings season for all of you, so I appreciate your time today and your interest in Rockwell Automation. The first portion of my remarks will cover the highlights for the quarter.

So please turn to Page 4 in the slide deck. Sales in Q1 were in line with our expectations in total with mixed results by region. Latin America grew 7% with Brazil back to positive growth. U.S. growth was strong at 6%. EMEA declined 2%, as expected, due to flat OEM demand and lower solutions backlog entering the quarter. The negative surprise in the quarter was 9% sales decline in Asia Pacific. China and India were both down in the quarter more than the region average. In China, continued soft economic growth, lack of credit availability and project delays all impacted sales in the quarter. Orders performance was better than sales performance, and we rebuilt backlog in the quarter. I was in China earlier this month, and it feels to me like sentiment for industrial investment is turning a bit more positive, which should help our second -- our results in the second half. I'm confident that we're well-positioned to capitalize on opportunities when growth reaccelerates.

In India, continued economic weakness, tight credit and high interest rates are dampening investment and causing project delays, and we don't see any improvement on the horizon. Process had a small sales decline this quarter, reflecting a weaker solutions backlog coming into the quarter and continued project delays. We continue to believe that process is our best growth opportunity, and I'll talk more about that later.

Before I end my discussion on the top line, let me point out a couple of positives in the quarter. In addition to the strong sales in the U.S. and Latin America, Logix grew 5%, and we were encouraged to see solutions order rates pick up. The solutions and services book-to-bill was 1.23. Those of you who have been following us for a while know that a core part of our strategy is diversification of revenue streams from a geography, industry and application perspective. A quarter like this, where you have areas of strength that make up for pockets of weakness, demonstrates the importance of that strategy. Operating margin of 18.5% in the quarter was good and in line with our full year guidance. Adjusted EPS was $1.23 in the quarter. So overall, I'd call it a good start to the fiscal year.

Let me share some other highlights of the quarter. CONTROL Magazine, an industry-leading publication exclusively dedicated to the global process automation market, recently issued the results of its Readers' Choice survey. We had our best showing ever with 43 wins in control, industry and product categories, the most of any process company. Of the 6 CONTROL discipline awards, we won 3, with no other company winning more than 1. In the industry vertical awards, we won 30 out of 53. The second-place supplier won only 12. These results are further validation that we are gaining ground as a leading DCS company for process applications. We're getting good traction with new products such as our family of midrange controllers that we've released throughout 2012. We expect this new product momentum to continue, and that along with the cooperation from the global economy will help fuel the increased growth in the second half that's baked into our fiscal year guidance.

Read the rest of this transcript for free on seekingalpha.com