Rockwell Automation, Inc. (ROK)

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Rockwell Automation (ROK)

Q2 2011 Earnings Call

April 27, 2011 8:30 am ET

Executives

Theodore Crandall - Chief Financial Officer and Senior Vice President

Keith Nosbusch - Chairman, Chief Executive Officer and President

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

Analysts

Richard Kwas - Wells Fargo Securities, LLC

John Inch - BofA Merrill Lynch

Terry Darling - Goldman Sachs Group Inc.

Mark Koznarek - Cleveland Research

Shannon O'Callaghan - Nomura Securities Co. Ltd.

Robert Cornell - Barclays Capital

Julian Mitchell

Unknown Analyst -

D. Mark Douglass - Longbow Research LLC

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.

Rondi Rohr-Dralle

Thanks, Rahul. Good morning to everyone. Thank you for joining us for Rockwell Automation Second Quarter Fiscal 2011 Earnings Release Conference Call.

Our results we 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. Additionally, a 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 the highlights on the company's performance in the second quarter and our updated outlook for the full fiscal year. Then, Ted will provide more details around the second quarter results and our revised guidance for fiscal 2011.

We'll take questions at the end of Ted's remarks. And so we want to get to as many of you as possible, please limit yourself to one or 2 questions please. We expect the call today to take about an hour.

And as always, the case on these 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 detailed in all of our SEC filings.

Before we get started, I just want to point out that we have added a new slide at the beginning of our deck, that contains highlights for the quarter. So I'd ask you to please turn to Slide 4, and then I'll hand the call over to Keith.

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. As Rondi mentioned, our first slide captures the key messages from the quarter, so I'll touch on the these during my remarks.

We started the fiscal year with a very strong Q1 and that momentum continued in the second quarter with sales growth of 26%. I was very pleased again this quarter with our broad-based revenue growth. We had strong growth in every region and in both our Products and Solutions and Services businesses.

Operating margin has continued to expand, and earnings per share from continuing operations of $1.14 was a record quarterly high for the company.

We had a very strong cash flow quarter. Return on invested capital of 27.5% was a record high for the company, above the peak of 26% in the last cycle.

So at the midway point of the fiscal year, it's safe to say that we are executing extremely well and capitalizing on the strength of the industrial markets.

I'm sure by now you have all seen the reported financial results so let me give you some other highlights in the quarter. EMEA had its second consecutive quarter of 30% sales growth, overcoming some weakness in the Middle East and North Africa due to the recent political turmoil. We had several bright spots in emerging markets in Q2. China grew 36% and Latin America, with 38% growth, had it's fourth consecutive quarter of robust growth.

Our OEM business was strong again this quarter. We continue to win machine conversion and to get more content on each machine. This quarter, we saw over 40% growth in our Motion Control business within architecture and software. This is a product line that is very important for OEM applications. All of this is evidence that our global organization continues to do a great job executing our targeted initiatives.

Overall, another solid quarter and an excellent first half of the fiscal year. As you will recall, we significantly raised our full year revenue and earnings guidance in January. Some thought we were too aggressive but our Q2 net revenue was in line with that guidance. So what is our current thinking?

The industrial sector has continued to demonstrate strength with growth in industrial production rates, some improvement in capacity utilization and continued strength in the PMI data. But the past quarter has seen a good deal of change in the macro environment and that has created some new headwinds to the ongoing recovery.

Commodity costs and oil prices are increasing. Rising inflation is leading to tightening monetary policies in some emerging and developed economies. These, along with the Japan earthquake and related supply chain impact and unrest in the Middle East and North Africa, all create greater uncertainty to the business outlook.

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