Rockwell Automation, Inc. (ROK)
F2Q10 (Qtr End 03/31/10) Earnings Call
April 28, 2010 8:30 am ET
Rondi Rohr-Dralle - VP of IR
Keith Nosbusch - Chairman and CEO
Ted Crandall - CFO
John Inch - Merrill Lynch
Bob Cornell - Barclays Capital
Mark Koznarek - Cleveland Research
Steve Tusa - JPMorgan
Rich Kwas - Wells Fargo Securities
Previous Statements by ROK
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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. Later in the call, we will open the lines for questions. (Operator Instructions)
At this time, I would now like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations. Ms. Rohr-Dralle; please go ahead.
Thanks, [Monika]. Good morning everyone. Thank you for joining us for Rockwell Automation’s second 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 www.rockwellautomation.com. Please note that the press release and charts include reconciliations to non-GAAP measures. Additionally, a webcast of the 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 and that will include highlights of the second quarter and thoughts about our outlook for the remainder of fiscal 2010. Then Ted will provide more details around the second quarter financial performance and 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.
We expect the call today to take about 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 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.
So with that, I’ll turn the call over to Keith.
Thanks Rondi and good morning to everyone and thank you for joining us on today’s call. At our last earnings release, I said that we believe we were seeing the signs of the start of a recovery. Our performance in Q1 had exceeded our expectations, particularly in our products businesses and we significantly increased our revenue and earning guidance in January.
Our second quarter provided more good news. It appears that an industrial recovery has taken hold, as evidenced by continued improvement in key global economic indicators like industrial production and PMI, as well as our strong sequential growth in the quarter. I’ll talk more about our second half outlook later, but first let me give you my thoughts on the quarter and as always Ted
will be discussing the numbers in greater detail in his remarks.
This quarter marked to return to year-over-year organic growth for the first time since Q4 of fiscal 2008. Product revenue in the quarter was once again better than our expectations. We think restocking in our channel benefited Q2 sales by about three points and we suspect that some of the strength in product business that we have seen in both Q1 and Q2 was due to pent-up MRO demand. In our Solutions & Services businesses revenue declined year-over-year as expected, at the book-to-bill was above one, again this quarter.
Growing volume leverage in the quarter resulted in a seven point year-over-year margin improvement and a two point sequential margin improvement, in spite of the incremental costs in the quarter from reversing our temporary cost reductions and some other items that Ted will provide more detail on. We have continued to deliver very strong free cash flow with careful management of both working capital and capital spending.
There are some other positive developments in the quarter, over 13% sequential growth in the U.S. and Canada with continued strength in automotive; strong growth in emerging Asia, with 24% year-to-year growth in India and 15% in China. Multiple process industry winds against in French competitors, especially in Water Wastewater and oil and gas. OEM conversion started to bare fruit, validating our focus on these important customers during the downturns, and this impact will become more important as market conditions improve.
Finally, I want to thank our talented and dedicated employees and partners, whose unwavering commitment to our customers enabled these great results and I’m very pleased to announce that we are now able to implement a pay increase across our global employee base.
Let me set the stage for our outlook for the second half of the year. By the recovery is underway, the shape of the recovery remains uncertain. The strength in our product business through Q2 has been largely based on strong MRO demand and smaller projects with some contribution from channel restocking. Given the improvement, we have seen in OEM business has been more about machine level investment than production line level and we have yet to see any significant improvement in large capital project spending and it’s difficult to know when that might kick in.
So for products, we believe the second half could range from flat to moderately up compared to the Q2 run rate. To get to the higher end of our revised revenue guidance, we need to see improvement in that large capital project business relatively early in the second half. For Solutions & Services, we do expect significant sequential revenue growth in the second half, given the orders performance in Q1 and Q2; with this backdrop and with two quarters of solid performance under our belt. We are providing the revised outlook for fiscal 2010. Full-year revenues are $4.6 billion to $4.8 billion, compared to our previous lines of $4.4 billion to $4.6 billion.