Rockwell Automation Management Discusses Q3 2012 Results - Earnings Call Transcript

Rockwell Automation (ROK)

Q3 2012 Earnings Call

July 25, 2012 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

Scott R. Davis - Barclays Capital, Research Division

Nigel Coe - Morgan Stanley, Research Division

D. Mark Douglass - Longbow Research LLC

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

Jeffrey T. Sprague - Vertical Research Partners Inc.

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

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

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

Winifred Clark - UBS Investment Bank, Research Division

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

Great. Thank you, Sonia. Good morning, everyone. Thank you for joining us for Rockwell Automation's Third Quarter Fiscal 2012 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 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 today includes opening remarks by Keith that will include highlights on the company's performance in the third quarter, as well as an update on the remainder of the fiscal year. Then Ted will provide more details around the quarter and our revised guidance for fiscal 2012. We'll then take questions at the end of Ted's remarks.

We know it's been a busy earnings week for all of you, so we appreciate you calling in today. We expect the call to take about an hour. Before we get started, 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. 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 hand the call over to Keith.

Keith D. Nosbusch

Thanks, Rondi. Good morning, everyone, and thank you for joining us on the call today. My remarks will cover highlights for the quarter, our assessment of business condition and an updated outlook for the remainder of the fiscal year. Please turn to Page 4 in the slide deck.

We delivered solid 7% organic growth in the third quarter with organic growth in all region. Operating margin expanded almost 1 point and the earnings per share grew 9% or 13%, if you exclude the headwind from a higher tax rate. So overall, a good quarter in the midst of a more challenging macroeconomic environment.

Let me give you some color on sales in the quarter.

Generally, all regions came in at the lower end of our growth rate expectation, reflecting a slowing of market demand. The U.S. was stable, with 6% organic growth, and Canada had another robust quarter of 24% growth.

EMEA held up reasonably well with 3% organic growth in spite of deteriorating macroeconomic condition. While parts of Western Europe declined in the quarter, emerging EMEA had very strong double-digit growth.

In Asia, we actually saw a stronger growth in mature countries than in emerging. While China did grow sequentially, 5% year-over-year growth in the quarter was below our expectation. The government's stimulus action have yet to jumpstart economic growth. We continue to believe that China will rebound to higher growth rate, but it now appears more likely to happen after our Q4.

India remained weak and sales were down in the quarter. We have yet to see evidence of improvement in their economy.

Lastly, Latin America organic sales growth of 5% in the quarter fell considerably short of our expectation. Most of the sales shortfall was in Brazil, which is experiencing an economic slowdown and has led to delays in customer spending. Mexico, on the other hand, was a bright spot, with over 30% growth.

I have a few other third quarter highlights. Our Process business delivered another good quarter of sales growth at 15%. On a year-to-date basis, sales are up 20% in Process. In June, the board approved a new $1 billion share repurchase authorization, and we increased the dividend by 11%. Both of these actions demonstrate our ongoing commitment to returning excess cash to shareholders.

Ted will provide more detail on third quarter financial performance in his remarks. So I'll move on to our revised outlook.

Every quarter, we do an extensive review with our sales and business leaders, as well as a pulse check with our channel partners and key customers to try to get a read on current and future business condition. Although none of us has a crystal ball, we use this feedback, along with macro indicators and our recent performance, to develop our outlook for the remainder of the year. So what is all of this telling us?

On the macroeconomic side, whether you look at GDP, industrial production growth or PMI, most of the indicators have weakened from 1 quarter ago. Customer and channel sentiment is generally less positive than 1 quarter ago. Most of the signs point to a flattening of cluster demand, at least, in the short term. And although sales growth was solid in Q3, we started to see more projects getting pushed out. While there are project delays in every quarter, they seemed to pick up in the third quarter.

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