Rockwell Automation, Inc. (ROK) Q1 2020 Earnings Report, Transcript and Summary

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 up the lines for questions. [Operator Instructions] At this time, I would like to turn the call over to Jessica Kourakos, Head of Investor Relations. Ms. Kourakos, please go ahead

Good morning and thank you for joining us for Rockwell Automation’s first quarter fiscal 2020 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO, and Patrick Goris, our CFO. Our results were released earlier this morning, and the press release and charts have been posted to our website. Both the press release and charts include, and our call today will reference, non-GAAP measures. Both the press release and charts include reconciliations of these non-GAAP measures. A webcast of this call will be available at that website, for replay, for the next 30 days. For your convenience, a transcript of our prepared remarks will also be available on our website at the conclusion of today’s call. 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 projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all our SEC filings. So, with that I’ll hand the call over to Blake.

Thanks, Jessica, and good morning everyone. Thank you for joining us on the call today. Please turn to page 3 of the slide deck. I’ll begin by saying that I’m pleased with our execution in the quarter and our start to the year. Despite a tough manufacturing environment, both revenue and earnings were slightly better than our expectations for Q1. Total sales grew 3%, including over 4 points of contribution from inorganic investments primarily related to our Sensia joint venture. Organic sales were down 1% compared to a strong quarter a year ago. Backlog, however, was up year-over-year as well as sequentially. Organic sales performance continues to include market share gains in core platforms. For instance, Independent Cart Motion Control Technology grew strong double-digits for us in the quarter. It is becoming a game-changing solution across a broad range of industries and applications. Information Solutions and Connected Services, or IS/CS for short, had another great quarter, also growing strong double-digits. We had notable wins in Life Sciences, Food & Beverage, our first MES win in Luxury Goods, a significant MES win in Mining, and our first-ever augmented reality project in Oil & Gas. Our broader and more differentiated portfolio gives us more ways to win in a wide variety of industries, including those where we are not the incumbent control platform. Recurring revenue in the quarter grew double digits, led by an increase in software subscriptions. As I mentioned, our earnings performance was slightly better than expected. Segment margins and adjusted EPS include one-time items related to Sensia as well as investments we are making to increase our long-term differentiation. As we look ahead to the rest of the year, we are reaffirming our organic sales and adjusted EPS guidance for fiscal 2020. While there have been recent positive developments on global trade, and the macro environment is showing signs of stabilization, it is still too early to see that impact on customer spending. Let’s now turn to slide 4 and go a little deeper into our vertical sales performance for the quarter. Discrete and Hybrid end-market segments did a little better than we expected this quarter while Process was a little weaker than we expected. Within our Discrete segment, Auto grew mid-single digits, largely related to higher program spend in North America and Asia Pacific, and stabilization in MRO, albeit at low levels. While this higher program spend was better than anticipated, the overall auto market is still relatively weak and we think it is premature to change our flat full year outlook for this vertical. Semiconductor sales were notably better in all regions, up high-single digits. Historically, our exposure to semis has been largely in facilities management, but we are also seeing new traction in material handling, IOT and cybersecurity applications. Turning now to our Hybrid market segment. Food & Beverage declined low-single digits, reflecting some project delays. However, given what we are hearing from customers, and the activity we have seen at packaging OEMs, we still believe Food & Beverage will grow low-single-digits for the year. In Life Sciences, we had another solid quarter, with sales growing both year over year as well as sequentially. As we’ve said before, this is an industry where our scalable architecture and our differentiation in IS/CS are well aligned and paying dividends. Our Process market segment declined slightly, especially in Chemicals and Pulp & Paper. Organically, oil & gas grew mid-single-digits this quarter and we continue to expect low-single-digits sales performance for the year. Sensia, which had a good start to the year, is expected to grow double digits based on its differentiation in the fast-growing, digital oilfield segment of this vertical. Turning to Slide 5 and our regional sales performance in the quarter. North America was down 3% organically, reflecting a weak manufacturing environment. The weakness in process industries was partially offset by Auto, up double-digits, and strength in Semiconductor. EMEA was up 2% in the quarter, led by Oil & Gas, Life Sciences, and Tire. Asia Pacific grew by 6%, led by strong demand for Oil & Gas, Life Sciences, and Auto. Auto was up over 10% in the region and included strong gains at EV battery manufacturers where our readiness to serve is high. Our portfolio is demonstrating how well-positioned we are to benefit from the transition to EV. Latin America sales were down 1%, largely due to a tough comparison from last year and weaker performance in Automotive and Mining. I’ll now make a few additional comments on our other accomplishments in the quarter. Our Annual Automation Fair was held last November in Chicago, and I’m proud to say that we reached a new all-time attendance record. Customers are focusing on outcomes, and sharply increased sales leads from the event indicate we are demonstrating our increased value for a wide variety of industries. We also had record attendance at our Investor Day in November. There, we highlighted our execution plans to accelerate profitable long-term growth, while at the same time build even greater resiliency in our business through higher recurring revenue streams and a leaner more flexible cost structure. We also had record attendance at our Investor Day in November. There we highlighted our execution plans to accelerate profitable long-term growth, while at the same time build even greater resiliency in our business through higher recurring revenue streams and a leaner, more flexible cost structure. We also had exciting new partners at the event, including Schlumberger, Accenture, and Ansys, which is a game-changing technology partner for simulation and digital twin applications. We are seeing our partnerships contribute to many strategic wins and we had some great wins this quarter, including in Life Sciences across all major geographies. In Europe, we signed a major agreement with Roche. Roche will be implementing our PharmaSuite MES platform across 16 plants in their Pharma and Diagnostics divisions. In Europe, we signed a major agreement with Roche. Roche will be implementing our pharma suite MES platform across 16 plants in their Pharma and Diagnostics divisions. In North America, we entered into a new multi-site, multi-year agreement with a major pharmaceutical producer. They selected FactoryTalk Innovation Suite to drive their Digital Transformation program for a connected plant and supply chain. It will provide a common platform to drive real-time visibility of analytics to the operator, plant and enterprise levels, predict future events to avoid unplanned downtime and improve energy efficiency, and accelerate knowledge transfer and improve ease of use. Once implemented, this solution will eliminate hundreds of overlapping edge solutions, resulting in significant operational savings. In China, Ruiying Pharma Group, a large pharmaceutical company, chose Rockwell to transform their factories to become smarter and more predictive, while at the same time assisting them to oversee quality management and ensuring that they comply with regulatory requirements. From regulatory compliance, to safety and energy efficiency, Rockwell is becoming an increasingly important partner of our customers’ ESG initiatives. In addition to what we are doing in our own facilities, everything we do for customers is about increasing efficiency, reducing energy usage, improving worker safety, and ensuring regulatory compliance, all of which lowers business risk and is good for the environment. Now, turning to slide 6, let’s talk a little more about our inorganic investments which are becoming an increasingly important complement to our long-term organic growth strategy. Starting with Sensia, this was our first quarter including Sensia as a fully operational joint venture consolidated in our results, and I am very pleased with its performance in Q1. Operationally, Sensia’s top line grew double digits with strong traction at marquis Oil & Gas customers around the world. Our sales teams have been fully integrated, and we are looking forward to the launch of new solutions and products that will contribute to the double-digit sales performance we expect this year. We also announced the acquisition of MESTECH at the beginning of Q1. MESTECH is an industrial software consulting and delivery services company based in India, and they have already been instrumental in winning key business for us in the quarter. Earlier this month, we announced the acquisition of Avnet Data Security, a cybersecurity provider based in Israel with over 20 years of experience. Cybersecurity is one of the fastest growing parts of our services business. The extensive knowledge and experience of the Avnet team will support our company's strategic objective to achieve double-digit growth in Information Solutions and Connected Services by expanding our IT/OT cyber and network expertise globally. Plus, this acquisition will establish a global cybersecurity Center of Excellence for us in EMEA. This includes a remote managed service center and expands our portfolio of capabilities including a full training curriculum and labs. As you can see, we are actively deploying capital to advance our strategic priorities to accelerate share gains in our core business, continue growing double digits in IS/CS, grow domain expertise in process, and accelerate our market access in Europe and Asia. We are focused on driving value with more intensity than ever before. Let me now turn it over to Patrick who will elaborate on our first quarter financial performance and fiscal 2020 outlook in his remarks. Patrick?

Thank you, Blake, and good morning everyone. I’ll start on slide 7, First Quarter Key Financial Information. First quarter reported sales were up 2.6% year over year. As expected, organic sales were down 1%. Acquisitions, which mainly represent the impact of Sensia, contributed 4.5 points of growth, better than expected. Currency translation decreased sales by 0.9 points, a higher headwind than we expected. Segment operating margin was 20.1%, down 270 basis points compared to last year. About half of the year-over-year decrease relates to the impact of acquisitions and related one-time costs, primarily Sensia. The other half of the year-over-year margin decrease is about evenly split between higher investment spending and unfavorable mix. General Corporate – net expense of $32.8 million was up $11 million compared to last year. The increase is due to the impact of mark-to-market adjustments related to our deferred and non-qualified compensation plans and Sensia-related transaction fees. The adjusted effective tax rate for the quarter was 7.9% compared to 18.7% last year. About half of the reduction in the year-over-year tax rate is due to a Sensia $19 million one-time tax benefit. The remainder is other discrete items, primarily tax benefits from option exercises. Adjusted EPS of $2.11 was a bit better than we expected, and down $0.10 compared to the first quarter of last year, a decrease of 5%. The year-over-year decrease in Adjusted EPS is primarily due to lower organic sales, particularly in some of our product businesses leading to unfavorable mix, and higher investment spending. Partially offsetting that is a lower tax rate excluding the Sensia impacts, and the net benefit of a lower share count and higher net interest expense. The net year-over-year adjusted EPS contribution of Sensia in the quarter was one penny. The Sensia contribution of one penny includes a $0.07 larger-than-expected headwind related to one-time items. Free Cash Flow was $194 million in the quarter, or about 80% of Adjusted Income. During the quarter, we paid the annual bonus that our employees earned in fiscal 2019. A few additional items not shown on the slide: for Adjusted EPS, average diluted shares outstanding in the quarter were 116.6 million, down 4.9 million or about 4% from last year. We repurchased about 0.5 million shares in the quarter at a cost of $100 million. This is in line with our full year target of about $400 million. At December 31st, we had $1 billion remaining under our share repurchase authorization Slide 8 provides the sales and margin performance overview of our operating segments. The Architecture & Software segment had modest organic growth in the quarter. Segment margin was very strong at 29.8% and a bit lower than the record margin last year, mainly due to increased investment spending. Organic sales of the Control Products & Solutions segment decreased 2.5%. Inorganic investments increased sales by 8.2% compared to last year. Sensia accounts for almost all of the inorganic growth. Organic sales for our solutions and services businesses in this segment was down about half a point year-over-year. The higher margin product businesses in this segment were down about 5% on an organic basis. First quarter organic book to bill performance for our solutions and services businesses was 1.12, typical for a first quarter. Operating margin for this segment of 12.4% was down 310 basis points compared to Q1 last year, primarily due to Sensia one-time items, lower organic sales, and unfavorable mix. Segment margin excluding the year over year impact of Sensia was about 14%. In the appendix, you will find two slides with a more detailed overview of the year-over-year incremental impact of Sensia for Q1 and for full year fiscal 2020 outlook. It is the same format we provided to you at our investor day. As I mentioned earlier, from an operational viewpoint, Sensia sales and earnings were a bit better than we expected. Non-recurring items, including the tax benefit, were $0.07 worse than we expected in the first quarter, primarily due to larger purchase accounting adjustments and a lower tax benefit. For full year fiscal 2020, we now expect the net year-over-year impact of Sensia to be about neutral to adjusted EPS. The financial framework we shared with you at investor day last November remains valid with Sensia. We continue to target 30 to 35% earnings conversion for Rockwell assuming mid-single-digit organic sales growth. This takes us to slide 9, guidance. Our outlook for fiscal 2020 remains unchanged compared to our November guidance. We are maintaining our sales growth and adjusted EPS guidance ranges. For adjusted EPS, in essence, compared to prior guidance, small headwinds due to Sensia one-time items, currency, and a higher share count are offset by a somewhat lower adjusted effective tax rate. The lower tax rate is the result of a higher excess income tax benefit related to share-based compensation. General corporate net is now expected to be closer to $105 million. Purchase accounting amortization expense for the full year is expected to be about $40 million, up $20 million compared to last year. Net interest expense for fiscal 2020 is still expected to be about $100 million. We expect non-controlling-Interest to be about $10 million, or a $0.10 charge to Adjusted EPS. Average diluted share count is now expected to be 116.5 million for fiscal 2020, and our adjusted effective tax rate is expected to be closer to 15.5%, which includes about a 150 basis point one-time benefit related to Sensia. We continue to project free cash flow conversion of about 100% of adjusted income. Finally, we continue to project a weaker first half of the year, with organic sales down low single digits, followed by a stronger second half of the year. And as is typical for us, we expect weaker 2nd quarter Adjusted EPS performance versus the first quarter. With that, I’ll hand it to Jessica to start Q&A.

Thanks, Patrick. Before we start the Q&A, I just want to say that we would like to get to as many of you in as possible. So please limit yourself to one question and a quick follow-up. Thank you. Sharon, let’s take our first question.

[Operator Instructions] Our first question comes from Julian Mitchell with Barclays.

Hey, good morning everyone. This is Joe on for Julian.

Good morning.

Maybe can we start with diving into backlog trends? Can you maybe just provide some color on what drove the sequential rise and the year-over-year rise? And then, maybe within that, anymore details on Solutions and Services?

Sure, how much more color we can provided except that as we mentioned, backlogs are up both year-over-year and sequentially, and I would say it was broad based including in North America.

Got it. Thank you. And then, at the end-market level, kind of on the mid-single-digit growth for oil and gas, was this on kind of company-specific drivers, maybe share gains? Or are you seeing kind of more positives in the end-market as a whole?

On the organic side, there obviously has been a flattish capital spending and we do see a slower – a slowing of the oil and gas organically. However, on the Sensia joint venture, because the majority of that is focused on producing wells and not drilling new wells, we see it less susceptible to CapEx reductions and that gives us confidence based on our first quarter results and the outlook that double-digits impact part of our overall oil and gas business can take share and grow fast.

Perfect. Thank you.

Okay, thank you.

Next question comes from John Inch with Gordon Haskett.

Hi, good morning. It’s Karen Lau dialing in for John.

Good morning, Karen.

Good morning. So, thank you for the details on Sensia in the appendix. I was just wondering in terms of the core margins, it looks like, you guys were making 18% core margins excluding the one-time items in the first quarter, but then in the full year you are guiding to around 14% margins. What is the driver of that?

Yes, what you can think about it, Karen, what you see in the appendix is the year-over-year incremental piece of Sensia. It’s the impact of the contribution of Schlumberger, which was higher margin business than what we contributed.

Okay.

And so, therefore, when we talk about overall margin profile of Sensia, we do expect that the 20% EBITDA business going forward. But this year, we think it will be closer to mid-teens.

Okay. But is it – I mean, am I reading correctly that the first quarter results were better than what you were expecting for the full year? Or is that like some…

But the piece that was contributed by Schlumberger and the synergy, the answer to that is, yes. I would also say that our spend increased in Sensia, because we are making some investments in technology and commercial resources. They were a little bit lighter in the first quarter than we expected. That’s why you see that margin in Q1 being a little bit better, as well than what you see for the full year outlook.

Got it. And then, just quickly, can you remind us what’s your expectation for investment spending for the year? And kind of the cadence throughout the year?

Yes, the way you can think about it, Karen is, consistent with what I mentioned to you in November. We think the year-over-year increase will be a little bit less than a 2% and it will be first half weighted. And so, we expect it to be more than that in the first half and in the second half, the increase year-over-year will be minimum in terms of year-over-year spend.

Got it. Thank you.

Thank you, Karen.

Next question comes from Robert McCarthy with Stephens.

Hi, it’s Robert McCarthy on for Robert McCarthy.

Hey, Rob.

How are you doing? So, in any event, just wanted to first, I mean, obviously wasn’t – it’s very dynamic situation right now. You had the trade deal. You had very encouraging quarter, but obviously you had this rising potentials of pandemic, and then I want to get too much of a Debbie Downer. But how do you think about kind of your supply chain in China, how do you think about, kind of the trends in spillover? I know it’s very early and you don’t have a lot of information yet, but could you just give us some factors to think about and what sensitivities you are looking at in terms of exposures as you manage to this situation?

Sure. Well, first of all, Rob, the overwhelming first priority for us is to ensure that we are looking after our people in the region. And so, we are paying close attention to that to make sure that we can reduce to the very extent possible their exposure. Second, and on a parallel path, we are undergoing a detailed review of our own manufacturing footprint, as well as our supply base to gauge the potential impacts. At this point, we don’t expect an impact to the quarter’s performance, but as you said, it’s a very dynamic situation and we are monitoring it hourly and looking for new inputs to help inform how we feel about the business impacts. But it’s the safety and well-being of our employees first.

Thank you for that. And then, I guess the follow-up would be, maybe just a little more color around Information Solutions and Connected Services, the continued double-digit growth there. Can you talk about, kind of the continued developments and collaboration with PTC, some of the wins and maybe expand your comments around augmented reality? And I don’t know track and trace is something that’s started to pick-up there or is looking to be encouraging.

Yes, Rob, it’s a great story for us and with our own offerings that we’ve developed ourselves, plus with partners like PTC, the Information Solutions and Connected Services part of our offering continues to grow strong double-digits and we are seeing that it’s a true differentiator in some of the fastest growing parts of the overall automation market like electric vehicles and life sciences. So, it works perfectly to complement the basic automation that we are providing in those industries whether it’s discrete automotive assembly or it’s process control for pharma, but as they are looking for more traceability, as they are looking for adding the ability to transfer knowledge from older workers to newer workers, augmented reality is a great part of that. We have mentioned before, about a third of our sales of the software in this space include augmented reality. So it all works together. It’s increasing the hit rate for our MES software, because we have a broader portfolio and it works together well. So, there is a lot of positives in this respect. And I should mention it’s not just for end-users. It’s also for OEMs, because they are looking for increasing the value of what they are providing and as they look for ways to increase their flexibility getting closer to that zero changeover time for packaging that is hard in the industry today. Then this has a lot of benefit for them, as well. We had a win in the quarter with Harpak, who you heard from us at the Investor Day in November as they are adding that software to the basic logics control and variable speed drives and so on as part of the basic automation of those systems. And then as a final point, we have seen, probably a higher degree of adoption of this software on top of competitive control platforms than we originally thought would happen.

Thanks for your time.

Thanks, Rob.

Thanks, Rob.

Next question comes from Richard Eastman with Baird.

Yes, good morning. Thank you for the questions. Blake, could you kind of speak, maybe to the geographic mix, the organic growth by geography in the quarter? And it just – it seems a bit scattered here. I mean, I presume, Asia was probably better than expected. U.S. maybe a little bit weaker. But how does the incoming backlog being up quarter-to-quarter and year-over-year? How does that filter into maybe the geographic growth that you expect for the full year against the – kind of that midpoint of flat expectation for all of Rock?

Yes, let me start with a couple of comments and then Patrick may have got some additional color on that. But as I said, Asia was better than expected. Latin America was worse than expected. North America and EMEA were pretty much in line with expectations. In North America, as we mentioned, we were down by 3% and that was largely due to declines in more process-oriented verticals with the exception of oil and gas. So, we saw chemical, pulp and paper and metals, and then that was offset by the growth we mentioned in automotive, power and semiconductor. EMEA was up and oil and gas was a contributor there along with a recurrent theme of life sciences. Waste water was a good area for us in EMEA and in Asia, we were up with growth in oil and gas, life sciences, auto, tire and mass transit. And then, LATAM was down a little bit where weakness in auto and mining was partially offset by growth in power, oil and gas and life sciences. So, that was kind of a rundown of what we saw in Q1. In terms of how the backlog feathers into that, obviously, mainly project, but also with some of the higher value services as well, particularly those included with the Connected Services part of IS/CS.

Rick, maybe a little bit of color as to our assumptions by region for the full year. So, organic growth at the midpoint is flat year-over-year. We expect both the – both North America and EMEA to be a little bit below that and we expect both Latin America and Asia to be up a little less than 5%, about mid-single-digits.

Okay. And …

So, what - but that inflected as we expect in essence better than our guidance, we expect second half of the year as I mentioned improvement and that includes the U.S., I would say, North America.

Okay. And was there any noticeable impacts on the backlog and order flow around passage of the U.S. MCA when you are talking about Latin America and Mexico? Was there any noteworthy improvement in bookings or anything once that uncertainty was more or less lifted?

Not yet, is the short answer. I mean, it’s a positive step and supporting the concept of free and fair trade that we’ve talked a lot about in the past. So we think it’s a good thing. But we haven’t seen the results on outperformance yet.

Okay. Very good. Thank you.

Thank you.

Next question comes from Noah Kaye with Oppenheimer.

Thank you. t I was intrigued, Blake, because you call out ESG as a potential driving force for your customers to implement your suite of offerings. Conceptually, I think we can understand that, there is a basic efficiency play here that plays in ESG. Could you maybe provide some examples of where you are seeing that make a material difference in customers’ decisions?

Well, as you said, everything we do is about productivity and a huge part of that productivity is efficiency. So, you take our power control offering, variable speed drives, which reduce dramatically the amount of energy that’s required to run industrial processes, tremendous amount of the world’s energy is consumed in factories and simply, not running full across the line when you don’t need it saves a ton of energy and our variable speed drives, low-voltage and medium-voltage continue to be a very strong part of our offering. Specifically, in the new eco industrial segment that we introduced in November, talking about our support of renewable of water and waste water treatment and mass transit, those are all industries that reduce the amount of energy that are required and it was no coincidence that we created that new segment, because we are going to be doing more in that space. And then finally, safety, that’s something we’ve talked a lot about in the past and in terms of the technology to be able to automate safety, but also the services that we provided, that’s an important part of ESG. We think that we are number one in the world when you pull all the discrete and process safety technology together, and that remains a really important area for us.

That’s helpful. And then, maybe drilling into auto a little bit, as you said it surprised the upside, and you gave some good color around some regional patterns there in your prepared remarks. But just, the outlook for kind of, soft overall light vehicle demand, is that having any impact as far as you can tell on kind of the backlog the longer cycle business in terms of OEM plans to bring new models to market or planned model changeovers? How are you thinking about that?

Well we – we are guiding to about flat currently with the auto - overall automotive segment for the year. I’d say the growth is highest in the specific EV drivetrain portion of the segment as people have bring in that capacity online whether it’s the brand owner or it’s the tier supplier, and by the way that contributed a lot to our performance. That was a little better than expectations and if you want it was battery assembly that was a specific bright spot for there. That’s offset to some extent by the reality of a weaker star count for fewer vehicles than we saw a couple years ago being bought. Certainly, a lot of the brand owners are reducing their Sedan portfolio. But there is still a fair bit of project spend there and in the - particularly in the SUV side of things. And the growth that we saw in the quarter was primarily due to project spend, MRO stabilized, but we didn't see any real growth in MRO in the quarter.

That's helpful color. Thanks, Blake.

Yes. Thanks, Noah.

Next question comes from Steve Tusa with JP Morgan.

Hey guys. Good morning.

Good morning, Steve.

Can you just talk about a little bit more about what you're seeing on the food and beverage side and OEM? And then on maybe just a bit of color on how you see, kind of quarterly organic progressing maybe move through the rest of the year?

Sure, I'll start with the food and beverage. We did see some delays in food. But one of the bright spots and I mentioned it is, we actually saw mid-single-digit growth in packaging OEMs. And it’s early but that’s sometimes a leading indicator as people are putting packaging in place and we did see that across the regions. We also heard anecdotally from the packaging OEMs that their backlog is fairly good. And so those are encouraging signs. One area of particular strength for us – it’s small but it is still noteworthy India packaging OEMs and I say it’s is noteworthy because India maybe the most competitive market in the world and for us to have a success there is a really younger testament to the functionality and the ability to get to competitive levels there. I was actually there in visit with some customers including some packaging OEMs in December. And I think there is some great opportunities there and we are going to continue to look at what we can do to grow our presence even faster in the Indian market. But in general, packaging OEMs were up. We also saw some strength, specifically in beverage. We had a real nice conversion at a beverage OEM that’s going to a well-known beverage user and so that was also good in the quarter.

And then you said, quarterly, yes, progression on organic?

Yes, see, for the full year, we remain at 0% organic growth. Obviously, Q1, we did minus 1. I would say, Q2, low, low-single-digits, meaning it’s close to what we did in Q1. We don’t expect it to get worse than what we did in Q1 and then for the balance of the year, I’d say, Q4 organic growth a little bit better than Q3.

Okay. So, it seems to me that like, how do you get to kind of the low-end of the range than if that’s the case? I mean…

What I was providing was at the midpoint, Steve.

Yes. Okay, got it.

The trend that I think we have seen in the past with chemical and we did see that is the single largest contributor in the quarter. That was primarily in North America, we actually saw an increase in chemical in EMEA, down in Asia, and slightly down in Latin America. So, is it’s offset? As we mentioned, we actually saw a growth in oil and gas, but the chemical was down in the quarter and most of that was concentrated in North America.

Thanks.

As we said in the earlier, within Process, oil and gas was up. But generally, process industries were weak in the quarter.

Great.

I would also mention, just for background that, in chemical lot of our exposure in specialty chemical. It’s not as much in the bulk chemical. That’s our traditional focus. There is some overcapacity that we are currently seeing in chemical and some effects from some of the consolidation that’s been going on in the industry over the last couple of years as well. So that’s some additional color that would certainly apply to North America.

That’s great. Very helpful. And then just a quick one just on EV. I know, you said you had strong gains there during the quarter. I am just wondering if you can talk about China EV specifically and what you have been seeing there? Any changes?

Yes, so, China – auto in China has been down Q3, Q4 of last year and we saw that continue into the first quarter of fiscal 2020. And that includes EVs. And so we are seeing some of the support or the subsidies go away in China and generally, and obviously it’s still a little bit lumpy, because it’s relatively small, But EV and auto in general, we are certainly seeing some weakness in China. Interestingly, auto in Asia was up for us quite a bit and the reason there we are making some progress with some of the EV companies outside of China including some companies in Korea for example.

Yes, and that’s specific application that Patrick is mentioning in Korea was the battery assembly, which is a great application for us. We have mentioned before that, in comparison to the subtractive manufacturing processes for internal combustion engines, now for boring cylinders and things like that that require a lot of CNC content. Battery assembly and motor winding and EV drivetrain, we have a high readiness to serve there and that’s why we think that long-term EV is a great market for us to be in.

That’s great. Thank you very much for your time.

Yes. Thank you.

Thank you.

Next question comes from Josh Pokrzywinski with Morgan Stanley. Please go ahead.

Hi, good morning all.

Good morning, Josh.

Hey, Josh.

So, apologies if I missed it earlier on the call. But, Blake, one thing that we talked about at the Analyst Day that I want to see how that is playing out is, it’s kind of the lower cyclicality of Rockwell maybe versus what folks would have been accustomed to five or ten years ago or even more that it does seem like at a point in time whether folks are seeing kind of a more depressed outlook that Rockwell is hanging in there a bit more stable. I guess, one, is that consistent with the way you guys are seeing the world? And two, is there kind of a coiled spring on the back-end where you can see customers have a willingness to spend on projects, but there maybe not executing it. So, have we lost some of that upward mobility in exchange for lower cyclicality?

Yes, I wouldn’t draw that the causality between the two. But as we talked about a lot in November, that greater resiliency to economic cycles is something that we are making very explicit steps to address. And so, in addition to things like Information Solutions and Connected Services providing a lot of increased value to customers and pulling through some of our traditional products. It does have an impact that we think is already being felt in terms of kind of clipping the trough of some of the normal volatility. Now it’s still a relatively small part of our business, right? But that’s compounding a strong double-digit growth, plus what we do with acquisitions having more recurring revenue makes it more important each year and last year. We think – for instance, Information Solutions and Connected Services having about a point of organic growth to what we did and you know in a relatively low growth year overall, that’s meaningful. So, we are going to continue to work on that in terms of both our organic development, the products and the environment to be able to manage recurring revenue. But it’s also a consideration as we look for companies to acquire and the percentage of recurring revenue.

Got it. That’s helpful. And then, just a follow-up on investment. Again, apologies if you covered already. It seems like some of that got pulled forward into the first quarter as maybe demand was a little bit better than expected. How should we think about the sensitivity from here on kind of that full year investment budget? Is it at a healthy level to where if you are at the top-end of the revenue range that the overall bucket doesn’t increase? Or how are you thinking about the sensitivity over the remaining three quarters? Thanks.

Yes, Josh. So, what we mentioned was that the spending in the – the year-over-year increase in the first half will be higher than in the second half. Actually, the second half the way we have it dialed in now is the flattish from a year-over-year spend point of view. However, if, depending on what happens with our outlook for the year, and if we end up doing better what we do at the midpoint. Clearly, we could decide to release more investments. There is a very long list of attractive investments that we are looking through all the time and we could decide to do more.

Okay. Thanks for the color.

Thank you.

Next question comes from Nigel Coe of Wolfe Research.

Thanks, good morning. Appreciate the question. I know you covered a lot of ground already. But and I know we tend to focus more on the end-market out. So I am just wondering about the geographies and thinking about how geographically, things are playing out relative to your initial kind of guidance in November. In particular, North America, down 3.3% this quarter and I know that North America has been trending weak for some time now. But with ISM where it is and IP negative, how does that look in North America specifically compared to your initial kind of outlook? And kind of what’s bouncing against that if it is weaker than you expected?

Yes, so, as you said, the macro can generally be characterized as weak and there was some downward revisions. And our position to that is some of the backlog that was built in the first quarter and some of the things. Again like the IS and CS, the Information Solutions and Connected Services backdrop aren’t going to be as coupled directly to some of the broader indicators, if in those areas, we can demonstrate a relatively quick return on that investment, which is often from OpEx then we think that that’s going to be more resilient than some of the other more capital-related spending.

Yes, and then, Nigel, for Q1, we would say that North America and EMEA came in basically in line with our expectations. Asia-Pacific came in better and Latin America came in weaker. And for the full year, compare estimate point, we think that North America and EMEA will be down a bit and we think that Asia-Pacific and Latin America will be up mid-single-digits at a less than 5%.

Okay. That’s helpful. Thanks, Patrick. And then a quick one on obviously A&S is holding up a lot better through the soft patch than we’ve seen historically. And I know it’s also flowing through the IS layer, but can you just maybe – is there any way to quantify kind of the relationship with PTC and how that’s helping to – maybe improve the trough performance of A&S? And any color there would be helpful.

Yes, I made a general comment to that and that is, manufacturing - advanced manufacturing is becoming a much more noteworthy part of a company’s overall digital transformation plans. So we see companies like Stanley Black & Decker, as they talk about fairly significant reductions in cost they're being asked to go a little deeper and explain how they are going to get there and we are finding ourselves apart of those explanations as to how we are going to be able to reduce OpEx for these companies. By having the relationship with PTC and having that increasingly important in IS/CS offering, we are going to have those broad discussions at a higher level than if we were just talking about programmable controller performance or some of the other elements of basic automation. So it allows us to get higher in the organization and deploy a meaningful part of those overall discussions whereas if we didn’t have that kind of breadth, then we might find ourselves playing a little more deep ends in some of the core components. So that’s at a high level how a partnership with a company like PTC will pull through some performance in the core products, because they all go together, that basic automation and then the information that sits on top of it to draw insights from the data that’s born in our products.

Okay. Thanks, Blake.

Thanks, Nigel.

Sharon, we will take one more question.

We have a question from Andrew Kaplowitz with Citi.

Hey, good morning guys.

Good morning, Andy.

Thanks for letting me in. Blake, you might have talked about this earlier, but on Sensia, you mentioned that operating performance was better than expected. Maybe you could just talk about – give a little more color on what that means? Obviously, there is a lot of moving pieces with Sensia in the guide that you gave last quarter for the year. I think you talked about $0.05 excluding interest. Could it be better than that in 2020?

Yes, I mean, we are pushing the team, obviously to perform as if they are in an open field because we think they are. We think that what they are offering is somewhat unique in the market and our original hypothesis that there was a low level of basic automation in the oilfield, particularly the onshore oilfield is proving to be true. So that things that we are talking about as we are selling the traditional offerings into that space of things like measurement, devices, as well as artificial lift and so on, the ability to commence and to weave that together is really meeting with a lot of interest and some of these are our existing customers, but customers that in the past have bought the products as needed from us. But now they are saying that we can play a much more significant part in their overall strategy. And I had a chance to talk with some of these customers over the last year in Latin America and in Europe and we are excited and even more excited after the first quarter’s results, because these companies are voting with their wallets. And again, it’s a solutions-based approach. It’s the measurement devices, it’s the artificial lifts, it’s the software and then it’s the delivery capability to bring this all together to reduce their cost to produce a barrel of oil.

And Blake, I just wanted I just wanted to follow-up on your comment on Latin America. A, is the incremental weakness or the moderation that that you saw really focused on mining and/or just tough comparisons, there has been a little bit of unrest down there. You just mentioned oil and gas pretty strong. So, just what have seen down there?

Yes, so, mechanically, we still have some tough comps against that big Codelco project in mining that we've talked about over the last year or so. And that project is going very well by the way. In general, in Latin America, we saw modest growth in Mexico and Brazil, but it was offset by weakness in Argentina and Chile and of course a good component of that would be mining-related. Mexico was up low-single-digits and Brazil was also up low-single-digits. So, I think you are right that some of it is comps. We expect mining to be about flat for the year in Latin America.

Thanks, Blake.

Yes.

Thank you, Andy.

And at this time, I will turn the call over to Ms. Kourakos.

Thank you, Sharon. I’ll turn it back to Blake for few final comments.

Thanks, Jessica. As we have been discussing, I am happy to see our new offerings delivering significantly increased value. We’ve never been better positioned with a more differentiated offering as the convergence of IT and OT creates tremendous new opportunities. And our employees and partners they continue to set us apart and we are really excited about the journey ahead.

Okay. That concludes today’s call. Thank you for joining us.

That concludes today’s conference call. At this time, you may now disconnect. Thank you.