Thank you for holding, and welcome to Rockwell Automation, Inc.'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. At this time, I would like to turn the call over to Aijana Zellner, Head of Investor Relations and Market Strategy. Miss Zellner, please go ahead.

Thank you, Julian. Good morning. And thank you for joining us for Rockwell Automation, Inc.'s First Quarter Fiscal 2025 earnings release conference call. With me today is Blake Moret, our Chairman and CEO, and Christian Rothe, 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 on our website for replay for the next thirty 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 it over to Blake.

Thanks, Aijana, and good morning, everyone. Thank you for joining us today. I'll make a couple of general comments before we turn to our first quarter results. I'm pleased with the early benefits of our renewed focus on operational excellence and cost discipline as we create a solid foundation for market-beating growth and performance. Continuing benefits from cost reductions in SG&A we took last year will be joined with benefits from reduced costs of direct and indirect purchases, manufacturing efficiency, and additional price actions. Overall, our plan to achieve $250 million worth of productivity benefits versus last year is intact, despite additional temporary headwinds such as the negative impact of currency. Additionally, we are confident that we are dealing with the recently announced tariffs in a way that mitigates the impact and maximizes our position as a large US manufacturer. We've been working on various scenarios since before the election. Undoubtedly, there will be near-term disruptions and volatility in the global supply chain both for us and our customers, but we continue to believe Rockwell Automation, Inc. is a net beneficiary of policies that increase US manufacturing. Christian will cover some of the actions we are taking later in his section. In terms of demand, we are encouraged by better-than-expected order performance in the quarter. We had mid-single digits sequential growth overall, with sequential growth across all regions and business segments. Orders exceeded shipments in the quarter, giving us some additional backlog for the balance of the year. While there is still macroeconomic and policy uncertainty weighing on customers' CapEx plans, Rockwell Automation, Inc. won multi-million dollar strategic orders across multiple key industries in the quarter, especially in the US, our home market. Let's now turn to our Q1 results on slide three. Our Q1 orders grew 10% versus the…

Thank you, Blake, and good morning, everyone. I'll start on Slide seven, first quarter key financial information. First quarter reported sales were down about 8.5% versus the prior year. The impact of acquisitions was negligible, and currency had a negative impact of 90 basis points in the quarter. But one point of our organic growth came from price, and price cost was favorable. Segment operating margin was 17.1% compared to 17.3% a year ago, but lower sales volume was mostly offset by the benefits of cost reduction and margin expansion actions Blake mentioned earlier. Adjusted EPS is $1.83, above our expectations primarily due to the beat on segment operating margins. I'll get into more detail when we discuss the EPS bridge and the cost reduction actions. I'd like to take a moment to commend the team for outstanding performance in the first quarter. It was about strong execution and good cost controls. The adjusted effective tax rate for the first quarter was 17.5%, below the prior year rate of 17.9%. We remain on track to achieve a 17% ETR for fiscal 2025. Free cash flow of $293 million was $328 million higher than the prior year. Free cash flow conversion was 140% in the first quarter of this year, reflective of continued working capital management by the team as well as zero incentive payout on fiscal 2024 performance. This is in contrast to the first quarter of last year where we had our cash bonus payout for 2023 performance. Two additional items not shown on the slide: we repurchased approximately 400,000 shares in the quarter at a cost of $99 million. On December 31st, we had approximately $1.2 billion remaining under our repurchase authorization. Return on invested capital was 14.5% for the first quarter of fiscal 2025, 400 basis points…

Thanks, Christian. As I mentioned, we're seeing some encouraging new project activity across multiple end markets. Many of these involve US user sites, but they involve multiple points of influence around the world. And we're doing a good job of coordinating this global effort. We expect the impact of so-called mega projects to be meaningful in the next few years. We continue to track new legislation and executive orders as they are announced. With our large US manufacturing footprint and strong market position, we're confident that we can respond quickly to these changes. I'm pleased with the progress our teams are making toward our long-term productivity and margin expansion targets, and I'm confident we are making the right investments to drive sustained growth and profitability. The framework for superior growth and performance through the cycle that we outlined over a year ago is intact, and we are working that plan. I'm also taking a moment to thank our employees and partners for their dedication and hard work. I'm proud to have such a strong team to help us navigate through this dynamic period. Nobody is better positioned than Rockwell Automation, Inc. and our partners to help American manufacturers create the future of industrial operations. Aijana will now begin the Q&A session.

Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up. Julian, let's take our first question.

Certainly. As a reminder, to ask a question, please press *1 on your telephone keypad. Our first question comes from Scott Davis from Melius Research. Please go ahead. Your line is open.

Hey. Good morning, guys. Blake and Christian, Aijana. Good morning. Hey. I want to start with this SKU rationalization thing because it's kind of relatively new-ish for you guys. And 21,000 sounds like a lot. I know you sell a lot of stuff, so maybe it's not. But in context, it sounds like a lot. But are there puts and takes on how that impacts 2025? Meaning, I would have expected maybe some top-line impact but perhaps an offsetting impact on margins. Is there any way to kind of drill down into that a little bit?

Yeah. Sure, Scott. I'll start. And if Blake wants to jump in afterwards, he can certainly do so. But from the SKU rationalization, what's to be really honest here is that this hasn't been done in the history of Rockwell Automation, Inc. So really, we're starting with the low-hanging fruits. That 21,000 really reflects a lot of no-sales and low-sales SKUs. So from an impact perspective within the year, you should be thinking about it as any impact at all or no significance of impact. It's really, again, trying to help us streamline those operations. As we get farther along in the process, we've got another 39,000 that we're looking at right now, that will continue to have a little bit more of an adjustment, but again, don't expect it to have a material impact.

Yeah. And this is think of this as part of a spectrum of activities as we go in and take a little bit closer look at the total SKU portfolio. As Christian mentioned, you have those that are easy to reduce from our bills of material. And then look at what are the items that we might want to keep, but we can do something with price on. Beyond just the general price increases that we do. So we're working through that in a methodical way. I expect this activity to continue on an ongoing basis, but the early results, as you said, are significant because when you can reduce those catalog items, then it reduces the ability for those items to attract cost in some way as they move through the manufacturing footprint.

Yeah. That makes sense. Hey, guys. This was a more, I think, upbeat and positive call than you've had in a few quarters. And orders obviously supportive of that and a lot of progress you've made on the margin side for sure. Incrementals certainly way better than you had in the past. But when you think about the guidance for 2025, on just organic growth, considering the orders that you had in the commentary, would you expect that there's a little bit of a positive bias to that guidance? Is that fair to say? Would you characterize that you're still being just a little bit conservative and appropriately so, I suppose, given the state of affairs in the world, but it appears it got a bit conservative. Would you characterize it as that?

Scott, there's no question we had a good start to the year. As we've been saying, we expected gradual sequential growth through the year, overperformed a little bit in orders, so we're happy to see that early in the year. But it still keeps our thesis intact. We needed to see growth. We've started off with growth, and we expect to see that continue through the year.

Okay. Fair enough. Best of luck, guys. Thank you.

Thanks.

Next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.

Good morning, everyone. Nice quarter. Hey, Andy. Christian. Orders up mid-single digits sequentially. I know you had five six expectations. Can you give us more color in terms of what you think happened in the quarter? It seems based on Christian's comments that maybe lack of destock was slightly better than expectations. And you did mention, Blake, the improvement in e-commerce. You sound a little better on hybrid and food and beverage and life sciences. How much of that improvement is actually getting better versus your improved product offering? And did the positive order trend you saw in fiscal Q1 continue in January?

Yeah. I think the performance in Q1 and then January, which does support the outlook for Q2 and the balance of the year, does represent some improvement in the underlying market. As Christian said, we saw the orders, the new demand placed on our distributors pretty much right on top of the new demand that we're seeing, which indicates that the destock of our market is pretty much done. In most parts, possible exception of China. It's broad-based. Importantly, it was manifested in the hybrid space with food and beverage and home and personal care. We mentioned that we saw some green shoots in Italian builders, which is mainly packaging, for life sciences, including beverage. Within the discrete space, automotive is still a challenge. But as we mentioned, e-commerce, warehouse automation, is quite strong. That includes a few areas. It includes e-commerce as new fulfillment centers are being built. It includes the modest exposure we have to data centers, but that modest exposure is growing really fast. And then it's parcel handling companies that are looking to complement scarce people with technology, and we're seeing some really good projects in parcel handling companies. And this is also where we mentioned new product introductions, our on-machine portfolio, FactoryTalk Optix for operator interface and edge data management, autonomous mobile robots, all of those are playing a role. They're not only winning on their own merit, but for precisely the reason that we acquired these companies, they're pulling through larger solutions as customers are confident that we have the breadth to be able to meet their needs. And I'll finish by saying, you know, process we're not seeing a weakening in oil and gas. More of the performance there was based on very strong comps or difficult comps in the first quarter of last year when oil and gas was up 25%, but we continue to expect energy to contribute positive growth in the year, and then mining within the process industry is also a source of optimism.

Very helpful, Blake. And then, Christian, your cost reduction and margin expansion actions, as you said, were at $0.50 in Q1, $1.85 expected for the year. Think, Christian, at the Investor Day, you mentioned the cost actions from your combined overall cost program. We're going to continue to ramp as 2025 evolves. And you mentioned slightly more positive impact, any mild insourcing and manufacturing in Q1. So do you actually see a little more benefit than that $1.85? I know it's early, but how would you respond to that?

Yeah. And it's really more about the timing of those. So we did certainly I think we've understood the timing and magnitude is always going to be a little bit tough for us to gauge. And so some did come through a little bit earlier in the year, in the first quarter than what we'd expected. Didn't see anything in there though that would say that we would be changing that number. And so, you know, from the perspective of the overall program, the size program is still the same. Keep in mind that this program really started in the second half of last year. So as we're coming up against those comparables, as we get into the second half of this year, again, we're going to be building on that base, but we have to make progress against the cost that were already in place from the prior year.

Appreciate the color. Thank you.

Our next question comes from Chris Snyder from Morgan Stanley. Please go ahead. Your line is open.

Thank you. I wanted to just kind of follow-up on some of that commentary around orders here improving into December quarter. Do you think that there was any positive impact of moving past the election? You know, we heard from a lot of companies in late summer and the fall that there was maybe some freezing ahead of the election. So do you think that had any impact whether it's, you know, some of these projects moving forward or, you know, distributors or integrators just willing to hold a little bit more product, you know, given improved expectations?

I think there's a little bit of that. I think as we've talked to customers, really around the world, but especially here in our home market, there is a general optimism. Now that being said, there's obviously remaining volatility which offsets a bit of that. But the general mood out there as evidenced by PMI in the US, you know, finally getting above fifty for the first time in a long time, is that there's a general optimism and these companies can't wait to get on with their plans for increasing efficiency or transforming their operations. And at some point, they're all concerned about waiting too long and losing share to companies that move more assertively. So I think we did see a little bit of that as evidenced by the broad-based project activity that we mentioned in the first quarter.

Thank you. I appreciate that. And then for my follow-up, maybe one for Christian. So software and control margins, obviously, a real standout this quarter, up year on year despite double-digit revenue decline. I guess, what should we expect the rest of the year there for margins? Because it seems like revenue should continue to build sequentially as the year goes on. And I would think with that, those volumes lift up margins for the segment as the year goes on. Thank you.

Yeah. Sure, Chris. So, yeah, as the year goes on, you know, again, we talked about Clearbit mix and Blake specifically mentioned Logix and IO being nice contributors in the quarter. And, you know, as we talked about for the full year, we are expecting that that business year over year is going to be in that flat range, which should get some expanded margin. So really nice start to the year. You know, from an overall margin perspective, again, we're just looking for that to continue to progress gradually during the course of the year.

Our next question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.

Oh, yes. Hi. Good morning. Maybe my first question was just around trying to understand, again, sorry, to go back to the orders and know, understood. Year on year is up double digits, but also very depressed base a year ago. So maybe if we think about the book to bill, it's a bit easier. I think maybe that was about 1.07 in your first quarter. I imagine it's always above one early in the year, below one second half of the year. So is there any sort of historical context you could put around that book to bill kind of what is it typically in the first quarter, company-wide, you know, anyway you could sort of flesh that out and how we should think about that book to bill moving over the balance of the year?

Yeah. Julian, I don't know that we have as reliable a correlation in orders at the beginning of the year. As we do with what you mentioned, and that is at the end of the year, certainly Q4, you know, you can typically count on higher shipments particularly in our configured order and lifecycle services business. We did see orders a little bit better than expectations in the first quarter. We mentioned mid-single digit growth overall. Products were actually a little bit better than that in terms of sequential growth. And products in terms of orders probably are affected by calendarization the least, you know, unless it has to do with, you know, holidays, you know, typical in one quarter or the other. So to be sure, the performance was a little bit better than expected in the first quarter and then as we mentioned January performance was consistent with our outlook for Q2 and the rest of the year.

Thanks very much. And then just to understand the differences between sort of intelligent devices versus software and control. So it looks like in intelligent devices, maybe the channel or your partners are a bit further behind in the destocking, whereas Logix and software and control you're firmly in the sort of early stage of an upturn. I just wondered if that's a fair characterization and what sort of typical operating leverage we should expect from Logix in a sales recovery?

Yeah. I think you can also look at the performance of Logix as being impacted by the reduction of any excess inventory in our machine builders. Obviously, Logix was foundational to the solutions that our machine builders around the world use. And it was recovering, to be sure, from a low base at the very beginning of last year. Now, intelligent devices is a broader set of SKUs relatively than software and control hardware. It has to be said, intelligent devices does have a lot of exposure to automotives, which as we've mentioned, hasn't really hit that same growth curve that some of the industries have. So that's a little bit of additional color for you on the relative performance between those two sets of hardware.

Maybe I'll just add one other thing around the configured order portion of the business. In Intelligent Devices. Typically starts the first quarter of which is usually low as well.

Great. Thank you.

Our next question comes from Joe O'Dea from Wells Fargo. Please go ahead. Your line is open.

Hi. Good morning. Thanks for taking my questions. Good morning. On the cost out and the $250 million and I think, you know, a little more than half of that on the COGS side, you just talk about the status of actions there with respect to, I think, a year that's framed as, you know, COGS really kicking in some of the contribution to cost savings in the back half of the year. But of that $130 million, you know, any sense of how much has been actioned? How much will be actioned by the time you start the first half or the second half of the year?

Yeah. Joe, there's a lot of that's already in flight. And certainly some of that and the timing of those coming in already in the first quarter. And again, that will continue to ramp as the year goes on. The delta that we saw from those activities in the first quarter really did come from manufacturing efficiency and sourcing, so really areas that are going to impact COGS. And that was a pretty broad range, everything from freeing up some additional capacity, which reduced some overtime at a couple of our facilities, that also actually, those facilities had some better improvements in quality, which reduced material expense. We also implemented barcode scanning at a number of facilities. During the season really good. Early wins in that regard. Logistics gave us a touch of outperformance in the quarter. And then I would also say on the material side, and these are smaller dollar items as far as the delta impact, but again, important. So things like metal fab, raws, stamping, all of which contributed a few hundred thousand dollars each to that outperformance we saw in the first quarter. So momentum is building. It's going well. We're pretty happy with it so far. And again, you're going to see more that that helps in the second half.

Then just wanted to circle back on channel inventories. Pretty encouraging of you that, you know, at this point in time, a lot of that is sorted out. Think, you know, previously, maybe, you know, some timing expectation it would take until, you know, second quarter, maybe even drift into third quarter. So perhaps that's sorting out a little faster than anticipated. But just regionally, if you talk about kind of North America, say Europe in particular, because it seemed like that was still an inventory overhang up until recently. And then it sounds like maybe China is the only area left that you would say, you know, still has some drag effect. But just any regional color on what you've seen there over the past couple of months?

Yeah. I think you characterized the shape of it. You know, biggest factor in North America would be distribution so much of our business goes through distributors. And that's mostly done at this point. In Europe, the inventory at big machine builders is an important factor. And the relatively high sequential growth in orders that we saw in Europe, we think is indicative of that playing out and normalizing there. And as you said, you know, China might take into end of Q2, Q3, but it's a small part of our business. As China's total revenue is now a little bit less than 5% of our total revenue.

Great. Thank you. Yes. Thanks.

Our next question comes from Steve Tusa from JPMorgan. Please go ahead. Your line is open.

Hi. This is Chagusa Kotoko on for Steve. Thanks for taking my question. Just a little bit more on the first half to second half ramp. It's still the first half seasonality still seems a little weaker than historical seasonality. And you mentioned before you booked some orders during this quarter that or some big orders that are expected to ship in toward the end of the year. If you could provide some any more color on what's going to support the first half to second half ramp, that would be great.

Yeah. Thanks for your question. We do see as we enter the year an expectation for gradual sequential improvement through the year. And actually, the year started from an order standpoint a little bit better than expected, which reduces that ramp from first half to second half.

Okay. Thank you. And then on the second quarter, if you were to do similar decremental margins to the first quarter, it looks like there's some upside to the $2 and EPS that you mentioned, but is there any reason you can't do similar decrementals to the first quarter?

Yeah. So obviously, you know, we don't go into that level of detail on our guide. We are expecting, you know, sequentially that we're going to see margin expansion on segment operating margins going through 17% to that 18% kind of number, which again, is consistent with our ramp that we talked about for the full year guide. At the outset of our guide in last quarter's call, but also just reiterating that in this call as well. So no, as far as the modeling year over year, we'll leave that up to you to take a look at that.

Okay. Thank you.

Our next question comes from Noah Kaye from Oppenheimer. Please go ahead. Your line is open.

Hi there. This is Andre Adams on for Noah. Could you give us more color on some of the drivers of margin outside the quarter, and what the contribution was between mix versus cost action and how mix factors into the reiterated segment margin guidance and the EPS outlook given FX headwinds?

Yeah. Sure. Let me just I'll go after this and let me know if I answered the question properly. But really, I believe your question is around just generally the outperformance versus where our original thesis was for the quarter. If we break that out, there were kind of three primary drivers behind it. The first portion was that we did have a favorable mix. That is the software and control business performed better than what we had expected, against the lifecycle business, which was a little bit below our expectations. So careful mix was the first side. And the second one was that as Blake discussed and I also discussed, we had these temporary cost measures that the organization performed really well against. You'll see that inside of our core in that bridge schedule. And then the last one was that we also had a better performance on our cost reduction and margin expansion activities that was expected to be more equal throughout the year, kind of leading up to that $150 million for the full year. We had a little bit of outperformance there. So all three of those are about equal as far as helping us to perform in the first quarter.

Great. Thank you. And just as a follow-up, microproject still seen as a tailwind for fiscal 2025. Can you just talk about any impact of the funding pause for IRA, IIJA, loans program office funding on the magnitude of that tailwind?

Sure. We do continue to see mega projects as a tailwind, both in terms of year over year and as a nice contributor to our growth this year as well as for the next few years. So this is multiyear. It's multi-industry. And as we've talked to companies, for instance, in energy, about any impact, you know, that the change in administration is having on their plans, they're continuing on with those projects. So we highlighted a project by a major oil and gas company on a sustainability project this quarter, and we're tracking a lot of those through this year and into the next years. In fact, renewables in terms of new project introductions continues to be a major contributor to the new announcement. So these projects are going to have to stand on their own merit. They're going to have to have a good ROI, but we think there's a lot of those out there whether it's direct air capture, carbon capture and sequestration, and so on. And then, obviously, in terms of traditional development of energy resources, that continues to be a big part of our business. With energy overall about 15% of our total revenue.

Great. Thank you so much.

Our next question comes from Jeff Sprague from Vertical Research. Please go ahead. Your line is open.

Hey. Thank you. Good morning, everyone. I just want to come back. Hey. Good morning, Blake. Just want to come back to order. Sorry. It's I guess it's for the umpteenth time on this call. But I just want to be clear on the $2 billion plus number that was given. I don't quite get there based on the year-over-year and sequential changes you talked about. Maybe my base is a little bit off, but is that a reported number, an organic number? Maybe you could be a little bit more precise on that if there's anything else to add.

Yeah, Jeff. So that is a recorded number. And you know, I'm not sure exactly what the number is that you're looking at from the prior year, but we are being consistent with the metric and how we've thought about it historically. Again, knowing that, you know, we didn't always and we haven't always given the exact number on orders. It was really more of the I think a lot of folks are getting that order number based on delta, what happened with backlog versus shipments. But again, we thought it was notable that we were back over $2 billion, and we want to call that out.

Yeah. No. That's what I'm doing too. The implied orders based on backlog and revenue changes, but fine. I'll play with that. And then also just wanted to come back to kind of the cost reductions. It looks like your corporate expense actually you raised the corporate expense for the year, if I have that correctly. What is going on in that line item?

Yeah. So corporate expense obviously has a number of smaller items that move around from quarter to quarter and throughout the year. Probably the biggest change in the delta on we did take that number up for the full year is really around some of the execution costs on some of the margin expansion cost reduction activities. We're going to take those on the corporate side. So that's the reason why that number went up slightly.

And maybe just one other quick one. I think you said you expect Asia Pacific to be the weakest region for the year even though EMEA is starting off weaker. Are you implicitly assuming there's kind of a tangible pickup in EMEA over the balance of the year? Do you have some visibility on that?

We do. Again, a lot of that business is driven by the machine builders. So we call that specifically stabilization at the Italian machine builders, and we expect, particularly because it's coming off of a low base, that that machine builder business to recover in Europe as they're back to normal in terms of their inventories. China is expected to continue to suffer from a, let's say, mild deflation through the year. So while we see some recovery, it's going to be slow, and they've got some structural challenges there. China is a small part of our business, but it's a big manufacturing economy, and so it remains important to us. And then India mid and long term, you know, continues to be very bright, but we're not expecting any heroic growth from India this year.

Great. Thank you very much. Thanks.

Julian, we'll take one more question.

Certainly. Our last question today will come from Robert Mason from Baird. Please go ahead. Your line is open.

Yes. Good morning, Blake, Christian. Hey, Rob. Thanks for taking the question. Hey. I appreciate the level of detail you provided us around your manufacturing footprints and imports into the US from various, you know, regions, maybe tariff exposed. Could you just and I know you've made a lot of changes over the last few years around how you execute on pricing. Can you just remind us some of those changes and how quickly, I guess, you know, matter of days, weeks, what have you, would you actually be able to put through incremental price around the tariff enactment?

Yeah. The short answer is immediately. Tariffs can be handled a little bit different than normal price increases. But as we talked about, in the past being able to move to a fixed discount pricing structure, which was some changes that we implemented during the supply chain crisis over the last couple of years, has allowed us much faster response to general price increases. But with tariffs, we implemented them fairly quickly. The first time around back in 2018, and I would say, even more immediately, this time because the impact was potentially larger.

And in repricing backlog, is you know, would that be a new experience for your customers?

I think in general, yes, that would be. We have been very communicative around the terms and conditions and how we've been selling to those customers for some of those projects over the last several months knowing that this was a potential. Again, that's what happens when a scenario where we were imagining and indeed did seem to be the case for a little while, which was immediately around tariffs and wanted to make ensure that, you know, again, if we're incurring the cost, we're going to find a way to recover it.

Excellent. Thanks. I'll turn it back. Thank you.

Thank you for joining us today. That concludes today's conference call.

At this time, you may disconnect. Thank you.