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'd like to turn the call over to Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead.

Thank you, Julianne. Good morning, and thank you for joining us for Rockwell Automation's second 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 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 it over to Blake.

Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our second quarter results on Slide 3, I'll make a couple of initial comments. The quarter and our full year outlook reflect increased resiliency and flexibility in our business across our global operations, even as we and our customers continue to operate in an environment of heightened uncertainty. We talked about some of our actions to mitigate the impacts of announced tariffs on our last earnings call. I'm proud of how our team is executing these plans while maintaining world-class delivery and customer support. In addition to effective pricing actions, we're seeing good progress with some of our production location moves and efforts to secure alternative sourcing. Christian and I will cover these in more detail later on the call. Importantly, all these actions to add resiliency to our business model are further enhancing Rockwell's position, both from a profitability and competitive differentiation standpoint, regardless of what happens in the broader policy environment. We made significant investments in our operational resilience during the supply chain crisis, and they have been instrumental in helping us navigate through the current situation by giving us additional flexibility in our supply chain and manufacturing footprint. Turning to our second quarter results on Slide 3. Q2 marked another quarter of solid sequential improvement in customer demand across many parts of our business. We had a healthy intake of orders in the quarter with our total company book-to-bill in line with our historical norm of about 1.0. Going forward, we will share additional information on total company order performance only when our overall book-to-bill is outside of the normal range. We will still disclose book-to-bill in Lifecycle Services each quarter since lead times are longer for that business segment. While…

Thank you, Blake, and good morning, everyone. I’ll start on Slide 7, second quarter key financial information. Second quarter reported sales were down 6% versus prior year. Currency had a negative impact of 2 points in the quarter, and organic sales declined 4%. Segment operating margin of 20.4%, compared to 19% a year ago, was above our expectations and reflective of our strong execution across the company. About 3 points of our organic growth came from price and price/cost was favorable. Benefits from cost reduction and margin expansion actions and positive price/cost more than offset higher compensation and lower sales volume. Adjusted EPS of $2.45 was above our expectations, primarily due to the beat on segment operating margin. This was another robust performance in execution and cost control, through both structural and temporary costs. The adjusted effective tax rate for the second quarter was 17.7%, above the prior year rate of 14.8%, primarily due to lower discrete tax benefits partially offset by favorable geographic mix of pre-tax income. We remain on track to achieve a 17% ETR for fiscal 2025. Free cash flow of $171 million was $102 million higher than the prior year. Free cash flow conversion was 61% in the second quarter, with accounts receivable being a use of cash during the quarter due to higher shipments and the timing of those shipments. As a reminder, Q2 is typically a lower cash conversion quarter due to TCJA catch-up payments. Not shown on the slide, return on invested capital was 14.2% for the 12 months ended March 31 and 380 basis points lower than the prior year, primarily driven by lower pre-tax net income, partially offset by a lower effective tax rate. Slide 8 provides the sales and margin performance overview of our three operating segments. As Blake mentioned,…

Thanks, Christian. We’re pleased to report another quarter that reflects our focus on consistent execution. Investments in resilience are yielding results, including process changes to achieve faster price realization, capacity increases to create redundant manufacturing lines for high-value products in multiple countries, new lines of business that increase annual recurring revenue, and our comprehensive program to increase operating margins. These changes can only be successfully executed with the coordinated efforts of our employees and partners around the world. Transformation is hard in the best of times, and I’m especially proud of our team’s ability to position us so well in a very challenging environment. Our value proposition is stronger than ever before, as demonstrated by customers in the US and around the world who are getting Rockwell involved earlier in their own transformation plans, because nobody is better positioned than Rockwell to provide this value. 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. Julianne, let’s take our first question.

[Operator Instructions] Our first question comes from Andrew Obin from Bank of America. Please go ahead. Your line is open.

Yes, good morning.

Good morning.

Just a question on discrete. E-commerce and warehouse automation, relatively small, but obviously, I think, growing close to 50% really moves the needle. Does it include -- is that where data centers are? And what is really driving this robust recovery? And where does this visibility into the second half come from? Thank you.

Yeah, Andrew, within that vertical, we're actually getting strong growth from multiple aspects of the businesses represented there. So there's the warehouse automation that a lot of customers, especially in consumer-facing industries, home and personal care, food and beverage, which is -- a lot of people are identifying that as a current source of inefficiency in their operations. And so that whole production logistics segment that we've talked about of our offerings is a really good fit. So that's in warehouse automation across multiple customers. You also have the e-commerce players as they're building again new fulfillment centers and things like that. And then finally, as you said, data centers are a part of that, especially with our exposure to data centers through the Cubic power distribution equipment.

Got you. No, I really appreciate it. And just a question on Lifecycle Services, that business has really been consistently source of upside, a little bit surprised to see growth slowdown. Interestingly, we've seen some PTC, I think, just talking about slowing down over the next couple of quarters. Just -- can you just tell us what's happening there because somewhat unexpected? Thank you.

Sure. So, that's where the majority of the more CapEx-intensive projects are going to be and where we did see delays, that's where it came from. Within the process verticals, which is a big part of Lifecycle Services business, lower commodity prices, particularly in the US, so cheaper oil and gas has put some pressure on that. And then within Lifecycle, we did see a pause in spend in some of the less time-critical digital services businesses as well. Our competitiveness remains very strong. There's a good funnel. Some of the projects that were delayed in the quarter did come in, in April, but that's where you probably saw the lion's share of the delays when they happened.

Really appreciate it. Thanks so much.

Thanks, Andrew.

Our next question comes from Scott Davis from Melius Research. Please go ahead. Your line is open.

Hey, good morning, guys.

Hey, Scott.

I wanted to start kind of with a bigger picture question. I mean the debate, I think we're getting the most [incomings] (ph) on is actually where you guys are sitting in a position of having the most visibility. And that is just this whole balance of kind of reshoring acceleration versus kind of the macro realities and concerns that folks are having. What are your customers -- I know you're selling to a lot of different end markets, but so maybe perhaps more -- a little bit more discrete and hybrid focused here. But what are your -- how are your customers thinking through that as it relates to -- are they accelerating reshoring? Are they hunkering down? I mean what -- any generalization would be helpful there. Thanks.

Sure. There is still a generally optimistic long-term view among most of our customers, especially those with high exposure to the US because the idea of US manufacturing as a good thing for the US economy, resonates with a lot of us. And of course, Rockwell is a net beneficiary of that. Where we are seeing delays, as we analyze the projects that haven't moved forward, the underlying reasons fall into a few different categories. First is concerns about cost certainty, which a lot of that would come from tariffs. We heard some comments regarding interest rates as well. Automotive is obviously affected by that given the amount of content from around the world there. Another underlying reason would be concerns about the demand from our customers' end markets. So I mentioned lower commodity prices in the US that will affect oil and gas and a little bit of mining, a little bit of temporary concerns, we think, with overcapacity in tire. Another reason would be outside funding, and I'm thinking specifically of CHIPS and Science Act allocations for the semi industry, and then general risk, Ts and Cs, people wanting to make sure that they have their tariff exposure covered. Those are the negatives. Those are the underlying reasons for delays where they are taking place. On the positive side, we talked about e-commerce and warehouse automation. We expect the positive growth trends to continue, quite frankly, into next year based on our customers' investment plans across those areas I mentioned to Andrew. We also see continued signs of green shoots in packaging within food and beverage and home and personal care. So we talked about some strength with Italian machine builders last quarter, that continues. We've seen some sequential growth in Germany with machine builders as well. So there's a few places of positive business. And then the last one and maybe the most important is Life Sciences, and you're seeing the announcements of major Rockwell customers announcing major multi-billion-dollar plans, and that's an important segment for us, and we're on it, and we expect to benefit from those investments in the US.

Okay. That's helpful, Blake. And then natural follow-on is just the machine builders, just, it's an important customer for you guys. And -- how big of a deal are the tariff -- I mean so many of those guys are in Europe or even Canada coming down into the US, how big of a deal are tariff to those guys? And I guess, kind of since we're in uncharted territory here, I mean, when you think about if somebody is building a facility in the US and the cost of their machines just doubled or whatever, is that a game-changer or is it just not big enough as a percent of the total cost of the facility generally to delay a project for?

Yeah. I think in the current tariff regime, if you're trying to sell a machine made in China into the US, it's a big deal and probably a showstopper and in many cases, that's not a big part of our business. As we've mentioned, China is about a little less than 4% of our total revenue. In Europe, we're working with those customers and our application of price increases is targeted. As I mentioned in the script, we have considerable flexibility in where we manufacture things. And a lot of those machine builders do have US locations as well. So they're able by shifting their point of purchase to limit their exposure as well.

Okay, that's helpful. Thank you. Best of luck, guys. Appreciate it.

Thanks, Scott.

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

Thank you. I wanted to follow up with some of the prior commentary around the market demand trends. So I think it's understandable and makes sense that all the uncertainty out there, maybe it's hard to move forward with a big project if you don't know how much it costs and you don't know if the rules are changing. But when you guys talk to customers, is there an expectation that as visibility starts to come through, we could see more of these projects or announcements unlocking in the coming quarters? And was there any difference in Q1 order rates on a regional basis? Thank you.

Sure. Yeah. So addressing the projects first, delays, not cancellations. Cancellations remain in a low historical band. And so we absolutely do expect that these customers are going to pull the trigger on some of these investments. We're not going to call a specific date or quarter on that. But as I mentioned, we saw some of those projects come in, in April and we think we have a pretty good handle on what they're grappling with, as all manufacturers are looking for more certainty and consistency with the tariffs and the cost that might come along with tariffs are what they're looking for as well as making sure that the demand is still there from their end customers. In the majority of cases, they expect that this is a pause, not anything that lasts for a long, long time. From an order trend standpoint, North America was our strongest region in the quarter, and we expect it to be our strongest region for the year. And that's super helpful as we go into the second half because it reduces a lot of that ramp, and it builds a healthy backlog that will be important in the back half of the year.

Thank you, Blake. I appreciate that. And maybe following up with one for Christian. You guys did a 20.4% margin in Q2. It seems like maybe a 21% in the back half is what's implied. So just a kind of a relatively muted step-up given the volumes are going higher into the back half, it sounds like there's even more cost savings coming through into the back half. So -- I mean, I guess, are there headwinds on tariffs and that it's hard to get an incremental margin on a tariff? Just any kind of maybe headwinds that we should be thinking about on these back half margins? Thank you.

Yeah, sure, Chris. When you think about this kind of where we went from Q1 into Q2, really, really nice margin expansion. I think earlier in the year, we would have gotten some grief from folks about the ramp on the margin expansion through the course of the year. We did do a really good job through Q2 execution to derisk a lot of that. And again, we're taking our segment operating margin guide number up from 19% where it was previously to 20% now. And so we still have opportunities to expand those margins. But again, we did -- a lot of that heavy lift was done in the second quarter, and we want to continue to build off of that. But as I said in my prepared comments, we're talking about basis points, not full percentage points. I think your math around kind of what the second half implied number is. Yeah, you're in that ballpark. The ability of this team to continue to execute, I have a lot of confidence in, the key is that we're talking about some really nice numbers year-over-year where we're still getting benefits. Sequentially, when we're talking about the cost reduction and margin expansion activities, those are the millions, probably not tens of millions. But again, we're feeling pretty good about that. On your question on whether or not we can get margin expansion in a tariff-based environment, again, we're really -- our objective is, is that we're going to try to give that information to you all around what the impact of tariffs is for each of these quarters going forward. We're super focused on operational execution on the base business, excluding what happens with the tariff side. And on the tariff side, we're focused on the recovery portion of it. That's really -- there are two separate things for us. Base business, continued growth, continued margin expansion, and let's go execute.

Thank you. I appreciate that.

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

Good morning, everyone. Nice quarter.

Hi, Andy. Thanks.

This question is probably more for Christian. Can you give more color into your longer-term margin potential? I know you had a good mix in the quarter. You are holding down temporary costs. It's noticeable, though, that you said you get more than $250 million of restructuring benefits from your program and that you're generally getting better price versus cost. So you can give us some more color into what you're seeing? Do you see ultimate restructuring benefit including SKU rationalization is actually way more than 250? Or maybe just what inning do you think you're in, in terms of cost-out and ability to price at Rock?

Andy, I'm going to start with that one and then hand it over to Christian, just for a little bit of historical. It was actually at your conference last year, February, where we started talking about cost-out programs. And while some of that was to address the current business environment at that time; more importantly, it was to set a foundation, the results of which we're starting to see now. It's starting with an SG&A cost reduction and it moved as we continue to see the benefits of that into more structural cost. And I bring this up to just make it clear, this was part of a program that's been undergoing -- that's been on the way for a while now and it doesn't happen, and we don't get to talk about exceeding expectations without really strong participation by thousands of people within the company. And so it's just an opportunity to give a shout out to the team that responded under difficult circumstances. We're looking for more opportunities for structural cost and maybe this is the point where Christian can add some additional color.

Yeah, absolutely. Thank you, Blake. And I would also echo those comments. The team has done really well. And so as we're kind of sizing the full year benefit this year, keep in mind, again, we've talked about this before, hundreds of projects are underpinning this cost reduction and margin expansion activity. The team has done a really good job in trying to hit those targets and in fact, was able to pull in a number of them, which is why we saw the outperform in the first half. And frankly, we didn't want to put a lot more pressure on them when we were talking about what the second half expectations are because I think they've done such a great job, we want to let them continue to do the work they've done. There is definitely a runway there. I'm glad you asked the question, though, because to build off of that, I am really excited as we think about 2026 and beyond that because these programs, what we're building with the Rockwell operating model with the continuation of these projects that are underway right now, but then also when we think about volumes starting to come back up, I think there's a really good opportunity to expand the margins. I'm not in a position to give you an exact number yet. I'm sure you were fully expecting that answer. But I'm not going to sign up for that number yet, but I do think when we continue through the remainder of this year and start talking about '26, we'll be revisiting that.

That's very helpful, guys. And then bigger question, I think you've talked about gradually improving orders previously, improving orders and sales throughout the year. We could see what your revenue guidance is, but is that still the expectation for orders? I know you don't really want to get -- talk about orders anymore, but is the expectation that generally, you deliver book-to-bill close to 1 for the rest of the year, given the macro environment as it currently stands. And when you look at the improvement in orders that you've seen, how much is driven by, for instance, your machine builders actually order again after that long period of destocking?

Yeah. So, I'll start with this and Blake can jump in if he has additional comments to make. But generally, for the full year fiscal '25, we're looking for a book-to-bill of around 1, which is right about where we are for the first half. So yeah, that incremental improvement that we're talking about for the remainder of the year in sales, we're also expecting that in orders. A little nuance around that is that we did talk about in Q1 that we did have some orders that were slated for shipment later in the year. And so those are -- that's part of the backlog that I talked about in my prepared comments that helps us feel good about what we're looking at for Q4. So generally, that -- again, I think the book-to-bill number right around 1 and that we'll get that continuous ramp. On the machine builder side, Blake, do you want to take that one?

Sure. Broadly, stronger performance across the company in products versus the more capital-intensive projects and a significant portion of that product flow does come from machine builders as they move past the overstock situations that we talked so much about last year.

Yeah. And I think maybe just to build off of that, a touch more the -- we talked last quarter about the Italian machine builder market continuing to improve. I think we saw that expand a little bit more in the second quarter. And when you see that demand coming in and that we are getting higher shipment levels, obviously, that's a very strong indication that they're not sitting on a ton of excess stock.

Yeah. And just the other point that's worth mentioning is we talked about really good adoption of our new products, the innovation that we've invested in over the last few years, offerings like FactoryTalk Optics, our on-machine portfolio of Armor PowerFlex and Motion, those are really getting a great response from machine builders and provide us new ways to win there.

Appreciate all the color.

Thank you, Andy.

Thank you.

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

Hi, good morning. Maybe just the first question, I wanted to try and home in a little bit more on the third quarter. So, I just wanted to confirm it's sort of sales up low single-digits, a margin maybe of 21%. And so does that mean even with the tax rate headwind year-on-year sort of EPS is up in Q3? And within that, I wanted to understand kind of the PLC market, how quickly is that coming back up off the bottom?

Yeah, Julian, I'll start on the EPS question and general profitability and then we'll have Blake talk about the PLC demand side. When we're talking about the EPS number, you mentioned a 21% segment operating margins, didn't actually confirm that, that was the number mostly around just second half and kind of for the full year, we're looking at that 20%. To give you a ballpark on EPS for Q3, $2.60-ish is the neighborhood we're thinking, which I believe would be down slightly year-over-year.

Yeah. Regarding Logix, we're having a really good year and there's more room to run. The units of Logix being shipped are still not quite back to pre-COVID levels. So there's opportunity there. We've talked before about seeing modest share gains in our controllers. New innovation from things like FactoryTalk Design Studio that I mentioned before. So, I'm very happy with the performance to date with Logix. And as we see continued recovery on the machine builder side, of course, that's right at the core of a lot of their systems. So we expect that to continue.

That's helpful. Thank you. And then just my follow-up would be around the operating leverage assumptions, and I understand you don't want to get into kind of productivity savings guidance for 2026 and so forth. But you are sort of on the -- you are starting a revenue recovery now year-on-year this quarter. And just to understand the operating leverage assumption in that recovery, I think it's around sort of 40% or so incremental margins, it looks like, exiting the year in your guide. I just wanted to confirm if that's roughly the right ballpark of what you should see early in the sort of cyclical recovery phase for your top line?

Sure. Julian, we have overall talked for the last couple of years around what we think our incrementals should look like as an organization. We debuted at Investor Day 1.5 years ago, reiterated it at Investor Day last year. And that number that we're signing up for is 35% incrementals. And I definitely recognize that at various points in the cycle, that number could be up or down, again, depending on what's going on with volume, and of course, getting a little better volume ramp can certainly help that number as well. So mathematically, that's where I would put it as far as exactly where we're looking for '26. I'm not ready to talk about it yet.

Yeah. We've talked about a prudent approach to managing costs. And while we are adding back some heads, prioritizing on new product innovation and customer-facing resources, we're still more than 10% below our peak headcount. And we continue to look very closely at that. So, as we do see the return to growth on the top line, we're very cognizant of managing spending levels.

Great. Thank you.

Thank you.

Our next question comes from Joe O'Dea from Wells Fargo. Please go ahead. Your line is open. Joe O’Dea: Hi, good morning. Thanks for taking my questions. Can you just dig in on the tariffs a little bit and $125 million and give a little bit of color on the breakdown of that exposure when we think about China and other parts of it? And then related to that, how you think about your positioning in this environment and given your footprint and you talk about your versus kind of key competitors and whether there are any advantages there that you can exploit?

Sure. So, Joe, I'll hit on a few of the data points first, and then Blake can jump in on the footprint side of it. So last quarter, we talked about our exposure levels. And what we bring into the US from Mexico is in the neighborhood of $350 million, what comes into the US from Canada and China is in the neighborhood of $100 million each. Importantly, USMCA compliance, the vast majority of what's coming in from Mexico and Canada is USMCA compliant. When we talk about what's going into China that will be subject to tariffs. Again, Blake used the data point earlier, and I'm just going to give it back as a reference that China for us is a little bit less than 3% of sales -- sorry, a little bit less than 4% of sales, pardon me. When we think about what's coming from the US and going into China, I think like teens-ish as a representation of the sales level, that's the percentage of the shipments that are going into China on that side. So that gives you a sense, at least, of the magnitude of each of these. And those import numbers just to make sure, reference-wise, those are fiscal '24 important numbers, that's not the forecast for fiscal '25. Obviously, that can move around a little bit.

Yeah. Just a couple of additional comments. Our US manufacturing facilities provide more revenue for Rockwell than any other country. So just to frame it up that way. And again, a lot of the redundancy that we put in place during the supply chain crisis is really serving us well. We make Logix in the US. We also have that capability in Singapore. We have manufacturing multiple places around the world for our major product lines. I talked about the recent announcement of Clearpath expanding to the US. It certainly gives us a benefit in terms of reducing tariff costs. It also provides needed capacity for the kind of growth we expect to continue to see as well as resiliency. Joe O’Dea: And then within the guide, the unchanged range, is that kind of price up about 1.5% volume down an equivalent amount? And then just related to that volume that primarily auto and some process markets?

So, we've talked about the uncertainty that kept the organic range unchanged. And pricing from tariff-related cost is a piece of that, continuing to watch closely for any signs to manage prebuys. And then the timing of when those CapEx-intensive projects return is another piece of it because those CapEx-intensive projects typically carry with them a longer lead time. So we've got lots of backlog that supports the guide already in place. The question of when new orders would come in, some of which would be recognized in the back half of the year is another element of uncertainty. So that's why we've taken the approach that we have. Joe O’Dea: Got it. Thank you.

Thank you.

Julianne, we will take one more question.

Certainly. Our last question today will come from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.

Okay, thanks. Just beat the bell there. Thanks for the question. So, Christian, I just wanted to clarify the comment on the China -- kind of US to China exports. I think you said -- if I heard it rightly, roughly 4% of sales and a teens portion of that 4% is imported into China. Is that right?

That's correct.

Okay. That's great. Just trying to figure out, because by the time we convene there could be very different rates and systems in place. I just wanted to understand the sensitivity. And then good color on 3Q. I'm just wondering if you can provide any color on how you see the setup by segments? And I'd be particularly interested to see if Lifecycle Services might be back to growth in 3Q?

Yeah. So we didn't actually give the color by segment for the quarter. We did give color by segment for the remainder of the year to give you a kind of a full year view. So probably not going to get into the detail around individual segments at the moment, just because, again, I'm not sure that it's going to provide a ton of value. And as we talked about, we have had a couple of changes around we're seeing some outperformance in certain parts of our business and the capital-intensive side of the business are moving around a little bit right now. And so the nuance of quarter-to-quarter is a little bit more difficult right now. But again, we feel really good about the team's ability to execute.

And then just quickly on the 3Q versus 4Q, would you expect the tariffs impact to be roughly similar?

Yeah. Generally, we're expecting -- I mean, obviously, the tariff impact that we have, we're incurring them right now, yes.

Yeah. Okay, great. Thank you.

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

At this time, you may disconnect. Thank you.