Rockwell Automation Reports First Quarter Results
MILWAUKEE--Jan. 2, 20056, 2005--Rockwell Automation, Inc. : -- Diluted earnings per share from continuing operations of $0.65 -- Revenue up 20 percent; 17 percent excluding currency translation -- Now expects 2005 diluted EPS from continuing operations of $2.55 to $2.65Rockwell Automation, Inc. , a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2005 first quarter income from continuing operations of $122.1 million ($0.65 per share) compared to $57.1 million ($0.29 per share) in 2004. Net income for the first quarter of 2005 was $133.4 million ($0.71 per share) compared to $62.2 million ($0.32 per share) in 2004.
Sales for the first quarter were $1,184.9 million, up 20 percent compared to $990.3 million in the first quarter of 2004. Currency translation accounted for three percentage points of the growth. Segment operating earnings in the first quarter were $213.6 million, up 95 percent compared to $109.6 million in the first quarter of 2004.
Keith Nosbusch, president and chief executive officer, said, "The transformation of our business model continues, and we are demonstrating our ability to support the growth of our advanced technology products and innovative services and solutions with a lower investment base and a leaner cost structure."
Commenting on the quarter, Nosbusch continued, "Our businesses again produced excellent results in a steadily improving industrial economy, particularly in the U.S. The speed and strength of the proliferation of our Logix integrated architecture and the growing customer adoption of our leading power control offering have generated meaningful improvement in our market positions and paced our growth. The extremely strong profitability in the quarter was the result of exceptional volume leverage, broad-based productivity, and a relentless focus on cost discipline."
2005 Outlook
After considering the strong performance in the first quarter, we are increasing our full year 2005 guidance. Based upon current economic conditions and business outlook, we expect revenue to increase sequentially in each of the remaining quarters of 2005 by 1 to 2 percent, resulting in full year 2005 organic revenue growth of approximately 10 percent, excluding currency translation. Full year diluted earnings per share from continuing operations is expected to be $2.55 to $2.65, with results in each remaining quarter similar to those experienced in the first. Steadily increasing discretionary spending on growth initiatives and business systems will offset some of the profit from sequential revenue growth. This incremental spending beginning in 2005, and continuing into 2006, will improve market access and customer intimacy, and further the proliferation of our integrated control and information architecture, sustaining a high rate of organic revenue growth. These initiatives will require spending equivalent to approximately $0.15 to $0.20 per share during the balance of 2005. Free cash flow is expected to be equal to or greater than net income.
Because revenue growth in the second half of 2004 was considerably stronger than that year's first half, year over year growth rate comparisons for the balance of 2005 are expected to decline from this quarter's 20 percent rate.
Following is a discussion of first quarter results for each business.
Control Systems
Control Systems first quarter sales were $985.5 million, an increase of 19 percent compared to $828.8 million in the first quarter of 2004. Three percentage points of the growth was due to the effect of currency translation. Strong growth was seen across nearly all businesses, regions and industries. Our Logix integrated architecture platform and related product offerings grew by more than 30 percent. From a regional perspective, sales in the U.S. increased 18 percent in the 2005 first quarter while non-U.S. sales increased 13 percent, excluding the effect of currency translation, with particularly strong growth in the Latin America and Asia-Pacific regions. Segment operating earnings were $190.0 million, an increase of 89 percent compared to $100.5 million in the first quarter of 2004. Profitability benefited from volume leverage, revenue mix, cost control and productivity efforts, and improving price/cost dynamics. Control Systems return on sales was 19.3 percent in the first quarter of 2005 compared to 12.1 percent in 2004.
Power Systems
Power Systems first quarter sales were $199.4 million, an increase of 23 percent compared to sales of $161.5 million in the 2004 first quarter. Segment operating earnings were $23.6 million, compared to $9.1 million in the first quarter of 2004. The increase in segment operating earnings was driven by higher volume, price increases and productivity improvements, the combination of which more than offset higher material costs. Power Systems return on sales was 11.8 percent in the first quarter of 2005 compared to 5.6 percent in 2004.
General Corporate - Net
First quarter general corporate expenses were $16.0 million compared to $16.9 million in the 2004 first quarter.
Income Taxes
The effective tax rate for the first quarter of 2005 was 32 percent, consistent with the rate we are now expecting for the fiscal year. This reflects an increase from prior guidance of 31 percent and is the result of higher income growth in higher-tax regions.
Our effective tax rate for the first quarter of 2004 was 24 percent. This included the effect of $4.3 million, or 6 percentage points, related to state tax benefits associated with a U.S. research and experimentation tax credit settlement.
Discontinued Operations
Income from discontinued operations in 2005 reflects a net tax benefit of $11.3 million ($0.06 per share) resulting from a prior year state tax refund of a divested business.
In the first quarter of 2004, income from discontinued operations was $5.1 million ($0.03 per share). This amount included the final judgment in a legal proceeding related to a facility formerly operated by the company, as well as the results of our former FirstPoint Contact business, which was sold in September 2004.
Cash Flow
Free cash flow for the first quarter of 2005 was $90.4 million compared to $126.0 million in 2004. Substantially higher pretax earnings and higher receipts from tax refunds were more than offset by a $50 million voluntary pension contribution to our U.S. qualified pension trust and higher working capital balances.
We define free cash flow as cash flows from operating activities reduced by capital expenditures.
(www.rockwellautomation.com).
ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share amounts)
Quarter Ended
December 31,
---------------------------
2004 2003
------------- -------------
Sales
Control Systems $985.5 $828.8
Power Systems 199.4 161.5
------------- -------------
Total Sales $1,184.9 $990.3
============= =============
Segment Operating Earnings
Control Systems $190.0 $100.5
Power Systems 23.6 9.1
------------- -------------
Total Segment Operating Earnings 213.6 109.6
Purchase accounting depreciation and
amortization (6.9) (6.8)
General corporate - net (16.0) (16.9)
Interest expense (11.1) (10.5)
------------- -------------
Income from continuing operations before
income taxes 179.6 75.4
Income tax provision (see Note 1) (57.5) (18.3)
------------- -------------
Income from continuing operations 122.1 57.1
Income from discontinued operations (see
Note 2) 11.3 5.1
------------- -------------
Net income $133.4 $62.2
============= =============
Diluted Earnings Per Share:
Continuing operations $0.65 $0.29
Discontinued operations (see Note 2) 0.06 0.03
------------- -------------
Net income $0.71 $0.32
============= =============
Average Diluted Shares 189.1 192.3
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(1) The quarter ended December 31, 2003 includes a net benefit of $4.3
million related to state tax benefits associated with a U.S.
research and experimentation tax credit settlement.
(2) The quarter ended December 31, 2004 includes a net tax benefit
related to a prior year state tax refund.
The quarter ended December 31, 2003 includes:
- $4.6 million after-tax from a final judgment in a legal
proceeding related to a facility formerly owned by the
company.
- $0.5 million after-tax related to the results of
our former FirstPoint Contact business.
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
(in millions)
December 31, September 30,
2004 2004
------------- -------------
ASSETS
Cash and cash equivalents $467.7 $473.8
Short-term investments 14.9 -
Receivables, net 733.1 719.9
Inventories, net 608.8 574.3
Deferred income taxes 136.5 132.7
Other current assets 105.0 125.4
------------- -------------
Total current assets 2,066.0 2,026.1
Properties, net 785.0 804.5
Goodwill, net 826.4 811.1
Other intangible assets, net 321.6 323.8
Other assets 277.1 235.7
------------- -------------
Total $4,276.1 $4,201.2
============= =============
LIABILITIES AND SHAREOWNERS' EQUITY
Short-term debt $0.2 $0.2
Accounts payable 334.4 362.2
Compensation and benefits 136.4 202.3
Income taxes payable 35.4 8.3
Other current liabilities 338.8 290.6
------------- -------------
Total current liabilities 845.2 863.6
Long-term debt 754.5 757.7
Retirement benefits 506.4 505.6
Deferred income taxes 84.8 89.3
Other liabilities 125.5 124.0
Shareowners' equity 1,959.7 1,861.0
------------- -------------
Total $4,276.1 $4,201.2
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ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Three Months Ended
December 31,
---------------------------
2004 2003
------------- -------------
CONTINUING OPERATIONS:
OPERATING ACTIVITIES:
Income from continuing operations $122.1 $57.1
Adjustments to arrive at cash provided by
operating activities:
Depreciation 38.9 40.0
Amortization of intangible assets 7.3 7.3
Pension trust contributions (54.3) (2.9)
Retirement benefits expense 22.3 22.7
Income tax matters - (4.3)
Net gain on disposition of property (0.8) (1.0)
Changes in assets and liabilities, excluding
effects of foreign currency adjustments:
Receivables 12.1 42.1
Inventories (23.4) 2.3
Accounts payable (35.7) (41.2)
Compensation and benefits (69.0) (25.6)
Income taxes 39.4 6.3
Changes in other assets and
liabilities 43.4 39.2
------------- -------------
Cash provided by operating activities 102.3 142.0
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (11.9) (16.0)
Purchase of short-term investments (14.9) -
Proceeds from sale of property 5.5 0.2
------------- -------------
Cash used for investing activities (21.3) (15.8)
------------- -------------
FINANCING ACTIVITIES:
Cash dividends (30.5) (30.8)
Purchases of treasury stock (116.4) (40.7)
Proceeds from the exercise of stock options 45.4 35.6
Other financing activities (1.0) (0.6)
------------- -------------
Cash used for financing activities (102.5) (36.5)
------------- -------------
Effect of exchange rate changes on cash (3.0) (2.6)
------------- -------------
Cash (used for) provided by continuing
operations (24.5) 87.1
Cash provided by discontinued operations 18.4 2.1
------------- -------------
(Decrease) increase in cash and cash
equivalents $(6.1) $89.2
============= =============
FREE CASH FLOW:
Cash provided by operating activities $102.3 $142.0
Capital expenditures (11.9) (16.0)
------------- -------------
Free cash flow (see Note 1) $90.4 $126.0
============= =============
(1) Our company's definition of free cash flow, which is an internal
performance measurement, may be different from definitions used by
other companies.
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Free Cash Flow
--------------
Our press release contains information regarding free cash flow, which
is a non-GAAP financial measure. Our definition of free cash flow
takes into consideration capital investment required to maintain the
operations of our company and execute our strategy. Management
believes that free cash flow provides useful information to investors
regarding our company's ability to generate cash from business
operations that is available for acquisitions and other investments,
debt service, dividends and share repurchases. Management uses free
cash flow as one measure to monitor and evaluate the performance of
our company.
The following table summarizes free cash flow by quarter for our
company:
Quarter Ended
------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
2003 2004 2004 2004 2004
---------- ---------- ---------- ---------- ----------
Cash provided
by operating
activities $142.0 $126.9 $85.7 $242.3 $102.3
Capital
expenditures (16.0) (20.4) (22.2) (39.4) (11.9)
---------- ---------- ---------- ---------- ----------
Free cash
flow $126.0 $106.5 $63.5 $202.9 $90.4
========== ========== ========== ========== ==========
Effect of Changes in Currency Exchange Rates on Sales
-----------------------------------------------------
The company's press release contains information regarding the effect
of changes in currency exchange rates on sales, which is a non-GAAP
measure. Management believes this provides useful information to
investors because it reflects regional performance from our activities
without the effect of changes in currency rates, which is outside the
control of management. Management uses sales excluding the effect of
changes in currency exchange rates as one measure to monitor and
evaluate our regional performance.
The following is a reconciliation for our company of reported sales to
sales excluding the effect of changes in currency exchange rates for
the first quarter of 2005:
Quarter Ended December 31, 2004
-------------------------------------------
Sales
Excluding
Effect of Effect of
Changes in Changes in
Sales Currency Currency
---------- ---------- ----------
United States $721.9 $- $721.9
Canada 86.3 (6.5) 79.8
Europe, Middle East,
Africa 208.5 (17.2) 191.3
Asia-Pacific 113.7 (3.9) 109.8
Latin America 54.5 0.7 55.2
---------- ---------- ----------
Total $1,184.9 $(26.9) $1,158.0
========== ========== ==========
The following is a reconciliation for the Control Systems segment of
reported sales to sales excluding the effect of changes in currency
exchange rates for the first quarter of 2005:
Quarter Ended December 31, 2004
-------------------------------------------
Sales
Excluding
Effect of Effect of
Changes in Changes in
Sales Currency Currency
---------- ---------- ----------
United States $543.6 $- $543.6
Canada 76.8 (5.8) 71.0
Europe, Middle East,
Africa 205.6 (16.9) 188.7
Asia-Pacific 108.8 (3.9) 104.9
Latin America 50.7 0.6 51.3
---------- ---------- ----------
Total $985.5 $(26.0) $959.5
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