Rockwell Automation Reports First Quarter Results
MILWAUKEE--Jan. 25, 2006--Rockwell Automation, Inc. :-- Diluted earnings per share from continuing operations of $0.80
-- Revenue up 10 percent; 11 percent excluding currency translation
-- Trailing four quarter after-tax ROIC increased 4 percentage points to 19 percent
-- Now expect full-year organic revenue growth of approximately 9 percent
-- Raising full-year EPS guidance by $0.10 to $3.10-$3.20
Rockwell Automation, Inc. , a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2006 first quarter income from continuing operations of $145.7 million ($0.80 per share) compared to $122.1 million ($0.65 per share) in fiscal 2005. Net income, which includes discontinued operations, was also $145.7 million ($0.80 per share) this quarter compared to $133.4 million ($0.71 per share) in fiscal 2005. Income from discontinued operations in the year ago quarter reflected a net tax benefit of $11.3 million ($0.06 per share) resulting from a prior year tax refund of a divested business.
Sales for the first quarter were $1,301.4 million, up 10 percent compared to $1,184.9 million in the first quarter of 2005. Adjusted for the impact of currency translation, sales increased 11 percent. Segment operating earnings in the first quarter were $248.4 million, up 16 percent compared to $213.6 million in the first quarter of 2005.
Keith Nosbusch, chairman and chief executive officer, said, "This quarter's results once again demonstrate the unique strengths of our business model. We remain intensely focused on executing our strategy of investing in high-return growth opportunities while maintaining a competitive cost structure. Our ongoing investments in industry domain expertise and globalization are allowing us to capture share and diversify our served markets."
Nosbusch continued, "Our businesses produced excellent results in the first quarter, particularly in the Americas. We experienced accelerated sales growth and higher profitability in most of our businesses. Our Logix automation platform and our leading power control and conversion offerings paced our growth. This strong start, combined with higher backlog in our project-oriented businesses and continued momentum across industrial end markets, gives me increasing confidence about the results we can deliver in 2006."
Outlook
The company is increasing its full year 2006 guidance to reflect both the performance in the first quarter, and better full-year visibility. The company now expects full-year 2006 revenue growth excluding currency translation to be approximately 9 percent, which is at the high end of our prior range. The company is raising guidance for diluted earnings per share from continuing operations by $0.10, to $3.10 - $3.20, and adjusting free cash flow guidance upward by $20 million to $300 million to reflect the higher earnings.
For the fiscal second quarter, as was the case in 2005, the company expects to experience typical seasonality in customer capital spending. This could result in sequentially lower daily sales volume and a less profitable revenue mix versus the favorable first quarter results.
Following is a discussion of first quarter results for each business.
Control Systems
Control Systems first quarter sales were $1,072.1 million, an increase of 9 percent compared to $985.5 million in the first quarter of 2005. Currency translation reduced reported revenue growth by 1 percentage point. Our Logix integrated architecture platform grew by more than 25 percent. From a regional perspective, sales in the U.S. increased 14 percent in the quarter, while non-U.S. sales increased 5 percent, excluding the effect of currency translation. Growth remained strong in Canada, Latin America and several Asia-Pacific countries, especially China. Segment operating earnings were $211.4 million, an increase of 11 percent compared to $190.0 million in the first quarter of 2005. Profitability benefited from volume, productivity efforts, and price, which were partially offset by inflation and a $9.2 million facilities charge in Europe. Control Systems return on sales was 19.7 percent in the first quarter of 2006 compared to 19.3 percent in 2005.
Power Systems
Power Systems first quarter sales were a higher than expected $229.3 million, an increase of 15 percent compared to sales of $199.4 million in the 2005 first quarter. Segment operating earnings increased 57 percent to $37.0 million, compared to $23.6 million in the first quarter of 2005. 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 16.1 percent in the first quarter of 2006 compared to 11.8 percent in 2005.
General Corporate - Net
First quarter general corporate expenses were $22.3 million compared to $16.0 million in the 2005 first quarter. Expenses were higher due to a $5.0 million contribution to the company's charitable corporation, and the inclusion of stock compensation expense.
Income Taxes
The effective tax rate for the first quarter of 2006 was 31 percent and included the beneficial resolution of a foreign tax matter. The effective tax rate for the first quarter of 2005 was 32 percent. For the full year 2006 the company expects an effective tax rate of approximately 34 percent, which presumes a rate of approximately 35 percent for the remainder of 2006.
Free Cash Flow
Free cash flow for the first quarter of 2006 was a use of cash of $213.4 million and included the contribution of $450 million pre-tax to the company's pension trust in early October. First quarter 2005 free cash flow was $90.4 million.
Free cash flow and ROIC are non-GAAP measures that are defined in the attachments to this release under "Other Supplemental Information".
A conference call to discuss financial results will take place at 10 a.m. EST Jan. 25, 2006. The call will be webcast and accessible via the Rockwell The company brings together leading brands in industrial automation for Complete Automation solutions, including Allen-Bradley(R) controls and services, Dodge(R) mechanical power transmission products, Reliance(R) motors and drives, and Rockwell Software(R) factory management software. Headquartered in Milwaukee, Wisc., the company employs about 21,000 people serving customers in more than 80 countries.
ROCKWELL AUTOMATION, INC.
SALES AND EARNINGS INFORMATION
(in millions, except per share amounts)
Three Months Ended
December 31,
---------------------
2005 2004
---------- ----------
Sales
Control Systems $1,072.1 $985.5
Power Systems 229.3 199.4
---------- ----------
Total Sales $1,301.4 $1,184.9
========== ==========
Segment Operating Earnings
Control Systems $211.4 $190.0
Power Systems 37.0 23.6
---------- ----------
Total Segment Operating Earnings 248.4 213.6
Purchase accounting depreciation and amortization (2.8) (6.9)
General corporate - net (22.3) (16.0)
Interest expense (13.5) (11.1)
---------- ----------
Income from continuing operations before
income taxes 209.8 179.6
Income tax provision (64.1) (57.5)
---------- ----------
Income from continuing operations 145.7 122.1
Income from discontinued operations (1) - 11.3
---------- ----------
Net income $145.7 $133.4
========== ==========
Diluted Earnings Per Share:
Continuing operations $0.80 $0.65
Discontinued operations (1) - 0.06
---------- ----------
Net Income $0.80 $0.71
========== ==========
Average Diluted Shares 182.3 189.1
========== ==========
(1) The quarter ended December 31, 2004 includes a net tax benefit
related to a prior year state tax refund.
ROCKWELL AUTOMATION, INC.
CONDENSED BALANCE SHEET
(in millions)
December 31, September 30,
2005 2005
------------- -------------
Assets
Cash and cash equivalents $246.7 $463.6
Receivables 793.7 799.6
Inventories 595.7 569.9
Deferred income taxes 184.2 169.4
Other current assets 144.0 184.0
------------- -------------
Total current assets 1,964.3 2,186.5
Property, net 663.5 774.5
Goodwill 815.7 811.9
Other intangible assets, net 325.5 307.0
Deferred income taxes 30.1 66.3
Prepaid pension 634.7 200.5
Other assets 185.4 178.4
------------- -------------
Total $4,619.2 $4,525.1
============= =============
Liabilities and Shareowners' Equity
Short-term debt $103.2 $1.2
Accounts payable 397.1 388.5
Compensation and benefits 146.5 214.4
Income taxes payable 37.5 5.4
Other current liabilities 363.0 331.3
------------- -------------
Total current liabilities 1,047.3 940.8
Long-term debt 747.2 748.2
Retirement benefits 981.4 977.5
Other liabilities 260.0 209.5
Shareowners' equity 1,583.3 1,649.1
------------- -------------
Total $4,619.2 $4,525.1
============= =============
ROCKWELL AUTOMATION, INC.
CONDENSED CASH FLOW INFORMATION
(in millions)
Three Months Ended
December 31,
------------------
2005 2004
-------- --------
Continuing Operations:
Operating Activities:
Income from continuing operations $145.7 $122.1
Adjustments to arrive at cash provided by
operating activities:
Depreciation 30.4 38.9
Amortization of intangible assets 5.2 7.3
Share-based compensation expense 6.8 -
Retirement benefit expense 29.3 22.3
Pension trust contributions (455.5) (54.3)
Net loss (gain) on disposition of property 1.2 (0.8)
Income tax benefit from the exercise of stock
options 0.3 25.8
Excess income tax benefit from the exercise
of stock options (11.3) -
Changes in assets and liabilities, excluding
effects of foreign currency adjustments:
Receivables 2.0 12.1
Inventories (27.5) (23.4)
Accounts payable 10.1 (35.7)
Compensation and benefits (66.6) (69.0)
Income taxes 114.8 39.4
Other assets and liabilities 17.6 17.6
-------- --------
Cash (used for) provided by operating activities (197.5) 102.3
-------- --------
Investing Activities:
Capital expenditures (27.2) (11.9)
Acquisition of business (25.4) -
Purchase of short-term investments - (14.9)
Proceeds from sale of property 147.5 5.5
-------- --------
Cash provided by (used for) investing activities 94.9 (21.3)
-------- --------
Financing Activities:
Net issuance of short-term debt 102.0 -
Cash dividends (40.3) (30.5)
Purchases of treasury stock (201.1) (116.4)
Proceeds from the exercise of stock options 17.4 45.4
Excess income tax benefit from the exercise of
stock options 11.3 -
Other financing activities 0.1 (1.0)
-------- --------
Cash used for financing activities (110.6) (102.5)
-------- --------
Effect of exchange rate changes on cash (3.7) (3.0)
-------- --------
Cash used for continuing operations (216.9) (24.5)
Cash provided by discontinued operations - 18.4
-------- --------
Decrease in cash and cash equivalents $(216.9) $(6.1)
======== ========
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Free Cash Flow
--------------
Our definition of free cash flow, which is a non-GAAP financial
measure, takes into consideration capital investments required to
maintain the operations of our businesses and execute our strategy. In
the first quarter of 2006 we adopted SFAS 123(R), which requires that
we report excess tax benefits from the exercise of stock options as a
financing cash flow rather than as an operating cash flow. We have
added this benefit back to our operating cash flow to present free
cash flow on a basis that is consistent with our historical
presentation.
In our opinion, free cash flow provides useful information to
investors regarding our ability to generate cash from business
operations that is available for acquisitions and other investments,
service of debt principal, dividends and share repurchases. We use
free cash flow as one measure to monitor and evaluate performance. Our
definition of free cash flow may be different from definitions used by
other companies.
The following table summarizes free cash flow by quarter:
Quarter Ended
-------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
2004 2005 2005 2005 2005
--------- --------- --------- --------- ---------
Cash provided by
operating activities $102.3 $182.2 $181.0 $173.4 $(197.5)
Capital expenditures (11.9) (50.5) (23.3) (38.4) (27.2)
Tax benefit from
stock option
exercises - - - - 11.3
--------- --------- --------- --------- ---------
Free cash flow $90.4 $131.7 $157.7 $135.0 $(213.4)
========= ========= ========= ========= =========
Effect of Changes in Currency Exchange Rates on Sales
-----------------------------------------------------
The following is a reconciliation of reported sales to sales excluding
the effect of changes in currency exchange rates for the quarter ended
December 31, 2005 compared to sales for the quarter ended December 31,
2004:
Quarter Ended December 31,
---------------------------------------
2005 2004
----------------------------- ---------
Sales
Excluding
Effect of Effect of
Changes Changes
in in
Sales Currency Currency Sales
--------- --------- --------- ---------
United States $818.6 $(0.6) $818.0 $721.6
Canada 88.5 (3.0) 85.5 75.3
Europe, Middle East, Africa 191.2 16.2 207.4 207.1
Asia-Pacific 132.4 0.3 132.7 123.7
Latin America 70.7 (5.6) 65.1 57.2
--------- --------- --------- ---------
Total $1,301.4 $7.3 $1,308.7 $1,184.9
========= ========= ========= =========
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 quarter ended December 31, 2005 compared to
sales for the quarter ended December 31, 2004:
Quarter Ended December 31,
---------------------------------------
2005 2004
----------------------------- ---------
Sales
Excluding
Effect of Effect of
Changes Changes
in in
Sales Currency Currency Sales
--------- --------- --------- ---------
United States $621.8 $(0.5) $621.3 $547.0
Canada 77.8 (2.6) 75.2 67.8
Europe, Middle East, Africa 187.3 16.1 203.4 202.8
Asia-Pacific 124.1 0.4 124.5 116.1
Latin America 61.1 (5.4) 55.7 51.8
--------- --------- --------- ---------
Total $1,072.1 $8.0 $1,080.1 $985.5
========= ========= ========= =========
ROCKWELL AUTOMATION, INC.
OTHER SUPPLEMENTAL INFORMATION
(in millions)
Return On Invested Capital
--------------------------
Our press release contains information regarding Return On Invested
Capital (ROIC), which is a non-GAAP financial measure. Management
believes that ROIC is useful to investors as a measure of performance
and of the effectiveness of the use of capital in its operations.
Management uses ROIC as one measure to monitor and evaluate the
performance of the company. Our measure of ROIC is likely to differ
from that used by other companies. We define ROIC as the percentage
resulting from the following calculation:
(a) Income from continuing operations before accounting change,
if any, and before interest expense, income tax provision, and
purchase accounting depreciation and amortization, divided by;
(b) average invested capital for the year, calculated as a five
quarter rolling average using the sum of short-term debt, long-
term debt, shareowners' equity, cumulative impairments of
goodwill and intangibles required under SFAS No. 142, and
accumulated amortization of goodwill and other intangible
assets, minus cash and cash equivalents, multiplied by;
(c) one minus the adjusted effective tax rate for the period,
the adjusted effective tax rate is calculated by excluding the
effect of extraordinary separately reported tax items in
continuing operations.
ROIC is calculated as follows:
Twelve Months Ended
December 31,
--------------------
2005 2004
--------- ---------
(a) Return
Income from continuing operations $542.0 $419.4
Interest expense 48.2 42.3
Income tax provision 225.2 122.9
Purchase accounting depreciation and amortization 10.6 27.3
--------------------
Return 826.0 611.9
--------------------
(b) Average Invested Capital
Short-term debt 21.0 1.9
Long-term debt 750.1 758.1
Shareowners' equity 1,814.6 1,763.8
Impairments of goodwill and intangibles 108.0 108.0
Accumulated amortization of goodwill and
intangibles 664.8 649.9
Cash and cash equivalents (426.3) (388.1)
--------- ---------
Average invested capital 2,932.2 2,893.6
--------- ---------
(c) Adjusted Effective Tax Rate
Income tax provision 225.2 122.9
Separately reported tax items in continuing
operations 197.0 34.5
--------------------
Income tax provision before separately
reported tax items in continuing
operations 244.9 157.4
--------- ---------
Income from continuing operations before income
taxes $767.2 $542.3
--------- ---------
Adjusted effective tax rate 31.9% 29.0%
--------- ---------
(a) / (b) x (1-c) Return On Invested Capital 19.2% 15.0%
========= =========