Q4 2019 Earnings Call
I need to remind everyone that today's conference is being recorded later in the call. We will open up the lines for questions. If you have a question I, sometimes please press star one.
At this time I'd like to turn the call over to Jessica Karl can head of Investor Relations.
Please go ahead.
Good morning, and thank you for joining us for Rockwell Automations fourth quarter fiscal 2019 earnings release Conference call with me today is like more at our chairman and CEO and Patrick Goris, our CFO .
Also released earlier this morning on the press releases are happening Sichuan website.
The press release in charts include reconciliations to non-GAAP measure a webcast of this call will be available at that website for replay for the next 30 days before we get started I need to remind you that our comments will include statements related to the expected future results in our company and are there for forward looking statement, our actual results may differ material.
Our projection due to a wide range of risks and uncertainties that are described in our earnings release and detail in all of our SEC filings, so with that I'll hand, the call over to Mike. Thanks, Jessica.
Good morning, everyone. Thank you for joining us on the call today.
I'll start with some key points for the quarter. So please turn to page three in the slide deck.
Organic growth, 1.4% was better than expected with growth strain across a broad range of industries and across all of our core platform. Despite a challenging macro environment.
Going deeper into our vertical sales performance when gosh and mining you try to another strong double digit growth quarter.
Life Sciences continued to show solid momentum, which sales growing mid single digits and very strong bookings.
Our offerings in starter security modular control and founder Sweet EMEA.
Coupled with Bockarie talk innovation suite are extremely well positioned and aligned with industry trends.
Food and beverage was slightly up led by strength in AMEA that was partially offset by other regions.
Automotive grew mid single digits with growth in all regions, except Latin America, and with some important competitive conversions.
In the quarter, we'd also short increasing activity within electric vehicles, including a strategic win in North America, and we look forward to talking more about at our Investor Day on November Twentyth.
Semiconductor, which is about 5% of our sales was down over 10%, but flat sequentially.
A large groups business grew 3% even against a tough comparison last year, where it grew 7%.
Logics growth was broad based across most regions and end markets.
Adjusted EBITDA was $2 and once again, including a 14 shouldn't impact from a restructuring charge.
Four cents impact from start to see a setup costs in the quarter that were not included in our July guidance.
Finally free cash flow was very strong.
Turning to slide four and a regional sales performance during the quarter.
North America declined 1%.
Continued strength in oil and gas and mining was offset primarily by softness in semiconductor in power generation.
Auto improve sequentially and was up year over year.
EMEA sales were up 4% versus prior year were slow growth in life Sciences.
And beverage and mining.
Asia was flat in China sales were down 4% versus last year.
Trying to weakness in semiconductor metals and automotive <unk>.
Was partially offset by continued strength in infrastructure spend.
Latin America was up 17% in the quarter.
A great finish to a strong year.
Most countries in this region, including Mexico contributed to growth.
Very slow oil and gas and life Sciences sales performance more than offset weakness in automotive in this region.
Now moving to the full year, let's turn back to slide three.
Well fiscal 2019 was marked by uncertainty related to trade, there's a year or progress for Rockwell.
We're strong operating performance in strategic investments setting the stage for our continued success.
Here are some highlights of our financial performance.
Our diverse industry exposure enabled us to deliver 2.8% organic growth, even with automotive and semiconductor down over 10%.
Segment operating margins of 22% expanded 40 basis points and adjusted EPS was up 7% year over year.
We had another good year of 100% free cash flow conversion, and we deployed $1.5 billion dividends and share repurchases.
We also continued to made solid progress in our long term growth initiatives. These include share gains in our core platforms.
Faster growth in process double digit growth in information solutions and connected services and growth in EMEA and Asia.
For example, we saw core platform broke were strong contribution from products like Powerflex drive some stratix network switches.
Make sense, when you consider and industrial companies can't transformed their operations without data from smart secured devices.
This is also rockwell's homefield advantage.
We saw double digit growth in process industries, like oil and gas mining and pulp and paper.
Recurring revenue streams grew double digits with increases in project size and enterprise Rollouts.
The information solutions and connected services contributing approximately one percentage point organic growth for the year.
We capped off the first year of our alliance with PTC by delivering a very strong sequential increase in new deals in Q4 and for the full year, our alliance enabled strategic wins around the world.
Across a broad range of vertical markets.
Accordingly, many of these wins, we're on top of competitive control platforms.
Finally, we grew faster outside the U.S.
Patrick will elaborate further on our fourth quarter and for your financial performance in his remarks.
Let's move on now to the macro environment and our outlook for full year fiscal 2020.
Our outlook balances geopolitical uncertainty with confidence in our differentiated portfolio and ability to gain share.
Global trade tensions continue to create uncertainty and industrial production is decelerating heading into fiscal 20, which we expect will have some negative impact on customer capital.
However, we're excited about new product introductions across our portfolio.
Also given our pipeline of projects for our customers digital transformation plans.
Which were often funded out of opex budgets and not Capex. We believe we will have another good year in information solutions and connected services.
Taking all this into account.
We are expecting flat organic sales at the midpoint of our fiscal 2000 guidance.
We expect our reported sales to be up approximately 3.5% year over year at the midpoint of guidance. This includes approximately 4.2 inorganic growth.
From our investments in subsea and Emmy, Yes tech, partially offset by currency.
Turning now to earnings as you've seen in our fourth quarter results, we took restructuring actions to help drive $40 million into.
Allow us to both reinvest in our highest growth initiatives and helped deliver earnings growth in this environment.
Including the impact of acquisitions in currency our guidance for sales is about $7 billion.
Adjusted EPS guidance ranges $8 in 70 cents to $9 in 10 cents with the midpoint of $8 a 90 cents.
Now I'll turn it over to Patrick to provide more detail around or Q4 and full year results in our fiscal 2020 sales and earnings guidance.
Thank you Blake and good morning, everyone.
Starting on slide five which provides our key financial information for the fourth quarter.
As Blake mentioned fourth quarter reported sales were flat organic growth of 1.4% was better than expected.
Largely benefiting from better performance in automotive and food and beverage.
Currency translation reduced sales by one and a half point.
Our fourth quarter results, including $20 million restructuring charge as well as $6 million asencio setup costs.
Neither of which were included in our July guidance.
The restructuring charge is split about evenly between both segments with about 25% in cost of goods sold and the remainder excuse me.
We are reinvesting the majority of the 40 million dollar savings associated with the restructuring charges towards our highest priorities, including commercial resources and increased software development.
We continue to be looked for ways to streamline processes and drive internal simplification and productivity, enabling us to increase investments to fund profitable growth.
Segment operating margin was 20.2% down 60 basis points compared to last year, primarily due to the restructuring incentives set up cost that I referred to.
General corporate net expense of 36 million was up 18 million compared to last year. As you may recall, we had a large favorable insurance settlement in the fourth quarter.
Fiscal 18.
Adjusted EPS of $2 in one sense was down about 4% compared to the fourth quarter of last year.
Excluding the restructuring charge instantly since you're set up cost.
Adjusted EPS was up about 4% compared to last year.
As Blake mentioned, we had very good free cash flow performance into quarter 451 million or over 190% of adjusted income.
Reduced working capital contributed $150 million in the quarter.
A few additional items that are not shown on the slide.
Average diluted shares outstanding in the quarter were 117 million down sticks, and a half million from last year.
We repurchased 1.4 million shares in the quarter at a cost of $224.9 million.
The full year fiscal 19 repurchases totaled $1 billion.
At September 30, we had about 1.1 billion remaining under existing share repurchase authorizations.
Slide six provides key financial information for full year 2019.
After a good start to the fiscal year, our rates of organic growth slowed in the second half as a result, as a weakening macro environments, particularly for industrial companies.
Organic growth for the year was 2.8%.
Bleak covered most of what is on this slide so we'll just provide a few additional comments.
Growth in segment margin and adjusted EPS was mainly due to higher organic sales.
The full year adjusted effective tax rate of 17.9% reflects the full year benefits of U.S. tax reform path during our fiscal 2018.
We had another year of 100%, they're more free cash flow conversion.
And we turn invested capital remained above our target of 20%.
The year over year reduction in we'd done return on invested capital reflects the mark to market adjustment of our investment in PTC.
Turning to terrorist I'd like to recognize the great work done by many of our colleagues.
We neutralize the impact through supply chain actions, including negotiations with vendors and targeted price increases on affected products.
Slide seven provides us the open margin performance overview of our two operating segments.
Architecture and software organic sales were up 2.3% in the quarter segment margin of 26.2% was down 190 basis points compared to the same period last year, mainly due to restructuring charges and lower volume leverage affecting this segment.
Control products and solutions organic growth was 0.7%.
Our product businesses in this segment were about flat year over year, and our solutions and services businesses were up about 1%.
Segment operating margin expanded 40 basis points, mainly as a result of good margins in our solutions business.
Restructuring charge was about a one point headwind to segment margin.
The book to Bill performance in our solutions and services businesses in the quarter was 0.93, and our backlog for solutions and services was up about 1% compared to last year.
This takes us through slide eight.
As Blake mentioned, we're expecting sales is about $7 billion in fiscal 2000.
We expect organic sales growth to be in a range of minus one and a half two plus 1.5% and flat at the midpoint of our range.
These sensors <unk> and EMEA dechy inorganic investments both of which closed in early October are expected to contribute approximately four points of revenue growth.
And we expect the headwind from currency about 50 basis points consistent with currency rate forecast for the next 12 months.
We expect segment operating margins to be approximately 21.5%, excluding the impact of sense. Yeah, We expect segment margins to be about flat year over year.
We believe the full year adjusted effective tax rate will be about 16%, which includes a 200 basis points discrete tax benefits from sense yeah.
Our underlying adjusted effective tax rate is expected to be about 18%. This famous fiscal 19.
Our adjusted EPS guidance ranges 870 to 90 10.
And the mid point at the midpoint. This represents about 3% of adjusted EPS growth on about three and half percent higher reported sales.
A few additional items about fiscal 20.
Corporate and that is expected to be about $100 million.
Net interest expense is also expected to be about $100 million.
We're dialing in about $400 million of share repurchases and assume average diluted shares outstanding of about 160 million shares.
We will share more details with you on our capital deployment and capital structure plans at our Investor Day next week.
And finally, we expect full year 2020 free cash flow conversion.
About 100% of adjusted income this includes $160 million capital expenditures.
From a recalibration point of view.
We expect first half revenues to be down low single digits compared to fiscal 19, followed by a stronger second half mainly due to easing comps.
The next slide nine provides an adjusted EPS walk from fiscal 19 to fiscal 20 guidance midpoint.
Going from left to right.
Core performance contributes about 20 cents.
We benefit from the savings generated from the fiscal 19 restructuring charge.
About 15 million of the 40 million savings is dropping to the bottom line.
Fiscal 2000 also benefits from the absence of the fiscal 19 restructuring charge and incentive compensation at the midpoint of our fiscal 2000 guidance is a bit lower than the prior year.
We expect sense, yet to contribute about five cents of adjusted EPS.
Within that the benefit of the discrete tax item I referred to earlier and incremental earnings are partially offset by nonrecurring setup costs than transaction fees.
As well as intangibles and non controlling interest adjustments.
Cynthia is expected to have an EBITDA margin profile of about 20%.
It will be closer to low teens in fiscal 20, given nonrecurring set up costs.
Net interest expense operating pension expense and currency are all expected to be headwinds.
Net interest expense is expected to be higher as a result of the capital deployment activities in fiscal 19, and those plan for fiscal 2000.
The lower interest rate environment is increasing our operating pension expense.
And currency forecast project, a stronger us dollar.
Finally, a lower share count is expected to contribute about 25 cents to adjusted EPS.
In summary.
The net impact of sense, yet is about neutral year over year, and we are offsetting pension and currency headwinds with productivity and the benefit of or lower share count to deliver adjusted EPS growth.
So with that I'll turn it back over to you Blake. Thanks.
Thanks, Patrick before we move to culinary I want to make some additional remarks.
In fiscal 2019, we executed well and made good progress in our long term initiatives.
Looking to fiscal Twond than you have another exciting year ahead of US we will continue to provide new value with the connected enterprise.
Which gives us more ways to win.
As a pure play our entire focuses on helping industrial companies and their people be more productive and sustainable.
We have no competing priorities and our relentless focus allows us to grow revenue and efficiently deploy our resources to deliver high margins and increased earnings.
Our strategy also generate strong sustainable cash flow. So we will continue to direct to value creating opportunities. On example, asencio our joint venture with Schlumberger said.
Subsea officially opened for business on October Onest and is off to a great start.
This joint venture is positioned to be the most innovative provider a process automation measurement and I are t. solutions to the oil and gas industry and we're very excited by initial customer reception in its first month of operation. We have already secured several large project wins from around.
The world as oil and gas customers look to drive additional operating efficiency.
In addition, we announced the acquisition of MBS Tech last month, which augments our delivery capabilities for information solutions and connected services implementations, particularly in the automotive and life Sciences industries.
As we look ahead, our acquisition pipeline continues to be very robust.
Our key areas of focus or inorganic investments remain information solutions and connected services.
Process expertise and market access in EMEA and Asia.
Well the size amount and timing of deals can never be predicted with certainty. We continue to target a point or more of annual growth from acquisitions in fiscal 2020, we will exceed that goal.
Turning now to slides 10 and 11.
We're making some changes to the way we segment our served industries going forward, we'll be focusing or commentary on our performance in discrete hybrid and process industries and we'll continue to provide color on individual end markets like food and beverage and automotive.
Slide 12 provides the end market growth assumptions that aligned to the midpoint of our fiscal 20.
Organic revenue guidance.
This industry segmentation more effectively reflects our performance and progress we're making in executing our strategy.
For those of you coming to our Investor Day next week I look forward to seeing you there as usual, we will hold investor day and automation fair our main customer event, which is in Chicago This year.
Customers from around the World, we'll see how we are bringing the connected enterprise to life.
We will showcase our innovation and that of our partners I won't be an especially important event. We're on track for this to be our biggest and most exciting automation fair yet.
Finally, I'd like to thank each of our employees and partners for their efforts to bring the connected enterprise to live within Rockwell and at our customers I'm, especially grateful for the way our employees are embracing change and demonstrating our company's values every day.
We are truly converging into you know TV and have added new talent at all levels of the organization, who are contributing to the innovation will be featuring at automation fair.
With that let's turn the call over to just go to begin culinary Jessica.
Before we start the Q in any I just want to say that we would like to get as many of you as possible. So please limit yourself to one question on a quick follow up. Thank you Marcello, let's take our first question.
Your first question comes from the line of Scott Davis Smelling Research your line is open.
Hi, good morning, like Patrick and Jessica.
Morning morning warning.
Thanks for the update in the new segmentation seems to make a lot of sense too but.
I just want to talk a little bit about China, I mean, China has been a pretty volatile market I think some your competitors have seen results meaningfully worse than yours, and so you're doing reasonably well but.
What's the visibility that you do you think you have into 2020 I mean is just some of these infrastructure projects fall off and then they need to be replaced by other things more substantive or there other infrastructure projects to that come in right. After him and we just give us a lot and give it a color on that on on China.
Yes, so Scott from from a broad sense I mean, China is obviously, the world's largest manufacturing economy, and we have low share in China and so we are relatively less impacted by the ups and downs of you know there they're volatility.
On the surface because there's so much more that we can pick up we serve a broad range of the industries and there's a lot of infrastructure to be built in China. So we expect that to to continue but also importantly.
A lot of the spend in China is on the information solutions and connected services.
Drawing insights from the basic automation and Thats relatively less.
Impacted by Capex spending thats more operational spending and we expect to continue to grow there. So you know the long term trends are still positive in China.
Okay and.
You guys had mentioned anything about the Gen strike and your comments was there any negative impacts this quarter or should we built in for.
First quarter 2020.
Scott there was a little bit of a delay in MRO spend from GM, but but not a lot and we expect that to recover.
Okay got it. Thank you. So you guys next week.
Hi, guys got so you then.
Your next question comes from line of John and from Gordon Haskett. Your line is open.
Good morning, everybody.
Hey, John Good morning, Hi, guys.
Hey, Blake in the Guy like Patrick in the guide process, you're expecting to sort of softened to flat.
How would that translate into sequential trends and maybe you could sort of give us a sense of what's happening kind of regionally in process and I make the comments in the context that Honeywell and Emerson did pretty good results actually in process pretty good project activity in a in Asia Pac and so forth what what do you guys thing.
Well I'll make a couple of comments and then Patrick will add to that end up in North America, we continued to see strength and oil and gas mining and pulp and paper.
We we do see some moderation in the coming year I should point out that when we talk about oil and gas that's excluding sense here, which we expect as we've talked about before to grow double digits, which is you know a smaller part of the overall for oil and gas market.
Because primarily at the digital oil field, which we think we'll continue to grow double digits and we obviously expect to grow faster than the market in terms of the the sequential performance.
Patrick to make some comments there we don't expect big swings by by quarter John .
From process point of view.
And we didn't process.
We didn't process.
Again I.
I'd say relatively stable than Patrick is that how you're thinking about it.
Thats, what we believe yes.
Okay.
I'm, sorry, you were saying something.
No.
Okay, and then just how does that in that sort of.
One of this discussion well and gas how are you guys actually putting up such strong results do you think in oil and gas, especially on the land side I mean.
Appears depending on sort of their activity interactions with oil and gas you're seeing not insignificant pressures there, but you guys are not seeing that is that specific program share wins, what do you think is going on here.
Yes, we do think in particularly with sense here, we think that Theres big opportunity to continue to gain share remember a lot of our participation is with more exposure to opex. So our exposure is not as much in drilling new wells as in getting a fee.
Mission see from the wells once they've started producing and so they're not going to be as affected by volatile capex spend.
And then again with a with sensitive we think we have a opportunity to meaningfully accelerate.
Our games in oil and gas, particularly onshore upstream.
Just last like how would you characterize your level of conservatism in this guide I think it caught a number of US I mean, your credit off guard based on how sort of strong. It is if you go back a year ago right. You are guiding for a midpoint of 95 and you did 867, so maybe you could.
You know people sort of view Rockwell is a conservative company, particularly guidance your mr. guidance last year.
How do you sort of put in the context the conservatism.
And what makes you sort of comfortable but this ranges.
So going to bring hence potentially be a repeat of fiscal 19.
Yes, I mean, John I think fundamentally Rockwell automation remain say, a conservative company, but there's a lot of uncertainty out there and we're balancing that with what we know within our own four walls were producing and what we're hearing from customers around the world.
In terms of their plans and the ability that we have to participate there. So we think that the the flat organic growth is an appropriate balance between those two broad opposing forces.
Got it thanks very much we'll see in a week.
So you said John .
Next question comes from the line of Jeff Sprague from vertical research. Your line is open.
Thank you good morning, everyone.
Hey, Jeff Good morning.
Good morning, and just a couple of premiered please.
First just tend to level set on kind of the exit rate here on 2019.
Did the dialed back in a investment spend and compensation.
In the fourth quarter.
Occur as you as you suggested in kind of what is the exit rate on those items.
Yes, so Jeff from a spend point of view, we ended the year, where we expected to be a little less than a low less than 2% year over year. The fourth quarter was that was down low compared to last year again as expected from an incentive comp point of view compared to what we shared with you in a in July incentive comp.
<unk> expense was hired in fiscal <unk>.
19, given that we outperformed our expectations and so the.
The expense in fiscal 19 was closer to 75 million compared to the 60 million that I shared with you in July .
Okay, and then you're suggesting out from that 75, you are stepping down modestly in 2020, correct, yes at the midpoint about $10 million.
Yeah Okay.
Okay.
And.
Just looking at Latin America, a little bit more closely obviously of extraordinarily strong quarter.
How do you see that playing out over the balance of the year was there anything in particular unusual in the quarter there.
Actually Latin America was.
The strong in some of the consumer verticals, but particularly oil and gas was very strong mining pulp and paper water wastewater all up.
Double digits in the quarter, we do expect some of that's a moderate in.
In fiscal 20, you may recall, Jeff will set a large codelco mining project in Latin America. So we'll have some tough comps.
Next year and so for next year, we expect that growth in Latin America to moderate a bit I would also say that.
Earlier in the year, we saw continued growth from Brazil, and and that continued to have positive growth through the year, but Mexico picked up but partway through the year and we saw strong contribution as we exited from Mexico, which has good exposure to a broad range of the industries that we serve its obviously oil.
Oil and gas, but it's it's a food and beverage automotive really across the board.
And just one last one to clarify the the first half down low single digit that's an organic number or reported number.
There is organic Jeff.
Alright, thank you.
Thank you. Thanks see you soon.
Absolutely.
Your next question comes from a line of Julian Mitchell from Barclays. Your line is open.
Hi, Good morning morning wondering maybe just good morning, I'm just wanted to circle back on this notion of perhaps conservatism in the revenue guide and how you're thinking about that sales guide because I guess three months ago.
Guided organic sales could be down low to mid single digit in Q4, you just printed slight growth.
Now you're guiding for the first fiscal hawks to be down.
Low single digits.
So just trying to think universe three months ago do.
Genuinely feel worse about the macro environments Jeeves either Q4 performance is just a bit of a lit bit.
Because of some movements in the automotive sector.
Maybe just trying to characterize why you're guiding set for a decline now if it's just because of low visibility or there is genuinely something you've seen that deteriorated in the last month.
You know I think Theres affairs.
As we talked about before Theres a balance between what is undeniably continued uncertainty we continued to see decelerating macro indicators industrial production and so on.
But then on the other side, we were very optimistic about our ability to gain share regardless of what those numbers are but.
We are informed by to some extend what we saw in the fourth quarter, but also what we're expecting the year ahead to show backlog.
A little bit up, but not to but not a tremendous amount and we think it's a balanced outlook on fiscal 20, Julian I would just add that we've had one quarter of better than expected sales performance in Q4 after two quarters, where we had weaker performance than we expected in the macro indicators that we track the am I in IP.
We are still weakening.
And so we think that we're balancing.
All of these things out.
I'd also say thank God, we were happy with the ability to have inorganic growth contributing to the year. It it fits very well with our strategy and it's a meaningful contribution contribution to our reported growth in in the coming here.
That's helpful. Then thanks also for the color in the slides and my second question would be.
On the segment margin guidance. So I think its guided to be flat extend sia in 2020 for the year was a hole.
On the segment margin line you know that's despite a flattish sales not down a lower restructuring costs and a net restructuring savings of 15 million coming in so.
Maybe just beyond incentive comp talk about any other moving parts in that margin Bridge for example, it looks as if your dialing in a mix headwind, perhaps because the screen is losing as a shared with the total pie.
Is that does that affect summary, or is there something else moving around and margins in 2020 I think the way you can.
I think about it is on the margin side is there is there is no organic growth, but there is some pricing.
That being realized so there is some uptick there as you mentioned mix is somewhat of the Oh. The headwind next year then the restructuring and then bonus expense clearly is a little bit of a tailwind, but our spend next year. Our overall spend increases not flat actually we were investing.
Some next year and so our spend is up low single digits, a couple of points next year little bit less than that and so the net of that is flat margins so tailwind from from price.
Headwinds from.
As I mentioned some of the reinvestment that we're doing in mix.
[noise].
Your next question comes from line of Steve Tusa from JP Morgan Your line is open.
Hey, guys good morning.
Morning.
So given the kind of better than expected performance in the quarter I totally knowledge that your businesses is the majority of it vast majority is short cycle in nature.
How much kind of came towards the end of the quarter and then you know could extend you have a backlog or front log how much was like you know more of that kind of the quickest turn short cycle. If you will.
Yes, Steve Patrick here actually we the sales improved through the quarter September was our strongest month, but that is not unusual for September .
Right so.
Let's see improvement through the month and as always particularly September .
Tends to be the strongest amongst the quarter.
So you are already kind of you know you saw the trends through August and Youre already kind of at the high end or above kind of the range at that stage the game.
No September was the strong month.
Okay, what was where there any targeted.
Pricing measures with regards to any of the business projects et cetera, where you pushed a little harder to get the install on a on a price basis.
In the core no I wouldn't say I wouldn't say that Steve at all our annual price increase I went into effect in August two if we ever see a little bump in volume due to due to price like pre buys that.
Nothing unusual.
There at all and we don't okay.
Right price to get volume.
Got it what is your price expectation for 20, now what kind of both what's embedded OTA points. These last year, we did a little bit less than two points, including the impact of pricing ASO associated with the tariffs and so for fiscal 2000, we're targeting a little less than a point about a point on it.
Great all right. Thanks, guys I appreciate the color as always thank you. Thank you have so you said.
Your next question comes from the line of Richard Eastman from Baird. Your line is open.
Yes, good morning.
Patrick could you just speak to the four points of of inorganic growth that you forecast for 2020 could you split that between sense, you and mastec.
Little bit spot to 75 million in revenue and this is there any seasonality to think about with the with sense you.
The the we can think about it is the vast majority of that four points, meaning more than a well more than three points of comes from Semtech closer to 3.5 points.
What's the most of that comes off from a Cynthia and then in a in seasonality.
I would probably say a little bit more second half weighted than first half weighted.
Also because we're expecting to deliver revenue synergies as the result of of the joint venture.
So obviously starting October 1st reporting all the sales, but we expect expect sales to accelerate incense yet given the synergies that we expect of the combined offering.
And that is captured in the Threed call, a three and a half points that's captured in there the synergies.
Absolutely yes.
On a go forward basis, not on I don't expect meaningful calendarization of the results of either of those act of either of those investments.
And then bleak could you just spend a second just around the dynamics I think would you mentioned a the PTC kind of wins the dynamic there that I don't know if you set a maturity or many coming on competitor platforms, just kind of mentioned the sales strategy around that and end to end and if that you know.
This is going to provide some leverage you're down the road onto the hardware Saudi your business.
Well.
Yes, so happy to so for many years, our fundamental play with providing an integrated control architecture to our customers. So typically our logics control was at the heart of that and we would have operator interface smart products like drives and serve those and so on that will connect easier.
Other than anybody else in that architecture.
On top of that we now have greater capacity than we ever had to add information processing software that allows you to take the data from that control and to turn it into insights to drive additional productivity and it works great. When it's sitting on top of a Rockwell can.
Troll architecture, but it doesn't have to with takes data very well from our competitors as well and what we're finding really to our delight is that almost half of the sales are putting that software on top of someone else's control system and so it allows us to go into a brownfield.
They're not ready to change out there controllers, yet, but it gives us a reason for being there and to add value into their operation. So it gives us more ways to win more customers to have a reason for being in their facility talking about their business problems.
Great. Thank you.
Thanks Ray Thanks, Rick.
Your next question comes from the line of Josh.
From Morgan Stanley Your line is open.
Hi, good morning, everyone.
Hey, Josh.
Just want to kind of stepped back a little bit Blake. If you don't mind I think looking pack over the last couple of years, they're pulling some time when I think people would have said gosh old old Rockwell if you want to call. It that might have grown a little faster and now with this quarter I think people would've assumed pay be probably little bit more cyclicality then.
What you guys put up so it is the case that because of some of these information services pushes and maybe some less cyclical end markets like food and beverage.
Which is a you know obviously your largest end market.
Is it that the cyclicality is coming down.
Or do you think that kind of cycle the cycle growth accelerates because I guess they are two different elements I guess, what's the objective there.
We're going after both Josh and you know as we've talked before and we'll talk more next week in detail the ways that we're increasing our resilience to volatility involves the things that you've mentioned, it's more recurring revenue in the form of subscriptions and as a service business models from.
Patient solutions and connected services, so we get a double benefit there it's growing double digits, but there's also a very high component of that that's recurring in nature, we're also decreasing or volatility by greater exposure to process industries, which are typically later cycle than our traditional.
Discrete areas and then lifecycle services being able to provide you know ongoing services. After commissioning the initial projects and we're doing that with more urgency than I'd say ever before and then finally some of the inorganic investments as we talked about in period of low or no.
Organic growth, it's nice to have a four points are more from a from inorganic growth. So what's going to address both it's early we got a lot of work yet to do but I'm very happy with the results so far.
Understood and then just a follow up question around sense, obviously that five cents in guidance has a lot of moving pieces. If you wouldn't mind just kind of snapping. The line. If we were one year forward and all the noise comes out whether its tax or.
Some of that kind of onetime costs, what would that five cents look like.
Okay.
Patrick here a D. The five cents, if I look at what's in there or thereabouts.
Five cents of fees instead of costs that are in there and so we would expect that to go away.
And the way we're thinking about it internally is asencio is expected to be a 20% EBITDA business.
This year overall, the adjusted EPS impact, but neutral we expect that to start to contribute to adjusted EPS next year from a free cash flow point of view, it's contributing to us in fiscal 2000.
Got it but there is also call it 20 cents attacks in there as well right. So.
Yes, Thanks, my isn't where for the fees and.
Yes, we can think about the text. The 20 cents is the overall tax impact the tax impact to roughly automation shareowners is only 53% of that so within the five cents is only 11 cents of tax you have to adjust out the part that does not.
Go through Rockwell automation shareowners and maybe this is an opportunity to provide a little bit more color on the five cents a sense you on the bridge.
Within that are obviously incremental earnings associated with with sense Sia adjusted for the part of the earnings that's no longer go through Rockwell automation shareowners. So the incremental earnings are little bit over five cents say between five and 10 cents.
We just talked about the tax benefit that's about a.
About 11 cents benefit in fiscal 2000.
But offsetting that part intangibles is about 10 cents and then the fees instead of costs that are about five cents as I mentioned, so those are different moving pieces. There in essence that tax benefit is offset by a by intangibles, they're basically to say.
Got it that's helpful color. Thanks for that see all next week.
So you started.
Next question comes on line of Andrew Obin from Bank of America. Your line is open.
Good morning. This is David Ridley Lane on for Andrew.
What gives you confidence that automotive will be flattish in 2020, and how important are electric vehicles within your automotive trend.
Yes. So so we saw starting with Q4, we saw some recovery in MRO. We also saw continued spend from some of the projects that we've been talking about in internal combustion vehicles, where we have line of sight to those projects and that was a meaningful part of our per.
Formats in Q4, but.
Really bright part of the picture is the continuing importance of electric vehicle drive trains and for instance in Asia, We had done some a good project activity at Oems.
In electric vehicle powertrain, and we expect that to be a larger and larger part of our overall powertrain business going forward as lot of manufacturers are going straight from internal combustion engines to fully be it doesn't look like there is going to be as much demand is maybe.
Was first thought for hybrid people are going to total HCV and we're very well positioned to play in that because it's less attractive manufacturing processes read CMC and metal cutting.
It's a really good fit for our current portfolio when we're winning some important competitive business there and it's growing fast it grew strongly in the fourth quarter and we expected to continue to grow next year.
And then just following up on a comment that you had around digital transformation project no that a lot of your clients of a set of offices and dedicated staff to the.
Roughly what portion would you say of your sales are driven by Opex the budgets today.
This is capex.
Okay.
Yes, we've we've estimated that we think about 65% of our sales are mostly driven by Catholics the balance opex.
And.
You can think about some of the information solutions and connected services. Some of these sales we think will come more out of Opex, but just in Capex budgets, that's right a lot of times the digital transformation that our customers are going through our on top of existing you know capital intensive asset.
In the field. So the lines are out there they've already got the basic automation in place that came with the original equipment, but now they're looking to drive additional productivity out of those existing assets and it can be meaningful double digit increases and OEE and other metrics of productivity by adding the soft.
Were to be able to analyze what's going on on the line, but often those expenditures can be made out of opex and not capex.
Thank you very much.
Thank you thanks, David.
Your next question comes from the line Robert Mccarthy from Stephens. Your line is open.
Can you hear me.
We can Rob good morning.
Good morning, two questions.
One that is a little different is can you talk about.
Geography, where you're gaining share.
Because it's clear from the growth rates were seeing abroad that youre gaining share in talking with the key verticals, where you're doing that.
You know, we think Rob for for a long time hybrid has been a great a great place for us, it's where a lot of manufacturers are going and so when you think about the trend towards smaller but continuous process lines in life Sciences.
Where the control is tightly integrated with the software.
That's that's an area that we continue to have double digit performance and cuts just such a great fit for what we're doing and.
Powertrain for electric vehicles.
That is.
Another area that I, just mentioned that we have are very high readiness to serve.
And I'll tell you that there's some opportunities around the world, where we think that where we're gaining share in some of the installed base that might be a little bit older from competitive assistance. So GE for instance is an area, where we've had some nice wins in converting out some of that installed base.
Yes.
And could you just comment on the.
Share repurchase in the quarter and the average share price. If you already have and just any hints about 2020 aside from the 400 million a share repurchase kind of the state of play in the balance sheets.
Yes.
Robert Patrick here, the share repurchase were pretty.
Pretty much the same each quarter of a fiscal.
20, I don't have the average price we paid in.
In the fourth quarter here Handy I think it's going to come out later today, you'll see that in the indicate.
In terms of we purchased for next year again to 400 million, we expect that to be pretty stable.
Across the fourth quarters.
Congrats on a great quarter.
Thanks.
Thank you Barbara.
Your next question comes from the line of Joe Ritchie from Goldman Sachs. Your line is open.
Thanks, Good morning, everyone.
Morning joke.
Can you, maybe just touch on food and beverage a little bit a little bit more it it's switch from being slightly negative last quarter.
Slightly positive this quarter and obviously, you're expecting it to stay positive for for next year. So so any any other color around what's happening in that end market.
Sure you know food and beverage we continue to see some subdued capital spending across food and beverage on the other hand, it's one of the verticals that we're seeing particularly high investment across worldwide fleets and I O CIT, so they're going in and they're looking at bench.
Marketing.
Lines across their worldwide operations and finding ways to bring the lower.
Efficient lines up to higher levels of efficiency and the software being added on top of existing iron is is a good way to do it also interestingly packaging Oems in Europe picked up a bit for us in the quarter and while again, we need their watch how that.
He is out.
That contributed to some of the good performance in Europe , and some of the better than expected performance in food and beverage in general.
Hi interesting that's that's helpful color Blake and or maybe just a quick follow on on sense. Yeah. I know when you guys press release that last month.
Reference roughly $400 million, an annual revenue and now the expectation for for 2020 is closer to 230 to 240 million, what what am I am what's the disconnect between those two numbers. This is the 400 million dollar a longer term number or what it will what's the difference between the two oh.
Very good question. The way you can think about it is since yes overall revenues are expected to be over $400 million in fiscal 2000.
The 4% that we referred to is the part that is contributed by our by Schlumberger to the joint venture. The part that is contributed by Rockwell automation is already part of our sales so that 4%.
What we call inorganic growth only represents the contribution of Schlumberger.
Yes, so for the one year for fiscal 20, only it'll be the total contribution to the revenue will be split between organic and inorganic.
Got it that makes sense thanks, guys.
Not Baxter.
Operator, we'll take one more question.
Your last question comes from the line of Andrew couple lesson from Citi. Your line is open.
Hey, good morning, guys.
Hi, Andrew good morning, ending.
Thanks for fitting me and so bleak last quarter, you had said he's unexpected downtime your seem to last that long and several of your peers are talking about a more prolonged downturn years elsewhere relatively strong was your own execution, so how difficult it like in measuring the weakness you're seeing out there versus previous downturns, you mentioned youre concerned about.
The shopping Capex are you seeing we push out from projects versus what you expected, we generally seen projects forward, albeit slowly.
Yeah, we we did not see the same degree of project push outs in Q4 as we as we did in Q3 that being said.
You know the macro indicators.
Sharp deceleration in fiscal 20, and we need to see more than a good one quarter of.
Performance to draw a line between those points. So we remain cautious, but obviously, we're pleased with the better performance.
In in Q4, and again, our ability to compete and win for the business that is out there.
That's helpful and like I wanted to ask the auto question, maybe a different way you were thinking that auto could be down about 10% Fynineteen, obviously up mid single digit now and auto was strong result in Q4, we know you're projecting flat for its like 20, but are you seeing the core auto markets Steve.
Analyzing fashion than you expected and then could then could be PV projects that you talk about actually lead to some upside for that flat auto forecasting slide 20.
I think over a year.
Over a longer period of time by there's there's absolutely upside with E. B as you have.
So all of these companies the traditional allied brand owners as well as a new companies.
And they have to bring vehicles to market to get to revenue stream. So what we're working with them and all the ones have started a couple of years ago won't make it to the.
The finish line, but.
There's a lot of exciting innovation out there that we're participating in.
We're not expecting the industry as a whole two to turnaround were not expecting Saar counts to to jump back up but you know stabilization may be inappropriate word.
There.
Thanks, Blake Phoenix week.
Sealy said, Hey, let me quickly answered the question that Rob had Robin Q4, the average price we paid for our shares was $158 and for full year fiscal 19, the average share price. We paid was $165 so with that Jessica Thanks Patrick.
I think I'll turn it now over to Blake for a few final comment. Thanks, Jessica So just to summarize fiscal 2019 was a good year. We grew adjusted EPS, 7%. We grew our core platforms and information solutions and connected services continued to grow double digits. We also made some impact.
Foreign investments with this foundation, we're well positioned for the future and we look forward to seeing you all in Chicago next week.
Okay that concludes today's call. Thank you for joining huh.
This concludes today's conference call.
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