Q1 2020 Earnings Call
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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. If your question at the time, Please press star one.
At this time I'd like to turn the call over to Jessica Kourakos have Investor Relations Mr. Gracos. Please go ahead.
Good morning, Thank you for joining us for Rockwell Automations first quarter fiscal 2020 earnings release conference call with me today like morale, our chairman CEO and Patrick Goris, Our CFO . Our results were released earlier this morning, and the press release and charts had been posted to our website both both the punch.
Police and charts include and our today and our call today, we'll reference non-GAAP measures. Both the press release. Some charts include reconciliations of these non-GAAP measures a webcast of this call will be available at that website for replay for the next 30 days for your convenience a transcript of our prepared remarks, we'll 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.
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 our SEC filings, so with that I'll hand, the call over to Blake.
Thanks, Jessica and good morning, everyone. Thanks for joining us on the call today.
Please turn to page three Oh this slide deck.
I'll begin by saying that I'm pleased with our execution in the quarter in or start to the year.
Despite a tough manufacturing environment.
Revenue and earnings were slightly better than our expectations for Q1.
Total sales grew 3%, including over four points of contribution from inorganic investments primarily related to our sense see a joint venture.
Organic sales were down 1% compared to a strong quarter a year ago.
Backlog, however was up year over year as well as sequentially.
Organic sales performance continues to include market share gains in core platform.
For instance, independent heart motion control technology grew strong double digits for us in the core.
It is becoming a game changing solution across a broad range of industries in applications.
Information solutions in connected services or are you see yes for sure had another great quarter also grown strong double digits we.
We had notable wins in life sciences, food and beverage or burst MBS women's luxury goods, a significant Jimmy elsewhere in mining and our first ever augmented reality project in oil and gas.
Our broader and more differentiated portfolio gives us more ways to win in a wide variety of industries.
Clearly windows, where we are not the incumbent control Park.
Recurring revenue in the quarter grew double digits led by an increase in software subscriptions.
As I mentioned, our earnings performance was slightly better than expected.
Segment margins and adjusted bps include onetime items related to sense here as well as investments, we're making to increase our long term differentiation.
As we look ahead to the rest of the year, we're reaffirming our organic sales and adjusted EPS guidance for fiscal 2020.
Well there have been recent positive developments on global trade in the macro environment is showing signs of stabilization. It is still too early to see that impact on customer spending.
Let's now turn to slide four.
Go a little deeper into our vertical sales performance for the quarter.
Discrete and hybrid end market segments did look better than we expected this quarter well process was little weaker than we expected.
Within our discrete segment auto grew mid single digits largely related to higher program spend in North America Asia Pacific and stabilization in MRO, albeit at low levels.
This hard program spread was better than anticipated. The overall auto market is still relatively weak. We think it is premature to change our flat full year outlook for this vertical.
Semiconductor sales were notably better in all regions up high single digits.
Historically, our exposure to sami's has been largely in facilities management.
But we're also seeing new traction in material handling aiotv and cyber security applications.
Turning now to our hybrid market segment.
Beverage declined low single digits, reflecting some project delays however, given what we're hearing from customers and the activity we have seen it packaging. The Oems, we still believe food and beverage will grow low single digits for the year.
In life Sciences, we had another solid quarter with sales growing both year over here as well sequentially. As we've said before this is an industry, where our scalable architecture and our differentiation in our yes see yes are well aligned in paying dividends.
Our process market segment declined slightly.
Especially in chemicals and pulp and paper.
Organically oil and gas grew mid single digits. This quarter and we continue to expect low single digit sales performance for the year.
Since year, which had a good start to the year is expected to grow double digits based on its differentiation in the fast growing digital oilfield segment of this vertical.
Turning to slide five.
And our regional sales performance in the quarter.
North America was down 3% organically, reflecting weak manufacturing environment.
The weakness in process industries was partially offset by auto up double digits.
And strength in semiconductor.
EMEA was up 2% in the quarter led by oil and gas life Sciences entire.
Asia Pacific grew by 6% led by strong demand for oil and gas life Sciences and auto.
Auto was up over 10% in the region.
And included strong getting said he be battery manufacturers, where our readiness to service pie.
Our portfolio is demonstrating how well positioned we are to benefit from the transition to easy.
Latin America sales were down 1%.
Largely due to a tough comparison from last year and weaker performance in automotive in mine.
Oh, no make a few additional comments on her other accomplishments in the quarter.
Our annual automation fair, which held last November in Chicago, and I'm proud to say that we reached a new all time attendance record.
Customers are focusing on outcomes and sharply increased sales leads from the event indicate we're demonstrating our increased value for a wide variety of industries.
We also had record attendance at our Investor day in November .
There, we highlighted our execution plans to accelerate profitable long term growth well at the same time building, even greater resiliency in our business through higher recurring revenue streams and a leaner more flexible cost structure.
We also have exciting new partners at the event, including Schlumberger.
Censure and Ansys.
Which is a game changing technology partner for simulation and digital when applications.
We are seeing or partnerships contribute to many strategic wins.
And we had some great wins this quarter, including in life Sciences across all major geographies.
In Europe , we signed a major agreement with Roche Roche will be implementing our farmer sweet Mds platform across 16 plans and their pharma and diagnostics divisions.
In North America, we entered into a new multi site multiyear agreement with a major pharmaceutical producer. They selected factory talk innovation suite to drive their digital transformation program for connected plant and supply chain.
Provide a common platform to drive real time visibility of analytics to the operator plant in enterprise levels.
Predict future events to avoid unplanned downtime and improve energy efficiency.
And accelerate knowledge transfer and improve ease of use.
Once implemented this solution will eliminate hundreds of overlapping edge solutions, resulting in significant operational savings.
In China routine pharma group, a large pharmaceutical company chose Rockwell to transform their factories to become smarter and more predictive.
While at the same time, assisting them to oversee quality management and ensuring that they comply with regulatory requirements.
From regulatory compliance to safety and energy efficiency Rockwell is becoming an increasingly important partner of our customers as Ci initiatives.
In addition to what we're doing in our own facilities everything we do for customers is about increasing efficiency, reducing energy usage, improving worker safety and ensuring regulatory compliance all of which lowers business risk and it's good for the environment.
Now turning to slide six let's talk a little more about our inorganic investments, which are becoming an increasingly important complement to our long term organic growth strategy.
Starting with censorship, which was our first quarter, including sense you as a fully operational joint venture consolidated in our results and I'm very pleased with its performance in Q1.
Operationally since he is top line grew double digits with strong traction at Marquis oil and gas customers around the world.
Our sales teams have been fully integrated and we're looking forward to the launch of new solutions and products that will contribute to the double digit sales performance. We expect this year.
We also announced the acquisition of MBS care at the beginning of Q1.
He has tech isn't industrial software consulting and delivery services company based in India, and they have already been instrumental in winning key business for us in the quarter.
Earlier this month, we announced the acquisition of Avnet data security Cyber security provider based in Israel with over 20 years of experience.
Cyber security is one of the fastest growing parts of our services business. The extensive knowledge and experience of the Avnet team will support our companys strategic objective to achieve double digit growth in information solutions and connected services by expanding our IPO T. cyber.
And network expertise globally.
Plus this acquisition will establish a global cyber security center of excellence for Us in EMEA.
This includes a remote managed service center and expands our portfolio capabilities, including a full training curriculum and labs.
As you can see we're actively deploying capital to advance our strategic priorities to accelerate share gains in our core business.
Continue growing double digits and I SCS.
Grow domain expertise in process and accelerate our market access in Europe , and Asia, we're focused on driving value with more intensity than ever before.
Let me now I'll turn it over to Patrick who will elaborate on our first quarter financial performance in fiscal 2020 outlook in his remarks Patrick.
Thank you Blake and good morning, everyone.
I'll start on slide seven first quarter key financial information.
First quarter reported sales were up 2.6% year over year as expected organic sales were down 1%.
Acquisitions, which mainly represent the impact of Cynthia contributed 4.5 points of growth.
Better than expected.
Currency translation decreased sales by 0.9 points higher headwinds than we expected.
Segment operating margin was 20.1%.
HM 270 basis points compared to last year.
About half of the year over year decrease relates to the impact of acquisitions and related onetime costs, primarily sensient dealer half of the year over year margin decreased is about evenly split between higher investment spending and unfavorable mix.
General corporate net expense of 32.8 million was up 11 million compared to last year. The increases due to the impact of mark to market adjustments related to our deferred and nonqualified compensation plans.
And since you have related transaction fees.
The adjusted effective tax rate for the quarter was 7.9% compared to 18.7% last year.
About half of the reduction in the year over year tax rate is due to a sense, yet 19 million dollar onetime tax benefit.
The remainder is due to other discrete items, primarily tax benefits from option exercises.
Adjusted EPS of $2, an 11 cents was a bit better than we expected and down 10 cents compared to the first quarter of last year, a decrease of 5%.
The year over year decreased in adjusted EPS is primarily due to lower organic sales, particularly in some of our product businesses leading to unfavorable mix.
And higher investment spending.
Partially offsetting that is the lower tax rate, excluding the sense yet impacts.
And the net benefit of a lower share count and higher net interest expense.
The net year over year adjusted EPS contribution of sensing the quarter was one penny.
The sense yet contribution of one penny includes the seven cents larger than expected headwinds related to onetime items.
Free cash flow was $194 million in the quarter, what about 80% of adjusted income.
During the quarter, we paid the annual bonus that our employees earned in fiscal 19.
A few additional items not shown on the slide.
For adjusted EPS.
It is diluted shares outstanding in the quarter were 116.6 million down 4.9 million or about 4% from last year.
We repurchased about half a million shares in the quarter at a cost of $100 million.
This is in line with our full year target of about $400 million at December 31st we had $1 billion remaining under our share repurchase authorization.
Slide eight provides the sales and margin performance overview of our operating segments.
The architecture and software segment had modest organic growth in the quarter segment margin was very strong at 29.8% and a bit lower than the Rick market margin last year, mainly due to increased investment spending.
Organic sales of the control products and solutions segment decreased 2.5%.
Inorganic investments increased sales by 8.2% compared to last year since the accounts for almost all of the inorganic growth.
Organic sales for our solutions and services businesses. In this segment was down about half a point year over year.
The higher margin product businesses in this segment were down about 5% on an organic basis.
First quarter organic book to Bill performance for solutions and services businesses was 1.12 typical for a first quarter.
Operating margin for this segment of 12.4% was down 310 basis points compared to Q1 last year, primarily due to sense you a onetime items.
Lower organic sales and unfavorable mix.
Segment margin, excluding the year over year impact of Cynthia was about 14%.
In the appendix you will find two slides with a more detailed overview of the year over year incremental impact of Cynthia for Q1 and for full year fiscal 2020 outlook.
It is the same format, we provided to you at our Investor day.
As I mentioned earlier from an operational viewpoint, Cynthia sales and earnings would a bit better than we expected.
Nonrecurring items, including the tax benefit were seven cents worse than we expected in the first quarter, primarily due to larger purchase accounting adjustments and the lower tax benefit.
For full year fiscal 2020, we now expect the net year over year infective sense, yet to be about neutral to adjusted EPS.
The financial framework, we shared with you at Investor Day last November remains valid with sense yet.
We continue to target, 30% to 35% earnings conversion for Rockwell, assuming mid single digit organic sales growth.
This takes us to slide nine guidance.
Our outlook for fiscal 2020 remains unchanged compared to our November guidance.
We are maintaining our sales growth and adjusted EPS guidance ranges.
For adjusted EPS in essence compared to prior guidance small headwinds due to sense your onetime items currency and the higher share counts are offset by somewhat by a somewhat lower adjusted effective tax rate.
The lower tax rate is the result of the higher excess income tax benefit related to share based compensation.
General corporate net is now expected to be closer to $105 million.
Purchase accounting amortization expense for the full year is expected to be about $40 million up 20 million compared to last year.
Net interest expense for fiscal 2020 is still expected to be about $100 million.
We expect non controlling interest to be about $10 million or a 10 cents charge to adjusted EPS.
Average diluted share count is now expected to be $116.5 million for fiscal 2020, and our adjusted effective tax rate is expected to be closer to 15.5%, which includes about 150 basis point onetime benefit related to sense yet.
We continued to project free cash flow conversion of about 100% of adjusted income.
Finally, we continue to project the weaker first half of the year, we'd organic sales down low single digits, followed by a stronger second half of the year and as is typical for US we expect weaker second quarter adjusted EPS performance versus the first quarter.
With that I'll hand, it to Jessica at the start QNX.
Thanks, Patrick before we start the Kunaev I just want to say that we would like to get as many of you and as possible. So please limit yourself to one question and a quick follow up thank you.
Sharon, let's take our first question.
If you like to ask a question. Please press star one our first question comes from Julian Mitchell with Barclays.
Hey, good morning, everyone. This is Alan for Julian.
I'm wondering maybe can we start with diving into backlog trends can you maybe just provide some color on what drove the sequential rise in the year over year rise and then maybe within that.
Any more details on solutions and services.
Yes, I'm unsure how much more color. We can provide accepted as we mentioned backlogs are up both year over year and sequentially and I would say it was broad based including in North America.
Got it. Thank you and then you know at the end market level kind of on the mid single digit growth for oil and gas.
With this on kind of company specific drivers maybe share gains or are you seeing kind of you know more positives in the end market as a whole.
On the on the organic side.
We're obviously expand.
Hi.
Flat.
Flattish capital spending.
And we do see a slower.
As a slowing of the oil and gas organically. However on the sense see a joint venture because the majority of that is focused on producing wells and not drilling new wells, we see it less susceptible to capex reductions.
And that gives us confidence based on our first quarter results and the outlook that double digits in that part of our overall oil and gas business can take share and grow fast.
Perfect. Thank you.
Thank you next question comes from John inch with Gordon Haskett.
Hi, good morning, as Karen Lau dialing in for John .
Good morning, Karen.
Good morning. So thanks. Thank you for all the details on Gensia in the Appendix I was just wondering in terms of the call margins. It looks like you know you guys were making 18% call margins, excluding the one onetime items in the first quarter.
Then the for you you're guiding to around 14% margins.
Well what is that what is the what is the driver of that.
Yes, we can think about a Karen what what you see in the appendix as the year over year incremental.
Just a sense yet it's the impact of the contribution of Schlumberger, which was higher margin business than than what we come to muted.
Okay, and so therefore, when when we talked about overall margin profile of of sense. Yes. We do expect this to be a 20% EBITDA business going forward for this year, we think it will be closer to mid teens.
Okay, but is it I mean, I am I reading correctly that the first quarter.
Results for better than what you're expecting for the full year or is that thanks for the piece that was contributed by Schlumberger and the synergy the answer that is yes, I would also the dollar spend increased incentive because we're making some investments in technology and commercial resources they were little bit lighter in the first quarter than we expected.
That's why you see that margin in Q1 being a little bit better as well then what you see for the full year outlook.
Got it and then just quickly can you remind as to whats your expectation for investment spending for the year and kind of the cadence throughout the year.
Yes, the we can think about a Karen is consistent with what I mentioned to you in a in November we think the year over year increase will be a little bit less than 2% and it will be first path.
Weighted.
And so we expect it to be more to net in the first half and into second half the increase year over year will be minimal in terms of year over year spent.
Got it thank you.
Thank you Karen.
Next question comes from Robert Mccarthy with Stephens.
Hi, it's a Robert Mccarthy on for Robert Mccarthy.
[laughter], how you doing so in any event.
Just one of the first I mean, obviously listen it's very dynamic situation right now you've had the trade deal you've had.
We're encouraging quarter, but obviously you've had this.
Rising potential the Pandemics I don't want to get too much of a Debbie downer, but how do you think about kind of your supply chain in China. How do you think about kind of the trends and spillover I know, it's very early and we don't have a lot of information yet, but could you just give us some some factors to think about what's.
Sensitivities, you're looking at terms of exposures as you manage this situation.
Sure well first of all Robby overwhelming our first priority for US is to ensure that would look at after our people.
In the region and.
So we're paying close attention to that to make sure that.
We can reduce to the very extent possible their exposure.
Second and on a parallel path, we are undergoing a detailed review of our own manufacturing footprint as well as our supply base to gauge the potential impacts.
At this point, we don't expect a.
Impact to the quarter's performance, but as you said, it's a very dynamic situation and we're monitoring it hourly and looking for new inputs to help inform.
How we feel about the business impact, but it's the safety and well being of our employees first.
Thank you for that and then I guess the follow up would be just maybe it's a little more color around information solutions. We connected services. The continued double digit growth. There can you talk about kind of the continued development.
And collaboration with PTC, some of the wins and and maybe you know expand that your comments around augmented reality and I don't know.
Track and trace is something that's that's started to pick up there or is looking to be a encouraging.
Yes, Rob I'd say, it's a great story for us.
And with our own.
Offerings that we've developed ourselves plus with partners like PTC.
The information solutions and connected service as part of our offering continues to grow strong double digits and we're seeing it as a true differentiator in some of the fastest growing parts of the overall automation market like electric vehicles and life Sciences. So.
You know it works perfectly to complement the basic automation that we're providing endosee industries, whether its discrete automotive assembly or its process control for pharma, but as they're looking for more trace ability as they're looking for adding the ability to transfer NOL.
It's from older workers to newer workers augmented reality is a great part of that we've mentioned before about a third of our sales of the software in this space include augmented reality.
So it all works together, it's increasing the hit rate for our Mds software, because we have a broader portfolio and it works together well. So there's a there's a lot of positives in this respect and I should mention it's not just for end users. It's also for Oems because they're looking for increasing the value.
Are you have what they're providing and as they look for ways to increase their flexibility getting closer to that zero change over time for packaging that.
Is hot in the industry today than this has a lot of benefit for them as well we had a win in the quarter with a heart attack, who you heard from at the Investor Day in November as they are adding that software to the basic logics control and variable speed drives and so on as part of it.
Basic automation to those systems and then at the final point.
We have seen.
Probably a higher degree of adoption of this software on top of competitive control platforms than we originally thought would happen.
Thanks for your time.
Thanks.
Next question comes from Richard Eastman with Baird.
Yes. Good morning, Thank you for the questions.
Bleak could you kind of speak maybe to the to the geographic mix you know the organic growth by geography in the quarter.
It just.
It seems a bit scattered here I mean, I presume Asia was probably better than expected.
You asked maybe a little bit weaker, but how does you know the but the incoming backlog being up quarter to quarter year over year.
How does that filter into maybe the geographic growth that you expect for the full year against kind of the midpoint of flat expectation for the for all of rock.
Yeah, Let me, let me start with a couple of comments and then Patrick may have some additional color on that.
But as I've said Asia was better than expected.
Latin America little worse than expected North America, and EMEA, we're pretty much inline with expectations in North America. As you mentioned, we were down about 3% and that was largely due to declines and more process oriented verticals.
With the exception of oil and gas so we start chemical.
Pulp and paper and metals.
And then that was offset by the growth we mentioned in automotive power and semiconductor.
There was up.
And oil and gas was a contributor there along with a recurrent theme of life Sciences.
Water wastewater was a good area for us in EMEA.
And in Asia, we were up with growth in oil and gas life Sciences auto tire and mass transit.
And and then Lat am was down.
A little bit where a weakness in auto and mining was partially offset by growth in power oil and gas in life Sciences. So what that was kind of a rundown of what we saw in Q1.
In terms of how the backlog feathers into that.
Obviously, mainly mainly project, but also with with some of the higher higher value services as well.
Particularly those included with the connected services part of Hi Fcs.
Rick maybe a little bit of color as to our assumptions by region for the full year and still organic growth at the midpoint is flat year over year. We expect both the you both North America and EMEA to look to be a little bit below that and we expect both Latin America.
In Asia to be up a little less than 5%.
But mid single digits.
Okay, and so what blade that influxes that we expect and that's embedded in our guidance we expect.
Second half of the year as I mentioned improvement and that includes the you us.
I would say North America.
Okay and is was there any noticeable.
Impact on the on the backlog and order flow around you know passage of the U_s_m_c, a when you talk about Latin America, and a and Mexico.
Was there any no noteworthy improvement in bookings or anything once that uncertainty was was more or less lifted.
Not yet so short answer I mean, it's a positive staff and.
You know supporting the concept of free and fair trade that that we've talked a lot about in the past. So we think it's a good thing, but we havent seen the results on.
On our performance yet.
Okay very good thank you.
Thank you.
A question comes from an L., Okay with Oppenheimer.
Thank you.
I was intrigued like to see you call out yes, she has a potential driving force for your customers.
To implement year suite of.
Offerings.
Conceptually I think we can understand that you know, there's just a basic efficiency place here that that plays into issue.
Could you maybe provide some examples of where you're seeing that make a material difference.
In customers decisions.
Well.
As you said everything we do is about productivity and a huge part of that productivity is efficiency. So you take our power control offering.
Variable speed drives which reduced dramatically the amount of energy that's required to run industrial process is a tremendous amount of the world's energy is consumed in factories and.
Simply not running full across the line when you don't need it.
Saves a ton of energy and a variable speed drives low voltage in medium voltage continued to be a very strong part of our offerings.
Specifically in the new Eco industrial segment that we introduced in November talking about our support of renewables of water and wastewater treatment and mass transit those are all in.
Industries that reduced the amount of energy that are required and there was no coincidence that we.
Created that new segment, because we're going to be doing more in that space and then finally.
Safety at something we've talked a lot about in the past and in terms of.
Good technology to be able to automate safety, but also the services that we provided that's an important part of BSG. We think that we're number one in the world. When you pull all the discrete and process safety technology together and that remains a really important area for us.
That's helpful and then.
Maybe drilling into auto a little bit as you said, it's priced the upside and you get some good color around some regional patterns there.
In your prepared remarks, but just you know the outlook for kind of soft overall light vehicles and.
Is that having any impact as far as you can tell it kind of the backlog at the longer cycle business in terms of.
Oh, yes plans to bring new models to market or planned model changeovers.
How are you thinking about that.
Well we are.
Yeah, we're guiding to about flat currently with the auto overall automotive segment for the year I'd say.
The growth is highest in this specific E. B drive train portion of this segment as people are bringing that capacity online whether it's the.
The brand owner or it's the tier supplier of and by the way that contributed a lot to our performance that was a little better than expectations in Q1. It was battery assembly.
That was a specific bright spot for us there.
Thats offset to some extent by the reality of vote, a weaker Saar cow.
For fewer vehicles than we saw.
A couple of years ago.
Being being bought certainly a lot of the brand owners are reducing their Sudan portfolio.
But.
There's still a fair bit of project spend there and.
The particularly in the last few zee.
Side of things and.
The growth that we saw in the quarter was primarily due to project spend.
MRO stabilized, but but we didn't see any real growth in air MRO in the quarter.
That's helpful color. Thanks Bye.
Yes actually our.
Next question comes from Steve Tusa with JP Morgan.
Hi, guys good morning.
Quarterly Steve.
Can you just talk about a little bit more about what you're seeing the on the food and beverage side and and a an OEM and then maybe just a bit of a color on how you see kind of quarterly organic progressing on the as you move through the rest of year.
Sure I'll start with the food and beverage.
We did see some delays in food.
But one of the bright spots and I mentioned it is we actually saw mid single digit growth in a packaging Oems and.
It's early but.
Thats, sometimes a leading indicator as people are putting a packaging in place and we did see that across the regions.
We also heard anecdotally from the packaging Oems that their backlog is fairly good and so those are encouraging signs one area of particular strength for us it's small, but it's still noteworthy.
India packaging Oems and I'd say, it's noteworthy because India, maybe the most competitive market in the world and for US to have a success. There is a really good testament to the functionality in the ability to get to a competitive levels there.
Is actually there and visit with some customers, including some packaging Oems in December and Doug I think there's a there's some great opportunities there and we're going to continue to look at what we can do to grow our presence even faster.
In the Indian market, but in general packaging Oems were up.
We also saw some strength specifically in beverage we had we had it real nice conversion.
At beverage OEM, that's going to a well known beverage user and so that was also good in the quarter.
And then quarterly yes progression on organic.
Yes, so we'll see for the full year, we remain at zero percent organic growth. The over the Q1, we did minus one I think Q2 low low single digits, meaning it close to what we Didnt in Q1, we don't expect it to get.
Worse than what we didn't Q1 and then for the balance of the year, I'd say Q4 organic growth a little bit better than Q3.
Okay. So it seems to me that like how do you get to kind of the low end of the range that if that if that if that's the case I mean.
I was providing was at the midpoint Steve.
Yeah, Okay. Okay got it got it I guess just with the start to the year. It it's a seem to be kind of trending better on that front.
It's still early the what we've seen our backlog is encouraging.
But would one quarter to go we think our current range remains appropriate.
Okay, great. Thanks, a lot.
Steve.
Yes, we have killed here data with Cowen.
Hey, Good morning, this is Rob on for Joe.
I just wonder if you could talk about process, a little bit and a the weakness you saw on chemicals.
If you just give us some color there that'd be great.
Yeah, Chemical London continued a.
A trend that I think we had seen in the past.
With with chemical and we did see that is the single largest contributor.
In the.
In the quarter.
That was primarily in North America.
We actually saw an increase in chemical in in EMEA down in down in Asia, and slightly down in Latin America.
So.
It's offset as we mentioned, we actually saw growth in oil and gas, but the chemical was down was down in the quarter and most of that was concentrated in in North America.
As we sit on the thanks earlier with within process oil and gas was up but generally process industries were weak in the quarter.
Right I would also mentioned honest and that I.
I would mention just for background that in chemical lot of our exposure is in specialty chemical it's not as much in the in the bulk chemical that's our traditional.
Focus there is.
There is some overcapacity that we're currently seeing in chemical.
And some effects from some of the consolidation that's been going on in the industry over the last couple of years as well. So thats. Some additional color that would certainly applied to North America.
That's great very helpful.
And then just a quick one just on not easy I know you said you had strong gains there during the quarter I'm. Just wondering if you talk about China, you'd be specifically and what you've been seeing there.
Any changes.
Yes, So China auto in China has been down Q3, Q4 of last year and we saw to continue into the first quarter fiscal 20 and that includes Cvs and so we've seen some of the.
The support or de subsidies.
Go away in China, and generally and obviously, it's still a little bit lumpy, because it's relatively small, but easy and auto in general we certainly seen some weakness in China Interestingly auto in Asia was up.
For us quite a bit and the reason there was we're making some progress with some of the easy companies outside of China, including some companies in Korea. For example, yes in that specific application to Patrick is mentioning in Korea was the battery Assembly, which is a great application for us.
We've mentioned before that.
In comparison to the subtractive manufacturing processes for internal combustion engine, so for boring cylinders and things like that that require a lot of C and see content battery Assembly and motor winding an easy drive train we have a high readiness to serve their and that's why we think that long term.
Our TV is a great great market for us to be.
That's great. Thank you very much here for your time.
Thank you.
Next question comes from Josh Pokrzywinski with Morgan Stanley . Please go ahead.
Hi, good morning.
Good morning, Josh Josh.
So apologies if I missed it earlier on the call, but Blake one thing that we talked about at the analyst day.
I want to see how that is playing out is this kind of the lower cyclicality of Rockwell maybe versus what folks would have been accustomed to five or 10 years ago or even more that it does seem like it a point in time, whether folks are are seeing kind of a more depressed outlook that rockwell hanging in there a bit more stable I guess.
One is is that consistent with the way you guys are seeing the world and too.
Is there kind of a coiled spring on the back end, where you can see customers have a willingness to spend on projects, but there may be not executing yet. So we lost some of that upward mobility in exchange for lower cyclicality.
Yes, I wouldn't draw that the causality between the two but.
As we talked about a lot in November that greater resiliency to economic cycles is something that we're making very explicit steps to address and so in addition to you know things like information solutions and connected services, providing a lot of increased value.
Mers and pulling through some of our traditional products. It does have an impact that we take is already being felt yes in terms of.
Kinda clipping the trough of of some of the normal volatility now would still a relatively small part of our business right, but that compounding of strong double digit growth plus what we do with acquisitions, having more recurring revenue.
Makes it more and more importantly, each year and last year, we say for instance information solutions in connected services added about a point of organic growth.
To what we did and yeah winnowed relatively low growth a year overall, that's meaningful so we're going to continue to work on that in terms of both our organic development the products and the environment to be able to manage recurring revenue, but it's also a consideration as.
We look for a companies to acquire and the percentage of recurring revenue.
Got it that's helpful. And then just a follow up on investment again apologies if you covered already.
It seems like some of that got pulled forward into into the first quarter as maybe demand was a little bit better than expected how should we think about the sensitivity from here on kind of that full year investment budget is is it at a healthy level, the where if you're at the top end of the revenue range that the overall bucket doesn't increase or.
How are you thinking about the sensitivity over the remaining three quarters. Thanks.
Yes, Josh so.
What we mentioned was that the spending in the year over year increase in the first half will be higher than in the second half actually the second half. The we we have it now the now is flattish from year over year spend point of view.
However.
If.
Depending on what happens with our outlook for the year and if we end up doing better what we do at the midpoint clearly we could decide to release more investments. There is a very long list of attractive investments that.
We're looking through all the time and we could decide to do more.
Okay. Thanks for the color.
Thank you.
Next question comes from Nigel colorful research.
Thanks, Good morning.
Appreciate the question.
I know you've kept a lot of ground nobody, but so I know we tend to focus more on the end market that looks but I just wonder about the job Geographics and I'm thinking about how.
Geographically thing to playing out relative to your initial guidance in November and particularly North America.
Down 3.3% this quarter I know its North America has been trending week for sometime now, but without them, where it is and IP negative how does that look.
In north Mexicali compared to your initial kind of outlook and kind of what bouncing against that if it is weaker than expected.
Yeah. So so as you said the the macro can generally be characterized this week.
And there were some downward revisions.
Opposition to that is if some of the backlog that that was built in the first quarter and some of the things again like the I guess at CES information solutions and connected services backdrop aren't going to be as coupled directly to some of the broader indicators within those areas.
We can demonstrate a relatively quick return on that investment, which is often from opex than we think that that's going to be more resilient.
Some of the the other more capital related spending yeah, and then Nigel for Q1, we would say that North American in EMEA came in basically inline with our expectations Asia Pacific came in better and Latin America came in weaker.
And for the for the full year.
At the midpoint, we think that North America, and EMEA will be down a bit and we think that Asia Pacific in Latin America will be up mid single digits little less than 5%.
Okay. That's helpful. Thanks, Patrick.
And then a quick one on a you know obviously ANS is holding up a lot better through the soft patch that we've seen historically.
And I know, though the flowing to the Islay, but can you maybe is there anyway to quantify kind of the relationship the PTC and how that's helping to.
Maybe improve the top performance of ANS, a and and any color that would be helpful.
Yeah, I I'll make a general comment to that and that is manufacturing.
Advanced manufacturing is becoming a much more.
Noteworthy in part of accompanies overall digital transformation plans. So we see companies like Stanley Black <unk> Decker as they talk about fairly significant reductions in costs there being asked to go a little deeper and explain how they're going to get there and we're finding ourselves a part of those.
Explanations as to how we're going to be able to reduce opex for these companies by having the relationship with PTC and having that increasingly.
Important I SCS offering wherever we can have those broad discussions at a higher level. Then if we were just talking about program will controller performance or some of the other elements of basic automation. So it allows us to get hiring the organization and to play a more.
Meaningful part of those overall discussions, whereas if we didn't have that kind of breath than we might find ourselves playing a little more defense and some of the core components. So thats you know at a high level, how a partnership with a companywide PTC.
We'll pull through some performance in the core products because they all go together that basic automation and then the information that sits on top of it to draw insights from the data that's born in our products.
Okay. Thanks Bye.
Sure well Nigel Sharon will take one more question.
I've a question from Andrew Kaplowitz with Citi.
Good morning, guys.
Moving in.
Thanks for fitting me in Blake you might have talked about necessarily but nonsense here I you mentioned that operating performance was better than expected maybe you could just talk about.
Given the more color and what that means obviously, there's a lot of moving pieces in France, and the Guy that you gave last quarter for the year I think you talked about five cents, excluding interest could be better demand in 2020.
Yeah, I mean, we're pushing on that.
The team.
Obviously, a two to perform as if they were in an open field because we think they are we think that what theyre offering is somewhat unique in the market and our original hypothesis that there was a relatively low level of basic automation and the oil field, particularly.
The onshore oil field is proving to be true. So the things that we're talking about as we're selling the the traditional offerings into that space.
Things like measurement.
Hey devices as well as artificial lift and so on the ability to come in and to weave that together is really meeting with a lot of interest and some of these are our existing customers, but customers that in the past have bought you know products as needed from us.
But now they're saying that we can play a much more significant part in their overall strategy I had a chance to talk with some of these customers over the last year in Latin America and in Europe , and we're excited and even more excited after the first quarter's results because these companies are voting with their wallet.
And again, it's up it's a solutions based approach is to measurement devices. If the artificial lift if the software and then it's the delivery capability to bring this all together to reduce their cost to produce a barrel of oil.
But I just want to stop on your comment on Latin America Asia is still incremental weakness or the moderation in the saw refocused on mining add to it gets tough comparisons.
A little bit of unrest down there you just mentioned oil and gas pretty strong sense of what do you seen down there.
Yes, so mechanically we still have some tough comps against that big Codelco project in mining.
That we've talked about over the last year or so that project is going very well by the way.
In general in Latin America, we saw modest growth in Mexico, and Brazil, but it was offset by weakness in Argentina, and Doug in Chile and of course, it's a good component of that would be.
Would be mining related.
Mexico was up low single digits and.
Brazil was also up low single digit so I think you're right that some of it is comps.
We expect mining to be about flat for the year for us in in Latin America.
Thanks like.
Yes, Thanks again and at this time I will turn the call over to Miss correctly.
Thank you Sarah I'll turn it back to Blake for a few final comments.
Thanks, Jessica as we've been discussing I'm happy to see or new offerings, delivering significantly increased value, we've never been better position with a more differentiated offering as a convergence of ITC and OTI creates tremendous new opportunities in our employees and partners. They continued to set us apart.
We're really excited about the journey ahead.
Okay that concludes today's call. Thank you for joining us.
That concludes today's conference call at this time you may now disconnect. Thank you.