Q2 2024 Rockwell Automation Inc Earnings Call

May 7, 2024

Operator: 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 you have a question at that time, please press star 1. At this time, I would like to turn the call over to Aijana Zellner, Head of Investor Relations and Market Strategy. Ms. Zellner, please go ahead.

I need to remind everyone that todays conference call is being recorded.

Later on the call we will open up the lines for questions.

If you have a question at that time, Please press star one.

At this time I would like to turn the call over to Iona Delmar head of Investor Relations and market strategy Michel No. Please go ahead.

Aijana Zellner: Thank you, Julian. Good morning. And thank you for joining us for Rockwell Automation's second quarter fiscal 2024 earnings release conference call. With me today is Blake Moret, our Chairman and CEO, and Nick Gangestad, our CFO. Our results were released earlier this morning, and the press release and charts have been posted to our website. Both the press release and charts include, and our call today will reference, non-GAAP measures. Both the press and charts include reconciliations of these non-GAAP members.

Iona Delmar: Thank you Julien good morning.

Iona Delmar: Thank you for joining us for Rockwell automation second quarter fiscal 2024 earnings release Conference call.

Iona Delmar: With me today is Blake Moret, our chairman and CEO and Nick <unk> our CFO.

Iona Delmar: Our results were released earlier this morning, and the press release and charts have been posted to our website.

Iona Delmar: Both the press release and charts include on our call today will reference non-GAAP measures.

Iona Delmar: Both the breadth and charts include reconciliations of these non-GAAP measures.

Aijana Zellner: A webcast of this call will be available on our website for replay for the next 30 days. For your convenience, a transcript of our prepared remarks will also be available on our website at the conclusion of today's call. Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking. However, our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all our SEC filings.

Iona Delmar: A webcast of this call will be available on our website for replay for the next 30 days.

Iona Delmar: We know convenience a transcript of our prepared remarks will also be available on our website at the conclusion of today's call before.

Iona Delmar: Before we get started I need to remind you that our comments political statements related to the expected future results of our company and are therefore forward looking statements. Our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings.

Aijana Zellner: So with that, I'll hand it over to Blake. Thank you.

Iona Delmar: I'll hand, it over to Blake.

Blake D. Moret: Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our second quarter results on slide three, I'll make some initial comments. At a high level, our performance in Q2 was good, but I am not happy with the reduced guidance for the full year. The impact of high inventory levels at machine builders is larger than we expected. Orders are still expected to return to year-over-year growth in Q3 and continue to increase during the year, but the slower ramp is impacting shipments for the second half. Consequently, here's what we are doing.

Blake D. Moret: Thanks, Sean and good morning, everyone. Thank you for joining us today.

Blake D. Moret: Before we turn to our second quarter results on slide three I'll make some initial comments.

Blake D. Moret: At a high level, our performance in Q2, which good but I am not happy with the reduced guidance for the full year.

Blake D. Moret: The impact of high inventory levels at machine builders is larger than we expected.

Blake D. Moret: Orders are still expected to return to year over year growth in Q3 and continued to increase during the year, but the slower ramp is impacting shipments for the second half.

Blake D. Moret: Consequently, here's what we are doing.

Blake D. Moret: We are accelerating actions to bring costs in line with the revised outlook on current year orders aligned with the more comprehensive program to expand margins introduced during our Investor Day in November. We will save $100 million in the second half of this year from accelerated actions being taken now, creating a beneficial starting point for fiscal year 25. We will see incremental savings of $120 million next year from these actions alone, plus a larger amount of additional savings from the more comprehensive program targeting sourcing, manufacturing, and SG&A.

Blake D. Moret: We will save $100 million in the second half of this year from accelerated actions being taken now, creating a beneficial starting point for fiscal year 'twenty five.

Blake D. Moret: We will see incremental savings of $120 million next year from these actions alone plus a larger amount of additional savings from the more comprehensive program targeting sourcing manufacturing and SG&A and we will provide a more detailed view of this program on our <unk>.

Blake D. Moret: And we will provide a more detailed view of this program on our next earnings call. We are improving our forecasting with new perspectives on the team and processes that include a deeper analysis of channel information and better decision support technology. I'm optimistic about our position when we exit fiscal year 24, regardless of next year's growth, for several reasons. Rockwell has built an unmatched portfolio to meet the world's growing need for smart manufacturing.

Blake D. Moret: Next earnings call.

Blake D. Moret: We are improving our forecasting with new perspectives on the team processes that include a deeper analysis of channel information and better decision support technology.

Blake D. Moret: I'm optimistic about our position when we exit fiscal year 'twenty for regardless of next year's growth.

Blake D. Moret: For several reasons Rockwell has built an unmatched portfolio to meet the world's growing need for smart manufacturing our home market North America is expected to grow faster than the worldwide Pam.

Blake D. Moret: Our home market, North America, is expected to grow faster than the worldwide PAM market. We are winning major new business today with both our traditional offerings and new sources of value across discrete, hybrid, and process industries. As we couple this with our focus on margin expansion through cost discipline, operational excellence, and organic growth, we will achieve the longer-range targets introduced in November and create significant shareholder value. Turning to the quarter, as we indicate on slide 3, we returned to good operational performance in the second quarter, with both organic sales and adjusted EPS above our expectations.

Blake D. Moret: We are winning major new business today with both our traditional offerings and new sources of value across discrete hybrid and process industries.

Blake D. Moret: As we couple this with our focus on margin expansion through cost discipline operational excellence and organic growth, we will achieve the longer range targets introduced in November and create significant shareowner value.

Blake D. Moret: Turning to the quarter as we indicate on slide three we returned to good operational performance in the second quarter with both organic sales and adjusted EPS above our expectations sales.

Blake D. Moret: Sales of products, configured to order offerings, software, and lifecycle services were all at or above our forecast. For products, we converted incoming orders at a much higher level than in Q1, and we now have a sufficient mix of safety stock in place to convert orders at the current level or higher through the balance of the fiscal year. We are essentially back to booking and billing product orders in the quarter they are received, at pre-pandemic conversion rates. Our orders were up low double digits sequentially, with continued recovery across all business segments and regions. North America had the highest sequential increase in the quarter.

Blake D. Moret: Sales of product configured to order offerings software and lifecycle services were all at or above our forecast.

Blake D. Moret: Products, we converted incoming orders at a much higher level than in Q1, and we now have sufficient mix of safety stock in place to convert orders at the current level or higher through the balance of the fiscal year, we are essentially back to booking and billing product orders in the quarter. They are received at <unk>.

Blake D. Moret: Pre pandemic conversion rates.

Blake D. Moret: Our orders were up low double digits sequentially with continued recovery across all business segments and regions North America had the highest sequential increase in the quarter.

Blake D. Moret: Year over year, total sales were down 6.5% in the quarter based on an organic sales decline of 8% and 0.5% acquisition growth. In our Intelligent Devices segment, organic sales declined about 7.5% year-over-year. I'm pleased with our execution to meet our shipping commitments and build safety stock in the quarter for these products. We also continue to see strong performance from our recent ClearPath acquisition, with sales of autonomous mobile robots contributing almost 2.5 points to ITD growth in the quarter. One notable ClearPath win this quarter was with the Hershey Company.

Blake D. Moret: Year over year total sales were down six 5% in the quarter based on an organic sales decline of 8% and a point and a half of acquisition growth.

Blake D. Moret: And our intelligent devices segment organic sales declined about seven 5% year over year.

Blake D. Moret: I am pleased with our execution to meet our shipping commitments and build safety stock in the quarter for these products. We also continued to see strong performance from our recent clear path acquisition with sales of autonomous mobile robots contributing almost two five points to ITD growth in the quarter.

Blake D. Moret: One notable clear path win this quarter was with the Hershey company. The Hershey company continues to advanced digital capabilities to enhance agility and efficiency across its operations, including supply chain and manufacturing processes as part of their efforts Hershey has selected Otto Motors Tech.

Blake D. Moret: The Hershey Company continues to advance digital capabilities to enhance agility and efficiency across its operations, including the Supply Chain and Manufacturing Process. As part of their efforts, Hershey has selected Auto Motors technology to improve productivity in both fulfillment and manufacturing operations.

Blake D. Moret: Knowledge to improve productivity in both fulfillment and manufacturing operations.

Blake D. Moret: Q2 margin performance for ClearPath was also better than expected. Software and control organic sales were down 23% versus the prior year, largely as we expected. As you know, this segment is significantly impacted by difficult year-over-year comparables in our logics business. In Q2 of last year, we had 42% growth in software and controls. There are particularly high levels of these products in inventory at our machine building.

Blake D. Moret: Q2 margin performance for clear path was also better than expected.

Blake D. Moret: Software and control organic sales were down 23% versus prior year largely as we expected as you know this segment is significantly impacted by difficult year over year comparable in our logic business in Q2 of last year, we had 42% growth in software and control there.

Blake D. Moret: Particularly high levels of these products in inventory at our machine builders.

Blake D. Moret: Despite this temporary correction, we are gaining logic share and winning new business across our software and hardware offerings. I'm proud of the vitality of our product development here, demonstrated by recent organic product launches and partnerships with Microsoft and NVIDIA that are focused on specific customer use cases, especially those that will benefit from simulation and simplification using artificial intelligence. These partners recognize that machines and manufacturing processes represent an enormous, largely untapped source of data, and petabytes of this data flow through our controller. They also know we have the manufacturing domain expertise to select the best use cases for their technology.

Blake D. Moret: Despite this temporary correction, we are gaining logic share and winning new business across our software and hardware offerings.

Blake D. Moret: Routed the vitality of our product development here demonstrated by recent organic product launches and partnerships with Microsoft and Nvidia that are focused on specific customer use cases, especially those that will benefit from simulation and simplification using artificial intelligence.

Blake D. Moret: These partners recognize that machines and manufacturing processes represented an enormous largely untapped source of data and Petabytes of this data flow through our controllers. They also know we have the manufacturing domain expertise to select the best use cases for their technology.

Blake D. Moret: Lifecycle Services organic sales grew over 12% year over year and continue to outperform our expectations, driven by strong process and market. Book to bill in this segment was 1.07, led by good order growth in our solutions and sensei of business. Our Sensia JV saw another quarter of over 25% year-over-year sales growth in Q2.

Blake D. Moret: Lifecycle services organic sales grew over 12% year over year and continue to outperform our expectations driven by strong process end markets book to Bill in this segment was 1.7 led by good order growth in our solutions and <unk> businesses our sense.

Blake D. Moret: Your JV saw another quarter of over 25% year over year sales growth in Q2.

Blake D. Moret: The Lifecycle Services segment also continues to contribute strong growth from our high-value services, including Cybersecurity, which saw orders growth of almost 50% in the quarter. We are making substantial progress to expand the lifecycle services margin. We saw a 16% margin this quarter, and we're not done working on the performance of this business segment. Total ARR was up 20% again this quarter. We continue to see strong, profitable, recurring growth from both high-value services and software.

Blake D. Moret: The lifecycle services segment also continues to contribute strong growth from our high value services, including cyber security, which saw orders growth of almost 50% in the quarter.

Blake D. Moret: We're making substantial progress to expand lifecycle services margin, we saw a 16% margin this quarter and we're not done working on the performance of this business segment.

Blake D. Moret: Total <unk> was up 20% again this quarter, we continued to see strong profitable recurring growth from both high value services and software.

Blake D. Moret: Rockwell's segment margin was 19%, and this would have been about 17% without the reversal of the bonus accrual we recorded in the quarter. Adjusted EPS of $2.50 was above our expectations, even after adjusting for the reversal of the bonus accrual. Nick will cover this in more detail later on the call.

Blake D. Moret: Rockwell segment margin was 19% this would have been about 17% without the reversal of the bonus accrual we recorded in the quarter.

Blake D. Moret: Adjusted EPS of $2 50 was above our expectations, even after adjusting for the reversal of the bonus accrual Nick will cover this in more detail later on the call.

Blake D. Moret: Let's now turn to slide four to review key highlights of our Q2 industry segment performance. Sales in our discrete industries were down in the high teens versus prior year. The impact of high product inventory levels in the channel was most pronounced in our discrete and hybrid industry segments. Automotive, e-commerce, and other warehouse automation sales were all impacted. Within discrete, automotive sales were down 20%.

Blake D. Moret: Let's now turn to slide four to review key highlights of our Q2 industry segment performance.

Blake D. Moret: Sales in our discrete industries were down high teens versus prior year, the impact of high product inventory levels in the channel are most pronounced in our discrete and hybrid industry segments automotive E Commerce and other warehouse automation sales were all impacted.

Blake D. Moret: Within discrete automotive sales were down 20% much of this year over year weakness is driven by excess product inventory in our channel. However, we're also starting to see some impact on our fiscal 'twenty four sales as customers take time to reevaluate the timing of their EV investments while we.

Blake D. Moret: Much of this year-over-year weakness is driven by excess product inventory in our channels. However, we are also starting to see some impact on our fiscal 24 sales as customers take time to re-evaluate the timing of their EV investment. While we are not seeing any EV or battery project cancellations, we are seeing push-outs of certain production start-ups. As we've mentioned, given our strong installed base and expanded portfolio, Rockwell is well positioned with automotive customers, whether they are investing in electric vehicles or adding more hybrid options in the near term. They're all interested in increasing efficiency. In addition to our traditional sources of value, ClearPath Autonomous Mobile Robots helped us secure over half a dozen wins with major brand owners and Tier 1 suppliers this quarter.

Blake D. Moret: We are not seeing any EV or battery project cancellations, we are seeing push outs of certain production start dates.

Blake D. Moret: As we mentioned given our strong installed base and expanded portfolio Rockwell is well positioned with automotive customers, whether they are investing in electric vehicles or adding more hybrid options in the near term. They are all interested in increasing efficiency.

Blake D. Moret: In addition to our traditional sources of value clear path autonomous mobile robots helped us secure over half a dozen wins with major brand owners and tier one suppliers this quarter.

Blake D. Moret: Semiconductor sales declined 25% year over year, with continued geopolitical pressures and a temporary oversupply of legacy chips weighing on semi-customers' CapEx investments. Our sales in e-commerce and warehouse automation were down in the high teens this quarter. We did see an improvement in sequential growth and increased our full-year sales outlook. We're rebuilding a strong warehouse pipeline with traditional retailers and global shipping and logistics customers. Turning to our hybrid sales, this industry segment was down mid-teens year over year. The weakness in this industry segment was led by food and beverage and home and personal care.

Blake D. Moret: Semiconductor sales declined 25% year over year with continued geopolitical pressures and a temporary oversupply of legacy chips weighing on semi customers' capex investments.

Blake D. Moret: Our sales in E Commerce, and warehouse automation were down high teens. This quarter, we did see an improvement in sequential growth and increased our full year sales outlook.

Blake D. Moret: We're rebuilding a strong warehouse pipeline with traditional retailers and global shipping and logistics customers.

Blake D. Moret: Turning to our hybrid sales. This industry segment was down mid teens year over year. The weakness in this industry segment was led by food and beverage and home and personal care.

Blake D. Moret: Food and beverage sales declined 20% in the quarter, driven by slower activity at our packaging OEMs, who are still working through their excess inventory. There are also some signs of slower end-user CAPEX. Food and beverage end-users are continuing to fund capacity expansion in emerging markets like India and Southeast Asia and modernization and resilience projects across their existing facilities. We had wins in the quarter, including the AMR project I mentioned earlier, and cyber security projects at new customers. Life Sciences sales were down by high single digits.

Blake D. Moret: Food and beverage sales declined 20% in the quarter driven by slower activity at our packaging Oems who are still working through their excess inventory there.

Blake D. Moret: There are also some signs of slower end user capex spend.

Blake D. Moret: Food and beverage end users are continuing to fund capacity expansion in emerging markets like India, and southeast Asia, and modernization and resilience projects across their existing facilities, we had wins in the quarter, including the <unk> project I mentioned earlier and cyber security projects at new customer.

Blake D. Moret: <unk>.

Blake D. Moret: Life Sciences sales were down high single digits results in the quarter were mainly driven by project delays, especially in China outside of that region. We continue to expand our installed base with newer software and hardware offerings.

Blake D. Moret: Results in the quarter were mainly driven by project delays, especially in China. Outside of that region, we continue to expand our installed base with newer software and hardware offerings. One example of new value in this vertical was an important Q2 order with an innovative contract manufacturer, National Resilience, who selected ClearPath to provide a comprehensive AMR solution as they bring cell and gene therapies to market. Moving on,

Blake D. Moret: One example of new value in this vertical was an important Q2 order with an innovative contract manufacturer national resilience through selected clear path to provide a comprehensive <unk> solution as they bring cell and gene therapies to market.

Blake D. Moret: Our sales here grew high single digits year over year, supported by continued strength in oil and gas and mining. Oil and gas sales were up over 20% this quarter, with continued momentum in energy transition projects. In Q2, we secured multiple decarbonization projects, including applications for carbon capture, storage, and hydrogen.

Blake D. Moret: Moving to process. Our sales here grew high single digits year over year supported by continued strength in oil and gas and mining.

Blake D. Moret: Oil and gas sales were up over 20% this quarter with continued momentum in energy transition projects in Q2, we secured multiple deep carbonization projects, including applications for carbon capture storage and hydrogen.

Blake D. Moret: Let's turn to slide 5 of our Q2 Organic Regional Sales. The Americas continue to be our strongest region this year, with Latin America growing 8% versus the prior year and North America organic sales down about 4% in the quarter. EMEA sales decreased 19% due to high machine builder inventory in Germany and Italy, particularly in consumer packaged goods. Asia-Pacific sales declined 17% in the quarter, with sales in China down almost 30% versus the prior year.

Blake D. Moret: Let's turn to slide five and our Q2 organic regional sales the Americas continued to be our strongest region. This year with Latin America growing 8% versus prior year in North America organic sales down about 4% in the quarter EMEA.

Blake D. Moret: EMEA sales decreased 19% due to high machine builder inventory in Germany, and Italy, particularly in consumer packaged goods.

Blake D. Moret: Asia Pacific sales declined 17% in the quarter with sales in China are down almost 30% versus prior year, we expect a combination of weaker market conditions and slower distributor destocking to continue to impact our China performance through the balance of this fiscal year.

Blake D. Moret: We expect a combination of weaker market conditions and slower distributor de-stocking to continue to impact our China performance through the balance of this fiscal year. Moving to slide six for our fiscal 2024 outlook. As I mentioned at an investor conference in March, while orders continue to increase sequentially from the trough in Q4 of last fiscal year, we have not yet seen the acceleration we expect once distributors and machine builders work through their excess inventory.

Blake D. Moret: Moving to slide six for our fiscal 2020 for outlook.

Blake D. Moret: As I mentioned at an Investor Conference in March while orders continued to increase sequentially from the trough in Q4 of last fiscal year, we have not yet seen the acceleration we expect once distributors and machine builders worked through their excess inventory. The result is that some of the demand. They are seeing does not transfer.

Blake D. Moret: The result is that some of the demand they are seeing does not translate to an equal amount of orders placed on Rockwell. I also said that if the pace of orders continued on its current trajectory, we would expect our full year 2024 financial results to track closer to the low end of both our organic growth and EPS range. Since then, we've seen lower-than-expected order activity. While distributors and machine builders are continuing to work through their excess inventory, we underestimated the amount of overstock at our machine builders.

Blake D. Moret: Late to an equal amount of orders placed on Rockwell.

Blake D. Moret: I also said that if the pace of orders continued on its current trajectory. We would expect our full year 2024 financial results to track closer to the low end of both our organic growth and EPS range.

Blake D. Moret: Since then we've seen lower than expected order activity, while distributors and machine builders are continuing to work through their excess inventory, we have underestimated the amount of overstock at our machine builders.

Blake D. Moret: Based on information received directly from our largest machine builders, our downward revision is based largely on the size of their inventory and the expected pace of the reduction, which would result in a slower ramp of orders in the fiscal year. Again, we do expect to return to year-over-year growth in orders for the third quarter, and our updated forecast still implies sequential order growth in Q3 and Q4. We believe we are taking share in our major products. Globally and in the U.S., North America is our strongest market, and we are starting to see an increased order impact from customer mega projects as the year progresses.

Blake D. Moret: Based on information received directly from our largest machine builders are downward revision is based largely on the size of their inventory and the expected pace of the reduction resulting in a slower ramp of orders in the fiscal year.

Blake D. Moret: Again, we do expect to return to year over year growth in orders for the third quarter and our updated forecast still implies sequential order growth in Q3 and Q4.

Blake D. Moret: We believe we are taking share in our major product lines globally and in the U S.

Blake D. Moret: North America is our strongest market and we're starting to see an increased order impact from customer Mega projects as the year progresses.

Blake D. Moret: We now expect our full-year orders to be down low single digits versus prior year. Based on our performance to date in the lower than expected order ramp, we are revising our fiscal 24 sales guidance range with organic sales projected to decline 7% at the midpoint, and we continue to expect acquisitions to contribute a point and a half of growth. ARR is still expected to grow about 15%.

Blake D. Moret: We now expect our full year orders to be down low single digits versus prior year.

Blake D. Moret: Our performance to date and the lower than expected order ramp we are revising our fiscal 'twenty four sales guidance range with organic sales projected to decline 7% at the midpoint.

Blake D. Moret: And we continue to expect acquisitions to contribute a point and a half of growth.

Blake D. Moret: <unk> is still expected to grow about 15%.

Blake D. Moret: Segment margin of 20% is now expected to decline versus the prior year, which still implies an increase in the second half, and specifically in fiscal Q4, driven by higher volume and the accelerated cost-down actions I mentioned earlier. Nick will share additional detail in his section. Adjusted EPS is slated to decrease 13% year over year at mid-year. We are increasing plan share repurchases to roughly double our original plan for the year, and we expect free cash flow conversion of 80%. This is a reduction from our prior guide, and Nick will cover this in more detail later.

Blake D. Moret: Segment margin of 20% is now expected to decline versus prior year, which still implies an increase in the second half and specifically in fiscal Q4, driven by higher volume and the accelerated cost down actions I mentioned earlier, Nick will share additional detail in his section.

Blake D. Moret: Adjusted EPS is slated to decreased 13% year over year at the midpoint.

Blake D. Moret: We are increasing planned share repurchases to roughly double our original plan for the year.

Blake D. Moret: And we expect free cash flow conversion of 80%. This is a reduction from our prior guide and Nick will cover this in more detail later.

Blake D. Moret: The reduced guide for the Fiscal Year only strengthens our commitment to building a strong foundation for future growth and profitability. The company-wide program to comprehensively take costs out of our products and operations will positively impact our results next year. Savings will be used to expand margins and reinvest to drive future growth. We will provide additional detail no later than the Q3 earnings call. Our intention is to manage our business segments for consistent, forecastable performance.

Blake D. Moret: The reduced guide for the fiscal year only strengthens our commitment to building a strong foundation for future growth and profitability the.

Blake D. Moret: The company wide program to comprehensively take cost out of our products and operations will positively impact our results next year.

Blake D. Moret: Savings will be used to expand margins and reinvest to drive future growth. We will provide additional detail no later than the Q3 earnings call.

Blake D. Moret: Our intention is to manage our business segments for consistent Forecastable performance.

Blake D. Moret: You've also seen the announcement of Nick's upcoming retirement. A search has been underway, and we expect to announce a new CFO in the coming month. Nick will be fully engaged in the transition to his successor, and he'll now provide more detail on our Q2 performance and financial outlook for Fiscal 24.

Blake D. Moret: You've also seen the announcement of Nick's upcoming retirement, a search has been underway and we expect to announce a new CFO in the coming months, Nick will be fully engaged in the transition to his successor and he will now provide more detail on our Q2 performance and financial outlook for fiscal 'twenty for Nick.

Blake D. Moret: Yeah.

Nicholas C. Gangestad: Thank you, Blake. And good morning, everyone.

Nick: Thank you Blake and good morning, everyone.

Nick: Although my family and I are excited about what comes next and retirement. My continued focus is on delivering our plans for this year and ensuring a smooth seamless transition to a new CFO.

Nicholas C. Gangestad: Although my family and I are excited about what comes next in my retirement, my continued focus is on delivering our plans for this year and ensuring a smooth, seamless transition to a new CFO. I'll start on slide 7, second quarter, key financial information. In the second quarter, reported sales were down 6.6% compared to last year. Q2 organic sales were down 8.1%, and acquisitions contributed 140 basis points to total growth. Currency translation increased sales by 10 basis points.

Nick: I'll start on slide seven second quarter key financial information.

Nick: Second quarter reported sales were down six 6% compared to last year.

Blake D. Moret: Q2, organic sales were down eight 1% and acquisitions contributed 140 basis points to total growth.

Blake D. Moret: Currency translation increased sales by 10 basis points and about 150 basis points of our organic growth came from price in line with our projections.

Nicholas C. Gangestad: And about 150 basis points of our organic growth came from price, in line with our projection. Segment operating margin was 19% compared to 21.3% a year ago. This 230 basis point decrease reflects lower sales volume, partially offset by lower incentive compensation. Adjusted EPS of $2.50 was higher than expected.

Blake D. Moret: Segment operating margin was 19% compared to 21, 3% a year ago.

Blake D. Moret: <unk> 230 basis point decrease reflects lower sales volume, partially offset by lower incentive compensation.

Blake D. Moret: Adjusted EPS of $2 50 was higher than expectations gives.

Nicholas C. Gangestad: Given our lowered outlook for Fiscal 24, we did not accrue any bonus expense in Q2, and we reversed the prior quarter bonus accrual. This resulted in a total adjusted EPS benefit of approximately $0.30 in the quarter. Even without the bonus impact, our Q2 adjusted EPS was ahead of our expectation due to a better than expected conversion of incoming orders into sales. I'll cover a year-over-year adjusted EPS bridge on a later slide. The adjusted effective tax rate for the second quarter was 14.8% below the prior year rate.

Blake D. Moret: Given our lowered outlook for fiscal 'twenty four we did not accrue any bonus expense in Q2, and we reverse the prior quarter bonus accrual.

Blake D. Moret: This resulted in a total adjusted EPS benefit of approximately 30 in the quarter.

Blake D. Moret: Even without the bonus impact our Q2 adjusted EPS was ahead of our expectation.

Blake D. Moret: Due to better than expected conversion of incoming orders into sales.

Blake D. Moret: I'll cover a year over year adjusted EPS Bridge on a later slide.

Blake D. Moret: Adjusted effective tax rate for the second quarter was $14, 8% below the prior year rate.

Nicholas C. Gangestad: Free cash flow was $69 million compared to $156 million in the prior year. Our lower year-over-year free cash flow generation in the quarter was driven by lower pre-tax income and higher tax payments, partially offset by decreases in working capital. The increased tax payments relate to our gain on our sale of PTC shares in FY23 and our payments on the 2018 TCJA transition tax. There is one additional item not shown on the slide. We repurchased approximately 700,000 shares in the quarter at a cost of $195 million. As of March 3rd, $600 million remained available under our repurchase authorization.

Blake D. Moret: Free cash flow was $69 million compared to $156 million in the prior year.

Blake D. Moret: Our lower year over year free cash flow generation in the quarter was driven by lower pretax income and higher tax payments, partially offset by decreases in working capital.

Blake D. Moret: The increased tax payments relate to our gain on our sale of PTC shares in fiscal year, 'twenty, three and our payments on the 2018 T C J a transition tax.

Blake D. Moret: One additional items not shown on this slide.

Blake D. Moret: We repurchased approximately 700000 shares in the quarter at a cost of $195 million.

Blake D. Moret: On March $600 million remained available under our repurchase authorization.

Nicholas C. Gangestad: Slide 8 provides the sales and margin performance overview of our three operating segments. The intelligent devices margin decreased to 16.5% compared to 20.2% a year ago. The decrease from the prior year was driven by lower sales volume and unfavorable net income, partially offset by lower incentive compensation. Higher sequential margin was driven by better volume and lower incentive compensation, partially offset by. Software and control margin of 25.7% decreased from 33.6% last year. The lower margin was driven by lower sales volume, partially offset by lower incentive compensation. Negative price-cost and favorable mix driven by higher software sales. Higher sequential margin was driven by lower incentive compensation, partially offset by lower volume. Lifecycle services margin of 16.6% tripled from a year ago margin of 5.5%.

Blake D. Moret: Slide eight provides the sales and margin performance overview of our three operating segments.

Blake D. Moret: Intelligent devices margin decreased to 16, 5% compared to 22% a year ago.

Blake D. Moret: The decrease from the prior year was driven by lower sales volume and unfavorable mix, partially offset by lower incentive compensation.

Blake D. Moret: Higher sequential margin was driven by better volume and lower incentive compensation, partially offset by mix.

Blake D. Moret: Software and control margin of 25, 7% decreased from 33, 6% last year.

Blake D. Moret: The lower margin was driven by lower sales volume, partially offset by lower incentive compensation.

Blake D. Moret: Positive price cost and favorable mix driven by higher software sales.

Blake D. Moret: Higher sequential margin was driven by lower incentive compensation, partially offset by lower volume.

Blake D. Moret: Lifecycle services margin of 16, 6% tripled from a year ago margin of five 5%.

Nicholas C. Gangestad: The margin performance was driven by lower incentive compensation, higher sales, and higher margin incentives. Higher sequential margin was driven by volume. Lower Incentive Compensation and Ongoing Improvements in Productivity. Life Cycle Services' book-to-bill was 1.07, indicating continued strength in underlying demand.

Blake D. Moret: The margin performance was driven by lower incentive compensation higher sales and higher margins and Cynthia.

Blake D. Moret: Higher sequential margin was driven by volume.

Blake D. Moret: Lower incentive compensation and ongoing improvements in productivity.

Blake D. Moret: Lifecycle services book to Bill was 1.07, indicating continued strength in underlying demand.

Nicholas C. Gangestad: The next slide, 9, provides the adjusted EPS walk from Q2 Fiscal 23 to Q2 Fiscal 24, while core performance was down $1.15 on an 8% organic sales decline. The EPS decline was driven by lower volume and unfavorable mix and was partially offset by positive price costs. Incentive compensation was a $0.55 tailwind. This year-over-year improvement reflects no projected bonus payout this year versus an above-target payout last year. The dilution impact from acquisitions was neutral due to better than expected profitability in ClearPath and VIRB. The year-over-year impact from tax was a 10-cent tailwind.

Blake D. Moret: The next slide nine provides the adjusted EPS walk from Q2 fiscal 'twenty three to Q2 fiscal 'twenty four.

Blake D. Moret: Core performance was down $1 15 on an 8% organic sales decline.

Blake D. Moret: The EPS decline was driven by lower volume and unfavorable mix.

Blake D. Moret: And was partially offset by positive price cost.

Blake D. Moret: Incentive compensation was <unk> 55 tailwind this.

Blake D. Moret: This year over year improvement reflects no projected bonus payout this year versus an above target payout last year.

Blake D. Moret: The dilution impact from acquisitions with neutral due to better than expected profitability in clear path and Verve.

Blake D. Moret: The year over year impact from tax was a 10 cent tailwind.

Nicholas C. Gangestad: Let's now move on to the next slide, 10, Guidance for Fiscal 24. We are lowering our guidance for fiscal 24. We now expect reported sales to decline in the range of negative 6 to negative 4 percent and organic sales to decline in the range of negative 8 to negative 6 percent. As Blake mentioned earlier, we continue to expect acquisitions to add 150 basis points to growth. We now expect currency to contribute about 50 basis points to growth as we are seeing continued strengthening of the U.S. dollar. We continue to expect price to be a positive contributor to growth for the year. We expect the full-year adjusted effective tax rate to be around 17%.

Blake D. Moret: Let's now move on to the next slide 10 guidance for fiscal 'twenty four.

Blake D. Moret: We are lowering our guidance for fiscal 'twenty four.

Blake D. Moret: We are now we now expect reported sales to decline in the range of negative six to negative 4% and organic sales to decline in the range of negative 8% to negative 6% as Blake mentioned earlier, we continue to expect acquisitions to add 150 basis points to growth.

Blake D. Moret: We now expect currency to contribute about 50 basis points to growth as we are seeing continued strengthening of the U S. Dollar.

Blake D. Moret: We continue to expect price to be a positive contributor to growth for the year.

Blake D. Moret: We expect the full year adjusted effective tax rate to be around 17%.

Nicholas C. Gangestad: We are lowering our adjusted EPS guidance to a range of $10 to $11. We now expect full year fiscal 24 free cash flow conversion of about 80% of adjusted income. The lowered expectations for free cash flow conversion are driven by the fact that the positive earnings impact from zero incentive compensation recorded this fiscal year does not result in better cash generation this year. This is because the payout of any annual incentive compensation occurs in the first quarter of the following fiscal year.

Blake D. Moret: We are lowering our adjusted EPS guidance to a range of $10 to $11.

Blake D. Moret: We now expect full year fiscal 2000 and for free cash flow conversion of about 80% of adjusted income.

Blake D. Moret: The lowered expectations for free cash flow conversion is driven by the fact that the positive earnings impact from zero incentive compensation recorded this fiscal year does not result in better cash generation. This year. This is because the payout of any annual incentive compensation occurs.

Blake D. Moret: In the first quarter of the following fiscal year. Therefore, we will see the benefit of this on our cash flow conversion in fiscal year 'twenty five.

Nicholas C. Gangestad: Therefore, we will see the benefit of this on our cash flow conversion in fiscal year 25. From an inventory standpoint, we continue to expect that inventory days on hand will drop to 125 days by the end of fiscal year 24, compared to the 140 days of inventory we had at the end of fiscal year 23. From a calendarization perspective, we expect mid-single-digit sequential order growth in Q3 and high-teens sequential order growth in Q4.

Blake D. Moret: From an inventory standpoint, we continue to expect that inventory days on hand will drop by drop to 125 days by the end of fiscal year 'twenty four compared to the 140 days of inventory we had at the end of fiscal year 'twenty three.

Blake D. Moret: From a calendar calendar <unk> perspective, we expect mid single digit sequential order growth in Q3 and high teens sequential order growth in Q4.

Nicholas C. Gangestad: We expect Q3 sales dollars and segment margin to be lower than Q2 levels. Now that we have largely cleared our product backlog, we are generating most of our product sales from new orders in the quarter, which are ramping up slower than we expected. We expect Q4 to be the highest revenue dollar and margin quarter of the year. From a sequential margin perspective, we expect margins in Q3 to be about 250 basis points lower than in Q2, due to the non-repeat of the bonus accrual reversal that benefited Q2. Also, lower the volume and mix.

Blake D. Moret: We expect Q3 sales dollars and segment margin to be lower than Q2 levels.

Blake D. Moret: Now that we have largely cleared our product backlog, we are generating most of our product sales from new orders in the quarter, which are ramping up slower than we expected.

Blake D. Moret: We expect Q4 to be the highest revenue dollar and margin quarter of the year.

Blake D. Moret: From a sequential margin perspective, we expect margins in Q3 to be about 250 basis points lower than in Q2.

Blake D. Moret: Due to the non repeat of the bonus accrual reversal that benefited Q2.

Blake D. Moret: Also lower volume and mix.

Nicholas C. Gangestad: By segment, we expect our Q3 margins to be up slightly in intelligent devices and down significantly in software and control due to lower Logix controller sales and flat in lifecycle services. As Blake mentioned, We are adjusting our spending level with the lower outlook for this fiscal year. Last quarter, we expected our full year 24 investment spending to increase by $60 million year over year or to be up about 2%. We now expect our full year spend to be down approximately $50 million versus the prior year.

Blake D. Moret: By segment, we expect our Q3 margins to be up slightly and intelligent devices.

Blake D. Moret: Down significantly in software and control due to lower logic controller sales and flat and lifecycle services.

Blake D. Moret: Blake mentioned.

Blake D. Moret: We are adjusting our spending level with the lower outlook for this fiscal year.

Blake D. Moret: Last quarter, we expected our.

Blake D. Moret: Full year 'twenty for investment spending to increase by $60 million year over year or to be up about 2% we.

Blake D. Moret: We now expect our full year spend to be down approximately $50 million versus prior year.

Nicholas C. Gangestad: This roughly $100 million spend reduction in the second half of fiscal 24 is driven by a combination of structural and temporary cost-out actions, which will help protect our margins in the current fiscal year and will set the right foundation for fiscal year 25 and beyond. Some examples of temporary cost reductions. Items include not filling open positions, reducing contractor spend, and further reducing our travel and marketing spend for the year. In terms of structural actions, we are expecting about $60 million in restructuring charges related to headcount reductions in the second half of the fiscal year. The expected restructuring charges are excluded from our adjusted EPS.

Blake D. Moret: This roughly $100 million spend reduction in the second half of fiscal 'twenty four is driven by a combination of structural and temporary cost out actions.

Blake D. Moret: Which will help protect our margins in the current fiscal year and will set the right foundation for fiscal year, 'twenty five and beyond.

Blake D. Moret: Some examples of temporary cost reductions.

Blake D. Moret: Items include not filling open positions reducing contractor spend.

Blake D. Moret: And further reducing our travel and marketing spend for the year.

Blake D. Moret: In terms of structural actions, we are expecting about $60 million of restructuring charges related to head count reductions in the second half of the fiscal year the.

Blake D. Moret: The expected restructuring charges are excluded from our adjusted EPS.

Blake D. Moret: These savings and our continued cost structure optimization are aligned with our longer term productivity focus and profitability targets.

Nicholas C. Gangestad: These savings, in our continued cost structure optimization, are aligned with our longer-term productivity focus and profitability target. A few additional comments on Fiscal 24 guidance. Corporate and other expenses are now expected to be around $130 million. We're assuming average diluted shares outstanding of 114.3 million shares. We expect to deploy between six and $800 million for share repurchases during the year. This is an increase from our prior range of $300 to $500 million and reflects a higher near-term prioritization of returning cash to shareholders versus acquisition. Net interest expense for fiscal 24 is now expected to be about $135 million. With that, I'll turn it back over to Blake for some closing remarks before we start Q&A.

Blake D. Moret: A few additional comments on fiscal 2000 and for guidance.

Blake D. Moret: Corporate and other expense is now expected to be around $130 million.

Blake D. Moret: We're assuming average diluted shares outstanding of $114 3 million shares.

Blake D. Moret: We expect to deploy between six and $800 million to share repurchases during the year.

Blake D. Moret: This is an increase from our prior range of $300 million to $500 million.

Blake D. Moret: And reflects a higher near term prioritization of returning cash to shareholders versus acquisitions.

Blake D. Moret: Net interest expense for fiscal 'twenty four is now expected to be about $135 million.

Blake D. Moret: With that I'll turn it back over to Blake for some closing remarks before we start Q&A.

Blake D. Moret: That's Nick. We are focused on getting synergies and efficiencies throughout the entire organization. The portfolio of capabilities that we have built and bought is second to none, and now is the time to knit all these pieces together. This will help us drive more customer value, efficiency, and cost savings, which in turn will yield higher margins and funds for reinvestment. Aijana will now begin the Q&A session.

Blake D. Moret: Thanks, Nick we are focused on getting synergies and efficiencies throughout the entire organization the portfolio of capabilities that we have built and bought is second to none and now is the time to knit all these pieces together.

Blake D. Moret: This will help us drive more customer value efficiency and cost savings, which in turn will yield higher margins and funds for reinvestment or John.

Speaker Change: We will now begin the Q&A session. Thanks, Mike we'd like to get to as many of you as possible. So please limit yourself to one question and a quick follow up Julien, let's take our first question.

Aijana Zellner: Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up. Julian, let's take our first question.

Operator: Certainly, if you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw any questions, press star one again. Our first question comes from Andy Kaplowitz from Citigroup. Please go ahead; your line is open. Good morning, everyone.

Julien: Certainly if you'd like to ask ask a question. Please press star followed by the number one on your telephone keypad to withdraw any questions Press star one again.

Julien: Our first question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.

Unknown Attendee: Good morning, everyone. Nick, congrats, and thanks for all your help. Hey, Andy.

Andrew Alec Kaplowitz: Good morning, everyone, Nick Congrats and thanks for all your help.

Andrew Alec Kaplowitz: Hey, Andy.

Blake D. Moret: So, Blake and Nick, could you give us more color into what's now embedded in terms of order trajectory in your $10 to $11 UPS guidance? Have you seen continued positive improvement in orders here to start Q3? Because obviously, you still need a pretty big order step-up, especially in Q4, as you said, given your guidance. And it's been difficult to tell for you, I think, how much excess inventory has been out there, especially with machine builders. So, what are you doing to try and get better visibility into when they may bottom with their inventory, so that, ultimately, you won't have to lower EPS again?

Andrew Alec Kaplowitz: So Blake or Nick could you give us more color on to what's now embedded in terms of order trajectory in your 10 to $11 EPS guidance have you seen continued positive improvement orders here to start Q3, because obviously you still need a pretty big order step up, especially in Q4 as you said given your guidance and it's been difficult to tell for you I think how much excess.

Andrew Alec Kaplowitz: He has been out there, especially with machine builders. So what are you doing to try and get better visibility into when they meet bottom with their inventory and ultimately you won't have to lower EPS again.

Blake D. Moret: Sure, Andy, I'll start and then Nick may have some additional comments. We're expecting mid-single digit sequential growth in Q3 on orders. This is after the low double-digit sequential order growth that we saw in Q2. And then we expect high-teens sequential order growth in Q4. And that's based on our analysis of the levels of existing inventory in distribution as well as in the machine builders. For distribution, we expect that to largely clear by the end of the third quarter in most regions.

Blake D. Moret: Sure Andy I'll start and then Nick May have some additional comments.

Blake D. Moret: We're expecting mid single digits sequential growth in Q3 on orders. This is after a low double digit sequential order growth that we saw in Q2, and then we expect high teens sequential orders growth in Q4, and Thats based on our analysis of the.

Blake D. Moret: Levels of existing inventory in distribution as well as in the machine builders for distribution, we expect that largely to clear.

Blake D. Moret: By the end of the third quarter in most regions.

Blake D. Moret: China's probably an outlier that goes a little bit longer, but we're tracking those inventory levels, and that's consistent with the direct feedback from those distributors. As we go out to the OEMs and have specific discussions with the largest OEMs, particularly in Europe and in North America, we're expecting that inventory to be largely cleared at the machine builders in Q4. This is imperfect because we have some of those machine builders that are buying direct from us, and then we have a lot that are going through distribution. So that's still evolving, but we have a much better view today than we did at the beginning of the year. And that's the primary reason for the reduced guidance.

Blake D. Moret: China was probably an outlier that goes a little bit longer, but we're tracking those inventory levels and that's consistent with the direct feedback from those distributors as we go out to the Oems and have specific discussions with the largest Oems, particularly in Europe and in North America, where.

Blake D. Moret: <unk> that inventory to be largely cleared at the machine builders. In Q4. This is imperfect because we have some of those machine builders that are buying direct from US and then we have a lot better with going through distribution.

Blake D. Moret: So that's still evolving, but we have much better view today than we did at the beginning of the year and that's the primary reason for the reduced guidance for the year.

Nicholas C. Gangestad: Andy, one thing I'll just add is that what we've seen in April orders is completely consistent with our guide of our expectation of order growth of 5% sequential order growth.

Blake D. Moret: Andy One thing I'll just add on that what we're what we've seen in April orders is completely consistent with that or guide or an expectation of order growth of 5% sequential order growth.

Blake D. Moret: Helpful, guys. And then, Blake, maybe just trying to step back and separate out the channel noise you've been seeing from the CapEx sweetness you mentioned, for instance, in food and beverage. I know you mentioned you will achieve the long-term targets you set in November, but could you talk about your conviction at this point that ROC can resume that sort of 5% to 8% organic growth trajectory, X acquisitions, sooner versus later? Can you give more color on the market share gains you mentioned with America, and which core end markets would you think would drive ROC back to that improved growth? Sure. So we are

Speaker Change: Helpful guys, and then maybe just kind of step back and separate out the channel noise, you've been seeing from the Capex, Sweden. As you mentioned for instance in food and beverage I know you mentioned you will achieve the long term targets you said November but could you talk about your conviction at this point, they're rock can resume that sort of 5% to 8% organic growth trajectory ex acquisitions.

Speaker Change: Sooner versus later can you give more color into the market share gains you mentioned North America in which core end markets would you think would drive ramp back to that improved growth.

Blake D. Moret: Sure. So we are confident that those growth ranges are reasonable as we go through the cycle. It's based on our offering. It's based on the higher growth that we see in North America, which, of course, is our home market where most of our sales are made. And it's our portfolio that we've built that's winning today in the market. So we see that through the individual projects that are competitive, and the growing impact of megaprojects that I and my team are directly involved with versus our toughest competitors around the world, with a good win rate on those projects. We also

Speaker Change: Sure. So we are we are confident that those growth ranges are a reasonable as we look through the cycle, which based on our offering it's based on the higher growth that.

Speaker Change: That we see in North America, which of course is our home market, where most of our sales are and.

Speaker Change: And it's our it's our portfolio that we've built that's winning today in the market. So we see that through.

Speaker Change: The individual projects that are competitive.

Speaker Change: The growing impact of Mega projects I and my team are directly involved with that versus our toughest competitors around the world with a good win rate of those projects. We also we also see in the industries the win rates looking good.

Blake D. Moret: We also see in the industries, the win rates look good. And when I talk about market share gains, obviously, logics controllers are one of the key areas. And we do see those gains both when we look at the U.S. and when we look around the world in terms of the reports on that important product line. There are some other areas as well, motor control centers, for instance, as we get those reports for our offering in North America, but also with the new cubic offering, which is a space that was virtually unserved by us previously.

Speaker Change: And when I talk about market share gains, obviously logic controllers as one of the key areas and we do see those gains both when we look at the U S and when we look around the world in terms of the reports on that important product line and there is some other areas as well motor control Center.

Speaker Change: <unk> for instance.

Speaker Change: As we get those reports for our offering in North America, but also with the new cubic offering which is a space that was virtually on served by US previously and then and then with the autonomous mobile robots you heard several examples of those wins.

Blake D. Moret: And then with the autonomous mobile robots, you heard several examples of those wins in the production logistics space from our ClearPath acquisition. That's already a $5 or $6 billion market growing much faster than the general automation market. And so that gives us a lot of confidence in these new sources of value, as well as the products that make up the majority of our business. We're confident about these long-term targets, and again, it's not just about above-market growth. I think you've heard the tone on this call, and in the last few months, putting that together with the margin expansion is absolutely fundamental to our plans going forward.

Speaker Change: The production logistics space from our clear path acquisition, that's already a five or $6 billion market growing much faster than the general automation market and so that gives us a lot of confidence with these new sources of value as well as the products that make up the majority of our business.

Speaker Change: We're confident about these long term targets and again, it's not just about the above market growth I think you've heard the tone on this call and in the last few months, putting that together with the margin expansion is absolutely fundamental to our plans going forward.

Speaker Change: I appreciate all the color.

Speaker Change: Thanks, Andy.

Operator: Our next question comes from Nigel Coe from Wolf Research. Please go ahead; your line is open.

Speaker Change: Our next question comes from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.

Unknown Attendee: Oh, thanks. Good morning, everyone. Nick, enjoy your retirement. So just wondering if we maybe can get a bit more color on the kind of third quarter Kelly provided. So, I mean, I'm back into an EPF close to two bucks. Transcripts provided by Transcription Outsourcing, LLC.

Nigel Edward Coe: Oh, Thanks, good morning, everyone.

Nigel Edward Coe: Good morning.

Nigel Edward Coe: Nick enjoy your retirement.

Nigel Edward Coe: <unk>.

Nigel Edward Coe: So just wondering if maybe you can get a bit more color on.

Nigel Edward Coe: On the kind of the third quarter.

Nigel Edward Coe: How do you provided.

Nigel Edward Coe: So the I'm backing into an EPS closer to books.

Nigel Edward Coe: Sure.

Nigel Edward Coe: Third quarter, so I'll make sure that.

Nigel Edward Coe: Alignment with your model and then.

Nigel Edward Coe: In terms of the order rates that youre pointing to mid single digit percentage increased sequentially.

Speaker Change: Sort of back into it like a $2 billion number I'm just trying to I'm, just trying to get a bit more qualification that that'd be great.

Nicholas C. Gangestad: Yeah, Nigel, in terms of what you're backing into from an order rate in Q3, that's consistent with how we're seeing this too. In terms of EPS, the one nuance I will point out from a quarterlyization on our tax rate is that we expect our Q3 tax rate to be lower than the average and our Q4 tax rate to be higher than the average. That's just based on discrete items that are expected in the second half of the year and the timing. That's the only other nuance I'd say on this. But otherwise, I'd say your modeling is matching pretty closely what we're estimating.

Speaker Change: Yes, Nigel in terms of what what you're backing into from our order rate in Q3, that's complete that's consistent with with how we're seeing this too in terms of EPS beat the one the one nuance I will point out from a quarter as Asian on our tax rate, we expect our COO.

Speaker Change: Q3 tax rate to be low lower than the average in our Q4 tax rate to be higher than the average that's that's just based.

Speaker Change: Based on discrete items that are expected in the second half of the year and the timing.

Speaker Change: That's the only other nuance I would say on this but otherwise I would say your modeling is matching pretty closely what we're estimating.

Unknown Attendee: Okay, that's helpful. Thanks, Nick.

Speaker Change: Okay. That's helpful. Thanks, Nick and then on the cost savings.

Speaker Change: $100 million of cost savings in the second half of this year just want to make sure that that doesn't include any of the bonus accrual the vessels.

Blake D. Moret: And then on the cost savings, just on the $100 million of cost savings in the second half of this year, I just want to make sure that that doesn't include any of the bonus accrual reversals or the investment spending pullback. That's all sorts of additional cost savings. It feels like it's mainly temporary costs in the back half of this year, and then we have more structural costs coming in in 2025. Is that the right way to think about it?

Speaker Change: The investment spending pullback, that's all sort of additional cost savings.

Speaker Change: Feels like it's mainly temporary costs in the back half of this year and then we have more structural cost coming in in 2025 is that the right way to think about it.

Blake D. Moret: Let me start with some general comments and then Nick can add some detail to that. The $100 million of savings that I mentioned for the second half of the year is totally separate from anything with the incentive comps. So that's additional savings that's totally separate from that. Embedded in that is a reduction in force of approximately three percent, so those are not temporary savings, and that will provide additional incremental benefits into next year.

Speaker Change: Let me, let me start with some general comments and then Nick can add some detail to that.

Nick: The $100 million of savings that I mentioned for the second half of the year as totally separate from anything with the with the.

Nick: Incentive comp so that's additional savings that's totally separate from that.

Nick: Embedded in that is a reduction in force of approximately 3% or so those are not temporary savings.

Nick: And that will provide additional incremental benefit into next year. There's also some of the temporary actions that Nick talked about but there is a meaningful reduction in force that structural and the front end of the additional structural actions that I alluded to and that will provide more.

Blake D. Moret: There are also some of the temporary actions that Nick talked about, but there's a meaningful reduction in force that's structural and is the front end of the additional structural actions that I alluded to, and that will provide more detail on the next call. And, Nigel, part of what we were talking about...

Speaker Change: Dale on the next call and Nigel part of what we were talking about there is the $100 million, we're expecting in the second half of this year.

Nicholas C. Gangestad: And, Nigel, part of what we were talking about there is the $100 million we're expecting in the second half of this year. Those actions, we expect to have a tail into fiscal year 25 of an additional 120. So, and I'm saying that, in reference to your comment about temporary, some of it is temporary, but the majority of it is sustainable and will carry that tailwind impact benefit into fiscal year 25.

Speaker Change: Those actions, we expect to have a tail into fiscal year 'twenty five of an additional 120, so and I'm, saying that in reference to your comment about temporary some of it is temporary but the majority of it is sustainable and carry it makes that tailwind impact benefit into <unk>.

Speaker Change: <unk> 25.

Speaker Change: Okay. Thanks, Nick.

Operator: Our next question comes from Julian Mitchell from Barclays. Please go ahead; your line is open.

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

Unknown Attendee: Hi, good morning, and wish you all the best, Nick. Thank you for the help. Thanks, Julian.

Julian C.H. Mitchell: Hi, Good morning, and wish you all the best Nate Thank you for the help.

Julian C.H. Mitchell: Thanks Julien.

Nicholas C. Gangestad: Just maybe circling back on the sort of EPS walk, so you've got that very helpful slide 11, for example. But if I think about the sort of three big buckets of cost you talked about this morning, you've got incentive compensation, you've got investment spend, and you've got these fixed cost reductions relating to headcount cuts. So it looks like for 2024, you've got about a $2 EPS tailwind year on year from incentive comp and investment spend combined.

Julian C.H. Mitchell: Just maybe.

Julian C.H. Mitchell: Circling back on the sort of EPS.

Speaker Change: Walk so you've got that very helpful.

Julian C.H. Mitchell: Slide <unk>.

Julian C.H. Mitchell: 11 for example.

Julian C.H. Mitchell: But if I think about sort of three big.

Julian C.H. Mitchell: Buckets of costs do you have talked about this morning, you've got incentive compensation, you've got investment spends and you've got these fixed cost reductions relating to head count cuts.

Julian C.H. Mitchell: So it looks like for 2024, you've got about a $2 EPS tailwind year on year from incentive comp and investments spend combined.

Nicholas C. Gangestad: It is the right way to think about it that a lot of that reverses in 2025. And then, on the other hand, you've got these savings that may be worth about a dollar of EPS from headcount cuts in 2025. Just trying to understand the incentive comp and investment spend, kind of how does that reverse in a substantial way the following year naturally.

Julian C.H. Mitchell: Is the right way to think about it.

Julian C.H. Mitchell: A lot of that reverses in 2025.

Julian C.H. Mitchell: And then on the other hand, you've got these savings that may be a worse about.

Julian C.H. Mitchell: <unk> of Etfs from head count cuts in 2025 is just trying to understand of the incentive comp and investments spend kind of how does that reverse.

Julian C.H. Mitchell: In a substantial way kind of in the following year naturally.

Nicholas C. Gangestad: A couple of points, Julian. First of all, we certainly intend that the incentive compensation will reverse in fiscal year 25. But the productivity actions that we're doing with the structural cost savings, we do not expect the majority of that investment spend that I note on that slide to reverse. And that's why we're talking about the $120 million of carry-forward benefit into fiscal year 25. So two different answers.

Speaker Change: A couple of points Julian first of all we certainly intend that the incentive compensation does reverse in fiscal year 'twenty five.

Speaker Change: But the productivity actions that we're doing with the structural cost savings, we do not expect the majority of that investment spend that I note on that slide to reverse.

Speaker Change: And that's why we're talking about the $120 million of carryforward benefit into fiscal year 'twenty five so.

Speaker Change: Two different answers.

Blake D. Moret: The incentive comp absolutely does reverse, but investment spend does not. And again, investment spend in total for next year will be dependent on the opportunities we're seeing. We haven't set what that number is, but the benefits of what we're doing here, we are confident that will create this $120 million Tailwind Benefit into next year.

Speaker Change: Incentive comp absolutely does reverse.

Speaker Change: But investment spend.

Speaker Change: It does not and again investment spend in total for next year will be dependent on the opportunities we're seeing.

Speaker Change: We haven't set what that number is but the benefits of what we're doing here. We are confident that we will create this $120 million.

Speaker Change: <unk> benefit into next year, just at a high level.

Unknown Attendee: Yeah, just at a high level, the actions that we're taking now, with their benefits this year, and then the incremental benefits next year, when you add that to the more structural actions that we're beginning to a more comprehensive program that I mentioned, we expect that to more than offset the headwinds from returned incentive comp investment, and so on as we go into fiscal year 25.

Speaker Change: The actions that we're taking now with their.

Speaker Change: Benefit this year and then the incremental benefit next year when you add that to the more structural actions that we are beginning to more comprehensive program that I mentioned, we expect that more than offset the headwinds from returned incentive comp investment.

Speaker Change: And so on as we as we go into fiscal year 'twenty fives.

Unknown Attendee: That's really helpful. Thank you.

Speaker Change: That's really helpful. Thank you and then.

Speaker Change: Just my follow up would be trying to.

Speaker Change: Circle back to that point on.

Speaker Change: Sort of.

Speaker Change: Youll revenues in your inventories and your customer inventory. So it sounds like you have this Q3 sales dip I think sequentially, Nick you'd mentioned.

Speaker Change: Maybe help us understand why that is happening if orders are up sequentially in the second quarter finished in the third quarter that we're in now and your own inventories on your balance sheet have been stuck at sort of the same dollar number for a year now.

Nicholas C. Gangestad: And then just my follow-up would be trying to circle back to that point on sort of your revenues and your inventories and your customer inventories. So it sounds like you have this Q3 sales dip, I think, sequentially, Nick, you mentioned, maybe help us understand why that's happening if orders are up sequentially, in the second quarter finished and the third quarter that we're in now. How are you so sure that your customers' inventories are coming down when your own are very stable? Yeah.

Speaker Change: How are you so sure that youll customers' inventories are coming down when youll, rather than a very stable.

Nicholas C. Gangestad: So as of the end of the second quarter, Julian, our product backlog is essentially back to normal. We've had good success working through with our supply chain, and we've brought our backlog back to normal. So going forward, we expect to be operating like we were pre-pandemic, where orders in a particular quarter are very much like what our sales are in a particular quarter. In our second quarter, we were still benefiting from drawing down some of that backlog.

Speaker Change: Yes, so as of the end of the second quarter Julian are our product backlog is essentially back to normal we've had good success working through with our supply chain and we've brought our backlog back to normal so going forward are we.

Speaker Change: We expect to be operating what we were like pre pandemic, where orders in a particular quarter are very much like what our sales are in a particular quarter.

Speaker Change: In our second quarter, we were still benefiting from.

Speaker Change: Drawing down some of that backlog, we brought down our backlog our proxy in high high single digits in.

Nicholas C. Gangestad: We brought down our backlog by high single digits in the second quarter. And that's why our sales in the second quarter were higher than our orders. We expect that phenomenon will end going into the second half of the year. And that's why even though we expect orders to be up sequentially, we expect revenue to be down sequentially.

Speaker Change: In the second quarter and Thats why our sales in second quarter were higher than our orders.

Speaker Change: That that phenomenon will end going into the second half of the year and that's why even though we expect orders to be up sequentially, we expect revenue to be down sequentially.

Unknown Attendee: Super helpful, thank you.

Speaker Change: Super helpful. Thank you.

Speaker Change: Yes.

Unknown Attendee: Our next question comes from Noah Kaye from Oppenheimer. Please go ahead; your line is open.

Speaker Change: Our next question comes from Noah Kaye from Oppenheimer. Please go ahead. Your line is open.

Blake D. Moret: Thanks so much. Maybe talk about some of the choices you're making around where to reduce investments and the business. You would love a nice color. You've made a lot of acquisitions. Not sure if it's related to that. Maybe you can talk about it, if possible, on a segment level or by a protocol.

Noah Duke Kaye: Thanks, So much maybe talk about some of the choices, you're making around where to reduce investments in the business.

Noah Duke Kaye: Would love any color.

Noah Duke Kaye: A lot of acquisitions.

Speaker Change: Sure if its related to that.

Speaker Change: Maybe you can talk about it.

Speaker Change: On a segment level or by vertical.

Blake D. Moret: Sure, Noah, I'll make some comments, and Nick may have some additional ones. Most of the reduction in force that we're looking at is affecting SG&A, and that does include sales and marketing and the headquarter function. I think as we look at guiding principles, we're directing the spend to the highest-value activities, both geographically and from a product portfolio standpoint, going through and taking a look at what is generating the best returns in those areas.

Speaker Change: Sure I'll make some comments and Nick may have some additional ones most of the reduction in force that we're looking at is affecting SG&A and that does include sales and marketing and headquarter functions.

Speaker Change: Think as we look at our guiding principles, we're directing the spend to the highest value activities. That's both geographically and from a product portfolio standpoint going through and taking a look at what is generating the best returns.

Speaker Change: In those areas. We're also integrating recent acquisitions with existing Rockwell resources and looking for the cost synergies. There. So we're getting good performance out of our acquisitions and as we look at ways to get the efficiencies and as I said knit together, what we built and bought the actions we're taking.

Blake D. Moret: We're also integrating recent acquisitions with existing Rockwell resources and looking for cost synergies there. So we're getting good performance out of our acquisitions, and as we look at ways to get the efficiencies, and as I said, knit together what we've built and bought, the actions we're taking are consistent with that. And then there are opportunities, as always, for back office efficiencies by leveraging technology, and we see that in SG&A. We see it in our development activities as well.

Speaker Change: You're consistent with that and then there's opportunities as always for back office efficiencies by leveraging technology and we see that.

Speaker Change: SG&A, we see it in our development activities as well there is some reductions in cost of sales, including some in manufacturing operations as we're tuning.

Blake D. Moret: There are some reductions in cost of sales, including some in manufacturing operations, as we're tuning our capacity to match what we're expecting near term in terms of output, and that's product specific, right? Some of our lines are growing very well year over year, and they're expected to continue. Others, as we've gotten back to full safety stock, we can tune that to reduce some of the variances in those operations. So that's the current list of actions that we're taking.

Speaker Change: Capacity to match, what we're expecting near term in terms of output and Thats product specific right. Some of our lines are growing very well year over year and are expected to continue others as we've gotten back to full safety stock. We can we continue that to reduce some of the variances.

Speaker Change: And those operations. So thats. The current list of actions that we're doing as we look at the more comprehensive program, we'll be focusing on areas like sourcing.

Blake D. Moret: As we look at the more comprehensive program, we'll be focusing on areas like sourcing. There's a big opportunity for us with the spend of direct materials and other items. And then there are also additional opportunities for manufacturing efficiencies as we look at our portfolio and the wide range of SKUs that we offer.

Speaker Change: Big opportunity for us with <unk>.

Speaker Change: <unk> direct material.

Nicholas C. Gangestad: Nick?

Speaker Change: And other items and then there is also additional opportunities for manufacturing efficiencies as we look at our portfolio.

Speaker Change: While range of Skus that we offer Nick yes.

Unknown Attendee: Yeah, the one piece I'd add to that is that many of these costs are in organizations or functions that support multiple of our reporting segments. Given the way we allocate these costs across segments, intelligent devices and software control will see the greatest impact from these actions that we're taking.

Speaker Change: The one piece I'd add to that many of these costs are in organizations or functions that.

Speaker Change: That support multiple of our reporting segments, given the way we allocate these costs across segments.

Speaker Change: Intelligent devices and software control, we will see the greatest impact from these actions that we're doing.

Nicholas C. Gangestad: Right. It makes sense.

Speaker Change: Right makes sense. Thank you.

Speaker Change: Then.

Speaker Change: Very helpful on the walk sequentially on orders and you.

Speaker Change: Your commentary around margins for <unk>, but that does seem to imply again, we're doing math here on the fly a pretty big step up sequentially of margin.

Speaker Change: <unk>.

Unknown Attendee: Thank you. And then, you know, very helpful on the walk sequentially on orders and your commentary around margins for 3Q. That does seem to imply, again, we're doing math here on the fly, a pretty big step up sequentially in margin for 4Q. I'm getting to something like 6 points here. Maybe just talk about, you know, the margin math around how you see ending the year and what, apart from the cost reductions you've announced, would help that step up. Yeah, so there's a few things impacting

Speaker Change: It was something like six points here, maybe just talk to that.

Speaker Change: The margin math around how you see exiting the year.

Speaker Change: And what apart from the cost reductions you've announced would help that step up.

Nicholas C. Gangestad: Yep, so there are a few things impacting our margin progression as we go through the second half of the year. And you are correct, and we expect Q4 to be by far our highest margin quarter of the four quarters. The biggest contributor to that is going to be volume that is positively impacting the margin, particularly in software and control, that's followed by the structural and temporary cost savings that we're doing, and then the third is that we will be having a more favorable mix of revenue that will be benefiting margin. So volume is the biggest contributor, and then followed by the cost savings and then the mix all contributing to that sequential improvement in margin in Q4.

Speaker Change: Yes.

Speaker Change: Few things impacting our margin progression as we go through the second half of the year on and you are correct.

Speaker Change: We expect Q.

Speaker Change: Q4 to be by far our highest margin quarter of the of the four quarters, we ex.

Speaker Change: The biggest contributor to that is going to be volume that is positively impacting the margin, particularly in software and control.

Speaker Change: That's followed by the structural and temporary cost savings that we're doing and then the third.

Speaker Change: Is is we will be having a more favorable mix.

Speaker Change: Of revenue that will be benefiting margins. So it's volume is the largest and then followed by the cost savings and then the mix all contributing to that sequential improvement in margin in Q4.

Speaker Change: Very clear thank you.

Unknown Attendee: Our next question comes from Steve Tusa from J.P. Morgan. Please go ahead; your line is open.

Speaker Change: Our next question comes from Steve Tusa from Jpmorgan. Please go ahead. Your line is open.

Unknown Attendee: Hey, guys. Good morning. Hi, Steve. When you talk about these investments, what's the trend on R&D this year relative to last year as a percentage of sales? on an absolute basis.

Charles Stephen Tusa: Hey, guys good morning.

Charles Stephen Tusa: Hi, Steve.

Charles Stephen Tusa: When you talk about these investments.

Charles Stephen Tusa: What's the what's the trend on R&D this year relative to last year as a percentage of sales.

Charles Stephen Tusa: On an absolute basis.

Nicholas C. Gangestad: Yeah, Steve, R&D as a percent of revenue is going to be pretty consistent at six percent of revenue. As a percent of revenue, it's not really changing from last year.

Charles Stephen Tusa: Yes, Steve it R&D as a percent of revenue is going to be pretty consistent at 6% of revenue.

Charles Stephen Tusa: As a percentage of revenue, it's not it's not really changing from last year.

Speaker Change: Okay, and then I, just I guess just more philosophically.

Blake D. Moret: Okay, and then I guess just more philosophically. I'm thinking about the story, and I know you guys have talked about your business being more of an, you know, intellectual property business over time, certainly a part of the story, at least. And I just, what I struggle with at a higher level is, you know, whipping bonus accruals around, basically, altering investments based on near-term sales, I guess, that just seems juxtaposed with kind of an IP-type business.

Speaker Change: Thinking about the story and I know you guys have.

Charles Stephen Tusa: Talked about your business be more of them.

Charles Stephen Tusa: Intellectual property business overtime, certainly as part of the story at least and I, just what I struggle with a little bit higher level is.

Charles Stephen Tusa: <unk> bonus accruals around.

Charles Stephen Tusa: Basically.

Charles Stephen Tusa: Altering investments.

Charles Stephen Tusa: Just on near term sales I guess.

Charles Stephen Tusa: It seems juxtapose with kind of the.

Blake D. Moret: How do we have confidence that you're not, you know, rocking the boat with, with, you know, a lot of that core technology where the technology comes from? That would be kind of my biggest concern longer term. How are you guys managing that?

Charles Stephen Tusa: And IP type business.

Charles Stephen Tusa: How do we have confidence that youre not rocking the boat with.

Charles Stephen Tusa: A lot of that.

Charles Stephen Tusa: Core.

Charles Stephen Tusa: Where the technology comes from.

Charles Stephen Tusa: That would be kind of my biggest concern longer term how do you how are you guys managing that.

Blake D. Moret: Yeah, Steve, this is Blake. As Nick said, our development expense remains at 6%. We continue to invest robustly in areas like new product introduction, which has actually increased over the last few years in terms of what we're delivering to the market, both in terms of the hardware products, as well as new software as well. And so I think it'd be incorrect to talk about whiplashing that piece of it.

Charles Stephen Tusa: Yes, Steve This is Blake as as Mick said Doug.

Blake D. Moret: Development expense remains at 6%, we continue to invest robustly in areas like new product introduction, which is actually increasing over the last few years in terms of what we're delivering to the market. Both in terms of the hardware products as well as new software as well.

Charles Stephen Tusa: And so I think it would be incorrect to talk about with flash and that piece of it. We're looking for efficiencies that are taking cost out that had built up over the last few years of volatility as.

Unknown Attendee: We're looking for efficiencies that are taking costs down that have built up over the last few years of volatility as we've gone from the pandemic to supply chain shortages and making sure that we're tuned for growth going forward with that. The incentive comp philosophy hasn't changed there in that we operate in a pay-for-performance culture. We had great payouts last year because we performed really well with high revenues, top line growth, and even better EPS.

Charles Stephen Tusa: As we have gone from pandemic to supply chain shortages.

Charles Stephen Tusa: And making sure that were tuned for growth going forward with that.

Charles Stephen Tusa: <unk> com.

Charles Stephen Tusa: Philosophy Hasnt changed there in that we operate in a pay for performance culture.

Charles Stephen Tusa: Had great payouts last year, because we performed really well with high teens top line growth and even better EPS. This is a year that is.

Unknown Attendee: This is a year that is below expectations, and we're not paying a bonus, but it's going to come back. And that's the way we've operated for as long as I've been in the business. So, in no way, it implies some sort of short-term activity to manage results at the expense of the long-term value that we continue to provide.

Charles Stephen Tusa: Is below expectations, and we're not paying a bonus but it's going to come back and that's the way we've operated for as long as I've been in the business. So in no way it implies some sort of short term.

Charles Stephen Tusa: Activity.

Charles Stephen Tusa: To manage results at the expense of the long term value that we continue to provide.

Unknown Attendee: And then just one last one on the 3Q to the 4Q. I know that the second half of this year was dependent on, you know, obviously, the sales being there. I mean, how dependent are we from going from, you know, the 2-ish to 4 and from 3Q to 4Q on, you know, sales actually being there? Is it the same kind of dynamic as we've been seeing, you know, we're seeing in 3Q? Yeah, just similar to the comments you made last quarter.

Charles Stephen Tusa: And then just one last one on the on the <unk>.

Charles Stephen Tusa: <unk> I know that the second half of this year was dependent on.

Charles Stephen Tusa: Obviously, the sales being there I mean.

Charles Stephen Tusa: How dependent are we from going from you know the the two ish to four from <unk> to <unk> on.

Charles Stephen Tusa: On sales actually being there.

Charles Stephen Tusa: Is it the same kind of dynamic as as we've been we've been seeing we were seeing in <unk>.

Charles Stephen Tusa: Similar to the comments you made last quarter.

Nicholas C. Gangestad: Steve, the sales dynamic is the single biggest contributor to the increase in EPS from Q3 to Q4, followed second by, on a smaller scale, the cost actions. The total cost actions that we're projecting for the second half of the year, we expect about a third of that to be impacting Q3, and about two-thirds of that to be impacting Q4. So that is part of it, but it's still a smaller number compared to the reliance on revenue growth occurring in the fourth quarter.

Charles Stephen Tusa: Steve.

Charles Stephen Tusa: The sales dynamic is the single biggest contributor to the increase in EPS from Q3 to Q4 second.

Charles Stephen Tusa: Second followed second by.

Charles Stephen Tusa: On a smaller scale the cost actions.

Charles Stephen Tusa: The total cost actions that we're projecting in the second half of the year, we expect about a third of that to be impacted in Q3 and about two thirds of that to be impacting Q4. So there. That's that is part of it but it's still a smaller number compared to the <unk>.

Charles Stephen Tusa: Alliance on revenue growth occurring in the fourth quarter.

Unknown Attendee: Great. Thanks, as always, for all the details. Very helpful. And congrats on the coming retirement, Nick. I appreciate all the help.

Speaker Change: Great. Thanks, as always for all the all the details very helpful.

Speaker Change: Congrats on the on the coming retirement, Nick I appreciate all the entity.

Unknown Attendee: Our next question comes from Rob Mason from Baird. Please go ahead; your line is open.

Charles Stephen Tusa: Our next question comes from Rob Mason from Baird. Please go ahead. Your line is open.

Unknown Attendee: Yes, good morning. I wanted to see if you could provide a little more color around the step-up in orders that you're expecting, the sequential step-up in orders that you're expecting in the fourth quarter. I know you mentioned distributor channel inventories normalizing at that point. Is that the entirety of the high team's growth, or are you expecting some shift in, more positive shift in demand as well?

Robert W. Mason: Yes, good morning.

Robert W. Mason: I wanted to see if you could provide a little more color around the step up in orders that you are expecting sequential step up in orders that you are expecting in the fourth quarter I know you mentioned.

Robert W. Mason: Distributor channel inventories normalizing at that point is that the entirety of the.

Robert W. Mason: The high teens growth are you expecting some shift in more positive shift in demand as well.

Blake D. Moret: There are a few elements that inform that guidance, Rob. The first is a significant reduction in packaging machine builder inventory. So within the OEM inventory, packaging machinery has been particularly affected by that, and the feedback we're receiving from the conversations directly with them indicates that that will decrease significantly as we go through the third quarter and into the fourth. The distributor inventory is actually expected to clear again in regions outside of China before that, and so those two factors are an important part of it.

Robert W. Mason: There's a few elements of what informs that that guidance, Rob, but the first is a significant reduction in packaging machine builder inventory so within the OE.

Robert W. Mason: OEM.

Robert W. Mason: Inventory packaging machinery has been particularly.

Robert W. Mason: Affected by that and the feedback we're receiving from the conversations directly with them indicated that reduces significantly.

Robert W. Mason: As we go through the third quarter and into the fourth quarter distributor inventory actually is expected to clear again in regions outside of China before back in so those two factors are an important part of it we also see the normal seasonality.

Blake D. Moret: We also see the normal seasonality in our engineer-to-order and lifecycle services shipments. There's always a higher shipment amount at the end of the year there, and that would include CENCIA as well. And then we see the growing impact of megaprojects, and we do have a line of sight to some of those projects that are expected to come in with orders and shipments beginning in the fourth quarter. We're seeing some of that now. Think of that as kind of a drumbeat that increases through the year and again into next year.

Robert W. Mason: In our engineered to order and lifecycle services shipments Theres always say a higher shipment amount at the end of the year there and that would include <unk> as well and then we see the growing impact of Mega projects and we do have a line of sight to some of those projects that are expected to come in.

Robert W. Mason: With ordering and shipments beginning in the in the fourth quarter. We're seeing some of that now think of that as kind of a drumbeat that increases through the year.

Robert W. Mason: And again into next year.

Unknown Attendee: Should we think about the fourth quarter order level as, you know, a solid jumping off point as we go into 2025 now? Absent the engineered to order, you know, normal seasonality there?

Robert W. Mason: Should we think about the fourth quarter.

Robert W. Mason: Order level as solid jumping off point as we go into 2025.

Robert W. Mason: Absent the engineered to order normal seasonality there.

Blake D. Moret: Yeah, I mean, in this volatility that we've been operating in for the last four years, I'm going to reserve a view. But I think we're setting up the foundation so that we have an attractive cost base, regardless of what orders do next.

Speaker Change: Yes, I mean in this in this volatility that we've been operating in in the last four years I'm going to reserve.

Robert W. Mason: But I think we're setting up the foundation so that we have an attractive cost base, regardless of what orders do next year.

Speaker Change: Very good thank you.

Operator: Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.

Robert W. Mason: Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.

Robert W. Mason: Hi.

Unknown Attendee: Thanks, good morning everybody, and Nick, I wish you the best in retirement, and we're back and forth. Thanks for all the help.

Joseph Alfred Ritchie: Hi, Thanks, good morning, everybody and Nick.

Joseph Alfred Ritchie: Wish you the best in retirement, and then we're back and forth. Thanks for all the help.

Unknown Attendee: Thanks, Joe. Yeah, so maybe, can I just maybe just start on that last comment about micro project spending specifically? I'm trying to square the comments around EVs earlier and some pushouts. And if I think about, you know, where we're seeing the biggest kind of like expectation for megaproject pickup would probably be in Semi-FabCapX and then also on the like EV slash battery plants. And so, help me just kind of square the comments on EV pushing out and where you're actually starting to see some kind of, you know, some good, you know, green shoots on the megaproject side.

Speaker Change: Thanks, Joe.

Joseph Alfred Ritchie: Yes, so maybe can I just maybe just start on that last comment on NYCHA project spending specifically in China square.

Joseph Alfred Ritchie: The comments around Evs earlier in some push outs and then if I think about.

Joseph Alfred Ritchie: Where we're seeing the biggest kind of like expectation for megaproject pickup it'd probably be in semi fab Capex and then also on the like EV battery plants and so.

Joseph Alfred Ritchie: Help me just kind of square the comments on EV, pushing out and where you are actually starting to see some kind of.

Joseph Alfred Ritchie: Some good green shoots on the Mega project cloud.

Blake D. Moret: Yeah, so I mentioned that we're seeing some push-out on EV, but we are not seeing cancellations of those projects, and it doesn't mean that they've all gone away.

Joseph Alfred Ritchie: Yes, So I mentioned that we are seeing some push out on easy but we.

Joseph Alfred Ritchie: Are not seeing cancellations in those projects and it doesn't mean that they've all gone away EV is still about a third a little bit more than a third of our total automotive business. So theres still some of those projects <unk> projects.

Blake D. Moret: EV is still about a third, a little bit more than a third of our total automotive business. So there's still some of those projects, EV projects, that we're winning and getting business for now. If we look at some of the other areas of megaprojects, the facilities management and control systems for semiconductor fabs, we've got great capabilities there and are playing a major role in a lot of the fabs that have been announced and are currently under construction in the US, but around the world. That's been a good business for us in Asia for over a decade. So it's not a new application for us.

Joseph Alfred Ritchie: We are winning and getting business for now.

Joseph Alfred Ritchie: If we look at some of the other areas of Mega projects.

Joseph Alfred Ritchie: <unk> management and control systems for semiconductor Fabs, we've got great capabilities, there and are playing a major role in a lot of the fabs that have been announced and are currently under construction.

Joseph Alfred Ritchie: In the U S, but around the world that's been a good business for us in Asia.

Joseph Alfred Ritchie: For over a decade. So it is not a new application for us.

Blake D. Moret: Renewables is another area that we're seeing good investment opportunities in solar, and we are seeing meaningful business in solar, as well as wind, particularly with our cubic acquisition. And then another area that, we think, has bottomed, and we're seeing an impressive funnel building, is in the area of warehouse automation and really the overall space of production logistics. And again, I'll go back to the capabilities that we have that are somewhat unique with AMRs, the mobile robots, combined with the fixed automation that we've always had. We're tracking some major projects there.

Joseph Alfred Ritchie: Renewables is another area that we're seeing a good investment playing in solar.

Joseph Alfred Ritchie: We are seeing meaningful business in solar as well as win particularly with our cubic acquisition and then another area.

Joseph Alfred Ritchie: Is.

Joseph Alfred Ritchie: We think has bottomed and we're seeing an impressive funnel building is in the area of warehouse automation and really the overall space of production logistics and again I'll go back to the capabilities that we have that's somewhat unique with Amr's mobile robots combined with the fixed automation that we've always.

Joseph Alfred Ritchie: <unk> had we're tracking some major projects there and we've had some wins and I've talked about some of them on the call but to give you. An example of how those are playing out.

Blake D. Moret: And we've had some wins, and I talked about some of them on the call. But to give you an example of how those are playing out. There are a couple of customers that we've talked to in the last couple of months that have come out of discussions with labor and have, you know, made it clear that they want to complement their people with technology to a greater extent over the next few years.

Joseph Alfred Ritchie: There are a couple of customers.

Joseph Alfred Ritchie: That we've talked to in the last couple of months that have come off of discussions with labor.

Joseph Alfred Ritchie: And have.

Joseph Alfred Ritchie: Made it clear that they want to complement.

Joseph Alfred Ritchie: There are people with technology to a greater extent over the next few years and those have resulted in multi million dollar wins for Rockwell as a result of moving more aggressively into adding technology to complement their scarce resources and so those are the kinds of example.

Blake D. Moret: And those have resulted in multimillion-dollar wins for Rockwell as a result of moving more aggressively into adding technology to complement their scarce resources. And so those are the kinds of examples of megaprojects that are starting to come in.

Joseph Alfred Ritchie: <unk> of Mega projects that are starting to come in.

Speaker Change: That's super helpful. Blake. Thank you and then if I can maybe just to make sure that I've got it totally squared for next year on the on the buckets of cost savings. So you mentioned the $120 million for next year, we're going to get something more on the structural side and then incentive comp goes to zero this year and so on.

Unknown Attendee: So you mentioned $120 million for next year. We're going to get something more on the structural side. And then incentive comp goes to zero this year. And so in a normal year, that would be roughly and basically about $120, $130 million headwind in a normal year. So is that just baselined? Is that the right way to think about it?

Speaker Change: In a normal year that would be like roughly a basically about 102000 $830 million headwind.

Speaker Change: A normal year. So is that is that just.

Speaker Change: Be flagging it is that the right way to think about it.

Nicholas C. Gangestad: Joe, you got it all right except for the last one. Our normal bonus expenses are between $160 and $170 million.

Joseph Alfred Ritchie: Joe you got it all right except for the last one our normal bonus expenses in the $160 million to $170 million range.

Unknown Attendee: Okay, perfect. Thank you.

Speaker Change: Okay perfect. Thank you.

Operator: Julianne, we'll take one more question. Unknown Speaker.

Speaker Change: Julian will take one more question.

Operator: Certainly, our last question will come from Joe O'Day from Wells Fargo. Please go ahead; your line is open.

Speaker Change: Certainly our last question will come from Joe O'dea from Wells Fargo. Please go ahead. Your line is open.

Joseph Alfred Ritchie: Hi, good morning, everyone.

Joseph Alfred Ritchie: Good morning.

Unknown Attendee: Blake, when you talk about packaging, and delivering better order activity from Q3 to Q4, just want to level set on what that kind of size is overall for the business. And so you're talking food and beverage and household and personal care, and we should be thinking about 25% of revenue that would be seeing that pickup.

Joseph Alfred Ritchie: Blake when you talk about.

Joseph Alfred Ritchie: Packaging delivering better order activity from Q3 to Q4, just want to level set on sort of what how that kind of sizes overall for the business and so you're talking food and beverage and household and personal care and we should be thinking about.

Joseph Alfred Ritchie: 25% of revenue that would be seeing that pick up.

Blake D. Moret: Yeah, actually, so if you think about those verticals, and that's about the size of the overall verticals there, about 60% of our business in consumer packaged goods is covered mainly by those two verticals. So that's the way you can kind of do the calculus of how much of that business has been suppressed by the higher inventory levels, and we're expecting that to be dissipating in the coming quarters.

Joseph Alfred Ritchie: Yes, actually so if you think about those verticals and that's about the size of the overall verticals there about 60% of our business in consumer packaged goods.

Joseph Alfred Ritchie: Cover mainly by those two verticals is the Oems to machine builders. So that's the way you can kind of do the calculus of.

Joseph Alfred Ritchie: How much of that business has been suppressed by the higher inventory levels.

Joseph Alfred Ritchie: We're expecting that to be dissipating over the over the coming quarters.

Unknown Attendee: Got it. And then the bridge on sort of prior guide to revised guide and the core piece in the $3.75 EPS impact on core. It looks like that could be something like a 60 to 70 percent decrement. And if that's the case, and we think about the flip side, do you think that sort of a reversal of these headwinds is translating to better incrementals than what you would traditionally think about sort of through a cycle absent some of the temporary structural cost actions that are underway?

Speaker Change: Got it and then the the bridge on sort of prior guide too to revised guide in the core piece and then the $3 75.

Speaker Change: EPS impact on core.

Joseph Alfred Ritchie: It looks like that could be something like a 60% to 70% decremental.

Joseph Alfred Ritchie: And if thats the case, and we think about the flip side.

Joseph Alfred Ritchie: Do you think about sort of a reversal of these headwinds is translating to better incrementals than what you would traditionally think about.

Joseph Alfred Ritchie: Sort of through a cycle absent some of the temporary structural cost actions that are underway.

Blake D. Moret: Yeah, when you strip out things like incentive compensation and what we're showing there from investment spend, because those things would normally be part of what we talk about in terms of our incrementals and decrements, but we stripped out those two details to give you more detail of the underlying moving parts in there. But there are many parts of our portfolio where incrementals and decrements like that in that 60% range are certainly normal. They're normally offset by some degree of incentive compensation or investment spend, though.

Joseph Alfred Ritchie: Yes.

Joseph Alfred Ritchie: You strip out things like incentive compensation.

Joseph Alfred Ritchie: And what we're showing there from investment spend because those things would normally be part of what we talk about in terms of our incrementals and decrementals, but we stripped out those two details to give you more detail of the underlying moving parts in there, but there are many parts of our portfolio where.

Joseph Alfred Ritchie: Incrementals and decrementals like that in that 60% range or certainly normal they're normally offset by some degree of incentive compensation or or investment spend though.

Blake D. Moret: Yeah, I think, but directionally, I think you're right in that Logix. We've seen the biggest correction based on the really tough comps with the huge growth from last year. And as that comes back in, that hardware does have high incrementals and high decrements. We'll put a lot around it with annual recurring revenue and so on, which does help us and continues to grow. But there's no getting around that Logix is very profitable.

Speaker Change: Yes, I think Directionally I think you're right in that logic side, we've seen the biggest correction based on the really tough comps with the huge growth from last year and as that comes back in that hardware does have high Incrementals and high Decrementals will put a lot of rounded with annual recurring revenue and so on.

Speaker Change: Which does just help us and continues to grow but there is there is no getting around that logic is very profitable, we have high incrementals and high Decrementals there.

Unknown Attendee: I appreciate it. Thanks.

Speaker Change: I appreciate it thanks.

Operator: Thank you everyone for joining us today. That concludes today's conference call.

Speaker Change: Thank you everyone for joining us today that concludes todays conference call.

Operator: At this time, you may now disconnect. Thank you.

Speaker Change: At this time you may now disconnect. Thank you.

Operator: Please wait; the conference will begin shortly.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: <unk>.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: Okay.

Q2 2024 Rockwell Automation Inc Earnings Call

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