Q3 2024 Rockwell Automation Inc Earnings Call
Speaker Change: Thank you for holding and welcome to Rockwell Automation's quarterly conference call.
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.
Speaker Change: 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.
Speaker Change: 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.
Aijana Zellner: Thank you, Julian. Good morning, and thank you for joining us for Rockwell Automation's third quarter fiscal 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 recent charts have been posted to our website. Both the press releases and charts include, and our call today will reference, non-GAAP measures. Also, both the precedents and charts include reconciliations of these non-GAAP measures.
Aijana Zellner: Thank you, Julian. Good morning, and thank you for joining us for Rockwell Automation's third quarter fiscal 2024 earnings release conference call. With me today is Blake Moret, our Chairman and CEO , and Nick Gangestad, our CFO .
Speaker Change: Our results were released earlier this morning, and the press release and charts have been posted to our website.
Speaker Change: Both the press booth and charts include, and our call today will reference, non- GAAP measures .
Speaker Change: Both the precedence 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 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 our FSE files.
Speaker Change: A webcast of this call will be available on our website for replay for the next 30 days.
Aijana Zellner: So with that, I'll hand it over to Blake.
Blake Moret: Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our third quarter results, I'll make some initial comments. As we saw in Q2, operational performance continued to be strong in our third quarter, but order growth continued to ramp at a slower than expected pace. Our accelerated actions to bring costs in line with the lower outlook on current year orders contributed to the strong margin performance in the quarter, and we are well into the more comprehensive program to expand margins introduced during our Investor Day last November.
Speaker Change: So with that, I'll hand it over to Blake. Thanks, Aijana, and good morning, everyone. Thank you for joining us today. Before we turn to our third quarter results, I'll make some initial comments.
Blake: As we saw in Q2, operational performance continued to be strong in our third quarter, but order growth continued to ramp at a slower than expected pace.
Blake: Our accelerated actions to bring costs in line with the lower outlook on current year orders contributed to the strong margin performance in the quarter, and we are well into the more comprehensive program to expand margins introduced during our Investor Day last November .
Blake Moret: We continue to expect savings of $100 million in the second half of this year from accelerated actions taken this fiscal year, which will create a good starting point for fiscal year 25. Based on actions taken in the last 12 months, our worldwide headcount is down 6% since Q2, and most others who will be affected have been notified. 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, as I'll discuss in a few minutes. We've announced our new CFO, Christian Roth, who starts in two weeks and is excited to begin.
Blake: Based on actions taken in the last 12 months, our worldwide headcount is down 6% since Q2, and most others who will be affected have been notified.
Blake: 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, as I'll discuss in a few minutes.
Blake: We've announced our new CFO , Christian Roth, who starts in two weeks and is excited to begin.
Blake Moret: Christian brings a successful track record and will work with me and the rest of the team to combine market-beating growth and financial performance in a consistent, longer-term model based on the targets introduced last November to create significant shareholder value. Turning to specific results in the quarter, Q3 orders were up low single digits, both year-over-year and sequentially, with growth across all regions. However, while our distributors and machine builders are making progress on working down their excess inventory, their orders to us came in lower than expected in the quarter due to weaker end-user demand.
Speaker Change: Christian brings a successful track record and will work with me and the rest of the team to combine market-beating growth and financial performance in a consistent longer-term model based on the targets introduced last November to create significant shareowner value.
Blake Moret: As a result, we are projecting more gradual sequential order growth in Q4 and into fiscal year 25 than we had previously expected. We had another quarter of strong execution, with sales, margins, and EPS all exceeding our expectations. Total and organic sales were down 8.4% versus the prior year. However, organic sales came in better than we expected with strong backlog execution in our longer cycle businesses, including life cycle services and the configure-to-order products in intelligent devices.
Speaker Change: We had another quarter of strong execution with sales, margins, and EPS all exceeding our expectations.
Speaker Change: Organic sales came in better than we expected, with strong backlog execution in our longer-cycle businesses, including Lifecycle Services and the Configure-to-Order products in Intelligent Devices.
Blake Moret: Organic sales in our intelligent devices segment were down by about a point versus the prior year. However, we continue to see a solid pipeline of projects across all product lines, including good opportunities involving ClearPath's Auto, Mobile Robots, and Qubic data center solutions. In software and control, organic sales declined by over 31% year over year, compared to 24% growth in Q3 of last year.
Blake Moret: Sales in this segment were still better than expected, driven by better logics recovery as machine builders reduced their inventory. We also saw good growth in our software business, including both on-prem and CloudNative. For example, in the quarter, we had over 150 new logos for our recently launched Factory Talk Optics portfolio. This reinforces the importance of continued investment in innovation and new product introduction, as we continue to redeploy and prioritize our spend towards areas of highest growth and strategic importance.
Speaker Change: We also saw good growth in our software business, including both on-prem and on-prem.
Speaker Change: and cloud-native offerings. For example, in the quarter we had over 150 new logos for a recently-launched FactoryTalk Optics portfolio.
Blake Moret: We've talked a lot about cost savings during this challenging year, but we're taking great care to preserve the investments that will enable us to continue to grow share. Lifecycle Services had another strong quarter, with organic sales up over 11% year-over-year, driven by continued relative strength in process end markets and strong execution of our project backlog. Book to bill in this segment was 1.0.
Speaker Change: We've talked a lot about cost savings during this challenging year, but we're taking great care to preserve the investments that will enable us to continue to grow share.
Blake Moret: We did see some additional project delays, especially affecting our solutions orders. Some manufacturing customers are taking a pause in making large capacity investments as they deal with slower consumer demand, high interest rates, and policy uncertainty around tax tariffs and stimulus incentives. We're making good progress on driving productivity across the enterprise, and we are seeing the benefits of these actions with over $40 million of savings in Q3 alone. Sales in our discrete industries were down high single digits versus the prior year, with declines in auto and semi being partially offset by year-over-year growth in warehouse automation.
Speaker Change: We did see some additional project delays, especially affecting our solutions orders.
Speaker Change: Even so, our customers are still investing in their operational resilience, reflected by continued double-digit sales growth of our recurring managed services.
Speaker Change: Total ARR for the company was up a strong 17% this quarter.
Speaker Change: Segment margin of 20.8% and adjusted EPS of $2.71 were well above our expectations.
Speaker Change: We're making good progress on driving productivity across the enterprise, and we are seeing the benefits of these actions with over $40 million of savings in Q3 alone.
Speaker Change: Last quarter we talked about some project delays and end-user CAPEX slowdown in parts of our business, namely automotive and food and beverage.
Speaker Change: We saw project delays across a broader group of industries this quarter, which will impact our end market performance through the end of the fiscal year.
Speaker Change: Sales in our discrete industries were down high single digits versus prior year with declines in auto and semi being partially offset by year-over-year growth and warehouse automation.
Blake Moret: Within discrete, automotive sales declined in the high teens versus prior year. Semiconductor sales were down in the high teens. We continue to see delays in new capacity builds and the associated tooling, due in part to questions about the timing and certainty of CHIP's funding disbursal. The life science business of Merck in Darmstadt, Germany, which operates in the U.S. and Canada as Millipore Sigma, selected Rockwell to assess the company's current plant infrastructure and help enhance the digital connectivity and cybersecurity resilience of operational assets.
Speaker Change: Moving to hybrid, sales in this industry segment were down mid-teens, driven by year-over-year declines in food and beverage and life sciences.
Speaker Change: Food and beverage sales decreased mid-teens in the quarter. Producers in certain segments of the food and beverage market, like baking and snacks, are seeing inflationary headwinds as consumers shift from high-end brands to more affordable labels.
Speaker Change: We're seeing less greenfield activity, but we do continue to see high demand for software and services that optimize processes to increase efficiency.
Blake Moret: Another important Q3 win in life sciences was with AstraZeneca. In mining, our sales increased by high single digits versus the prior year. Our growth in the quarter was driven by continued double-digit growth in Latin America, coupled with the time to market provided by our integrated architecture solution. In addition to continued inventory de-stocking and economic challenges in China, we saw incremental headwinds from EV battery project delays in Korea this quarter. This is indirect material. Logistics and Manufacturing Workflow
Speaker Change: Another important Q3 win in Life Sciences was with AstraZeneca.
Speaker Change: And while we continue to win business in the energy transition space, we did see some North America project push-outs tied to customers wanting to understand potential policy changes that may occur after the U.S. elections in November .
Speaker Change: In mining, our sales increased high single digits versus prior year. Our growth in the quarter was driven by continued double-digit growth in Latin America.
Speaker Change: Here, Rockwell was chosen to integrate an end-to-end solution for Vale's new processing plant, as this customer looks to increase production capacity, reduce water consumption, and enhance cybersecurity infrastructure.
Speaker Change: This is a great example of how Rockwell brings our hardware, software, and services together to deliver differentiated value for our end users.
Speaker Change: Let's turn to slide 5 in our Q3 Organic Regional Sales.
Speaker Change: Despite these headwinds, we continue to make progress with our European machine builders to gain share in the end-user market.
Speaker Change: In addition to continued inventory destocking and economic challenges in China, we saw incremental headwinds from EV battery project delays in Korea this quarter.
Speaker Change: As manufacturers focus on cost control and operational efficiency,
Speaker Change: Taking into account our order progression through early August , we now expect Q4 orders to be up low single digits sequentially.
Speaker Change: We continue to expect acquisitions to contribute about a point and a half of growth, and we expect currency to be about neutral for the year.
Speaker Change: We now expect our segment margin to be slightly over 19% for the year. While this represents about a 200 basis point decrease versus last year, it also shows the improving resilience of our business model.
Speaker Change: We already talked about the accelerated actions we're taking in the second half of this fiscal year to drive efficiency and scale across our entire company.
Speaker Change: And we remain committed to delivering $100 million of savings this year and $120 million of incremental savings in fiscal year 25, mainly targeted at reducing our SG&A spend.
Speaker Change: As you can see from this chart, we expect to save another $130 million dollars in fiscal year 25.
Speaker Change: Through additional margin expansion and productivity projects, bringing our total FY 25 year-over-year savings to roughly $250 million.
Speaker Change: You can see the broad list of actions and programs that are underway to realize these targets.
Speaker Change: We look forward to our new CFO Christian Roth's additional perspective as we maximize the effectiveness of this program in fiscal year 25 and preserve it as a foundational part of our operating model going forward.
Speaker Change: Regardless of the top-line growth in any particular year.
Speaker Change: Let me now turn it over to Nick to provide more detail on our Q3 performance and financial outlook for fiscal 24. Nick?
Nick Gangestad: Thank you, Blake, and good morning, everyone. I'll start on slide 8, third quarter, key financial information. I'll cover a year-over-year adjusted EPS bridge on a later slide. One additional item not shown on the slide.
Nick: Thank you, Blake, and good morning, everyone.
Nick: I'll start on slide 8, third quarter, key financial information.
Nick: Third quarter reported and organic sales were down 8.4% compared to last year.
Nick: About 350 basis points of organic growth came from price this quarter.
Nick: Margin performance in the quarter reflects lower sales volume and an unfavorable mix
Nick: largely offset by positive price cost.
Nick: Lower Incentive Compensation and the Benefits from Cost Reduction Actions we announced on our last earnings call.
Nick: The adjusted effective tax rate for the third quarter was 13.3%, benefiting from discrete tax items and below the prior year rate.
Nick: One additional item not shown on the slide. We repurchased approximately 600,000 shares in the quarter at a cost of $160 million.
Nick: Slide 9 provides the sales and margin performance overview of our three operating segments.
Nick: Intelligent devices margin increased to 20.2% compared to 16.8% a year ago.
Nick Gangestad: The increase from the prior year was driven by positive price costs, lower incentive compensation, and our cost reduction action. However, the software and control margin of 23.6% decreased from 34.8% last year. The next slide, 10, provides the adjusted EPS walk from Q3 Fiscal 23 to Q3 Fiscal 24. As a result, we expect full year free cash flow conversion of about 60% of adjusted income. A few additional comments on Fiscal 24 guidance. Net interest expense for fiscal 24 is now expected to be $140 million.
Nick: The increase from the prior year was driven by positive price cost, lower incentive compensation, and our cost reduction actions.
Nick: partially offset by lower sales volumes.
Nick: The lower margin was driven by lower sales volume, partially offset by positive price cost, lower incentive compensation, and our cost reduction actions.
Nick: As Blake mentioned earlier, software and control margin exceeded our expectations this quarter with better performance in logics sales.
Blake: Life-cycle services margin of 19.3%, more than doubled from the year-ago margin of 9.3%.
Blake: Life Cycle Services Book to Bill was 1.0
Blake: The next slide, 10, provides the adjusted EPS walk from Q3 Fiscal 23 to Q3 Fiscal 24.
Blake: The EPS decline was driven by lower volume and unfavorable mix and was partially offset by positive price cost.
Blake: Incentive compensation was a 40 cent tailwind.
Blake: We are lowering our guidance for fiscal 24. We now expect reported sales to decline by about eight and a half percent.
Blake: As Blake mentioned earlier, we continue to expect acquisitions to add 150 basis points to growth, and we now expect currency to be neutral for the year on continued strength in the U.S. dollar.
Blake: We continue to expect Price to be a positive contributor for the year.
Blake: As a result, we expect full-year free cash flow conversion of about 60% of adjusted income.
Blake: including our second half restructuring actions, the timing of our cash bonus payout,
Speaker Change: Sequentially, we expect margins in Q4 to be about 100 basis points lower than in Q3. By segment, we expect our Q4 margin in intelligent devices to decline about 100 basis points
Speaker Change: We expect margin in software and control to be similar to Q3.
Speaker Change: A few additional comments on Fiscal 24 guidance.
Speaker Change: We're assuming average diluted shares outstanding of 114.5 million shares. We still expect to deploy between $600 and $800 million to share repurchases during the year.
Speaker Change: Net interest expense for Fiscal 24 is now expected to be $140 million.
Speaker Change: Before I pass it on to Blake, I'd like to talk about how actions we're taking this year are going to benefit our results in fiscal 25 and beyond.
Blake: The $250 million in benefits is split about equally between improvements in gross margin and reductions in SG&A.
Blake: We expect R&D spending next year to remain similar as a percentage of sales as we continue to invest in areas of highest growth.
Blake: With my upcoming retirement, I'd like to thank Blake for this opportunity and to thank all of you for your engagement over the last several years. Thank you. With that, I'll turn it over to Blake for some closing remarks before we start Q&A.
Blake: Christian will join me in leading the fourth quarter earnings call and investor day in November .
Speaker Change: Registration opens tomorrow for the 2024 event in Anaheim, California, which takes place during the week of November 18th.
Unknown Speaker: This year, the fair offers an expanded four days of show floor access, showcasing major new hardware, software, and services offerings.
Speaker Change: This year the fair offers an expanded four days of show floor access showcasing major new hardware, software, and services offerings.
Rockwell: Rockwell's technology portfolio, domain expertise, and unmatched ecosystem uniquely position us to help customers in our home market of North America and around the world. We look forward to seeing you in Anaheim in just over three months.
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.
Speaker Change: As a reminder to ask a question please press star 1 on your telephone keypad. To withdraw any questions press star 1 again. Our first question comes from Scott Davis from Melius Research. Please go ahead, your line is open.
Scott Davis: Hey, good morning, Blake and Nick and Aijana. Congratulations, Nick, on your retirement, too. Thanks, Scott. Hope we all keep in touch. But hey, guys, I hate to climb into the minutiae, but just to kind of clarify the 250 million a little bit. So would we think for 2025, something we wanted to model conservatively, would it be $160 million or so of incentive comp that comes back?
Scott Davis: Hey, good morning, Blake and Nick and Aijana. Congrats, Nick, on your retirement, too.
Speaker Change: Thanks, guys. Bye.
Speaker Change: Hope we all keep in touch, but hey guys, I hate to climb into minutiae, but just to kind of clarify the $250 million a little bit.
Speaker Change: Normally I think, I think I recall your bonus pool something like 160 million ballpark.
Nick Gangestad: Scott, the $250,000 is exactly, as you said, a year-over-year benefit from the productivity and cost-safe margin actions we're taking.
Speaker Change: Scott, the $250,000 is exactly, as you said, as a year-over-year benefit from the productivity and cost-safe margin actions we're taking.
Speaker Change: We expect the bonus expense next year, if we're delivering to plan, to be between $160 and $170 million.
Unknown Speaker: When you think about incremental margins, let's just assume we get back to growth in 2025 on these year comps. Would you expect incremental margins to be a little higher than they have been historically based on some of this kind of SKU rationalization, and the other stuff that's on slide seven? Would that be a fair assumption to make, guys?
Speaker Change: Would you expect incremental margins to be a little higher than they have been historically based on some of this kind of SKU rationalization, the other stuff that's on the on slide seven, would that be a fair assumption to make guys?
Speaker Change: And we said that that wasn't going to be dependent on mid-single-digit top-line growth.
Speaker Change: So a little bit more aggressive stance there.
Speaker Change: We'll hold off before talking about exactly what we expect in terms of core conversion, but you can bet that that's on our mind to increase the incremental conversion on revenue.
Unknown Speaker: Okay, fair enough. I'll pass it on. Thank you, guys.
Speaker Change: Okay, fair enough. I'll pass it on. Thank you, guys.
Andrew Kaplowitz: Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.
Scott Davis: Thanks, Scott.
Scott Davis: Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead, your line is open.
Andrew Kaplowitz: Hey, good morning, everyone. Thanks again, Nick.
Blake Moret: Blake, can you give us a little more color on your comment that you expect to see continued order growth sequentially and into next year, despite manufacturers taking a pause in adding capacity? Where does that confidence come from? Do distributors still expect to clear their channels in the next quarter or two? How much in incremental orders could the end of de-stocking be versus maybe the $2 billion that you're dying to get for Q4? And how are you thinking about the order and revenue landscape in 2025? Do you think $2 billion is a quarterly trough that ROC will bounce back from?
Andy Kaplowitz: Blake, can you give us a little more color into your comment that you expect to see continued order growth sequentially and into next year, despite manufacturers taking a pause in adding capacity? Where does that confidence come from? Do your distributors still expect to clear their channels in the next quarter or two? How much in incremental orders could the end of destocking be versus maybe the $2 billion that you're dying to for Q4? And how are you thinking about the order and revenue landscape in 2025? Do you think $2 billion is a quarterly trough that ROC will bounce off of? We'll see. Thank you. Have a great day. Thanks. Have a great day.
Blake Moret: Sure, Andy, you know, for a little bit of context, we talked in the third quarter about expecting mid single-digit sequential order growth. And we've seen sequential order growth through the year. And we said because we were continuing to see the impact of excess inventories at distributors and machine builders, that was going to yield mid single-digit order growth. But as that kind of merges with some weakening in end markets, that's where we saw the low single-digit sequential order growth in Q3. And we think that that will continue.
Speaker Change: Access Inventories at Distributors and Machine Builders, that was going to yield mid-single-digit order growth.
Blake Moret: So rather than a one or two quarter sharp or bounce back, we think this is going to continue to be a gradual recovery. Inventories are depleting, both at our distributors and our machine builders. But we have seen some weaker conditions in end markets. And I would characterize that, you know, in a couple of buckets, you see a couple that are affected by consumer demand, such as automotive, as consumers are going a little slower in a rush to EV.
Blake: you know, sharp or bounce back, we think this is going to continue to be a gradual recovery. Inventories are depleting, both at our distributors and our machine builders.
Blake: But we have seen some weaker conditions.
Blake: and Markets and I would characterize that
Blake: You know, in a couple of buckets, you see a couple that are affected by
Blake: Consumer Demand, such as automotive as consumers are going a little slower in a rush to
Blake Moret: And you also see in food and beverage and home and personal care, we see consumers, and you've heard this from the brand owners themselves, are going a little bit down the brand as they're being more discriminating on what they pay for, you know, packaged goods. Then you also see some pressure based on policy uncertainty going forward, I would say semiconductors, and you know, questions about the disbursement of chips and science act funds are weighing on semi-conductor manufacturers, and then an energy transition.
Blake Moret: So in those broad buckets, you know, that tempers our view, on the good side, on the tailwind side, as we go into next year, we're going to be lapping, you know, some of the quarters that had the most significantly impacted this fiscal year by inventory. And there'll certainly be a lot less inventory at distributors and machine builders in Q1 of fiscal year 25, for instance, than there was in Q1 of fiscal year 24.
Blake: are weighing on semi manufacturers, and then an energy transition. So in those broad buckets, you know, that tempers our view.
Blake: That were most significantly impacted in this fiscal year by inventory, and there'll certainly be a lot less inventory at distributors and machine builders in Q1 of fiscal year 25, for instance, than there was in Q1 of fiscal year 24.
Blake: primarily we guided in Q3 that we expected our in our software and control business we expected a sequential decline of 20% which would have
Blake: What we said on our last call is that we thought that would bring our margins in software and control down to the mid-teens.
Blake Moret: With the strength in the logics, orders, and sales that we saw in Q3, that did not materialize to that level. It ended up, rather than software control being down 20%, it was down 10%.
Blake: And that's the primary driver of our overperformance of margin in Q3. Now into Q4, we will be getting the benefit of these additional cost actions.
Blake: And software and control, we don't see an additional ramp up happening in Q4 for our logic sales. We think that will be very, very similar to what we saw in Q3. In fact, we think...
Blake: What we saw in Q3 is going to be almost a carbon copy into Q4 from a revenue standpoint, from a margin standpoint for software and control. Intelligent devices and lifecycle services, we expect for both of those a sequential decline.
Blake: We had some both of those businesses had some favorable mix. Driven by in Q3, we see some of that mix reversing into into Q4. And in lifecycle services, it's part of our customer
Blake: and Project Mix that was very beneficial to us in Q3. We think that'll abate some in Q4 and why we see margins going down a couple hundred basis points sequentially.
Blake: Still part of a more than doubling the margin for the full year than what we saw last year. And then intelligent devices, we see about a 100 basis point drop in margins. That is also driven by some of our product and project mix there.
Speaker Change: Appreciate all the color.
Unknown Speaker: Hey, maybe the term normal is sort of hard to use here at all. But, you know, if we look at kind of Q4 revenues, sort of flat, I don't know, maybe up slightly sequentially, my words, you said flat. You know, that looks like, you know, kind of a pre-COVID normal pattern.
Speaker Change: You set flat, you know, that looks like, you know, kind of a sort of a pre COVID normal pattern.
Speaker Change: The, you know, as we all, you know, the biggest task of us analysts here this morning, right, is to get in front of your 2025 guide and make an educated guess, I think, as you well understand. I mean, how would you view this Q4?
Speaker Change: 2025 jumping off point in the context of what has been historically normal and how should that inform our view of 2025?
Speaker Change: You know, rates again, you're going to see some big numbers in the fourth quarter and likely, you know, going into next year.
Speaker Change: And we do see, you know, continued investment. We talked about project delays, but we're winning projects as well. We are seeing the impact of, you know, higher than traditional levels of investment.
Speaker Change: sequential increases into next year and then we'll certainly be given a lot more detail in November .
Speaker Change: And perhaps there's even, I don't know, some risk if the economy ends up getting weaker here than we anticipate.
Speaker Change: There's certainly risk with that, Jeff, but there's also the amount of business that we didn't ship.
Jeff: In the beginning of the year, because it was inventory sitting at distributors, and that was a meaningful number, you know, throughout the year, and it's far less as we move into next year. So you get some tailwind from that.
Unknown Speaker: Great. Thank you very much.
Unknown Speaker: Right.
Jeff: Great, thank you very much.
Andrew Obin: Our next question comes from Andrew Obin from Bank of America. Please go ahead. Your line is open.
Speaker Change: Our next question comes from Andrew Obin from Bank of America. Please go ahead, your line is open.
Speaker Change: Thank you. This is David Ridley Lane on for Andrew.
Speaker Change: On that point about the stocking, it sounds as though you are mainly done with it in North America. How's the visibility for regions outside of there?
Blake Moret: Yeah, so our visibility into distributor stock is very clear for the distributors on our DMI program, which is 100% of the distributors in North America. And it's not all the way gone, but it's, you know, the vast majority of it has dissipated there. We see continuing stubborn inventory in China, and we'll call that out. And it's going to take a little while to get to the bottom of that. Because if you think about it, what paces those inventory levels has a lot to do with end market demand.
Speaker Change: Yeah, so our visibility into distributor stock
Speaker Change: We see continuing stubborn inventory in China, and we'll call that out. And that's going to take a little while to get to the bottom of that, because
Blake Moret: And so if that is weaker, then it's going to take longer to burn through that stock sitting on distributor shelves. But we have very clear visibility in the U.S., where the vast majority of our business goes through distribution. I painted the picture in China, and then we have a higher amount of direct business with machine builders in Europe.
Speaker Change: Those inventory levels have a lot to do with the end market demand. And so if that is weaker, then it's going to take longer to burn through that stock.
Blake Moret: There, you know, it's basically talking with them about what their levels are. And we have, you know, consistent questions that we review with them on a monthly basis. We're confident that it continues to go down, but it's not all the way there yet.
Unknown Speaker: A portion of that year-on-year improvement in the margin and in the margin you're seeing is coming from the absence of any kind of bonus or incentive compensation this year.
Unknown Speaker: Thanks. Good morning and good luck, Nick. Thank you. So obviously, good news that, you know, sell-in to distribution is sort of being matched by order rates, et cetera. But
Blake Moret: Yeah, we do track the amount of new orders being placed by our distributors, and what we see there is that we are seeing that continuing to go up.
Nick Gangestad: Okay, that's great, Colin. Nick, just a quick one on M&A contribution for the quarter came in quite a bit lighter than we were looking for. I'm just wondering if there's any seasonality or timing or shipments we should bear in mind there.
Unknown Speaker: But you haven't. So I'm trying to understand why there's been that discrepancy or disconnect and sort of allied to that.
Speaker Change: Currency or disconnect.
Speaker Change: And sort of allied to that.
Speaker Change: Often I think Rockwell and others when you get a sales shortfall do you get super normal free cash flow conversion, but for you we're getting cash conversion guide coming down with the revenue guide coming down.
Speaker Change: So that's just very unusual for this kind of business model. So maybe any sort of highlights around that please sure.
Speaker Change: Sure Julien Thanks for asking so from a inventory standpoint.
Speaker Change: Given what we where we have been in the last two and a half years in terms of.
Speaker Change: Ensuring that our customers are getting the products they need.
Speaker Change: We have been very focused on making sure that we have the stock we need in place to be meeting meeting our customers' requirements.
Speaker Change: As we went through the our plans for fiscal year 'twenty four as we went through the year is that we expected that.
Speaker Change: In the second half of this year, we would be seeing increased demand on us depleting quite a bit of that excess inventory that we ourselves are holding as we're seeing the demand on us not having that ramp up but more of this gradual increase that we're talking about.
Speaker Change: That's leaving us with with noticeably more inventory in.
Speaker Change: In terms of days of inventory at the end of our fiscal year than what we were estimating earlier in the year or even three months ago.
Nick Gangestad: And that's the most significant part of our cash conversion story. In terms of our prior guide of 80% now bringing it down to 60, we've known all along we have these one-time, non-recurring headwinds, things like our extra tax payments that we'd be making well in excess of our tax expense. We also knew that we'd be having cash payments for our restructuring actions. So those things are contemplated as part of that 80%, but we are also counting on a noticeable roll-down in that working capital and inventory in the second half of the year. And while it's still going to come down in the second half of the year, it's not going to come down nearly at the pace. That's really going to be more of a 25% development for us.
Speaker Change: And that's the most significant part of our cash conversion story.
Speaker Change: In terms of our prior guide of 80%.
Speaker Change: 80% now, bringing it down to 60.
Speaker Change: We've known all along we have these one time nonrecurring headwinds things like our our extra tax payments that we'd be doing well in excess of our tax expense. We also knew that we'd be having.
Speaker Change: The.
Speaker Change: Cash payments for our restructuring actions. So those things are contemplated as part of that 80%, 80%, but we are also counting on a noticeable roll down in in that working capital and inventory in in the second half of the year and while it's still going to come down in the second half.
Speaker Change: Of the year, it's not going to come down nearly at the pace, that's really going to be more of a 25 development for us.
Speaker Change: That's great. Thank you and maybe just one follow up on the broader demand environment.
Speaker Change: So it seems like sort of a couple of things happening I think one is Blake.
Blake: Blake as you mentioned sort of orders sequentially, improving so the overall.
Speaker Change: That drop sequentially looks a little bit better as we move along but you also highlighted capex reductions customers and project delays, which I suppose is something new versus say six months ago. When the talk was only about destocking headwinds of inventory. So it seems we have moved.
Speaker Change: Seamlessly from from destock into Capex cuts.
Blake Moret: Just wondered, sort of, when those CapEx cuts started to become evident to you in earnest? And any kind of thoughts around demand cadence in the last month or two in general? Yeah, so
Speaker Change: Just wanted to sort of when did those capex cuts start to become evident to you in earnest.
Speaker Change: And any kind of thoughts around demand cadence in the last month or two in general.
Speaker Change: Yeah.
Blake Moret: Yeah, so we talked in the last quarter about some weaker CapEx spend, particularly in food and beverage and auto around new capacity. We indicated that while, for instance, food and beverage customers are still investing in resilience and efficiency, they're pausing new capacity. And similarly, I think the well-read theme of EVs is slowing down a bit as well. We're still seeing projects and behavior that we would characterize as delays, pushouts, but not cancellations. And we certainly hope that it doesn't move to that. We're watching it. We're taking a clear-eyed view of what's happening out there.
Yes, So we did talk in the last quarter about some weaker.
Speaker Change: Capex spend.
Speaker Change: Particularly in food and beverage and auto.
Speaker Change: <unk> new capacity, we indicated that while for instance, food and beverage customers, we're still investing in resilience and efficiency.
Speaker Change: They are pausing new capacity and similarly.
Speaker Change: I think well red theme of <unk>.
Speaker Change: <unk> slowing down a bit.
Speaker Change: Well, we're still seeing projects, alright, and behavior that we would characterize as delays push outs, but not cancellations.
Speaker Change: And we certainly hope it doesn't move.
Speaker Change: Move to that we're watching it.
Noah Kaye: But people are pushing for some of the reasons I mentioned before. As we said, we are looking at consumer demand, interest rates, and then some policy uncertainty. It doesn't all just stop until the elections, for instance. We're going to see major projects that are awarded this quarter that are coming from customers across a variety of industries, but not at the pace that we would have thought, say, three or four months ago. And you're right. The dominant theme for the first part of this year was the inventory issue at distributors and machine builders. And now, as that dissipates, we're seeing some pause in capital spend in manufacturing.
Speaker Change: We're taking a clear eyed view of what's happening out there.
Speaker Change: But people are pushing for some of the reasons I mentioned before.
Speaker Change: As you said looking at consumer demand interest rates and then some policy uncertainty.
Speaker Change: It doesn't all just.
Speaker Change: Stop until the elections for instance, we're going to see major projects that are awarded this quarter.
Speaker Change: <unk>.
Speaker Change: Coming from customers across a variety of industries, but not at the pace that we would have thought.
Speaker Change: Say say three or four months ago, and you are right.
Speaker Change: The dominant theme for the first part of this year was the inventory issue at distributors and machine builders and now as that dissipates.
Speaker Change: We're seeing some pause in capital spend in manufacturing.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Yes. Thanks.
Speaker Change: Yeah.
Noah Kaye: Our next question comes from Noah Kaye from Oppenheimer. Please go ahead. Your line is open.
Our next question comes from Noah Kaye from Oppenheimer. Please go ahead. Your line is open.
Blake Moret: Thanks. I'll just bundle a couple of questions here to keep it moving. First, you know, can we actually quantify the revenue impact of the inventory destocking in the channel as contemplated in full year guidance? What is the actual revenue headwind, just so we can level set for next year? And two, thinking about some of the routability of the cost actions benefiting the P&L. You know, when we get the reinstatement of bonus comp and merit increases, presumably those are fairly routable throughout next year's quarterly. Should we think about the same for the cost actions that you're announcing today?
Noah Kaye: Thanks, So I'll just bundle a couple of questions here I think you've been moving first can.
Speaker Change: We actually quantify the revenue impact of the inventory destocking in the channel.
Speaker Change: As contemplated in full year guidance, what is the actual revenue headwinds just so we can level set for next year.
Speaker Change: And to thinking about some of the ability of the cost actions benefiting the P&L.
When we get the reinstatement of bonus comp in merit increases presumably those are those are fairly ratable throughout next year quarter away.
Speaker Change: Should we think about the same for the cost actions that you're announcing today.
Speaker Change: So so I'll take the first one and then Nick will chime in on the calendar <unk> of the cost actions.
Blake Moret: So, I'll take the first one and then Nick will chime in on the calendarization of the cost action. You know, we haven't given a specific figure in terms of the inventory at distribution and machine builders, but it's hundreds of millions of dollars. And it's a larger factor, as I've said before, than some of the investments that we've seen in North America. So it's a bigger number than the business on the good side that's been won this year based on investment in North America.
Speaker Change: We haven't given a specific figure in terms of the inventory at <unk>.
Nick: Distribution and machine builders, but its hundreds of millions of dollars and it's a larger factor.
Nick: As I've said before than some of the investments that we've seen in North America. So it's a bigger number than.
Nick: The business on the good side, that's been won this year.
Nick: Based on investment in North America, it's dissipating, we're seeing a smaller contribution.
Blake Moret: It's dissipating. We're seeing a smaller contribution in each quarter, but it's been stubborn. And as we said, we expect that there's not going to be, you know, one month all clear where suddenly it's gone. And that's why we say gradual sequential improvement in orders this quarter and then into next year.
Nick: In each quarter, but it's been stubborn and as we said we expect.
Nick: That there's not going to be.
Nick: One month, all clear where suddenly it's gone.
Nick: And that's why we say gradual sequential.
Nick: Improvement in orders in this quarter and then into next year.
Nick Gangestad: Yeah, and then Noah, as far as the quarterization or calendarization of the benefits of that $250 million, well, first let me say you are correct about the bonus, that that will be largely equal throughout the four quarters of fiscal year 25. But in terms of the calendarization, of course, we'll add that kind of information to the November meeting for more detail. That said, what I can tell you is the restructuring benefits are more front-path loaded, the things that we started in Q3, whereas the... Additional margin expansion benefits that we talked about that go on top of that, that are more second half loaded. But the actual calendarization of all of this, we'll share more of that in November.
Noah Kaye: Yeah, and then Noah as far as the quarter as Asian or calendar as Asian of the benefits of that 250 million well first let me say you are correct about the bonus that that will be.
Nick: Largely equal throughout the four quarters of fiscal year 'twenty five but in terms of the calendar as Asian of course, we will add that kind of information in the November meeting for more detail.
Nick: That said what I can tell you is the restructuring benefits are more front half loaded the things that we started in Q3, whereas those.
Nick: Additional margin expansion benefits that we talked about that go on top of that that's that is more second half loaded but the actual calendar <unk> of all of this we will share more of that in November.
Speaker Change: Very helpful on both fronts. Thank you.
Speaker Change: Yep. Thanks.
Steve Tusa: 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.
Steve Tusa: Hi, good morning.
Steve Tusa: Hey, Steve Good morning.
Steve Tusa: Nick I guess for the second time, thanks for all the help.
Speaker Change: And congrats.
Speaker Change: I just wanted to make sure I understood. The bridge items for next year. So youre basically saying that next year is relatively clean when it comes to.
Speaker Change: All of these moving parts I guess, he didn't talk about growth investments, but I would assume you kind of toggle those with.
Speaker Change: With the volume picture. So I'm curious clarify if there's anything else outside of those the $2 50, and then the merit and incentive comp anything we're missing.
Speaker Change: So I'll just I'll start with a general comment and then Nick can add detail, but you're right Steve.
Speaker Change: The productivity that we're looking at the combination of the actions that were primarily reductions in force on the second half of this year and the items into more comprehensive program.
Speaker Change: Offsets the headwinds from compensation into into next year, we expect our R&D spend which is part of that overall operating spend if you if you add R&D and SG&A together, that's our operating spend and we expect R&D.
Speaker Change: To be roughly similar as a percentage of sales next year.
Steve Tusa: Yeah, and okay, but I'll add to that this $250 million
Speaker Change: Yeah, and what I'll add to that this $250 million.
Speaker Change: That we're projecting for next year that is roughly half of that that we see is benefiting.
Speaker Change: Gross margin and roughly half of that that we see.
Speaker Change: Reducing our SG&A spending we're striving to keep our ongoing investments in R&D in light of the opportunities we see there.
As a percent of revenue relatively flat.
Speaker Change: But basically like whatever I want to assume on volume is what the picture is as far as earnings drop through is concerned.
Speaker Change: Simple as that.
Nick Gangestad: It sounds like there aren't too many other bridge items.
Speaker Change: It sounds like there aren't too many other bridge items.
Nick Gangestad: Yeah, the five I shared on Nigel's question; those are our big five there.
Speaker Change: Yeah.
Speaker Change: I've I shared on Nigel question those are our big five there.
Steve Tusa: Yeah, okay. And then I have just one last question for you.
Speaker Change: Yeah, Okay, and then and then just one last question for you I mean.
Speaker Change: So it sounds like you over produced a bit here you had the benefit of that.
Unknown Speaker: I mean, so it sounds like you overproduced a bit this year, but you had the benefit of that offset, obviously, by the negative mix. As you take inventories down next year, do we look at the drop through on whatever volumes we assume as being, you know, neutral to positive on mix because that should be a little bit more normal? But then you obviously get hit with overproduction. So it's still kind of in that more, more normal, like 35% range for you guys.
Speaker Change: Offset obviously by the negative mix.
Speaker Change: As you take inventories down next year.
Speaker Change: Do we look at the drop through on whatever volumes, we assume as being.
Speaker Change: Neutral to positive on mix, because that should be a little bit more normal, but then you obviously get hit with the over production. So it's still kind of that into that more more normal like 35% range for you guys.
Steve Tusa: Talk a little bit more about what you mean by overproduction, Steve.
Steve Tusa: Talk a little bit more about what you mean by overproduction Steve.
Steve Tusa: Just your inventories are up, right? So, there's, you know, you overproduced relative to what the shipments were, just with inventories up, or am I wrong about that?
Steve Tusa: Just your inventories are up right. So so there is.
Steve Tusa: You over produced relative to what the shipments were.
Speaker Change: With inventories up or am I wrong about that.
Steve Tusa: Yeah in the last two or three quarters.
Steve Tusa: Steve It's.
Unknown Speaker: The inventories in both... Okay.
Steve Tusa: The inventories in both.
Steve Tusa: The last two quarters, not going up they're just not coming down as fast as we thought and we think that pace of it coming down will accelerate in 2005.
Speaker Change: But in terms of.
Speaker Change: Volume in our in our factories in terms of a negative headwind from Underutilization in 25 versus <unk> 24, we don't anticipate that's a material impact on fiscal year 'twenty five.
Speaker Change: Okay.
Speaker Change: Great. Thanks, Thanks, a lot for the color as always in and enjoy your retirement Nick Thanks.
Nick: Thank you.
Nick: Yeah.
Joseph Ritchie: Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.
Speaker Change: Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open.
Joe: Hi, Thanks, Good morning, guys. Nick wish you the best in retirement, Thanks for everything Thanks, Joe.
Joseph Ritchie: Yeah, my my first question, and I know, look, we're all trying to figure out, you know, 2025 and I know that your business is fairly short cycle, but if I look at some of your two, like, your two biggest end markets being food and beverage and auto, you know, this year, you're going to be coming up against maybe one, one, one more tough, tough comp in the fourth quarter, I guess, Blake, as you kind of, as you kind of think through the conversations you're having with your customers, and the environment that we're in, is there a scenario where you don't grow in 2025? And what's the realistic expectation going forward?
Nick: No.
Joe Ritchie: Yes, My first question and I know look we're all trying to figure out 2025 and.
Speaker Change: I know that your business is fairly short cycle.
Speaker Change: But if I look at some of your to your two biggest end markets being food and beverage and auto.
Blake: Yes, this year youre going to be coming up against maybe 111 more tough tough comp in the fourth quarter I guess Blake as you kind of as you kind of think through the conversations youre, having with your customers and the environment that we're in is there a scenario where you don't grow in 2025 and what.
Blake: The realistic expectation going forward.
Blake Moret: Joe, I'm going to stay away from, you know, bigger than a bread box type of dimensioning for next year. But you know, the customers we're talking to, including in the automotive and food and beverage sectors, are continuing to make investments in those areas. You know, we look at not just the potential capacity that they're adding, but it's about resilience, efficiency, and existing facilities. One of the things that excites us about the mobile robots, for instance, is that, you know, most of that's going into existing facilities.
Speaker Change: Joe I'm going to I'm going to say stay away from.
Joe Ritchie: Bigger than a breadbox type of dimension eight four for next year.
Speaker Change: But the.
Speaker Change: The customers, we're talking to including in automotive and food and beverage.
Joe Ritchie: Are continuing to make investments in those areas.
Speaker Change: We look at not just potential capacity.
Joe Ritchie: They are adding but it's about resilience.
Joe Ritchie: Efficiency and existing facilities, it's one of the things that excites us about the mobile robots for instance is that most of that is going into existing facilities. So customers just like Rockwell are working on their efficiency and their cost.
Blake Moret: So customers, just like Rockwell, are working on their efficiency and their cost, regardless of what's going on in the external environment. And we're really well prepared to address that. As I mentioned before, as we start getting back into year-over-year growth in orders, we'll characterize what that means for shipments into the next year. But I'm very confident with our position.
Joe Ritchie: <unk>.
Joe Ritchie: What's going on in the external environment, and we're really well prepared to address that so I mentioned before.
Joe Ritchie: We start getting into.
Joe Ritchie: Back into year over year growth in orders would characterize what that means for shipments into the next year, but I'm very confident with our position.
Speaker Change: Okay. That's helpful. And then maybe lastly, just a near term question as we think about the.
Speaker Change: The fourth quarter.
Joe Ritchie: In in the intelligent devices segment it seems like.
Joe Ritchie: Historically.
Speaker Change: We've seen this uptick in the fourth quarter on revenues. It seems like you guys are implying.
Speaker Change: But that business is going to be down a bunch, if any color around that would be helpful.
Joe Ritchie: For <unk>.
Joe Ritchie: Joe we're implying that intelligent devices, our revenue will be.
Joe Ritchie: Almost exactly the same sequentially between Q3 and Q4, it's not we're not expecting a noticeable uptick or downtick sequentially and intelligent devices revenue.
Joe Ritchie: Okay, just not the typical seasonal uptick that you would normally see in this business now.
Unknown Speaker: Not a seasonal uptick there either.
Joe Ritchie: Not a seasonal uptick there.
Unknown Speaker: Okay, great. All right. Thank you. Thank you both.
Joe Ritchie: Okay, Great Alright. Thank you. Thank you Bob.
Aijana Zellner: Julianne, we'll take one more question.
Joe Ritchie: Julian will take one more question.
Aijana Zellner: Certainly, Aijana. Our last question will come from Joe O'Day from Wells Fargo. Please go ahead. Your line is open.
Speaker Change: Certainly <unk> our last question will come from Joe O'dea from Wells Fargo. Please go ahead. Your line is open.
Joe O'Day: Hi, thanks for fitting me in. I wanted to start on margin expansion and productivity in terms of, one, understanding the structural versus temporary components of this, and then two, just in terms of understanding the breadth of it. You know, obviously, a lot of different elements all rolling up to the savings here, and so just the genesis of this and how these opportunities have developed over time in terms of greater manufacturing efficiency or sourcing efficiency or SG&A efficiency. It seems like there's a lot out there, and so just kind of understanding how that opportunity came to be.
Joe O'dea: Hi, Thanks for fitting me in.
Speaker Change: Hey, Joe I wanted to start on the Hi, I wanted to start on the margin expansion and productivity.
Speaker Change: And in terms of one understanding the structural versus temporary components of this and then two just in terms of understanding the breadth of it.
Speaker Change: Obviously, a lot of different.
Speaker Change: Elements, all rolling up to the savings here and so just the Genesis of this and how these opportunities that have developed over time in terms of greater manufacturing efficiency or sourcing efficiency. Your SG&A efficiency. It seems like Theres a lot out there and so just kind of understanding how that opportunity came to be.
Blake Moret: Sure, Joe, broadly, you know, we've spent a lot of the last few years adding some capabilities that I felt we needed to move faster in, things like software capability, high-value services like cybersecurity, and some particular technologies, like mobile robots, independent car technology, and industrial PCs. At the same time, we've been playing a lot of defense with COVID, and supply chain volatility has inevitably introduced some inefficiencies into our own processes.
Speaker Change: Sure Joe broadly we've spent a lot of the last.
Speaker Change: Few years, adding some capabilities that I felt we needed to move faster in things like our software capability at.
Speaker Change: High value services like cyber security and some particular technologies like mobile robots independent car technology <unk>.
Speaker Change: Industrial Pcs.
Speaker Change: At the same time, we've been playing a lot of defense with Covid with supply chain volatility that is introduced inevitably some.
Speaker Change: Inefficiencies into our own processes and so for several reasons now was the time to integrate the parks to bring together the things that we built and bought over the last few years and to drive out some of the inefficiency that's built up.
Blake Moret: And so, for several reasons, now is the time to integrate the parts to bring together the things that we've built and bought over the last few years and to drive out some of the inefficiency that's built up with programs like this. And it necessarily involves headcount reduction, as well as actions aimed at reducing our cost of goods sold. And so it's a broad-based approach that'll yield benefits this year, as we've talked about, into next year, but then it gets rolled into a continuous operating model of continuous improvement that continues to drive these costs down and be vigilant to make sure that, you know, new costs don't creep in.
Speaker Change: With programs like this and it necessarily involves head count reduction as well as actions aimed at reducing our cost of goods sold and so it's a broad based approach that will yield.
Speaker Change: Benefits in this year as we've talked about into next year, but then it gets rolled into a continuous operating model of continuous improvement that continues to drive these costs down to be vigilant to make sure that.
Speaker Change: New costs don't creep in the benefits of course are for an investor standpoint.
Blake Moret: The benefits, of course, are, for an investor standpoint, expanding margins to go with the higher growth levels. For customers, there's also a benefit; things that we're doing to reduce, you know, that long tail of SKUs can actually increase customer service for the more frequently bought items. And when we reduce the cost of goods sold, we have the opportunity to be more, even more competitive, you know, on the projects that we choose to go after.
Speaker Change: Expanding margins to go with the higher growth levels for customers. There is also a benefit things that we're doing to reduce that long tail of skus can actually increased customer service for the more frequently bought items and when we reduce the cost of goods sold we have the opportunity to be more even more competitive.
Speaker Change: Dave on the projects that we choose to go after so for a variety of reasons integrating the parts and driving inefficiency out is it's the right time in our journey to introduce this as we as we started last November at Investor Day, and we will certainly be given more of an update in just a few.
Blake Moret: So for a variety of reasons, integrating the parts and driving inefficiency out is, it's the right time in our journey to introduce this, as we started last November at Investor Day, and we'll certainly be given more of an update in just a few months.
Speaker Change: Months.
Unknown Speaker: And so primarily structural in terms of how we think about the cost coming out.
Speaker Change: And so primarily structural in terms of how we think about the cost coming out yeah. It is primarily structural these aren't onetime things to address a particular year. The idea is that the savings that we're making the costs, we're reducing persist regardless of what the top line growth.
Speaker Change: It's going to be.
Unknown Speaker: and then just one more on on demand. I know there is a lot of focus on that.
Speaker Change: And then just one more on on demand I know a lot of focus on that already but just trying to understand the past few months.
Speaker Change: When we look at the the end market expectations I think things came down in nearly every end market relative to three months ago, and so trying to understand the degree to which things have gotten worse versus the degree to which things just arent getting better.
Speaker Change: Quite as fast as you expected.
Speaker Change: I think that that ladder is probably the best way to characterize it we've seen sequential order growth quarter on quarter through the year and we expect it again in the fourth quarter and into next year, but it's at a more gradual pace.
Speaker Change: Got it thanks a lot.
Speaker Change: Alright, Thank you for joining us today, everyone that concludes today's conference call.
Speaker Change: At this time you may disconnect. Thank you.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Okay.
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Speaker Change: Thanks.
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