Q3 2019 Earnings Call
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Rockwell automation earnings call.
In Q ends May I have your first and last name. Please.
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L.A.F.
A and E.
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A assets and Frank L.A. and E.
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0382.
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Welcome.
The quarter was weaker than expected impacted by an overall slowdown in the global semiconductor market.
Food and beverage was down low single digits, although the industry continues to focus on modernization to drive productivity, we saw some project delays.
Logics was down 3% organically largely due to automotive weakness.
Process control sales grew 3% organically led by strength in longer cycle end markets.
Information solutions and connected services continued to do very well.
Growing double digits in the quarter.
This is a measure of the new value being delivered to customers in all industries.
This business increases recurring revenue streams and includes factory talk innovation suite and in the US software as well as high value services, such as remote monitoring to enhance cyber security and optimize production.
Commenting on regional performance in the quarter.
North America was about flat organically.
Pulp and paper and oil and gas had strong double digit growth, while automotive semiconductor and food and beverage declined.
EMEA was up 2% in the quarter led by life Sciences oil and gas and tire.
While Asia declined 1%, China grew low single digits.
Latin America sales were up 6% led by mining and oil and gas.
I'll make a few additional comments about our Q3 results.
Adjusted EPS was up 11%.
And segment operating margin expanded 130 basis points year over year.
The increases in adjusted EPS and segment operating margin include a benefit from lower incentive compensation expense.
Patrick will elaborate on our third quarter financial performance in his remarks.
Let's move on now to guidance for full year fiscal 2019.
We believe that uncertainty with respect to global trade is impacting some customers investment decisions, particularly those related to the timing of capital investments.
Taking into account our year to date results. We now expect our fiscal 2019 organic sales to be up about 1.5% year over year.
Including the impact of currency translation, we now expect reported sales to be about $6.6 billion.
We are reducing the adjusted EPS guidance range to $8.50 to $8.70, which includes aligning spending to the current market environment.
As Patrick will discuss in a few minutes. This guidance does not include the impact of the sense see a joint venture.
Before moving on I want to mention that yesterday, our board authorized an additional $1 billion for share repurchases.
Our strong financial position allows us to deploy capital in line with our priorities organic growth inorganic investments dividends and share repurchases.
Let's talk a little more about our organic and inorganic investments.
Regardless of what is going on in the macro environment. We're confident that we are executing well.
And we see evidence that we are gaining share and making the right strategic investments to drive profitable growth.
Beginning with our core business, we continue to invest in our logics architecture and connected smart products. These enable us to capture a broader set of opportunities across discrete hybrid and process end markets.
Outperforms our biggest competitors.
It is also the industry's first certified secure controller.
Adding a whole new level of security on the plant floor.
In high performance motion control utilizing our highly differentiated independent cart technology, we work with Kuka to secure a multimillion dollar order in Q3 from a large global automotive manufacturer.
We're also increasing our penetration within process oriented end markets like oil and gas, which continues to show strong growth for us and is the largest automation market.
We are going after this market organically by building up our process capabilities, both within logics and our factory talk analytics platform as well as inorganically through our sense your joint venture with Schlumberger.
The new value from information solutions and connected services is another way to win across all industries.
We are already seeing this acceleration in markets like life Sciences, where we have grown strong double digits over the last two years and are gaining significant market share.
Here, our differentiation and pharma suite Mds cyber security and factory talk analytics have resulted in many recent deals going our way, including a recent win with a very large medical device company against a traditionally strong process competitor.
Where our offering were seen as the best technology to increase overall equipment effectiveness.
Our analytics and MBS differentiation also drove a key automotive win in Asia, where our software will be used on top of a competitive control platform. We won because our solution was more reliable we had deeper domain expertise and our digital roadmap was better.
EMEA and Asia are highly strategic regions for us and we plan to invest both organically and inorganically to strengthen our reach.
These and other wins give us confidence that no one is better positioned to benefit from the global convergence of ITC and OTI than we are.
And we're actively directing spending in our operations and through capital deployment to the areas of highest return to make that happen.
We look forward to speaking in greater detail about these initiatives at our upcoming Investor day in November .
Now I'll turn it over to Patrick to provide more detail around our Q3 results and our 2019 sales and earnings guidance.
Thank you Blake and good morning, everyone I'll start on slide four which provides our key financial information for the third quarter.
As Blake mentioned sales slowed down in Q3 with reported sales down 2%.
Organic growth of half a percent was weaker than expected and currency translation reduced sales by 2.5%.
Segment operating margin was 23.8% expanding 130 basis points compared to last year.
The increase in segment margin was mainly due to lower incentive compensation expense, partially offset by higher investment spending.
Our incentive compensation plan reflects our strong pay for performance culture and track record.
We have a company wide incentive plan that covers most of our employees globally.
With bonus earned being very aligned with financial performance of the company.
To reflect the revised outlook for full year fiscal 19 financial performance, we lowered our estimates for bonus expense.
Which represents about 170 basis points of segment margin.
About two thirds of the $30 million is booked in the control products and solutions segment.
The balance in the architecture and software segment and general corporate net.
Looking at our performance through the first three quarters of the fiscal year segment operating margin is 22.7% up 80 basis points year over year.
Earnings conversion ex currency is 35%.
Adjusted EPS of $2.40 was up 11% compared to the third quarter of last year.
The year over year increase in adjusted EPS is mainly the result of lower incentive compensation expense.
Higher organic sales and a lower share count.
Partially offset by higher net interest expense.
A lower tax rate also contributed to the increased year over year adjusted EPS.
Free cash flow performance was $323 million in the quarter or 114% of adjusted income.
A few additional items that are not shown on the slide.
With respect to tariffs the net impact on financial results in the quarter and through three quarters is neutral with the higher cost being mitigated three combination of supply chain actions negotiations with vendors and targeted price increases on effective products.
Average diluted shares outstanding in the quarter were $118.6 million.
Down 7.2 million or about 6% from last year.
Through June 30, we are on pace to get to our 1 billion full year target for share repurchases.
At June 30, we had $333 million remaining under our previous share repurchase authorization.
As Blake mentioned, our board has approved an additional $1 billion share repurchase authorization.
Slide five provides the sales and margin performance overview for the architecture and software segment.
With a 1.9% organic sales decline this segment had weaker organic growth performance compared to the company average as it generally is overweight on shorter cycle end markets and does not include any of our solutions and services business.
For the quarter segment margin decreased 60 basis points year over year and remains above 30%.
A margin tailwind from lower incentive compensation is more than offset by the impact of lower sales and higher investment spend.
Moving on to slide six control products and solutions.
While the solutions and services businesses in this segment grew about 6% organically.
Operating margin for the segment increased 320 basis points compared to Q3 last year.
Primarily due to lower incentive compensation and higher organic sales.
Partially offset by higher investment spending.
Book to Bill performance for our solutions and services businesses. In this segment was 0.98 in Q3, reflecting an increase in project delays.
The next slide seven.
Provides an overview of our sales performance by region.
We covered most of this in his slide in his remarks, so I'll move on to slide eight guidance.
As Blake mentioned, we are reducing our full year expected organic sales growth guidance do about 1.5%.
We now project fiscal 19 sales is about $6.6 billion.
We continue to expect expect strong segment margin.
Of about 22%.
We believe the full year adjusted effective tax rate will now be about 18.5%.
Half a point lower than our April guidance.
And mainly as a result of favorable discrete tax items and a change in the geographic mix in global pretax income.
We continue to target $1 billion in share repurchases and we now expect average fully diluted shares outstanding to be about $119.3 million for fiscal 19.
We are revising our adjusted EPS guidance range to $8.50 to 8070 cents at the midpoint. This is a 40 cents decreased compared to our April guidance.
Our updated range reflects the impact of lower organic sales growth.
Partially offset by additional spend reductions.
Compared to fiscal 18, the full year midpoint represents a 6% adjusted EPS growth.
On slightly lower reported sales.
Before I turn it over to Jessica I'll make some comments about sense, yes.
We are waiting for some customary regulatory approvals and continue to expect sense yet to close this calendar year.
No impact associated with CENTRIA is included in our current guidance.
We now expect the adjusted EPS impact to fiscal 19 to be about neutral.
With that Jessica.
Thanks, FX before we start the Q and I just wanted to say that we would like to get to as many of you at all.
So please limit yourself to one question and a quick follow up. Thank you operator lets take our first question.
Your first question comes from the line of John inch from Gordon Haskett. Your line is open.
Good morning, everybody.
Good morning, good morning, good morning.
The down 3% core growth.
For the fourth quarter are you guys assuming that.
There is this is just a function of projects being further pushed out or you actually assuming there's embedded deterioration.
Same both distribution and projects in terms of the cadence.
So we are looking at looking at the different industries, John we're expecting that in.
For the full year that automotive overall is.
He is going to be down about 10%, we see some sequential improvement.
As we had seen some purchases beginning in some of the projects that we've been tracking but we're still looking at about 10% for the full year I think the stories in in Q3 that inform our outlook for Q4 are that in the quarter, while automotive performed about as good as expected we did see weaker than expected performance in areas like semiconductor food and beverage weakened a little bit and add chemicals.
Power some of those some of those areas. So those.
Weaker than expected performances in Q3 and form the outlook implied with Q4.
Automotive turnaround projects or model changes coming through in the second half is that still part of the calendar year is that still part of the expectation or.
Does that look like.
No actually actually purchasing has has started on a lot of those projects that we were tracking the ones that we've been talking about that included some line of sight. We've seen early purchases. There. So we've won the ones that we expected to plus a little bit more.
It's just not clear whether it.
The majority of the volume from those purchases is going to happen in Q4 around ended 2020.
We just lastly, China's stepped down a little bit.
Sort of macro but is there any color you could give us vis-a-vis end markets in China say heavy industry infrastructure auto consumers stuff like that.
Sure we've talked previously about.
The impact of some of the stimulus in China, and we saw it again in Q3, so mass transit water wastewater, which would be most impacted by government stimulus those were strong performers for us in.
In China in in the quarter.
And with anything incrementally weaker would you you would call out.
Auto was auto was a little bit weaker in China in the quarter, we had some wins.
In different areas and we'll talk about that when we talk about our information solutions and connected services, but overall auto in China weekend.
Got it thanks for the color.
Thanks, John Thanks.
Your next question comes from the line of Julian Mitchell from Barclays. Your line is open.
Hi, good morning.
Good morning.
In the past.
And are you taking much mitigating action on the assumption that this sales decline could last several quarters.
If it's consistent with history.
We have taken cost reduction measures and you saw the impact of that in Q3, and we're actively looking at other ways both to match our spend with market conditions as well as take the opportunity to more rapidly reinvest and look at ways to direct resources to the areas that are going to be most important in the future. So we have taken cost reductions. We're looking at areas that would be opportunities going forward and we're watching the development of this quarter Q4 very closely.
Thank you very much and then my quick follow up would just be around the process business.
I think your revenue growth in that slowed to about 3% due you'd been running at 10%.
Gross in the March quarter.
Should we assume that that also dips into negative year on year territory in the September quarter.
And any color associated with that on the backlog in solutions and services.
Yes, so solutions solutions and services backlog.
Remained slightly up year over year, and we do continue to see growth in some of the key areas driving process.
Such as oil and gas and mining.
Some of the project delays that we saw in Q3 impact.
Impact process I would say the project delays that we saw were split.
Between the longer cycle that typically makes up most of those projects, but it was also colored by a fairly significant portion of delays in shorter cycle businesses as well.
Fantastic. Thank you very much.
Thanks Julien.
Your next question comes from the line of Joe Ritchie from Goldman Sachs. Your line is open.
Hi, Thank you good morning, everyone.
Morning, Joe.
Blake can you maybe just talk about any discernible trends that you saw as the quarter progressed.
For example, we've been hearing from a lot of companies at June <unk>.
Had turned out to be worse than expected and so anything on the trends that you can tell us about.
Yes, but not that actually for us April and May were weak in June got a little better sequentially. So in the quarter. We saw we sought finish a little bit stronger.
Were there any specific end markets that were driving that.
Mhm.
I I can't I can't pick any in particular right, except perhaps chemical.
May have may have followed that a bit where I started the quarter out weaker and obviously since chemical is.
Kind of sits a bit in the middle in terms of the applications that we play in we watch that fairly closely.
And that started to improve a bit as the quarter went on.
I would make the other comment that for our quarter.
It does and progress in a linear fashion. So vote last month the quarter is always the strongest and so we can extrapolate the way data a quarter has started out and just run it out and make predictions about the full quarter.
Got it Okay and then maybe my follow on question there Hassan just looking at the CNS margins.
Clearly really strong and you guys called out incentive comp as a big driver.
Was there anything else that impacted the margin Favourably. This quarter and then how should we be thinking I know that you're stepping down incentive comp as well in fourq over what.
What should we be thinking about it like a normalized number I guess from from an incentive comp standpoint on the go forward.
Okay, Joe Patrick here, so with respect to CNS segment margin.
The the largest part of the year over year increase is related to incentive compensation. The segment of course had some organic growth in the quarter, which helped as well.
And then currency was just a slight tailwind at less than half a point.
Margin.
For that segment.
And send it in terms of incentive compensation.
The way that you can think about it as a fully funded incentive compensation plan for Rockwell automation is about $100 million.
And that the current guidance for fiscal 19 is about 60% of that.
Okay got it. Thank you. Thank you both.
Thanks, Joe.
Your next question comes from the line of Steve Tusa from JP Morgan Your line is open.
Hey, guys good morning.
400 seat.
I just wanted to talk about the food and beverage is kind of a abroad to way to characterize that that end market kind of vertical.
Does that include some of the packaging machinery types the guys.
That are out there you know what are you is this like a lot of the machine tool like the bottling guys in that kind of stuff or is it more you know on enterprise died business with the craft soda worlds and things like that can you, maybe just kind of like.
Breakout the food and beverage dynamics, a little more.
Sure so well so food and beverage includes both so it certainly includes the global.
End users, so the crafts and demand the lease.
Naturally that would be an example of a of a few of those Avi I.
It also includes the packaging the machinery builders, so youre looking at the packaging.
Oems around the world.
That's a fair part of our business in Europe for instance, as well as in the US and it includes that that part of the business as well they both they both work together and we we have a strong focus at both ends of it what kind of performance, we can provide to the machinery builders as well as how it works together in an integrated system at the user.
But I guess, what the win when you talk about the performance this quarter or kind of exiting the year.
I guess just simply how was the how did the OEM business do I know you guys do you guys kind of characterize the OEM business and within that this kind of packaging food and beverage vertical where I think you serve a lot of these small and medium sized machine builders, so well how did you.
So Steve the way you can think about is our global OEM business was down about mid single digits.
And within that packaging.
It was down high single digits.
In the quarter, how fast and how fast did that grow and in 18.
Probably mid single digits, because consumers about mid this last year.
I think thats from that's great.
Thanks as always for the color appreciate it.
Thanks, Steve.
Your next question comes from the line of Jeff Sprague from vertical research. Your line is open.
Thank you good morning, everyone.
Just two from me actually.
Just thinking about food and beverage also being kind of broadly.
Consumer oriented I'm wondering if you could speak to anything else that you are seeing and consumer related markets through to those happen to kind of track in line with the segment averages.
Sure I'll make a couple of comments and then Patrick it might have some more.
When we talk about consumer broadly we think of is three three areas underneath that typically it's a food and beverage it's home and personal care. So think of tissue and so on and then life sciences, food and beverage and home and personal care performed roughly similarly, and I think our outlook.
Is is similar.
But life Sciences is really the the stand down in terms of.
Strong double digit growth.
Yes, so so within consumer adjusts as Blake mentioned life Sciences.
Good double digit growth home and personal care up mid single digits in the quarter and so its really food and beverage, which represents about 20 points out of the 30.
Of the consumer which is dragging down our outperformance in consumer.
Great. Thank you for that and then just on the on the comp expense. So it sounds like Q3, you had a year that they true up theres another $10 million in Q4 and my question would just be then on kind of the investment spend.
Those investments spend on a year over year basis.
Actually increase or decrease could you give us a little bit of color on that.
It's just the way you can think about our investment spending and we we exclude incentive compensation.
For that metric for the for that metric.
In our current guidance, our investment spending grows about 2% year over year, a little less than that so little bit more than our revised organic growth rate for the full year.
In Q4, we expect that to be down year over year.
Thank you.
At the same time, I would say that where we are making adjustments in spending is more on discretionary items not on the R&D side.
For example in Q2, the R&D was still up 8% year over year.
Okay. Thank you very much.
Thank you thanks, Jeff.
Your next question comes from the line of Richard Eastman from Baird. Your line is open.
Yes, good morning, oblique could you just speak for a minute or two to the to the book to Bill that 0.98, that's significantly less than the seasonal book to Bill would suggested should be I presume a lot of that is in heavy industries and Im curious.
You referenced project delays impacting the book to Bill.
But your line of sight on those projects in other words, they werent booked in the quarter, but you have a healthier view of the line of sight on projects that are out there.
Is that is that how how we kind of interpret your comments.
I'd say, we continue to have good visibility to those projects.
That didnt close in the quarter and as we look at the reasons why.
The obvious question is is this just a precursor to them getting pushed out further or cancel or were there unique plausible reasons why they didn't go in the quarter, but that could come back in the near future, including some in Q4 and the latter was our.
Based on our review that was the the sense of the majority of those that they were delays, but they were unique plausible reasons in each case.
That caused them to push out in the quarter and not necessarily being being gone I mentioned before that there was a little higher component in the project delays of the shorter cycle businesses.
So think of it this way the percentage of delays.
Of shorter cycle.
Business in that book to Bill was higher than the total.
Bookings of the solutions and services business.
So again, you're feeling as we track into the first half of fiscal 20 is that some of this could drop in higher percent short cycle those necessarily mean that.
Again, your caution you're cautious, but it doesn't necessarily mean that you're planning on first half of 20 fiscal 20 that.
Is that is down.
Thats right Im just.
Yes.
Thats right and while we don't.
And while we don't.
Wait for November to give to give the guidance for watching Q4, but our frontlog, our quoting activity remains healthy.
Okay. Okay, Thats why I was getting at Okay, and just just one last question could you just define.
Sure Patrick could you give us kind of a pricing.
Number here, just just gross price capture in the quarter.
We're at about 1.5% price realization.
Through three quarters and that.
And for Q to be about the same so about 1.5% which includes.
Rick the price, we get associated with the tariffs and so you may recall that we implemented targeted price increases.
Products impacted or affected by the terrorists and so that the price realization. This year, one and a half is a little bit larger than in prior years, but includes that price associated with the tariffs actions.
And that's not that's not a surcharge correct or is it.
In other words will that come off.
Pardon.
Yes, the intention would have the price increase was to neutralize the impact.
Tear so not to make money.
Out of that and so the expectation is that the terrorists woods.
Would be eliminated that at some point those price increases would also be adjusted.
And the objective being to neutralize the effect of Terence.
Got you okay, great. Thanks again for the questions.
Thank you Rick.
Your next question comes from the line.
Nigel Coe from Wolfe Research your line is open.
Thanks, Good morning.
Digit pitching a little color as always.
I'm going to say I'm, starting to get to the to see a full Q EPS guidance at the low end the range and anyway.
I can get that would be if an asset is significantly weaker.
Than the 3% to 4% organic.
You put into food.
Well Q is that how you are thinking that ANS could be down.
Mid to high single digit organic with Cps, probably flat to slightly up is that sort of how you're building up for Q.
Nigel to get to the low end of our current guidance that that's not an unreasonable way to look at it.
Okay, Okay, so directionally that the that'd be accurate.
And I think Blake you mentioned.
Down quarters is not unusual within the context of a an up cycle and we certainly saw that in fysixteen.
Are we in that sort of situation, where we have several quarters of negative growth cycle through before we get back to growth. So we'll do you think that there's something here that's not expected growth quicker.
I appreciate your thoughts there.
Well as we as we talked about the continued uncertainty that we've been mentioning for quite a while we think it is impacting investment decisions at this point.
And so a reduction of that uncertainty.
Stability and the outlook would certainly help in terms of the the fourth quarter you would have to be in short cycle businesses right. So.
Some improvement in.
Longer cycle outlook.
Might impact orders, but it would take a while for that to flush out as.
As revenue and profit.
In terms of the duration of what we're seeing currently.
Again, we're going to be looking very closely at the development of the quarter, we're going to be looking at the macro.
Progress on trade would certainly help but we're not counting on that at all.
I think on the distance at the tunnel.
That last point.
The channel clearance would be a factor that might snap things back quicker.
Can you just maybe comment on within an S., how you sell in the sell through sales are tracking right now.
Dave Sagan Nigel please.
I'm just curious if you've seen any I guess Mick Mick question, though that clear are you seeing inventory headwinds in your ANS channels.
No we.
As you as you May know, we have really good visibility into what our distributors Kerry.
Of our product, that's particularly the case in North America.
Inventory changes have not been immaterial impact to our results, including whether its ANS or the other segments on the product side.
Yes, we are closely aligned we're closely involved with our distributors as they replenish inventory and there is nothing different that's being done there, but okay gents, thanks very much.
Thank you.
Your next question comes from the line of Robert Mccartney from Stephens. Your line is open.
Good morning can you hear me.
We can pay Rob.
How you doing today.
Yes, I guess the first question is just expanding on some of the questions around fiscal 20.
And I know you don't want to give guidance for fiscal 14 as much as we're going to try.
Could you just talk about maybe the compares across auto and some of your other businesses, where you might think that you're kind of.
You could get closer to bottom here and how do we think about how would you think about some of them.
As we step into 20.
Some of the comparisons where you feel feel better versus we're limited visibility better versus worse.
Yes, so, let's let's start with auto I mentioned, we saw a little bit a sequential growth.
And.
Importantly, the results were stable with with our expectations.
What what would give us more concerns is if projects that we've been talking about through the year.
In a way that's not what happened and in fact, we're starting to see a little bit of purchases associated with those the ERP companies. While we continue to see that as a relatively small of our overall business, they're going to bring vehicles to market and they're going to need automation to do it competitively and we continue to be highly engaged there as well as swear.
Traditional vehicles as I look at new models and in new places to build them. So.
We see that that continuing and as I mentioned before the front log is is fairly healthy.
For other longer cycle businesses, where we would have visibility that might go out across multiple quarters.
Things like oil and gas and mining.
There continues to be good activity. There you saw that reflected in our current results and so through the fiscal year.
We don't see changes there the shorter cycle business of course, it's it's more difficult to to look at the outlook.
And we'll have more details on what our view is.
Formed by the quarter in November .
Okay, No that's helpful and I'd, rather light, a candle and curse and darkness. So why don't we talk about the continued strong double digit growth that information solutions and connected services and it looks like PTC last night, well have a challenging quarter in the in the relationship with you actually had a pretty decent quarter, maybe you could talk about the metrics and key wins, there and how you're feeling about that.
Collaboration.
Happy to and.
Glad to see a lighting a candle rob.
It it's been good and we are.
Probably a little more excited even about the relationship and we started.
A year ago on this journey. So we continue to see good wins come in across industries.
And across geographies, there was a wind and PTC talked about it last night Weve euphoria expert capture is that a big tire company in Korea.
We like.
Q4, yet because it's a differentiator.
Very few of our competitors have any sort of augmented reality offering and we're selling it in somewhere around a third of our factory talk innovation suite wins currently.
We continue to see wins and.
Life Sciences, I talked about the double digit growth bear and the combination of our basic control and life Sciences. The software that we have had for some time, specifically MBS plus the new factory talk analytics that were brought to market. The PTC offerings really puts us in an open field in an industry that continues to grow very strong so I'm happy with it we're going to target and one last comment we're going to talk a lot more in November about the comprehensive things that we're doing as an organization to accelerate our move to more recurring revenue streams and more proficiency in managing a growing software component of our overall business. It's certainly not just sales it's about our business model, it's about our IP infrastructure and we're going to talk a lot about that in November .
Well I'll leave it with this is that you won something with Eaton and I don't think they believe in the IP as a plc. So I think that that's a very notable win for you. So yes.
Thanks, Rob.
Your next question comes from the line of Deepak, Greg Sargen from Wells Fargo. Your line is open.
Hey, good morning.
Good morning, Tim Good two questions from me first can you. Please update us on your regional growth outlook and.
Just talk about how your views have changed into quarter based on what you're seeing across the region.
So we continue we continue to see.
Latin America, as well as providing growth in the year.
We also see.
EMEA for the for the full year of seeing growth in the low in the low single digits.
In in Q3, North America, and Asia with the regions that were a little weaker than than we expected.
Yes. The way you can think about as deep as per our current guidance for the full year.
All regions are little bit lower than the prior guidance on North America went from.
Mid single digits, a little bit below the company average do low single digits.
So that EMEA and in Asia, and Latin America is still teens, it's still about 10% rather than the mid teens that we were expecting before so our outlook in any of the regions. This has come down a bit.
Got it thanks for the color.
Follow up from me.
Blake you talked about short cycle weakness a few times now what are some of the conversations you're having with your clients in those markets with regards to what the tip addition is or what the curve expectations are and curious if you are surprised based on yet.
Discussion.
If you were surprised by the duration or magnitude of the current weakness.
Thank you.
Sure No I think in some part we are seeing the continued uncertainty over trade and tariffs that is starting to walk away on investment decisions, particularly around capital. We see these customers even short cycle businesses, but are continuing to look for ways to improve productivity on top of their basic production and I think thats part of what's contributing to the continued strong growth of information solutions and connected services, but in terms of capital.
As these customers way.
The the prospects for near term demand.
On those shorter cycle products. That's that's what we're seeing and again as we went through and looked project by project that the delays the reasons that are being given our specific and plausible as opposed to some general precursor to to further push outs and in cancellations.
Your next question comes from the line of Andrew.
Koplow ski from Citi. Your line is open.
Hi, Good morning, it's led Bystricky on for Andy.
Let me Glenn good morning.
So just following up on that last question on.
Delays and your comment.
But there is specific and plausible.
Drivers of the delays versus.
You know necessarily precursor to more push outs and cancellations I guess, what what are you hearing from from your customers in the context of.
Tariffs and uncertainty that gives you confidence that these are.
Sort of transitory delays versus something that could linger and be more widespread.
I think these companies are doing I think similar to what we did and continue to look at coming into the year you're looking at.
Restacking their supply chains.
To add to deal with the information we have in tour in terms of terror Sartini. So there is some movement of where.
Products are being built.
Who are the.
Sub suppliers.
Of those various products as people are trying to get to where we are and that is to neutralize the impact of those tariffs on their cost inputs and so thats a lot of work these things the decisions aren't made overnight.
And so being able to react to the current environment.
But in a way that won't have to be done when some short term hot time horizon. That's the kind of uncertainty that we're talking about that that we've dealt with and that our customers are dealing with.
Okay. That's helpful. And then just if I could shift to CNS for a minute you talked.
I think you said solutions and services within the business was up 6% organic in the quarter.
Obviously, you guys have had some very good momentum there. So can you can you remind us one how big that business is within Cps and also just your visibility too.
Continued mid single digit growth there.
The the way you can think about is glad is within.
Control products and solutions, the solutions and services business about two thirds of that segment.
And I think just stick to Peel it back a little bit further back so that includes though the longer cycle projects for us the average duration of some of the oil and gas projects for instance might be five or six months from the time, we get the order to the time that we ship. It. It also includes the services, which would include that say shorter cycle repair.
Operations things that track product businesses, but also importantly, the growing connected services portion of that as well that often the tens those those projects things like that.
Remote monitoring network consultation and things like that so it's a mix of those defined scope projects as well as high value services and then also the engineered to order business. So motor control centers and things like that all of that contributes to that two thirds number that Patrick gave.
Overall CNS segment.
Okay. That's helpful. Thank you I'll hop back in queue.
Operator, we'll take one more question.
Your last question comes from the line of nickel Blade from Deutsche Bank. Your line is open.
Yeah. Thanks, good morning.
Good morning.
And so I just want to dig into far too organic a little bit more. So you said that you know things actually got a little bit better in June sequentially. I guess, you know just July corroborate that 3% to 3.5% organic decline could there be some conservatism baked into that I'm, just having a hard time.
Understanding why things get so much worse in the fourth quarter, given the hthreec organic trend and the comment that you made about the quarterly progression.
Yes, Nicole I'll make a comment and then Patrick might want to add as well.
You know as much as we would like to be able to extrapolate outperformance through the quarter that we're reporting on and then take a peek at the first the first days of the next quarter.
We can't we can't apply a linear correlation to that as I mentioned before June is the strongest quarter typically we were encouraged.
As we looked at the development of Q3, but we can't draw any conclusions that inform our outlook based on that and looking at the early July performance that helps inform the outlook. It's one of the factors that we take into account as we look at as we look at Q4, but we just can't draw straight line with it.
Okay got it Thats helpful. Thanks, and then just a clarification question on the investment spending so Patrick I know, you said up a little bit less than 2% for the full year. Just in dollar terms can you clarify I think previously you were saying up $50 million to $55 million for the full year, what does that mean in dollar terms versus the prior guidance said, it's on a clear apples to apples basis.
Well 35 to 40 now.
Hi, Daniel.
Okay. Thanks, Nicole.
Okay.
Yeah. There are names that all questions I turn the call back over to the presenters.
Yes.
So just to summarize the quarter saw sharp difference in performance between shorter cycle business and longer cycle project oriented business.
Im happy with how the market is embracing the rockwell offerings that AD innovation and new expertise to help our customers be more productive. This is important regardless of the macro environment.
We also continue to look for ways to be more productive in our own operations by using all of our strengths and directing resources to the initiatives at best accelerate our strategy.
That begins with our highly engaged employees and partners who are committed to their roles in this journey. They bring the connected enterprise to life every day at our customers and in our own operations and I. Thank them all.
That concludes today's call. Thank you for joining us.