Rockwell Automation, Inc. 2026 Q3 Earnings Call

Thank you, Julianne. Good morning, thank you for joining us for Rockwell Automation's third quarter fiscal 2026 earnings release conference call. With me today is Blake Moret, our Chairman and CEO, Christian Rothe, our CFO. Our results were released earlier this morning, the press release and charts are available on our website. These materials, as well as our remarks today, will reference non-GAAP measures. Reconciliations of these non-GAAP measures are included in both the press release and charts. A replay of today's webcast and a transcript of our prepared remarks will be available on our website at the conclusion of today's call. Before we begin, please note that our comments today include forward-looking statements regarding the expected future results of our company. Our actual results may differ materially due to a wide range of risks and uncertainties described in our earnings release and SEC filings.

With that, I'll hand it over to Blake.

Thanks, Aijana, good morning, everyone. Before we turn to our third quarter results on slide three, I'll make a couple of initial comments. We delivered a strong quarter with double-digit year-over-year growth in sales and earnings exceeding our expectations. This sustained momentum underscores Rockwell's strong position in North America and growing penetration in new end markets, an accelerated pace of new product introduction, our unmatched partner ecosystem, and the team's disciplined execution. We continue to see strong demand across semiconductor, data center, e-commerce, and warehouse automation. While we are not yet seeing a pickup in CapEx across food and beverage and parts of process, we are seeing early signs of renewed project activity in automotive and life sciences.

Customers are increasingly turning to Rockwell's differentiated portfolio of hardware, software, and services to adapt to changing market dynamics from GLP-1 related investments and evolving food and beverage demand to AI-driven data center growth and new opportunities across energy storage, defense, and advanced manufacturing. I'm proud of how our team continues to execute amid geopolitical volatility, trade uncertainty, and persistent inflation. The Rockwell operating model helps us drive operational excellence, serve customers, and invest for the future. Those principles are on full display at our Singapore manufacturing facility, which was recently named a World Economic Forum Lighthouse for its leadership in digital and AI-enabled manufacturing. Turning to our third quarter results on slide three, Q3 sales came in above our expectations.

Reported sales were up 8%, and organic sales were up 10%, with the impact of the Sensia dissolution decreasing sales by 3% and currency contributing about a point of growth. Products continue to outperform our longer cycle solutions business as smaller modernization projects across most industries drove the majority of our growth in the quarter. The verticals seeing the strongest capital investment, including semiconductor, data center, and e-commerce and warehouse, tend to be more heavily weighted toward our product and software offerings. Our Intelligent Devices organic sales grew 10% year-over-year, with broad-based growth across all product lines. New offerings such as PointMax I/O, additional PowerFlex drives, and FLEXLINE motor control centers are seeing strong adoption, particularly in e-commerce, warehouse automation, and process industries. We also delivered double-digit growth in our production logistics business with strategic wins across food and beverage, semiconductor, and life sciences.

Software & Control organic sales were up 18% versus prior year, driven by another quarter of strong double-digit growth in Logix. Lifecycle Services organic sales were down 2% versus prior year, generally in line with expectations. Book to bill in this segment was 0.97. While customer engagement remains healthy, growth in this segment continues to be constrained by the lack of capital spending recovery in food and beverage and certain process industries where many of our Lifecycle Services offerings are deployed. Organic annual recurring revenue grew 6% in the quarter, below our expectations. High single-digit software growth was partially offset by the slower growth in recurring Lifecycle Services. While services growth was softer than expected, we continue to add important ARR wins across our customer base. A great example is Unilever, which expanded its cybersecurity program to additional sites.

The engagement combines our threat detection and secure remote access software with managed cybersecurity services to provide continuous monitoring, secure connectivity, and protection of critical manufacturing operations. Enterprise operating margin of 22.3% and adjusted EPS of $3.49 were up double digits versus prior year, led by strong volume and favorable mix. Moving to slide four for Q3 industry highlights. Our discrete sales grew high teens year-over-year, led by strong double-digit growth in semiconductor, data center, and e-commerce and warehouse. Within discrete, automotive sales were up low double digits versus prior year, marking another quarter of better than expected performance. Customers continue to prioritize investments in productivity, quality, and asset utilization. While tariffs and geopolitical uncertainty continue to delay large greenfield projects, modernization spending remains strong. A great example is Convergex, a global system integrator who chose Rockwell's Emulate3D digital twin software to model a complex conveyance system.

The solution is helping reduce project risk, accelerate commissioning, and bring production online faster. Another notable win in Q3 was with a large automotive brand owner, where Rockwell's end-to-end automation portfolio was selected to improve operational efficiency and accelerate the launch of future vehicle programs across multiple global plants. E-commerce and warehouse automation sales were up 30% year-over-year, with continued strong performance across regions and customer segments. Semiconductor delivered another strong quarter, driven by increased activity from several leading equipment manufacturers and chip makers, including continued investment tied to AI infrastructure. Data center remained a strong growth market in the quarter. Customers continued to invest in the power, cooling, automation, and control systems required to support increasingly complex and energy-intensive facilities. This creates further opportunities across our hardware, software, and services portfolio.

Turning to our hybrid industries, sales in this segment grew mid-single digits with good growth across all major verticals. Food and beverage sales were up mid-single digits, led by growth in North America. While we have yet to see an inflection in large capital projects here, customers continued to invest in modernization and digital transformation initiatives across protein, dairy, fiber, and non-alcoholic beverage applications. Sales in our life sciences vertical were up 10% in Q3, with broad-based growth across all regions and continued improvement at both machine builders and end users. In addition to favorable end market demand, we continue to expand our position through competitive wins. An important win in the quarter was with a leading pharmaceutical and biotech contract development and manufacturing organization who chose Rockwell's integrated process control and MES platform to standardize drug substance manufacturing across its operations.

Moving to process, our sales here were up high single digits, led by growth in energy, metals, and chemicals. Energy sales were up high single digits in the quarter, with customer spending focused on brownfield expansions, asset modernization, and production optimization. We also continue to see healthy activity across LNG, midstream, power infrastructure, and offshore markets, supported by rising energy demand and the ongoing build-out of power capacity for data center and electrification. Mining sales were down mid-single digits, reflecting measured capital deployment across the industry and some project timing delays, specifically in Latin America. With that said, customers continue to invest in productivity, autonomy, and digital transformation as demand for critical minerals continues to grow. Moving to slide five for our Q3 organic regional sales. Similar to last quarter, we saw good year-over-year growth across most of our regions.

North America was our strongest region in the quarter, with 12% year-over-year growth, and we continue to expect it to be our fastest-growing region for the full year fiscal 2026. Let's now turn to slide six to review our fiscal 2026 outlook. With three quarters behind us, customer investment is broadening across more of our end markets. While we have yet to see a broad-based recovery in large capital projects, we are confident Rockwell is best positioned to capitalize as spending accelerates. In the meantime, we'll continue to operate with discipline and prudence in what remains a very dynamic environment. We now expect both our reported and organic sales growth to be in the 7.5% to 9.5% range for the year. At the midpoint, reported sales growth includes approximately 150 basis points of favorable currency translation, offset by the impact of the Sensia dissolution.

Our full-year sales midpoint of 8.5%. Assumes modest sequential growth in Q4, driven by the typical seasonal uptick in our longer cycle businesses within Lifecycle Services and Intelligent Devices. We expect organic annual recurring revenue to grow mid-single digits. We continue to expect our enterprise operating margin to be 21.5%, up 260 basis points from last year. We now expect our adjusted EPS to be $13.15 at the midpoint, representing about 25% growth versus fiscal 2025. We continue to expect free cash flow conversion of 100% in fiscal year 2026. I'll now turn it over to Christian for more detail on our Q3 and financial outlook for fiscal 2026.

Christian? Thank you, Blake, and good morning, everyone.