Full Transcript: Rockwell Automation Q3 2026 Earnings Call

Rockwell Automation (NYSE: ROK ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

Access the full call at Summary Rockwell Automation delivered a strong Q3 with double-digit year-over-year growth in sales and earnings, exceeding expectations. Q3 sales increased by 8%, with organic sales up 10%; Intelligent Devices and Software & Control segments showed significant growth. The company highlighted strong demand in semiconductor, data center, and e-commerce/warehouse automation, while noting early project activity in automotive and life sciences. 49, representing over 20% growth year-over-year.

5% and adjusted EPS growth of about 25%. Operational highlights include Rockwell's Singapore facility being named a World Economic Forum Lighthouse and continued expansion in production logistics and cybersecurity services. Management remains optimistic about future growth, driven by new product launches, strategic partnerships, and ongoing investments in digital transformation. Full Transcript OPERATOR Thank you for holding and welcome to Rockwell Automation's quarterly conference call.

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 one. 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, Head of Investor Relations and Market Strategy Thank you, Julianne. Good morning and 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, and Christian Rothy, our CFO. Our results were released earlier this morning and 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 chart.

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. So with that, I'll hand it over to Blake.

Blake Moret — President and Chief Executive Officer Thanks, Aijana, and good morning, everyone. Before we turn to our third quarter results on Slide 3, 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 3, 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 continued 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 Point 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 and 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.

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. 49 were up double digits versus prior year, led by strong volume and favorable mix.

Moving to Slide 4 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 Convergix, 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 continue 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 continue 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 buildout 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 5 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 6 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. 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. 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. 5%, up 260 basis points from last year. 15 at the midpoint, representing about 25% growth versus fiscal 2025. Finally, 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 Rothe, Chief Financial Officer Thank you, Blake. Good morning, everyone. Let's go to Slide 7.

Third quarter key financial information. As Blake mentioned, our third quarter organic sales were up 10% versus prior year. Price contributed approximately 1 point to growth. Our enterprise operating margin expanded 280 basis points year over year, driven by higher sales volume and favorable mix, partially offset by negative price/cost.

As expected, the dissolution of Sensia had a positive impact of about 40 basis points on enterprise operating margin. 5%, driven by higher volume, favorable mix, and a margin benefit from the Sensia dissolution. The Sensia dissolution was effective on April 1st of this year and, as expected, was completed smoothly and on schedule. Excluding the year-over-year impact of the divested businesses in Q3, gross margins expanded slightly year over year.

SG&A was up less than 1%, giving us solid P&L leverage on our baseline spending, and engineering and development increased 5% as sales growth was faster than our engineering development spend. However, E&D still represented about 8% of sales in the third quarter. We continue to expect E&D to be about 8% of sales for the full year. 2%, slightly lower than our expectations.

5% for the full year. 49, up more than 20% year over year. Free cash flow in Q3 of $654 million was above our expectations. It was $165 million higher than the prior year, primarily due to higher pre-tax income driven by our strong Q3 results and good working capital management.

Now onto Slide 8 for the sales and margin performance of our three operating segments. Intelligent Devices margin of 20% increased by 120 basis points year over year, lower than we expected. The higher year-over-year sales, favorable currency, and mix were partially offset by inflation. Year-over-year segment incrementals landed at 30%.

8% was up 320 basis points versus prior year and was higher than our expectations, driven by strong sales volume partially offset by inflation. This segment saw year-over-year incrementals of about 50%. 1% was up 180 basis points year over year, in line with expectations. Lifecycle Services had another quarter of good project execution and productivity, and segment margin benefited from the dissolution of Sensia.

These were partially offset by lower sales volume. Total Rockwell incremental margin was in the high 50s year over year in Q3 on an as-reported basis and over 40% on an organic basis. This is our fourth consecutive quarter of incrementals above 40%. Let's move to the next slide, Slide 9, for the adjusted EPS walk from Q3 fiscal 2025 to Q3 fiscal 2026.

65 in Q3. Our core performance was driven by volume, mix, and productivity, partially offset by price/cost. Core price/cost was unfavorable in the quarter, reflecting rising costs and the timing of price increases. We implemented a price increase late in Q3 that will be realized in Q4.

The team still delivered strong margins and healthy incremental conversion in the quarter, demonstrating the strength of our operating model. We continue to expect positive price/cost both for the full year and in Q4. 20 headwind largely due to BEPS Pillar 2. 09 positive impact on our adjusted EPS.

5% at the midpoint. This is up 150 basis points from our prior guidance. This increase reflects the outperformance we saw in the quarter and higher growth expectations for Q4. Our third quarter results and full-year guide do not include any impact from expected IEIPA refunds or claims resulting from the Supreme Court decision.

30. 35 from the midpoint of our prior guide. For the full year, we still expect about 250 basis points of price realization, with about 100 basis points from tariff-related pricing and about 150 basis points from underlying price. We remain on track for tariffs to be EPS neutral in fiscal 2026, with pricing offsetting the associated costs.

This updated guide continues to reflect our expectations for full-year incrementals of greater than 50% on an as-reported basis and high 40s on an organic basis. These strong incrementals are driving 260 basis points of expansion in enterprise operating margin year over year. Specific to the fourth quarter, we expect total company reported sales to be up low single digits sequentially, with approximately flat enterprise operating margin compared to Q3. This is due to higher inflation and an unfavorable mix, with configured-to-order and solutions sales hitting their normal seasonal peak.

Intelligent Devices segment margin should be up slightly from the third quarter on modestly higher sequential volume. We expect segment margin in Software & Control to be lower sequentially on flat sales, as inflation on items like memory hit here the hardest. For Lifecycle Services, we expect segment margin to be flat from the third quarter on higher seasonal sequential revenue. For the full year, we expect Intelligent Devices reported revenue to grow in the low double digits with segment operating margin of around 20%.

For Software & Control, reported revenue should grow in the high teens with segment margin in the low 30s, up several hundred basis points year over year.