Rockwell Automation, Inc. (ROK) Earnings

Management highlights

### Overall Q3 Performance - Delivered a stronger-than-expected quarter with 8% reported year-over-year sales growth and 10% organic sales growth; the Sensia dissolution reduced reported sales by 3%, while currency added approximately 1 percentage point of growth. - Double-digit year-over-year growth was delivered in both sales and adjusted earnings per share (adjusted EPS of $3.49), with enterprise operating margin of 22.3% expanded 280 basis points year-over-year, driven by higher volume and favorable product mix. - Gross margin expanded 70 basis points year-over-year to 49.5%, with the Sensia dissolution contributing a 40 basis point margin benefit. ### End Market Highlights - Discrete industries grew high-teens year-over-year, led by 30% growth in e-commerce/warehouse automation, strong semiconductor growth tied to AI infrastructure investment, strong data center growth, and low double-digit growth in automotive. - Hybrid industries grew mid-single digits year-over-year, with 10% growth in life sciences and mid-single digit growth in food and beverage (driven by ongoing modernization investment despite no inflection in large CapEx projects). - Process industries grew high single digits year-over-year, led by high single-digit growth in energy (focused on brownfield expansion and modernization) and growth in metals and chemicals; mining sales were down mid-single digits due to project timing delays in Latin America. ### Regional Performance - North America delivered 12% year-over-year organic sales growth, remaining the company's fastest-growing region for the full fiscal year, with broad growth across most other regions globally. ### Operational Milestones - The company's Singapore manufacturing facility was named a World Economic Forum Lighthouse for leadership in digital and AI-enabled manufacturing. - The Sensia joint venture dissolution was completed smoothly and on schedule as of April 1, 2026, with expected impacts reflected in current results and guidance. - Plex cloud ERP continues to perform well, adding new customers and expanding into target end markets, with integration of generative AI and new functionality underway; it contributed to the quarter's high single-digit software ARR growth. - Production logistics delivered double-digit growth, with strategic wins across food and beverage, semiconductor, and life sciences, driven by independent cart technology and autonomous mobile robots.

Guidance

- Full fiscal 2026 reported and organic sales growth guidance is raised to a range of 7.5% to 9.5% (8.5% midpoint), an increase of 150 basis points from prior guidance, reflecting Q3 outperformance and higher expected growth for Q4. The midpoint includes ~150 basis points of favorable currency offset by the Sensia dissolution impact. - Full fiscal 2026 adjusted EPS guidance is raised to a range of $13.00 to $13.30 (new $13.15 midpoint), a $0.35 increase from the prior midpoint, representing ~25% year-over-year growth. - Full-year enterprise operating margin guidance is maintained at 21.5%, representing a 260 basis point expansion year-over-year. Free cash flow conversion guidance is maintained at 100%. - Organic annual recurring revenue (ARR) is expected to grow mid-single digits for the full year, with total price realization expected to be 250 basis points, consisting of 100 basis points from tariff-related pricing and 150 basis points from underlying price; tariffs are expected to remain EPS neutral for the full year, with pricing offsetting all associated costs. - Q4 2026 expects total company reported sales to grow low single digits sequentially, with enterprise operating margin expected to be flat sequentially compared to Q3, driven by typical seasonal mix shift to longer-cycle, lower-margin configured-to-order solutions and ongoing inflation headwinds. - Capital expenditures for full fiscal 2026 are expected to be ~3% of sales, with total share repurchases expected to be ~$850 million for the full year, and average diluted shares outstanding expected to be ~112.2 million.

Segment performance

1. Intelligent Devices: Organic sales grew 10% year-over-year, with broad-based growth across all product lines. Segment operating margin came in at 20%, an increase of 120 basis points year-over-year, with 30% year-over-year segment incremental margin. For full fiscal 2026, management expects reported revenue to grow in the low double digits, with full-year segment operating margin of approximately 20%. This segment contributes roughly 40-45% of total company revenue based on growth trends. 2. Software and Control: Organic sales grew 18% year-over-year, led by strong double-digit growth in Logix controllers. Segment operating margin was 34.8%, up 320 basis points year-over-year, with 50% year-over-year segment incremental margin. For full fiscal 2026, management expects reported revenue to grow in the high teens, with full-year segment operating margin in the low 30s (up several hundred basis points year-over-year). This segment contributes roughly 30-35% of total company revenue. 3. Lifecycle Services: Organic sales were down 2% year-over-year, in line with expectations, with a 0.97 book-to-bill ratio. Segment operating margin was 15.1%, up 180 basis points year-over-year. For full fiscal 2026, management expects reported revenue to decline approximately $150 million year-over-year, driven by the Sensia dissolution and ongoing large CapEx headwinds, with full-year segment operating margin expected to be flat to slightly up year-over-year. This segment contributes roughly 20-25% of total company revenue.

Risks & headwinds

- Persistent inflation across input costs, particularly memory chips driven by high data center demand, is an increasing headwind that is expected to continue into the second half of fiscal 2026 and 2027. - Ongoing geopolitical volatility, trade policy uncertainty, and tariff volatility contribute to customer caution on approving large capital projects, as customers delay non-urgent spending to resolve cost uncertainty. - Large capital project spending remains sluggish across food and beverage and some process industries, with customer funding constraints and higher decision approval thresholds limiting near-term growth for lifecycle services and longer-cycle solutions. - Broad-based macroeconomic uncertainty leads to customer delays in non-urgent project spending, which constrains ARR growth in lifecycle services. - Mining project timing delays in Latin America negatively impacted near-term results.

Analyst Q&A

• Q: How does full-year 2026 price realization break out between underlying and tariff-related pricing, and are tariff adjustments temporary? /

  A: Full-year total price realization is expected to hit the previously guided 250 basis points, with 100 basis points from tariff-related pricing and 150 basis points from underlying inflation-driven pricing. Tariff-based pricing is structured specifically to offset tariff costs and maintain EPS neutrality, so it is not incremental profit. Q3 saw a timing lag for price increases implemented late in the quarter, which will be realized in Q4, consistent with full-year guidance. /

• Q: What is your update on the Plex acquisition and its integration and performance? /

  A: Plex is performing well, meeting expectations, and continues to add new customer logos. It is successfully expanding into consumer packaged goods, which was a core strategic hypothesis of the acquisition, leveraging Rockwell's existing market access. The team is integrating generative AI into Plex modules and combining Plex's cloud-native MES with Rockwell's mobile robot fleet management capability to build an early lead in production orchestration. Plex contributed to the quarter's high single-digit software ARR growth. /

• Q: What is your outlook for short-cycle vs long-cycle business heading into fiscal 2027? Can short-cycle momentum continue? /

  A: Tailwinds from high-growth verticals including data center, automotive, and life sciences are broadening and there is no sign these will slow. Labor shortages and reshoring trends continue to drive ongoing automation and modernization investment, most of which is shorter-cycle. While large CapEx projects remain sluggish, there are early signs of renewed project activity in automotive and life sciences, and growth is already solid across discrete, hybrid, and process end markets, not just short-cycle discrete. The company will continue to focus on productivity and proactive pricing to offset ongoing inflation and geopolitical volatility. /

• Q: What is driving sequential flat Q4 margins when price-cost is expected to shift from negative to positive? /

  A: The flat sequential margin outlook is driven by a seasonal mix shift: Q4 typically sees a peak in lower-margin configured-to-order and longer-cycle project solutions, which creates a mix headwind. Ongoing sequential increases in inflation also offset the benefit of higher volume and positive price-cost, leading to overall flat enterprise margin versus Q3.