Rockwell Automation, Inc. Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Opening Comments: Entered fiscal 2026 focusing on top-line performance, productivity, and margin expansion. Q1 reflected progress with double-digit sales growth, sustained momentum in key businesses, and structural productivity actions. Macro environment had geopolitical uncertainty but long-term automation trends remain strong.
• First Quarter Results: Sales slightly better than expected with double-digit y-o-y growth in reported and organic sales. Strong in Logix and motion, ARR grew 7% with strong performance in recurring software. PLEX had strongest quarter yet with customer wins like RH Shepherd and Hindalco Industries.
• Industry Performance: Discrete sales up low double digits led by e-commerce/warehouse automation. E-commerce/warehouse up over 60%, hybrid up high single digits, life sciences down low single digits, process up 10% with growth in chemicals, water, and energy.
• Fiscal 2026 Outlook: Maintaining organic sales growth 2%-6% with midpoint assuming sequential improvement. Recurring revenue expected high single-digit growth. Segment margin expansion over 100 basis points. Adjusted EPS midpoint raised to $11.80.

Segment Performance

• Intelligent Devices: Organic sales up 16% year-over-year, margin of 17.3% increased by 240 basis points year-over-year. Growth was broad-based with strong performance in drives and motion, including wins like PFM Group and ATS.
• Software and Control: Organic sales grew 17% versus the prior year, margin of 31.2% was up 610 basis points versus the prior year. Strong in Logix, software, and network, with wins like Thermo Fisher using AI-enabled troubleshooting agent.
• Lifecycle Services: Organic sales declined 6% versus the prior year, margin of 14.1% up 160 basis points year-over-year. Book to bill in this segment was 1.16, with projects delayed due to trade policy impacts.

Guidance

• Maintaining organic sales growth outlook of 2% to 6% with midpoint assuming gradual sequential improvement.
• Recurring revenue expected high single-digit growth.
• Expecting full-year segment margin expansion of over 100 basis points.
• Increasing the midpoint of adjusted EPS to $11.80 due to discrete tax benefits in Q1.
• Free cash flow conversion still expected to be approximately 100%.

Risks

• Macro Environment: Fluidity with heightened geopolitical uncertainty around trade, regional conflict, and supply chain risk.
• Tariffs: Impacted segment margins year-over-year, though Q1 impact was neutral.
• Lifecycle Services: Projects delayed due to uncertainty in trade policy affecting larger project scopes.

Question and Answer

• Q: Scott Davis from Melius Research asks about reconciling cautious comments with CapEx budgets. A: Blake Moret responds that there's optimism in some areas but need more broad-based release of orders before centering on higher end of guide. Stock levels back to normal, distributors optimistic but prudent.
• Q: Julian Mitchell from Barclays asks about margin drivers in Q2. A: Blake Moret states slight sequential sales improvement, modest margin expansion expected for segments, with chips having single-digit million dollar impact. Lifecycle Services had better Q1 than expected and is lumpy.
• Q: Andrew Kaplowitz from Citigroup asks about incrementals and Rock on Rock program. A: Christian Rothe says Logix flow-through profitability impacts incrementals, team focuses on broad base and productivity initiatives, Rock on Rock program rolling out learnings to existing facilities.
• Q: C. Stephen Tusa from JPMorgan asks about reconciling earnings growth with cash flow. A: Christian Rothe explains incentive payouts in Q1 and working capital changes contributed to cash flow delta, with free cash flow conversion expected to be on track.
• Q: Nigel Coe from Wolfe Research asks about process market outlook. A: Blake Moret says process performed nicely, with energy, chemical, and midstream contributions, though oil prices and capital stewardship impact.
• Q: Andrew Buscaglia from BNP Paribas asks about AI impact and food/automotive trends. A: Blake Moret states AI applied for specific applications, not general models, and food/automotive have differentiated technology and are earlier cycle for Rockwell.
• Q: Tommy Moll from Stephens asks about auto spending plans. A: Blake Moret notes optimism in auto but still needs more orders to see sustained growth due to tariff and mix uncertainties.