MILWAUKEE, July 28, 2004 – Rockwell Automation, Inc.
(NYSE: ROK), a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2004 third quarter net income of $126.4 million, or $0.66 per share, including tax benefits of $34.5 million, or $0.18 per share. 2003 third quarter net income was $128.1 million, or $0.67 per share, including a net tax benefit of $69.4 million, or $0.36 per share.
Excluding the tax benefits, EPS increased 55 percent from $0.31 in the third quarter of 2003 to $0.48 in the third quarter of 2004. Sales for the third quarter were $1,163.5 million, up 13 percent compared to $1,033 million in the third quarter of 2003, driven by double-digit growth at Control Systems and Power Systems.
Two percentage points of the revenue growth were due to the effect of currency translation.
Segment operating earnings were $168.5 million, an increase of 42 percent compared to $118.8 million in 2003’s third quarter.Free cash flow for the third quarter was $71.6 million, compared to $47.8 million in the third quarter of 2003.
Free cash flow for the first nine months of 2004 was $314.7 million, compared to $206.8 million for the first nine months of 2003.Keith D. Nosbusch, president and chief executive officer, commented, “Our results in the third quarter were excellent.
We saw accelerated sales growth and higher operating margins in nearly all of our businesses. The sustained investment we have made in our product portfolio, Logix integrated architecture and solutions delivery capabilities has strengthened our competitive position, allowing us to take advantage of the stronger demand in our end markets.” Nosbusch continued, “These results also reaffirm our focus on operational efficiencies. We continue to demonstrate our strong operating leverage through the execution of our Lean Enterprise initiatives and implementation of cost reduction actions over the last several years.
In particular, our Power Systems team delivered a strong combination of growth and productivity.”Nosbusch concluded, “This quarter’s results reflected stronger customer demand and improving conditions across our markets, and accordingly, we have raised our guidance for EPS, revenue growth and free cash flow. Looking beyond this year, we are optimistic about the continuation of this upward trend.”
Outlook
The company now expects to exceed its previous full-year guidance for diluted EPS, revenue growth and free cash flow. Full-year diluted EPS from continuing operations is now expected to be approximately $1.65, excluding $0.20 of tax benefits recorded in the first nine months of the year.
This compares to previous guidance of $1.55 to $1.60, excluding the tax benefits recorded in the first quarter. Revenue growth is now expected to be 6 percent to 7 percent, excluding the effect of currency, compared to previous guidance of 4 percent to 6 percent.
Free cash flow is now expected to be approximately $400 million compared to previous guidance of $300 million to $350 million.Following is a discussion of third quarter results for each business.
Control Systems
Control Systems third quarter sales increased 13 percent to $933.3 million from $824.1 million in the third quarter of 2003. Two percentage points of the growth were due to the effect of currency translation. The increase in sales was driven by strong performance across nearly all businesses.
In particular, adoption of the Logix integrated architecture platform accelerated in the quarter, resulting in revenue growth for this business of approximately 44 percent. The Logix platform business now represents nearly 10 percent of Control Systems sales.
From a regional perspective, sales in the U.S. grew by 14 percent while sales outside of the U.S. grew by 13 percent (8 percent excluding the effect of translation).
Segment operating earnings were $143.8 million, an increase of 40 percent from $102.7 million in 2003’s third quarter. The increase in segment operating earnings was due to higher volume, productivity improvements and favorable product mix.
Control Systems return on sales was 15.4 percent in 2004’s third quarter, compared to 12.5 percent in 2003. A series of contract wins during the quarter across a breadth of industries and control disciplines confirms that the Logix integrated architecture continues to drive growth and expand the company’s served markets. Key Logix wins during the quarter included a European steel industry OEM (original equipment manufacturer), a Switzerland-based OEM and a major French metal building OEM.
The OEMs will use the Logix architecture for projects in China and Thailand. Another key win was to an oil company consortium for a project in Kazakhstan.During the quarter, the Logix integrated architecture contributed to Rockwell Automation receiving Dûrr AG’s Innovation Award, recognizing the collaborative efforts of Dûrr’s Paint Systems business and Rockwell Automation. Dûrr is a leading supplier of turnkey architecture systems for the automotive industry. The award recognizes the successful development of a global standardized control platform using the Logix integrated architecture.
Power Systems
Power Systems third quarter sales increased 12 percent to $201.7 million from $180.4 million in last year’s third quarter, driven by a 17 percent increase at the Dodge mechanical business and a 6 percent increase at the Reliance electrical business.
Third quarter segment operating earnings were $23.3 million compared to $15.6 million in the third quarter of 2003. The increase in segment operating earnings was due to higher volume and productivity improvements.
Power Systems return on sales was 11.6 percent versus 8.6 percent in the third quarter of 2003.
Rockwell FirstPoint Contact
Rockwell FirstPoint Contact sales were $28.5 million in the third quarter of 2004 and 2003. Segment operating earnings were $1.4 million for the quarter compared to $0.5 million in the third quarter of 2003.
Other Items
Third quarter 2004 general corporate expenses were $20.4 million compared to $16.5 million in the third quarter of 2003.
The increase is primarily the result of charges due to higher estimated costs for environmental remediation at two legacy sites.The company recognized a tax benefit of $34.5 million in the third quarter of 2004 resulting from the resolution of certain tax matters, in part related to former businesses.
A majority of the benefits relate to non-U.S. tax matters in addition to an agreement with a taxing authority regarding the treatment of an investment.
In the third quarter of 2003, the company recognized a net tax benefit of $69.4 million related to the settlement of a U.S. research and experimentation credit refund claim.
Cash Flow
Free cash flow for the third quarter was $71.6 million compared to $47.8 million in the third quarter of 2003.
Free cash flow in the third quarter of 2004 includes a voluntary contribution to the company’s U.S. qualified pension plan trust of $75 million compared to a contribution of $50 million in the 2003 third quarter. Free cash flow for the first nine months of 2004 was $314.7 million, including $125 million of voluntary pension contributions.
This compares to free cash flow of $206.8 million for the first nine months of 2003, including a $50 million voluntary pension contribution. The strong cash flow performance in 2004 is the result of lower cash taxes compared to 2003 as well as continued capital spending discipline. In addition, through the first nine months of 2004, the company received net refunds from various taxing authorities of approximately $30 million.
The company defines free cash flow as cash provided by operating activities reduced by capital expenditures.A conference call to discuss Rockwell Automation’s financial results will take place at 10 A.M. Eastern Time on July 28.
The call will be Webcast and accessible via the Rockwell Automation website ( www.rockwellautomation.com ). This news release contains statements (including certain projections and business trends) accompanied by such phrases as “believes,” “estimates,” “expect(s),” “anticipates,” “will,” “intends” and other similar expressions, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to economic and political changes in international markets where the company competes, such as currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors over which the company has no control; demand for and market acceptance of new and existing products, including levels of capital spending in industrial markets; successful development of advanced technologies; the availability and effectiveness of our information technology systems; competitive product and pricing pressures; future terrorist attacks; epidemics; intellectual property infringement claims by others and the ability to protect our intellectual property; and the uncertainties of litigation, as well as other risks and uncertainties, including but not limited to those detailed from time to time in the company’s Securities and Exchange Commission filings.
These forward-looking statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.Rockwell Automation, Inc. (NYSE: ROK), is a leading global provider of industrial automation power, control and information solutions that help customers meet their manufacturing productivity objectives. The company brings together leading brands in industrial automation for Complete Automation solutions, including Allen-Bradley controls and services, Dodge mechanical power transmission products, Reliance motors and drives, and Rockwell Software factory management software.
The company also is a provider of contact management technologies and applications that help companies more efficiently manage interaction with their own customers. Headquartered in Milwaukee, Wisconsin, the company employs about 20,000 people serving customers in more than 80 countries.