Rockwell Automation Reports Fourth Quarter and Full Year Results | Automation.com

Rockwell Automation Reports Fourth Quarter and Full Year Results

November 052004
• Diluted earnings per share from continuing operations of $0.51 in the quarter
• Revenue up 18 percent in the quarter; 16 percent excluding currency translation
• Free cash flow of $202.9 million in the quarter; $498.9 million for the full year
• Expects fiscal year 2005 diluted EPS in the range of $2.15 to $2.25


MILWAUKEE, November 4, 2004 – Rockwell Automation, Inc. (NYSE: ROK), a leading global provider of industrial automation power, control and information solutions, today reported fiscal 2004 fourth quarter income from continuing operations of $96.6 million ($0.51 per share). This result includes the following items:

• Charges of $26.3 million ($16.3 million after tax, or $0.09 per share) at Control Systems related to an ongoing facilities rationalization program; and
• A net tax benefit of $7.5 million ($0.04 per share) related to a state tax refund.

Income from continuing operations in 2003 was $62.6 million ($0.33 per share).

Income from discontinued operations in the 2004 fourth quarter was $51.4 million ($0.27 per share) and was comprised of the following:

• An after-tax gain on the sale of our FirstPoint Contact business of $32.1 million ($0.17 per share);
• Net income of our FirstPoint Contact business of $0.9 million; and
• A net tax benefit of $18.4 million ($0.10 per share) related to a state tax refund.
Net income for the 2004 fourth quarter was $148.0 million ($0.78 per share) compared to $67.6 million ($0.35 per share) in 2003.

Sales for the fourth quarter were $1,206.2 million, up 18 percent compared to $1,024.9 million in the fourth quarter of 2003. Currency translation accounted for two percentage points of the growth. Segment operating earnings in the fourth quarter were $172.9 million, up 32 percent compared to $131.0 million in the fourth quarter of 2003.

Full Year 2004
Full year 2004 income from continuing operations was $354.1 million ($1.85 per share) including tax benefits of $46.3 million ($0.24 per share). This result compares to income from continuing operations in 2003 of $281.4 million ($1.48 per share) including tax benefits of $69.4 million ($0.37 per share). Full year 2004 net income was $414.9 million ($2.17 per share) compared to $286.4 million ($1.51 per share) in 2003.

Sales for the full year were $4,411.1 million, up 10 percent compared to $3,992.3 million in fiscal 2003. Currency translation accounted for three percentage points of
the growth. Segment operating earnings for fiscal 2004 were $595.4 million, up 32 percent compared to $452.2 million in 2003.

Free cash flow for the fourth quarter was $202.9 million, compared to $114.1 million in the fourth quarter of 2003. Free cash flow for the full year was $498.9 million compared to $312.3 million for the full year 2003.

Keith D. Nosbusch, president and chief executive officer, said, “Our performance in the fourth quarter again validates our balanced strategy of investing in sustainable growth, while working to maintain a competitive cost structure. Our strengthened global market presence allowed us to take advantage of the stronger demand in our end markets. I am proud of the efforts of our employees to deliver such excellent financial performance.”

Outlook
Commenting on the outlook for 2005, Nosbusch continued, “Looking ahead, though growth rates will vary from quarter to quarter, we continue to see strong customer demand and improving conditions across our markets. While fourth-quarter customer capital investment and pent-up demand drove revenue to above-trend levels, we are optimistic that a gradual uptrend is sustainable.” Nosbusch concluded, “I remain convinced that we have never been better positioned to meet customer needs and respond to the long-term factors driving manufacturing.”

We expect 2005 revenue growth of 6 to 8 percent, excluding currency translation, and operating margins of approximately 15 percent. Accordingly, we expect diluted earnings per share to be in the range of $2.15 to $2.25 per share. Free cash flow in 2005 is expected to exceed net income, consistent with our long-term goal.

Earnings per share for the fiscal first quarter of 2005 is expected to be about $0.48 per share.

Following is a discussion of fourth quarter and full year results for each business.

Control Systems
Control Systems fourth quarter sales were $999.5 million, an increase of 18 percent compared to $845.8 million in the fourth quarter of 2003. Two percentage points of the growth was due to the effect of currency translation. The strong growth was seen across nearly all our businesses, including a 33 percent increase at the Logix platform business. From a regional perspective, sales in the U.S. increased 18 percent in the 2004 fourth quarter while non-U.S. sales increased 13 percent, excluding the effect of currency translation. Segment operating earnings were $151.6 million, an increase of 31 percent compared to $115.6 million in the fourth quarter of 2003. Segment operating earnings in the 2004 fourth quarter includes $26.3 million of charges associated with an ongoing facilities rationalization program. These charges were more than offset by earnings from higher volume and productivity improvements. Control Systems return on sales was 15.2 percent in the fourth quarter of 2004 compared to 13.7 percent in 2003.

Sales for the full year were $3,658.6 million, an increase of 11 percent compared to sales of $3,287.4 million in 2003. Four percentage points of the growth was due to the effect of currency translation. Segment operating earnings were $527.9 million, an increase of 33 percent compared to $397.6 million in 2003. Control Systems return on sales for the year was 14.4 percent compared to 12.1 percent in 2003.

Power Systems
Power Systems fourth quarter sales were $206.7 million, an increase of 15 percent compared to sales of $179.1 million in the 2003 fourth quarter. Segment operating earnings were $21.3 million, an increase of 38 percent compared to $15.4 million in the fourth quarter of 2003. The increase in segment operating earnings was driven by productivity improvements, higher volume, and price increases, the combination of which more than offset higher material costs. Power Systems return on sales was 10.3 percent in the fourth quarter of 2004 compared to 8.6 percent in 2003.

Sales for the full year were $752.5 million, an increase of 7 percent compared to $704.9 million in 2003. Segment operating earnings were $67.5 million, an increase of 24 percent compared to $54.6 million in 2003. Power Systems return on sales for the year was 9 percent compared to 7.7 percent in 2003.

General Corporate – Net
Fourth quarter general corporate expenses were $28.5 million compared to $24 million in the 2003 fourth quarter. Expenses in 2004 include a $5 million contribution to our
charitable corporation and charges associated with environmental remediation at legacy sites that were $4.2 million higher than the fourth quarter of 2003.

General corporate expenses for the full year were $88.3 million compared to $66.8 million in 2003. Expenses in 2004 include environmental remediation charges that were $9.7 million higher than in 2003, contributions to our charitable corporation of $7 million, and $5 million of expenses associated with corporate staff changes.

Income Taxes
In 2004, we recognized the following tax benefits:

• $4.3 million in the first quarter related to additional state tax benefits associated with the research and experimentation credit refund claim recorded in 2003;
• $34.5 million in the third quarter resulting from the resolution of certain tax matters primarily related to former businesses; and
• $7.5 million in the fourth quarter resulting from a state tax refund related to prior years.

The result of these tax benefits was a reduction of the effective tax rate in 2004 from 30 percent to 19 percent. The effective tax rate in 2005 is expected to be approximately 31 percent.

In 2003, we recognized a net tax benefit of $69.4 million related to the settlement of a U.S. research and experimentation credit refund claim.

Discontinued Operations
In September 2004, we sold our FirstPoint Contact business for cash and a note convertible into a minority interest in the buyer. The results of operations of FirstPoint Contact for all periods as well as the after-tax gain on sale of $32.1 million ($0.17 per share) are reflected in discontinued operations. Income from discontinued operations in 2004 also includes a tax benefit of $18.4 million ($0.10 per share) resulting from a state tax refund related to prior years, and income of $7.6 million ($4.6 million after tax, or $0.02 per share) from a final judgment in a legal proceeding related to our former operation of the Rocky Flats facility of the Department of Energy.

Cash Flow
Free cash flow for the fourth quarter of 2004 was $202.9 million compared to $114.1 million in 2003. Full year 2004 free cash flow was $498.9 million compared to free cash flow of $312.3 million in 2003. The increase in free cash flow in 2004 was the result of higher pre-tax earnings, lower U.S. federal tax payments as a result of tax benefits related to the voluntary pension contributions and increased benefits from the exercise of stock options, and refunds from various taxing authorities related to prior years. These factors more than offset the higher voluntary contributions to our U.S. qualified pension trust which totaled $125 million in 2004 compared to $50 million in 2003. We expect cash tax payments to approach income tax expense going forward.

Rockwell Automation defines free cash flow as cash flows from operating activities reduced by capital expenditures.

A conference call to discuss our financial results will take place at 10:00 A.M. Eastern Time on November 4. 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 “expect(s),” “will,” 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, the following:
• economic and political changes in international markets where we compete, such as currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors we cannot control;
• demand for and market acceptance of new and existing products;
• levels of capital spending in industrial markets;
• the availability and price of components and materials;
• successful development of advanced technologies;
• the availability and effectiveness of our information technology systems;
• competitive product and pricing pressures;
• future terrorist attacks;
• intellectual property infringement claims by others and the ability to protect our intellectual property;
• the uncertainties of litigation; and
• other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission filings.
These forward-looking statements are made only as of the date hereof, and we undertake 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. Headquartered in Milwaukee, Wisconsin, the company employs about 20,000 people serving customers in more than 80 countries.
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