Rockwell Automation, Inc. (ROK) Earnings Call Transcript & Summary

I think we're on. We're very excited for you all to be here. Welcome to Citi's 2026 Global Industrial Tech and Mobility Conference. I think we've got a great slate for you that over 160 companies this year. I'm Andy Kaplowitz, Citi Group's multi-industry and E&C analyst. We are very excited to have Rockwell Automation with us. Rockwell has been a mainstay of the conference. Rockwell starting now today is awesome. Thank you, Blake. So we have Blake Moret, who's our Chairman and CEO; and Matheus Bulho, who is Rockwell's SVP of Software and Control. So I'm going to turn it over to you, Blake. I know you have some opening comments, and then we will go into Q&A.

Well, good morning, everyone. As Andy said, I'm Blake Moret, Chairman and CEO of Rockwell. I'm going to start with just a few framing comments and then looking forward to the fireside chat. So many of you have followed Rockwell for some time. I'd like to make the point that Rockwell has considerably increased our resilience in the past few years, more exposure across a wider variety of verticals, a discrete hybrid and process. Process actually makes up 40% of our total business. We've added considerable, profitable, annual recurring revenue. It's over 10% of our business, a mixture of software as well as high-value services and we've redoubled our focus on operational excellence. So that's certainly provided benefits throughout our supply chain. We have a good blend of hardware, software and services to provide solutions. And in fact, today, Rockwell is the most used technology in American manufacturing. We introduced this growth algorithm a few years ago, 5% to 8% organic growth, a mixture of good secular trends, our ability to gain share, the impact of good growth in annual recurring revenue and then a modest amount of growth due to acquisitions. For this year, we're taking a prudent approach, but I think there's a very good chance that we are in this organic growth range this year. We take an intentional focus to the industries that we pursue, looking at growth, Rockwell's ability to win. And so as you can see, it's a good mix of traditional verticals that we've served for a long time as well as growing presence in new verticals, of course, including data center, e-commerce, warehouse automation and the like. Enabling technologies include a software-defined automation, including good usage of artificial intelligence at all levels of the control stack. Robotics, both in terms of the equipment that we acquired from Clearpath mobile robots as well as good partnerships with the manufacturers of robot arms to be able to simplify the whole process of integrating automation systems that include the fixed automation that we're known for, but simplifying the integration with robotics, which are becoming more and more a factor in every vertical that we serve. We've also talked a lot in the last couple of years about expanding margins. We gave an overall company goal as well as corridors that we expected to achieve within our 3 business units. I'm happy with the progress that we've made, but we're far from done. And our approach spans multiple areas of productivity. It includes control of commercial expenses, direct material, indirect manufacturing efficiency, and of course, in all businesses and functions, the adoption of artificial intelligence to be able to simplify workflows as well. And we're on offense. We talked a couple of quarters about spending, investing $2 billion over the coming years in plants, talent and digital infrastructure in the service of expanding market share and expanding margins. This really should be thought of as that kind of next tier of margin expansion activities, deploying capital in the service of greater efficiencies and greater operating margins. And just to recap our full year outlook, mid-single-digit growth on the top line, double-digit growth in earnings. And so with that, I'll take a seat, and we will take Andy's questions.

Thank you, Blake. So Blake, while you get settled, maybe just a big picture question, like thoughts overall on what's going on in terms of the global automation cycle. I think at your Investor Day, you had -- you showed a slide that showed significant investments in new capacity in North America. And we've talked about shoring gaining some momentum. We're hearing about a growing emphasis on physical AI. So you interact with a lot of manufacturers around the globe. Can you comment on the broader environment? Is the automation cycle beginning to get, I think you showed the slide with faster secular growth, 3% to 5% as part of your 5 days and maybe talk about that.

Yes. There's a lot of positive sentiment out there. It's manifesting itself currently primarily in the area of product sales. And of course, Matheus represents software and control which is a product-focused business products and software, they had a strong first quarter, actually a little bit ahead of our expectations. But where we're seeing customers still waiting for a little more certainty is in the major CapEx across a broad swath of the verticals. Of course, enormous amounts of capital being deployed in areas like data center. Pharmaceutical continues to deploy capital with new capacity for GLP-1 and things like that. But across other verticals, a lot of the activity today is focused on products, modernizations, additional efficiency projects in existing plant versus building new.

Got it. And I think you want to be conservative, you have a guidance of 2% to 6%, as you know, in terms of organic for this year. But you've talked about -- and that's versus the 5% to 8% that you talked about for long term, but you've talked about this extra 1% to 2% share that Rockwell can deliver every year. So maybe talk about some of the initiatives you're working on sort of get to 1% to 2% share. Are you getting that better than market 1% to 2% share now?

Yes. So the 1% to 2% in that algorithm, first, just for context, 3% to 5% market growth, 1% to 2% in terms of share gains as well as expanding our served market then 1% from annual recurring revenue and then the additional 1% on average for acquisitions. The 1% to 2% share gains, given that we have the highest share in North America, and that's where a lot of the investment is. The math works in our favor. And we think we're doing a really nice job of not only touching base with the U.S.-based decision-makers, but also working with the machinery builders, the engineering firms around the world to make sure that they're comfortable using us when their end users do have a preference for Rockwell. And so I think the share gains, particularly in Matheus' segment with controllers over the last few years, certainly a lot of volatility, but we do think that we're taking modest share. I think you all know in this space, share is a slow thing. Installed base matters a lot. We've got, obviously, a great home field advantage in North America. We're not complacent for a second, but we don't look at share and make a big deal over what's happening in a month or every quarter, but we're very focused on making sure that it's going in the right direction over time. The other piece of that 1% to 2% is expanding our served market and probably the best recent example of that is the entry into the mobile robots. We had this notion that customers would like to simplify the whole business of designing and commissioning, and operating autonomous operations or semi-autonomous operations that span the fixed automation, the conveyors and the equipment, and the mixers and the extruders and the ovens that we've controlled for a long time, along with the mobility as people are going to more intelligent ways to move material around saving cost. That's expanded market, maybe $4 billion or $5 billion of expanded market that really none of our traditional competitors have. And so there's this opportunity to bring those together, to integrate the hardware and the software that was exciting for us and seems to have captured the imagination of a lot of our customers.

I definitely want to get to share a little bit with Matheus. So I'll get there. But I just wanted to talk about your comments on sort of these large CapEx investments a little bit more, Blake. Like -- because when I look at the one place where you report book-to-bill nowadays in life cycle services, you booked pretty solid, I thought, 1.16x. So are you actually seeing some modest improvement in customer decision-making? And then any sort of update on Q2? Like, obviously, you just reported a couple of weeks ago. But anything -- I think you said on the call that your bookings so far support your outlook, but is that still the case in the middle of February?

Yes. So sentiment is probably slightly better than we have talked about certainly a quarter ago. I think in terms of the new capacity, we're going to book more new capacity business this year than last year by a fair bit. And I think you see that manifest itself in a healthy book-to-bill number in Lifecycle services, 1.16. I want to hasten to add that when we get an order that ultimately adds to a customer's capacity in the U.S., it's spread pretty evenly across our business units. So don't assume that that's people-intensive, relatively low-margin business. Lifecycle services certainly benefits from there, but a lot of that is Logix coming out of Matheus' shop that's going to a machinery builder is being specified by an engineering firm there. So we like the blend and whether we produce the solution at the end of the day or whether it's one of our partners, that's just fine for us. I would also say that the increase in new capacity orders manifest itself in the growth numbers in North America, which was strongest in the first quarter, and we do expect North America to be our strongest region for the year. So there's some good news there. But as we said on the call, we're looking to see orders across a broader spectrum of verticals and lot of good sentiment. We want to see customers to vote with their wallets and start placing those orders.

I think that's fair, Blake. And it's a good time to get Matheus involved then. Because some of the feedback I've got as well the Q2 guidance sequentially kind of more flattish, a little bit stagnant. But we know Logix has done well over the last few quarters. So is there anything you're seeing, Matheus, in cellphone control that would suggest to the environment is stagnant? Or is it maybe is Logix continuing to improve? Like how is the environment in your world?

Yes. No, there's nothing that suggests that it's stagnant. You saw we had a strong first quarter globally with over 20% year-over-year growth for Logix and in particular, North America with over 25% year-over-year growth. Importantly, we also saw growth in very important markets like Germany and Italy, machine builder markets that are important to the health of the business. Sequentially, we expect Logix to continue to improve. We are expecting low single digits from Q1 to Q2 and for the full year in the mid-single-digit range in line with software and control. We have a very good start of adoption of new product introductions, including quite a few in Logix, a whole new Logix controller with the L9 that's off to a great start and a healthy pipeline of innovation that continues to come.

Matheus , just one follow-up there. Look, one of your competitors also talked about machine builders getting better. They just take their inventories down too much, like now they sort of have to come back? Like what are you seeing from those guys?

Yes, I think as we talked in the earnings call, I think the whole destocking, we're beyond that. So we don't see that as any nonevent at this point.

Yes. So Blake, we know you're extremely focused on building out ARR, right? And so that grew 7% year-over-year. We expect ARR to grow high single digits in '26. But it's below your double-digit aspirations and what you've done in the past, I think you mentioned that Plex is growing above average rates. So maybe you could talk about Plex and if you could highlight other software businesses that are growing a little bit more slowly or ultimately, when does ARR get back to double digits?

So -- and I'll make a couple of comments, but since Plex and Fiix and the software is also software and control, Matheus, I'm sure, will have some comments because he's been busy there. So the annual recurring revenue that grew 7% in the quarter is a mix of software and high-value services. Some of those services are things like cybersecurity contracts, others are tech support so that people who use our products and our software can call or chat or use self-help to make sure their systems are well supported. The software in the first quarter actually grew higher than that average. So there were some delays in service contracts, renewals and things like that, that took that number down a little bit, but the software piece, including and importantly, Plex was actually higher than that figure. And I think in addition to some of the continued technology development for Plex. We're also seeing some, let's say, tweaks in the go-to-market that are bearing some early fruit. And Matheus has worked closely with our sales leadership to make sure that we're doing a really good job of representing that, looking for opportunities to build on customers that have a traditional base of Rockwell hardware and controllers, but also because Plex works just fine, even when there's a competitive system underneath it to build that motion as well. And that's a really important part of the overall approach, the philosophy behind the acquisition of Plex in the first place is to recognize there's a big wide world out there. And while we like being able to have a landing spot for the data that's born on our devices, we also like having a way in the door to customers that might use competitive control systems but are either already using Plex or are interested in Plex because our competitors don't have an answer for it, and so it's another way to win.

Absolutely. Plex had a very strong first quarter. It was our highest quarter in terms of new bookings on record. We are very focused on new bookings, meaning new logos and expansion bookings in existing accounts. Plex is a platform that is exposed to an amount of data that no other company has the benefit of extracting from. So there are literally billions of transactions that flow through Plex every day, trillions across the spectrum of a year across thousands of plants and that creates a moat that is very difficult to replicate by others. It gives us a very strong advantage. So -- and in terms of the go-to-market, we are looking for ways to amplify, including the development of partners that not only deploy the system but also help us sell the system domestic and internationally as well.

So Matheus, I'm going to tell you, we're very lucky to have you because over the last couple of weeks, obviously, there's been a little bit more questions on software, as you know, and so maybe you can talk about that, right? The potential for AI models to disrupt your business, like let's just ask it, right? Rock, as you know, has a very strong hardware product, you integrate most of your software into the hardware. We just talked about Plex it can sit by itself, right? So first, have you experienced, have you seen anybody new AI players out there? And how do you position -- I mean you talked about mode already, but how do you position because like the market is saying, oh, there might be disruption. So maybe we can just hit that head on.

Yes. So first, I would start, Andy, by saying that we're always evaluating. And we will always be evaluating what can potentially impact our business. It's part of our planning process, and it's forever journey. So there's never a dull moment. But specifically to the point you make on AI, I think there's a few things we would offer. So first, when you look at our software business, a good amount of that business is deeply integrated with physical systems with the embedded systems. And there are many reasons for that, including things like cybersecurity, how we control and how we manage what runs in these devices. So a good example of that is software that's used to commission a Logix system or a software that's used to commission operator interfaces. So for those we have -- because of the relationship with these systems and the proprietary nature of these systems, we have fairly strong grounds there. Then if you think about, another point I would make is a lot of the software that we have, it's actually running production. It's mission-critical software, deterministic transactions where you're looking for consistency. You're not looking for probabilistic outcomes and the majority of what the software is doing. So software that's used to in life sciences. Software that's used in food and beverage, in regulated industries where compliance matters. So a lot of that does require the execution because it's mission-critical, and it cannot live in a probabilistic environment. And then the third piece that I would offer is if you think about it, if your software is just data and a presentation or our user interface layer, you're very likely to be disrupted. What happens is a lot of our software has a very rich context that's not available in the public domain for all of these models to be trained on. So you see things like, for example, Anthropic focusing on coding or you see OpenAI focusing on creativity, you see Google focusing on large context and multi-motor interactions, it's very unlikely that we'll see that being prioritized, given the complexity of the market and frankly, the size of that market there. But we'll continue to work through all of these and adjust as needed.

Yes. If I can add, as Matheus started, we're always looking to challenge our hypothesis. What are the things that we knew to be true a few years ago and has anything changed to change our position on that in the day. There is a point where looking at applications in the cloud was something that we looked at and we'll continue to test this, but something that gives me encouragement is the amount of domain expertise that we have internally, people familiar, of course, with Rockwell's mission to look for efficiency from whatever means, including AI, but who also have history applying our technology at end customers. Our Chief Information Officer, deployed dozens of MES systems at large customers around the world. He's also currently in charge of looking at expanding our AI effort for internal productivity. And so we talk closely with him just makes sense. Are there still things, as Matheus described, about a unique value from these applications that will incorporate AI within it but still have a unique value, and it's a very affirmative answer in that respect.

The only maybe a point I would also add is, if you think about automation is about to benefit from AI. And the demand for automation is bound to increase and largely because AI simplifies what it takes to consume automation technology and frankly, allows us to automate things that were not previously practical, to be automated. So we expect the demand for automation to continue to expand as more and more AI is used in production system.

That's helpful, Matheus. So we're going to open it up to the audience in a second. Let me ask one more question, but just preparing in case anybody wants to ask a question. So let me just ask on pricing, Blake. I think maybe pricing is a little misunderstood for you guys because you only report half the product-based business in terms of pricing. So when you say 1% really 2% on products. But with all that being said, I think you've come a long way in your pricing evolution over the last few years. So maybe you can talk about that. And do you -- my understanding is in the past, maybe you offered some discounts to your large good customers? Are you kind of closing those loopholes? Like how do you think about pricing sort of moving forward?

Sure. So we had a system that yielded good price for many, many years. But we found particularly during the supply chain shortages back 2021, '22, that for significant step-change disruptions, we needed to make some changes in our processes. In the past, when we had 10 years ago when we had price changes, we'd have to wait for the contracts, the annual contracts with our customers to expire. And so you weren't able to get price into the market as fast as you needed to in the face of those major changes. We've changed that process so that you get more or less immediate price realization when you introduce those prices, working closely, of course, with our channel partners. And then also in the special case, which is becoming maybe a little bit more of the general case with respect to tariffs, again, processes that allow us to have a very transparent approach to increasing pricing. As you said, we report the price that's attributable to our products, which is still a little bit more than half of our total business, we're getting price in our software renewals and in our engineered to order or configured order offerings from life cycle services or from that portion of intelligent devices, but that's just a natural part of the quotation process. So there's price that's coming out there, but you're correct in that the pricing that we talk about, if you just look at the percentage of our products is a little bit higher than we say. I think there's a discipline of that. There's also other aspects of pricing. So we've talked a lot over the last year or so about the long tail of our SKUs and the opportunity for some surgical pricing there items that are, let's say, more receptive to that. And so that's additional price as part of our comprehensive productivity programs. I think the overall organization recognizes that for a company that's differentiated like us, that's growing, that pricing is a vibrant part of the overall effort to continue to grow top line, of course, but also to be able to appropriately expand our margins.

That's helpful. Any questions from the audience? Anyone?

Thanks for making the time. I just had a quick one. So I think back at the end of 2024, you announced a partnership with NVIDIA on your Emulate3D to integrate Omniverse for a digital twin. We saw this year at CES, Siemens took the stage they announced what seemed like a much deeper collaboration to develop what they call the AI software for industrial automation. I just wanted to understand like how does your offering differ to their accelerator offering? Why is it that the collaboration seems to be much deeper with Siemens did NVIDIA pick them over you? Or yes, I just wanted to understand the positioning there.

No, we continue to work well with NVIDIA. I think our partners ecosystem, whether it's NVIDIA or Microsoft or the really hundreds of other technology partners is second to none. Siemens focus is a little bit more on the product design. So when you look at PLM, EDA applications, compute-intensive and I think that's why NVIDIA is particularly interested there because these are large requirements for compute in the product design. Obviously, we compete with Siemens and others in the factory design, but our Emulate3D product, which, as you said, uses an API to be able to have photorealistic images rendered in Omniverse. We're doing that with a lot of customers. It's a growing motion directly versus the competitors like Siemens and winning in an impressive number of cases. Maybe talk a little bit more about Emulate3D and how it fits into that overall vision of a software-defined architecture.

Yes. Emulate3D is a very important component of a software-defined system because it's where you train the system and a lot of the future workflows on how systems are commissioned in the future rely on the digital twin model and the validations through that. Our partnerships with Emulate3D, are strong with NVIDIA, but they go well beyond NVIDIA. We partner with people like ANSYS, for example, for very specific capabilities that are needed in fluid dynamics and so on. Our relationship with NVIDIA is also beyond Omniverse. As you probably heard us in our Investor Day, we have been collaborating strongly on the deployment of small language models as part of runtime systems for optimization of some production problems. And because our stack is in the cloud, and we have access to compute and services, we've been able to kind of go to market fairly quickly with capabilities like that.

Any other questions?

Sorry, could I just follow up on that? Over in Europe, like there's been a bit of a cuff in the market because one of the elevator company, Schindler said that they had made their own digital twin of an elevator because Dassault Systemes, their previous digital twin partner for 8 years was unable to do so. This seems a bit like hyperbole, like I don't know about you, elevator doesn't seem like that complicated of a product. I'm sure Dassault could probably do a digital win. I just wanted to understand like, is this at all something that you've heard or that you think -- are customers pushing back against you saying like we're paying for per seat pricing. Do you think that that's necessarily fair, like you guys should see your costs come down of developing software because you can now use AI to do so? How do those conversations work? What does the pricing look like? Is it still going to be a per seat model in the future if it is? And yes, I just wanted to get your thoughts on that.

So I'm not sure I caught all of that. But if the question is about adoption of digital twins.

Yes, let me just clarify it. Basically, Dassault got dropped as a digital twin partner and Schindler, the Lyft company said they're making their own. They literally said they're [ vibe ] coding their own digital twin. Could a customer come to you and say that? Probably not because you guys do complicate work for them. But I imagine the pricing conversation has a little bit more flex these days because you should be seeing software development costs come down if you use AI in a reasonable way. How does that look? Is it still going to be a per-seat pricing model in the future?

Yes. So I'll make a couple of comments, and hopefully, this gets at the heart of it. I mean we are seeing significant interest across almost every vertical that we serve in creating digital twins of their operations. In a lot of cases, that was used to accelerate and shorten the commissioning process. It really got a booster and COVID when you couldn't have people physically from the machine builder and the customer and the technology supplier all physically in the same place, but it's moving beyond just the commissioning event so that customers can get benefit by continuing to debottleneck their processes to test or gamify different configurations whether it's elevators or its bottling facilities to be able to do that. And we've taken an open approach to this. When we made the acquisition that really got us big time into this area, first with Emulate3D as the technology and then Calypso followed by Knowledge lens with people who were data scientists, who can have those conversations with customers, we recognized it wasn't always going to be applied into shops that had just Rockwell hardware. So we've got those abilities to create digital twins when there's [indiscernible] robots and Siemens controllers and so on Schneider in that because we recognize it is a multi-vendor world. But to be able to come in and to be able to compete head-to-head with those solutions providers as well as the consultants, because it still requires the -- not only the technology tools, but the domain expertise. We were told over and over by customers that the technologies we talk about, software-defined automation, including AI, integrated robotics they still have to be directed by somebody who knows what you're actually trying to produce and how manufacturing works, and that's Rockwell's differentiator. So yes, with competition that software pricing will come down, the key piece, the part that's going to save the money and make -- give you the ROI is having an adequate tool but somebody who knows what they're doing with it and can work well not only with the corporate engineering resource, but also where it gets deployed in the field. And I think that's our special place.

Any other questions? All right. Well, we're quickly running out of time, Blake. So let me just ask you a couple more questions about the market. Like, maybe just let's go to growth by region because what's interesting is you've talked about North America being strong, but you've seen EMEA and Asia Pacific turn positive over the last few quarters. So does that continue? And then you usually are strong in Latin America, but it's been a little weak lately. So I mean, is that mining related and come back or something that? Any comments?

So Asia after North America in terms of growth, good growth. India, Southeast Asia, Taiwan, obviously, with all the chip activity, we have some very strong customers there. Latin America, a little weaker, primarily due to Mexico, Brazil, comparatively stronger. They also had a tough comp and that a year ago first quarter, they were the one region that had growth.

Got it. And then Matheus, like one of the keys, I think, for margin for Rockwell is your segment. It is the highest margin segment, right? So you got this question on pricing, but it seems like you've been focused on execution. Margins have come back up again here. Logix is doing well. So what gets you to sort of that 34% margin versus the concerns out there that all of a sudden, you're going to lose pricing and margin? Like how do you think about that?

Yes. As you know, it's a combination of volume as well as productivity remains a priority for our segment and for our company. So on the volume piece, this segment has strong incrementals, and we see a strong pipeline of innovation that will continue to help us propel that on the productivity side, all the things that Blake talked about, they are as applicable to the company as they are to the very specific segment of software control. So things like what we're doing to improve our cost to produce use Rockwell on Rockwell to continue to improve what it takes to make it, logistics, indirect, direct material -- all of the work we're engaged in right now with insourcing, those are real opportunities for software and control that we'll continue to expand on and help us drive improvement.

We talked about in Singapore, which is primarily a software and controlled plant, 30% improvement in labor efficiency there. We're applying a lot of the same things, the rock on rock concept in Twinsburg, well ahead of when we have the new plant up and running that we announced in Southeastern Wisconsin.

Would you guys say you're like kind of halfway through third inning, seventh inning, like in terms of if we're improving productivity at something like software?

This is a game that never ends. And I'd say we're still early innings. We came out to a good start to hundreds of millions of dollars over the last couple of years in productivity. We're driving it into a repeatable process as part of our Rockwell operating model, but it never ends and to be able to offset inflation plus some is an expectation every year.

And I just want to ask you specifically about discrete markets real quickly in the sense that auto is doing fine for you now, I think, like mid-single-digit growth overall. Can you continue to broaden out? You bought Cubic for data centers, you continue to broaden out that business to drive more discrete growth? Because people think of you use auto, but they are so much more than that.

Yes. Well, also in discrete e-commerce, warehouse automation, which includes a little bit of data center, a 60%, 70% growth. So that's helping discrete as well, specifically within data centers, the main areas of our business are the power distribution, largely due to the Cubic acquisition made a couple of years ago and the growing trend of people moving to industrial logic equipment like logic from their traditional distributed digital control, the DDC control that was used for a long time there, and we're seeing wider adoption by the month in using Logix there. So those are probably the primary applications and use of DDC moving to Logic in the building management systems primarily.

Yes. Hybrid market is pretty solid. Food and beverage, it's more your sort of total solutions that's sort of driven business, right?

Yes. Again, modernizations going into existing facilities that may or may not already have Rockwell control systems, adding software, adding fixed, predictive maintenance systems, adding cybersecurity contracts those are large projects, adding AMRs. We're seeing some projects. There's a recent one in Home and Personal Care, where over $20 million total project with 2/3 of that coming initially from the mobile robots. So it's having -- it's making an impact.

Just last quick question. I have asked you this for the last 5 years, so it's a good time,sir. So what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? Are there any emerging industry trends that are perhaps being overlooked in the current disclose?

So I'll give you 2 that we've talked about a little more recently and then one that hasn't changed. So software-defined automation and Matheus is really spearheading that integrated robotics simplifying the overall automation project. And then something that I talked about, not 5 years ago, but almost 10 years ago, when I came into this role about the combination of understanding a customer's problems. The domain expertise still matters, combining the technology and its traditional sources of technology, along with new ways to win and simplification of a customer's automation project, the design, the commissioning, the operation. And I really think that simplification is going to sort out the winners and the losers over the next 10 years. I talked about that over 9 years ago, and I think it's still as relevant today as it was then.

Thanks, Blake and Matheus.