Rockwell (ROK) Q4 2025 Earnings Call Transcript

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Date

Thursday, Nov. 6, 2025, at 8:30 a.m. ET

Call participants

• Chairman, President, and CEO — Blake D. Moret
• Senior Vice President and CFO — Christian E. Rothe
• Vice President, Investor Relations — Aijana Zellner

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Risks

• Blake D. Moret cited “project delays across both our core business and Sensia as customers wait for more clarity and stability around the impact of trade and policy on their operations,” explicitly referencing continued CapEx delays and market uncertainty.
• Christian E. Rothe reported a $110 million non-cash impairment charge related to the Sensia dissolution in fiscal Q4 2025, resulting in “virtually no impact on operating earnings,” but a $250 million annualized revenue reduction going forward.
• Organic sales in the Lifecycle Services segment decreased 4% year over year, and management described this as “slightly below our expectations.”

Takeaways

• Organic sales growth -- 13% organic year-over-year sales growth in fiscal Q4 2025, driven by continued strength in product businesses, including Intelligent Devices and Software & Control.
• Adjusted earnings per share (EPS) -- $3.34 adjusted EPS in fiscal Q4 2025, reflecting outperformance from higher volume and strong productivity.
• Segment margin -- 22.5% segment margin in fiscal Q4 2025, above management’s expectations, attributed to cost reduction actions and a favorable mix.
• Structural productivity savings -- Over $325 million for fiscal 2025, surpassing the original $250 million target.
• Annual recurring revenue (ARR) -- Up 8% in fiscal Q4 2025, highlighted by large global software and cybersecurity deals.
• Intelligent Devices segment -- 14% organic sales growth year over year; margin at 19.8%, down 90 basis points year over year in fiscal Q4 2025, mainly due to last year’s ClearPath earnout reversal and higher compensation.
• Software & Control segment -- 30% organic sales growth year over year in the quarter; margin at 31.2%, up versus the prior year, driven by strong price realization and volume.
• Lifecycle Services segment -- 4% organic sales decline year over year in the quarter; margin at 17.5%, up 30 basis points year over year in fiscal Q4 2025, despite lower sales, due to strong project execution.
• Book to bill ratio -- Lifecycle Services book to bill was 0.9 for fiscal Q4 2025, in line with typical Q4 seasonality; overall company book to bill remains “around one” for fiscal Q4 2025.
• Free cash flow -- $405 million in fiscal Q4 2025 and a record $1.4 billion for fiscal 2025, with free cash flow conversion of 114%, exceeding the 100% target.
• 2026 reported sales growth guidance -- 3%-7% for fiscal 2026, with ARR growth expected in the high single digits.
• 2026 adjusted EPS guidance -- Adjusted EPS is projected to be $11.70 at the midpoint for fiscal 2026, with segment margin expected to expand by more than 100 basis points and free cash flow conversion targeted at 100%.
• Sensia JV dissolution -- Rockwell Automation to assume 100% ownership of its originally contributed process automation business; expected $250 million annualized revenue reduction but a 50 basis point annualized operating margin benefit.
• Key end market growth -- Discrete up 20% year over year in the quarter, e-commerce and warehouse automation up over 70% year over year in the quarter, process sales grew 10% year over year in fiscal Q4 2025, and double-digit increases in food and beverage, home and personal care, and life sciences in fiscal Q4 2025.
• New reporting methodology -- Introduction of an “engineering and development expense” line, according to Christian Rothe, reclassifying R&D and sustaining engineering expenses starting in fiscal Q4 2025, resulting in an eight-point boost to gross margin with no impact on total P&L.
• Tariffs -- Tariffs remained EPS-neutral in fiscal Q4 2025, but caused slight margin dilution; tariff-based pricing contributed about one percentage point to organic sales growth in fiscal Q4 2025.
• 2026 segment outlook -- Intelligent Devices: reported sales growth in the mid to high single digits, margin in the high teens to low 20s for fiscal 2026; Software & Control: mid-single-digit sales growth, margin in the low 30s for fiscal 2026; Lifecycle Services: flat sales, margin in the low teens, below prior year for fiscal 2026.
• Capital deployment -- $1 billion spent on dividends and share repurchases in fiscal 2025; $500 million in share repurchases targeted for fiscal 2026.

Summary

Rockwell Automation (NYSE:ROK) reported double-digit year-over-year growth in both sales and operating earnings for fiscal Q4 2025, exceeding company expectations on significant volume gains and productivity improvements. Following the Sensia joint venture dissolution, management anticipates higher operating margins from simplified operations, although annual revenue will decrease. These changes are expected to take effect after the transaction closes in the first half of fiscal 2026. The company exceeded its cost-reduction target, achieving over $325 million in structural productivity savings during fiscal 2025, and delivered free cash flow conversion above 100%.

• Christian E. Rothe announced the company’s adjusted EPS guidance framework now excludes legacy asbestos and environmental costs, increasing full-year adjusted EPS by $1.03 for fiscal 2025 compared to the prior definition.
• Price contributed four points to organic growth, including one point from tariffs in fiscal Q4 2025.
• North America was the strongest region, supported by ongoing infrastructure modernization investments highlighted by management.
• CEO Blake D. Moret stated, “We do expect Logix unit volumes to get back to those pre-COVID levels,” marking a return to unit recovery in core automation platforms in fiscal 2026.
• Free cash flow reached a record $1.4 billion for fiscal 2025, reflecting “strong operational execution,” according to Christian Rothe.

Industry glossary

• Book to bill: The ratio of orders received to product shipped and billed during a specific period, used to gauge order trends and demand pipeline.
• Segment margin: Operating income as a percentage of sales within a specific business segment, excluding certain corporate and non-operating items.
• Annual recurring revenue (ARR): The annualized value of all recurring revenue components, including software as a service, subscriptions, and long-term service contracts.
• Incremental margin: The ratio of change in operating income to change in sales, commonly used to measure profitability on additional revenue.
• Free cash flow conversion: Free cash flow as a percentage of net income, a measure of efficiency in transforming earnings into cash.
• Tariff-based pricing: Price increases implemented to offset the financial impact of tariffs imposed on imported goods or components.

Full Conference Call Transcript

Blake Moret: Thanks, Aijana, and good morning, everyone. I'll make a couple of initial comments before we turn to our fourth quarter results. When we introduced guidance for fiscal year 2025 last November, amid a mixed set of headwinds and tailwinds for growth, much of the discussion centered on additional detail around the cost reduction and margin expansion actions we initiated in 2024. With the top line guidance range that included limited growth, we knew it would be a challenge to both absorb higher costs and expand margins. So with the very busy twelve months of fiscal year 2025 in the books, I'm proud of the team's execution as we have returned to top line growth and continue to reduce costs.

Rockwell Automation, Inc. is well positioned for sustained market-beating growth and profitability as we build on this success for fiscal 2026 and beyond. We closed the year with another strong quarter of outperformance versus our expectations, including double-digit year-over-year growth in both sales and operating earnings. Our differentiated portfolio, price discipline, and continued focus on productivity all contributed to this great finish to the year. Free cash flow was also very good in the quarter and for the year. As we will discuss, we're taking further steps to streamline the organization and increase efficiency in the service of customer value and expanded margins.

Uncertainty remains, but it's clear that countries around the world are more aware than ever of the strategic importance of investing in advanced manufacturing capabilities and capacity. Nowhere is this more apparent than in the U.S., our home market. Let's now turn to our fourth quarter results on Slide three. Both reported and organic Q4 sales were up double digits versus the prior year. While we did have favorable comps from a year-over-year standpoint, Q4 sales grew high single digits sequentially, which was better than we expected. Organic year-over-year sales growth of 13% was led by continued strength in our product businesses.

Similar to the last two quarters, CapEx activity in longer cycle business remained muted with customers holding off on larger investments. On our last earnings call, we flagged the potential for Q4 pull-ins into Q3. Based on our analysis of daily orders and sales trends, inventory levels in our channel, and machine builder surveys, pull-in orders were less than expected in Q3 and not evident in Q4. Annual recurring revenue was up 8% in the quarter. While some customers continue to delay discretionary services spending, we did have a number of large software and services wins around the world in Q4.

One notable win was with Stanley Electric, a Japanese Tier one automotive supplier who will deploy our cloud-native Plex platform across 25 global sites. We also secured a key cybersecurity win in life sciences with GSK selecting our VERVE platform as their new standard for asset vulnerability management to be deployed across 33 sites over the next five years. In our Intelligent Devices segment, organic sales were up 14% versus the prior year and up low double digits sequentially. Strong sequential growth in the quarter was driven by our Power Control business, where a combination of our existing business and our Cubic acquisition is helping us win competitive projects around the world.

A good example of this was our win with Ferry Systems, a Spanish system integrator who will be providing our flexible and compact motor control system for Africa's largest desalination plant. I'll share some additional power control wins later on the call. We also had a good quarter in our ClearPath business, with double-digit year-over-year growth in our autonomous mobile robot business. I'm pleased with how this acquisition continues to add new ways to win and expand our customer base. Our AMR business grew double digits in fiscal 2025, and we are optimistic about fiscal 2026 as we plan for ClearPath to turn profitable in the year.

Software and Control organic sales in the quarter grew 30% year over year, led by continued momentum in our Logix business, both versus the prior year and sequentially. On the software front, Flex and Fix continue to add new logos as we augment our existing sales force with new go-to-market partners. One of our Plex software wins in Q4 was with THG, a UK-based global e-commerce leader in beauty and nutrition. This customer chose our cloud-native MES and quality management solution to eliminate manual processes and drive further operational efficiency. Organic sales in Life Cycle Services were down 4% versus the prior year, slightly below our expectations.

Book to bill in this segment was 0.9, consistent with our historical Q4 seasonality. We've continued to see project delays across both our core business and Sensia as customers wait for more clarity and stability around the impact of trade and policy on their operations. Regarding our Sensia joint venture with SLB, following a strategic review, both parent companies have decided to pursue an orderly dissolution. Rockwell Automation, Inc. will assume 100% ownership of the process automation business that we initially contributed to the joint venture, and SLB will again fully own the parts that they contributed.

After the expected close of the transaction in the first half of this year, fiscal 2026, Rockwell Automation, Inc. will realize lower revenue but higher operating margin going forward due to the deconsolidation. Rockwell Automation, Inc.'s resulting sales into the oil and gas vertical will be about 10% but with a simplified go-to-market motion. That go-to-market approach continues to include SLB as an important partner with deeper relationships than the two companies had six years ago. I want to be clear that Sensia did not meet our long-term expectation. That is why SLB and Rockwell Automation, Inc. have jointly agreed to make this change.

However, the changes we are making demonstrate our continued commitment to the oil and gas market, and we are well positioned to grow in this space. Our portfolio has expanded since the JV was launched with new process IO and process safety capabilities for Logix, an industry-leading portfolio of cloud-native software applications, and deeper domain expertise. Importantly, we have taken this step in order to grow in this vertical with improved profitability going forward. Christian will add more detail on the financial impact in the quarter and the benefits going forward later on the call.

Turning back to our fourth quarter, Rockwell Automation, Inc.'s overall segment margin of 22.5% and adjusted EPS of $3.34 were well above our expectations, driven by higher volume and strong productivity. We ended this fiscal year with over $325 million of structural productivity savings, exceeding our original target of $250 million. Similar to last quarter, tariffs did not have a meaningful impact on our results in Q4. Christian will talk more about tariffs and the expected fiscal 2026 impact in a few moments. Moving to slide four to review key highlights of our Q4 industry performance. Sales in discrete were up 20% year over year with strong growth in e-commerce and warehouse automation and good performance in automotive.

Automotive sales exceeded our expectations in the quarter, with low double-digit growth versus the prior year. The industry continues to shift from an EV focus to a mix of traditional ICE, hybrid, and electric vehicle offerings. Rockwell Automation, Inc. has good technical solutions and expertise for all of these types of vehicles. E-commerce and warehouse automation delivered another standout quarter with sales growing over 70% year over year. This quarter, Rockwell Automation, Inc. secured a significant European win with another global logistics and parcel handling company. The customer selected our FactoryTalk Optics platform and digital services to digitize and expand operations across 28 sorting facilities.

While our data center business is still relatively small, we continue to see strong double-digit growth with multiple wins across the globe. This quarter, Rockwell Automation, Inc. won a project with Alternative Heat Limited to supply modular cooling panels to large data centers in Europe. The rise of AI data centers is driving demand for faster deployment, advanced cooling solutions, and secure industrial-grade control platforms. Our Logix control platform and modular power distribution technology are well positioned to meet these needs. We'll share more about our differentiation and growth in the data center space at our Investor Day later this month.

Turning to our hybrid industries, we saw double-digit growth across food and beverage, home and personal care, and life sciences. In food and beverage, our customers are prioritizing productivity and operational efficiency in existing facilities. The industry is going through a period of consolidation, restructuring, and evolving consumer preferences. While this dynamic might delay some of the larger CapEx investments near term, we continue to build a strong pipeline of new capacity projects both globally and in the U.S. In the quarter, Electrolit Manufacturing selected Rockwell Automation, Inc. as a key automation and digital partner for their state-of-the-art beverage blending and bottling facility in Waco, Texas. This is Electrolit's first greenfield in the U.S.

Sales growth in our Life Sciences vertical was also strong in Q4 and exceeded our expectations. We continue to see growth in our software and cybersecurity services across the product lifecycle. We're also seeing increased automation adoption in the medical device segment. One of the important wins here this quarter was with Hal Miller, where our independent cart technology is helping accelerate and optimize production of a high-speed auto injector line for the obesity drug market. Moving to process, sales in this segment grew 10% with year-over-year growth across all industries. Similar to last quarter, process customers are focusing on driving efficiency and profitability in their existing facilities as they continue to grapple with weaker demand and low commodity prices.

Rockwell Automation, Inc.'s technology is well suited for both greenfield and brownfield investments, as demonstrated by several large wins in the quarter in Energy, Mining, and Metals. A good example of this was our win with Vale, Base Metals, where our arc-resistant power control systems are modernizing their Sudbury mill to significantly enhance safety and operational efficiency. This win positions Rockwell Automation, Inc. as a key automation partner for one of Canada's most critical mining operations. Turning to slide five, in our Q4 organic regional sales, North America had a strong finish to the year and was once again our best-performing region in the quarter. We expect North America to continue to be our strongest region in fiscal 2026.

Last quarter, we announced a $2 billion investment over the next five years to modernize infrastructure, grow talent, and enhance digital capabilities. These initiatives are now underway and will unlock future growth and margin expansion, with the U.S. as the primary beneficiary. We'll share more in the months ahead. Let's move to Slide six for key highlights of full-year fiscal 2025. Our reported and organic sales were up about 1% versus the prior year. Total ARR grew 8% with solid performance in our Software as a Service business. We ended the year with a segment margin of 20.4% and adjusted EPS of $10.53.

The improvement of over 100 basis points in year-over-year segment margin was driven by our cost reduction and margin expansion actions and strong price discipline. Free cash flow conversion of 114% exceeded our expectations for the year. I'm proud of our execution to get back above 100% free cash flow conversion, which remains an important part of our financial framework. Let's now move to Slide seven to review our fiscal 2026 outlook. As we look to fiscal 2026, we are confident in our ability to gain share and expand margins. We are less certain about the overall macro and geopolitical environment as well as the timing of the CapEx investment recovery in our key verticals.

Increased stability in trade policy will help unlock additional capital spending. We expect our reported sales growth for the year to be in the 3% to 7% range. The midpoint of our guide assumes a sequential sales decline in Q1 is typical, followed by gradual sequential improvement in the subsequent quarters. Christian will provide more detail on this and the expected impact from price and tariffs in his section. Annual recurring revenue is slated to grow high single digits next year. We expect our segment margin to expand by over 100 basis points, and our adjusted EPS is projected to be $11.70 at the midpoint. We expect free cash flow conversion of 100% in fiscal year 2026.

Before I turn it over to Christian, I want to reiterate how proud I am of the execution of the team in the quarter and throughout the year. To be sure, there remain plenty of opportunities for continued improvement, and we are taking action to further our progress throughout the coming year and beyond. As we'll discuss in less than two weeks at Investor Day, keys to execution include strengthening a high-performance culture, accelerating top-line growth, expanding margin, and continuing our progress in operational excellence. And these are the elements of the Rockwell Automation, Inc. operating model. And with that, I'll turn it over to Christian.

Christian Rothe: Thank you, Blake. Good morning, everyone. Before I get into our strong fourth quarter results, I want to spend a few minutes highlighting some of our one-time items unique to Q4 so you understand how they flow through the P&L and where adjustments were made. At a high level, all these changes are outlined on Slide eight. For additional financial details, please also refer to slide twenty-one and twenty-two. First, starting in Q4, we're introducing a new engineering and development expense line in our statement of operations. This aligns with the SEC's expanded segment disclosure rules and enhances visibility into key metrics that inform management decisions, particularly total innovation spend.

Engineering and development includes what you typically think of as R&D, which has been about 6% of sales historically. Our sustaining engineering spend, which maintains existing technology, has been about 2% of sales. Reclassifying these costs from cost of sales to operating expenses increases gross margin by about eight points with no impact on the total P&L. This change is applied consistently across historical periods as shown in the Q4 earnings slide deck appendix Page 21. Importantly, this move improves visibility into Rockwell Automation, Inc.'s total development spend, aligns our reporting with industrial and tech peers, and provides a more meaningful view of gross margin performance.

Second, we're making a change to how we treat certain costs related to our legacy asbestos exposure, which is unrelated to our ongoing operations. Historically, we expensed the defense costs for these claims as they were incurred. In Q4, we changed our accounting policy to a full horizon accrual for defense costs, consistent with how we account for indemnity. All told, inclusive of the indemnity and the defense cost accrual update, the result was a one-time pre-tax charge of $136 million or $0.91 per share in the fourth quarter. This is the accrual portion of the changes.

Because these costs are not tied to current operations, we are also updating our definition of adjusted income and adjusted EPS to exclude legacy asbestos and environmental charges. In Q4, this change excluded $141 million in pretax charges, or $0.94 per share from adjusted earnings. That includes the $136 million accrual as well as $5 million of normal asbestos and environmental spend we incurred in the fourth quarter. The EPS impact is $0.91 from the accrual and $0.03 from the normal spend, both now excluded. For full-year fiscal 2025, the definition change increased adjusted EPS by $1.03 with $0.91 from the Q4 accrual update and $0.12 from excluded legacy asbestos and environmental costs that we incurred for the full year.

Without the definition change to adjusted EPS and excluding other one-time items in the quarter, Q4 adjusted earnings would have grown 34% compared to the 32% under the new definition. For the full year, EPS growth was unchanged under the new definition. When compared to our previous guide, the Q4 change excluding one-time items was a net benefit of $0.03. For the full year, the net benefit was $0.12. Moving to the third item on the slide, we recorded an impairment in our Sensia business following the decision to dissolve the JV, which Blake discussed. The net result is a non-cash impairment charge of $110 million or $0.97 per share net of tax and the NCI adjustment.

For reference, the approximate annualized impact from the planned dissolution will be a $250 million revenue reduction with virtually no impact on operating earnings. The approximate margin benefit to Rockwell Automation, Inc. on an annualized basis will be an increase of about 50 basis points. And finally, in Q4, we made a voluntary $70 million contribution to our U.S. Pension plan. As Blake mentioned earlier, we delivered 114% free cash flow conversion for the year inclusive of that contribution. Excluding the contribution, our conversion was 119% with free cash flow reaching a record $1.4 billion, reflective of strong operational execution and solid performance across the P&L.

All financials reported in our earnings release conference call presentation and in our 10-Ks, which will be filed next week, reflect these changes. Turning to our financial results, let's go on to Slide nine. Fourth quarter key financial information. Fourth quarter reported sales were up 14% versus the prior year, exceeding our expectations and closing 2025 on a strong note. About one point of growth came from currency. About four points of our organic growth came from price, with about one point of that coming from tariff-based pricing. Price cost was favorable in the quarter. Company gross margins under our new reporting methodology expanded two ninety basis points year over year, and segment operating margin increased two forty basis points.

While tariffs had a neutral impact on EPS, they did cause a slight margin dilution in the quarter. Adjusted EPS of $3.34 was above our expectations primarily due to outperformance on revenue, better segment mix, and favorable price. The adjusted effective tax rate for the fourth quarter was about 18%, up from about 15% last year driven by higher discrete benefits in the prior year. The full-year fiscal 2025, our adjusted ETR was 17%. Free cash flow in Q4 was $405 million and was $38 million higher than the prior year. Slide 10 provides the sales and margin performance overview of our three operating segments.

Intelligent Devices margin of 19.8% decreased 90 basis points year over year due to a tough comparison with last year's ClearPath earnout reversal and higher compensation this year, resulting in the incrementals in the teens. Excluding the earnout reversal, incrementals would have been about 30%. Software and Control margin of 31.2% was up eight eighty basis points versus the prior year driven by outstanding 30% organic sales growth and good price realization. The segment saw year-over-year incrementals in the high 50s. Lifecycle Services margin of 17.5% was up 30 basis points year over year. A mid-single-digit organic sales decline and higher comp would normally have driven segment margin lower year over year.

However, the team continued to deliver strong project execution and higher productivity. Overall for Rockwell Automation, Inc., the incremental margin on the year-over-year sales growth was about 40% in Q4. I want to take a moment to point out the sequential movement we saw in each of our segments. Intelligent Devices had sequential incrementals in the high 20s on low double-digit sales growth reflecting seasonal shipments of configured orders, which created a sequential negative mix. Software and Control sequential incrementals in the low 20s with modest sequential sales growth after a very strong Q3. Lifecycle Services saw similar sequential dollar growth in both sales and segment earnings yielding 100% conversion on strong project execution.

Overall for Rockwell Automation, Inc., the incremental margin on the sequential sales growth was in the high 30s. Let's move to the next slide 11 for the adjusted EPS walk from Q4 fiscal 2024 to Q4 fiscal 2025. Year-over-year core performance had a $1.45 impact in Q4. Software and Control was the primary driver of both sales and earnings growth in the quarter. The largest driver in our core was volume followed by structural productivity and price. Compensation had a $0.45 impact in Q4 compared to our prior expectation of about $0.30 of impact, driven by our outperformance in the quarter. Full-year compensation expense, which includes merit and bonus, ended the year at $255 million.

As I mentioned earlier, we are lapping the prior year benefit from a ClearPath earn-out reversal this quarter. With some other one-time items, this resulted in a $0.15 headwind. Slide 12 provides year 2025 key financial information. Reported and organic sales increased 1% to $8.3 billion, two hundred basis points better than our original guidance midpoint for the year. Currency was neutral. Full-year segment margin of 20.4% increased 110 basis points from last year and was 140 basis points better than our original guide. The increase was due to our margin expansion and cost reduction actions, price, and favorable mix. This was partially offset by higher compensation and unfavorable net currency.

Adjusted EPS of $10.53 was up 7% and well over $1 better than the midpoint of our initial guide for the year. For the year, we deployed about $1 billion of capital towards dividends and share repurchases, while we continue to pause on our inorganic investments. Our capital structure and liquidity remain strong. Moving on to the next slide, 13 to discuss our guidance for the full year. Our organic sales growth guidance is expected to be 2% to 6% or 4% at the midpoint. We expect about 100 basis points of currency benefit, so reported revenue growth is expected to be 5% at the midpoint.

Our guidance does not include more than 100 basis points higher and some plant and digital infrastructure with targeted CapEx spending of about 3% of sales. In terms of the calendarization, as Blake mentioned, we expect a sequential decline in Q1 followed by a gradual sequential improvement in subsequent quarters. This is true for both sales and margins as we progress through the year. Now let me share some additional color on our first quarter. In Q1, we expect overall company sales to be down low double digits sequentially, given normal seasonality and the continued uncertainty and slower CapEx activity.

With that said, we do expect good year-over-year growth in both sales and margins with total company segment margins in the high teens range. This translates to more than 25% year-over-year growth for adjusted EPS. From a business segment standpoint, Intelligent Devices sales in Q1 are expected to be down low double digits sequentially due to ongoing softness in our configured order shipments. As a result, we expect Intelligent Devices segment margins to be in the mid to high teens. Software Control margin is expected to be in the high 20s in the first quarter on sequential sales declines in the high single digits.

Lifecycle Services sales are expected to be down high single digits sequentially, driven by a combination of both normal seasonality and continued CapEx project delays. We expect segment margin for Lifecycle Services in the low double digits. For the full year, we expect segment sales and margin as follows. Intelligent Devices reported sales growth is expected to be in the mid to high single digits. We expect margins in the high teens to low 20s or 150 to 200 basis points higher year over year, driven by continued progress on productivity. Software and Control reported sales growth is expected to be mid-single digits.

We expect margins in the low 30s, up slightly year over year and driven by better volume and price. Lifecycle Services reported sales growth is expected to be flattish. We expect margins in the low teens, lower than last year. Let's turn to Slide 14 for our adjusted EPS walk for the full year. Our core is expected to be $1.4 for the year. Included in our core is productivity, which is the term we are using for operationalizing our ongoing focus on cost production and margin expansion. FX is expected to be a $0.20 tailwind. We expect our adjusted effective tax rate this year to be 20%, reflecting the implementation of BEST pillar two.

The resulting EPS headwind from tax is $0.40. A few additional comments on fiscal 2026 guidance for your models. Corporate and other expense is expected to be around $100 million. Since we are no longer including legacy asbestos and environmental costs and other income, corporate and other expense is about $18 million lower than it otherwise would have been for the year. Net interest expense for fiscal 2026 is expected to be about $120 million. We're assuming average diluted shares outstanding of about 112.7 million shares, and we are targeting approximately $500 million worth of share repurchases during the year.

I'd like to thank the global Rockwell Automation, Inc. team for the outstanding execution that allowed us to exceed our cost reduction and margin expansion targets and company guidance for fiscal 2025. This organization is ready to build on this momentum and deliver another strong year. With that, I'll turn it back to Blake for some closing remarks before we start Q&A.

Blake Moret: Thanks, Christian. This year's Automation Fair and Investor Day at McCormick Place in Chicago is the best venue to see what's special about Rockwell Automation, Inc. We're looking forward to showcasing the best solutions and partner network in the business, including software-defined automation and AI-enabled technology from sensor to software, integrated intelligent devices, robotics, and digital services. You will hear from customers about our differentiated value and from management as we review progress on our goals, details of our internal investments, and inorganic priorities. I'm looking forward to seeing you there. Aijana will now begin the Q&A session.

Aijana Zellner: Thanks, Blake. We would like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up. Joanne, take our first question.

Operator: Thank you. Our first question comes from Scott Reed Davis from Melius Research. Please go ahead. Your line is open.

Scott Reed Davis: Hey, good morning, Blake and Christian. Lots of questions. I'm sure you're going to get lots of questions on the guide, but I just want to start with Sensia. Just what's the postmortem, Blake? Just doesn't feel like that ever really got traction. The way you guys expected it to, even though I think you had, you know, there was a lot of support for it at the highest levels in both companies. But what was kind of the postmortem of why it didn't work out?

Blake Moret: Yeah. Scott, I think, for starters, standing up a new entity a few months before COVID kind of descended on the world had a particular impact in energy markets for that period of time. So that created a challenging starting point. I think from an operation standpoint, the scope that Sensia had laid out was broad, which added cost. And while we worked it into a position of operational profitability, we jointly decided that it wasn't going to meet our long-term goals to justify the continued, let's say, complexity of a JV. And so returning the originally contributed businesses added simplification. And I would also say that we're different companies than we were in 2019.

We've added considerable technology capabilities both in terms of the control architecture as well as software and digital twins. Simulation, which is useful in a lot of these applications. And so we felt it was the right time to simplify. Obviously, the increased profitability reflected on the overall company is attractive as well.

Scott Reed Davis: So it just sounds like just since there's not a lot of earnings impact of the adjustment that it wasn't a very profitable JV overall. But is getting process up to discrete margins something that is more a function of volumes? Or is there a cost or product issue or scale? I mean, just a little color there, and then I'll pass it.

Blake Moret: Yeah. Sure. So first of all, just due to the nature of process applications, typically requiring more engineering content, you know, order-specific engineering content, you have more people involved. And so that's going to put some suppression on margins as opposed to just providing raw product into an application. That being said, the work that Lifecycle Services has done over the last couple of years to really dramatically increase their margins reflects the proof that those margins can be improved even in a people-intensive business. And obviously, the further incorporation of artificial intelligence and the software-defined automation that we've been talking about helps as well as you make greater use of libraries and reduced integration costs through digital twins.

So I think the work that we're doing on the products, the work we're doing in lifecycle services specifically, the rigor with which they select projects to pursue, which was part of the reason for the good performance in Q4. All of those things bode well for us to be able to continue to grow in process, specifically in Energy and Oil and Gas, more profitably going forward.

Scott Reed Davis: Okay. Helpful. I'll see you guys in Chicago.

Blake Moret: Yes. There.

Operator: Our next question comes from Andrew Burris Obin from Bank of America. Please go ahead. Your line is open.

Andrew Burris Obin: Hi, guys. Good morning.

Blake Moret: Good morning. Good morning.

Andrew Burris Obin: Impressive growth numbers in software and control. Could you give us a sense? And I know you don't give an exact number. But can you give us a sense where the Logix volumes are relative to where we were pre-COVID?

Blake Moret: Sure. So, Andrew, in the back half of the year, we touched pre-COVID unit volumes for Logix. For the full year fiscal 2025, we were still below pre-COVID. And so there's room to run just with the math of that as obviously the market is expanding. And then, of course, we benefited from good price over that period of time. So in fiscal 2026, we do expect Logix unit volumes to get back to those pre-COVID levels and then obviously continue on from there with the market growth as well as market share.

Andrew Burris Obin: Excellent. And I may be wrong on the timing, but I believe '26, you're going to start rolling out new Logix products. I'm sure you will talk about it at the Analyst Day. But does that impact sort of margin pattern seasonality? In the year? Because I think there is a big product upgrade ahead of you over the next couple of years. Thank you.

Blake Moret: Yes. Andrew, you're right. And actually, we've already started. So we released the new Logix L9 processor ahead of schedule. We're already taking orders for it. It provides higher performance than any other logic processor that we've had. And that's just one example. Process IO is off to a good start, but we've released a new family of Process IO. And then, you know, what we've been talking about a lot is software-defined automation, which includes Logix in software form, and you'll be able to see that in a couple of weeks when you're in Chicago. So a lot of vitality in that business with more to come.

In terms of the impact, don't typically see a big swell of orders when we release a new product. It's more of a contribution to the steady sequential growth of the product family. But I will tell you that orders are off to an impressive start for those new products.

Andrew Burris Obin: Thanks so much.

Blake Moret: Thanks, Andrew.

Operator: Next question comes from Andrew Alec Kaplowitz from Citigroup.

Andrew Alec Kaplowitz: Hey, good morning, everyone.

Blake Moret: Hey, Andy.

Andrew Alec Kaplowitz: Blake, Christian, I think you said previously that book to bill is now running close to one time. So I assume that was the case in Q4. And would you expect that to continue to be the case moving forward? And then I know today you said bigger CapEx projects are still getting delayed. But are you any more confident that you'll see some of these larger orders move forward in 2026? Or can you sustain a book to bill around one without a big improvement in these projects?

Blake Moret: Sure. So in general, the product business orders and shipments are really right on top of each other, and we continue to expect that. So the orders that distributors are seeing are translating into orders on us at normal rates. Deliveries are fine. And so we don't expect that to change in the year. And we'll continue to provide the book to bill and lifecycle services where you do have some offset due to the longer lead times and projects in that business. In terms of CapEx in the year, we do continue to see projects being delayed.

And as we've characterized it before, we see typically those projects that our customers subject to a higher level of approval, you know, delegation of authority requirement in their organization. So there are projects coming through. We certainly talked about a few of those a few minutes ago. And we expect gradual sequential improvement through the year. The guide does not contemplate some big improvement in the capital environment. So that would be a factor that would push us more to the higher end of the guide if we did see a release of capital at a greater rate through the year.

Andrew Alec Kaplowitz: And then just looking at your segment margin forecast, as you said, you're forecasting over 40% incremental margin, which clearly described as a more normal year for Rockwell Automation, Inc. where you're layering in restructuring savings as productivity, and I think incentive comp is more normalized as well versus FY 2025. I think Christian you mentioned you're still absorbing some tariff headwinds. So does that mean that's the kind of incremental margin we can count on from Rockwell Automation, Inc. moving forward? Maybe just a little bit more on the puts and takes would be helpful.

Blake Moret: Sure. Andy, Christian will have some more to say on this. But at a high level, while we are proud of good incremental conversion expected in the year, due to all the factors that you said, including normalized run rate for compensation, continuing aggressive productivity, and so on, we're not ready to change our guidance for incremental for a long-term framework.

Christian Rothe: Yes. And so just to build off of that, the long-term framework has us at a 35% incremental number. Again, that's kind of through the cycle, mid-cycle to mid-cycle. You're going to see some variability from quarter to quarter, obviously, and also from year to year periodically. So as we're looking at the momentum we're taking into fiscal 2026, that 40% felt like an appropriate number. It's not a heroic change from the '35, but we are seeing just a little bit better opportunity in this coming year.

Andrew Alec Kaplowitz: Thanks, guys. See you soon.

Blake Moret: See you soon.

Operator: Our next question comes from Julian C.H. Mitchell from Barclays. Please go ahead. Your line is open.

Julian C.H. Mitchell: Hi, good morning. Good morning. Just wanted to start on the top-line guidance. So you're just finishing the year with very strong growth. You're guiding for sort of mid-single digits at the midpoint for the year ahead and starting off, I suppose, with high single-digit year-on-year in the first quarter. So just wanted to try and understand when we're thinking about that revenue guide for the balance of the year, was it sort of constructive with a view around sort of normal seasonality or just very tough comps in the second half? And anything happening to price year-on-year as we move through fiscal 2026?

Blake Moret: Yeah. So a couple of comments. And I think Chris will have more detail. You know, as we look across the end markets, in general, we're looking at mid-single-digit growth for discrete and hybrid, low single-digit growth for process. We had some outliers there, semiconductor flattish and discrete. Warehouse, e-commerce up around 10%. And then in hybrid, you know, good results expected from, you know, the part of the business, food and beverage, life sciences, and so on. But CapEx continues to be suppressed in terms of spending, and so that influences low single-digit expectation in Process.

Christian Rothe: Yes. And so as we kind of shape that year out, Julian, you're right. We implied in that guide and that the way we think about the first quarter and the way we shape the first quarter, yes, we're looking at high single-digit growth year over year in the first quarter. And then the comps get more difficult as the year goes on. We are looking for sequential revenue improvement from Q1 to Q2 and then on through the remainder of the year. But if you're looking at year-over-year growth rates during the course of the year, then yes, those are going to be at a declining level from a, again, more due to the difficult comps.

Julian C.H. Mitchell: And just on that pricing, I think it was four points in the fourth quarter. Is that sort of assumed to be a de minimis tailwind exiting this new fiscal year?

Christian Rothe: Yes. So the way we talked about pricing for fiscal 2026 is that looking at one point of underlying price and one point of tariff-based price is what's included in our guide. As you're aware, price is not something that you can just universally make changes around. There are market dynamics or competitive dynamics. So part of what we're working on is to make sure we have a balanced approach. Tariff-based pricing is, of course, absolutely critical for us to ensure that EPS neutrality is kept intact. At the same time, we also want to make sure we get underlying price. Tariffs have helped us on price realization broadly.

You saw that kind of throughout this fiscal 2025, which is a great thing. As we turn the corner, we go into fiscal 2026. Again, we want that balanced approach and ensuring that we can get that tariff-based price is absolutely critical. When we think about the 1% underlying price, again, we feel really good about our ability to realize that. Hopefully, we can continue to try to execute even at a higher clip.

Julian C.H. Mitchell: Thanks. And then just a quick follow-up on margins. So you had 110 bps of margin in the year just finished off volumes that were down slightly in the year. And a big comp headwind. The year ahead, volumes are up low single digit in the guide, no big comp headwind in the same margin expansion. Is your point there that you're just using that sort of placeholder for now of 40% that there isn't some big hike in its specific investment spend or something like that?

Christian Rothe: Yes. So there is no really big hike in investment spend. That's for sure. I don't know if I'd call it a placeholder, necessarily. We had really good progress in fiscal 2025 on cost reduction and margin expansion. Blake highlighted it. That $325 million is a very significant number for this organization. We have additional opportunities as we go into fiscal 2026. We're going to talk about that a little bit more when we get into Investor Day as well. So there is a portion of that's definitely built into our guide. At the same time, we want to make sure that we are continuing to have great profitability growth.

That 40% number seems like something we can go execute against.

Julian C.H. Mitchell: Great. Thank you.

Christian Rothe: Thank you.

Operator: Our next question comes from Christopher M. Snyder from Morgan Stanley. Please go ahead. Your line is open.

Christopher M. Snyder: Thank you. It certainly seems like demand is getting better if we look at the order rates in the above $2 billion the last two, three quarters. Last year, they were below $2 billion. Do you think that this is cycle? Do you think this is reshoring tailwind investment coming through? Do you think you guys are just gaining share versus the market? Because when we look broadly at the industrial economy or even your competitors in discrete, we're not really seeing this level of acceleration or momentum broadly? Thank you.

Blake Moret: Sure. Well, Chris, I think there's pieces of each of the factors that you mentioned. First of all, the U.S. is probably the healthiest market around the world, and that's a home field for us with high shares. So we're going to get a lot of that benefit from the best investment. And we'll talk more about this in a couple of weeks at Investor Day, but we did see higher orders due to capacity expansion in the U.S. this year than last year. And we expect to see higher orders from that activity in fiscal year 2026.

The demand, particularly for the product side of the business, which is still more than half of our business, adding software, is good. You know, optimization of brownfields into facilities that have a base level of automation and looking for more with information management software. We have a portfolio that's second to none. We do think that we're taking share there. So I think it's all those pieces that put us in a favorable position.

Christopher M. Snyder: Thank you. Then I wanted to follow up around the medium-term margin target, which you guys have out there of 23.5%. You just did a 22.5%, and I know Q4 is the seasonal peak. But the quarter did have headwinds from FX and tariffs. I imagine there's more cost-out opportunity next year given that you guys exited pretty strong on that front. And then another 50 bps, I guess, of margin uplift from Sensia JV going away. It just feels like we're getting awfully close to that 23.5% target. I guess in that context, are you rethinking that? And do you think there's meaningful upside to that prior target? Thank you.

Blake Moret: And Christian and I are both smiling. It is something that we're proud of, is that progress. But we are laser-focused on attaining the current targets that we've set out there. As we've talked about, we've got plans already underway to get us to and through that number. But, you know, we're focused on hitting it first.

Christian Rothe: Yeah. And it's absolutely we want to continue to make progress against that. And Blake's response in saying to and through is top of mind for us. We are really spending a lot of time and energy to make sure that we have a lot of runway to continue to go through that as we move forward. At the same time, we're not ready to put a new target in place. Let's go achieve this one first.

Christopher M. Snyder: Thank you. I appreciate that.

Operator: Our next question comes from Charles Stephen Tusa from JPMorgan. Please go ahead. Your line is open.

Charles Stephen Tusa: Hey, good morning. Congrats on the execution.

Blake Moret: Thanks, Steve. Good morning.

Charles Stephen Tusa: Just I think on inflation, what level of inflation did you guys see in the quarter?

Christian Rothe: Inflation was relatively modest. Keep in mind, we have a lot of cost reduction and margin expansion actions that are underway inside the organization. So it's a good countermeasure that we've been taking all year long. Expect that to continue to be an opportunity for us to work to offset inflation as we go into '26.

Charles Stephen Tusa: Okay. And then the 1% tariff that you got, you said that was offset in the quarter or that was or you were ahead of the tariffs in the quarter?

Christian Rothe: Yes. On the EPS line, it was neutral for us in the quarter. That is the tariff-based price that we achieved in the fourth quarter was simply to offset the tariff-based cost.

Charles Stephen Tusa: Okay. That makes sense. And going forward for next year, do you still expect inflation to be minimal and then maybe a little bit ahead on the tariff stuff?

Christian Rothe: Yes. So we do expect inflation to be relatively minimal. We're not seeing anything out there that we're ready to call out. From the tariff-based price and cost perspective, again, our expectation is to keep that EPS neutral. It's a really important factor for us that is we are not using tariffs as an opportunity for us to expand margins. We're not using tariffs as an opportunity for us to grab some profit. We truly are, and importantly for our customers, we are using tariff-based pricing simply to offset the cost that we're incurring.

Charles Stephen Tusa: Okay. One last quick one. Just you guys didn't mention orders this quarter. You said last quarter was the book to bill was around one. Know there's some seasonality here. Where did the book to bill land this quarter?

Christian Rothe: Yes. Book to bill still within that range of around one that we have been talking about with product orders right on top of shipments.

Charles Stephen Tusa: Great. Thanks a lot.

Christian Rothe: Thanks, Steve.

Operator: Your next question comes from Nigel Edward Coe from Wolfe Research. Please go ahead. Your line is open.

Nigel Edward Coe: Thanks. Good morning. Thanks for the question. Hey, Christian, I just want to have another crack at the incremental margin of 40%. I think comp came in at $260 million this year. I think you've mentioned in the past that $225 million is the right run rate. So just wondering if that's still the case. And should be some wraparound on costs from 2025 into 2026. We size out of $50 million to $25 million somewhere that again, is that the right math there?

Christian Rothe: Yes. So on the incremental side and specifically around compensation, the number that I gave in my prepared comments was $255 million. So you're right in that ballpark. The way to think about comp for us as we turn the page and look at '26 is that generally things normalized. So you shouldn't expect us to actually put to see comp as a specific bar chart in our waterfalls as we talk through it. It's going to be part of our core as is the productivity and the ongoing cost reduction and margin expansion. So that again, that part has generally normalized.

We've got really good motions in place to continue to work on margin expansion, broadly using all the levers inside the organization, whether you're talking about price, cost reduction, and margin expansion, again, or just continued leverage on the business. So again, feel very comfortable around trying to drive towards that 40%.

Nigel Edward Coe: And is the math on the cost wraparound in the right zone as well?

Christian Rothe: That's correct. But, you know, they Yeah. Okay.

Nigel Edward Coe: Yep. So I get it. I get it. And then, Blake, maybe on some of the end markets, auto growing low double digits and warehouse e-com, up 70%. Is the warehouse really being driven by called out, I think, ClearPath up 25%. Wondering if that's the big driver of warehouse and if that continues into 2026. And then on auto, we are seeing a lot of brownfield expansion fans in the U.S. So just wondering if you know when you Auto.

Blake Moret: To be sure there's some data center in there. But there's also parcel handling. There's CPG companies that have their own warehousing as well. And we have great readiness to serve opportunity for major productivity in that area, which many of these customers have identified as kind of a hidden in their operations.

Nigel Edward Coe: That's great. Thank you.

Christian Rothe: Yep. Julian, we will take know, you need to take a charge around this paneling. But if you're dismantling overhead, as you take it a Or why isn't going on. And is that 100 ish of a pretty good run rate going forward? Maybe it grows with inflation going forward, but is that a pretty good baseline?

Christian Rothe: Yeah. The 100 is a pretty good baseline. The delta, you're right. There's a couple deltas that are happening in there. One is the removal of the asbestos environmental. The other part is in the driver of that next step of the reduction. Is related to implementation costs on our cost reduction and margin expansion activities that we incurred in fiscal 2025. A lot of that's built into our base right now. And it's being driven more within the various aspects in the segments. So that's where that's going, but it's also, you know, a lot of those costs are also going to be going away.

Nigel Edward Coe: Great. Thank you. I'll leave it there. Appreciate it.

Operator: Great. That concludes today's conference call. Thank you for joining us today.

Aijana Zellner: This time, you may disconnect. Thank you.

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