Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements (including certain projections and business trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “believe”, “estimate”, “project”, “plan”, “expect”, “anticipate”, “will”, “intend”, and other similar expressions may identify forward-looking statements. Actual results may differ materially from those projected as a result of certain risks and uncertainties, many of which are beyond our control, including but not limited to:

  • macroeconomic factors, including inflation, global and regional business conditions (including adverse impacts in certain markets, such as Oil & Gas), commodity prices, currency exchange rates, the cyclical nature of our customers’ capital spending, and sovereign debt concerns;

  • the severity and duration of disruptions to our business due to pandemics, natural disasters (including those as a result of climate change), acts of war, strikes, terrorism, social unrest or other causes, liquidity and financial markets, demand for our hardware and software products, solutions, and services, our supply chain, our work force, our liquidity and the value of the assets we own;

  • the availability and price of components and materials;

  • the availability, effectiveness, and security of our information technology systems;

  • our ability to attract, develop, and retain qualified employees;

  • our ability to manage and mitigate the risk related to security vulnerabilities and breaches of our hardware and software products, solutions, and services;

  • the successful integration and management of strategic transactions and achievement of the expected benefits of these transactions;

  • laws, regulations, and governmental policies affecting our activities in the countries where we do business, including those related to tariffs, taxation, trade controls, cybersecurity, and climate change;

  • the successful development of advanced technologies and demand for and market acceptance of new and existing hardware and software products;

  • our ability to manage and mitigate the risks associated with our solutions and services businesses;

  • the successful execution of our cost productivity initiatives;

  • competitive hardware and software products, solutions, and services, pricing pressures, and our ability to provide high quality products, solutions, and services;

  • the availability and cost of capital;

  • disruptions to our distribution channels or the failure of distributors to develop and maintain capabilities to sell our products;

  • intellectual property infringement claims by others and the ability to protect our intellectual property;

  • the uncertainty of claims by taxing authorities in the various jurisdictions where we do business;

  • the uncertainties of litigation, including liabilities related to the safety and security of the hardware and software products, solutions, and services we sell;

  • our ability to manage costs related to employee retirement and health care benefits; and

  • other risks and uncertainties, including but not limited to those detailed from time to time in our Securities and Exchange Commission (SEC) filings.

These forward-looking statements reflect our beliefs as of the date of filing this report. We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. See Item 1A. Risk Factors, of our Annual Report on Form 10-K for the year ended September 30, 2023, for more information.

Non-GAAP Measures

The following discussion includes organic sales, total segment operating earnings and margin, adjusted income, adjusted EPS, adjusted effective tax rate, and free cash flow, which are non-GAAP measures. See Supplemental Sales Information for a reconciliation of reported sales to organic sales and a discussion of why we believe this non-GAAP measure is useful to investors. See Summary of Results of O****perations for a reconciliation of Income before income taxes to total segment operating earnings and margin and a discussion of why we believe these non-GAAP measures are useful to investors. See Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation for a reconciliation of Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate to adjusted income, adjusted EPS, and adjusted effective tax rate, respectively, and a discussion of why we believe these non-GAAP measures are useful to investors. See Financial Condition for a reconciliation of Cash provided by operating activities to free cash flow and a discussion of why we believe this non-GAAP measure is useful to investors.

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Overview

Rockwell Automation, Inc. is the world’s largest company dedicated to industrial automation and digital transformation. Overall demand for our hardware and software products, solutions, and services is driven by:

  • investments in manufacturing, including new facilities or production lines, upgrades, modifications and expansions of existing facilities or production lines;

  • investments in basic materials production capacity, which may be related to commodity pricing levels;

  • our customers’ needs for faster time to market, agility to address evolving consumer preferences, operational productivity, asset management and reliability, and business resilience, including security and enterprise risk management;

  • our customers’ needs to continuously improve quality, safety, and sustainability;

  • industry factors that include our customers’ new product introductions, demand for our customers’ products or services, and the regulatory and competitive environments in which our customers operate;

  • levels of global industrial production and capacity utilization;

  • regional factors that include local political, social, regulatory, and economic circumstances; and

  • the spending patterns of our customers due to their annual budgeting processes and their working schedules.

Long-term Strategy

Our strategy is to expand human possibility. Our vision is to create the future of industrial operations. As the world’s largest company dedicated to industrial automation and digital transformation, our strategy is to bring the Connected Enterprise® to life. We understand and simplify our customers’ complex production challenges and deliver the most valued solutions that combine technology and industry expertise. As a result, we make our customers more resilient, agile, and sustainable, creating more ways to win. We deliver value by helping our customers optimize production, build resilience, empower people, become more sustainable, and accelerate transformation.

Rockwell Automation stands at the intersection of the technological and societal trends that are shaping the future of industrial operations. We see converging megatrends including digitization and artificial intelligence, energy transition and sustainability, shifting demographics, and an increased need for resiliency.

Our long-term profitable growth framework outlines how we will deliver accelerated growth while we continue to transform our company to meet stakeholder expectations over the longer term:

  • achieve faster secular growth in traditional markets due to customer needs for resiliency (including cybersecurity), agility, sustainability, and mitigating impacts of labor shortages;

  • grow share and create new ways to win through technology differentiation, industry focus, go to market acceleration, expanded offerings and new markets;

  • accelerate growth in annual recurring revenue;

  • add an average of 1% growth from acquisitions over time; and

  • deliver profitable growth within a disciplined financial framework.

Outlook

Our supply chain has largely recovered to pre-pandemic lead times and service levels to our customers. We continue to closely manage our end-to-end supply chain, from sourcing to production to customer delivery, with a continued focus on building resilience across the end-to-end supply chain.

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U.S. Economic Trends

In the third quarter of 2024, sales in the U.S. accounted for over half of our total sales. The various indicators we use to gauge the direction and momentum of our served U.S. markets include:

  • The Industrial Production (IP) Index, published by the Federal Reserve, which measures the real output of manufacturing, mining, and electric and gas utilities. The Manufacturing IP Index shown in the chart below is expressed as a percentage of real output in a base year, currently 2017.

  • The Manufacturing Purchasing Managers’ Index (PMI), published by the Institute for Supply Management (ISM), which indicates the current and near-term state of manufacturing activity in the U.S. According to the ISM, a PMI measure above 50 indicates that the U.S. manufacturing economy is generally expanding while a measure below 50 indicates that it is generally contracting.

The table below depicts trends in these indicators since the quarter ended September 2022. These figures are as of August 7, 2024, and are subject to revision by the issuing organizations. The Manufacturing IP index increased in the third quarter of 2024 versus the second quarter of 2024 with output increasing sequentially in each month of the third quarter. Manufacturing PMI results decreased to below 50 in the third quarter of 2024 with each of the monthly results below 50 during the quarter.

Manufacturing IP IndexPMI
Fiscal 2024 quarter ended:
June 2024100.348.5
March 202499.450.3
December 202399.247.1
Fiscal 2023 quarter ended:
September 202399.648.6
June 202399.246.0
March 202399.246.3
December 202298.148.4
Fiscal 2022 quarter ended:
September 2022100.650.9

Inflation in the U.S. has also had an impact on our input costs and pricing. The Producer Price Index (PPI), published by the Bureau of Labor Statistics, measures the average change over time in the selling prices received by domestic producers for their output. PPI growth has remained in the low single digits during the third quarter, consistent with the first and second quarter of 2024 and most of 2023. Producer prices continue to remain elevated.

Non-U.S. Economic Trends

In the third quarter of 2024, sales to customers outside the U.S. accounted for less than half of our total sales. These customers include both indigenous companies and multinational companies with a global presence. In addition to the global factors previously mentioned in the Overview section, international demand, particularly in emerging markets, has historically been driven by the strength of the industrial economy in each region, investments in infrastructure, and expanding consumer markets. We use changes in key countries' gross domestic product (GDP), IP, and PMI as indicators of the growth opportunities in each region where we do business. Industrial output was higher outside the U.S. in the third quarter of 2024 versus the second quarter of 2024. Manufacturing PMI readings outside the U.S. were mixed with results reported above and below 50 as well as some readings improving and others softening.

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Summary of Results of Operations

The following table reflects our sales and operating results (in millions, except per share amounts and percentages):

Three Months Ended June 30,Nine Months Ended June 30,
2024202320242023
Sales
Intelligent Devices (a)$957.3$968.1$2,858.1$2,927.5
Software & Control (b)512.1750.61,685.72,065.0
Lifecycle Services (c)581.2520.01,684.91,502.6
Total sales (d)$2,050.6$2,238.7$6,228.7$6,495.1
Segment operating earnings (1)
Intelligent Devices (e)$193.5$163.1$504.7$579.4
Software & Control (f)120.6261.5417.9678.1
Lifecycle Services (g)112.448.4263.6100.6
Total segment operating earnings (2) (h)426.5473.01,186.21,358.1
Purchase accounting depreciation and amortization(35.6)(27.2)(108.3)(79.8)
Corporate and other(28.6)(32.3)(96.8)(88.8)
Non-operating pension and postretirement benefit credit (cost)4.95.514.7(87.5)
Change in fair value of investments(5.0)85.70.9289.3
Restructuring charges(69.8)—(69.8)—
Interest expense, net(37.4)(32.9)(101.9)(100.2)
Income before income taxes (i)255.0471.8825.01,291.1
Income tax provision(23.9)(73.1)(115.9)(218.8)
Net income231.1398.7709.11,072.3
Net loss attributable to noncontrolling interests(0.9)(1.5)(4.3)(12.2)
Net income attributable to Rockwell Automation$232.0$400.2$713.4$1,084.5
Diluted EPS$2.02$3.45$6.19$9.34
Adjusted EPS (3)$2.71$3.01$7.25$8.48
Diluted weighted average outstanding shares114.2115.6114.7115.6
Pre-tax margin (i/d)12.4%21.1%13.2%19.9%
Intelligent Devices segment operating margin (e/a)20.2%16.8%17.7%19.8%
Software & Control segment operating margin (f/b)23.6%34.8%24.8%32.8%
Lifecycle Services segment operating margin (g/c)19.3%9.3%15.6%6.7%
Total segment operating margin (2) (h/d)20.8%21.1%19.0%20.9%

(1) See Note 16 in the Consolidated Financial Statements for the definition of segment operating earnings.

(2) Total segment operating earnings and total segment operating margin are non-GAAP financial measures. We exclude purchase accounting depreciation and amortization, corporate and other, non-operating pension and postretirement benefit credit (cost), change in fair value of investments, restructuring charges aligned with enterprise-wide strategic initiatives, interest expense, net, and income tax provision because we do not consider these items to be directly related to the operating performance of our segments. We believe total segment operating earnings and total segment operating margin are useful to investors as measures of operating performance. We use these measures to monitor and evaluate the profitability of our operating segments. Our measures of total segment operating earnings and total segment operating margin may be different from measures used by other companies.

(3) Adjusted EPS is a non-GAAP earnings measure. See Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation for more information on this non-GAAP measure.

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Three and Nine Months Ended June 30, 2024, Compared to Three and Nine Months Ended June 30, 2023

Sales

Sales decreased 8.4 percent and 4.1 percent year over year in the three and nine months ended June 30, 2024, respectively. Organic sales decreased 8.4 percent and 5.4 percent year over year in the three and nine months ended June 30, 2024, respectively. Currency translation decreased sales by 0.6 percentage points and increased sales by 0.2 percentage points year over year in the three and nine months ended June 30, 2024, respectively. Acquisitions increased sales by 0.6 percentage points and 1.1 percentage points year over year in the three and nine months ended June 30, 2024, respectively. Pricing increased total company sales by approximately 3.5 percentage points and 2.5 percentage points year over year in the three and nine months ended June 30, 2024, respectively, realized in the Intelligent Devices and Software & Control segments. Volume decreased total company sales by approximately 12.0 percentage points and 8.0 percentage points year over year in the three and nine months ended June 30, 2024, respectively, driven by the Software & Control and Intelligent Devices segments, partially offset by the Lifecycle Services segment.

The tables below present our sales, attributed to the geographic regions based upon country of destination, and the percentage change from the same period a year ago (in millions, except percentages):

Change vs.Change in Organic Sales (1) vs.
Three Months Ended June 30, 2024Three Months Ended June 30, 2023Three Months Ended June 30, 2023
North America$1,268.40.6%(0.2)%
Europe, Middle East, and Africa355.3(28.1)%(27.6)%
Asia Pacific260.9(24.0)%(21.9)%
Latin America166.018.7%18.9%
Total Company Sales$2,050.6(8.4)%(8.4)%
Change vs.Change in Organic Sales (1) vs.
Nine Months Ended June 30, 2024Nine Months Ended June 30, 2023Nine Months Ended June 30, 2023
North America$3,809.11.6%—%
Europe, Middle East and Africa1,142.5(15.6)%(17.5)%
Asia Pacific806.4(17.2)%(15.8)%
Latin America470.712.9%8.9%
Total Company Sales$6,228.7(4.1)%(5.4)%

(1) Organic sales and organic sales growth exclude the effect of acquisitions, changes in currency exchange rates, and divestitures. See Supplemental Sales Information for information on these non-GAAP measures.

Corporate and Other

Corporate and other expenses were $28.6 million and $96.8 million in the three and nine months ended June 30, 2024, respectively, compared to $32.3 million and $88.8 million in the three and nine months ended June 30, 2023, respectively. The increase in expense in the nine months ended June 30, 2024, includes the year over year impact of costs associated with the acquisition of Clearpath.

Restructuring Charges

Restructuring charges were $69.8 million in the three and nine months ended June 30, 2024, which relate to actions in conjunction with an enterprise-wide comprehensive program to optimize cost structure and expand margins. See Note 14 in the Consolidated Financial Statements for more information on our restructuring charges.

Income before Income Taxes

Income before income taxes was $255.0 million and $825.0 million in the three and nine months ended June 30, 2024, respectively, compared to $471.8 million and $1,291.1 million in the three and nine months ended June 30, 2023, respectively. The decrease in the three months ended June 30, 2024, was primarily due to the mark-to-market gains recognized in the third quarter of the prior year related to our previous investment in PTC, restructuring charges recognized in the third quarter of 2024, and lower segment operating earnings. The decrease in the nine months ended June 30, 2024, was primarily due to the mark-to-market gains recognized in the first three quarters of the prior year related to our previous investment in PTC and lower segment operating earnings.

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Total segment operating earnings decreased 9.8 percent in the three months ended June 30, 2024, primarily due to lower sales volume and unfavorable mix, partially offset by the positive impact of price realization exceeding input costs, lower incentive compensation, and the benefits from cost reduction actions. Total segment operating earnings decreased 12.7 percent in the nine months ended June 30, 2024, primarily due to lower sales volume and unfavorable mix, partially offset by lower incentive compensation and the positive impact of price realization exceeding input costs.

Income Taxes

The effective tax rates for the three and nine months ended June 30, 2024, were 9.4 percent and 14.0 percent, respectively, compared to 15.5 percent and 16.9 percent for the three and nine months ended June 30, 2023, respectively. Our adjusted effective tax rates for the three and nine months ended June 30, 2024, were 13.3 percent and 15.1 percent, respectively, compared to 14.1 percent and 16.2 percent for the three and nine months ended June 30, 2023, respectively. The decrease in both the effective tax rates and the adjusted effective tax rates was primarily due to higher discrete tax benefits in the current year.

Diluted EPS and Adjusted EPS

2024 third quarter Net income attributable to Rockwell Automation was $232.0 million or $2.02 per share, compared to $400.2 million or $3.45 per share in the third quarter of 2023. The decreases in Net income attributable to Rockwell Automation and diluted EPS were primarily due to lower sales volume and lower pre-tax margin. Pre-tax margin was 12.4 percent in the third quarter of 2024 compared to 21.1 percent in the same period last year. The decrease in pre-tax margin was primarily due to lower sales volume, mark-to-market gains recognized in the prior year related to our previous investment in PTC, and restructuring charges recognized in the third quarter of 2024, partially offset by lower incentive compensation. 2024 third quarter adjusted EPS was $2.71, down 10.0 percent compared to $3.01 in the third quarter of 2023, primarily due to lower sales volume and lower segment operating margin. Total segment operating margin in the third quarter of 2024 was 20.8 percent compared to 21.1 percent a year ago, primarily due to lower sales volume and unfavorable mix, partially offset by the positive impact of price realization exceeding input costs, lower incentive compensation, and the benefits from cost reduction actions.

Net income attributable to Rockwell Automation was $713.4 million or $6.19 per share in the nine months ended June 30, 2024, compared to $1,084.5 million or $9.34 per share in the nine months ended June 30, 2023. The decreases in Net income attributable to Rockwell Automation and diluted EPS were primarily due to lower pre-tax margin. Pre-tax margin was 13.2 percent in the nine months ended June 30, 2024, compared to 19.9 percent in the same period last year. The decrease in pre-tax margin was primarily due to mark-to-market gains recognized in the prior year related to our previous investment in PTC and lower sales volume. Adjusted EPS was $7.25 in the nine months ended June 30, 2024, down 14.5 percent compared to $8.48 in the nine months ended June 30, 2023, primarily due to lower segment operating margin. Total segment operating margin in the nine months ended June 30, 2024, was 19.0 percent compared to 20.9 percent in the same period a year ago, primarily due to lower sales volume and unfavorable mix, partially offset by lower incentive compensation and the positive impact of price realization exceeding input costs.

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Intelligent Devices

Sales

Intelligent Devices sales decreased 1.1 percent and 2.4 percent year over year in the three and nine months ended June 30, 2024, respectively. Organic sales decreased 1.2 percent and 4.4 percent year over year in the three and nine months ended June 30, 2024, respectively. Currency translation decreased sales by 0.6 percentage points year over year in the three months ended June 30, 2024, and increased sales by 0.2 percentage points year over year, in the nine months ended June 30, 2024. Acquisitions increased sales by 0.7 percentage points and 1.8 percentage points year over year in the three and nine months ended June 30, 2024, respectively. For the three and nine months ended June 30, 2024, reported and organic sales increased in North America and Latin America, but decreased in Europe, Middle East, and Africa and Asia Pacific.

Segment Operating Margin

Intelligent Devices segment operating earnings increased 18.6 percent year over year in the three months ended June 30, 2024. Segment operating margin increased to 20.2 percent in the three months ended June 30, 2024, from 16.8 percent in the same period a year ago, primarily due to the positive impact of price realization exceeding input costs, lower incentive compensation, and the benefits from cost reduction actions, partially offset by lower sales volume.

Intelligent Devices segment operating earnings decreased 12.9 percent year over year in the nine months ended June 30, 2024. Segment operating margin decreased to 17.7 percent in the nine months ended June 30, 2024, from 19.8 percent in the same period a year ago, primarily due to lower sales volume and supply chain utilization, partially offset by lower incentive compensation.

Software & Control

Sales

Software & Control sales decreased 31.8 percent and 18.4 percent year over year in the three and nine months ended June 30, 2024, respectively. Organic sales decreased 31.3 percent and 18.6 percent year over year in the three and nine months ended June 30, 2024, respectively. Currency translation decreased sales by 0.5 percentage points year over year in the three months ended June 30, 2024, and increased sales by 0.2 percentage points year over year in the nine months ended June 30, 2024. For the three and nine months ended June 30, 2024, reported and organic sales decreased in all regions, except for Latin America.

Segment Operating Margin

Software & Control segment operating earnings decreased 53.9 percent year over year in the three months ended June 30, 2024. Segment operating margin decreased to 23.6 percent in the three months ended June 30, 2024, from 34.8 percent in the same period a year ago, primarily due to lower sales volume, partially offset by the positive impact of price realization exceeding input costs, lower incentive compensation, and the benefits from cost reduction actions.

Software & Control segment operating earnings decreased 38.4 percent year over year in the nine months ended June 30, 2024. Segment operating margin decreased to 24.8 percent in the nine months ended June 30, 2024, from 32.8 percent in the same period a year ago, primarily due to lower sales volume, partially offset by lower incentive compensation and the positive impact of price realization exceeding input costs.

Lifecycle Services

Sales

Lifecycle Services sales increased 11.8 percent and 12.1 percent year over year in the three and nine months ended June 30, 2024, respectively. Organic sales increased 11.3 percent and 10.7 percent year over year in the three and nine months ended June 30, 2024, respectively. Currency translation decreased sales by 0.8 percentage points year over year in the three months ended June 30, 2024, and did not impact sales year over year in the nine months ended June 30, 2024. Acquisitions increased sales by 1.3 percentage points and 1.4 percentage points year over year in the three and nine months ended June 30, 2024, respectively. For the three months ended June 30, 2024, reported and organic sales increased in all regions, except for Europe, Middle East, and Africa. For the nine months ended June 30, 2024, reported and organic sales increased in all regions.

Segment Operating Margin

Lifecycle Services segment operating earnings increased 132 percent year over year in the three months ended June 30, 2024. Segment operating margin increased to 19.3 percent in the three months ended June 30, 2024, from 9.3 percent in the same period a year ago, primarily due to lower incentive compensation, higher sales volume, strong project execution, and ongoing savings from the prior year structural actions.

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Lifecycle Services segment operating earnings increased 162 percent year over year in the nine months ended June 30, 2024. Segment operating margin increased to 15.6 percent in the nine months ended June 30, 2024, from 6.7 percent in the same period a year ago, primarily due to lower incentive compensation, higher sales volume, higher margins in Sensia, and ongoing savings from the prior year structural actions.

Supplemental Segment Information

Purchase accounting depreciation and amortization, non-operating pension and postretirement benefit (credit) cost, and restructuring charges are not allocated to our operating segments because these costs are excluded from our measurement of each segment's operating performance for internal purposes. If we were to allocate these costs, we would attribute them to each of our segments as follows (in millions):

Three Months Ended June 30,Nine Months Ended June 30,
2024202320242023
Purchase accounting depreciation and amortization
Intelligent Devices$9.2$1.3$28.9$3.5
Software & Control16.717.150.651.2
Lifecycle Services9.48.528.024.3
Non-operating pension and postretirement benefit (credit) cost
Intelligent Devices$(1.8)$(1.9)$(5.3)$23.0
Software & Control(1.8)(1.9)(5.3)23.0
Lifecycle Services(2.4)(2.7)(7.1)30.6
Restructuring charges
Intelligent Devices$31.7$—$31.7$—
Software & Control24.0—24.0—
Lifecycle Services13.2—13.2—

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Adjusted Income, Adjusted EPS, and Adjusted Effective Tax Rate Reconciliation

Adjusted income, adjusted EPS, and adjusted effective tax rate are non-GAAP earnings measures that exclude non-operating pension and postretirement benefit (credit) cost, purchase accounting depreciation and amortization attributable to Rockwell Automation, change in fair value of investments, restructuring charges aligned with enterprise-wide strategic initiatives, and Net loss attributable to noncontrolling interests, including their respective tax effects. Non-operating pension and postretirement benefit (credit) cost is defined as all components of our net periodic pension and postretirement benefit cost except for service cost. See Note 10 in the Consolidated Financial Statements for more information on our net periodic pension and postretirement benefit cost. In 2024, we updated the definition of our non-GAAP earnings measures to exclude significant restructuring charges aligned with enterprise-wide strategic initiatives. In the three and nine months ended June 30, 2024, we recognized these restructuring charges in conjunction with an enterprise-wide comprehensive program to optimize cost structure and expand margins. We believe the change to our definition provides a more useful presentation of our operating performance to investors as these restructuring charges are significant and enterprise-wide severance actions and not reflective of our ongoing operations. We did not revise prior years because there were no similar restructuring actions with significant costs. See Note 14 in the Consolidated Financial Statements for more information on our restructuring charges.

We believe that adjusted income, adjusted EPS, and adjusted effective tax rate provide useful information to our investors about our operating performance and allow management and investors to compare our operating performance period over period. Adjusted EPS is also used as a financial measure of performance for our annual incentive compensation. Our measures of adjusted income, adjusted EPS, and adjusted effective tax rate may be different from measures used by other companies. These non-GAAP measures should not be considered a substitute for Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate.

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The following are reconciliations of Net income attributable to Rockwell Automation, diluted EPS, and effective tax rate to adjusted income, adjusted EPS, and adjusted effective tax rate, respectively (in millions, except per share amounts and percentages):

Three Months Ended June 30,Nine Months Ended June 30,
2024202320242023
Net income attributable to Rockwell Automation$232.0$400.2$713.4$1,084.5
Non-operating pension and postretirement benefit (credit) cost(4.9)(5.5)(14.7)87.5
Tax effect of non-operating pension and postretirement benefit (credit) cost1.01.23.0(21.6)
Purchase accounting depreciation and amortization attributable to Rockwell Automation32.824.199.970.7
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation(5.6)(5.9)(17.1)(17.3)
Change in fair value of investments (1)5.0(85.7)(0.9)(289.3)
Tax effect of change in fair value of investments (1)(1.2)20.7(0.5)70.0
Restructuring charges (2)69.8—69.8—
Tax effect of restructuring charges (2)(17.6)—(17.6)—
Adjusted income$311.3$349.1$835.3$984.5
Diluted EPS$2.02$3.45$6.19$9.34
Non-operating pension and postretirement benefit (credit) cost(0.04)(0.05)(0.13)0.76
Tax effect of non-operating pension and postretirement benefit (credit) cost0.010.010.02(0.19)
Purchase accounting depreciation and amortization attributable to Rockwell Automation0.280.210.870.61
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation(0.05)(0.05)(0.15)(0.15)
Change in fair value of investments (1)0.04(0.74)(0.01)(2.50)
Tax effect of change in fair value of investments (1)(0.01)0.18—0.61
Restructuring charges (2)0.61—0.61—
Tax effect of restructuring charges (2)(0.15)—(0.15)—
Adjusted EPS$2.71$3.01$7.25$8.48
Effective tax rate9.4%15.5%14.0%16.9%
Tax effect of non-operating pension and postretirement benefit (credit) cost(0.2)%(0.1)%(0.1)%0.5%
Tax effect of purchase accounting depreciation and amortization attributable to Rockwell Automation0.4%0.6%0.2%0.5%
Tax effect of change in fair value of investments (1)0.3%(1.9)%0.1%(1.7)%
Tax effect of restructuring charges (2)3.4%—%0.9%—%
Adjusted effective tax rate13.3%14.1%15.1%16.2%

(1) Amounts in the three and nine months ended June 30, 2023, primarily relate to the change in fair value of our previous investment in PTC.

(2) Restructuring charges include $64.7 million for severance benefits and $5.1 million for strategic advisory services related to the enterprise-wide severance actions.

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Financial Condition

The following is a summary of our cash flows from operating, investing, and financing activities, as reflected in the Consolidated Statement of Cash Flows (in millions):

Nine Months Ended June 30,
20242023
Cash provided by (used for)
Operating activities$431.5$535.1
Investing activities(920.0)88.6
Financing activities(187.0)(709.2)
Effect of exchange rate changes on cash1.829.7
Decrease in cash, cash equivalents, and restricted cash$(673.7)$(55.8)

The following table summarizes free cash flow, which is a non-GAAP financial measure (in millions):

Nine Months Ended June 30,
20242023
Cash provided by operating activities$431.5$535.1
Capital expenditures(159.8)(97.3)
Free cash flow$271.7$437.8

Our definition of free cash flow takes into consideration capital investments required to maintain the operations of our businesses and execute our strategy. Cash provided by operating activities adds back non-cash depreciation expense to earnings but does not reflect a charge for necessary capital expenditures. Our definition of free cash flow excludes the operating cash flows and capital expenditures related to our discontinued operations, if any. Operating, investing, and financing cash flows of our discontinued operations, if any, are presented separately in our Consolidated Statement of Cash Flows. In our opinion, free cash flow provides useful information to investors regarding our ability to generate cash from business operations that is available for acquisitions and other investments, service of debt principal, dividends, and share repurchases. We use free cash flow, as defined, as one measure to monitor and evaluate our performance, including as a financial measure for our annual incentive compensation. Our definition of free cash flow may be different from definitions used by other companies.

Cash provided by operating activities was $431.5 million for the nine months ended June 30, 2024, compared to $535.1 million for the nine months ended June 30, 2023. Free cash flow was $271.7 million for the nine months ended June 30, 2024, compared to $437.8 million for the nine months ended June 30, 2023. The year over year decreases in cash provided by operating activities and free cash flow were primarily due to lower pre-tax income, higher incentive compensation payments related to fiscal 2023 performance, and higher tax payments in the first nine months of 2024 compared to the first nine months of 2023, partially offset by decreases in working capital. Free cash flow for the nine months ended June 30, 2024, also includes $62.5 million of higher capital expenditures. Taxes paid in the nine months ended June 30, 2024, include $58.4 million of U.S. transition tax under the Tax Act and $67.4 million for capital gains from the sale of PTC shares.

Our Short-term debt as of June 30, 2024, includes commercial paper borrowings of $704.0 million with a weighted average interest rate of 5.38 percent, and a weighted average maturity period of 22 days. We had no commercial paper borrowings as of September 30, 2023. In December 2022, Sensia entered into an unsecured $75.0 million line of credit. As of June 30, 2024, and September 30, 2023, included in Short-term debt was $70.0 million borrowed against the line of credit with an interest rate of 6.17 percent and 6.29 percent, respectively. Also included in Short-term debt as of June 30, 2024, and September 30, 2023, was $23.5 million of interest-bearing loans from Schlumberger (SLB) to Sensia, extended to April 2025. In April 2024, $18.8 million of new interest-bearing loans from SLB to Sensia were entered into and are due August 2024.

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We repurchased approximately 1.7 million shares of our common stock under our share repurchase program in the first nine months of 2024. The total cost of these shares was $476.2 million, of which $0.6 million was recorded in Accounts payable at June 30, 2024, related to shares that did not settle until July 2024. At September 30, 2023, there were $1.1 million of outstanding common stock share repurchases recorded in Accounts payable. We repurchased approximately 1.0 million shares of our common stock under our share repurchase program in the first nine months of 2023. The total cost of these shares was $256.2 million, of which $0.8 million was recorded in Accounts payable at June 30, 2023, related to shares that did not settle until July 2023. Our decision to repurchase shares in the remainder of 2024 will depend on business conditions, free cash flow generation, other cash requirements, and stock price. On May 2, 2022, the Board of Directors authorized us to expend an additional $1.0 billion to repurchase shares of our common stock. At June 30, 2024, we had approximately $464.1 million remaining for share repurchases under our existing board authorization. See Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds, for additional information regarding share repurchases.

We expect future uses of cash to include working capital requirements, capital expenditures, dividends to shareowners, repurchases of common stock, additional contributions to our retirement plans, repayments of debt, and acquisitions of businesses and other inorganic investments. We expect to fund future uses of cash with a combination of existing cash balances, cash generated by operating activities, commercial paper borrowings, or new issuances of debt or other securities. In addition, we have access to unsecured credit facilities with various banks.

At June 30, 2024, the majority of our Cash and cash equivalents were held by non-U.S. subsidiaries. We use a global cash pooling arrangement to allocate capital resources among our entities. As a result of the broad changes to the U.S. international tax system under the Tax Act, the Company accounts for taxes on earnings of substantially all of its non-U.S. subsidiaries including both non-U.S. and U.S. taxes. The Company has concluded that earnings of a limited number of its non-U.S. subsidiaries are indefinitely reinvested.

In June 2022, we replaced our former $1.25 billion unsecured revolving credit facility with a new five-year $1.5 billion unsecured revolving credit facility, expiring in June 2027. This credit facility uses the secured overnight funding rate (SOFR) as the primary basis for determining interest payments. We can increase the aggregate amount of this credit facility by up to $750.0 million, subject to the consent of the banks in the credit facility. We did not borrow against this credit facility during the periods ended June 30, 2024, or September 30, 2023. Borrowings under this credit facility bear interest based on short-term money market rates in effect during the period the borrowings are outstanding. The terms of this credit facility contain covenants under which we agree to maintain an EBITDA-to-interest ratio of at least 3.0 to 1.0. The EBITDA-to-interest ratio is defined in the credit facility as the ratio of consolidated EBITDA (as defined in the facility) for the preceding four quarters to consolidated interest expense for the same period.

Among other uses, we can draw on our credit facility as a standby liquidity facility to repay our outstanding commercial paper as it matures. This access to funds to repay maturing commercial paper is an important factor in maintaining the short-term credit ratings set forth in the table below. Under our current policy with respect to these ratings, we expect to limit our other borrowings under our credit facility, if any, to amounts that would leave enough credit available under the facility so that we could borrow, if needed, to repay all of our then outstanding commercial paper as it matures.

Separate short-term unsecured credit facilities of approximately $226.0 million at June 30, 2024, were available to non-U.S. subsidiaries, of which, approximately $32.6 million was committed under letters of credit. Borrowings under our non-U.S. credit facilities at June 30, 2024, and September 30, 2023, were not significant. We were in compliance with all covenants under our credit facilities at June 30, 2024, and September 30, 2023. There are no significant commitment fees or compensating balance requirements under our credit facilities.

The following is a summary of our credit ratings as of August 7, 2024:

Credit Rating AgencyShort-Term RatingLong-Term RatingOutlook
Standard & Poor’sA-2A-Stable
Moody’sP-2A3Stable
Fitch RatingsF1AStable

In July 2024, Standard & Poor’s downgraded our short-term rating from A-1 to A-2 and our long-term rating from A to A- and also changed our outlook from negative to stable.

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Our ability to access the commercial paper market, and the related costs of these borrowings, is affected by the strength of our credit ratings and market conditions. We have not experienced any difficulty in accessing the commercial paper market. If our access to the commercial paper market is adversely affected due to a change in market conditions or otherwise, we would expect to rely on a combination of available cash and our unsecured committed credit facility to provide short-term funding. In such event, the cost of borrowings under our unsecured committed credit facility could be higher than the cost of commercial paper borrowings.

We regularly monitor the third-party depository institutions that hold our cash and cash equivalents and short-term investments. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.

We use foreign currency forward exchange contracts to manage certain foreign currency risks. We enter into these contracts to hedge our exposure to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in foreign currencies forecasted to occur within the next two years. We also may use these contracts to hedge portions of our net investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. There were no open net investment hedges for the nine months ended June 30, 2024, or September 30, 2023. In addition, we use foreign currency forward exchange contracts that are not designated as hedges to offset transaction gains or losses associated with some of our assets and liabilities resulting from intercompany loans or other transactions with third parties that are denominated in currencies other than our entities' functional currencies. Our foreign currency forward exchange contracts are usually denominated in currencies of major industrial countries. We diversify our foreign currency forward exchange contracts among counterparties to minimize exposure to any one of these entities.

Net gains and losses related to derivative forward exchange contracts designated as cash flow hedges offset the related gains and losses on the hedged items during the periods in which the hedged items are recognized in earnings. During the three and nine months ended June 30, 2024, we reclassified $4.4 million and $17.8 million, respectively, in pre-tax net gains related to cash flow hedges from Accumulated other comprehensive loss into the Consolidated Statement of Operations. During the three and nine months ended June 30, 2023, we reclassified $7.3 million and $27.7 million, respectively, in pre-tax net gains related to cash flow hedges from Accumulated other comprehensive loss into the Consolidated Statement of Operations. As of June 30, 2024, we expect that approximately $3.0 million of pre-tax net unrealized gains on cash flow hedges will be reclassified into earnings during the next 12 months.

Information with respect to our contractual cash obligations is contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended September 30, 2023. We believe that at June 30, 2024, there has been no material change to this information.

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Supplemental Sales Information

We translate sales of subsidiaries operating outside of the United States using exchange rates effective during the respective period. Therefore, changes in currency exchange rates affect our reported sales. Sales by acquired businesses also affect our reported sales. We believe that organic sales, defined as sales excluding the effects of acquisitions and changes in currency exchange rates, which is a non-GAAP financial measure, provides useful information to investors because it reflects regional and operating segment performance from the activities of our businesses without the effect of acquisitions and changes in currency exchange rates. We use organic sales as one measure to monitor and evaluate our regional and operating segment performance. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we divest a business, we exclude sales in the prior period for which there are no comparable sales in the current period. Organic sales growth is calculated by comparing organic sales to reported sales in the prior year, excluding divestitures. We attribute sales to the geographic regions based on the country of destination.

The following is a reconciliation of reported sales to organic sales by geographic region (in millions):

Three Months Ended June 30, 2024Three Months Ended June 30, 2023
Reported SalesLess: Effect of AcquisitionsEffect of Changes in CurrencyOrganic SalesReported Sales
North America$1,268.4$12.0$(2.4)$1,258.8$1,260.9
Europe, Middle East, and Africa355.30.9(3.7)358.1494.4
Asia Pacific260.90.4(7.7)268.2343.5
Latin America166.00.3(0.6)166.3139.9
Total Company Sales$2,050.6$13.6$(14.4)$2,051.4$2,238.7
Nine Months Ended June 30, 2024Nine Months Ended June 30, 2023
Reported SalesLess: Effect of AcquisitionsEffect of Changes in CurrencyOrganic SalesReported Sales
North America$3,809.1$59.6$(1.7)$3,751.2$3,750.4
Europe, Middle East, and Africa1,142.58.517.41,116.61,353.7
Asia Pacific806.44.5(18.3)820.2974.2
Latin America470.70.316.3454.1416.8
Total Company Sales$6,228.7$72.9$13.7$6,142.1$6,495.1

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The following is a reconciliation of reported sales to organic sales by operating segment (in millions):

Three Months Ended June 30, 2024Three Months Ended June 30, 2023
Reported SalesLess: Effect of AcquisitionsEffect of Changes in CurrencyOrganic SalesReported Sales
Intelligent Devices$957.3$7.1$(6.4)$956.6$968.1
Software & Control512.1—(3.8)515.9750.6
Lifecycle Services581.26.5(4.2)578.9520.0
Total Company Sales$2,050.6$13.6$(14.4)$2,051.4$2,238.7
Nine Months Ended June 30, 2024Nine Months Ended June 30, 2023
Reported SalesLess: Effect of AcquisitionsEffect of Changes in CurrencyOrganic SalesReported Sales
Intelligent Devices$2,858.1$51.6$8.2$2,798.3$2,927.5
Software & Control1,685.7—4.91,680.82,065.0
Lifecycle Services1,684.921.30.61,663.01,502.6
Total Company Sales$6,228.7$72.9$13.7$6,142.1$6,495.1

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Critical Accounting Estimates

We have prepared the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and revenues and expenses during the periods reported. These estimates are based on our best judgment about current and future conditions, but actual results could differ from those estimates. Information with respect to accounting estimates that are the most critical to the understanding of our financial statements as they could have the most significant effect on our reported results and require subjective or complex judgments by management is contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended September 30, 2023. We believe that at June 30, 2024, there has been no material change to this information, except as noted below.

Acquisitions - Clearpath Intangible Assets Valuation

We account for business acquisitions by allocating the purchase price to tangible and intangible assets acquired and liabilities assumed at their fair values; the excess of the purchase price over the allocated amount is recorded as goodwill. We engaged an independent third-party valuation specialist to assist with the fair value allocation of the intangible assets assumed through the acquisition of Clearpath. The intangible assets were valued using income approaches, specifically the relief from royalty method and multi-period excess earnings method. This required the use of several assumptions and estimates including forecasted revenue growth rates, margin, and cash flows attributable to existing customers, obsolescence factor, royalty rate, contributory asset charges, customer attrition rate, and discount rates. Although we believe the assumptions and estimates made were reasonable and appropriate, these estimates require judgment and are based in part on historical experience and information obtained from Clearpath management.

The key assumption requiring the use of judgement in the valuation of the $269.9 million technology asset was the obsolescence factor. The obsolescence factor of 12 years was calculated based on the depletion of existing technology using a variety of factors including research and development spend toward new product development and scheduled patent expiration. A two-year change in this assumption would result in a change of approximately $82 million in intangible assets. The key assumption requiring the use of judgement in the valuation of the $41.6 million trademark intangible asset was the weighted average royalty rate of 2.05 percent. This rate was based on royalty market data. A 100 basis point change in the royalty rate would result in a change of $20 million in intangible assets.

More information regarding these business acquisitions is contained in Note 5 in the Consolidated Financial Statements.

Environmental Matters

Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 17 in the Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended September 30, 2023. We believe that at June 30, 2024, there has been no material change to this information.

Recent Accounting Pronouncements

See Note 1 in the Consolidated Financial Statements regarding recent accounting pronouncements.

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