Rockwell Automation at Oppenheimer Conference: Strategic Growth Insights

On Thursday, May 8, 2025, Rockwell Automation (NYSE:ROK) participated in the Oppenheimer 20th Annual Industrial Growth Conference. The company presented a strategic overview, highlighting its strong financial performance and growth in software and AI capabilities. While Rockwell Automation reported positive developments, it also addressed challenges such as tariff impacts and project delays.

Key Takeaways

• Rockwell Automation is actively managing tariff impacts through pricing and supply chain adjustments, aiming for EPS neutrality.
• The company has realized $155 million in margin improvements, exceeding initial expectations.
• Strong growth in e-commerce and warehouse automation is driving increased guidance for the year.
• Rockwell Automation continues to focus on software-defined automation and AI capabilities, enhancing its portfolio.
• SKU rationalization has simplified processes, with 36,000 SKUs rationalized in the first half of the year.

Financial Results

• Tariff Cost Impact: Rockwell expects $125 million in tariff costs for the second half of fiscal 2025, which they plan to mitigate through strategic pricing and supply chain adjustments.
• Organic Top Line Guide: The company has incorporated price increases from annual adjustments into its organic top line guidance.
• Structural Productivity: Achieved $110 million in savings from SG&A headcount reductions in the second half of fiscal 2024, with expectations of a $250 million year-over-year improvement in fiscal 2025.
• ARR Growth: Annual Recurring Revenue (ARR) now represents approximately 10% of total revenue.
• Margin Performance: Margin improvements valued at $0.65 per share, or about $350 million annualized, have been realized.

Operational Updates

• Demand Trends: North America remains the strongest region, with Europe showing sequential growth, particularly in Italy and Germany. E-commerce and warehouse automation are key growth areas.
• Supply Chain: Order conversion cycles have normalized, with enhanced flexibility through redundant production sites and alternative sourcing.
• Tariff Mitigation: Measures have been implemented to prevent pre-buys, including order cancellations in Asia and increased monitoring of distributor channels.
• SKU Rationalization: 36,000 SKUs have been rationalized, with further actions planned for an additional 45,000 SKUs.

Future Outlook

• Tariff Impacts: Rockwell is monitoring potential tariff-related pull-forward effects and incorporating these into forecasts for the second half of the fiscal year.
• Project Delays: Anticipated delays in energy and automotive projects due to tariff uncertainty.
• AI and Software Defined Automation: Continued emphasis on evolving towards a software-defined portfolio and AI capabilities, with plans to leverage Edge AI for preventative maintenance.

Q&A Highlights

• Questions focused on tariff mitigation strategies and the balance between cyclical and secular drivers in various markets.
• Discussion on the impact of SKU rationalization on production flexibility and pricing.
• Interest in the company’s AI capabilities and partnerships with NVIDIA and Microsoft.

In conclusion, Rockwell Automation’s presentation at the Oppenheimer Conference highlighted its strategic growth initiatives and ability to navigate market challenges. Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Oppenheimer 20th Annual Industrial Growth Conference:

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Well, good afternoon, everyone, and, welcome back to day four of Oppenheimer’s twentieth Annual Industrial Growth Conference. We’re very happy to have, back to the conference, Rockwell Automation, Ajana Zehlner, head of IR and market strategy. Known each other many years, and I really appreciate you making the time right after earnings to come talk to us. So, Ajana, let’s

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Would have missed it.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Let’s get into it. You can submit questions for those listening in the webcast, you know, via the Q and A function. We’ll try to get to them if we can, but we’ve got a lot to get through. And I do want to start with demand, not to take away from the margin outperformance in the quarter, but we lead with demand. And I think that last quarter, right, management was was very clear.

There was no demand pull forward from tariffs. And the argument there was, well, you know, orders were globally, broadly strong. Right? And then we look at two q, and North America outperformed other regions. So we’d love to understand what kind of did you see?

What gives the company confidence that there wasn’t any kind of tariff related pull forward during February or at least not a meaningful one?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Absolutely. That’s a very good question. And we we looked for all the data points in q one, and we did that with the same amount of rigor, if not more, in q two in terms of if there were any prebuys, where would that where would they have been? So when they looked at all the obvious places and all the other spots that that to think and to look at that. And here here’s the thing.

If you had prebuys, you would have much higher inventory levels in the channel. And so we looked at our channel and inventory. It has been stable to actually slightly down quarter over quarter. So there’s no evidence of stocking up there. We looked at our machine builders, and, you know, we’ve talked about about we’re improving our processes of serving our machine builders, getting more data points, getting much more visibility.

It’s not perfect, but based on our discussions with machine builders and the data we we reviewed, we didn’t see any indications of pre buys. We looked at product offerings in terms of, let’s talk about Logix. During the supply chain crisis, when we did have that excess inventory buildup, it was Logix. A lot of it was Logix. So we looked at our offerings within that.

And what was interesting first of all, logics has been recovering for quite some time now. Sequentially, we’ve been seeing some good recovery, and it continued sequentially in in the current in q two. Within that, we have multiple different offerings. Some did have tariff based price increases, others didn’t, and volume grew across the board. Right?

And so it’s, like, underlying demand that’s improving. From a regional standpoint, yes, North America was our strongest region in the quarter, and we do expect it to be our strongest performing region for the full year. But, sequentially, Europe improved as well. If you look at machine builders, we talked about Italy on our q one earnings call, some stabilization there. Q two, we had strong sequential growth in Italy and Germany.

Mhmm. You know, we’re talking about double digit sequential growth. And we look at machine builder performance, specifically in, you know, food and beverage and home and personal care end markets, that’s been very healthy. Double digit growth sequentially as well. And so a lot of different data points.

With that said, there might have been some pre bias, and we were cleared. We were want to make sure that that we shared that with you. We we’re monitoring it. We’re looking at it. We are accounting for that.

So we are we’re building it into our now forecast for fiscal for the second half, but we just we didn’t see specific evidence of that impacting our q two results. I’ll tell you one more thing. We did put some additional measures in place to better detect and then prevent pre buys. In fact, we did have a couple of customers who tried to pre buy in Asia in q two, and we canceled that or stopped that. So there are measures on monitoring the the ordering activity and not allowing that if if something is not jiving with their previous behavior.

So it’s it’s it’s getting more rig giving more rigor to existing processes, putting new policies in place, but it’s not perfect. And so we are we we’re looking at that as well.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Well, it’s interesting because I think we the one of the first things I thought when the ninety day pause was announced on the April 2 reciprocal tariffs was there’ll be pull forward, right, for anything that’s for short cycle. And going to the last part of what you just said, you you put in some measures to try to detect and prevent that. But how do we think about the potential for a pull forward during this this pause, you know, impacting what you’re seeing in three q?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Like I said, we are vigilant about it. We’re monitoring it. We’re we’re detecting and preventing it. We talked about our guide for the for the rest of the year, contemplates what we saw in April. So we’ll we’ll give an update once we get to our q three earnings call, but certainly certainly very, very focused on looking at all these data points, making sure that we are not surprised.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. Yeah. I I get I get the the part about monitoring the distributor channel and increasing sort of pulsing surveys of the machine builders, which just kinda feels like like a good healthy operating practice no matter what. Right? Whether it’s related to tariffs or just navigating demand.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: And but also the measures we put in place in terms of, these unusual orders or stocking, that that applies to end users as well, not just distributors.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: And so the order conversion cycle has normalized. Right? You know, can we get a level set on your production flexibility to respond to demand shifts? You know, certainly, there’s been an effort around SKU rationalization. Just wondering how that interplays with production readiness.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Listen. Production first of all, yes. You’re right. The conversion has normalized, and and we’re seeing that. So we’re back to, you know, normal lead times.

We basically, our orders and sales are very close to each other as we talked about in terms from a book to bill standpoint. From a production standpoint, we we do have the flexibility to to move things around and to have the agility. So during the supply chain crisis, we’ve done a lot to add resiliency to our operations and our supply chain. That was both from a production standpoint, have a redundant production site in different parts of the world, alternative sourcing, alternative components, redesigning things, and that’s serving us well. So we have the ability to move things around.

Part of how we’re mitigating or plan to mitigate the potential tariff costs going forward is through pricing and supply chain moves. And the supply chain moves are very much coming from that added resiliency and flexibility we have. In terms of SKU rationalization, it’s very much it it it it certainly helps with that. If you think about it, by narrowing down the number of offerings you have to do the ones that really matter Yeah. That that that helps you with your footprint, helps you with your inventory management, it helps you with being much more agile in what you move, you know, in a in an enhanced tariff environment, the cost environment, or any kind of environment where to make this kind of moves, you wanna you really want to be optimized.

And so we’ll continue to do that, and it’s good for productivity. It’s good for simplification, like I said, for our footprint, but it’s it’s a big part of that.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. I mean, it’s it’s it’s one of the reasons, right, why 8020 works is that, you know, you’re able to focus on high value products and product lines, and liberate capacity to serve them. So so that all makes sense in the context of what you’re seeing today. If we think about some of the demand trends by vertical, you know, certainly, ecommerce and warehouse automation has been a standout so far this year. I think we’re picking up very good demand indicators at ProMat, so not surprised.

Maybe parse how much of that strength is being driven by the secular end market recovery versus some of the acquisitions that you’ve had.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Sure. It’s it’s been really a a a standout end market and continues to be, and it surprised us in the quarter. It continues to be very strong, and it’s a it’s really a combination of things. The ecommerce and warehouse automation, first of the ecommerce part of it continues to be strong. To the ecommerce players, the ecosystem that supports those players, the fulfillment centers that are being built, the continued modernization, we have a great solution there, and and there’s great spend there.

And it’s continued on at at a sustained level. The warehouse automation part is more of a application across many industries than a vertical by itself. So it’s upgrading existing warehouses, whether you’re a traditional retailer. It could be in food and beverage. It could be in in home or personal care.

You have warehouses, and you have labor cost issues and labor scarcity. And so you you’re looking at how do you upgrade manual warehouses and and and do do more with that. Our offerings work there. Great. Parcel companies.

We talked about our our work with parcel companies and global logistics companies. They’re going through cost optimization. They’re reducing their headcount significantly. Get they’re investing in automation to be able to to to drive the improvements and be more profitable. And so we see very good spend there.

And then finally, we do have this growth with data centers. It’s a very small part of the business, and this is why I’m talking about it last in terms of the order, but it captures people’s imagination. But it it’s great business. We our exposure here is through our acquisition of Cubic. So, really, on the power distribution side, we participate in data centers, and so that’s contributing nicely as well.

All of that is what led us to increase our guide for the full year from high single digit year over year growth to 45% growth year over year.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Okay. Well, we don’t want everyone to hear, okay. Rockwell is a data center play and tell you with those trends. But it’s good to know that that that’s a source of

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: growth there. Piece, but it’s growing nicely. Yes.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Well, what about by geography? You know you know, I think you mentioned North America probably going to stay the strongest this year. But you’ve talked about leveraging your share in North America to kind of gain share with the VM machine builders that are selling into The U. S. Market.

Maybe talk to us about how those efforts are progressing and to the extent to which trade tensions might impact EMEA and APAC share dynamics.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Absolutely. We’re continuing to work with the leading machine builders. We talked about the European machine builders who are working on cutting edge equipment and whether it’s food and beverage, life sciences, automotive, tons of different industries. They there’s a reason why they want to work with Rockwell given our technology differentiation, our footprint in The US, customer access installed base, and that value proposition hasn’t changed. I mean, tariffs, of course, introduce more complexities.

So, you know, we’re working with these machine builders. They need to figure out their footprint, how can they address the the the tariff headwinds. A lot of them have North America sites, US sites, so they’re able to, you know, kind of mitigate some of these headwinds. But in general, it’s a great relationship, and and the key is for us to help each other grow in in our own respective strong markets. So we we see continued growth from a technology standpoint.

Blake talked about it on our earnings call yesterday, continued sharp, know, adoption of our new offerings. And a lot of them is by machine builders. They’re very technology forward. So it’s whether FactoryTalk Optics, it’s whether our Armor PowerFlex. A lot of new offerings that we’ve just launched more recently are getting adopted, and and and what we’re doing with FactoryTalk Design Studio and our our design and control portfolio.

So between all of that, we see an opportunity continue opportunity to work together. But in terms of the that yeah. The the trade dynamic, I would say, yeah, it’s we still see it as an opportunity. It’s just near term challenges. On the Asia Pacific 1, I would just say that with from a company standpoint, our cancellations were very low in the quarter, in our usual low historical level, low single digit.

But we did see a pickup in cancellations in China with Chinese SOEs. And so the it’s a small part of our business, but there might be some of that trade dynamic there that we’ve observed. But, again, very small impact to our business.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: And and I think, you know, you called out some of the impacts of tariff uncertainty on demand on the call yesterday. You know, it’s energy, automotive, some of the verticals we call that project delays. So maybe give us a little bit of additional color on how much of that push out was in backlog versus kind of what you’re expecting within the pipeline, you know, how much confidence you have in the projects shipping later this year.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Sure. Yeah. When we talk about these delays, it’s really more what’s what was in our pipeline. It’s not it was something in our backlog, and then, you know, it got canceled or removed. It’s really more this is what we’re working together on our road maps and our plans with our with our customers Mhmm.

And it’s just it’s being delayed. And the reasons and and Blake talked about some of the key reasons why these customers are delaying right now. One is just uncertainty on cost with tariffs. You know, what what’s in, what’s out, how is it gonna impact their cost structure, and then the top line for them. What does it do to to end demand from their customers?

Right? And so, you know, before committing to these CapEx projects, what what is my top line gonna look like? So they’re looking for some of that clarity and certainty. You know, it’s we heard different reasons. Terms and conditions with tariffs, rate environment, just, you know, commodity pricing.

Commodity prices, you know, clearly is a big consideration for a lot of process customers. So so we’re seeing they’re really focused on profitability, not just increasing their production, and so there’s a lot of kind of that wait and see. So yeah. So this is what we observed. Automotive, clearly, tariff uncertainty is a big piece for the cost that I just talked about.

Yeah. You know, GM CEO talked about it takes a long time to build a greenfield. In the meantime, you know, they’ll be increasing their production in The US. That’s a great thing for companies like us. We have strong MRO in in in automotive.

So if there’s any kind of production increase in The US, that’s good for us, but clearly, it’s challenging when there’s a lot of delays and and pauses on big CapEx projects.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. And, also, I mean, like, we we can link some of that to tariffs. We used to talk, you know, some quarters and years ago about, you know, some of the policy or industrial policy stimulus efforts and how they could be kind of long term tailwinds. You know, is there uncertainty around that also impacting, you know, some of the opportunities set? Yeah.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: For sure. I mean, if you look at chips and science, like, there’s still a lot of uncertainty about funding, for for semiconductor. So there’s uncertainty on many levels. If you look at renewables, you know, within within energy, we we have a renewables business, and so there’s still some uncertainty now. We do have very good business with Occidental on on direct air capture, so they continue to invest in that.

But there there are a lot of areas where we’d like to get more certainty.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. I think one of the interesting things on the flip side is you you’ve seen efforts from the new administration actually to accelerate and streamline permitting and, you know, get more domestic energy production built more quickly. You know? So there there there are some there are some, demand positive things happening, you know, for your process business as well as we see it.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Absolutely.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Okay. Let let’s talk a little bit about, supply chain and pricing. You know, I think, obviously, the USMCA exemption obviously takes some of the more acute tariff pressures off for your U. S. Sales.

You mentioned the $125,000,000 in tariff cost impacts. And as you seek to mitigate them, what are you using as your base case scenario for supply chain actions? Are you assuming, like, current effective rates or a return to four two levels? You know, any variability around USMCA renegotiation?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Sure. So first of all and I think you know this. You know, the vast majority of our stuff is US USMCA compliant. We the hundred and 25,000,000 tariff cost in the second half of fiscal twenty five, that’s based on what’s currently enacted. So in other words, we’re not assuming the removal of the pause.

Right? So it’s it’s it’s currently enacted. There’s a lot of uncertainty there. The 25,000,000, we’re fully prepared to mitigate that cost through pricing and supply chain moves. We talked about EPS neutral in each quarter, and and so we we we continue that.

From a pricing standpoint, there are two elements. One is there’s our regular annual price adjustment, and we actually saw much higher price in our fiscal q two. We actually pulled in. We pulled forward our annual price adjustment to earlier in the year because we really wanted to kind of clear the deck for our customers or distributors. So this is our annual adjustment, and that that would kind of it’s there.

And then we can talk about all these tariff based prices, and we can track them separately so we can flex up and flex down, and we can remove them if needed and and have that kind of flexibility. So the the what’s embedded in our organic top line guide is really just the price from our annual price adjustment. As as we talked, you know, if if tariffs persist, then we would have an upward pressure to our top line from price increases coming from tariff based pricing.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: That that all makes sense in terms of how you framed up the guide. Can you speak to what pricing actions or or tariff related pricing actions you might already be taking, you know, assuming there’s no change or or we’ll be implementing and and what the time frame on that might be.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: And we’ve been working with our customers and distributors very closely through throughout this entire process, right, through through all of the changes, lots of communications. So we’ve also during the supply chain crisis, we’ve really enhanced our pricing mechanism. So we are able to realize price real time. So we can really have price relation the moment we have our list prices. And so there’s no delay or lag.

We had some tariff by tariff based pricing in q two. It was very small, very minimal. So out of the three points of price, it it would just be very, very tiny impact. And we had small tariff costs, and so that that was offset. So we are prepared to.

We’re we are prepared to to do that, and we have good very high confidence in in achieving that, like I said, through pricing and supply chain actions.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. And then I I think it’s interesting because you’d also talked about repricing. I think it was, like, four to 5,000 SKUs as part of your rationalization effort.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Yeah.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Did that repricing take place as part of the adjustments? Is that a separate effort from this and tariffs? I’m just trying to be sensitive to the nuances between these different pricing initiatives.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: No. It’s a it’s a great example of us kind of demand shaping. Right? So so as we mentioned, we’ve we’ve rationalized 36,000 SKUs in the first half already, and then 45,000 is where we’re taking other action, including pricing where we are increasing price and and and doing that. And so it’s it’s optimizing, and it’s driving that.

So it it’s it’s part of a holistic price optimization and for full optimization, and it leads to simplification of our processes. It it’s very much all connected. Yeah. K.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Appreciate that. I wanna talk a little bit about margins since it seems like that was an important part of what happened in yesterday’s stock response. Clearly, the self help benefits exceeded Street expectations, and it’s a great proof point for the strategy. I think that $0.65 of net benefit you called out works out at something like $350,000,000 or so annualized gain. Now that we’re expecting that on a full year basis, obviously, but can we just get a little bit more specific on what benefits they were pulled forward realized in the quarter and how that was accomplished?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Sure. And you remember this. We, we started this structural productivity journey, last year in the second half of last year where we started to take out s g and a, right, headcount. So we realized hundred and 10,000,000 of savings in the second half of fiscal twenty four. Then we end we came into fiscal twenty five, so we were expecting 250,000,000 of year over year improvement.

And, originally, we were expecting the first half of the year roughly to be really more of a s g and a improvement year over year. It’s a carryover. And then in the second half, we would have a lot of these projects in the COGS area, COGS productivity, direct material sourcing, indirect sourcing, efficiencies moving from air freight to ocean, all and SKU rationalization, all those things. So that was kind of the the the framework. As we got into this year, so we continue to execute on SG and A, and then we started seeing some of the benefits on the COGS project realizing earlier than we expected through good execution, you know, faster yield.

So if you think about us renegotiating or moving to different suppliers on direct materials, whether it’s consolidating certain vendors and then from an indirect sourcing. It’s it’s logistics getting realizing more savings sooner, efficiency in our factories, so less over time, better quality, things like that. So that’s where we’re seeing the improvement versus our forecast. So in through the first half of the year, we realized hundred and 55,000,000. Originally, we thought it would be maybe roughly a hundred and 20,000,000 in the first Right?

And so we realized hundred 55,000,000. And so as we look at the second half of the year, you know, we we haven’t changed. So we we do think we we will exceed the 250,000,000, but we actually haven’t changed that in our model. We’re not counting anything more. We think the teams are executing very well.

There are lots of different projects in there to continue to to do that. So if you took a if you look at 250,000,000, that means you still have 95,000,000 of year over year productivity improvement in the second half, and that’s on top of that tough comp of hundred and 10,000,000 we already had last year from from s g and a headcount reductions. And so we the team is doing a great job. There’s with a lot of projects are in play already, and a lot of projects are being evaluated. We’re not done looking for more opportunities to expand our margins, but we just we didn’t we didn’t provide any updated numbers.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. I I think some of the answer to this question may be partly related to the math you just did, but I think management outlined expectations for the low 30s incrementals, on low single digit sequential sales recovery in 3Q. Just why wouldn’t there be more of a carryover from two q in terms of self help benefits to three q or the back half generally?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: There there is. There is a sequential improvement, but because we pulled forward some of that into q two, it’s not as a steep of a increase sequentially. So instead of tens of millions, it’s more millions as what as I know how Christian characterized it in terms of the continued productivity. But there will be. There’ll be continued productivity both in q three and q four.

So we think, yeah, on low single digit sequential sales growth, that makes sense. And then, you know, in q four, we talked about higher sequential sales growth, and you’ll you’ll, you know, you’ll see a a bigger sequential improvement in margins that’s gonna be partially offset by some of the unfavorable mix.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Right. Because you have more less cycle service.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: That’s right.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. Okay. Okay. So so lots of lots of puts and takes around margin trajectory, you know, for the year, though better, right, versus the prior guide. I think you still have, like, an earn out comp that you’re lapping in in from last year in the second half, and you have restructuring costs as well as the benefits.

You have, you know, incentive comp timing. When when we look at the next year, though, I I think there’s potentially far cleaner setup for margin expansion. You know, you will have the full year benefits of your restructuring, your pricing actions, know, some of these productivity investments and, you know, clear path hopefully turning EPS accretive. So I guess that’s a wind up of saying any additional color you would offer on puts and takes for margins as we kinda start looking at next year.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Listen. We’ve we’ve done the team has done a great job of executing on these last few quarters. They’re very focused laser focused on executing in in q three and q four and and getting the results that we just outlined yesterday. So we we are focusing on the the foundation of fiscal twenty six. All the work we’re doing, all these projects we’re driving from a structural standpoint and and improving our positioning, undoubtedly should position us very well, but we don’t wanna we we’re not quite prepared to talk about all of those puts and takes for for next year, but I think we’re we’re laying out laying down a very good foundation.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Yeah. Last thing really to merchants is really around the portfolio. You know, you’ve got ARR at 10% now revenue rate and growing and you still have MRO at a third of sales. So if we think about the mix of kind of recurring and maintenance being modestly higher today versus in the past, does that have any bearing on the margin profile and really incrementals and decrementals?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Oh, for sure. I mean, if it if you look at I mean, ARR ARR has grown quite quite quite a bit, both organically and inorganically. You know, it’s like, three or 4% of total revenue back in 08/00/2009. And if you look at fiscal twenty four for us, was a challenging year. Right?

But if you look at the last time our products were down that much, it was in 02/2009, and EPS was down a lot more than it was in fiscal twenty four. A big part of it is the more resilient model. ARR is is part of that. That’s been growing double digits up up until the current quarter, but it’s been growing good growth, seeing good growth. And, you know, MRO is there.

We’re we’re diversifying our end markets. We are adding more ways to win. Right? More technologies, hardware, software, services. What we’re doing with our structural productivity is gonna have a big impact on our incrementals, I think, and opportunity to to improve that.

But, you know, we think we’re much more resilient. We’ll continue to do that going forward for sure.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: You know, I think the last part of the call, we should really focus on the portfolio, you know, because when we think about the ways in which Rockwell has to win and how that’s expanded over the years, I mean, it’s that’s a critical part of understanding, the value proposition of the company, and the stock in our view. So, you know, I go back to automation fair where there’s a lot of emphasis placed on evolving towards a more software defined portfolio and more AI capabilities. Let me talk a little bit about which of those capabilities are you seeing garnering the most interest and let’s also talk about the partnerships with, NVIDIA and Microsoft and where those are helping to drive adoption.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Sure. Look at the in terms of AI capabilities and what’s capturing kind of the the imagination of our customers and what’s gaining a lot of traction. It’s it’s the AI capabilities that can really enhance the behavior and and the performance of the automation system itself. Right? So AI is like a another discipline within within the automation system.

And artificial intelligence, I mean, it’s it’s it’s it’s helping quite a bit. Think about an autonomous robot or or autonomous vehicle. Right? It’s a great example where you have AI together with control system driving these outcomes. And if you look at what we talked about at our investor day, we talked about our software defined automation portfolio.

Right? Software defined and how the way customers design and deploy their automation systems is very different under this software defined automation. Right? And so engineers, they’ll they can start with creating digital twins of production processes. Production lines could be whole factory.

Right? So they create a digital twin before before any kind of commissioning, and then they use those digital twins as those training gyms for AI agents. And AI agents can control, they can optimize equipment, processes get better as they get more mature, then these AI agents can be deployed into the PLC code, and they can and and they can run the the factory real time. But that’s the vision of software defined where you can do so much in a digital world, and then you can, you know, you can deploy it in into the real world seamlessly. And to, you know, to do that, you mentioned NVIDIA, Microsoft.

The way the way to to to create this vision and bring it to life, you need to have you need to have this distributed compute, and you need to have cloud infrastructure. And so both NVIDIA and Microsoft are very big very important partners for us for those respective areas to be able to drive outcomes for customers at scale. Because, clearly, we have that PLC domain expertise. We have the code. We have the simulation design simulation and expertise in in software.

But to be able to bring that together with scale, together with cloud infrastructure is what is what’s gonna really accelerate it.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: I think one piece that kinda stuck with us was the ability of of generative AI to lower the barrier to entry on PLC programming. So, you know, initial data points you can offer on the impact of that on on deployment times or, you know, you know,

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: some Absolutely.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Software. Yeah.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: And and and you know this. We we were the first ones to to actually launch and provide a cloud native design environment automation design environments. Right? So we’re well positioned to actually provide this capability from a Gen AI standpoint. And we’ve launched we talked about our factor design studio copilot.

So it’s a GenAI. It’s a copilot. It’s it’s basically taking natural language instructions, and it can generate PLC code. Importantly, it can take the existing code from many years ago, and it can explain it to you. It can document it.

It can optimize it. So that can really re reduce the timeline to deploy or to design and to do actually put together a system, like, for about back to 30% depending on the on the instance. So it’s it’s tangible, and it’s really it’s it’s helping how quickly customers can start up their operations. And so we have so Blake talked about sharp adoption, increased adoption of newer offerings on our earnings call yesterday. This is one of them that that we have a lot of customers who are using it right now, and it’s it’s speeding up their, you know, time to value.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: I also think about deploying Edge AI as a really good way to accelerate preventative maintenance adoption. You know, that’s I think, overall, as a lot of our students are hearing that as, like, a clear customer facing value proposition. Right? Because they can see what’s going on. Right?

So so how do we think about the opportunity and the pace of deployment there?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Oh, absolutely. And you might have seen that when we had our, you know, tours at at the automation fair. So drives. We have drives with the non intelligent devices. These drives, they power motors.

And motors, they operate bunch of equipment on the plant floor. So there’s a lot of data. Just think about all the the motor current data that’s flowing through our drives for years. There’s a lot of data we can have, and so you can use these drives that our customer our customers already had them installed. And so these drives can generate all the data and provide this predictive maintenance based on previous things.

If something is there’s some anomaly or the the current the motor current is is showing something that’s that’s you know, showing that it could be a a fault or some kind of a feature. That’s what the drives are there for. And so Guardian AI, we talked about AI. It’s it’s a perfect solution for that. And the beauty of it is customers don’t need to doing they don’t need to put in a new sensor.

Drives are kind of a sensor already. So a lot of customers in industrial world are very pragmatic. They don’t wanna have to add new things and test new things and integrate new things if they don’t need to. And so the ability to use our existing capabilities and hardware overlay with software and have it at the edge, that’s been very compelling. And we talked about other opportunities, like, whether it’s Logix.ai or Vision.ai where you do call inspection.

You’re using existing infrastructure, existing equipment with software to drive outcomes, and so we’ve we’ve seen a lot of uptake across many customers.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Very interesting. I I think there’s sort of a closing question here. Just the implication for your your legacy products and services as Gen AI and machine learning capabilities accelerate. You know, what what kind of integration or common architecture investments might the company need to make?

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Oh, yeah. And and that’s exactly kind of it’s a perfect segue from a previous point. Customers in our environment, they don’t want to rip and replace something Yeah. Just so they can have something AI enabled. Right?

So if we’re able to integrate what we have and and leverage what they already have, our p the PLCs from us, drives, HMI, and then having this, you know, edge enabled extension and and software that can that can do that work, that’s that’s a great that’s a compelling proposition for them. And so we’re investing in how do those disconnect and the software capabilities to be able to run a lot of that those kind of AI workloads at the edge is what we’ll continue to invest in.

Unidentified speaker, Analyst, Oppenheimer, Oppenheimer: Well, you know, it’s something that we always appreciate, you know, from one automation fair and all the events in between to the next year. Just seeing how the portfolio evolves and the capabilities and, you know, continue to really appreciate, you know, how you take each technology iteration and really deploy it to make, you know, factories and manufacturing much smarter. Hey, Jonah. Thank you so much for a great discussion. We look forward to more in the future.

We hope everyone has a great rest of their day at the conference. If you have any follow-up questions, you know where to reach us. Thank you.

Ajana Zehlner, Head of IR and Market Strategy, Rockwell Automation: Thank you.

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