When Milwaukee-based Rockwell Automation offered guidance in January, the company’s executives predicted organic sales growth for the fiscal year would be flat.
The actual range was up or down 1.5 percentage points. After the second quarter, which ended in March, they now expect organic sales to be down 6.5% to 9.5%, including a 20% decline in the current fiscal year’s third quarter.
At the extremes, and on a reported basis that also includes the benefit of recent acquisitions, the drop in sales still works out to a nearly $770 million swing in revenue for the year.
And that’s for a company with a automation product and solution offering that stands to benefit from how the COVID-19 coronavirus pandemic could remake manufacturing. If companies choose to bring production to the U.S. or simply spread it across more markets, Rockwell stands to potentially generate more business in helping equip those facilities.
“This pandemic will change how we live our lives and how we operate our businesses in the future,” said Blake Moret, chairman, president and chief executive officer of Rockwell.
Moret had previously said the actions the company took to mitigate tariffs on products from China had helped Rockwell deal with the coronavirus. But as the pandemic spread globally he said the company has run into supply chain challenges. The biggest challenges within Rockwell’s own manufacturing facilities have included managing product flows to implement social distancing and altering shifts to limit the number of people in facilities at any time.
Patrick Goris, chief financial officer at Rockwell, moved in January and February to increase inventory levels of certain components. The company has also seen increased costs on shipping, particularly for air freight, and is using surcharges to recapture some of those costs.
Rockwell has already taken a number of actions aimed at reducing its costs, including salary cuts, suspending its 401(k) match and eliminating certain spending. Together, those actions are expected to generate more than $150 million in savings, including no payout of incentive compensation plans.
Goris said the company has identified other cost actions it could take if the situation worsens but for the time being the company is maintaining or even increasing important investments.
To model how its business might recover from the coronavirus outbreak, Goris said Rockwell looked at its products business in China and Italy.
In the former, Rockwell saw sharp declines in January and February followed by a return to growth in March and early April. In Italy, the declines started in February, got worse in March and only improved slightly in April.
“We though taking something between the two would make sense,” Moret said. “We’re watching orders daily to see the development around the world and in different industries.”
Long-term, Moret said he is optimistic about Rockwell’s opportunity to play a more important role for its customers.
“This event is going to cause people to make some changes in their supply chain,” he said, although he cautioned that didn’t necessarily mean companies would bring all their production back to the United States.
The company is, however, seeing some companies express interest in bringing production back to North America. Rockwell itself is exploring ways to improve the resiliency of its own manufacturing, Moret said.
“We expect companies to reduce single points of failure in their supply chain and plant capacity,” he added.
Moret said it is clear countries like the U.S. will look to increase their manufacturing capabilities for medicines and medical devices. Packaged food and beverage will also be important moving forward and he suggested electric vehicles would continue to increase in popularity.
He said most verticals, including automotive, would bottom out in Rockwell’s third quarter and improve from there. The one exception is oil and gas, which will take longer. The company’s assumptions don’t anticipate the price for a barrel of oil going above $30 anytime soon. Moret said oil and gas companies will need to focus on production costs to lower the break even price, not on capital expenditures to expand capacity.
Get more news and insight in the April 27 issue of BizTimes Milwaukee. Subscribe to get updates in your inbox here.
