Rockwell CEO expecting tax reform boost despite taking hit in first quarter

Considering Emerson deal cost company $11.2 million

Rockwell Automation
Rockwell Automation's Milwaukee headquarters.

Tax charges related to the recently passed tax reform package caused Milwaukee-based Rockwell Automation Inc. to report a loss for the first quarter of fiscal 2018, but executives said they’re optimistic about the flexibility the changes give them and the chances for improved growth moving forward.

Rockwell Automation
Rockwell Automation’s Milwaukee headquarters.

“I think there’s a substantial amount of optimism in the market, particularly among U.S. manufacturers, but broad-based across many verticals,” said Blake Moret, Rockwell, chairman and chief executive officer, although he cautioned it was too early to quantify how the optimism would translate to sales.

“We need a couple of points to be able to draw a line and to be able to come up with a magnitude of the potential impact,” he said.

Rockwell reported a net loss of $236.4 million for the quarter after recording $479.7 million in charges related to the tax reform package. About $386 million of the charges is related to the repatriation of cash Rockwell has outside of the country. Patrick Goris, Rockwell chief financial officer, said the process of bringing the cash back would extend beyond the current fiscal year and the company would update its estimate moving forward. The other $94 million in charges was related to the revaluation of the company’s deferred tax asset.

The company also reported the unsolicited acquisition and merger proposals from St. Louis-based Emerson Electric cost $11.2 million. Rockwell rejected three offers from its competitor over the course of 2017.

After accounting for the tax charges and Emerson costs, Rockwell reported adjusted net income of $255.5 million, up 12.4 percent from $227.3 million during the same period last year. Adjusted earnings improved from $1.75 to $1.96 per share.

Those results came as the company reported $1.59 billion in revenue for the quarter, up 6.5 percent from last year, including a 5.3 percent increase organically.

Moret said sales were particularly strong in heavy industries, with growth in oil and gas, chemicals, semiconductors and metals. Rockwell’s sales to customers in consumer industries were flat while transportation was weaker with a 5 percent decline in automotive.

The company does not plan on changing its capital allocation priorities now that tax reform has passed. Moret said the initial focus would be on accelerating software development to simplify the experience for customers.

“These aren’t new, these are strengthening existing investments,” he said.

Other early priorities would be spending to improve employee engagement and productivity, increase customer innovation and expand workforce development initiatives. From there, Rockwell would look to invest in acquisitions – the company is targeting 1 percent of growth annually from acquisitions – and then to return money to shareholders via dividends and share repurchases.

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.