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# Rockwell Automation, Inc. (ROK): Business, Risks and Management Discussion Rockwell Automation's fiscal year ends September 30. "Fiscal 2026" is the year ending September 30, 2026; the third quarter of fiscal 2026 is the three months ended June 30, 2026. ## Business *From the fiscal 2025 Form 10-K (period ended September 30, 2025), accession 0001024478-25-000116.* Rockwell Automation sells industrial automation hardware, software and services to manufacturers and process-industry operators. Its products include drives, motion and material-handling systems, safety and sensing devices, programmable controllers, visualization and simulation software, and network and security infrastructure. It also sells the consulting, engineering and recurring services that keep those systems running. It calls itself the world's largest company dedicated to industrial automation and digital transformation. In fiscal 2025 it sold $8.34 billion. The U.S. took over half of that, and the company does business in more than 100 countries. Its largest markets outside the U.S. are Canada, China, Italy, the United Kingdom and Mexico. Most of its products reach customers through distributors. About 65% of global sales go through independent distributors, and the two largest distributors together accounted for about 20% of total sales in each of fiscal 2023, 2024 and 2025. The direct sales force works alongside those distributors with machine builders (OEMs), system integrators, technology partners and end users. The company estimates its addressed market at about $120 billion. Its major competitors are Siemens, ABB, Schneider Electric, Emerson, Mitsubishi Electric, Honeywell and Dassault Systemes. Its brands include Allen-Bradley, ControlLogix and CompactLogix controllers, PowerFlex drives, FactoryTalk, Plex and Fiix software, Clearpath and Otto mobile robots, and Verve asset-inventory software. Management describes its integrated control and information architecture, with Logix at its core, as a key differentiator. It says it is the only automation provider that runs discrete, process, batch, safety, motion, robotics and power control in a single hardware and software environment. The company reports three operating segments. All three share common sales, supply-chain and support organisations. Fiscal 2025 figures for each are below. - **Intelligent Devices** sells drives, motion, advanced material handling, safety, sensing, industrial components and configured-to-order products. Fiscal 2025 sales were $3,756 million, with segment operating earnings of $676 million (18.0% margin). Revenue is mostly product sales recognised at a point in time. - **Software & Control** sells control and visualization software and hardware, digital twin, simulation and information software, and network and security infrastructure. Fiscal 2025 sales were $2,383 million, with segment operating earnings of $708 million (29.7% margin). This is the most profitable segment. - **Lifecycle Services** sells digital consulting, engineered-to-order professional services, and recurring services such as cybersecurity, safety, remote monitoring and asset management. It also included the Sensia joint venture until that venture was dissolved on April 1, 2026. Fiscal 2025 sales were $2,203 million, with segment operating earnings of $319 million (14.5% margin). Revenue is recognised mostly over time. Customers fall into three groups of end markets: discrete (automotive including electric vehicle and battery, semiconductor, e-commerce and warehouse automation), hybrid (food and beverage, life sciences, tire), and process (energy, mining, chemicals). Demand follows customers' capital spending on new plants, production lines and upgrades, as well as industrial production and capacity use. The business is not significantly seasonal, though customers' budgeting cycles affect when orders land. The total order backlog was $2,878 million at September 30, 2025, down from $3,091 million a year earlier. Lifecycle Services held $1,520 million of it. The company had about 26,000 employees at that date. It has around ten principal manufacturing plants, the most significant in the U.S., Mexico, Poland, India, Canada and Singapore. Management's long-term growth framework aims for faster secular growth in traditional markets and share gains through technology and industry focus. It also targets an average 1% a year of added growth from acquisitions, and profitable growth within a disciplined financial framework. In the 10-K, the framework also called for continued double-digit growth in annual recurring revenue (ARR). The fiscal 2026 third-quarter 10-Q restates that item as adding 1% average annual growth from ARR. The company's stated priorities for acquisitions are industrial AI applications, market access in Europe and Asia, and product portfolio expansion. It plans to invest over $2 billion over five years in manufacturing facilities, digital infrastructure and talent. The company traces its business to the Allen-Bradley Company, founded in 1903. It has existed in its current corporate form since a 1996 reorganisation that separated it from Rockwell International's aerospace and defense businesses. ## Risk factors *From the fiscal 2025 Form 10-K, accession 0001024478-25-000116. The fiscal 2026 third-quarter 10-Q (accession 0001024478-26-000030) reports no material change, except as updated in the second-quarter 10-Q filed May 5, 2026 (accession 0001024478-26-000022), which revised the cybersecurity risk factor below.* The risks that matter most come from the business cycle, trade policy and the company's role as a supplier of control systems for critical infrastructure. - **Capital-spending cycles.** Demand depends on industrial production and the finances of the industries the company serves. In a slowdown or credit tightening, customers cut capital spending. Distributors and customers managing their inventory and working capital can make orders volatile. - **Tariffs and trade policy.** New or higher tariffs between the U.S., Mexico, Canada, China and other countries, or retaliation for them, raise manufacturing and supply-chain costs. Competition, customer acceptance and contract terms limit how much of the increase the company can pass on through price. Embargoes and sanctions can also restrict access to components and materials, including rare earth minerals. - **Supplier concentration.** The company relies on suppliers for electronic components, commodities and finished products, and keeps several single-source relationships. If a single-source part is unavailable or late, shipments of the related products are delayed. The impact is worst when it affects higher-volume, more profitable products. - **Cybersecurity of products and the enterprise.** The company's products run in critical infrastructure and critical manufacturing. A compromised product, software update or supply chain could disrupt customers' processes or cause equipment to run improperly and harm people or property. The company says it has had cyber incidents, none of them material. It notes that AI is making attacks more sophisticated. The second-quarter fiscal 2026 10-Q (accession 0001024478-26-000022) updated this risk factor to cite an April 2026 joint cybersecurity advisory from U.S. government agencies. The advisory warned that Iranian-affiliated threat actors were actively exploiting internet-facing operational technology (OT) devices, including programmable logic controllers, across multiple U.S. critical infrastructure sectors. They had accessed and manipulated industrial control systems by using legitimate engineering software and targeting unsecured customer network connections. The advisory said the activity was ongoing, had escalated since at least March 2026 and could expand to more OT products and vendors. The company notes that the security of customers' systems depends largely on how they are designed, installed, protected, configured, updated and monitored, much of which is outside its control. - **Competition and technology change.** The company faces strong competition on portfolio breadth, technology, domain expertise, price and delivery, including in adopting and integrating AI. Failing to keep pace could cost share and margin. - **Distribution dependence.** A large share of North American sales goes through distributors, and in some other countries a few distributors handle most sales. Losing a distributor, for example to a competitor's purchase of it or to financial distress, could hurt sales. - **Solutions and project risk.** Engineered solutions and services make the company responsible for meeting customer specifications, controlling contract scope and managing subcontractors. Failures can cause cost overruns and losses. - **Execution of investment and productivity plans.** The planned $2 billion-plus five-year investment and the ongoing cost-productivity programmes may not deliver the expected returns or savings. Acquisitions and joint ventures bring integration, partner-dispute and impairment risk, as the impairment of the Sensia joint venture in fiscal 2025 showed. - **Tax.** The OECD Pillar Two global minimum tax applies to the company from fiscal 2026, and Singapore is where it has the greatest effect. The 10-K estimated it would add about 3 percentage points to the effective tax rate. - **Legacy liabilities.** The company is a defendant in asbestos personal-injury suits over components used in its products, and in products of divested businesses, many years ago. It is also a potentially responsible party at environmental cleanup sites. Insurance covers part of the cost, but collecting on it is uncertain. - **Pension, healthcare and talent costs.** Pension expense and funding depend on interest rates, asset returns and mortality assumptions. The company also competes for skilled employees and leaders. ## Management's discussion: fiscal 2025 *From the fiscal 2025 Form 10-K, accession 0001024478-25-000116.* Fiscal 2025 sales rose 1% to $8,342 million, on both a reported and an organic basis. Pricing added about 3 percentage points, and lower volume, mainly in Intelligent Devices, took away about 2. North America grew 4%. Europe, Middle East and Africa fell 1%, Asia Pacific 5% and Latin America 12%. Software & Control sales rose 9%. Intelligent Devices fell 1% and Lifecycle Services 3%. Underlying profitability improved even though reported earnings fell. Total segment operating earnings rose to $1,703 million from $1,595 million, and the margin widened to 20.4% from 19.3%. The improvement came from productivity, price realisation and favorable mix, partly offset by higher compensation and unfavorable net currency. Software & Control drove most of it: the segment's operating earnings rose 34% and its margin went from 24.2% to 29.7%. Intelligent Devices' margin slipped to 18.0% from 18.4%, and Lifecycle Services' margin fell to 14.5% from 16.1%, both mainly because of higher compensation. Two charges pushed income before income taxes down to $917 million from $1,100 million. The first was a $224 million non-cash impairment of goodwill ($161 million) and intangible assets ($63 million) at the Sensia joint venture. The partners had decided to dissolve the venture after it fell short of expectations. Net of noncontrolling interests and tax, the charge cost $110 million. The second was a $136 million fourth-quarter pre-tax charge for legacy asbestos liabilities ($103 million after tax, or $0.91 per share). That charge combined $91 million from changing the accounting method to accrue all future defense costs, instead of expensing them as incurred, and a $45 million increase in the indemnity accrual. The net legacy asbestos liability was $151 million at year end. Net income attributable to Rockwell Automation fell to $869 million, or $7.67 per diluted share, from $953 million, or $8.28. The effective tax rate rose to 18.3% from 13.8%. Adjusted EPS, which excludes these items, rose 7% to $10.53 from $9.85. Cash generation recovered strongly. Operating cash flow was $1,544 million, against $864 million in fiscal 2024, and free cash flow was $1,358 million, against $639 million. The gains came from cost reduction and margin initiatives, no incentive-compensation payout in early fiscal 2025, and lower tax payments, partly offset by a $70 million voluntary U.S. pension contribution. The company repurchased about 1.5 million shares for $419 million and declared dividends of $5.24 per share. It expected fiscal 2026 capital expenditures of about $270 million. Management expected tariff costs to be neutral to EPS in fiscal 2026 after its mitigation actions. ## Current quarter: third quarter of fiscal 2026 (three months ended June 30, 2026) *From the fiscal 2026 third-quarter Form 10-Q, accession 0001024478-26-000030. Guidance, cash flow for the quarter and the chief executive's commentary are from the earnings release furnished on Form 8-K, accession 0001024478-26-000028 (August 4, 2026).* Growth accelerated and margins widened in the quarter. Sales rose 8% to $2,313 million from $2,144 million, and organic sales rose 10%. The divested Sensia businesses reduced sales by 3%, and currency added 1%. Pricing contributed 1 percentage point of the organic growth, against 3 points for the nine months. Management attributed the demand to continued strength in semiconductor, data center and warehouse automation, with improving activity in automotive and life sciences. North America grew 9% reported and 12% organic. Europe, Middle East and Africa grew 3% (7% organic), Asia Pacific 8%, and Latin America 5% reported but fell 3% organically. The segments diverged. - **Software & Control** sales rose 19% to $751 million (18% organic). Segment operating earnings rose 31% to $261 million, and the margin rose to 34.8% from 31.6% on higher volume, partly offset by input costs running ahead of price. - **Intelligent Devices** sales rose 12% to $1,080 million (10% organic). Segment operating earnings rose 19% to $216 million, and the margin rose to 20.0% from 18.8%. - **Lifecycle Services** sales fell 12% to $482 million. The divestitures took 11 points off and organic sales fell 2%. Segment operating earnings were flat at $73 million. The margin rose to 15.1% from 13.3% on strong project execution and the margin benefit of exiting Sensia. From the second quarter of fiscal 2026 the company reports "Enterprise operating profit", which, unlike total segment operating earnings, includes corporate and other expense. It rose 23% to $516 million, and the Enterprise operating margin reached 22.3%, up from 19.5%. Pre-tax margin was 20.3%, against 16.0%. Management credited higher volume, favorable mix and the Sensia exit, partly offset by input costs exceeding price realisation. Net income attributable to Rockwell Automation was $408 million, or $3.65 per diluted share, against $295 million, or $2.60, up 40% per share. The GAAP figure includes an $18 million gain on the Sensia dissolution, net of transaction costs, and favorable discrete tax items related to it. As a result the effective tax rate fell to 13.2%, while the Adjusted Effective Tax Rate rose to 19.2% from 15.3% because of Pillar Two minimum tax in Singapore. Adjusted EPS, which strips out the Sensia gain and its tax items, rose 22% to $3.49 from $2.85. Organic ARR grew 6% year over year. For the nine months ended June 30, 2026, sales rose 10% to $6,657 million (9% organic). Diluted EPS rose to $9.44 from $6.43, and Adjusted EPS rose 33% to $9.55 from $7.20. Cash flow was strong in the quarter. Operating cash flow was $724 million, against $527 million, and free cash flow was $654 million, against $489 million, both helped by higher pre-tax income. For the nine months, operating cash flow was $1,278 million and free cash flow $1,099 million, against $1,090 million and $953 million. Higher pre-tax income drove the increase, partly offset by paying fiscal 2025 incentive compensation in fiscal 2026 (none was paid in fiscal 2025 for fiscal 2024) and by higher working capital. The company returned more capital to shareholders and borrowed more on short-term paper. - It bought back about 2.0 million shares for $754 million in the first nine months, against $350 million a year earlier. Of that, about 0.3 million shares and $145 million came in the third quarter. - On June 9, 2026, the Board authorized an additional $1.0 billion of repurchases, leaving about $1.2 billion available at June 30. - The quarterly dividend was $1.38 per share, up from $1.31. - Commercial paper outstanding rose to $684 million (3.89% weighted average rate) from $522 million at September 30, 2025. - In November 2025 the company replaced its $1.5 billion revolving credit facility with a new five-year $1.5 billion facility expiring in November 2030. That facility was undrawn during the quarter. - Credit ratings were unchanged at A-/A3/A with stable outlooks. Unfulfilled performance obligations totalled about $1,375 million at June 30, 2026. About $820 million of that is expected to be recognised over the next 12 months. **Sensia dissolution.** The joint-venture partners signed a separation agreement in December 2025, and the dissolution was completed on April 1, 2026. The businesses each partner had contributed went back to it at fair value, and the joint-venture partner paid Rockwell $40 million in cash. A further payment will settle the proportional split of working capital. Rockwell derecognised $94 million of net assets, recorded a $20 million pre-tax gain in other income, and incurred transaction costs of $2 million in the quarter and $10 million over the nine months. On dissolution, SLB assumed the interest-bearing loans it had made to Sensia. **Operating environment and outlook.** Management expects continued inflation in some costs, mainly memory-related electronic components, commodities, energy and freight. It attributes this to strong data-center demand and geopolitical tensions in the Middle East, and plans to offset it with pricing and supply-chain actions. It still expects pricing to recover all tariff costs in fiscal 2026. The company says that, as a result of a U.S. Supreme Court ruling in February 2026, it is entitled to refunds of tariffs it paid under the International Emergency Economic Powers Act (IEEPA). The company had recognised no refund asset at June 30. If refunds are paid, it plans to set up a refund process for qualified customers. U.S. manufacturing indicators improved in the quarter: the ISM manufacturing PMI was 53.3 for the quarter ended June 2026, which the company says is its highest level in four years, and producer-price growth accelerated to 5.5% as of June 2026. In January 2026 the company completed the purchase of its previously leased Mequon, Wisconsin facility. It confirmed New Berlin, Wisconsin as the site of a new greenfield campus, which it expects to become its largest manufacturing site globally. Both projects are part of the $2 billion investment programme. **Fiscal 2026 guidance (as of August 4, 2026).** The company raised its sales outlook for the second consecutive quarter and its EPS outlook for the third consecutive quarter. The guidance excludes the divested Sensia businesses for the second half of fiscal 2026. | | Updated (Aug 4, 2026) | Prior (May 5, 2026) | |---|---|---| | Reported sales midpoint | ~$9.0 billion | ~$8.9 billion | | Reported sales growth | 7.5% – 9.5% | 5% – 9% | | Organic sales growth | 7.5% – 9.5% | 5% – 9% | | Divestiture effect | ~(1.5)% | ~(1.5)% | | Currency translation | ~1.5% | ~1.5% | | Diluted EPS | $12.72 – $13.02 | $11.88 – $12.48 | | Adjusted EPS | $13.00 – $13.30 | $12.50 – $13.10 | The guidance assumes an effective tax rate of about 16.5% and an Adjusted Effective Tax Rate of about 19.5%. ## Subsequent events *From the fiscal 2026 third-quarter Form 10-Q (accession 0001024478-26-000030) and Form 8-K filings after June 30, 2026.* The third-quarter 10-Q has no separate subsequent-events note, and it discloses no acquisition, divestiture or new borrowing after June 30, 2026. The post-quarter items it and later filings disclose are below. - **Tariff refund claims (July 2026).** In July 2026 the company filed claims with U.S. Customs and Border Protection for a large portion of the IEEPA tariffs it believes are eligible for refund, and took steps to preserve its eligibility. It had recognised no refund asset at June 30, 2026, and will recognise one only once realisation is appropriate under the accounting rules for contingencies (10-Q, accession 0001024478-26-000030). - **Raised fiscal 2026 guidance (August 4, 2026).** The company raised its fiscal 2026 sales and EPS guidance, as shown above (Form 8-K, accession 0001024478-26-000028). - **Chief Revenue Officer retirement (September 21, 2026).** Scott A. Genereux told the company he will retire on December 31, 2026. He stepped down as Chief Revenue Officer effective September 30, 2026 and remains a Senior Vice President until he retires (Form 8-K, accession 0001193125-26-401143).