Rockwell Automation and Siemens AG today disclosed strong second-quarter financial results, avoiding the "seasonal slowdown" that typifies the March period and serving up proof that manufacturers are indeed investing in new technology.
For the period ended March 31, Rockwell reported net income of $146.5 million on sales of $1.3 billion, a revenue increase of 13% year over year. Those results, however, were up only marginally from the $145.7 million in net earnings generated on $1.3 billion in sales in the prior period. The Q2 earnings reflect a $3 million after-tax charge related to pending legal matters, which the company declined to detail.
Siemens, meanwhile, reported net income of €887 million on sales of €21.5 billion for the second quarter, ended March 31. The growth was fueled by record results posted by its Automation & Drives (A&D) business. The overall fiscal second quarter results represented a 21% boost in sales from the prior-year period and a 14% increase in year-over-year earnings. It also represented a slight increase over the previous quarter's earnings of €813 billion on revenues of €20.7 billion.
For both companies, the automation and controls businesses served as pillars of strength, although each vendor's power-centric divisions generated extra income as a result of organic growth in the oil and gas markets, industries that are thirsting for additional power and industrial infrastructure.
Rockwell is setting high expectations for the second half of the year, adjusting its 2006 guidance from the original 9% full-year revenue growth to 10% to 11%. "The good news about this industry is that we can see a level of activity and people working on orders," said Rockwell CFO, James Gelly, in an interview with Managing Automation. "We've made investment in verticals and geography, and we are good at [predicting] if we invest this amount of money here, what the incremental revenue will be."
Rockwell's priorities for the immediate future are growth in China, generating more revenue from its Logix controller business, building out consumer-based verticals, and investing for the long-term, CEO Keith Nosbusch told analysts during a conference call this morning.
Rockwell's Control Systems business generated $1.1 billion in sales this quarter, an increase of 13% over the like period last year. But Logix -- which is a brand of control technology, but is also a term the company uses interchangeably with Rockwell's Integrated Architecture framework -- only grew 20% in the period, which was not as much as Nosbusch said the company would have liked. Still, Logix results were balanced by stability in its Rockwell's legacy systems and PLC businesses.
"We do understand there are a couple of dimensions. First, Logix is somewhat driven by project-related business. That is why we talk about it being 'lumpy.' It's hard to predict timing on some of that," noted Nosbusch on the conference call. "But looking forward, we expect better performance of Logix outside the U.S., where we'll get growth as we focus on consumer-facing industries."
While all eyes are on Asia Pacific, industry observers noted that U.S. sales for most automation vendors remain strong. "The tide continues to rise and everybody is benefiting, but you'll notice Rockwell did great in the U.S. It was up 15%," said Craig Resnick, an analyst with ARC Advisory Group.
"So you say to yourself, 'Here we are in this country and all we hear about are factories shuttering and automotive plants reducing factories, at the same time we hear [Rockwell] saying sales are up 15% in the U.S.,'" Resnick continued. "What [this] is really saying is that manufacturers around the world have determined that if they are going to make a go of it and manufacture in more expensive places like Europe or the U.S., they need to make sure those factories are highly automated. At one time automation was seen as a necessary evil, now it is looked at as a tool for productivity to help the balance sheet and income statement ... even if a factory is bound to be downsized, the idea is to build more with less capacity."
Reinforcing that mindset, Siemens officials, during a financial briefing this morning, pointed to a record quarter for its A&D unit, driven by acquisitions and reinvigorated demand in Asia Pacific and Europe. A&D's revenues rose 33% year over year and contributed a profit of (euro) 371 million, company officials said. The company also announced an agreement to acquire medical device manufacturer Diagnostics Products Corp. for $1.86 billion. Through this acquisition, Siemens Medical Solutions (Malvern, PA and Erlangen, Germany) intends to expand its existing healthcare solutions portfolio.
Rockwell, too, intends to continue down the acquisition path, to build out key functionality and capabilities for vertical industries. The recent acquisition of MES vendor Datasweep has been a focal point over the past few months as Rockwell strives to integrate that company's technology into Rockwell's Integrated Architecture and roll it out vertical by vertical, according to Gelly.
Right now, Rockwell says, it's about building for the future. "When times are good, we need to invest," Nosbusch said. "[We are] investing faster and investing sooner because we are driving productivity and the goal is to continue to expand our served markets, continue to enhance our market access and ... make the best choices with the highest returns in order to be where we want to be strategically in three-to-five years."