Taking another recession-related wallop, Rockwell Automation announced a 31% revenue decline in its fiscal third quarter, with the biggest surprise coming from a blow to its solutions business.
In the period ended June 30, Rockwell reported revenue of $1.01 billion, nearly a third less than the $1.47 billion it reported in the third quarter of fiscal 2008. Currency translation contributed 5 percentage points to the decline, which was slightly offset by 1 percentage point of growth from acquisitions, the company said.
Net income plummeted to $32.8 million or $0.23 per share, from $152.6 million or $1.03 per share in the prior-year period.
Both of Rockwell’s businesses — Architecture & Software and Control Products & Solutions — saw double-digit decreases in revenue, 36% and 28% respectively. Last quarter, Chairman and CEO Keith Nosbusch said he expected sales to continue to trend downward due to project delays and some cancellations. At the time, Rockwell’s rays of hope were growth in its process business and a strong solutions business, which together benefited from a 4% increase last quarter.
This quarter, the solutions business, which designs, programs, and installs turnkey factory automation systems, was down 11%. These are generally long-term projects, so Rockwell was insulated initially when the economy tanked. Now as those projects come to a close, the business is slowing, officials said.
In addition, Rockwell’s services business, which benefits from manufacturers’ outsourcing the maintenance and management of equipment, from motors to controllers, is also down, although Rockwell officials declined to say by how much.
“Obviously, we want services to grow even in a difficult economy, but the reason we shouldn’t be concerned now is because a lot of the decline is in volume related to parts,” Nosbusch told Managing Automation today. Specifically, plants where industrial production has dropped are not operating equipment, and, as a result, don’t require the day-to-day help and parts replenishment that makes up a portion of the services business.
“Our other [services] businesses, like consulting and higher-level asset management services, are growing or not declining anywhere close to the rate of what’s going on in the product business,” Nosbusch said. Rockwell’s goal is to continue to expand its portfolio to include more contract-based services and fewer volume-dependent services, he said.
The key to positioning the company for recovery once economic conditions improve, according to Nosbusch, is to continue to trim structural cost or volume-related costs that will reduce the company’s expenses next year. “We remain dedicated to our business objectives and we have a strong balance sheet to weather the down cycle without compromising long-term strategy,” he said in a conference call with analysts today.
Rockwell carries about $900 million in long-term debt, with no short-term debt. In Q3 the company enjoyed $168.5 million in free cash flow from continuing operations, compared with $151.2 million in the same quarter last year. The strong cash flow is a combination of tightly controlled working capital, inventory reductions aligned with current sales levels, and reining in capital spending consistent with the current economic environment, Rockwell CFO Ted Crandall told Managing Automation.