Rockwell Automation this week reported a sturdy first fiscal quarter of 2007, strengthened by European and Latin American sales, and detailed an internal reorganization of business units that reflects the divestiture of Rockwell's Power Systems business, which is expected to be final next week.
First-quarter revenue grew 7% year over year, from $1.06 billion in 2006 to $1.14 billion.Net income for the period, which ended December 31, was $429.1 million ($2.50 per share) which included a $264 million tax benefit related to the Power Systems sale. Excluding the tax benefit, net income totaled $165.1 million ($0.96 per share), which bettered by 13% last year's first-quarter net income of $145.7 million ($0.80) per share), the company reported. Income from continuing operations, which excludes earnings attributable to the Power Systems unit, was $130.9 million ($0.76 per share) compared to $123.9 million ($0.68) per share) in the same quarter in 2006.
Despite the nearly ubiquitous improvements across the company's lines, revenue was not where Keith Nosbusch wanted it to be, the Rockwell Automation chairman and CEO told financial analysts during a conference call earlier this week.
"Our results this quarter indicate execution is not uniformly strong," he said. "I'm dissatisfied with our Asia growth... and I'm not satisfied with the growth rate of Logix and the integrated control platform."
In addition, U.S. sales, which increased just 2% this quarter, were destabilized by the lack of activity from U.S. automotive companies in the Great Lakes region, company officials said. Latin America and Europe were much stronger, growing 16% and 15% respectively, while the Asia-Pacific region — a notable hot spot for growth — saw only a 5% increase in sales this quarter.
Nosbusch attributed the missteps in Asia to an immature outfit of new people selling new technology to new customers in a new geographical segment. Rockwell is fighting for competitive position in the burgeoning Asian market, where other control vendors are also eager to capitalize on large-scale industrial growth. In its effort to expand its presence in Asia Pacific, Rockwell is trying to replicate what it has done in Europe.
"What we've learned and what we are taking to Asia is the disciplined, consistent process of managing the selling organization and doing it on a granular basis," Nosbusch told financial analysts. "We look at it by country, by office, by sales person."
To that end, Rockwell has doubled the sales force in a number of countries in Asia over the last six to 12 months. "Now we have to make sure we are driving the execution to be stronger, more deliberate — and we'll use the same tools that we've used in Europe to do that... So, it's about forcing discipline and consistency into the selling organization while we are dramatically growing it."
Meanwhile, the company has internal business to tend to. The Power Systems sale to Baldor Electric Co. is set to close next week. As a result of the divestiture, Rockwell has reorganized the reporting structure for its business segments. Prior to the sale, the company maintained two business units: Control Systems and Power Systems. Under the realignment, the two segments are now Control Products and Solutions, which houses motors, drives, asset management, and system integration; and Architecture & Software, which includes controllers, packaged software, visualization, networks, motion, sensors, and safety components.
Control products and architecture/software products have experienced 10% and 11% CAGR respectively over the last four years. "As an organization," Nosbusch said, "we are becoming proficient at sustained continuous improvement." But he also said there is room for more, noting that the company "will take aggressive measures to fuel more growth in every region, every set of customers, and every channel."
The push comes as a result of Nosbusch's desire to drive more organic growth. Officials said it will mean focusing on areas that the company has never focused on before, like the OEM channel, .
"Now, we've never been more focused on that channel," said James Gelly, Rockwell's senior vice president and CFO, in an interview with Managing Automation. Nosbusch, he said, is pushing the organization to do things it's never done before, and to do them faster. "The role of a visionary is never to be satisfied with what we are doing. If he was, we'd be," Gelly said.
That constant drive to reflect on its internal practices has resulted in a company in a very healthy state, Gelly said. Looking ahead, full-year revenue growth is expected to be between 7% and 8%, he said.