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Edited Transcript of ROK earnings conference call or presentation 25-Jul-19 12:30pm GMT

Q3 2019 Rockwell Automation Inc Earnings Call

MILWAUKEE Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Rockwell Automation Inc earnings conference call or presentation Thursday, July 25, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blake D. Moret

Rockwell Automation, Inc. - Chairman, President & CEO

* Jessica Kourakos

Rockwell Automation, Inc. - Head of IR

* Patrick P. Goris

Rockwell Automation, Inc. - Senior VP & CFO

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Conference Call Participants

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* Charles Stephen Tusa

JP Morgan Chase & Co, Research Division - MD

* Deepa Bhargavi Narasimhapuram Raghavan

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Jeffrey Todd Sprague

Vertical Research Partners, LLC - Founder and Managing Partner

* John George Inch

Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials

* Joseph Alfred Ritchie

Goldman Sachs Group Inc., Research Division - VP & Lead Multi-Industry Analyst

* Julian C.H. Mitchell

Barclays Bank PLC, Research Division - Research Analyst

* Nicole Sheree DeBlase

Deutsche Bank AG, Research Division - Director & Lead Analyst

* Nigel Edward Coe

Wolfe Research, LLC - MD & Senior Research Analyst

* Richard Charles Eastman

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Robert Paul McCarthy

Stephens Inc., Research Division - MD & Analyst

* Vladimir Benjamin Bystricky

Citigroup Inc, Research Division - VP

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Presentation

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Operator [1]

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Thank you for holding and welcome to the Rockwell Automation Quarterly Conference Call. I need to remind everyone that today's call is being recorded. (Operator Instructions)

At this time, I'd like to turn the call over to Jessica Kourakos, Head of Investor Relations and Treasurer. Ms. Kourakos, please go ahead.

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Jessica Kourakos, Rockwell Automation, Inc. - Head of IR [2]

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Good morning and thank you for joining us for Rockwell Automation's Third Quarter Fiscal 2019 Earnings Release Conference Call. With me today is Blake Moret, our Chairman and CEO; and Patrick Goris, our CFO.

Our results were released earlier this morning and the press release and charts have been posted to our website. Both the press release and charts include reconciliations to non-GAAP measures. A webcast of this call will be available at that website for replay for the next 30 days.

Before we get started, I need to remind you that our comments will include statements related to the expected future results of our company and are therefore forward-looking statements. Our actual results may differ materially from our projections due to a wide range of risks and uncertainties that are described in our earnings release and detailed in all of our SEC filings.

So with that, I'll hand the call over to Blake.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [3]

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Thanks, Jessica, and good morning, everyone. Thank you for joining us on the call today. Before I start, I first want to thank Steve Etzel, who has transitioned from Investor Relations back to his treasury duties full time. He served us well in the IR role for the last few years.

I also want to welcome Jessica Kourakos as our new Head of Investor Relations. Jessica brings a wealth of experience from both the sell side and buy side, and we're excited to have her on board. With that, let me start with some key points for the quarter, so please turn to Page 3 in the slide deck.

Globally, organic sales were up 0.5%, lower than we expected. In general, we saw strong growth in our longer-cycle end markets, while shorter-cycle end markets weakened. Organic sales growth was led by heavy industries including oil and gas, pulp and paper and mining as well as life sciences, each of which grew double digits. In oil and gas, we saw strong growth in all regions as our customers are focusing on productivity, improvements and digitization initiatives.

Pulp and paper continue to do well for us, with most of the growth this quarter coming from North America. Strong growth in mining was driven by CapEx investments in iron ore and copper, electric vehicle-related commodities and investments around digitization.

Life Sciences was another standout vertical for us this quarter. Our offerings align well with industry trends including personalized medicine and cybersecurity. Offsetting the longer-cycle growth in the quarter was weakness in shorter-cycle end markets, including automotive, semiconductor and food and beverage. Automotive was down about 10% year-over-year and slightly up sequentially versus Q2, in line with our expectations.

Semiconductor in the quarter was weaker than expected, impacted by an overall slowdown in the global semiconductor market. Food and beverage was down low single digits. Although the industry continues to focus on modernization to drive productivity, we saw some project delays. Logix was down 3% organically, largely due to automotive weakness. Process Control sales grew 3% organically, led by strength in longer-cycle end markets.

Information Solutions and Connected Services continue to do very well from double digits in the quarter. This is a measure of the new value being delivered to customers in all industries. This business increases recurring revenue streams and includes FactoryTalk InnovationSuite and MES software as well as high-value services such as remote monitoring to enhance cybersecurity and optimize production.

Commenting on regional performance in the quarter, North America was about flat organically. Pulp and paper and oil and gas had strong double-digit growth, while automotive, semiconductor and food and beverage declined. EMEA was up 2% in the quarter, led by Life Sciences, oil and gas and tire. While Asia declined 1%, China grew low single digits. Latin America sales were up 6%, led by mining and oil and gas.

I'll make a few additional comments about our Q3 results. Adjusted EPS was up 11% and segment operating margin expanded 130 basis points year-over-year. The increases in adjusted EPS and segment operating margin include a benefit from lower incentive compensation expense. Patrick will elaborate on our third quarter financial performance in his remarks.

Let's move on now to guidance for full year fiscal 2019. We believe that uncertainty with respect to global trade is impacting some customers' investment decisions, particularly those related to the timing of capital investments. Taking into account our year-to-date results, we now expect our fiscal 2019 organic sales to be up about 1.5% year-over-year. Including the impact of currency translation, we now expect reported sales to be around $6.6 billion.

We are reducing the adjusted EPS guidance range to $8.50 to $8.70, which includes aligning spending to the current market environment. As Patrick will discuss in a few minutes, this guidance does not include the impacts of the Sensia joint venture.

Before moving on, I want to mention that yesterday, our Board authorized an additional $1 billion for share repurchases. A strong financial position allows us to deploy capital in line with our priorities, organic growth, inorganic investments, dividends and share repurchases.

Let's talk a little more about our organic and inorganic investments. Regardless of what's going on in the macro environment, we're confident that we are executing well. And we see evidence that we are gaining share and making the right strategic investments to drive profitable growth.

Beginning with our core business, we continue to invest in our Logix architecture and connected smart products. These enable us to capture a broader set of opportunities across discrete, hybrid and process end markets. Customers are telling us that our latest-generation Logix processor outperforms our biggest competitors. It is also the industry's first certified secure controller, adding a whole new level of security on the plant floor.

In high-performance motion control, utilizing our highly differentiated Independent Cart Technology, we worked with KUKA to secure a multi-million dollar order in Q3 from a large global automotive manufacturer, beating European competitors that lack this capability.

We're also increasing our penetration within process-oriented end markets like oil and gas, which continues to show strong growth for us and is the largest automation market. We're going after this market organically by building up our process capabilities both within Logix and our FactoryTalk analytics platform as well as inorganically through our Sensia joint venture with Schlumberger.

The new value from Information Solutions and Connected Services is another way to win across all industries. We're already seeing this acceleration in markets like Life Sciences where we have grown strong double digits over the last 2 years and are gaining significant market share. Here, our differentiation in PharmaSuite MES, cybersecurity and FactoryTalk analytics have resulted in many recent deals going our way, including a recent win with a very large medical device company against the traditionally strong process competitor, where our offering was seen as the best technology to increase overall equipment effectiveness.

Our analytics and MES differentiation also drove a key automotive win in Asia, where our software will be used on top of a competitive control platform. We won because our solution was more reliable, we had deeper domain expertise and our digital road map was better. EMEA and Asia are highly strategic regions for us, and we plan to invest both organically and inorganically to strengthen our reach.

These and other wins give us confidence that no one is better positioned to benefit from the global convergence of IT and OT than we are. And we're actively directing spending in our operations and through capital deployment to the areas of highest return to make that happen. We look forward to speaking in greater detail about these initiatives at our upcoming Investor Day in November.

Now I'll turn it over to Patrick to provide more detail around our Q3 results and our 2019 sales and earnings guidance.

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [4]

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Thank you, Blake, and good morning, everyone. I'll start on Slide 4, which provides our key financial information for the third quarter.

As Blake mentioned, sales slowed down in Q3 with reported sales down 2%. Organic growth of 0.5% was weaker than expected and currency translation reduced sales by 2.5%. Segment operating margin was 23.8%, expanding 130 basis points compared to last year. The increase in segment margin was mainly due to lower incentive compensation expense, partially offset by higher investment spending.

Our incentive compensation plan reflects our strong pay-for-performance culture and track record. We have a company-wide incentive plan that covers most of our employees globally, with bonus earned being very aligned with financial performance of the company.

To reflect the revised outlook for full year fiscal '19 financial performance, we lowered our estimates for bonus expense. The total adjustment booked in the third quarter was about $30 million, which represents about 170 basis points of segment margin. About 2/3 of the $30 million is booked in the Control Products & Solutions segment, the balance in the Architecture & Software segment and general corporate net.

Looking at our performance through the first 3 quarters of the fiscal year, segment operating margin is 22.7%, up 80 basis points year-over-year. Earnings conversion ex currency is 35%, and adjusted EPS is up 11%. General corporate net expense in the quarter of $24 million was down $9 million compared to last year mainly as a result of lower functional expenses, including lower incentive compensation expense.

Adjusted EPS of $2.40 was up 11% compared to the third quarter of last year. The year-over-year increase in adjusted EPS is mainly the result of lower incentive compensation expense, higher organic sales and a lower share count, partially offset by higher net interest expense. A lower tax rate also contributed to the increased year-over-year adjusted EPS. Free cash flow performance was $323 million in the quarter or 114% of adjusted income.

A few additional items that are not shown on the slide. With respect to tariffs, the net impact on financial results in the quarter and through 3 quarters is neutral, with the higher cost being mitigated through a combination of supply chain actions, negotiations with vendors and targeted price increases on affected products. Average diluted shares outstanding in the quarter were 118.6 million, down 7.2 million or about 6% from last year.

We repurchased 1.5 million shares in the quarter at a cost of $246.3 million. Through June 30, we are on pace to get to our $1 billion full year target per share repurchases. At June 30, we had $333 million remaining under our previous share repurchase authorization. As Blake mentioned, our Board has approved an additional $1 billion share repurchase authorization.

Slide 5 provides a sales and margin performance overview for the Architecture & Software segment. With a 1.9% organic sales decline, this segment had weaker organic growth performance compared to the company average as it generally is overweight on shorter-cycle end markets and does not include any of our solutions and services businesses. For the quarter, segment margin decreased 60 basis points year-over-year and remains about 30%. A margin tailwind from lower incentive compensation is more than offset by the impact of lower sales and higher investment spending.

Moving on to Slide 6, Control Products & Solutions. This segment had 2.7% organic growth in the quarter. The product businesses in this segment declined about 2.5% year-over-year, similar to the Architecture & Software segment, while the solutions and services businesses in this segment grew about 6% organically.

Operating margin for this segment increased 320 basis points compared to Q3 last year primarily due to lower incentive compensation and higher organic sales partially offset by higher investment spending. Book-to-bill performance for our solutions and services businesses in this segment was 0.98% in Q3, reflecting an increase in project delays.

The next slide, 7, provides an overview of our sales performance by region. Blake covered most of this in his slide in his remarks, so I'll move on to Slide 8, guidance. As Blake mentioned, we are reducing our full year expected organic sales growth guidance to about 1.5%. This implies a Q4 organic sales decline of about 3% to 3.5%. We now project fiscal '19 sales of about $6.6 billion.

We continue to expect strong segment margin of about 22%. General corporate net expense is expected to be $95 million to $100 million for the full year, similar to our April guidance. We believe the full year adjusted effective tax rate will now be about 18.5%, 0.5 point lower than our April guidance and mainly as a result of favorable discrete tax items and a change in the geographic mix in global pretax income.

We continue to target $1 billion in share repurchases, and we now expect average fully diluted shares outstanding to be about 119.3 million for fiscal '19. We are revising our adjusted EPS guidance range to $8.50 to $8.70. At the midpoint, this is a $0.40 decrease compared to our April guidance.

Our updated range reflects the impact of lower organic sales growth partially offset by additional spend reductions, lower incentive compensation expense and a somewhat lower tax rate. Compared to fiscal '18, the full year midpoint represents a 6% adjusted EPS growth on slightly lower reported sales. And we continue to expect free cash flow conversion of about 100% of adjusted income.

Before I turn it over to Jessica, I'll make some comments about Sensia. We are waiting for some customary regulatory approvals and continue to expect Sensia to close this calendar year. No impact associated with Sensia is included in our current guidance. Assuming the transaction closes this fiscal year and including an associated tax benefit, we now expect the adjusted EPS impact to fiscal '19 to be about neutral. With that, Jessica?

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Jessica Kourakos, Rockwell Automation, Inc. - Head of IR [5]

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Thanks, Patrick. Before we start the Q&A, I just want to say that we would like to get to as many of you as possible. (Operator Instructions) Thank you. Operator, let's take our first question.

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Questions and Answers

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Operator [1]

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Your first question comes from the line of John Inch from Gordon Haskett.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [2]

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The down 3% core growth for the fourth quarter, are you guys assuming that there's -- this is just a function of projects being further pushed out? Or are you actually assuming there is embedded deterioration, say, in both distribution and projects in terms of the cadence?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [3]

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So looking at the different industries, John, we're expecting that in -- for the full year, that automotive overall is going to be down about 10%. We see some sequential improvement as we had seen some purchases beginning in some of the projects that we've been tracking, but we're still looking at about 10% for the full year.

I think the stories in Q3 that inform our outlook for Q4 are that in the quarter, while automotive performed about as expected, we did see weaker-than-expected performance in areas like semiconductor, food and beverage weakened a little bit and then chemicals, power, some of those areas. So those weaker-than-expected performances in Q3 informed the outlook implied with Q4.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [4]

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I think, Blake, you had talked about you had thought there were going to be some automotive turnaround projects or model changes coming through in the second half. Is that still part -- of the calendar year? Is that still part of the expectation? Or does that look like they kind of have been deferred as well?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [5]

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Yes, we -- no. Actually purchasing has started on a lot of those projects that we were tracking, the ones that we've been talking about that included some line of sight. We've seen early purchases there. So we've won the ones that we expected to plus a little bit more. It's just not clear whether the majority of the volume from those purchases is going to happen in Q4 or out into 2020.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [6]

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Just lastly, China stepped down a little bit. It's still pretty decent given the overall sort of macro. But is there any color you could give us vis--à--vis end markets in China, say, heavy industry, infrastructure, auto, consumer, stuff like that?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [7]

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Sure. We've talked previously about the impact of some of the stimulus in China, and we saw it again in Q3. So mass transit, water/wastewater, which would be most impacted by government stimulus, those were strong performers for us in China in the quarter.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [8]

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And was there anything incrementally weaker would you -- that you would call out?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [9]

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Auto was a little bit weaker in China in the quarter. We had some wins in different areas, and we'll talk about that when we talk about our Information Solutions and Connected Services. But overall, auto in China weakened.

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Operator [10]

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Your next question comes from the line of Julian Mitchell from Barclays.

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Julian C.H. Mitchell, Barclays Bank PLC, Research Division - Research Analyst [11]

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Maybe just give us a little bit of color as to -- you're guiding for organic sales to dip into the September quarter. How does this environment feel today compared with when you've gone into other sales downturns in the past? And are you taking much mitigating action on the assumption that this sales decline could last several quarters if it's consistent with history?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [12]

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Yes. Julian, we haven't assumed that this is a big -- the beginning of something that's going to last multiple quarters. What we've also seen historically is even during continued periods of expansion, we have seen times where that growth has leveled off for a quarter or 2.

However, we have taken cost reduction measures and you saw the impact of that in Q3. And we're actively looking at other ways both to match our spend with market conditions as well as take the opportunity to more rapidly reinvest and look at ways to direct resources to the areas that are going to be most important in the future.

So we have taken cost reductions. We're looking at areas that would be opportunities going forward. And we're watching the development of this quarter, Q4, very closely.

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Julian C.H. Mitchell, Barclays Bank PLC, Research Division - Research Analyst [13]

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And then my quick follow-up would just be around the process business. I think your revenue growth in that slowed to about 3%. You had been running at 10% growth in the March quarter. Should we assume that that also dips into negative year-on-year territory in the September quarter? And any color associated with that on the backlog in solutions and services?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [14]

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Yes. So solutions and services backlog remain slightly up year-over-year. And we do continue to see growth in some of the key areas driving process such as oil and gas and mining. Some of the project delays that we saw in Q3 impact process. I would say the project delays that we saw were split between the longer cycle that typically makes up most of those projects, but it was also colored by a fairly significant portion of delays in shorter-cycle businesses as well.

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Operator [15]

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Your next question comes from the line of Joe Ritchie from Goldman Sachs.

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Joseph Alfred Ritchie, Goldman Sachs Group Inc., Research Division - VP & Lead Multi-Industry Analyst [16]

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Blake, can you maybe just talk about any discernible trends that you saw as the quarter progressed? For example, we've been hearing from a lot of companies that June had turned out to be worse than expected. And so anything on the trends that you can tell us about?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [17]

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Yes, but not that. Actually, for us, April and May were weak and June got a little better sequentially. So in the quarter, we saw it finish a little bit stronger.

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Joseph Alfred Ritchie, Goldman Sachs Group Inc., Research Division - VP & Lead Multi-Industry Analyst [18]

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And were there any specific end markets that were driving that?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [19]

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I can't pick any in particular, except perhaps chemical may have followed that a bit where it started the quarter out weaker. And obviously, since chemical is -- kind of sits a bit in the middle in terms of the applications that we play in, we watch that fairly closely and that started to improve a bit as the quarter went on.

I would make the other comment that for our quarter, it doesn't progress in a linear fashion. So the last month of the quarter is always the strongest. And so we can't extrapolate the way that a quarter has started out and just round it out and make predictions about the full quarter.

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Joseph Alfred Ritchie, Goldman Sachs Group Inc., Research Division - VP & Lead Multi-Industry Analyst [20]

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Got it. Okay. And then maybe my follow-on question there is just looking at the CP&S margins. Clearly really strong, and you guys called out incentive comp as a big driver. Was there anything else that impacted the margins favorably this quarter? And then how should we be thinking -- I know that you're stepping down incentive comp as well in 4Q. But what should we be thinking about like a normalized number, I guess, from an incentive comp standpoint on the go forward?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [21]

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Joe, Patrick here. So with respect to CP&S segment margin, the largest part of the year-over-year increase is related to incentive compensation. The segment, of course, had some organic growth in the quarter which helped as well. And then currency was just a slight tailwind, less than 0.5 point of margin for that segment.

In terms of incentive compensation, the way that you can think about it is a fully funded incentive compensation plan for Rockwell Automation is about $100 million, and the current guidance for fiscal '19 is about 60% of that.

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Operator [22]

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Your next question comes from the line of Steve Tusa from JPMorgan.

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Charles Stephen Tusa, JP Morgan Chase & Co, Research Division - MD [23]

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I just wanted to talk about the -- food and beverage is kind of a broad way to characterize that end market kind of vertical. Does that include some of the packaging machinery types of guys that are out there? What are you -- is this like a lot of the machine tool like the bottling guys and that kind of stuff? Or is it more enterprise business with the Krafts of the world and things like that? Can you maybe just kind of like break out the food and beverage dynamics a little more?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [24]

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Sure. So food and beverage includes both. So it certainly includes the global end users. So the Krafts and the Mondelez, Nestlé, that would be an example of a few of those, ABI. It also includes the packaging, the machinery builders. So you're looking at the packaging OEMs around the world. That's a fair part of our business in Europe, for instance, as well as in the U.S. and it includes that part of the business as well.

They both work together. And we have a strong focus at both ends of it, what kind of performance we can provide to the machinery builders as well as how it works together in an integrated system at the user.

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Charles Stephen Tusa, JP Morgan Chase & Co, Research Division - MD [25]

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But I guess what -- when you talk about the performance this quarter kind of exiting the year, I guess just simply how is the -- how did the OEM business do? I know you guys kind of characterized the OEM business, and within that, this kind of packaging food and bev vertical where I think you serve a lot of the small- and medium-sized machine builders so well. How did that business do?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [26]

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Yes. So Steve, the way you can think about it is our global OEM business was down about mid-single digits. And within that, packaging was down high single digits in the quarter.

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Charles Stephen Tusa, JP Morgan Chase & Co, Research Division - MD [27]

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And how fast did that grow in '18?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [28]

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Probably mid-single digits because consumer was about (inaudible) last year. That's (multiple speakers).

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Operator [29]

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Your next question comes from the line of Jeff Sprague from Vertical Research.

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Jeffrey Todd Sprague, Vertical Research Partners, LLC - Founder and Managing Partner [30]

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Just two from me actually. Just thinking about food and beverage also being kind of broadly consumer oriented. I'm wondering if you could speak to anything else that you're seeing in consumer-related markets. Or did those happen to kind of track in line with segment averages?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [31]

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Sure. I'll make a couple of comments and then Patrick might have some more. When we talk about consumer broadly, we think of 3 areas underneath that typically: it's food and beverage; it's home and personal care, so think of tissue and so on; and then Life Sciences. Food and beverage and home and personal care performed roughly similarly, and I think our outlook is similar. But Life Sciences is really the stand-down in terms of strong double-digit growth.

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [32]

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So within consumer, Jeff, as Blake mentioned, Life Sciences, good double-digit growth. Home and personal care, up mid-single digits in the quarter. And so it's really food and beverage, which represents about 20 points out of the 30 of consumer, which is dragging down our performance in consumer.

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Jeffrey Todd Sprague, Vertical Research Partners, LLC - Founder and Managing Partner [33]

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Great. And then just on the comp expense, so it sounds like Q3, you had a year-to-date true-up. There's another $10 million in Q4. My question would just be then on kind of the investment spend. Does investment spend on a year-over-year basis actually increase or decrease? Can you give us a little bit color on that?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [34]

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The way you can think about our investment spending, we exclude incentive compensation for that metric. In our current guidance, our investment spending grows about 2% year-over-year, a little less than that. So a little bit more than our revised organic growth rate for the full year. In Q4, we expect it to be down year-over-year.

And at the same time, I would say that where we are making adjustments in spending is more on discretionary items, not on the R&D side. For example, in Q3, R&D was still up 8% year-over-year.

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Operator [35]

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Your next question comes from the line of Richard Eastman from Baird.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [36]

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Blake, could you just speak for a minute or 2 to the book-to-bill at 0.98%? That's significantly less than the seasonal book-to-bill would suggest it should be. I presume a lot of that is in heavy industries.

And I'm curious, you referenced project delays impacting the book-to-bill. But your line of sight on those projects, in other words, they weren't booked in the quarter, but you have a healthier view of the line of sight on projects that are out there. Is that how we kind of interpret your comments?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [37]

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I'd say we continue to have good visibility to those projects that didn't close in the quarter. And as we look at the reasons why, the obvious question is, is this just a precursor to them getting pushed out further or canceled. Or were there unique plausible reasons why they didn't go in the quarter, but they could come back in the near future including some in Q4?

And the latter was our -- based on our review, that was the defense of the majority of those that they were delays, but there were unique, plausible reasons in each case that caused them to push out in the quarter and not necessarily being gone.

I mentioned before that there was a little higher component in those project delays of the shorter-cycle businesses. So think of it this way. The percentage of delays of shorter-cycle business in that book-to-bill was higher than the total bookings of the solutions and services business.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [38]

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So again, your feeling as we track into the first half of fiscal '20 is that some of this could drop in higher percent, short cycle. It doesn't necessarily mean that -- again, you're caution -- you're cautious, but it doesn't necessarily mean that you're planning on a first half of '20, fiscal '20, that is down.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [39]

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That's right. And while -- that's right. And while we don't wait for November to give the guidance, we're watching Q4. But our front log, our quoting activity, remains healthy.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [40]

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Okay. Okay. That's what I was getting at. And just one last question. Could you just define -- or Patrick, could you give us kind of a pricing number here, just gross price capture in the quarter?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [41]

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We're at about 1.5% price realization through 3 quarters. And for Q3, about the same. So about 1.5% which includes, Rick, the price we get associated with the tariffs. And so you may recall that we implemented targeted price increases on products impacted or affected by the tariffs. And so the price realization this year of 1.5% is a little bit larger than in prior years but includes that price associated with the tariff's actions.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [42]

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And that's not a surcharge, correct? Or is it? In other words, will that come off, part of that?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [43]

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Yes. The intention of the price increase was to neutralize the impact of tariffs, so not to make money out of that. And so the expectation is that if tariffs was -- would be eliminated, then at some point those price increases would also be adjusted, and the objective being to neutralize the effect of tariffs.

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Operator [44]

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Your next question comes from the line of Nigel Coe from Wolfe Research.

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [45]

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I appreciate all the color as always. I've got to say I'm struggling to get to the -- to your 4Q EPS guidance at the low end of the range. And the only way I could get there will be if A&S is significantly weaker than the 3% to 4% organic year-over-year you're pointing to for 4Q. Is that how you're thinking that A&S could be down mid- to high-single-digit organic with CP&S probably flat to slightly up? Is that sort of how you're building up 4Q?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [46]

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Nigel, to get to the low end of our current guidance, that's not an unreasonable way to look at it.

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [47]

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Okay. Okay. So directionally, that would be accurate. And I think, Blake, you mentioned down quarter is not unusual within the context of an upcycle, and we certainly saw that in FY '16. Are we in that sort of situation where we have several quarters of negative growth to cycle through before we get back to growth? Or do you think that there's something here that could snap us back to growth quicker? I appreciate your thoughts there.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [48]

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Well, as we talked about, the continued uncertainty that we've been mentioning for quite a while, we think it is impacting investment decisions at this point. And so a reduction of that uncertainty, some stability in the outlook, would certainly help.

In terms of the fourth quarter, it would have to be in short-cycle businesses, right? So some improvement in longer-cycle outlook might impact orders, but it would take a while for that to flush down as revenue and profit.

In terms of the duration of what we're seeing currently, again, we're going to be looking very closely at the development of the quarter. We're going to be looking at the macro. Progress on trade would certainly help, but we're not counting on that at all.

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [49]

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Just to touch on the -- that last point. Channel clearance would be a factor that might snap things back quicker. Can you just maybe comment on, within A&S, how your sell-in versus sell-through sales are tracking right now?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [50]

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Say it again, Nigel, please?

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Nigel Edward Coe, Wolfe Research, LLC - MD & Senior Research Analyst [51]

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I'm just curious if you've seen any -- I guess to make the question a little bit clearer. Are you seeing inventory headwinds in your A&S channels?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [52]

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No. We -- as you may know, we have really good visibility into what our distributors carry of our product. That's particularly the case in North America. Inventory changes have not been a material impact to our results, including whether it's A&S or the other segments on the product side.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [53]

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Yes. We're closely aligned -- we're closely involved with our distributors as they replenish inventory, and there's nothing different that's being done there.

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Operator [54]

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Your next question comes from the line of Robert McCarthy from Stephens.

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Robert Paul McCarthy, Stephens Inc., Research Division - MD & Analyst [55]

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Yes. I guess the first question is just expanding on some of the questions around fiscal '20. And I know you don't want to give guidance for fiscal '20 as much as we're going to try. Could you just talk about maybe the compares across auto and some of your other businesses where you might think that you're kind of -- you could get closer to bottom here? And how do we think about -- how would you think about some of -- as we step into '20, some of the comparisons where you feel better versus more limited visibility, better versus worse?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [56]

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Yes. So let's start with auto. I mentioned we saw a little bit of sequential growth. And importantly, the results were stable with our expectations. What would give us more concerns is if projects that we've been talking about through the year went away. That's not what happened. And in fact, we're starting to see a little bit of purchases associated with those.

The EV companies, while we continue to see that as relatively small of our overall business, they're going to bring vehicles to market, and they're going to need automation to do it competitively. And we continue to be highly engaged there as well as with traditional vehicles as they look at new models and new places to build them. So we see that continuing. And as I mentioned before, the front log is fairly healthy.

For other longer-cycle businesses where we would have visibility that might go out across multiple quarters, things like oil and gas and mining, there continues to be good activity there. You saw that reflected in our current results. And so through the fiscal year, we don't see changes there. The shorter-cycle business, of course, it's more difficult to look at the outlook. And we'll have more details on what our view is informed by the quarter in November.

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Robert Paul McCarthy, Stephens Inc., Research Division - MD & Analyst [57]

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Okay. That's helpful, and I'd rather light a candle than curse the darkness. So why don't we talk about the continued strong double-digit growth at Information Solutions and Connected Services? And it looks like PTC last night, while having a challenging quarter in the relationship with you, actually had a pretty decent quarter. Maybe you could talk about the metrics and key wins there and how you're feeling about that collaboration.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [58]

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Happy to and glad to see you lighting a candle, Rob. It's been good and we are probably a little more excited even about the relationship than we started a year ago on this journey. So we continue to see good wins come in across industries and across geographies.

There was a win, and PTC talked about it last night with Vuforia Expert Capture. It was at a big tire company in Korea. We like Vuforia because it's a differentiator. Very few of our competitors have any sort of augmented reality offering, and we're selling it in -- somewhere around 1/3 of our FactoryTalk InnovationSuite wins currently.

We continue to see wins in Life Sciences. I talked about the double-digit growth there. And the combination of our basic control in Life Sciences is software that we have had for some time, specifically MES, plus the new FactoryTalk analytics that we brought to market, the PTC offerings really puts us in an open field in an industry that continues to grow very strong. So I'm happy with it.

We're going to talk -- and one last comment, we're going to talk a lot more in November about the comprehensive things that we're doing as an organization to accelerate our move to more recurring revenue streams and more proficiency in managing a growing software component of our overall business. It's certainly not just sales. It's about our business model. It's about our IT infrastructure. And we're going to talk a lot about that in November.

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Robert Paul McCarthy, Stephens Inc., Research Division - MD & Analyst [59]

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Well, I'll leave it with this. You think you won something with Eaton. And I don't think they believe in the IP of the PLC, so I think that's a very notable win for you.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [60]

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Yes. Thanks, Rob.

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Operator [61]

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Your next question comes from the line of Deepa Raghavan with Wells Fargo.

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Deepa Bhargavi Narasimhapuram Raghavan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [62]

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Two questions for me. First, can you please update us on your regional growth outlook? And just talk about how your views have changed intra quarter based on what you're seeing across regions.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [63]

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So we continue to see Latin America as providing growth in the year. We also see EMEA for the full year as seeing growth in the low single digits. In Q3, North America and Asia were the regions that were a little weaker than we expected.

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [64]

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Yes. The way you can think about it, Deepa, is that per our current guidance for the full year, all regions are a little bit lower than the prior guidance. North America went from mid-single digits, a little bit below the company average, to low single digits so that EMEA and Asia and Latin America is still teens -- it's still about 10% rather than the mid-teens that we were expecting before. So our outlook in every of the regions has come down a bit.

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Deepa Bhargavi Narasimhapuram Raghavan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [65]

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Got it. A follow-up for me. Blake, you talked about short-cycle weakness a few times now. What are some of the conversations you're having with your clients in those markets with regards to what the trepidation is or what their current expectations are? I'm curious if you are surprised -- based on your discussion, if you're surprised by the duration or magnitude of the current weakness.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [66]

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Sure. No, I think in some part we're seeing the continued uncertainty over trade and tariffs that is starting to weigh on investment decisions particularly around capital. We see these customers, even short-cycle businesses, that are continuing to look for ways to improve productivity on top of their basic production. And I think that's part of what's contributing to the continued strong growth of Information Solutions and Connected Services.

But in terms of capital, as these customers weigh the prospects for near-term demand on those shorter-cycle products, that's what we're seeing. And again, as we went through and looked project by project at the delays, the reasons that are being given are specific and plausible as opposed to some general precursor to further pushouts and cancellations.

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Operator [67]

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Your next question comes from the line of Andrew Kaplowitz from Citi.

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Vladimir Benjamin Bystricky, Citigroup Inc, Research Division - VP [68]

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It's Vlad Bystricky on for Andy. So just following up on that last question on delays and your comment that there's specific and plausible drivers of the delays versus not necessarily a precursor to more pushout and cancellations. I guess what are you hearing from your customers in the context of tariffs and uncertainty that gives you confidence that these are sort of transitory delays versus something that could linger and be more widespread?

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [69]

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I think these companies are doing -- I think similar to what we did and continue to look at coming into the year, they're looking at restacking their supply chains to deal with the information we have in terms of tariffs. And so there is some movement of where products are being built, who are the sub-suppliers of those various products as people are trying to get to where we are, and that is to neutralize the impact of those tariffs on their cost inputs.

And so that's a lot of work. These things, the decisions aren't made overnight. And so being able to react to the current environment but in a way that won't have to be undone in some short-term time horizon, that's the kind of uncertainty that we're talking about that we've dealt with and that our customers are dealing with.

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Vladimir Benjamin Bystricky, Citigroup Inc, Research Division - VP [70]

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Okay. That's helpful. And then just if I could shift to CP&S for a minute. You talked -- I think you said solutions and services within the business was up 6% organic in the quarter. Obviously, you guys have had some very good momentum there. So can you remind us, one, how big that business is within CP&S, and also just your visibility to continued mid-single-digit growth there?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [71]

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The way you can think about it, Vlad, is within Control Products & Solutions, the solutions and services business is about 2/3 of that segment.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [72]

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And I think just to peel it back a little bit further, that -- so that includes the longer-cycle projects for us. The average duration of some of the oil and gas projects, for instance, might be 5 or 6 months from the time we get the order to the time that we ship it.

It also includes the services which would include, say, shorter-cycle repair operations, things that track product businesses, but also importantly, the growing Connected Services portion of that as well that often attends those projects, things like remote monitoring, network consultation and things like that.

So it's a mix of those defined skill projects as well as high-value services and then also the engineer-to-order business, so motor control centers and things like that. All of that contributes to that 2/3 number that Patrick gave of the overall CP&S segment.

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Operator [73]

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Your last question comes from the line of Nicole DeBlase from Deutsche Bank.

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Nicole Sheree DeBlase, Deutsche Bank AG, Research Division - Director & Lead Analyst [74]

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So I just want to dig into 4Q organic a little bit more. So you said that things actually got a little bit better in June sequentially. I guess does July corroborate that 3% to 3.5% organic decline? Could there be some conservatism baked into that? I'm just having a hard time understanding why things get so much worse in the fourth quarter given the 3Q organic trend and the comment that you made about the quarterly progression.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [75]

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Yes, Nicole, I'll make a comment, then Patrick might want to add as well. As much as we would like to be able to extrapolate [our] performance through the quarter that we're reporting on and then take a peek at the first days of the next quarter, we can't apply a linear correlation to that.

As I mentioned before, June is the strongest quarter. Typically, we were encouraged as we looked at the development of Q3. But we can't draw conclusions that inform our outlook based on that. And looking at the early July performance, that helps inform the outlook. It's one of the factors that we take into account as we look at Q4, but we just can't draw a straight line with it.

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Nicole Sheree DeBlase, Deutsche Bank AG, Research Division - Director & Lead Analyst [76]

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Okay. Got it, Blake. That's helpful. And then just a clarification question on the investment spending. So Patrick, I know you said up a little bit less than 2% for the full year. Just in dollar terms, can you clarify? I think previously you were saying up $50 million to $55 million for the full year. What does that mean in dollar terms versus the prior guidance that's on a clear apples-to-apples basis?

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Patrick P. Goris, Rockwell Automation, Inc. - Senior VP & CFO [77]

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It's about $35 million to $40 million now. [It's down]. Okay. Thanks, Nicole.

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Operator [78]

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There are no further questions. I'll turn the call back over to the presenters.

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Blake D. Moret, Rockwell Automation, Inc. - Chairman, President & CEO [79]

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So just to summarize. The quarter saw a sharp difference in performance between shorter-cycle business and longer-cycle, project-oriented business. I'm happy with how the market is embracing the Rockwell offerings that add innovation and new expertise to help our customers be more productive. This is important regardless of the macroenvironment.

We also continue to look for ways to be more productive in our own operations by using all of our strengths and directing resources to the initiatives that best accelerate our strategy. That begins with our highly engaged employees and partners who are committed to their roles in this journey. They bring connected enterprise to life every day at our customers' and in our own operations, and I thank them all.

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Jessica Kourakos, Rockwell Automation, Inc. - Head of IR [80]

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That concludes today's call. Thank you for joining us.