洛克威爾自動化 (ROK) 2008 Q4 法說會逐字稿

Thank you for holding, and welcome to the Rockwell Automation quarterly conference call. I need to remind everyone that today's conference call is being recorded. Later in the call, we will open up the lines for questions. (OPERATOR INSTRUCTIONS).

At this time, I would like to turn the call over to Rondi Rohr-Dralle, Vice President of Investor Relations. Ms. Rohr-Dralle, please go ahead.

Thank you, Katina. Good morning, thank you all for joining us on Rockwell Automation's fourth quarter 2008 earnings release conference call. Our results were released yesterday afternoon, and the press release has been posted to our website at www.RockwellAutomation.com. A webcast of the audio portion of this call, and all of the charts that we reference during the call are available at that website. The webcast will be available for replay, and the materials from this call will be accessible for the next 30 days.

With me today are Keith Nosbusch, our Chairman and CEO, and Ted Crandall, our CFO. Our agenda includes opening remarks by Keith, followed by Ted's review of the quarter, and a more detailed discussion of 2009 guidance. Please note that Keith will brief Chart 1 in the chart deck, the full year results summary, so you might want to have that handy now. There will of course be time at the end of the call to take your questions, and we will try to get to as many of you as possible. We expect the call today to take about one hour.

As is always the case on these calls, 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 as defined by the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from our forecasted 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 will turn the call over to Keith.

Thanks, Rondi. Good morning to everyone who has joined us on today's call. Let me start by making a few brief comments on our results this quarter, and for the full year, and then provide an assessment of the current business environment, and conclude with a few comments about fiscal year '09.

First, I am extremely proud of the focus and hard work of our employees and partners around the world in delivering these impressive results. Second, our strong performance in the quarter, again demonstrated our ability to execute on our growth and performance strategy. And finally, this quarter capped another very good year for Rockwell Automation.

Let me highlight a few things which are referenced on Chart 1. This year, we delivered 9% revenue growth excluding currency, demonstrating the ongoing diversification of our revenue base. We continue to benefit from our increasing global presence, particularly in the emerging markets. Our business accelerated, with particular strength in Asia and Latin America, both growing almost 15%.

We also achieved greater penetration in the process industries, and a strong growth year in our solutions business. Both of these were growing over 25%, excluding acquisitions. Logix growth was 15% in quarter four, and 12% for the full year, in-line with our expectations and a strong finish to the year. And we continued the ongoing globalization of our business, as we reached our goal of generating 50% of our revenues outside the US.

For the full year, segment operating earnings were up 4%, although segment operating margins contracted to 18%. This was primarily due to investment spending and revenue mix. The increased earnings per share from continuing operations excluding special charges by 11%, to $4.11. This was slightly above the guidance range we provided in July.

Free cash flow for the year was $458 million, or 75% of net income from continuing operations, excluding special charges. Ted will talk more about cash flow in a moment. And we maintained ROIC at 24% in a challenging environment. Now let me shift gears and focus on the future.

2009 will be a very challenging year for Rockwell Automation. We are operating in a period of unprecedented volatility and uncertainty, with respect to the global economy and financial markets. The full impact of constrained credit markets, volatility in commodity and currency markets, and a slowing global economy will not be known for some time. While we have yet to see any significant weakening in our order levels, leading economic indicators and projections continue to deteriorate.

In the US, industrial production fell at an annual rate of 6% in the third quarter. The October PMI was 38.9, the lowest level since 1982. Industrial equipment investment was down 7% in September, and capacity utilization fell to 76.4%. In Europe, GDP growth has stalled, and the September Purchasing Manager's Index came in at 45%. Industrial production fell 3.6% in Germany in September, the biggest drop since January 1995.

And in emerging markets, industrial production is slowing. China steel production is slowing, down 20%, and GDPs are also slowing. There is no doubt that all of the indicators and trends are heading down. The US and EMEA have turned decidedly negative, and are in a recession. Growth in emerging markets will continue, but at a slower rate.

All of this will have a negative impact on capital expenditures globally. I know from talking to many of our customers and partners, that they are now being very cautious about CapEx spending. I also expect that when budgets are reset in January, spending will slow and likely be reduced. I also believe that the second half of fiscal 2009 will be much tougher than the first half.

Given this uncertainty, and my experience in this business for a long time, I believe that it is prudent for us to expect and plan for a contraction in our top line revenue for fiscal 2009. Current and future economic conditions will be markedly different. This is today's reality. As a result, in 2009 we are expecting a revenue decline between 1% to 5% from 2008 levels, excluding the effects of currency. We will also face currency headwinds associated with a stronger US dollar.

Based on this sales forecast, earnings per share for the full year are expected to be in the range of $3.10 to $3.60. In this environment, we are operating our Company in a disciplined manner. We are taking actions to concentrate on cost control and cash flow. Executing on the restructuring cost reduction program we announced in September, I am pleased to report that everything is on track. Executing our ongoing productivity actions, we are planning to hit the high end of our annual 3 to 4% cost productivity goal next year, improving working capital and in particular inventory management.

Clamping down on headcount, with only very selective hiring in key growth areas, such as Asia-Pacific and Latin America. Reducing capital expenditures and taking an extremely tough look at all discretionary spending, and building in some additional expense for fiscal year '09, to permit pay as you go cost reduction actions, depending on how market conditions evolve in '09, and what it portends for fiscal 2010.

Additionally, our strong balance sheet and consistency in generating free cash flow, provides a real competitive advantage in difficult times like these. We have the flexibility to continue to invest in growth, strengthen our portfolio, as well as make acquisitions, fund our current dividends, and repurchase shares as appropriate.

At the same time, we remain focused on executing our long-term strategy. Our financial strength, combined with the diversification strategies we have been implementing over the last several years, position us to outperform the market in these difficult conditions. We have invested in new technologies and applications, and continue to expand our footprint beyond discrete control. We are successfully evolving in the plant-wide control, information, safety, and networks.

At the same time, we are increasing our solution delivery and service capabilities. We have increased our end market diversification, and are better positioned in a greater number of end markets than before, and we remain committed to expanding our global footprint, and presence in emerging markets.

Before I turn it over to Ted to discuss Q4, the full year and 2009 outlook, I would like to conclude by saying no one really knows what it will be like in 2009. What I do know is that Rockwell Automation remains intensely focused on running it's business day-to-day, and executing on our growth and performance strategy. We have a solid seasoned management team who has the experience to deal with anything that comes our way, and committed, talented employees who in combination with our partners, are focused on customer success.

We will remain flexible, and control what we can control, to the best of our ability. We remain committed to top line growth, while maintaining Best-in-Class returns. I am confident we will deal effectively with the current environment, we will emerge from this downturn an even stronger Company, more competitive, and more successful than ever before.

Now let me turn it over to Ted.

Thanks, Keith. Good morning. Since Keith addressed the full year results on Chart 1, my comments will start with Chart 2, the Q4 results summary.

Starting at the top of the slide, revenue the quarter was $1.484 billion, an increase of 8% over 2007, that includes 5% organic growth, 1% growth attributable to acquisitions, and 2% due to the effects of currency translation. The contribution from acquisitions is lower in Q4 than in previous quarters this year. We acquired ICS Triplex at the beginning of Q4 last year, so in Q4 this year ICS is in the base. The 2% contribution from currency is down from the 5 to 6% contribution in earlier quarters, as the dollar gained significant strength in Q4.

Segment operating earnings were $269 million, a decrease of 2% year-over-year, reflecting primarily continued business mix and spending headwinds. Purchase accounting expense declined to $5 million in Q4. General corporate net was $24.5 million, up about $2 million from last year. The difference primarily relates to higher legal expenses, partially offset by lower corporate staff expenses.

At the end of Q4 we announced a restructuring action intended to reduce costs in light of current and expected market conditions, and have better aligned resources with what we now view as the best growth opportunities. We took a charge of approximately $51 million, that was partially offset by a reversal of $4 million of severance accruals from our 2007 restructuring actions. The net charge was approximately $47 million, that was roughly $30 million after tax, or $0.21 per share.

We expect Q4 actions to generate about $75 million in savings in '09, growing to $85 million in fiscal '10. This will help to offset expected inflation in '09, and the annualization of expense increases that occurred during fiscal year '08. The fourth quarter effective tax rate was 28.9%, compared to 29.2% for the fourth quarter of 2007.

Earnings per share excluding special charges was $1.08. That is at the high end of the implied Q4 guidance we provided in July. Average diluted shares outstanding in the quarter were 145.1 million. During the quarter, we repurchased approximately 2.5 million shares, at a cost of $103.5 million, and as of September 30th, had $671 million available under our current $1 billion repurchase authorization.

Moving to Chart 3, Q4 results for Rockwell Automation, as noted previously growth in the quarter was 8% year-over-year, excluding the effects of currency translation, growth in the quarter was 6%. Sales increased 1% sequentially. In a few slides we will cover regional sales performance, but I will note here that this was a very strong growth quarter for Asia-Pacific, and particularly our business in China.

Moving to the earnings side of the chart, you will see that segment earnings grew sequentially over Q3, but were down 2% year-over-year. Segment operating margin in the quarter was 18.1%, up 60 basis points from last quarter, but down 200 basis points from the fourth quarter of last year. Similar to the past two quarters, the year-over-year decline is due primarily to increased investment spending, put in place to support globalization and growth, and revenue mix. That is, continued higher rates of growth in our lower margin solutions businesses, than in our product businesses. The impact of acquisitions had a modest negative impact on margins, and currency was actually slightly positive for the quarter.

Please turn to Chart 4 which summarizes the Q4 results of the Architecture and Software segment. Sales in Q4 were up 8% year-over-year, 6% including the effects of currency translation. Q4 was the highest organic growth quarter of the year for Architecture and Software. On a sequential basis, sales declined about 1%.

Operating margin was 22.9%, down 180 basis points sequentially, and down 260 basis points from the fourth quarter of last year. The year-over-year decline is primarily due to increased investment spending, that being offset by our original expectation of higher growth, as well as the year-over-year impact of acquisitions.

Chart 5 covers our Control Products & Solutions segment. Sales in Q4 were up 8% year-over-year. That included 6% organic growth, and 2% growth from currency translation. Sales were up 2% sequentially. This was a lower organic growth rate than earlier quarters, but Q4 of 2007 was a difficult comparison, and all-in-all Control Products & Solutions had a great year, with full year organic growth of 9%.

Operating margin expanded by 250 basis points sequentially to 14.7%, but declined by 150 basis points compared to last year. Q4 this year was the highest margin quarter, and the decline versus last year was primarily due to business mix and increased spending, including spending related to the globalization of our supply chain.

The next chart, Chart 6, shows a geographic breakdown of our sales in the quarter. In the center column you will see the overall growth rates by region. I am going to focus my comments on the far right column, which shows growth rates excluding the effects of currency translation. We saw growth of 3% in the US this quarter, about in-line with our expectations. Full year organic growth was 4%, a good result given the economic environment in the second half of the year.

Canada grew 3% in the quarter, and the full year organic growth was 5%. For the quarter, Latin American sales were up only 3%, well below year-to-date levels. Q4 of '07 was a very strong quarter, so it was a tough comparison, in addition, sales in the quarter were negatively impacted by a couple of large projects that pushed out to Q1. Orders in Latin America were up 16% year-over-year in Q4. And even with the low Q4 shipments growth, Latin America delivered a robust 14% organic growth for the full year.

In EMEA, sales were up 8% in the quarter, that is partly due to very strong growth at ICS, which as I mentioned has now rolled into the base. Even without ICS, EMEA was up 5%. Including acquisitions, EMEA organic growth was 5% for the full year. That was below our expectations at the beginning of the year, but we are pleased with the stronger results in Q4.

As I mentioned earlier, Asia-Pacific had another very strong quarter with 17% organic growth. China continued to deliver great results with 39% organic growth this quarter, and 30% organic growth for the full year. Again this quarter, we realized a good balance in global revenue mix, with more than 50% of our sales outside the US, in spite of a lower revenue benefit from currency translation this quarter.

Please turn to Chart 7, Q4 results, free cash flow. Free cash flow for the quarter was $197 million, and $458 million year-to-date. If we add back the Q4 restructuring charge to net income, that is 126% conversion in Q4, and 75% conversion year-to-date. That latter result is consistent with the high end of the cash flow conversion guidance that we provided last quarter.

We are not pleased with the full year conversion performance. As we discussed last quarter, the shortfall was primarily in two areas, working capital and the timing of tax payments. As you can see on the slide, working capital was a use of cash for the full year of $141 million, but we did turn the corner on working capital in Q4, and made some good progress with regard to inventory. We are committed to continuing to improve working capital management throughout next year, and we are also expecting a more normal tax expense versus tax payments outcome in fiscal year '09.

Now please turn to Chart 8. We have often talked about the importance we place on maintaining a strong balance sheet. Given the recent turmoil in the credit markets, I thoughts it might be helpful to discuss some key elements of our capital structure. We ended fiscal year '08 with a strong balance sheet and in a good position regarding liquidity. Our debt to total capital ratio is 37%. And our net debt to total capital ratio is only 20%. We have strong coverage ratios, and dividends as a percent of free cash flow was 37% this past year.

We ended the year with cash and cash equivalents of $582 million, and our short-term debt was $100 million. Our $600 million revolving credit facility matures in October of '09, and we are in active discussion with our bank group on renewing the facility. We don't anticipate any issues with renewing that facility this year. Our long-term debt maturities are well distributed. We think we locked into some pretty good rates last November on $500 million of 10 and 30-year debt. Our first maturity of long-term debt doesn't occur until 2017. From a balance sheet point of view, we believe we are well-positioned to weather more difficult market conditions, and as Keith pointed out, to do so with some significant flexibility.

Now please turn to Chart 9 for a summary of how we are thinking about headwinds and tailwinds as we head into 2009. We see some important revenue headwinds. Keith spoke to the credit market situation, and what appears to be continuing deterioration in relevant macroeconomic indicators. We expect to see deteriorating market conditions as we move into next year.

Specifically, we believe we will see declining demand in North America and Western Europe, but we expect to see market growth in Asia-Pacific and Latin America, but at substantially lower rates than was the case this past year. Also related to revenue headwinds, the recent strengthening of the dollar has been dramatic, especially against selected currencies. If rates stay near current levels we will experience a significant top line headwind. And dropping to earnings headwinds, at present currency rates and mix of rates, we believe we will also experience a somewhat higher conversion on translation sales, creating an unfavorable margin impact.

We also see earnings headwinds related to our business mix and inflation. Regarding business mix, we expect to continue to see higher rates of growth in our solutions businesses. We base this in part on an expectation that emerging markets will continue to grow faster than the mature markets, and that we will continue to see better relative market conditions in resource based industries. Both tend to have higher solutions content.

Inflation is not as great a headwind as we would have expected just a few months ago. Commodity prices have eased considerably recently, but we will still face some material cost increases compared to the average of last year, and we will have to deal with inflation in wages and benefits. We believe we have some tailwinds regarding earnings, including some good momentum in our productivity programs. The savings we will get from the Q4 restructuring actions and EPS will benefit year-over-year from reduced share count.

That brings us to Chart 10, fiscal year '09 guidance. For fiscal year '09 as Keith mentioned, we are expecting a revenue decline, excluding currency effects of between 1% and 5%. Acquisitions, which occurred in fiscal year '08, have a very small impact on fiscal year '09 growth rates, and we have not included any revenue in these projections from acquisitions that may occur in fiscal year '09, so you can think of this basically as organic growth. We are assuming the currency effects will reduce sales next year by about 5%. Including currency effects, we are expecting revenue to be down between 6 and 10% year-over-year.

We expect operating margins in a range of 15% to 16.5%. That assumes a business mix impact of a bit less than 1 point year-over-year. It also assumes a negative impact due to currency effects of about 0.5 a point. And we have assumed additional expense next year for pay as you go actions, that may be necessary to continue to adjust the cost structure, as the market conditions continue to evolve. Those pay as you go expenses account for another roughly 0.5 point reduction in margin.

We expect a tax rate in the range of 26 to 28% next year. We expect an average share count next year of about 142 million shares. And we expect diluted EPS in the range of $3.10 to $3.60. We expect free cash flow conversion of about 90%. Now that includes the roughly $50 million of cash outlays related to the Q4 fiscal year '08 restructuring actions. Excluding that, conversion would be about 100%.

And at this time, I will turn us back over to Rondi to start Q&A.

Okay. Thanks, Ted. Okay Operator, let's open the line to questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from the line of Bob Cornell, representing Barclays Capital. Please proceed.

Good morning, everybody.

Good morning, Bob.

Interesting times.

That is true.

I have two questions. I guess the first is to ask you to expand on the comment you made about not yet seeing the adverse impact of the market downturn in your orders. I mean, is that through September and the supporting period, Keith, or is that through November, I mean, maybe you could expand on that point, and then I have one other question?

Absolutely, Bob. That comment is basically through October, and certainly we are very cautious as we go forward, but we actually built backlog in October, and we have not seen significant changes in the front log in the majority of our solutions and services businesses, and quotation activity remains unchanged.

What we have seen is there have been a few order cancellations from the backlog in the last half of October. But we had a good order month, and as I said, the total backlog was up. And certainly our greatest concern right now is really the economic indicators, and what that is foretelling, and what it portends for the future.

We will all find out in six months or so. The other question is in articulating, you haven't had a chance to articulate actually what you were targeting to do with the $50 million of restructuring. You started out the year with a higher growth rate expected for A&S. It didn't come in as high. Maybe you could articulate which verticals, which geographies didn't quite meet expectations, and what the restructuring is actually targeted to accomplish?

Okay. Where did we not perform where we thought. I would say the biggest shortfall was in Europe, and while we liked the exiting of the year, certainly we felt that our performance throughout the year was not at the levels we expected, and basically was about half of what we expected at the start of the year.

And from a geographic standpoint, I would say that is where our biggest challenge was. And quite candidly, within Europe, we had positives and negatives. So when I say Europe, I am treating it as a broad brush, but we had some very strong performance, but unfortunately that was offset with numerous underperforming --

Is that CompactLogix that didn't come through?

No, CompactLogix grew well in Europe. I think the biggest activities there were some of the economic declines, and as we said at the last call, some of our execution aspects in certain countries, not across the board. But CompactLogix was strong, and certainly we felt improved as the year went on.

And we did some specific targeting for CompactLogix, where we did some good opportunities of bundling the products, creating the logistics requirements and capabilities, to meet the growing needs and the specific needs of the OEMs in Europe. So I think the team there did a good job of targeting for CompactLogix' success as we went through the year.

If you look at the other aspects of where the cost actions were taken, it was really, I mean other than a couple of areas just to do some rebalancing, the other areas were in the evolution of our sales model, where we really went to a more segmented selling model, and we accelerated some of the execution of that strategy, I would say accelerated to the end game model, which is more segmented, and more direct selling people calling on customers, and less indirect people supporting the customers. And we could do that because we, as I said, went to a more segmented model.

And so what we did was rebalance some of the sales organization around the world, as we evolved that model that we have been talking about now for about two years. And in fact, in the pilots that we ran in the US with that model, we had some very good success throughout the year. So we are very excited about how that positions us for the future. But we needed to, because we did not see the revenue growth, particularly in A&S, we needed to accelerate to the end game in that evolution of the selling model, and I would say those were the greatest areas of impact with the restructuring.

Okay. Thanks, Keith. I will pass the baton. Thank you.

You bet, Bob. Thank you.

The next question comes from the line of John Baliotti representing FTN Midwest Securities. Please proceed.

Good morning.

Good morning, John.

I had a question for Ted, and a question for Keith. Ted, first, you guys talked about the charge back in October and the expected benefit. Are you offsetting that? Are you planning on offsetting that in '09 with additional charge? Can you quantify that?

Yes, John. I am not sure I would say offsetting with additional charges. We took a $50 million charge at the end of September so that fell into the fourth quarter.

Right.

We have also provided for in this guidance about $25 million of pay as you go charges, that we would expect to incur over fiscal year '09, to kind of continue to address and adjust the cost structure.

Okay. That 25 is a full year number?

Yes.

Okay. And Keith, one question, as CP&S had been growing faster during the year, or in various periods, guess far part of the theory was that would seed and increase your installed base, so it would seed some customers for higher margin aftermarket business. Is there any expectation or any sign that you would see any of that in 2009?

No, no, John. But first, you are absolutely right. That is why we talked very strongly about the positive aspects of growing our solutions business. It is just for what you said. It seeds an installed base that becomes very sticky as time goes on. But that is a multi-year process, and we will not see the benefits of that in 2009, and quite candidly nor really in 2010.

Okay. And just would you mind, in the past you have run down some of your larger end markets and kind of talked about either growth rates, or just body language, what you were seeing. Have you got a quick second to go through that?

Sure. Let's talk about the fourth quarter first, and then how we are thinking about '09. In the fourth quarter, we had very strong growth, or above average Rockwell growth in oil and gas. At about the average, actually, we had global auto at about the, automotive at about that. Slightly below would have been the food and beverage, the consumer products, home and personal care. And then the lowest performance was really in Life Sciences and also US Auto. The Detroit 3 Auto was significantly below the Rockwell average.

If we progress out in '09, we believe oil and gas will continue to be strong, but lower. Not at the levels that it was this year, higher, but higher than the Rockwell average. Food and beverage and home and personal care, I think you will see where these are the ones that we expect to be more consistent, more stable, and therefore at our average, and helping us as it will turn out to minimize the decline that we mentioned. And we certainly believe that Automotive is going to get worse. Detroit Automotive is going to get worse. And previously we had said we thought it was at a stable point.

I think given what you have seen in the last couple of days and/or weeks, the US automotive industry and market is going through a very, very difficult time, and that will impact our business and global auto will slow, and I think you have seen probably some of the announcements from Toyota and others, where they are re-evaluating their growth investments throughout the other geographies, including emerging market investments, and we also believe that Life Sciences will remain tough.

One that we normally don't talk about, but because it is part of our global portfolio at the end of the day, the steel industry we believe, metals markets will be tough next year. You have already seen the pronouncements by China, reducing production by 20%, and Macao reducing output in I think it was the mid-30s, 30 or 35%, so I think that is going to be a tougher, a much tougher market for us going forward as well.

Okay. Thanks.

You bet, John.

Your next question comes from the line of Nigel Coe representing Deutsche Bank. Please proceed.

This is actually Nicole Deblase asking questions on Nigel's behalf. A couple for you. You guys obviously have a very strong balance sheet. Can you just comment on your free cash flow deployment plans going into 2009?

Yes. I think really there is no difference in our cash deployment priorities. It is investing in organic growth, making catalytics, small bolt-on acquisitions, and after that it is returning any excess free cash flow to our shareholders. We will do that obviously first in maintaining our dividends, and secondly, any excess will be used to repurchase shares, and obviously that will be the discretionary aspect as we see the markets unfold, and we are very pleased to have the strength of that balance sheet in today's markets, to be able to actually do all of that, and still maintain very strong credit ratings.

Great. Thanks. And could you just comment on growth in your Logix business versus legacy PLC?

Yes. I would be happy to. As we mentioned, that we had a very strong growth in this quarter in Logix which was 15%, as it turned out, and 12% for the year.

In legacy sales, legacy sales were down 11% in Q4, and 12% in 2008, and that is a little higher than what we had been talking about with our longer term expectation of 8 to 10%. But yet, if you look at the total processor sales, they were up almost 7% for the quarter, and that was the highest for the year. So we are seeing a pickup in performance as we went through the year, across our processor, our combined processor business.

Great. Thank you.

You are welcome.

The next question comes from the line of Mark Koznarek, representing Cleveland Research. Please proceed.

Hi, good morning.

Good morning, Mark.

Keith, just to build on your last comment with processors so strong in 4Q, it seems like the margin in the Architecture & Software business was the weakest of the year. So what was the offset there, if overall processors were strong?

Well, I think a couple of things. One, we continue to see the same spending impact that we had previously in the year. We have not cut back on all of those investments.

And then secondly, also a little more impact of acquisitions. And certainly we are seeing more of the integration of CEDES and Incuity that impacted the quarter more, as they rolled more strongly into the organization in that quarter. So I would identify those two, Mark, as really what is driving the A&S margin performance.

Okay. And my real question was really to ask about '09 expectations across geographies, if you could kind of handicap strongest to weakest, and then also A&S versus CP&S, any kind of facts there?

Absolutely. Let's start with the geographies first. If we look at the US, we think the US will be about 2 to 3 points lower than the Rockwell Automation range that we gave. We believe Canada, likewise, will be 2 to 3 points below the RA range. EMEA, likewise, 2 to 3 points below. Asia-Pacific, we expect to be mid- to high-single digit growth. Latin America, likewise, mid- to high-single digit growth and these are now all against the organic growth rate numbers of minus 1 to minus 5%.

If we look at A&S and CP&S, I think it is important, maybe the easiest way to talk about that is to talk about our products businesses and our solutions businesses, and basically products businesses is all of A&S, and roughly 40% of CP&S. If we look at our products businesses, we expect our products businesses to be 2 to 3 points below the Rockwell Automation percentage, and we expect our solutions business to have low single digit growth next year. So that gives you a little more flavor and color behind the minus 1 to minus 5 organic decline in our revenue.

Great. That is very helpful. Thank you.

You are welcome.

The next question comes from the line of Mark Douglass representing Longbow Research. Please proceed.

Good morning.

Good morning.

Hi. Can you give an indication of where software is performing recently? Has that in particular been hit yet with anticipated declines in CapEx, versus solutions and products?

Well, software is a very broad portfolio for us, so let me try to split it up a little. The majority of our software business today is really associated a lot with our automation, with our automation products, and those automation products would be the PLCs, SLCs, and our visualization, and so that software moves at about the same pace as our controller business, and as our visualization business moves.

The software, which is the information software, is more tightly associated with, I think what you were getting at the solutions businesses, and that is a business now that we have been investing in, and we are starting to develop the portfolio to be able to do more and more of the plant floor applications. And that business is growing very rapidly, but it is a small total percent of our software. It is the smallest part of our software business today. But we are now evolved with that in a number of key industries, particularly Life Science, Automotive and Consumer Goods industries, and we are starting to create that pipeline, and the pilots that are required to grow that.

And specifically, we have not seen any decline in customer interest or activity in that portion of our business yet. It is a part of our portfolio that is very important to customer productivity, and it also is capable of helping then reduce a lot of their legacy costs, and legacy maintenance of existing software systems. So currently no impact, and we are looking for that to be a part of our positive growth activities of next year.

Okay. Great. Thank you. And finally, can you go a little bit more into Logix. You mentioned CompactLogix was doing well in Europe. Can you flesh out other areas, where you saw the really strong growth in Logix?

Yes. I think we are seeing it in a couple of areas. You mentioned the one in Europe. I would say in general, where we see the greatest growth in Logix is at OEMs, and in that CompactLogix family. That is the area that is growing substantially.

We are seeing in quarter 4 CompactLogix grew 22%, and as I said, that is really about share gains at OEMs. The other area that I would identify that we are seeing good growth with Logix is in the process industries, and that continues as I mentioned earlier, process grew for the year over 20% without acquisitions, and certainly that continues to be important. We have just released towards the end of the year, late summer, we introduced the next functionality and release, what we would call Version 17 of our software for Logix. And we also released some additional low end processors that really extend below, it gives us another price point in the CompactLogix family.

And we think that will help more at OEMs, give us a better match for some of the simpler machines, and some of the functionality in 17, we believe augments and adds to our capabilities in the process space. So really as we grow Logix, it is about OEMs and it is about the ability to address more and more of the process applications. So we continue to grow faster than the market in Logix, and we believe we continue to take share.

Okay. Thank you.

Operator, we will take one last caller.

Thank you. Your final question comes from the line of Martin Sankey representing Neuberger Berman. Please proceed.

Thank you for taking my call, first of all. Keith, in the course of the presentation, you made several comments regarding current order rates looking reasonably solid, but you expect really a contraction in the second half. Can you sort of walk us through how you see the year progressing sequentially, in terms of the business?

Well, I mean first of all, I guess, Martin, we don't really give quarterly guidance. But I will just expand a little on my earlier comment, that I believe the second half of the year will be tougher, and why do I believe that. Well, a couple of reasons.

One, just our current intake and orders are performing similar to what they did in the fourth quarter. So we haven't seen, as we have gone through October, a significant change. How we see it going out in the longer term is, it is clear that the economies have slowed in all regions of the world. And if you look at that, if you look at every projection over the last three to six months, they have always, the next forecast has always dropped. So we are anticipating that that will come and play out, particularly as we go into calendar 2009.

The other aspect of this is, we see that the OEMs and the projects that we are working, those have a visibility that says they will be strong for us into calendar 2009, but the tone at our customers that are telling us to be cautious as we look further out, and we believe as they do their capital spending budgets for 2009, which will become more real inside their organizations after January 1st, that we are hearing and the tone of our customers is more cautious than it has previously been.

And so that combination of macroeconomic, whether it be including sentiment indicators, the fact that the consumer spending has dropped dramatically in the last two months in the US and in Western Europe, that we believe that will ultimately bleed over into the capital expenditures markets, and really that is what is causing us to have less optimism as fiscal year 2009 unfolds for us, Martin.

Okay. A couple of questions for Ted regarding some of the details of the guidance that was provided. Could you speak to tax rate interest expense and corporate expense?

Well, on tax rate, we said 26 to 28%, which would be down a little bit from this year, and that is basically a consequence of lower income levels. And kind of the mix of income globally. On interest expense, I mean, our interest expense, Martin, not a significant change from fiscal year '08, and on GCN, probably a little higher, or equal to or a little bit higher than '08.

Okay. Is that driven by legal expense, or something else in there?

I would say legal expense is one element of that. GCN tends to be a little bit, as you know, a little bit lumpy quarter-to-quarter.

Okay. And your own CapEx budget?

What we are targeting is to be about 15% below this year, and this year was about $150 million. This year meaning '08.

Okay. Thank you.

You are welcome, Martin.

Okay. So we are ready to end today's call, but before we do, that what I would look to do is just say that we are hoping you are able to join us for our Investor Conference at Automation Fair, which is in Nashville on November 19th. If you need any more information about logistics, please contact me, and we will help you get set up for that. We are hoping you can join us for that.

Thanks for joining us today, and that concludes today's call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.