洛克威爾自動化 (ROK) 2012 Q3 法說會逐字稿

(Operator Instructions). Thank you for your holding, and welcome to Rockwell Automation's quarterly conference call.

I need to remind everyone that today's conference call is being recorded. (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, Sonja. Good morning, everyone. Thank you for joining us for Rockwell Automation's, third quarter fiscal 2012 Earning's Release conference call. Our results were released this morning and the Press Release and charts have been posted to our website at www.rockwellautomation.com.

Please note that both the Press Release and Chart's include reconciliations to non-GAAP measures. Additionally a web cast of this call Is accessible at that website, and will be available for replay for the next 30 days. With me today, as always, are Keith Nosbusch, Chairman and Chief Executive Officer, and Ted Crandall our Chief Financial Officer.

Our agenda today includes opening remarks by Keith that will include highlights on the Performance in the third quarter, as well as an update on the remainder of the fiscal year. Then Ted will provide more details around the quarter and our revised Guidance for fiscal 2012. We will then take questions at the end of Ted's remarks.

We know it has been a busy earnings week for all of you, so we appreciate you calling in today. We expect the call to take about an hour. Before we get started I need to remind you that our comments will include statements related to the expected future of our Company, and are, therefore, forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risk and uncertainties that are describe our Earnings Release and are detailed in all of our SEC's filings. With that, I will hand the call over to Keith.

Thanks, Rondi. Good morning, everyone and thank you for joining us on the call today. My remarks will cover highlights for the quarter, our assessment of business condition and an updated outlook for are the remainder of the fiscal year. Please turn to page four in the slide deck.

We delivered solid 7% organic growth in the third quarter, with organic growth in all regions. Operating margin expanded almost a point and earnings per share grew 9%, or 13% if you exclude the head wind from a higher tax rate. Overall a good quarter in the mist of a more challenging macro-economic environment. Let me give you some color on sales in the quarter.

Generally, all regions came in at the lower end of our growth rate expectation. Reflecting a slowing of market demand. The U.S. was stable, with 6% organic growth. Canada had another robust quarter of 24% growth.

EMEA held up reasonably well, with 3% organic growth, in spite of deteriorating macro-economic conditions. While parts of Western Europe declined in the quarter, emerging EMEA had very strong double-digit growth. In Asia we actually saw stronger growth in mature countries than in emerging. While China did grow sequentially, 5% year-over-year growth in the quarter was below our expectation.

Government stimulus action had yet to jump start economic growth. We continue to believe that China will rebound to higher growth rate, but it now appears more likely to happen after our Q4. India remained weak and sales were down in the quarter, we have yet to see evidence of improvement in their economy. Lastly, Latin American organic sales growth of 5% in the quarter, fell considerably short of our expectation.

Most of the sales shortfall was in Brazil. Which is experiencing an economic slow down and has led to delays in customer spending. Mexico on the other hand was a bright spot, with over 30% of growth. I have a few other third quarter highlights, our Process business delivered another good quarter of sales growth at 15%.

On a year-to-date basis, sales are up 20% in Process. In June the Board approval a new $1 billion share repurchase authorization and we increased dividend by 11%. Both of these actions demonstrate our ongoing commitment to return excess cash to shareholders. Ted will provide more detail on third quarter financial performance in his remarks.

I will move on to our revised outlook. Every quarter we do an extensive review with our sales and business leaders, as well as a pulse check with our channel partners and key customers to try to get a read on current and future business conditions.

Although none of us has a crystal ball, we use this feedback along with macro-indicators and our recent performance, to develop our outlook for the remainder of the year. What is all of this telling us? On the macro-economic side, whether you look at GDP, Industrial Production Growth, or PMI, most of the indicators have weakened from one quarter ago.

Customer and channel sentiment is generally less positive than one quarter ago. Most of the signs point to a flattening of customer demand, at least for the short term, and although sales growth was solid in Q3, we started to see more projects getting pushed out, while there are project delays in every quarter, they seem to pickup in the third quarter. Keeping all of this in mind, along with an increasing headwind in currency, we are reducing our sales outlook for the fiscal year tor about $6.2 billion.

Correspondingly, we are revising our fiscal 2012 earning per share guidance range to $5.00 to $5.20. With about $0.05 reduction coming from currency. Even with the guidance revisions, sales and earnings in this range another record year for the Company. It is clear we are in an environment of considerable macro economic and political uncertainty.

We are closely monitoring market conditions and our focus on how the fourth quarter will play out. We have proven we know how to be nimble in times of economic uncertainty, and we will continue to balance near term financial performance with growth opportunity.

At the end of the day, Automation remains a great market and our competitive differentiation positions us well to out grow the underlying market. If historical, cyclical patterns had any relevance, you would expect to see another two years in this cycle. Let me close by thanking all of the Employees and Partners of Rockwell Automation, your dedication and domain expertise is core to our value proposition to customer's.

That is what will enable to us to continue to gain market share, and deliver superior returns to our Shareholders. Here is Ted to provide more details on the financial results for the quarter, and our revised guidance for 2012. Ted?

Thanks, Keith. Good morning, everybody. My comments will reference the slides on the website, and I will be starting with slide five, the third quarter results summary. Revenue in the quarter was $1.56 billion, up 3% compared to the third quarter of last year.

Year-over-year impact of currency fluctuation reduced sales by about 4 points, that's a much more negative impact from currency than earlier this year and more negative than we anticipated at the beginning of the quarter. The decline of the Euro compared to the U.S. dollar is causing the largest part of that difference. Segment operating earnings were $284 million, an increase of 8%, compared to a year ago.

General corporate net was $19million, compared to $22.3 million in Q3 last year. This Q3 was somewhat lower than average per quarter for general corporate net expense, primarily just timing. We still expect the full year general corporate net expense to be about $90 million.

The effective tax rate in the quarter was 22.1%. There were some discreet items that reduced the rate in the quarter. Year to date the effective rate was 23.8%, so through nine months we are running very close to our full year expectation of 24%. Last year in Q3 the tax rate was 19.1%, also lower due to the recognition of discreet items.

Diluted earnings per share from continuing operations was $1.33, up $0.09 from Q3 last year and despite the higher tax rate. Average diluted shares outstanding in the quarter was 143.5 million, that is down about 2.4 million shares from the average of Q3 last year. During the quarter we repurchase approximately 1.6 million shares at the cost of about $121 million. Year-to-date through the end of June, we have repurchased approximately 2.3 million shares, at the cost of about $170 million.

The increased rate of repurchases in Q3 is generally consistent with the intentions that we outlined in the earnings call at the end of April. Moving to slide six, this is a more graphical representation of total Company results for the third quarter. As I noted on the prior slide, the year-over-year increase in sales for Q3 was 3%, 7% excurrency. Reported sales were flat sequentially, but up about 1 point excluding currency translation.

On the right-side of the slide, you can see a healthy increase in segment operating earnings, both year-over-year and sequentially. Segment operating margin was 18.2% in the quarter, up .8 points compared to last year, and up 1 point sequentially. The year over year margin expansion reflects volume leverage, partially offset by increased spending and unfavorable mix.

We also benefited in Q3 from lower incentive compensation expense, including year-to-date adjustments related to reduced expectations for full year sales and earnings. It's a similar year-over-year margin causal in each of the segments. Through three quarters, segment operating margin is 18.2%, up 1.4 points from the same nine months of last year.

Let's move to slide seven, which summarizes the Q3 results for the Architecture and Software segment. The left side of the chart displays the sales performance. Sales were $664 million, a decrease of 1%, year-over-year. Currency translation reduced sales by about 4 points, so organic sales growth was approximately 3%. Sales were flat sequentially.

Operating margins for the quarter was 27.5%, up 1.4 points compared to Q3 last year. Year to date, operating margin in Architecture and Software is 27.1% up almost 2 points from the same period last year. Let's turn to slide eight, results for the Control Products and Solutions segment.

Sales were $897 million in the quarter, up 6% compared to Q3 last year, the increase included about 1point contribution from acquisitions, offset by about a 5 point reduction due to currency, so an organic sales increase of 10%. Solutions and Services business grew about 16% organically, year over year, contributing the lion's share of the (inaudible). Sales in this segment were flat sequentially. Segment operating earnings were $102 million, an increase of 16% compared to Q3 last year.

With segment operating margin at 11.3%, up almost a full point from a year ago. Year-to-date Control Products and Solutions operating margin is 11.5%, up 1.3 points, compared to last year. Next slide provides a look at regional sales performance.

Keith provided a good deal of color on the regional sales performance, so I won't repeat that. Perhaps just a couple of comments. Looking at the difference between the growth rates in the middle column, that is the as reported year-over-year comparison, and the far right column, which is ex currency, you will note the significant negative impact from currency, particularly from EMEA and Latin America. The largest impact in Latin America coming from Brazil. In EMEA with ex currency growth at 5%, we benefited from about a 2-point contribution from acquisitions year-over-year.

To reinforce a point Keith made, maybe the most positive message from this slide is the organic growth in all regions. I will turn now to slide ten, free cash flow. Free cash flow for the quarter was $232 million, that is about 122% of net income.

We continue to expect free cash flow conversion of about 75% for the full year, including the impact of the $300 million discretionary pension contribution we made in quarter one. We would expect conversion to be about 100%, excluding that pension contribution. That brings us to the final slide, which addresses our current outlook for the full year.

As Keith mentioned, we've reduced and narrowed sales and earning guidance. We now expect sales for the full year of about $6.2 billion, think of that as a range of $6.15 billion to $6.25 billion, and that compares to the previous guidance of $6.25 to $6.45 billion.

We now expect currency translation to reduce sales by about 3 points for the full year. Previous guidance assumed a 2 point decrease due to currency, across the sales guidance range, there is about a $50 million negative impact from currency, compared to the prior guidance. Excluding currency effects, we expect growth for the full year of about 6% to 7%, previous guidance was 6% to 9%.

We still expect segment margin to be a little over 18%, as I mentioned earlier, we are at 18.2% year-to-date. And we expect diluted EPS in the range of $5.00 to $5.20. As Keith mentioned, currency effects are reducing EPS across the guidance range by about $0.05, compared to the prior guidance.

We continue to expect a full year tax rate of about 24%, and as I mentioned earlier, we expect general corporate net expense to be about $90 million for the full year. With that, I will turn it over to Rondi to begin Q&A.

Ok, great. Thanks, Ted. Before we start the Q&A I just want to remind you, as we always do, if you could limit yourself to one question and a follow-up, that would be great so we can get to as many people in the queue as possible. Ok, so Sonja, let's take our first question.

The first question comes from the line of [Steve Winoker]. Please go ahead, you're line is open.

Good morning.

Good morning Steve.

The margin in ANS was pretty good, despite weaker than expected sales that I had, can you maybe talk about that, and then it looks like in their fourth quarter on the decline in revenue you are basically assuming that there is kind of a 30% or 40% incremental to get to the 18% margin. Is that how you are looking at.

Let me take your, I'm sorry Steve on your second question you are asking about Q4 ?

Yes, the Q4 guide looks like it's just basically a sales decline and then a decremental margin of 30% to 40% something like that.

Let me take the AMS question first.

Sure.

So AMS margins were up about 2 points sequentially, even though reported sales were down slightly there was positive organic growth and that had some attractive conversion. We also had somewhat better mix sequentially. We talked about the unfavorable mix in Q2, and the incentive comp that I mentioned also favorably impacted margins sequentially a bit. So that kind of explains the AMS margin in the quarter.

Okay.

As it relates to incremental in Q4, especially when you get some small sales changes and negative changes the incrementals start to get a little funky. But basically I would say if you think about the sequential performance from Q3 to Q4 that we are going to get a little bit at mid point, a little bit of organic volume growth and that's going to be offset largely by unfavorable mix.

Okay. One last question on that fourth quarter, how are you looking at this. Are you just saying normal seasonality in the up turn usually higher than what you guided to.

Obviously if you look back over a ten year period, there are some pretty week seasonal moves when things turn down. Are you kind of assuming normal seasonality with a hedge. What exactly have you been seeing in June and July that makes you set that bar for the fourth quarter, is that just a view of the macro, or just curious as to how you set that?

Well I think at the midpoint basically what we are expecting is products to be kind of flat quarter-to-quarter, and then we are expecting kind of a normal seasonal pop in the Solutions business. Clearly last Q4 was a much larger than normal increase, we are not expecting to see that kind of increase this Q4.

Is that Solutions pop visible.

When you say in visible, whatever we are going to do in Q4 in solution is pretty much in backlog at the end of Q3.

Right, that was my question. Thanks a lot, appreciate it.

The next question comes from Scott Davis of Barclays, please proceed your line is open.

Hi. Good morning, guys.

Good morning, Scott.

You referenced, Keith, you mentioned project delays in 3Q increasing, are there any common themes behind that, for example, I don't think we have seen decline really in process per say from any of the other guys, is it auto, is hybrid, anything you can kind of glean from that?

I don't believe there is any one common theme there. If you look at what is happening it is a little bit more regional in nature in the U.S. We are seeing some project, really front log push out, particularly in paper and metals. The ongoing small project business is good in the U.S.

A little different there in the fact that is it really the front log push out that we are seeing. Probably where the most significant changes are occurring, and all of this is based upon our expectations in particular in Asia, we were expecting to see some acceleration of projects in the second half of the year and that is not occurring. So we are seeing both backlog and front log push outs in projects in Asia.

We associate a lot of the that with just the market conditions, macro economic conditions, mainly in China and India, and liquidity issues in both of those countries as well. In particular in China, we weren't expecting anything in India, but in China we thought we would see that acceleration and in fact we have not from our expectation it has been lower, even though we had growth in China.

In Latin America probably the biggest impact is what we are seeing in Brazil, and that is not so much in the large projects such as the oil and gas and the mining projects, which tend to be very long term investment and those don't really move very much at the end of the day, it is more the shorter term project particularly in Brazil where they are struggling with the high interest rates and also the currency that is making some of their exporting, manufacturing less competitive. That tends to be a little bit of color around what we are seeing in the project delays as we go forward here.

That is helpful. Keith, as a follow-up, when you think about the up coming election, are you customers, particularly in the States, talking about the election as a catalyst to delay projects and just wait and see what policy is going to be, is that any impact there that you see as tangible?

It is hard to say what is tangible there. I think all of us know, the uncertainty that is existing at this point time, with what will occur at the end of the year or the start of the year particularly in the U.S. doesn't create a lot of the confidence for investment.

And as I said I don't think we have any anything tangible, but we do hear that uncertainty is causing a little more cautiousness in their outlook and therefore, in their spending partners and commitment patterns. So I think it is having at least some psychological impact at this point time. As people start preparing for the end of the year or the start of the year we will be weighing on their investment decision.

Makes sense thanks guys.

Thank you.

Next question comes from the line of Mr. Nigel Coe with Morgan Stanley. Please go ahead, you're line is open.

Thanks, good morning. Keith you talked about some mixes occurring from EMEA can you elaborate on that, please?

Yes. We talked about a different mix between last quarter and this quarter, which improved some of the margins and that was really some less growth in our Motion business, which is related more to some of the OEM, and in particular, some of the OEM's in Europe, which are slowing, and likewise associated with OEM some of our safety components businesses slowed for that same reason they are very tightly connected together at the OEM segment, so that was the mix comment I think Ted referred to in his commentary.

When you look at 4Q and beyond, I realize the visibility is quite low, anything on the mix side you want to highlight some.

No, I think from our perspective, at least in Q4, we would expect to see a reasonable, consistent mix and I guess you are referring to just ANS, we do expect Logix to probably grow about the average in the segment because we believe motion will still be a little slower particularly with what we are seeing with respect to the German OEM machinery exportation and what is going on in Italy, I think we are expecting to see a similar mix content in Q4 that we saw in Q3.

For ANS. If we take it at a macro level, a Company level, we are obviously expecting Solutions to be a higher content in our Q4 and as Ted mentioned, that is it the predominant growth in the quarter will come from Solutions businesses that are already in backlog.

You mentioned (inaudible) caused partially by the election in the U.S. (inaudible) in the channel that you are starting to see more careful management of the entries?

No, In the U.S. in particular, and North American in particular, we have very good visibility in the channel on behaviors and we are not seeing any deviation in what we would expect for the normal volume levels that are occurring and we continue to see appropriate, both levels and behavior in the channel.

Great thank you.

Thank you.

The next question comes from the line of Mark Douglass with Longbow Research. Please proceed, your line is open.

Good morning, everyone.

Good morning, Mark.

Can you highlight what Logix growth was in for the quarter, and what you are expecting for the full year in Logix.

Yes, Logix organic growth was 3%, about the same as ANS organic growth for the full year, we would expect to see high single-digit growth from Logix.

Okay. Looking ahead, with the growing uncertainty, I assume you are at least thinking about any possible measures as far as cost controls, is it too soon for you to be thinking about that and maybe into 2013.

Sure. First we are operating the business in a manner that is consistent with the guidance, which is basically we are entering a slower growth environment. With the limited visibility, as you have said, but given the current trends, we do have all of our businesses and functions looking at what type of contingency plans they can put in place in the event market conditions get worse, at this point we are still operating the business as we are moving into a slower growth period and we still want to make prudent decisions based on balancing financial performance with longer term growth opportunities. So at this point we are making sure that we are doing what is prudent, which is to look at the opportunities and we really want to watch what is going in Q4 here get a better picture of what to anticipate in fiscal year 13.

Okay. You haven't throttled anything back quite yet?

No, obviously we slowed spending, just like the growth rates.

Okay.

Quite candidly, that is part of the reasons we have been able to have a reasonable margin performance this year with the decline in revenue, I should say the reduction in revenue growth, so yes we are slowing our spending and we are not spending at the level we had in the plan currently.

Okay. Thank you.

Thank you.

Thank you. The next question comes from Mr. Rich Kwas with Wells Fargo. Please proceed, your line is open.

Good morning.

Good morning, Rich.

Following up on an earlier question regarding regional trends with project push outs, what's going on in Europe, what are you seeing there, you mentioned some other regions, curious to see what you're seeing in Europe, if it's taking a decent step back, what the color is there?

In Europe we are actually very pleased with the organic growth, it is 3%, but the fact that we are still growing in a very, very tough environment is very encouraging for us and we are very pleased with the team's work there to make this happen. We are seeing the slow down in Western Europe. Some of countries are seeing a much more difficult environment as you would expect, southern Europe is tougher than it was in the earlier part of the year. We are seeing the growth in emerging Europe, and we see projects continuing to be moving forward.

There is not really a slow down with respect to particularly oil and gas has been very strong and also some of the metals market in the Middle East continue to be strong, and once again, these are generally large projects that don't get moved simply because of a short term issue. They tend to be longer term, decade type investments, and they tend to continue to move forward and we haven't seen any delay in that. In Europe, more of it has been in some of the consumer industry, auto, as all of you know is struggling more in Europe with the over capacity. I have seen recent articles with the taking off-line of some of their capacity. So we are seeing a little bit of a slow down there.

But Europe and automotive is not as strong for us, as any other region in the world. So it is probable less of an impact to us. Along that line, tire goes pretty close with automotive. We are seeing slow downs there. Which does impact some of the OEM activity in Europe and then Food and Beverage, the Consumer Product areas are starting to see more slow down and push out of projects that is kind of what we are seeing in the European front.

Okay. Just a couple of housekeeping, on the Logix comment, is that high single-digit growth rate organic or total, and what was the Solutions book to bill for the end of the quarter?

The Logix growth is an organic growth rate and the book to bill was one for the quarter.

Okay. Thanks so much.

Your welcome, thank you.

Thank you the next question comes from the line of Jeff Sprague with Vertical Research. Please go ahead, your line is open.

Thank you. Good morning, folks.

Good morning, Jeff.

Just a couple follow up thoughts, your comment about operating as if you are in a slow growth environment was clear, I also wonder if you would put that in context to your prior level thought that a normal cycle might have two more years to go. Clearly, this one doesn't feel as normal, I was just wondering if you could draw some parallels to prior periods if you, in fact, see any parallels and the way your business and/or customers are acting relative to what you may have seen in the past?

First of all, as I'm sure you have been thinking and understand is, none of these ever are the same, but certainly for us this feels more like a pause and a slowing of growth as opposed to a fundamental downturn at this point in time. So obviously, the most recent memory we have is back in 2008, I think there is some meaningful difference than what we saw at that point in time. For example back in 2008, at least in the U.S., we had two major car companies on the verge of bankruptcy. We had a very strong bubble in the housing sector and getting close to, but not yet in the financial crisis that occurred later in the fall.

And at this point and today we don't see any of those, and more importantly, most companies balance sheet are very strong so they have an ability to think ease your ride through a slow down and yet continue to spend in the appropriate areas that makes sense. So we really aren't, at this point, seeing similarities to 2008 other than what we talked about a little earlier, which is that there are some project delays while a lot of that is normal, we did see a little push up of that in our third quarter, but certainly given the macro and political environment at this point we just feel that is just a normal course of action we would expect companies to be taking.

We are obviously very focused on Q4 to get a better read of what is occurring and that's one of the reasons we want to be careful of our spending at this point in time. But we are still expecting growth, and we are expecting the cycle will continue, although we don't know the shape of it at this point in time.

Just following along on that, were the trends in June similar to what you saw throughout the quarter, or was there meaningful change in June and early July?

No, there wasn't really a meaningful change. We had a very strong March, as you remember from the last call, so April was a little weaker because of that. But the business progressed at an increasing rate through the quarter, unfortunately not at the rate we had anticipated at the last call. We saw continued growth through June, and certainly what we are seeing in July is consistent with what we have outlined in the guidance so.

So really no fund mental change other than the going of growth, particularly in some of the key emerging markets that we didn't anticipate. We talked about China accelerating, we are not seeing anything unique in India that we didn't expect. China, not as fast of growth and recovery. And Brazil in a worse situation than we certainly would have anticipated in the previous quarters. Other than those areas, in general, just as slowing and just the rate of increase was different than we anticipated at the start of the quarter.

One other real quick one and then I will get off. Kind of the okay performance in Europe as you put it, descent given the backdrop, do you think that in any way reflects your OEM machine builders beginning to benefit from a Euro weakness standpoint?

No, I think it is definitely the OEM where our success is, and why we believe we are out performing, and it is not so much because of the currency that doesn't cause a reaction as quick in the market place as just the change of the rates in one quarter. There is a selling cycle, there is a build cycle that has to come in to play and an order cycle that comes into that as well. We wouldn't see that quick of a reaction.

We believe the performance in Europe is really because what we have done in the last couple of years to build and to focus on OEM and in particular the success we see is driven less by the currency and more by the strength of exporting OEM's and certainly if you look at the performance of the machinery builders in Europe. The domestic market is very week. What has been supporting the industry in the last couple of quarters is exporting and exporting to the U.S.

and exporting to Latin America, with a somewhat decline the export with Asia and particularly China and the domestic market has weakened. So it has played to our strength, and more importantly played to the areas we have focus on over the last couple of years. We believe that's been on of the areas that we have been able to create share gain and one of the reasons why we have been able to grow in a very, very difficult economy there.

Great, thanks for the color.

You are welcome.

The next question comes from Stephen Whitaker with Sanford Bernstein. Please proceed.

Good morning. Quick question on the margins, on the incrementals, to what extent did price and cost contribute to the incremental performance. I know you talked about organic growth, I sort of think about separating price cost, versus productivity, versus leverage on a fix cost base.

Price was positive in the quarter and I would say, year-to-date we are pretty much on track to hit our expectation of about 1 point, cost is probably running a little bit favorable year-to-date and increasingly favorable as we proceed through the year. Some of that we expected at the beginning of the year. It really reflects some easing of commodity cost. I would say price cost performance in total is about neutral for us against the guidance we talked about last quarter.

Ok, and do you expect that to continue for the fourth quarter.

We do.

And then maybe just stepping back a little bit here, I know you are waiting for fourth quarter results to give you more certainty on how to proceed. But if you think about should you continue to see global deceleration and you think about the play book this time versus 2009 when you were down something like 19% or 20% organically and EBIT or operating profit was down more than 60%, how do you think about that, not that bad, but should we start to see that if further deceleration and you think about that margin versus what should investors expect that is different this time in terms of how you manage that trade off.

Well I don't think you should expect any difference. We definitely understand the need to respond to the short term environment that we are operating in. On the other hand, we also understand that as a technology company we need to continue to make investments, particularly in our core platforms and our customer basing resources.

While we may not add there we certainly want to maintain at a very meaningful level the investments that we are making, particularly in emerging markets where we have to build our capabilities and certainly in the core technologies that our customers are counting on more importantly that's what gives us the competitive edge. And quite frankly, it's one of the reason we came out of the last downturn as strong as we did. We want to make sure we continue to maintain the proper investment levels and deal with the current economic situation appropriately, but not at the expense of prolonging the recovery and the benefits of new products and new customers in the up turn.

And quit frankly we never experienced the speed and depth of the decline we saw in 2009 the decremental that you talked about were probably much higher than I guess I would call normal although as I said earlier to one of the questions, I don't know if there is a normal anymore. We certainly are not expecting or anticipating or even thinking we are in that type of situation currently.

Okay. Maybe just a follow-up to the Logix growth point. You talked about 3%, how does that compare to your expectation in penetration and share gain given the broader market challenges. Is it on pace and trajectory, are you still tracking more than $1 billion this year?

Yes we believe that organically we will be, at least what is baked into the forecast and guidance we just gave you, we would expect to be slightly over $1 billion in Logix for the fiscal year. We are still there on an organic basis, and we are growing that business at the rates in some of the markets where we can get information, we believe we are out performing the underlying markets and that is certainly something that we pay very close attention to.

As you know, we have introduced a number of new products this year, it is still very early in those introductions, we are very pleased with the expansion of the platform and certainly look to that to be a help not just in the fourth quarter, but certainly as we go into fiscal 2013, that is part of the investments I talked about earlier that are important that we continue to make.

Just to follow that, you are not seeing a major accelerated competitive response anymore to Logix. You are not seeing anything picking up on competition?

No. I think the competitive environment stays pretty much the same. And we think with the ongoing investment that we expect to continue to stay ahead of any of our competitors, just to remind you when I talk about the 3% this year we had greater than 30% Logix growth in Q3 last year. It was a tough comp but 3% is still not what we expected quit frankly even with what we planned even in a tough comp environment it was very, very difficult comp on a quarter-over-quarter basis.

Okay. Thank you.

Your welcome. Thank you.

Your next question comes from Richard Eastman with Robert W. Baird, please proceed.

Could you just speak to, you mentioned a book to bill in Solutions was one. I'm curious how were the bookings on the Process side of Solutions? Is process a big piece of Solutions and is the momentum there continuing?

Yes. We don't have a specific breakdown in the book to bill on Process versus others. We certainly in general see a continued growth in the Process applications and areas that we work in. We see growth across the regions, and as I just said the Process continues to grow above the Company average, and we are not seeing anything in the front log or order trends that would indicate that Process would not continue to be a higher rate of growth piece of our Solutions business.

Okay. And then just a question, when we look at the sequential growth from Q2 to Q3 and you have addressed this, that things slowed down or maybe didn't quite hit the expectation to reaccelerating in some markets, on the ANS side it would seem that the below normal seasonal growth would be a function of Brazil as you mention and also Europe OEM machine builders. On the CPNS side, the below seasonal growth, is that largely a function of Solutions in China, is that where we are seeing the push out or defers.

I think yes. And in addition to that, Solutions would be in Latin America. So it would be Latin America and emerging Asia, in particular China, would be the two largest areas that would drive your Q2 to Q3 comments.

I see. Thank you.

Thank you, Rich.

The next question comes from Mr. Shannon O'Callaghan with Nomura Securities. Please proceed.

Good morning.

Good morning, Shannon.

On the 7% organic growth in the quarter, can you maybe give us a little flavor on how that broke down by verticals, which were above and below. And then thinking into some slowing in 4Q, any particular ones that you think will be the drivers of slow down?

In the quarter the best performing verticals, best performing would be above Rockwell Automation average would be automotive, oil and gas, metals and mining. If you look at the ones that would be at about our average the verticals would be tire, life sciences, and if you look at the one that probably grew below the Rockwell average consumer industries on a global basis. As far as the outlook, we would expect transportation, in particular auto, to continue to be a healthy grower and we like the front log we see in transportation, in particular automotive, we see it across many regions with the expectation of EMEA.

Heavy industry there we would expect to see some performance flattening. We think oil and gas will maintain the strength it has, but as I mentioned earlier we are seeing some forward sentiment in metals and mining that appears to be more cautious now than it has previously, although we don't see that as a big impact in Q4. Then the consumer is basically flat, we think the spending there is really focus on emerging markets and then process optimization in some of the mature markets, that is a little bit of feel are it the forward looking picture on our verticals.

Okay. That is great. On China, it continue to actually get a little better just not as much as you thought. In terms of thinking about what fell a little short, any particular areas there, and in your comment you expected it to improve just not in your fiscal fourth quarter, any evidence of your front log visibility into that, or is it more of a macro comment on China stimulus?

It is a macro comment not just on the stimulus but the work they are doing to ease interest rates for lending so we expect a liquidity situation to get better as well as the stimulus, I think as far as where were the areas that we saw the softness, I think for the quarter it was really in a couple of activities and the most important was probably the stimulus did not ramp up as fast as we expected particularly in some of the municipal projects they tend to go to quickly to drive investment and improve spending.

In the other area was simply the liquidity issue of many small, midsize customer, distributor it was tough for them to get money, I think that was the cause of some project delays that impacted us in China. It was the small and midsize company, and then projects a little bit associated with slow implementation of the stimulus that got announced earlier in the year.

Great, thanks a lot.

Thank you.

Ok, Sonja, we are reaching the end of our time. I think we have time for one more caller.

Thank you, our next question comes from Winnie Clarke with UBS, please proceed.

Good morning.

Good morning, Winnie.

So on the purchases, you purchased 1.6 million shares in the quarter, I think that puts you a little under 2 million for the year, or actually potentially a little bit over, you previously indicated you expect to repurchase 3 million for the year. How should we think of the pace of purchases going forward, is that still your guidance or pickup purchases in the fourth quarter.

I think the easiest answer is yes. For the end of June we are about 2.3 million shares repurchased. I would say on track to hit the 3 million we talked about last quarter.

You don't think you will be above that 3 million, that's probably just on track.

We never in the quarter talk about what we might repurchase in the quarter.

Okay, fair enough. If you think about being in a slower growth economy, how should we think about the growth potential of the automation market and for the Rockwell specifically in that type of environment.

We certainly believe that automation out grows the underlying market, we don't believe that is any different in the slowing economy. Certainly we believe there is more emphasis on productivity and cost reduction in a slow economy than there obviously is in expansion. We have been very successful both the U.S. and western Europe, two mature markets that required ongoing costs of reduction, ongoing productivity improvements, as well as ongoing regulatory compliance. We think safety, we think compliance, we think cost reduction and productivity plays very well in a slowing economy.

And certainly we think emerging markets is where we will again see ongoing spending for capacity expansion, and new investments, and new capacity simply because of the ongoing expansion of the economy, as well of the growing middle class and disposable income and certainly we look at historically 06 to 08 period, we still grew at an average of 7.5%. We believe we can out grow the market if it is a slower growth environment. We still expect to be able to grow at a faster pace and quite candidly that is one of the beauties of the automation market is it is an area and industry that companies need what we do, not just in good times but in bad times as well. We think we are very well positioned with the portfolio of product solutions to support customers across the business cycle.

Okay. Thanks so much.

Thank you, Winnie.

That concludes today's call Sonja, I think. I just want to thank everyone for joining us and we will sign off.

Thank you. That concludes your conference call today. At this time you may disconnect.