洛克威爾自動化 (ROK) 2016 Q2 法說會逐字稿

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 Patrick Goris, Vice President of Investor Relations. Mr. Goris, please go ahead.

Good morning. Thank you for joining us for Rockwell Automation's second-quarter FY16 earnings release conference call. With me today are Keith Nosbusch, our Chairman and CEO and Ted Crandall, our CFO. Our results were released 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 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'll hand the call over to Keith.

Thanks, Patrick. Good morning, everyone. Thank you for joining us on the call today. I suspect by now that you have read the press release that was issued last week, Tuesday. I will be stepping down from the role of President and CEO of Rockwell Automation on June 30 and effective July 1, Blake Moret will succeed me and become President and CEO of the Company. I will remain Chairman of the Board.

Blake has been with the Company for over 30 years and has gathered a wealth of experience across the organization including, sales management, business management positions in both segments and international assignments. He brings a strong customer focus, as well as a deep understanding of our values, people and technology. He has proven himself to be an exceptional leader with demonstrated readiness to lead the Company. Blake is the ideal executive to move our Company forward. I know many of you have had the opportunity to meet Blake over the last few years. In the coming months, we will find opportunities for Blake to meet with investors in his new role.

With that, I'll start with some key points for the quarter. So, please turn to Page 3 in the slide deck. The quarter generally played out as we expected with organic sales down about 3.5%, heavy industry end markets remained very weak globally led by oil and gas and mining. Oil and gas was down a little over 20% in the quarter, in line with our expectations. Consumer and auto verticals saw low to mid single-digit growth. In the US, oil and gas, again, was the weakest vertical. The US is the region where we have seen the largest decline in oil and gas. Food and beverage was one of the stronger verticals. Automotive was flat.

In China, strong growth in automotive was more than offset by continued weakness in heavy industries and tire. Sales in China were down a little over 10% year-over-year. Clearly, the US and China remain our most challenging geographies. However, sales in both the US and China increased modestly compared to last quarter. EMEA was about flat in the quarter, but built backlog. We expect to return to low single-digit growth for the balance of the year. Home and personal care and life sciences remained the strongest verticals in this region. I am pleased with continued strength in Latin America, led by Mexico.

Let me add another couple of points on the quarter. Weak heavy industries continued to affect our process business, which was down high teens in the quarter. Logix sales declined over 5% in the quarter, reflecting the weakness in process industries. Segment margin was 19.3% in the quarter. This is a bit lower than we expected; however, I was pleased that the control products and solutions segment maintained its margin despite lower sales. Ted will elaborate more on Q2 financial performance, including our segment margins in his results -- in his remarks.

Let me add a couple of brief comments about our first half before moving on to our outlook for the fiscal year. Organic sales declined 3.5%. Heavy industry verticals were down globally. Growth in Latin America and EMEA was offset by declines in the US and China. I am pleased that we have been able to keep segment margins at 20%, despite 8% lower sales. We are very proud to have received the Ethisphere award for the eighth time, naming us as one of the world's most ethical companies. This recognition is a testament to our strong culture of integrity.

Let's move on to what I expect for the balance of FY16. With respect to macroeconomic indicators, the most recent industrial production forecast called for lower economic growth in 2016 than previously estimated, but continued to indicate some modest improvement for the second half of our fiscal year. Also, since we provided guidance in January, oil and commodity prices seemed to have stabilized. Another welcome change is the stability and modest weakening of the US dollar since January.

As we mentioned last quarter, the strong US dollar has adversely impacted US-based producers and equipment builders. So given that the macro environment has remained relatively stable, we believe that our performance in the balance of the year will be in line with what we projected in January: modest, sequential improvement, but no year-over-year growth. Globally, we expect heavy industries to remain weak, with some continued growth in the consumer and automotive verticals.

The US and China will remain our weakest geographies. We expect continued growth in EMEA and believe Latin America will remain our fastest growth region for the year. Taking all these factors into consideration and with two quarters to go, we are narrowing our FY16 organic sales guidance range to down 1.5% to 4.5%, no change to the midpoint. We continue to expect FY16 sales of about $5.9 billion and are narrowing the EPS guidance range to $5.75 to $6.15. Ted will provide more detail around sales and earnings guidance in his remarks.

Before I turn it over to Ted, let me add a few closing comments. As I travel and meet with customers and partners around the world, I am confident that our vision of the connected enterprise is coming to life. Early adoption of our new technology is promising and customers realize that our new high-performance architecture optimizes their business performance and makes them more globally competitive.

Whether our customer is focused on expansion or productivity, CapEx or OpEx, our technology is equally relevant. Innovation, new product development and domain expertise are the lifeblood of our Company. We continue to invest to enhance our differentiation. I am very excited about the connected enterprise and could not be more confident about the future success of Rockwell Automation. With that, let me turn it over to Ted.

Thank you, Keith. Good morning, everyone. I'll begin my comments on Page 4, second-quarter key financial information. Sales in the quarter were $1.44 billion, down 7.1% compared to Q2 last year. On an organic basis, sales declined 3.6%. That's similar to the organic decline that we saw in Q1. Currency translation reduced sales in the quarter by 3.5%. This quarter we lapped some of the larger currency rate differences.

Segment operating margin was 19.3%, down 2.3 points from Q2 last year, primarily due to lower sales, some unfavorable mix, primarily in the architecture and software segment and a negative impact from currency. General corporate net expense was $20 million in Q2, compared to $21 million a year ago. Adjusted earnings per share was $1.37, down $0.22 or about 14% compared to the second quarter of last year. The adjusted effective tax rate in the quarter was 23.7%, compared to 26% in Q2 last year. The lower effective rate this year is primarily due to the recognition of a discrete tax item.

Free cash flow for Q2 was $203 million. Free cash flow conversion on adjusted income was 113%. Through six months, free cash flow was $348 million with related conversion on adjusted income of 92%. Our trailing four-quarter return on invested capital was 32%. A couple of items not shown on this slide, average diluted shares outstanding in the quarter were 101.3 million,(sic-see press release �131.3 million�) down over 3% compared to last year.

During the second quarter, we repurchased 1.3 million shares at a cost of approximately $127 million. Through the first six months, we repurchased 2.5 million shares at a cost of approximately $248 million. In November, we projected repurchases for the full year totaling $500 million, we're on that pace. At the end of March, we had $197 million remaining on our then existing share repurchase authorization. On April 4, our Board of Directors approved an additional $1 billion share repurchase authorization.

The next two slides present the sales and operating margin performance of each segment for the second quarter and year to date. Page 5 is the architecture and software segment. I'll focus my comments on the quarter. Beginning on the left side of the chart, architecture and software segment sales were $630 million in Q2, down 6.6% compared to Q2 last year. The organic sales decline was 3.3% and currency translation also reduced sales by 3.3%.

Moving to the right side of the chart, on the lower sales volume, A&S margins were 24.6%, down 5.2 points from Q2 last year. The year-over-year decline is primarily due to lower sales volume, negative currency effects, some mix headwinds with the segment and increased spending. The margin result was about 1 point worse than we expected in the quarter. On a year-over-year basis, the largest unfavorable mix factor is related to a larger decline in the controller and software businesses, compared to the balance of the segment. The controller and software businesses are the highest margin business within this high-margin segment.

As expected, spending is also up modestly year-over-year in architecture and software despite sales being down. The spending increase is primarily related to new product development. We remain committed to investment in key technologies even in these more difficult market conditions. We expect to see continued mixed headwind in the architecture and software segment over the balance of the year. However, we expect some sequential sales growth into the second half and consequently expect Q2 to be our lowest margin quarter this year in this segment.

Moving to page 6, the control products and solutions segment. In the second quarter, control products and solutions sales were $811 million, down 7.5% year-over-year and down 3.9% on an organic basis. Currency translation reduced sales by 3.6%. Sales in the product businesses and the solutions and service businesses within the segment where each down about 4% organically. The book-to-bill in Q2 for solutions and services was 0.98. That's weaker than we expected and reflects continued weakness in heavy industries. The control products and solutions segment continued to deliver very good operating margin at 15.2% in Q2, flat to Q2 last year, despite the lower sales.

Turning to page 7, this provides a geographic breakdown of our sales and shows the year-over-year organic growth results for the quarter and year to date. Keith covered the quarter in his comments and the year-to-date performance pretty much mirrors the second quarter, so I'll move to the next slide. That takes us to guidance. As Keith mentioned, there are a couple of adjustments to the guidance. We've narrowed the range for both organic sales and adjusted EPS; that's pretty typical for us to do at this point in the year.

For organic growth, the midpoint remains at minus 3%, but the new range is minus 1.5% to minus 4.5%. For currency translation, due to a recent weakening of the US dollar compared to several currencies, we now expect currency translation to reduced sales by about 3%, rather than about 4% in the previous guidance. That takes us back to the level of the original November guidance. We still expect reported sales to be about $5.9 billion, with the improvement in currency translation, we went from a little below that number to a little above that number.

Regarding segment operating margin, we now expect that to be a little lower than 20.5%. We continue to expect an adjusted effective tax rate of about 25%. We're narrowing adjusted EPS guidance to a range of $5.75 to $6.15 with the same $5.95 midpoint. We continue to expect to convert about 100% of adjusted income to free cash flow. There are a couple of items not shown here. We continue to expect general corporate net expense to be approximately $75 million for the full year. We expect average diluted shares outstanding to be about 131 million for the full year. So with that, I'll turn it back over to Patrick to begin the Q&A session.

Before we start the Q&A, I just want to say that we'd like to get to as many of you as possible, so please limit yourself to one question and a quick follow-up. Thank you. Operator, let's take our first question.

(Operator Instructions)

John Inch, Deutsche Bank.

Keith, congratulations an incredible career. Blake, congratulations.

Thanks.

You're welcome. Let me start with Apple missing, consumer electronics is weak. 3M called this out yesterday. Can you just remind us what kind of exposures you have to these verticals? Do they present some sort of an incremental headwind over the course of the coming quarters?

No. We don't have much exposure to the consumer electronics space. That is not one of the key areas. We do a little bit in the semiconductor industry that feeds the market. But, those markets are much larger than just one dimension. So, we don't see that as any change or any impact to our current business or our outlook for the rest of the year.

Keith, 3M called out improvement in Europe, yesterday. I realize you don't have a large presence there but you guys have been gaining ground in recent years. Are you seeing similar sort of trend, as the quarter progressed and based on what you are seeing in April?

Yes. I think that's why we said we had -- we built backlog last quarter and we expect growth for the full year -- the remainder of the year. We had a very good first quarter in Europe. So, I would say that we are seeing improvement there. It's been driven from both emerging Europe and then, specific countries in mature Western Europe, particularly now that the South has come back a little better, strength in Italy, particularly in some of the home and personal care OEM segment. France has turned positive, as well as Spain. So, we do see that improvement. But, it is also modest growth, at this point.

Okay. Then maybe just one for Ted. If I remember how you kind of laid out -- Rockwell had laid out its framework of expectation for 2016, Ted, you had the option of doing $10 million of extra restructuring. I think you said $10 million was a placeholder, you were doing $20 million. You had this option of doing $10 million depending on the cadence of the economy. Could you just remind us if I have those numbers right? What is now baked into your thinking and the numbers going forward?

Yes. You do have the numbers right. What we said, I think this was back in November, is in a typical year, we generally spend about $10 million on restructuring. We believe we will spend that this year. I would say through the first half, we are on pace to do that. We said we had an additional provision for an extra $10 million if we saw conditions deteriorating to an extent that we believed required some further restructuring actions. So, that remains the case.

In other words -- you are right, but we are already in the third quarter. It sounds like you're not really planning to spend it?

Well, we'll see. If you remember correctly, looking back, oftentimes, we've taken some larger charges at the end of the year if we thought that was necessary to set us up for the expectations for the coming year. There's no way to predict, at this point, whether that will be the case. But, if it is, we've got the provision.

Yes. Okay. I've got it. Thanks very much.

You're welcome, John.

Steve Tusa, JPMorgan.

Keith, congratulations on the announcement. It's been a heck of a run and one of the best we've seen in our group over the last 15 years. Through all the downturns and everything, you did a fantastic job and deserve all the kudos. So, congratulations.

Well we have a great team but I appreciate the kind words.

Can you just talk about what you are seeing out there in auto? Broadly, what your expectations are for the rest of the year there? Just remind us, I think you said it was kind of low single-digit in the quarter?

I don't think we said that in the quarter. But, we do expect auto to grow in the second half of the year. Consumer and auto would be the two areas that we anticipate above the Company average and positive growth. The specific question on auto for the quarter, was that it was up 3%. I don't think I said that but, that was the number. So, it was one of the offsets to some of our heavy industry declines, if you will. What we're seeing in auto, is continued high levels of investment. There is a lot of platform investment that is going on.

We also see continued investment in Mexico, by many of the US and European and Asian auto producers. We're seeing continued strength in China in the core automotive companies that we deal with. There are still many French companies that are struggling. Western Europe still is very slow, not a lot of growth there. Brazil, given the recession, it has been a difficult market. We are seeing declines and projects being put on hold in Brazil.

I think the other piece to the question, is probably you are thinking is powertrain? We continue to see improvements in powertrain. We are winning more projects. We have increased the commitment in powertrain, over the last 12 to 18 months. We still see that as a good opportunity for us going forward. That's an area that we believe there will be ongoing investment and a place where will be able to grow share. So, that's pretty much the color around auto.

Then just a follow-up, anything you are seeing competitively, out there, from a pricing perspective? Then one just quick follow-up on that. Pentair talked about some of the beverage companies merging and they are delaying projects. Are you seeing anything like that? I mean, your food and bev business has been pretty good. So, those would be the other two. Thanks a lot. Okay. Let me answer the last one, first. We're not seeing any impact in the beverage industry with the consolidations that are going on. We continue to have projects, particularly with some of the key brewing companies and have had some recent wins there. So, we're obviously, watching that. But, many times, we are a supplier to both sides of that activity. So, we tend to be able to work that in the interim as opposed to when we are not on one side or the other. They're going to make some other decisions. That's the characterization, there. With respect to China -- Price. Price and competitive behavior out there.

(laughter) Yes. China is what I was going to say about price.

Got it. (laughter)

But thank you for throwing that in. Price, I would say it continues to be a topic in our conversations with customers. We haven't seen a significant impact, other than China has become even more aggressive in pricing than we had seen previously. We're seeing that in some of the infrastructure projects and some of the SOE's that operate in some of the major industries. We still expect pricing to be less than 1 point, globally, for us this year, probably a little lower than last year.

Yes. But, Steve, I would say our price realization in Q2 looked very similar to price realization in Q1.

Okay. Still flat for the year-ish?

I think, I suspect for the full year, we are going to be less than 1 point.

Okay. Great. Thanks a lot, guys. Congrats again, Keith.

Thanks, Steve.

Nigel Coe, Morgan Stanley.

I want to echo the congratulations to Blake and Keith. Quite a career, congratulations.

Thank you.

Okay. Just on the mix in A&S -- you called out controller and software. I'm a little bit surprised because I think my understanding is that food and beverage and auto are very rich for controllers and software. I understand the process might be the reason for the software mix. But, maybe just add some color there? Why you expect that to remain weak going through the back half of the year?

Yes. I think in the past, generally we've talked about mix and it has been about product businesses versus solutions and services. But within the architecture and software segment, our controller and software businesses have a pretty balanced exposure across heavy industry, auto and consumer that is pretty similar to the overall company average, in terms of the exposure. The balance of the architecture and software segment and particularly, our motion controls, sensing and safety businesses, are much more auto and consumer centric.

So with the significant decline we're seeing in heavy industry and with our process business down 18% year-over-year in Q2 and with auto and consumer showing modest growth, the bigger declines in the segment are coming in the controller and software businesses. So, that is principally what is causing that mix issue. I would say, in that regard, look, there's always going to be some normal variability in mix on a quarterly basis.

Of course. Yes, I was just more the second half visibility. Then, maybe Ted, as well, the way the quarter panned out, we've seen a lot of commentary in past quarters, not necessarily to Rockwell, but from other companies about stable trends but then are weakening in the last month. Do you see any variability through the quarter? Maybe, just add some color in terms of what you see as we go into April?

Yes. I would say, it's pretty typical for us for sales to build as we move through the quarter. That's what we saw in Q2. So we didn't see any weakening in March.

Okay. Normal seasonality basically?

Yes.

Yes, okay. Great. Thanks, guys.

Thank you.

Jeff Sprague, Vertical Research.

Sorry, if you covered this. Just jumped on late. But how do you see people behaving on price, particularly in the oil patch? Is there any discernible negative trend that's developed, there?

Jeff, we had a previous question on this that Keith answered. Our price realization through the first half has been pretty much as we expected. We haven't seen any significant change in pricing dynamics as a consequence of currency. I would say up to this point, we haven't seen any significant change in pricing levels in oil and gas compared to where we were last year.

Great. Thank you.

You're welcome, Jeff.

Rich Kwas, Wells Fargo Securities.

This is Deepa Raghavan for Rich Kwas. Congratulations, Keith. Question for me is, you mentioned in the release you see growth opportunities for the balance of the year. Could you please give us your thoughts on where you see those pockets of strength? Either in terms of verticals and geographies and if any of your geographical revenue expectations have changed since the last call?

Yes. I think the easiest way to think about this might be, we expect some sequential growth in the second half of the year, that's reasonably in line with normal seasonal patterns for us.

Okay.

Basically that means we end up having a stronger Q4, as the normal seasonal pattern. With respect to where we are expecting this, we expect that the consumer and auto industries will be the best growth areas for us and that heavy industries, in particular, oil and gas and mining, will be the weakest areas. That's the way we would characterize it. I would say, not a meaningful difference from what we have been seeing up to this point in time for the year. So, that part has stayed pretty consistent. But, yet, we are expecting some sequential growth -- modest sequential growth in the second half.

As a follow-up, process around the world, is that getting incrementally worse, better, or is it the same as you would have expected? Just curious, what should happen for us to start to see growth in Logix, especially? What drivers or the material for it? Is it profitable growth? Stabilized -- oil prices seems to have stabilized. Is there a particular oil price level that you should be looking for or any other drivers that would help see an inflection in Logix?

First off, from the process standpoint, process was a little worse than we expected in the quarter. Oil and gas was what we expected but the other heavy industries, particularly mining and metals, was a little worse. That's what triggered the decline. We also believe that -- your comment about Logix, two points to make. We do expect Logix to be a little bit below the A&S average, as Ted outlined earlier. Why that shift is occurring, it's really because of the end market performance with the other areas within the A&S segment.

I would say the opportunities to continue to see growth will be the expansion of our footprint in the OEM sector, mainly because of some of the new introductions of Compact Logix and the capabilities of integrated motion and safety in that platform. We believe that will allow us to create more opportunities in that space. The other would be heavy industry, as the process starts coming back, we expect to see a better impact in performance of our ControlLogix business in that sector. Then, as we continued to build out the high-performance architecture and the connected enterprise, we see that as great growth opportunity for our hardware platforms of which Logix would be front and center there.

Okay. Thanks. Are you expecting process to improve in 2017? Is that -- obviously, you have easy comps going into 2017. But is there any other expectation behind that?

No, for 2017, that is a little early for us to be going there with all of you knowing the visibility we have. So, we'll give our 2017 guidance in the November call. But, we do expect that process in FY16 will be down in the mid teens. Certainly, not a recovery expected in this fiscal year.

Thank you very much.

You're welcome. Thank you.

Scott Davis, Barclays.

Congrats, Keith. I remember you took over, I think the stock was about $20. I wasn't smart enough to recommend it at the time but, boy, it was a heck of a run that you had. I think, Blake, the stock would have to get to about $700 by the time you retire to equal your predecessor's impact on the market. Good luck with that.

(laughter) No pressure, but as a shareholder, I'm cheering him on.

No pressure at all. Good luck. Anyways, it's been a great run. So, congrats and good luck in your retirement.

I want to talk a little bit about long order books. I know it's hard and some of the other questions have touched on this a bit, but if you think about your front log or your inquiries out, call it 12 plus months on bigger projects, where guys bring you in early, have you seen any inflection there at all? Any encouragement, at all? Any folks that are now taking look at a little pick-up in commodity prices we've had and start to have a little bit more confidence to do stuff?

No. I would say, at this point, our backlog has remained relatively flat. What we are seeing is a few more quotation activity in some of those industries. Generally, at this point, we would attribute that to they have a little more time now. So, they're starting to look at future potential projects. We're involved in that, either directly with the end-user or sometimes with a system integrator or EPC. So we are seeing more of that activity. But, we aren't seeing the opportunities convert into our front log at this point in time, as of yet.

Okay. Just as a follow-on, I don't hear you guys talk much about distributor inventories. Certainly, I would imagine, just given the size of some of your distributors, you do see some trends of stock, restock that may mirror customer confidence, as such. But have you seen anything -- I don't know what your channel-view is with all your distro's -- but, have you seen any patterns of inventory changes, even in the last four or five months?

Scott, we get point-of-sale data for most of our distributors. For a very large portion of our distributors, we manage their inventory of our products electronically and do electronic replenishment. So we have pretty good visibility and it would be very good visibility of what's in the channel, particularly in a market like North America. I would say, distributor inventories have been relatively stable. They have come down over the last 18 months, consistent with the drop in the volumes. But not in excess of that. We haven't seen any evidence of overstocking.

Okay. Keith, I was just -- before I pass it on, I wanted to share a story. I remember your first presentation to The Street, back many years ago. You hadn't traded in your engineering outfit for your CEO outfit yet and you showed up with pants that were about three inches too short. I remember the guys looking at each other and saying, god, we have to take up a collection and buy this guy some new suits. (laughter) Looks can be deceiving. At first, we all thought you might have been a little bit of a nerd. But, it was a great run. So, congrats and I'll pass it on.

Thanks, Scott. I'll take that suit, anytime you got it. (laughter)

Richard Eastman, Robert W Baird.

Keith and Blake, congrats.

Thank you, Rick. Good morning.

Just a question, Keith. Latin America had another standout quarter, up almost 13% in local currency. I think you explained a lot of that by the transition by the major global autos putting production in Mexico and that benefit. But one of the things that did come up during the quarter, in February, I believe -- PEMEX basically was the last to blink on their capital spend plans but quite dramatically. So when you look for the balance -- look to the balance of your fiscal year, is that in your plan? Does that function as an offset to your growth in Latin America in the second half and into next year?

A couple of things. One, I spoke about Mexico with respect to the auto question. Our growth in Mexico is very broad-based. It includes our quite candidly heavy industries. We are growing in oil and gas. As a matter fact, the only place we have a positive growth in oil and gas is Mexico. We have mining activities there, auto is one. But we also -- there is tire investments going there supporting auto, water, wastewater, consumer. It's a very broad, diverse economy. So, I don't want to leave the impression that it was automotive driven.

We've had a phenomenal growth the last couple of quarters and the last couple of years, throughout Latin America. Mexico, now, has taken over the lead there with the issues in Brazil. But, we see a continued growth opportunity. It's going to be hard to match the first two quarters in the remainder of the year, but we still believe that Latin America will be our highest growth region, over the next two quarters. We continue to create opportunities there.

We're very hopeful that with Argentina and the change that is going on there, that we will see more positive -- matter-of-fact, that is one of the areas where we're seeing more interest in companies thinking about making investments than six to12 months ago. We are also seeing in the Andean region the need to continue to spend some money on OpEx and small productivity projects in the mining industries, obviously, because of the share prices. Because of the commodity prices there, it's important that they continue to drive costs out. So, I would say the greatest challenge remains Venezuela and Brazil. Those will be the greatest challenges in Latin America.

Okay. Then just one last follow-up question. When I look at maybe the incremental weakness in the metals and mining piece of process, and then also the book-to-bill at less than 1 in the solutions business, usually, you build backlog in Q2 for the second half. When you take those two things into consideration, the incremental weakness in those areas, are we best off shading the minus 4.5% core growth? Because, there was no change here to your guidance, essentially, on core growth.

Our outlook by vertical is at best a little bit fuzzy when we're going out nine or even six months. I think, now, as in updating our guidance for January, we think mining and metals are going to be a little bit weaker than we expected back in January. As it relates to oil and gas, we were thinking down 20% in January. We still think that is down 20% for the full year. But we now expect consumer-related industries to be a little bit better. So that's why we've maintained the overall organic growth rate for the year.

Okay. That's fine.

Rick, as relates to the 0.98, that's below what we thought it would be in the quarter. But we were thinking of a number more like 1.03, 1.04. So, it wasn't too dramatically lower.

Yes. Okay. Then obviously, we pick-up about $60 million from currency translation at the mining group.

That's correct.

Okay. Very good. Thank you.

Thanks, Rick.

Shannon O'Callaghan, UBS.

Congrats, Keith and Blake. I echo everything else that was said. I will spare you the gushing, but, congratulations. In terms of the adoption of connected enterprise you were talking about, what are customers willing to spend on in this kind of a macro environment, right now? Are you seeing them do broad-based adoption or very sort of small -- putting their toes in the water on this stuff? Give a little sense as what people are willing to do? Is that willingness improving at all?

It's kind of has a broad spectrum. It's not one approach that every customer is taking. But we now have more than 10 pilots and rollouts that are going on at chief customers in multiple industries. We are doing it in mining, in metals, in automotive, in tire, in food, home and personal care, diversified industrials, consumer, multi-industry companies. Quite candidly, in our own Rockwell Automation journey on the connected enterprise. I would say, what we're seeing customers doing, are starting to implement their journey of digitizing their enterprise.

They're willing to spend, at this point, on learning and creating value and demonstrating that value in a portion of their business. We have only one or two major -- I'll say, Company or multi-plant, multi-geography rollouts that are going on. But the majority of it is testing of the concepts, of the integration of IT and OT, that convergence. How they can also be thinking about this from reducing, improving their asset utilization on the plant floor. They're willing to spend money in that. They are also trying to think about, how does this extend more broadly into their entire supply chain.

So, that is what we're seeing at this point in time. With the introduction of the high-performance architecture and the ability to do realtime integrated control and information, that is the foundation of where they're starting to do this. It's about conversations and dialogues across multi-disciplines in their organization. So, our meetings now are with the IT organizations, the senior leadership of companies as they are trying to understand what their broader strategy should be. Of course, the automation teams where we are traditionally focused.

So, it's working with different parts of the organization. It's delivering on business outcomes, as opposed to simply the productivity from automation. That's a characterization of where we're at this point in time. It's an area that we think we'll continue to develop over the next couple of years. We'll see the pace of it increase down the road.

Are any of these big enough or far enough along to sort of qualify as signature adoptions that you can use, kind of customer testimonials, as ways to drive adoption in other customers? Or are these all like -- some of the smaller projects music? Is there enough where you're going to be able to say, hey, look at what customer X did. Look at what we were able to do for their enterprise and use this as a marketing of connected enterprise?

That's obviously the goal. But, we don't have that opportunity, now. If you remember at the investor meeting, our annual meeting at Automation Fair, the best example of that is the Rockwell Automation journey story, where we are able to quantify the benefits and we get a customer testimonial called us. But, the reality is, this is still early and in many cases, the customers are not anxious to demonstrate publicly the value that it has driven for them. That is certainly our goal as we go forward. We think we'll have some very significant examples and demonstrated outcomes that we'll be able to validate for other industries and other customers, the benefits.

Obviously, that's the goal. You hit it on the head. It's about how can you take what we are doing and translate it to the marketing front-end? That's why I mentioned the broad list of customers that we are currently working with by industry. Because, many of these are lighthouse accounts, lighthouse customers, that are viewed as market leaders. Therefore, when we can become more public with this, it'll help us demonstrate to the rest of the industry and the rest of the customer base, that there is value here.

That's great. Thanks a lot, guys.

Thank you.

Operator, we will take one more question. After that, Keith will have some closing comments before we will end the call. Thank you.

Steven Winoker, Bernstein.

Keith, obviously, congratulations. Hard to top Scott's stories back to 1974 at Allen-Bradley. So, anyway that's awesome for you. One question on that through, the split of the Chairman versus CEO role, to what extent is this just a sort of convenient timing transition versus a philosophical change in governance?

This is timing for this time. I think, our governance process is very clearly articulated, here. In that, the Board, from time to time, evaluates the combination or separate roles. They make that decision based upon the circumstances at the time. So, this is consistent with our governance processes and generally consistent with how Rockwell Automation and Rockwell have done this in previous transitions. So, nothing more to read into it.

Okay. Great. Then, Ted, on A&S, in terms of -- you talked about it a little bit in terms of the mix impact and I assume CompactLogix, motion control, et cetera. But could you maybe quantify or give us a sense for that increased spending relative to mix and currency in volume impact? Where the spending was directed and continuation of it, et cetera?

Yes. All four of the major items I mention, the volume, the mix, the currency impact, the spend, all of those on a year-over-year basis where a little over 1 point. On the spend, our spending on architecture and software is up about 4% year-over-year in the quarter. Our comparisons will get easier in the second half 1 spend. So spending them will not be up by that same percentage in the second half, but it's up about 4% in the quarter. Again, that reflects, primarily, continued investment in product development.

Okay. Assume connected enterprise type items? Or did other --

That's definitely part of it.

Yes. Okay. Thanks very much guys. I will see you soon.

Thank you.

Before Keith starts his closing comments, I just had two quick items for you. One, something that did not come up in the Q&A, was our full-year outlook for China and that often comes up on the later call. So, I wanted to let you know that we expect China for the full year to be down high single-digits to maybe 10%. The other is I got a note from a Rockwell colleague that suggested in my comments, that I misstated the full year -- the expected full-year outstanding share count. So, if that is the case, I apologize. We expect average diluted shares outstanding to be about 131 million for the full year. Thank you. Keith?

So with that last comment, let me end the call on a personal note. As you know, we have great employees, great customers and great partners. That is what makes Rockwell Automation a special Company. It has been an honor and a privilege to have been CEO for the past 12 plus years. I have met and interacted with many of you over that time. I've always appreciated your keen interest in our Company. Your coverage, questions and comments have been insightful and have helped us better understand our investors' perspectives.

I'd also like to think that we did our part to earn your confidence and trust and your investments. We have great shareowners who understand our business model and our focus on innovation, sustainable, competitive differentiation and long-term value creation. For that, I have all of you to thank. Over the next two months, I'll look forward to meeting with you at the remaining investor events. It's been a great run. We will have an even better future. Blake is the right person to lead that future. Thank you.

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

Ladies and gentlemen, you may now disconnect at this time. Have a wonderful day.